Foreign exchange has gone from being a big business problem to becoming a major impediment for all businesses in Papua New Guinea. What does the future hold for this and other challenges facing business?

State Enterprises Minister Sasindran Muthuvel, Business Advantage International’s Andrew Wilkins, the Institute of National Affairs’ Paul Barker and Westpac’s Justin Smirk discussing impediments last week at a POMCCI business breakfast. Credit: BAI

At last week’s launch of the results of the Business Advantage International/Westpac PNG 100 CEO Survey, foreign exchange restraints were revealed as the top impediment facing Papua New Guinea’s largest companies.

To download the 2020 report, click on the cover image above.

‘2016 was a period of time where it was really tight,’ says Justin Smirk, Senior Economist at Westpac, speaking at a business breakfast in Port Moresby last week. ‘It loosened up through last year with the additional funds being released. We saw some relief coming through. But since then, we’ve seen it tighten again. And we know from [Westpac PNG’s] own back orders,  back orders have probably doubled since Christmas. So that FX issue has become an increasing issue.’

Faced with a shortage of foreign exchange, businesses are struggling to obtain the US dollars to pay promptly for imported goods and services, and international companies are not able to remit dividends earned in PNG back to their home countries. The shortage has also hampered PNG’s superannuation funds’ plans to invest offshore, making it a problem for ordinary Papua New Guineans.

So, what’s the prognosis for 2020?

‘Our view is that the foreign exchange conditions will continue to remain a constraint,’ says Smirk.

The upside of forex issues

In an interesting aside, Justin Smirk pointed out that there is an unusual positive to the current foreign exchanges squeeze being felt by major corporations.

‘We have been seeing where firms have got excess kina, some of our Australian clients cannot get the profits or the money out so they are investing back into PNG to use the money,’ he says. ‘It is stimulating domestic production it is stimulating alternatives to exports but it is also creating a constraint on overall growth.’

‘In terms of those other impediments, certainly over a long term the poor state of infrastructure has been right up there’

Paul Barker, Executive Director at PNG’s think-tank, the Institute of National Affairs (INA), agreed: ‘I have heard some companies that say, our business and our profitability is doing business in Papua New Guinea, and we can’t get foreign exchange out of the country so we might as well have our funds sitting here working. Some of them have actually said they have made investment decisions in recent times, to go ahead with some major capital investments.’

Cost of doing business

The INA produces its own five-year report on PNG’s business impediments.

‘In terms of those other impediments, certainly over a long term the poor state of infrastructure has been right up there,’ he says. ‘It’s been telecommunications. We found that power has pulled somewhere ahead of the telecommunications constraint. Both of them are up there.’

These two sectors are now part of the Marape Government’s reform program, as outlined by State Enterprises Minister, Sasindran Muthuvel.

Law and order

Law and order came fourth in this year’s PNG 100 CEO Survey, with corruption further down the list.

For smaller businesses, corruption came in the top five in the INA’s last survey, particularly in land dealings.

‘Corruption particularly affects the middle and small businesses, some of the bigger businesses are perhaps big enough to carry that with them to some extent or to intimidate those who are perpetrating it,’ Barker says. ‘Law and order has for the long term been at or near the top [of our survey], we are not seeing big changes up or down there but we are hoping for some changes.’

He noted that individual law enforcement leaders can make a big difference in this area. He hoped a recent senior appointment in the National Capital District and Central Province would lead to an improved situation this year.