As Papua New Guinea business gets back to work for a new year, Business Advantage PNG looks ahead to consider what 2016 may bring.

If there’s one issue that seems to be affecting business across the board, it’s PNG’s currency situation.

With the Bank of PNG maintaining its trading band for the kina against the US dollar, and also controlling the kina’s fall, there has been a continuing shortage of foreign exchange.

Whether you’re a PNG-based business looking to buy goods with US dollars, a foreign company looking to repatriate legitimate profits, or a PNG investor looking to invest offshore, this scarcity is affecting your business.

As BSP’s CEO Robin Fleming noted at the end of last year, the situation is a temporary one. Therefore, the question on everyone’s lips is: when will the kina start to stabilise? All eyes will be on those projects that can reduce pressure on the currency.

One of these—the PNG Government’s planned Sovereign Bond—could offer some early relief, so its progress will be watched keenly.

Arguably, Government expenditure, particularly on infrastructure, has kept PNG’s economy ticking over since the completion of the ExxonMobil-led PNG LNG Project in 2014. With a deficit blowout due to reduced revenues leading to a more restrained budgetary outlook, business will be watching to see which projects still have the green light in 2016.

Mining and petroleum

New resources projects, which tend to bring in major offshore dollars, can also boost the currency but, with global commodity prices in the doldrums, this sector has been having a tough time.

Exploration activity is being reined in, and new investment is modest as the key players conserve their capital until higher prices return.

However, as Oil Search’s CEO Peter Botten observed at the 2015 PNG Advantage Investment Summit last August, PNG is actually better placed than many countries to host resources projects in a low price environment, offering lower costs than neighbouring Australia, for instance.

This should ensure that at least some investment continues in PNG, and that, as prices rally, PNG is one of the first countries to see investment ramp up again.

In the meantime, no-one knows when metal and gas prices will bounce back, but PNG business people will be on the look-out for signs of early works on the Total SA-led Gulf LNG project, and for the (slightly delayed) feasibility study for the Wafi-Golpu gold project in Morobe Province.

Also encouraging is the possibility of the Ok Tedi copper mine re-opening in March—a sign perhaps that there may be an end in sight for the drought which has especially affected parts of PNG’s Highlands.

Power

Load shedding, power cuts and diesel-fueled private generators remain a feature of life in PNG. Business will be looking to more reliable power supply in 2016 as the result of flagged new investment in both power transmission and generation. Beyond that, they will be hoping that state utility PNG Power is empowered to move ahead with the long-term National Electrification Rollout Plan and that the move to source generated electricity from private producers bears fruit.

Agriculture and forestry

Lower prices have also affected the value of agricultural exports. With palm oil now PNG’s number one agricultural export, business will be hoping for a rise in price for this traditionally volatile agricultural commodity.

Coffee prices have also been in decline over the past year and producers will be hoping for a rally in 2016. On a more positive note, cocoa prices are on the rise, reaching a four-year high in December—good news for a sector now rebounding from the impact of the cocoa pod borer.

China’s growth over the past decade has been a major factor in PNG’s own economic growth. As the Asian powerhouse is the primary destination for PNG’s round log exports, PNG’s forestry sector will be watching China’s construction and manufacturing sectors keenly.

Infrastructure and construction

The swathe of projects that were built in the lead-up to last year’s Pacific Games have made a significant impact on the capital, Port Moresby. With Port Moresby hosting the APEC economic leaders meeting in November 2018, and many related satellite events beforehand, we can expect to see more additions to the city’s landscape.

A new convention centre and R H Group’s Stanley Hotel are almost complete, and further investment in the hospitality sector, roads and residential housing is underway.

The project to relocate Port Moresby’s port to Motukea Island is also progressing, as is the regeneration of Paga Hill.

Beyond the capital city, businesses in Lae can look forward to the completion of the delayed highway connecting the city to a rejuvenated Nadzab Airport, the commencement of Phase 2 of the redevelopment of Lae’s port, and the prospect of a new retail development from R H Group along the lines of its landmark Vision City project in Port Moresby.

Other regional centres, such as Mount Hagen and West New Britain, have seen upgraded airports and will be watching to see how much of the government’s road building program has survived the inevitable cost-cutting in the 2016 National Budget.

The tide will turn

One business leader quoted Warren Buffet’s famous saying to Business Advantage PNG this month: ‘you only find out who is swimming naked when the tide goes out’.

Overall, 2016 is looking like a year in which PNG business has to operate within clear constraints, while we await a turnaround in the global economy. Sensible managers have already looked to their cost base to ensure they can continue to be profitable in a lower growth economy … but still retain the capacity to take advantage of new opportunities, as and when they occur.