In an environment of plummeting interest rates, long term infrastructure investment is a sound option for both investors and governments. Financial and business commentator Michael Pascoe, speaking in Port Moresby last week, noted that the difficult global financial environment throws up opportunities for countries like Papua New Guinea.

Financial and business commentator Michael Pascoe

‘The fact is that the world is awash with money looking for a decent investment,’ said Pascoe, speaking at the 10th anniversary launch in Port Moresby last week of Business Advantage Papua New Guinea 2016, PNG’s annual business and investment guide.

‘We live in very interesting times. More than $US5 trillion in government bonds around the world have negative interest rates at the moment.

Although it is ‘a very challenging environment’, Pascoe said there are opportunities for countries like Papua New Guinea.

‘When so much of the world is suffering from negative interest rates, countries and businesses that can offer opportunities for a decent return must attract money,’ he says.

Infrastructure investment key

Pascoe argues that governments can use their balance sheets to undertake infrastructure projects. Once the projects have been ‘de-risked’, the infrastructure can then be sold off (privatised) and, with that money, another project can be commenced.

Negative yielding government bonds Source: JP Morgan

‘It actually pays for itself economically,’ he says. ‘The biggest story in this economic environment, which has relevance to PNG, is the virtuous cycle associated with long-term investment in infrastructure.

‘Such a virtuous cycle is available to governments that are prepared to invest wisely—not politically—in their country’s infrastructure.’

‘If you can offer political stability and a decent return in infrastructure, the world will come.

The $US100 billion Asian Infrastructure Investment Bank wants to do for the region what infrastructure investment has already done for China.

‘For example, there is $US36 trillion held by the global pension funds, which are increasingly looking for a good infrastructure project that pays off over time. Australian super funds have $A2 trillion; they are looking for projects.’

The new Silk Road

Pascoe says China’s Silk Road project and the $US100 billion Asian Infrastructure Investment Bank is designed to do for the region what infrastructure investment has already done for China.

‘Obviously, Beijing sees this as an opportunity to use Chinese expertise, Chinese materials and Chinese labour. Chinese outbound investment gets a lot of xenophobic headlines but it is another powerful force.’

‘There is opportunity for infrastructure investment in PNG.’

Pascoe says China has invested $US5.9 billion in the Oceania region. ‘On a percentage basis, that is a lot for Oceania.

‘I like to think of infrastructure investment as “winner pays” rather than necessarily “user pays”. Because all sorts of people win from infrastructure investment.

‘There is opportunity for infrastructure investment in PNG. If it is done properly, it can make all the difference in the world.’

World trade, China holding up

Pascoe says world trade has ‘taken a dive in value, in dollar terms’. But he says volumes are holding up. ‘It is not growing the way we would like it to grow, but it is holding up.

World trade volume and value growth. Source: CPB Netherlands Bureau

‘It makes sense that the value is down when so much of trade is in commodities. Commodities have become cheaper because they were unsustainably high.

‘For PNG, as for any commodity exporting nation, what remains crucial is Chinese demand, which has not collapsed.

‘China’s industrial production has slowed, but it is still growing by about 5 per cent a year.

‘Fixed asset investment is still growing by close to 10 per cent and retail sales growth in the world’s second biggest—soon to be biggest—economy is growing by 10 per cent.

‘So don’t let anyone tell you that China is collapsing. China is slowing the way it has to slow to be sustainable.’

Investment guide launch

Michael Pascoe was in Port Moresby as the guest of Business Advantage International, which was launching the tenth anniversary edition of Business Advantage Papua New Guinea, PNG’s annual business and investment guide.

‘Back in 2006, it was the first annual business and investment guide to Papua New Guinea—compact, sharply written, attractively designed, shareable. And we have kept our promise to produce a new edition each year,’ said Andrew Wilkins, Publishing Director at Business Advantage International.

‘Over the past decade, we have distributed over 150,000 copies of Business Advantage Papua New Guinea around the country, but more importantly across the region and across the world. Many thousands more have read its digital editions online in over a hundred different countries.’