Papua New Guinea slipped from 108 to 120 in the World Bank’s ranking of ease of doing business. Electricity provision and contract enforcement are areas of weakness, but are there any positive signs? David James analyses the report.

Doing Business 2020 report. Credit: World Bank

The World Bank’s report Doing Business 2020 examines the regulatory environment in 190 countries. Papua New Guinea’s ranking in this report was based on coverage of its capital city, Port Moresby.

The World Bank researchers analysed ten areas of regulation. First is ‘starting a business,’ where PNG ranked 142 in the world, a slight improvement from 2018, when it ranked 143.

Given the Prime Minister James Marape’s emphasis on boosting the number of Small and Medium Enterprises (SMEs), ‘starting a business’ would require considerable attention from the government.

According to the report, it takes 41 days to complete the required procedures to open a business in PNG, about twice the average time for East Asia and the Pacific. The average cost, according to the World Bank, is K1610.

Doing Business measures and analyses these elements. Credit: World Bank

Power

PNG ranked 118 for ‘getting electricity’, a sharp deterioration from the previous year, when the ranking was 72. Given that this survey only applies to Port Moresby, where electricity is easier to get than in rural areas, it underlines the urgency for PNG to improve its delivery of power.

Tellingly, the World Bank gave a zero rating (out of eight) for reliability of supply and transparency of the tariff index – East Asia and the Pacific averaged a four ranking.

‘PNG rates nine out of 12 for ‘strength of legal rights’, indicating that there are sound protections for borrowers and lenders.’

But an area of strength is ‘getting credit’. Papua New Guinea got its highest rating, 48, slightly down on 44 the previous year. This suggests the country’s financial system is operating well when it comes to funding business.

PNG rates nine out of 12 for ‘strength of legal rights’, indicating that there are sound protections for borrowers and lenders. This is better than the average rating (7.1) for East Asia and the Pacific.

Contracts and tax

An area of weakness is ‘enforcing contracts’, where PNG ranked a 173, the same as the previous year.

It takes 591 days in court to enforce a contract, according to the report, and the procedure often results in an overall loss for the litigant. Court costs are on average 110 per cent of the value of the claim, which is double the average in East Asia and the Pacific, and five times the OECD average. The quality of judicial processes is mid-ranking, however, at 8.5 out of 18.

PNG ranked 118 for ‘paying taxes’, down from 111 the previous year. Collecting tax in PNG has become an urgent problem and the report indicates that the country’s tax payments are comparatively complex.

Doing Business 2020 on PNG and taxes. Credit: World Bank

According to Doing Business 2020, there are 45 payments a year required: double the average for East Asia and the Pacific and four times the OECD average. It takes 207 hours a year to compete the tax requirements, and the total tax and contribution rate is 37.1 per cent of profits: higher than East Asia and the Pacific, but lower than the OECD average.

‘Protecting minority investors’ is an area of strength for PNG.’

In his speech at the Lowy Institute in Australia earlier this year, Prime Minister Marape said that  investors and commercial partners had ‘nothing to fear’ from his government but that a reform must be put in place because the country needed to ensure ‘tax, equity or royalties for every resource [project] adds up to above 50 per cent’.

Borders

PNG rated 125 for ‘trading across borders’. On average, it takes 90 hours to complete compliance for exports, and costs US$770 (K2662). It takes an average of 120 hours for importing, and costs US$1025 (K3490).

‘Protecting minority investors’ is an area of strength for PNG. The ranking is 72, up from 89 the previous year. ‘Dealing with construction permits’ was ranked at 122, a slight improvement on 124 in the previous year. It takes on average 217 days and typically costs 1.1 per cent of warehouse value.

The 2020 ranking for ‘resolving insolvency’ is 144, compared with 122 in 2019.