What’s happening in Papua New Guinea’s three most important export markets? Demographer Bernard Salt says social trends in China, Australia and Japan will affect the business they do with PNG in the future, and present new opportunities.

Are China, Australia and Japan going to want more goods and services from Papua New Guinea over the next 10 or 15 years?

Salt, who is Managing Director of The Demographics Group in Australia, provided a snapshot of the future of PNG’s major trading partners to the 2019 Business Advantage Papua New Guinea Investment Conference in August, suggesting that demographic shifts in those markets would ultimately influence what they bought from PNG.

Observing that PNG is ‘positioned between the rising wealth of Asia and the established wealth of Australia’, Salt noted the rising importance of the China and Japan in PNG’s trade.

In 2010, 46.6 per cent of PNG’s trade went to Australia. Japan was second, receiving 14.8 per cent, the Philippines third at 7.3 per cent, and China fourth at 6.6 per cent.

By the June quarter of 2019, however, Australia’s share had shrunk to 25.3 per cent. China’s share had risen to 21.5 per cent, Japan’s share to 19.9 per cent and the Philippine’s share had fallen to 3 per cent.

‘State-owned enterprises need energy, resources, commodities.’

Salt outlined differing prospects for the three biggest markets, adding that targeting those countries’ domestic markets directly may not be the most effectual strategy for PNG companies.

‘I would say Papua New Guinea would want to do business with corporations – not necessarily to sell product into the domestic market, but to sell product into companies’ supply chains.’

Demographer Bernard Salt at the 2019 Business Advantage PNG Investment Conference. Credit: BAI

China

Recent years has certainly seen China become an economic powerhouse and this is illustrated by the rise of its capital Beijing into the ranks of the world’s major financial centres.

Salt described Beijing as having become the most ‘powerful corporate city’ on Earth: ‘It’s not New York, it’s not London, it’s not Paris, it’s not Hong Kong.’ Most of the biggest Chinese corporations, he added, are government-owned.

‘PNG, snuggle up to the Australians because they’re going to buy your stuff for two generations.’

‘They need a whole lot of food, energy, resources, commodity, copper, iron ore, coal. I suggest that’s Papua New Guinea’s role.’

The long-term trend towards urbanisation in China is also contributing to demand for natural resources that could be supplied by PNG. By the end of 2017, 58 per cent of China’s total population lived in urban areas, up from 18 per cent in 1978. Salt estimates that about 750,000 Chinese people migrate to a city each year.

Other demographic trends in China are less positive.

China has a low birth rate, which means that the population is ageing. Consumer spending has just started to decline. ‘You could still grow this market but, at a high level, it’s contracting.’

China’s ability to attract investment into manufacturing because of its low wage rates is also waning: ‘China suddenly ceases to become the cheap heartland in the 2020s to 2030s,’ he observed.

Australia and Japan

Salt said Australia has strong economic prospects and is likely to continue to be a strong target market for PNG. The country’s policy of high immigration means it will continue to have ‘lots of people in the productive, consumption, tax-paying lifecycle’ stage of life.

‘PNG, snuggle up to the Australians because they’re going to buy your stuff for two generations. The Australian workforce is being shaped by knowledge workers, which means more demand for PNG resources.’

Unlike China, it is Australia’s domestic market that is likely to be most prospective for PNG, according to Salt: ‘it’s the domestic market that’s growing, that’s what you’d be focusing on… certainly the tea, the coffee, maybe the copper.’

‘PNG must invest in key infrastructure, develop important relationships, respond to shifts in first-world consumer behaviour.’

By contrast, Salt thinks Japan’s population will continue to shrink. Consumer demand has been in long-term decline; it started to stall in the mid–1990s.

Salt advised that PNG companies’ strategy should be ‘selling into the global corporates headquartered in Japan’ rather than into the domestic market: ‘the domestic market is actually going to slow down into the future.’

Ageing

Consumers in PNG’s key markets are likely to change their consumption habits over the next 10 years as they get older. Salt described them as: ‘entitled, ageing, aspirational’, adding that they may undergo a ‘fundamental shift in consumer behaviour’.

For instance, Australians were ‘no longer happy with a caravan holiday to the Coolangatta Caravan Park. We want a Jetstar holiday to Bali, in fact – we’ve upped the ante. Why would that not also be a scuba holiday, diving in the Bismarck Archipelago? I think there are opportunities there.’

He warned that PNG and other Pacific nations must navigate the coming decade carefully to achieve the best possible outcomes.

‘There may be pressure across the region to align with trading blocs. PNG must also invest in key infrastructure, develop important relationships, respond to shifts in first-world consumer behaviour.

‘”Steady as she goes” won’t be good enough in the 2020s.’

Net annual change in Japan working age population (15-64) between 1950 and 2050. Source: The Demographics Group