Business Advantage International’s PNG 100 CEO Survey of chief executives in Papua New Guinea’s biggest companies has found that many business leaders struggled to meet their profit expectations in 2015. But, despite the tough times last year, their mood remains cautiously optimistic.

Future profits outlook Source: BA International

This is the fifth year that Business Advantage International has run the PNG 100 CEO Survey—its exclusive survey of the chief executives and business leaders who run PNG’s largest companies.

The survey asks them about their anticipated profit, investment and recruitment expectations in order to provide a measure of business confidence in PNG’s economy.

Profit expectations

Some 47 per cent of respondents to the survey say profits fell short of expectations in 2015; a meagre four percent say they exceeded their profit expectations.

Another 40 per cent of respondents say profits met expectations. It is the third year in a row in which more than 40 per cent of respondents reported profits below expectations.

Half of the respondents, however, say they expect profits to rebound this year. Only 17 per cent expect profits to fall, while a third expect profits to remain steady.

This represents a less positive response than in the previous survey, when 56 per cent of business leaders expected profits to improve and only 8 per cent expected profits to fall.

Investment outlook

Despite the challenging economic conditions, business leaders remain mostly optimistic.

Indications of attitudes towards work force numbers are mixed.

Investment intentions. Source: BA International

Forty-five per cent of CEOs say they are planning this year to increase their investment in plant, equipment and other assets.

A further 32 per cent say they are planning to maintain their 2015 levels of expenditure, while 23 per cent say they are going to cut investment in the year ahead—a five per cent improvement on last year’s survey.

These results, while positive, nevertheless imply a more cautious approach. In the previous survey, 52 per cent planned to increase investment (against 45 per cent in the latest survey) and the 2015 level is markedly down from 2012-13, when the PNG LNG construction boom was at its height.

Recruitment intentions

Indications of attitudes towards work force numbers are mixed.

In the 2015 survey, 12 per cent of CEOs said they were planning to reduce their work force in 2015. In the latest survey, that number is slightly lower at 10 per cent.

‘A lack of availability of US dollars has clearly had a significant impact on business.’

Recruitment prospects. Source: BA International

Forty-eight per cent of CEOs are planning to keep their headcounts steady this year, which is up from the 28 per cent in the previous year. But only 42 per cent are planning to employ more people, which is down from 60 per cent in the previous year.

Given the level of economic challenge, this should nevertheless be considered a positive result. The number of CEOs expecting to hire is the same as in 2013, when profit expectations were much higher.

Foreign exchange problems

The top issue cited by CEOs, by some distance, is foreign exchange. In the previous survey it was only considered the fourth most important issue. But a lack of availability of US dollars in 2015 and into 2016 has clearly had a significant impact on business.

It has hampered businesses’ ability to pay for overseas goods and services, to make overseas investments and to repatriate profits offshore.

‘Drought makes an appearance on the list for the first time.’

Concern about unreliable state utilities remains a constant. It was considered the second highest ranked issue, followed by security/law and order (the top issue in the previous survey).

Top issues. Source: BA International

Another issue to rise in the rankings is a perceived shortage of skills. It was only just below security/law and order. Employers see it as a constraint on their future recruitment plans.

Logistics, the challenge of getting material around PNG, is perceived to be a major challenge (fifth in the rankings) and there are concerns about a lack of government capacity (sixth).

Drought

Because PNG has been affected by an El Niño weather pattern, drought makes an appearance on the list for the first time. It was not high in the rankings though, probably because the impacts have been uneven. Some companies reported being affected, others had yet to feel any impact.

The 2016 PNG 100 CEO Survey was conducted by Business Advantage International between late November 2015 and early February 2016. The survey included senior executives from a representative sample of Papua New Guinea’s largest companies, across all sectors of the economy.

The survey is first published in the 2016 edition of Business Advantage Papua New Guinea, PNG’s annual business and investment guide.