Papua New Guinea is expected to remain the standout economy in the Pacific over the coming year, with its success having a knock-on effect on neighbouring Solomon Islands. Business Advantage summarises the outlook for the region’s larger economies.

© kirklandphotos.com

Unsurprisingly, the region’s fastest-growing economies are those whose economies are based around exporting natural resources, especially to Asia.

‘In Papua New Guinea (PNG), Timor Leste and the Solomons, local businesses are focused on wealth generation and are doing quite well,’ says Michael Rowland, Pacific CEO of ANZ bank. ‘We don’t think that the Pacific will see the full fall-out from what’s going on in Europe, but having said that, some of the small economies that are dependent on commodity imports have been impacted.’

While the resources boom continues, the global recession has inevitably had an impact on some sectors in Pacific economies. For those countries reliant on tourism, such as Fiji, Vanuatu, Samoa and the Cook Islands, it has dampened visitor demand from Europe and the US and made it harder to find new foreign investment, while falling remittances have particularly affected countries such as Tonga and Samoa.

Commodity exports from sectors like agribusiness, fisheries and forestry have also been constrained.

PNG’s sustained growth is having a flow-on effect in its closest neighbour the Solomon Islands, with a flood of PNG-based businesses setting up in the Solomons over the past five years. The Solomon Islands is also benefiting from higher agricultural prices, and could be on the verge of its own mining boom. Westpac Pacific Banking General Manager Greg Pawson sees the Solomons as an historic opportunity:

‘Its got a population of close to one million people … it’s got one major mine and other prospects and it’s firmly on the Ring of Fire [the highly prospective geological area].’

The established mineral exporters aren’t the only ones garnering interest in the Pacific, however.

‘The two biggest opportunities that we see out of the five locations that we’re in are Samoa … and Vanuatu,’ notes Pawson, citing not only tourism but also opportunities in mining, agribusiness and infrastructure.

One country we might start to hear more about in 2012 is Timor Leste. The new nation has had a period of consolidation and now ‘they have the benefit of extensive natural gas reserves and a conservative and well managed government. Timor we’re very bullish on and we’ll be opening our second branch in the country this year,’ says ANZ’s Michael Rowland. There are some parallels between Timor Leste and PNG, and many companies currently operating in PNG could find commercial opportunities in Timor Leste as its economy matures.

Guam is another worth keeping an eye on. Though the planned relocation of the US military base from Okinawa to Guam is proceeding more slowly than anticipated, there are likely to be commercial opportunities for companies operating in the Pacific sooner rather than later.

Though a report published by the IMF in February provided a sobering assessment of Fiji’s economic performance since the 2006 coup, visitor numbers to Fiji are nonetheless increasing at a resounding 7% per year.

‘They’ve had incredible growth in tourism as a result of a strong Australian dollar,’ comments Westpac’s Greg Pawson.

Several Fijian companies already have a presence in PNG, such as Damodar Group, partner in the new Paradise Cinema. This is likely to increase as a result of the recent relaunch of the Fiji–PNG Business Council.

This article first published in Business Advantage PNG 2012/2013