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Foreign Direct Investment Decreases By 45 Percent
by PNG Business News - June 14, 2021
Photo Credit: Loop PNG - Clarence Hoot
According to the Investment Promotion Authority, foreign direct investment into the nation has decreased by around 45 per cent in the last two years (IPA). Investment interest plummeted from over 1,000 in 2019 to roughly 300 in the first quarter of this year, said managing director Clarence Hoot.
“Global FDI (foreign direct investment) outflow has drastically reduced by 45 to 50 per cent,” Hoot said. “(It) means for us that foreign direct investments will have to be more than 10 times or 20 times than what we are currently doing. We have to relook at ourselves, what we have in place, what we want and where we want to be.”
“We have witnessed a decline of 40 to 45 per cent in terms of FDI interest coming to PNG,” Hoot added, speaking from the perspective of a regulator.
“In 2019, the total number of foreign direct investment documents that we received was 1,116. In 2020 that reduced to about 800. And in the first quarter of 2021, it is 300. From IPA perspective, that is a real concern.
“While we appreciate that it may be a direct result of the impacts of the Covid-19, I think we should look beyond the Covid-19. We also have to look at what we have in terms of domestic policies, laws and regulations,” Hoot said.
He also stated that there were indicators that PNG's standing in terms of business-friendly locations has decreased. PNG was ranked 108th out of 190 countries in 2018/2019. It dropped 12 positions to 120/190 in 2019/2020.
Mauludu, Shirley. The National (9 June 2021). “Foreign investment drops by 45pc”.
PNG Business News - May 12, 2021
Investment Condition Critical
According to an economist, improving benefit-sharing agreements for resource programs necessitates a thorough understanding of the future gains from those projects as well as the conditions offered in other countries. The government "owns the assets and is the regulator," according to Paul Barker, executive director of the Institute of National Affairs. “So, it is in a strong position to negotiate on its own terms and benefits on behalf of other stakeholders, notably the customary landowners,” he said. However, he cautioned the government to be wary of possible contradictions between its regulatory position and that of potential shareholders, especially on social and environmental issues. The Wafi-Golpu in Morobe, Papua LNG, P'nyang, the Pasca A offshore oil and gas, Frieda River copper and gold, Woodlark and Porgera are only a few of the billion-kina resource ventures that have yet to get off the ground in PNG. “It should, generally, avoid the need to commit to costly equity participation entailing major upfront commitments and heavy borrowing by the State,” Barker said. He said the Government “clearly has more important duties to its citizens with its limited resources, notably providing basic quality infrastructure and services”. “Equity in corporate ventures is more of a luxury when public goods are as poor as they are in PNG,” he said. “And when the State is able to secure sound revenue through taxation and other mechanisms and benefit-sharing arrangements, so long as over-generous investment incentives have not been offered. “Acquisition of equity should occur particularly in diverse investments overseas and at home, rather than domestic extractive projects with limited life-spans. “And it should be made through a well-managed and accountable sovereign wealth fund, rather than from up-front borrowing – that is, from savings rather than costly commercial borrowings. “Awareness of the realistic project returns are also crucial when recognising the potential investors negotiating position, with respect to its other global options,” Barker said. “Papua New Guinea needs to have competitive investment conditions if it wants international (and domestic) investors to develop projects or other goods and services, but clearly it doesn’t want to be taken for a ride with unduly generous conditions, which provide inadequate benefits to the State, or the public it serves.”
