PNG Fortunes Turn For Better

Papua New Guinea's struggling economy could be heading back for a recovery following good performance by all sectors in the second half of last year, with prospects for more improvements this year.

Bank of Papua New Guinea delivered the good news in its February policy statement. Governor Wilson Kamit said the performance in the second half of 2003 was encouraging.

Kamit said the stability in the exchange rate, which was due to favourable developments in the foreign exchange market, led to:

• a declining headline inflation trend consistent with the expectation of the bank;
• a build-up of international reserves to unprecedented levels of around US$20 million;
• a declining trend in interest rates; and
• a strong growth in the non-mineral export sector.

Kamit said for 2004, real GDP is expected to grow by 2.8 percent with a projected real growth of 1.4 percent in the mining and petroleum sector when the oil project in Kutubu in the Southern Highlands province, reaches its full production.

He said economic activity in the agriculture, forestry and fisheries sector is expected to continue strongly with a forecast growth of 3.1 percent as prices of all agricultural commodities improve, due to the strengthening of the world economy.

Kamit said the government's export growth driven strategy is likely to have a significant boost in these sectors, especially as a result of tax incentives. These include concessional tax deductions for primary production extension services, agricultural research and development; a 20 percent concessional income tax rate; excise duty exemption for business and individuals importing tractor for use in agriculture and forestry; and a reduction in log export tax by five percent.

It's looking good for Somare...economy recovering.

He said mineral exploration is also expected to recover due to tax incentives and improved confidence.

However, Kamit said the medium term prospects for sustained recovery in the economy would be dependent on renewed political and financial stability; continuation of structural reforms; development of new mineral projects; and increased expenditure on maintenance of existing infrastructure.

At least the expectation in mining development looks likely with the announcement of a deal with a Chinese firm to develop the Ramu nickel/cobalt project in the Madang province. The company has agreed to put up US$650 million needed to develop the project.

Mining Minister Sam Akoitai, who brokered the deal, said the company has requested the government to consider granting more tax concessions. But its entry into the Ramu project is not conditional to receiving tax incentives. The China Metallurgical Construction Corporation (CMCC) has agreed to develop the Ramu nickel/cobalt project and to meet the total construction cost of US$650 million.

Akoitai travelled to Beijing in January, accompanied by his mining secretary Kuma Aua, Highlands Pacific Limited managing director Ian Holdzberger and Mineral Resources Development Company (MRDC) managing director Francis Kaupa, to negotiate the deal.

Highlands Pacific Limited (HPL) owns 68.5 percent of the project and the mining lease, while MRDC owns 31.5% of the project. HPL is listed on the Australian and the Port Moresby Stock Exchanges and certain stock market conditions must also be fulfilled before any public announcement is made.

CMCC is owned by the Chinese government. Prime Minister Sir Michael Somare had specifically urged the Chinese government leaders to help PNG develop its mining, petroleum and gas resources.