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 26, 2021
Foreign Direct Investment will Aid PNG's Recovery from COVID-19
According to Bank South Pacific Group Ltd chief executive officer Robin Fleming, foreign direct investment (FDI) will play a key part in Papua New Guinea's recovery from the Covid-19. “Bank of PNG data indicates that in 2020 FDI flows into the country will be reduced by 66 per cent to K387 million from K1.1 billion in 2019,” Fleming said. “This statistic, however, does not reflect that the level of international investor interest increased in 2020 and that one of the key challenges is converting that interest into definite projects. “It is promising to see a number of opportunities for businesses going forward. “For example, PNG businesses can participate in Government infrastructure initiatives such as the Pacific step-up partnership between the PNG and Australian governments where K582 million has been committed.” Other examples, according to Fleming, include the K1.1 billion national port rehabilitation program; the PNG electrification partnership with Australia, Japan, the United States, and New Zealand, which aims to connect 70% of PNG's population to electricity by 2030; and the ongoing Nadzab Airport Redevelopment worth K692 million by the Japan International Cooperation Agency (Jica) and the National Airports Corporation (NAC). According to him, the mining, oil, and gas industries received the majority of foreign direct investment. Some key factors to consider when reviewing an FDI proposal, according to Fleming, are the net economic benefit and alignment with national interests, such as the potential for the positive development of human and natural resources; creation of jobs and other income-earning opportunities; technology and skill transfer; and contribution to training Papua New Guineans. “This screening process highlights the government's continued focus on developing a supportive environment for businesses to grow and attracting FDI.” According to Fleming, the PNG Investment Conference, which will take place in September, is one of the most important conferences that has enhanced PNG's reputation on the international arena. “The platform is a great way of promoting PNG’s business and investment opportunities.” “Over the three-day event, a line-up of distinguished panellists will cover a number of key topics,, ranging from PNG’s place in a post Covid-19 world and the prevailing investment climate to important industry trends and major project updates.” Reference: The National (21 July 2021). “Foreign direct investment to help PNG recover from Covid effects”.
PNG Business News - October 26, 2021
Australia buys Digicel, PNG’s mobile monopoly
Photo credit: Devpolicy by Stephen Howes Yesterday, Telstra announced that it was buying Digicel Pacific. Telstra itself is only paying $270 million, and the Australian government $1.33 billion. Yet, Telstra is obtaining 100% ownership. The deal is certainly an attractive one for Telstra. But does it make sense for Australia, and for the Pacific? Digicel has had a transformational impact in the Pacific, but now has too much market power. As the Telstra release explains, it holds the dominant position in all the Pacific countries in which it operates, except for Fiji, where it is in second place. In Papua New Guinea, which I know best, and which is by far Digicel's biggest market, the company has a 92% share of the mobile phone market. That makes Digicel effectively a monopoly in PNG. And that is why it is so profitable: like any monopolist, it exploits its market power. Australian and PNG researchers have been tracking mobile internet prices in PNG since Australia gifted it a new underwater cable . Their conclusion is that since the completion of that cable in December 2019 to today there has been no decrease in mobile internet prices. The reason is simple: the lack of retail competition. Michelle Nayahamui Rooney, Martin Davies and I last year exposed Digicel PNG’s predatory loan scheme. Digicel lends phone credit to its customers. They pay it back when they next top up. Our estimate is that Digicel made a 17% return from such loans every week, which is equivalent to an unbelievable 351200% a year. Is this really the way in which Australia want to engages in the Pacific – owning an enterprise that keeps prices high for consumers, and rips them off when they are desperate to make a call? Any monopolist is necessarily engaged in a battle between the consumer and their profits. At some point, Telstra will end up going toe-to-toe with the PNG telecom regulator, NICTA, as Digicel has done several times. It’s going to be awkward for both Telstra and the Australian government. Many will welcome the investment as a sign of Australian commitment to the Pacific. However, if we want to invest in the telecom sector in the Pacific, we should be backing alternatives to Digicel, to push prices down and improve services, not buying out the dominant player. Amalgamated Telecom Holdings based in Fiji is the Pacific’s second biggest telecom provider. It is currently planning to enter the PNG mobile market with support from the Asian Development