PNG Business News - June 28, 2021
Kina Asset Management Ltd Halts Investment Program in Australia
Chairman Sir Rabbie Namaliu of Kina Asset Management Ltd (KAML) said the company has halted its investment program in Australia until the impact on economic conditions is better understood. He informed the annual general meeting that Australia's reaction to the Covid-19 epidemic had been one of the most stringent in the world, involving international and state border restrictions as well as lockdowns. “As a result, the company suspended its investment programme in Australia until the impact on economic conditions became more certain,” Sir Rabbie said. “The company’s Australian investments reported capital losses of K3 million for the year, and dividend income fell from to 0.9 million in 2019 to K0.6 million in 2020. “However, the Australian dollar rose strongly against the PNG kina during the year, and foreign currency gains of K6.3 million were recorded,” he said. “The company’s shares again traded in very light volumes during 2020 and closed at year-end at a price of 95 toea per share. He said that this was a 40% discount to the company's net tangible asset backing of K1.59 per share, and that it did not reflect the company's past performance or the quality of its underlying assets. Sir Rabbie added that in the present year, a combination of fiscal and monetary stimulus, as well as quick progress in immunization programs, has resulted in a robust comeback in economic growth in most developed nations. “In Australia, the success of Federal and State governments in controlling the pandemic appears to have led to some slowness in easing restrictive measures when compared with their counterparts in the US and Europe. Global share markets have continued their recovery. “For the five months to May 31, 2021, the main stock indices in the US, Europe and Australia have all risen strongly: in the US, the S&P 500 index has risen 11.3 per cent; in Europe, the Euro Stox index is up 13.7 per cent; and in Australian, the ASX 200 has risen 8.7 per cent. “For the year to May 31, 2021, the preliminary return on the company’s investments was 9.7 per cent, and the NTA has increased to K1.68 per share.” Reference: The National (24 June 2021). “Firm suspends investment in Aust amid pandemic”.
PNG Business News - July 22, 2021
Oil Search Considering Merging with Santos
Santos, an Australian oil firm, announced its plan to combine with Oil Search Limited. Santos proposed a non-binding indicative merger last month with the goal of making the two companies the regional energy champions. The proposed merged entity has a market capitalization of A$22 billion (K56 billion), putting it among the top 20 ASX-listed companies and the top 20 global oil and gas companies. This means, among other things, that the merger will have a diverse portfolio of high-quality, long-life assets spanning Australia and Papua New Guinea, a solid balance sheet with ample cash to support expansion choices, and an investment-grade credit rating. The merger plan, if approved, would be conducted through a Scheme of Arrangement in which Oil Search shareholders would receive 0.589 new Santos shares for each Oil Search share held, according to Santos in a market disclosure to the Australian Stock Exchange. Following the scheme's acceptance, Oil Search shareholders would control 37% of the combined company, while Santos shareholders would own 63%. Based on Santos' closing price on June 24, 2021, the ownership ratio suggested a transaction price of A$4.25 (10.92) per Oil Search share. This was a 12.3% premium to the Oil Search closing price of A$3.78 (K9.72) on June 24, 2021, and a 9.8% premium to the Mubadala block trade selling price of A$3865. (K9.92). Kevin Gallagher, managing director and chief executive officer of Santos, said the merger will bring more alignment to PNG, allowing for the development of important projects such as Papua LNG, as well as the creation of new employment and support for the local economy. Santos, according to Gallagher, has proposed a true merger in which ownership of the combined firm is based on proportionate contribution and value. “The strategic rationale for a merger is clear and offers superior value to Oil Search shareholders rather than continuing on a standalone basis. “Santos continues to believe that the Merger Proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders.” Oil Search stated in its ASX market update that it is open to receiving and engaging with any proposal that is in the best interests of its shareholders. While the company's board of directors agrees with Santos that combining the two firms makes strategic sense, the conditions must be fair to the company's shareholders, which the terms proposed by Santos are not. Despite Santos shareholders holding 70% more shares than Oil Search shareholders, Oil Search maintains that the proposed conditions provide just a 6.8% premium based on Friday's closing share prices for Oil Search and Santos. According to the firm, no such proposal has been made at this time. Reference: Post-Courier (21 July 2021). "Oil Search Open To Merger with Santos".
