Foreign direct investment into Papua New Guinea dropped in the first quarter of 2020, according to Investment Promotion Authority figures. Meanwhile, business expresses concern over proposed changes to PNG’s investment laws.
The Investment Promotion Authority headquarters in Port Moresby.
The Investment Promotion Authority’s (IPA’s) Opportunity newsletter said that ‘there was a decline in foreign investment entry in the first quarter of 2020 as compared to that of the final quarter of 2019.’
The IPA figures indicate that total foreign direct investment (FDI) fell by more than 80 per cent. ‘Values for the final quarter of 2019 was K492.5 million while that of the first quarter, as at 27 February 2020 was K96.9 million,’ the IPA said.
According to the World Bank, in 2019 FDI into Papua New Guinea was US$335 million (K1.16 billion), a slight decrease from 2018 when it was US$338 million (K1.17 billion).
If PNG’s first quarter FDI performance continues for the rest of the year, it would equate with K387 million, a drop of about two-thirds from the 2019 level.
The amount of new employment created by FDI also fell in the first quarter of 2020.
‘With respect to the proposed jobs, a total of 2,420 jobs were recorded in the final quarter of 2019 while the first quarter as at 27th February 2020 recorded 783 jobs in total. Generally, there was a decline in the number of jobs created in the first quarter of 2020 in comparison to that of the final quarter of 2020.’
State of Emergency effect
The IPA said that there is ‘no doubt’ that the State of Emergency (SoE) had an impact on businesses.
‘Given the slowdown on businesses triggered by the pandemic, getting new investors into the country is a greater challenge.
‘The effect of the pandemic obviously affected the number of Foreign Direct Investments (FDIs) coming into Papua New Guinea. IPA’s key focus now is more towards investment retention and aftercare services.’
‘You get less foreign investment, less coming in. So overall it is a negative.’
The most FDI approvals, in both the last quarter of 2019 and the first quarter of 2020, were given to Chinese investors, followed by Australia, Malaysia and the Philippines. Singapore, China and Japan had the highest proposed FDI for the first quarter of 2020.
Reserve list changes on track
PNGCCI’s John Leahy.
The PNG government’s approach to attracting foreign investment is under review. Commerce and Industry Minister William Duma has said that there will be a new list of activities to be reserved exclusively for PNG businesses as part of the proposed changes to the IPA Act 1992. He said the new list would be presented in the last session of Parliament for 2020.
Duma noted that, as a developing country, PNG continued to ‘rely on foreign expertise to take part in some of those activities so we have to be very careful to strike our balance.’
While the country will still need some foreign investments, he said, those industries that have now ‘come of age’ in PNG will be ‘restricted indefinitely.’
Meanwhile, there are reports that Prime Minister James Marape told a recent small and medium business breakfast that foreign investors would have to provide millions of kina, to be held by the Bank of PNG, if they want to operate in PNG.
John Leahy, President of the Papua New Guinea Chamber of Commerce and Industry, told Business Advantage PNG that such a measure would not help ameliorate PNG’s foreign exchange challenges. ‘It is simply an additional cost on business having that capital tied up. You get less foreign investment, less coming in. So, overall, it is a negative.’
Leahy said there is a fiduciary reason to have such a policy in the financial sector: for capital adequacy to protect consumers. But otherwise he believes it is inappropriate.
‘Every business is different. Some businesses don’t require very much capital at all. Service businesses don’t have much capital tied up. So to require them to part with money like that is ridiculous.
He said such a policy would also contribute to inflation. ‘Trading businesses operate on such a small margin; they are trying to fund their working capital all the time. It would add to prices. They will have to increase the margin on all their trading activities. It doesn’t make any sense.’
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Your prime minister has embarked upon a course of action that will drive away all foreign investment in Papua New Guinea.Take the Porgera mine,who would invest in a country where the government has effectively nationalised private assets.Not only will this deter further investment in PNG but also if no resources projects commenced will lead to foreign exchange shortages.James Marape has caused immense hardship for his people and should immediately resign
An architect structured the economy to behave what we see in an unknown reality. Its far deeper from its origins after 45 years of Independence. Prime Ministers have come & gone to capture under corrupt political leadership who are contributors to a weak & falling economy. We citizens require a different approach address root cause with positive mind for our nations posterity.
What our Prime Minister (James Marape) declare is a prophetic word for every sons & daughters to take personal responsibility to contribute meaningfully to national growth. Fathers carry the legacy & sons are recipients for a new generation. It is my prayer to break the financial bondage, leverage our currency for healthier & a stable economy to give financial freedom to every families. The Joseph.
One policy reform or initiative that will encourage local business man an women to flourish is to establish a Credit Guarantee Cooperation (scheme). The approach is quite successful in propelling business ventures in many parts of the world. The scheme will provide guarantee for local Papua New Guineans to access commercial loans from banks as long as they have good business plans including cash flow projections. K1 million alone could guarantee loans between K5 – K10 million for SMEs. In order words for every K1, K5-K10 will be injected into the economy for business ventures or recapitalisation of existing business who want to expand. The Bank of PNG is task by the Government to design one for PNG with a K2 million capital injection (seed funding). BPNG should fast track this initiative and the Government should allocate significant capital, somewhere between K50 – K100 million drive SME growth in PNG once the scheme is designed. The scheme is the answer to problem of lack of access to capital that has been hindering SME growth in PNG.
Foreign investment is encouraged provided ethnic Papua New Guinean are not pushed to the fringe needed locations of a commercial area. Take back is a more diplomatic policy interventions approach. Government must intervene to solicit more funding at macro economic level to stimulate economic growth where ethnic citizens may capture utilising resource based activities to avoid foreign dogs grabbing the opportunities..
Yes, this is the road we as a country should have taken long time ago. We will never pay off the K30+ billion kina loan if we continue to take the same path we took as a nation over this past 40 years.
Our current suffering is short term. Figures and comments not in-line with this government’s views from so called foreigners and png’s own SOE and regulatory excecutives shows how short sighted and ignorant these few people are hence should be replaced immediately with likeminded and positive proffesionals.
Without taking into account the impact of COVID-19, PNG is going facing a downturn as confirmed by IPA Records.
What we need is not a quick fix but we need a policy reform and that will involve shot term pain for long term gain. Take Back PNG is an exercise that will come at a price thus, people must be prepared face it.