While its aims of encouraging small and indigenous business are universally supported, the Papua New Guinea Government’s recent dealings with investors have created a ‘feeling of unease’ in some business circles.

Delegates at the 2013 Papua New Guinea Advantage investment summit listen to Prime Minister O’Neill’s speech

‘I appreciate that a stable political environment does not guarantee good government,’ Papua New Guinea’s Prime Minister Peter O’Neill admitted to delegates of the 2013 Papua New Guinea Advantage investment summit last week.

‘But it lays the right foundations for good government—sound fiscal management, pro-investment and pro-development policies, the delivery of basic community services, and providing the infrastructure our people need, and our industries and businesses need.’

Few in the room would have disagreed that PNG’s impressive economic growth over the past decade has been supported not only by political stability (the events of 2011–2012 aside), but also by a stable legislative environment surrounding investment, resources development and taxation.

While the O’Neill Government has taken steps through legislation to ensure that political stability is maintained, it has also initiated a number of reviews of important existing laws—notably, PNG’s Mining Act and its resources tax regime.

A feeling of unease

While such occasional reviews are the normal business of government, the impending reviews are taking place against a background of a series of government dealings with investors, which have served to create what one senior mining industry source this week called ‘a feeling of unease’ among some in the business community.

These dealings include:

• The confirmation by Richard Maru, Minister for Trade, Commerce and Industry, that he personally intervened to alter the Security Commission of PNG’s Takeover Code and prevent Kulim Malaysia acquiring a majority stake in New Britain Palm Oil Limited (Kulim’s appeal to PNG National Court was subsequently rebuffed);
• The prolonged arbitration (finally completed last week) between Nautilus Minerals and the State over the Solwara I undersea mining project;
• The Government’s intention to acquire the shares in Ok Tedi Mining Ltd owned by majority shareholder, Papua New Guinea Sustainable Development Program, without compensation;
• The announcement in July by Mining Minster Byron Chan that the government was considering ownership of the Xstrata-run Frieda River gold mine;
• The confirmation last week that the government would legislate to implement the 21 points of the Madang Declaration and Communiqué on small business, which would include introducing a list of business activities reserved solely for Papua New Guineans, and a foreign investment review board.

Against such a background, investors at last week’s 2013 Papua New Guinea Advantage summit might have been forgiven for being unsure how to react to Public Enterprises Minister Ben Micah’s announcement that he was working on a blueprint for ‘a new partnership’ between the public and private sector.

Broad support for SMEs

PNG’s business community is unquestionably supportive of the PNG Government’s attempt to develop more locally-owned businesses, especially in the small-to-medium (SME) space.

‘We totally agree that the solid base of PNG’s economy has to be built on SMEs that are in the hands of Papua New Guineans,’ says David Conn, Chief Executive Officer of the Port Moresby Chamber of Commerce and Industry.

However, Conn expresses a hope that there will be more consultation with industry before government policies are finalised, indicating there has not been sufficient debate so far.

‘Chambers of commerce are potentially some of the biggest allies for the government in SME development,’ he observes.

While he feels that improving small business’s access to finance is a positive move, the President of the Lae Chamber of Commerce Alan McLay told Business Advantage  PNG that policies such as a reserved list and mandatory 51% PNG ownership of business had been tried in the 1990s under the National Investment Development Agency (the predecessor of the Investment Promotion Authority) and ‘didn’t really work’.

He said he was looking forward to Commerce Minister Maru’s forthcoming address to his members on the government’s new policies.

As Douveri Henao, Executive Director of PNG Business Council, suggested in a recent TV interview, the implementation of SME policy will need to be underpinned by significant research.

Addressing necessities

Not only is the development of an SME sector economically necessary; it is also politically so.

As the PNG economy has grown, creating an emergent middle class, so too has the need to deliver tangible benefits to ordinary Papua New Guineans, most of whom survive on subsistence livelihoods and have understandable expectations that life will improve.

The O’Neill Government has aimed many of its policies not only at alleviating the costs of living for ordinary Papua New Guineans—by making school education free, for instance—but also on tangible development, such as infrastructure. The decision to deliver more of the national budget at sub-provincial district level could also be seen as a means of ensuring money is spent where local communities can see it.

Building the pie

The next step is to ensure that Papua New Guineans participate fully in the future development of the private sector.

The country’s national long-term blueprint—Vision 2050—aspires to have 70% of business in local hands by the middle of the century.

While some in the business sector are happy to take a ‘wait and see’ approach to the government’s flagged initiatives, there remains a hope that its goals can be achieved by growing the size of the private sector pie, rather than re-distributing ownership of what exists today.