Papua New Guinea’s first LNG project has transformed the country’s exporting landscape, with Japan overtaking Australia as its No.1 trading partner. China will also become a major source of funds, taking over from Australia and global lending agencies. But don’t expect PNG’s broader bilateral relationships to change quickly.

A submarine cable map of the Asian region. Credit: Telegeography

That is the view of Lowy Institute Melanesia Program Research Fellow, Jonathan Pryke, following the release of data showing that the value of exports to Japan this year is expected to be K6917 million, largely due to LNG exports. Between 2012 and 2015 exports to Japan will have more than doubled.

The Lowy Institute’s Jonathan Pryke

Meanwhile, exports to Australia are falling. In 2015, they are projected to be K5597 million, a fall of K1.108 million on 2014. In 2006, exports to Australia totalled K5200 million.

‘As the PNG economy continues to grow and mature it will diversify and move away from “big brother” Australia, but I wouldn’t expect the move to happen all too quickly.’

‘Because this scale-up is isolated to a single project and sector of the PNG economy (gas) that only affects a few select businesses, I am not convinced that the relationship with Japan, or the other trading partners involved in the gas industry for that matter, will dramatically change,’ Pryke tells Business Advantage PNG.

‘While Japan has now emerged as the primary exporting market for PNG, it has always been one of PNG’s traditional export partnerships for both the mining and petroleum sectors and also with regards to coffee, cocoa, and other cash crops critical for the fledgling PNG agricultural sector.’

Pryke points out that the LNG volumes traded by PNG are less than eight per cent of Japan’s total LNG imports.

‘Japan has been a primary importing market for PNG for a long time, particularly with regards to vehicles and other technical appliances.’

Japan trade opening up

Katsuo Yamashita, Chairman of the Japan Papua New Guinea Association, tells Business Advantage PNG that the impact of LNG sales is opening up trade between Japan and PNG.

‘More and more we are seeing Chinese construction companies being awarded contracts in PNG. There is also, anecdotally, a huge influx of Chinese migrants setting up shops, supermarkets and other retail outlets throughout the country.’

Because of that people in other fields are now focusing on utilising Japanese modern technology to develop PNG.

‘As well as some traditional business areas such as replanting trees, tuna and shrimp exports, and coffee bean exports, there are new interests in other fields,’ he said.

PNG PM Peter O’Neill with Japanese Emperor Akihito

‘The Japan PNG Association recently received a lot of inquiries about areas such as rural electrification, renewable energy development, fresh water supply, modern housing, IT systems etc.’

China increasingly important

The increasing role that China is taking is largely due to the new levels of lending, aid and migration, says Pryke.

‘What’s most interesting in the relationship is the role of Chinese contractors in PNG, and the role of Chinese migrants in small and medium enterprises in PNG.

‘More and more we are seeing Chinese construction companies being awarded contracts in PNG. There is also, anecdotally, a huge influx of Chinese migrants setting up shops, supermarkets and other retail outlets throughout the country, supplementing the significant Chinese population that has been in PNG for some time.

‘It shouldn’t come as a surprise that more and more companies with an active engagement in PNG are incorporated in Singapore.’

‘I was in the Highlands only two weeks ago, and every district capital or major city I visited had Chinese-owned shops springing up.’

Pryke says it is difficult to quantify the PNG/China relationship ‘because a lot of the engagement is informal or illegal in nature’.

‘China is certainly becoming an increasingly important partner for development finance.

‘We are already seeing some blowback from the PNG government to this growing influence,’ he says, referring to the government’s SME policy aimed at boosting local ownership to 70 per cent of the formal economy by 2030. There is also the prospect that businesses that turn over less than K10 million a year in annual gross sales will also be deemed a reserved business, for citizens only.

Singapore hub

‘Australia does still provide not only valuable support for core infrastructure, but does—and particularly needs to—assist PNG with institutional development.’

Australia still important

PNG PM Peter O’Neill with Australian PM, Malcolm Turnbull.

Pryke says that PNG’s decreasing economic dependence on Australia may have ‘interesting repercussions for a bilateral relationship that is critical for both countries, but which has been under significant strain in recent years’.

‘Regardless of where a company chooses to incorporate, the outside world’s direct interactions with PNG are still overwhelmingly Australian.

‘Half of all of PNG’s visitors in 2013 were Australian. As the PNG economy continues to grow and mature it will diversify and move away from “big brother” Australia, but I wouldn’t expect the move to happen all too quickly.’

Paul Barker, Director of the Institute of National Affairs agrees, saying  ‘extensive cultural and historic ties’, along with aid, are the basis of ties with Australia.

‘Australia does still provide not only valuable support for core infrastructure, but does—and particularly needs to—assist PNG with institutional development, strengthening governance and accountability mechanisms to better help PNG to manage its own funds and resources more sustainably and to invest in PNG’s most important asset: its human resources.’

PNG Exports by destination: (in millions of kina)

Country	2012	2013	2014	2015*
Australia	5868	6109	6705	5597
Japan	2711	2253	5283	6917
China	627	1155	3064	3558

 

* Extrapolated from 3 quarters