Bank. This is the sort of investment we should be financing. That Australia has bought Digicel shows the extent to which the Pacific is now viewed through a China lens. That’s unfortunate. China is a massive economic power. Its companies will have increasing stakes in economies around the world. That is a fact we have to accept. The Australian government also needs to decide if its only goal is to counter China or if it is still seeks to promote Pacific development. When I was AusAID's Chief Economist, Digicel was the new kid on the block in the Pacific, and it was successfully challenging state-owned telcos that until then had been dominant. In 2006, in Foreign Minister Alexander Downer's flagship Pacific 2020 report, we wrote glowingly about the competition that various Pacific countries had recently started allowing in the mobile phone sector. Our analysis was right then, and remains relevant today. Yet here we are, in 2021, doing the opposite: rather than supporting greater competition in the telecom sector, subsidising the purchase of the incumbent monopolist. The decision to buy Digicel Pacific should be reversed. If it is too late for that, the Australian government should at least – in return for all its cheap and risk-reducing finance – oblige Telstra to operate Digicel for the benefit of the people of the Pacific rather than solely for its shareholders through an agreement that makes it clear that the Australian company is not only expected to return the cheap loan it has been given, but also reduce prices, and end rip-offs. This article appeared first on Devpolicy Blog (devpolicy.org), from the Development Policy Centre at The Australian National University. Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School.
PNG Business News - October 26, 2021
Taureka Replaced As Managing Director
Isikeli Taureka's position as managing-director (MD) of Kumul Consolidated Holdings (KCH) was terminated by the National Executive Council (NEC) recently. Professor David Kavanamur has been appointed as interim MD until a permanent appointment is made, and Moses Maladina, the current chairman of PNG Power Ltd, has been named as acting chairman. Taureka was removed after 20 months, according to Prime Minister James Marape, due to poor performance by KCH and State-Owned Enterprises (SOEs) and missed national project deadlines. “The reforms of the SOEs were endorsed by the Government in October 2019,” he said “We see it as the most-significant reform programme to be undertaken by any Government since the corporatisation of the state utilities and the creation of the Independent Public Business Corporation (IPBC), now KCH. “Building governance and accountability must go hand in hand with successful project execution. These are viable projects that can fundamentally change the accessibility and affordability of services and benefit the welfare of our people. “Extensive unexplained delays to major projects by KCH and SOEs are not acceptable. The Government understands that SOE issues cannot be immediately resolved as they take time. “That is why the NEC provided well over a year for KCH to work with SOEs to support the development and execution of strategies. We had hoped more would have been achieved during Taureka’s tenure. We regret to take the difficult step of severing the MD’s appointment. However, the NEC felt it had to be done. “The Telikom merger and partial privatisation with majority ownership and board control to be passed onto the super funds, for example, is one major issue the Government has been pushing since 2019 when we took office. “The merger of Water PNG and Eda Ranu is another matter that has been outstanding and not yet resolved. This merger is to take on a subsidiary structure where 20 percent of Eda Ranu is to be owned by Koiari landowners and 10 per cent each by Central Province and the National Capital District. “This decision was taken in 2019 but has not been implemented to date. “As for PNG Power and its continuous performance issues, these have been ongoing and evident. “These are badly-needed reforms within the SOEs and responsive policies have been launched by the Government, yet, very little or no progress have been made. “Out of respect to Taureka as a leading Papua New Guinea son, I had reached out to him for a meeting but there was no response forthcoming. Hence, the announcement of this decision (termination),” he added. Those nominated to crucial positions, according to Marape, must grasp the larger picture and act quickly to fulfill the government's goals.“For others in key leadership roles, whether as chair, members of boards, departments or agency heads, you are not here to pass the time or warm seats. Everyone must step up. “The Prime Minister’s Department is working to take stock of work done. So, if you feel you have not met your key performance indicators, I suggest you start thinking about resigning before the NEC asks you to leave.” According to Marape, Kavanamur had previously served as the chairman of KCH and had a thorough awareness of the organization's issues as well as the government's goals. Reference: The National (22 October 2021). “Cabinet Axes Taureka”.