PNG Business News - July 21, 2021
Study Says Sweet Potato Growers Have Received Significant Insights into Customers Buying Habits
In Papua New Guinea (PNG), sweet potato (kaukau) growers have received significant insight into customer buying habits, which is assisting them in identifying new market possibilities. The recent market analysis, which was supported by the Papua New Guinea-Australia Partnership and conducted by the Australian Centre for International Agricultural Research, revealed that an increasing number of consumers in Port Moresby prefer to buy fresh produce from supermarkets, citing convenience and safety as reasons. While this trend may result in fewer consumers at conventional farmer markets, PNG and Australian experts believe it may open up new marketplaces for rural people. “Farmers are looking for stable markets where they can receive more consistent prices for better-quality produce,” said Professor Philip Brown from Central Queensland University (CQU), who is leading the research project. “The research shows that consumer behaviour is likely to support an expansion in the supermarket sector in large urban centres and this is positive news for the farmers. This could allow commercial focused farmers to secure more stable market access.” The study of 353 customers was conducted as part of ACIAR-funded sweet potato research sponsored by CQU and the PNG National Agriculture Research Institute (NARI), which aims to improve sweet potato value chains by increasing the quality of harvested roots. Sweet potato quality and production are improving, resulting in increasing supplies to retailers eager to provide better fresh produce. “The project, with support from the Fresh Produce Development Agency and NARI, is helping farmers to build their business skills and connect with emerging supermarket opportunities,” said Professor Brown. Kirt Hainzer, a CQU researcher who collaborated on the survey alongside NARI researchers, said it was the first study to look at customer behaviour and see what role stores may play in the development of PNG's commercial sweet potato sector. “The research sought to better understand and compare how consumers buy staples from open markets and supermarkets and to explore the preferences for purchasing staple foods as supermarkets increase the availability of convenience staples like rice,” said Hainzer. “Although expanding formal sales represents a huge step forward in developing a commercial sweet potato industry, continued research on consumer preferences and the market for fresh produce will help better understand trends in staple food purchasing and what market opportunities exist for growers.” With over a hundred kinds of sweet potato in the nation, NARI economist Raywin Ovah said the study sought to find out which of these customers preferred. “Not all the varieties are preferred from a consumer point of view. There are only a few that consumers want to be based on the taste or health properties and that is what we want to also find out. Farmers can be provided with that information, so they produce those varieties that the market wants.” One of five initiatives under the Transformative Agriculture and Enterprise Development Program is a project to increase commercial sweet potato production and commercialization in the PNG highlands. The ACIAR program, which is funded by Australia in collaboration with the government of Papua New Guinea, aims to improve the livelihoods of rural men and women through private sector-led development, increased agricultural productivity and quality, and the development of individual and institutional capacity. Reference: Loop (20 July 2021). “Study looks into sweet potato industry”.
PNG Business News - July 21, 2021
Garry: MRA Evaluating K50 Billion Worth of Investments
According to managing director Jerry Garry, the Mineral Resources Authority is evaluating more than K50 billion in investments in the country. Wafi-Golpu, Frieda River, and Woodlark are among them. “We are also looking at the Central Lime and Cement,” he said. “If that project comes on-stream, it will be one of the first industrial mines ever built in the country.” Garry was speaking at a Port Moresby consultation session on the Mine and Works (Safety and Health) Bill 2021. PNG, he added, was home to some of the world's largest mines. “We have grown from strength to strength,” he said. “If you compare the Bank of PNG statistics, the mining sector alone, in terms of production, has exported over K17 billion in 2020 and 2019. “So it’s a huge industry that we are trying to regulate and manage.” Garry expressed gratitude to the industry for making safety a primary priority. “They have been taking health and safety at the workplaces very seriously,” he said. “We must not only consider (the workers) and the environment but also people living around the (areas) we operate in. “And if we are using any hazards, we must also take responsibility.” The newest mining methods in Wafi-Golpu, known as block cave mining, are one of the new things to expect, according to Garry. “New mining hazards will come with this new mining method,” he said. Reference: The National (20 July 2021). “Authority assessing investments worth K50bil”.