In a move that will reassure Papua New Guinea exporters to the United Kingdom, the UK government has confirmed it will maintain the European Union’s current trading arrangements with PNG after Brexit. Meanwhile, Prime Minister O’Neill has flagged ‘huge incentives’ for investments in agriculture and tourism, Business Advantage PNG reports from London.

Bank of PNG Governor Loi Bakani, Prime Minister Peter O’Neill and Foreign Minister Rimbink Pato meet with HRH the Duke of York last week in London. Image: WBG

PNG’s trade relationship with the United Kingdom is currently governed by an Interim Economic Partnership Agreement with the European Union, which guarantees PNG exporters tariff-free and quota-free access to all European Union countries.

While that will change after Brexit—the colloquial term for the UK’s anticipated departure from the EU on 29 March 2019—State Minister for the UK’s Foreign and Commonwealth Office, Mark Field, promised a UK-PNG trade and investment forum in London last week that ‘PNG would not be disadvantaged’ by the UK’s exit from the EU.

‘We’re working closely with government ministers and Prime Minister O’Neill to transition the EU Interim Economic Partnership Agreement,’ he told the forum.

‘The announcement will reassure PNG companies.’

‘That will mean that, on Day One when we leave the EU, once the implementation period is over in December 2020, the trading parameters between PNG and UK will be exactly the same as they were before.’

The announcement will reassure PNG companies such as New Britain Palm Oil, the country’s largest palm oil exporter, which currently exports the majority of its palm oil to the UK.

Incentives

Responding to Field, Prime Minister Peter O’Neill outlined PNG’s potential as a trading partner for the UK to the forum, citing its political stability, fertile land mass, tourism potential and proximity to Asia.

‘O’Neill also foreshadowed agreements between the state and developers for new resources projects.’

He described his government’s intent to broaden PNG’s economy beyond the resources sector, noting the country could not afford to constantly go through the ‘boom and bust cycles’ that accompany mining and petroleum activity.

In particular, he flagged a forthcoming announcement of ‘huge incentives in agriculture and tourism’, which would include tax breaks.

O’Neill also foreshadowed agreements between the state and developers for new resources projects: Papua LNG, Wafi-Golpu and Frieda River.

Balancing the budget

The Bank of PNG’s Loi Bakani. Image: WBG

Several commentators, including Governor of the Bank of PNG Loi Bakani, provided differing views of PNG’s economy at the forum.

Commenting on the current budget deficit, Bakani said a balanced budget was expected to return in 2020.

With the Prime Minister elsewhere announcing the introduction of a US$500 million eurobond this year, Bakani also observed that there was an opportunity to sell off domestic debt to international investors, thereby diversifying the holding of government debt, which is currently held by a relatively small number of largely domestic investors.

While money raised from a eurobond would also assist PNG in managing its ongoing foreign exchange shortages, ANZ’s Managing Director Mark Baker observed that, ‘in reality, it will require a major project to change the foreign exchange situation.’

He also queried calls for the kina to be devalued noting that, given that the country already sells all that it produces, it was not necessarily clear how it might benefit from a lower kina.

‘Global Britain’

UK-PNG bilateral investment is currently worth £180 million (K806 million), according to figures presented to Foreign Minister Rimbink Pato, who said the PNG Government wanted to grow that amount.

British parliamentarian Lord Sheik suggested that moves needed to be made to accelerate the growth of bilateral trade, which he said was valued at £0.4 billion (K1.8 billion) in 2016 and to achieve a trade balance (trade is currently weighed heavily in the UK’s favour).

The UK Government has also announced a renewed focus on the Pacific, with new diplomatic posts to be established in Tonga, Samoa and Vanuatu in the course of the next year.

‘Our expansion is the most concrete evidence that the UK is not retreating as we exit the European Union … but we are turning forcefully towards a global Britain,’ Field said.