PNG Business News - October 26, 2021
Digicel Pacific to be Acquired by Telstra
Telstra has announced that it will buy Digicel Pacific for $US1.6 billion, plus up to an additional US$250 million based on business performance over the next three years, subject to government and regulatory approvals. In its six South Pacific markets – Papua New Guinea, Fiji, Nauru, Samoa, Tonga, and Vanuatu – Telstra, Australia's leading telecommunications and technology company, will continue to invest in and operate the business under the Digicel brand name. Telstra International CEO Oliver Camplin-Warner said the agreement will allow Telstra to expand on Digicel Pacific's regional leadership and increase mobile connectivity in Papua New Guinea. “Denis O’Brien and the Digicel team have built a phenomenal business that’s centred on providing exceptional customer service, the best coverage and leading digital experiences. Telstra will add to these strengths and the team’s local knowledge with our more than one hundred years’ experience connecting the vast expanses of Australia to continue delivering great experiences for Digicel’s customers across the Pacific.” “We have 19.5 million retail mobile customers in Australia and our 4G network is the largest and most reliable in country. It covers some of the remotest parts of Australia – from the coast, to the outback and the Torres Strait Islands, just off the coast of Papua New Guinea. And we’re in the process of building Australia’s largest 5G network that now stretches to more than 240 towns and 75 per cent of the population,” Camplin-Warner said. There will be no employment losses in the region as a result of the transaction, and the present Digicel Pacific team will continue to manage the company on a day-to-day basis. Denis O'Brien, the current owner of Digicel, will continue on the Board of Directors. “We will invest our know-how and capital to further expand coverage and over time bring the benefits of 5G to Papua New Guinea. But we’ll retain the same Digicel brand the people of PNG know and love today with the same team and services they have come to rely on,” Mr Camplin-Warner said. The purchase, according to Camplin-Warner, is in line with Telstra International's expansion plan, which now comprises operations in 20 countries outside of Australia and thousands of clients, including businesses, governments, and some of the world's largest technology firms. “Beyond Australia Telstra also has the most extensive subsea telecommunications cable network in the Asia Pacific. And we’re one of the biggest providers of voice and data services connecting the South Pacific to the rest of the world through our Southern Cross cable.” “Network traffic is growing faster than at any other period of time and digital technology is changing our world. We are at the centre of this, and so is Digicel Pacific. We are committed to delivering the best technology on the best network for PNG,” Mr Camplin-Warner said. The people and businesses of PNG will benefit from Telstra's experience rolling out a world-class 5G network and connecting diverse geographies, according to Colin Stone, CEO of Digicel Papua New Guinea. “Telstra’s network innovation has played a critical part in Australia being ranked first in the global Mobile Connectivity Index which assesses networks based on performance, affordability and availability. We look forward to working with Oliver and the Telstra team,” Mr Stone said. The two firms' ideals, according to Camplin-Warner, were likewise matched. “Digicel Pacific and Telstra are both committed to building a connected future so everyone can thrive and this includes supporting some of the most vulnerable in our communities.” “Digicel Pacific has taken community development to the next level through the Digicel Foundation’s investment in health, education and community-based programs. We look forward to continuing this work, just as we do today with the Telstra Foundation and its commitment to using technology to support young people and help to reduce the digital divide.” “We will also bring a commitment to addressing climate change to help drive better environmental outcomes for the people of PNG,” Mr Camplin-Warner said. Despite the fact that the transaction is funded by the Australian government, Telstra will remain the only owner and operator of the company. Reference: Loop (October 25, 2021). “Australia’s biggest telecommunications company to acquire Digicel Pacific”.