Now is the time to focus on restarting foreign investment in Papua New Guinea, says Clarence Hoot, Managing Director of the country’s Investment Promotion Authority (IPA). He tells Business Advantage PNG the IPA’s priorities for the year ahead, which include getting new foreign investment laws through Parliament.

The Investment Promotion Authority headquarters in Port Moresby. Credit: BAI

‘There could not be a better time’ to look at boosting foreign investment, says the IPA’s Clarence Hoot. He points out that because of the effects of COVID-19, new investment has shrunk by 30 to 50 per cent.

‘To get FDI [Foreign Direct Investment] back to where it was, we are going to have to triple it, or increase it fourfold. We need to remind ourselves of that,’ he tells Business Advantage PNG.

Hoot says the level of international investor inquiries to the IPA in 2020 was actually stronger than in 2019, and included rising interest from Japan and China. Hoot says that Japanese investors tend to be interested in LNG-related projects and the Chinese in construction.

‘We will be applying the necessary grandfathering to allow those businesses time to continue and, over time, sell off those businesses. I don’t foresee any problems.’

‘These are markets that we have worked on for a long period of time, with the assistance of the embassies in Beijing and Tokyo. Our biggest challenge is translating interest into actual projects.’

There was also strong interest in agriculture but Hoot notes that there are domestic challenges in that sector. ‘In terms of agriculture, the big challenge is land availability.’

New laws

IPA’s Clarence Hoot. Credit: IPA Newsletter

Hoot says one of his main aims this year is to have the Investment Promotion Amendment Bill tabled in Parliament. Other regulations being reviewed include the Reserve Activities List (under the Investment Promotion Act 1992), the Associations Incorporation Act and minor amendments to the Companies Act and the Business Groups Act.

Hoot admits PNG’s recent political volatility has slowed down the introduction of the Investment Promotion Amendment Bill.

‘I am on the third minister now,’ he observes. ‘In 2018, the former government with Peter O’Neill directed that we review the Investment Act and the FIRB (Foreign Investment Review Board). We went ahead and did the consultation and prepared the necessary drafts and got it to the Minister, Wera Mori, who signed off on the amendments.

‘Two days before the submission was to be put to Cabinet, there was a change of government.’

Hoot says since then he has twice had to restart the process.

Reserved activities

One instrument that falls under the IPA is the Reserve List, which states which economic sectors are reserved exclusively for Papua New Guineans. The Marape government has a stated policy of encouraging locally-owned small and medium enterprises.

Hoot says that what is on the list is determined by the government of the day, but the IPA plays a role in determining how likely it is that Papua New Guineans can undertake the economic function on their own.

‘If the activity is complementary or supplementary to another economic activity, we need to look at the capabilities of the Papua New Guineans to be able to continue to provide that service.’

‘Existing foreign-owned businesses that find their areas of business activity put on the Reserve List will be given time to manage the transition.’

A Puma service station in PNG.

He says one area of business that may be reserved, for example, is fuel stations.

‘If we reserve the wholesaling or retailing of fuel, then we must ensure that Papua New Guineans have the capacity to continue to provide the fuel to other lines of businesses. With the wholesaling of fuel, maybe we can open it up [to foreigners] but the retailing of fuel, the fuel stations, I think that is maybe something that we can reserve for Papua New Guineans.’

Another area being looked at is the milling of timber.

‘If we are going to reserve it, the capabilities of Papua New Guineans must be looked at seriously if we are going to ensure that we can continuously provide that service.’

Grandfathering

Hoot says existing foreign-owned businesses that find their areas of business activity put on the Reserve List will be given time to manage the transition.

‘Usually, when the law is changed and businesses are working in an activity and that activity is put on the Reserved List, those companies are usually allowed to continue to operate.

‘We will be applying the necessary grandfathering to allow those businesses time to continue and, over time, sell off those businesses. I don’t foresee any problems.’