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This Country Commercial Guide (CCG) presents a comprehensive look at Papua New Guinea's (PNG) commercial environment, using economic, political and market analysis. The CCG's were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. Government agencies. Papua New Guinea's population of more than four million and land area of 463,000 square kilometers make it by far the largest Pacific Island nation. PNG's rich natural resource base, including gold, copper, hydrocarbons, tropical timber, and fisheries, along with treecrops (coffee, cocoa, copra, and palm oil), provide the country's principal business opportunities, both for investment and as a market for exports of equipment and other inputs. Although capital-intensive exploitation of natural resources and treecrops generates significant export revenues, at least 85% of the population resides in isolated villages, engaged in subsistence and smallholder agriculture. As a result of the limited linkages of much of the economic activity in PNG with the bulk of the population, the country continues to exhibit the labor-market structure and standard social indicators (such as literacy, infant and maternal mortality, and life expectancy) of a very low-income nation. With more than 1,000 ethnic groups and more than 800 distinct languages, a sense of nationhood is still building among the populace. Some evidence of continued ethnic strife can be seen in the occasional tribal wars still occurring in the Highlands. One of PNG's strongest attractions is its commitment to democratic institutions. Traditional village society is based on a natural democracy where all important decisions are made by consensus. Since gaining independence from Australia in 1975, all changes of government have occurred peacefully under parliamentary procedures and/or free and fair national elections. The most recent change of government, in August 1994, followed a Supreme Court decision that overturned the Parliamentary re-election of the previous government. The next general election will be in June 1997. Land disputes are endemic because most land is communally held and there is no established system of land registration in most areas. Investors must therefore pay particular attention to landowner concerns and community relations. Demands for compensation by landowners are increasingly accompanied by threats of violence, usually against property owned by developers or the Government or, less frequently, by actual vandalism or destruction of such property. Violent crime, especially in urban areas, also is a serious problem which adds to the cost of doing business in PNG. While disputes over land ownership and compensation continue to complicate mineral development and exploration, several new projects are moving ahead. The construction, on Lihir Island, New Ireland Province, of one of the largest gold mines outside South Africa began in December 1995. Several other new small and medium-size mining projects are planned or under way. Construction and development of the Gobe and Southeast Gobe oil fields in the Gulf and Southern Highlands provinces could begin as early as late 1996. These projects could provide market opportunities for American exporters of equipment, supplies, and services. Growth of U.S. exports of consumer goods to PNG has long been inhibited by the small size of the market; the distance to the market; the lack of frequent, regular and inexpensive shipping service from the U.S.; and dominance of the market by neighboring Australia, the largest donor of development aid to the country. After several years of strong real GDP growth, the PNG economy began to undergo serious fiscal and balance of payments crises in 1994 caused by government overspending in previous periods. Late that year, increasing depletion of the country's international reserves forced the PNG Government to devalue and then "float" the kina, resulting to date in depreciation of almost 30% against the U.S. dollar. In mid-1995, the Government agreed with the IMF and World Bank to macroeconomic targets and a series of policy reforms designed to restore economic stability and achieve strong future growth. Under the Structural Adjustment Program (SAP) agreed with those institutions, PNG was scheduled to receive, in two tranches, loans totalling US$358 million in 1995 and 1996 from a variety of bilateral and multilateral lenders. Release of the second tranche of loan funds was significantly delayed after the World Bank indicated that it was not satisfied with the Government's implementation of several agreed policy reforms. The second tranche of the loan was originally to be available for drawdown up until September 30, 1996. However, in late September, the GPNG and World Bank officials finally reached agreement allowing extension of the loan term to December 31, 1996. The second tranche of funds will be released only after implementation of conditions agreed in exchange for the extension, including passage of a fiscally responsible national budget for 1997 at the November sitting of Parliament. Receipt of the first tranche of SAP loan proceeds in late 1995 helped to ease the foreign-exchange situation and to stem the fall of the kina. In June 1996, the Central Bank eased monetary policy, allowing a reduction of lending rates by the commercial banks. Both these factors have alleviated constraints on the ability of the government and private sector to import. PNG became a participating economy in the Asia Pacific Economic Cooperation (APEC) forum in 1993 and formally acceded to the World Trade Organization on June 22, 1996. In addition, one of the key reforms being pursued under the SAP is significant liberalization of trade and investment policies. Also of interest to exporters is the Government's commitment to shift resources from consumption to investment expenditure. The many capital projects envisioned over the next several years could offer significant opportunities for suppliers of equipment, materials, and services to the construction sector. Country Commercial Guides are available on the National Trade Data Bank on CD-ROM or through the Internet. Please contact Stat-USA at 1-800-STAT-USA for more information. To locate Country Commercial Guides via the Internet, please use the following World Wide Web address: www.stat-usa.gov. Country Commercial Guides can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS.
II. ECONOMIC TRENDS AND OUTLOOK PNG has experienced sharp swings in economic performance since the closure in 1989 of the Panguna Copper Mine -- then a major source of export earnings -- in Bougainville due to violent civil unrest. The mine closure coincided with a sharp and sustained deterioration in prices for the country's principal agricultural exports. In response to these economic shocks, the government initiated a program of structural adjustment and stabilization with the support of the World Bank, International Monetary Fund and others. Between 1991 and 1993 there was a strong recovery in economic growth, with real GDP increasing by 9.5% in 1991, 11.8% in 1992 and 16.6% in 1993. The recovery was largely driven by a mineral and petroleum boom centered in the Highlands region. The new gold and oil revenues eased the immediate financial pressure on the Government and the policy reforms agreed under the structural adjustment program did not take root. Instead, the Government embarked on expansionary spending and tax-reduction policies which culminated in a fiscal deficit that ballooned to an annualized rate of over 10% of GDP by June 1994. "Expenditure-control measures" instituted in July 1994 slowed spending and curtailed the reported 1994 deficit to about 2.8% of GDP. However, a substantial amount of government arrears to the private sector, from 1994 and prior years, was carried over into 1995. Real GDP growth slowed to about 3% in 1994. Real GDP is estimated by the Bank of Papua New Guinea to have contracted by 2.9% in 1995. The decline was primarily attributable to an anticipated drop in production from PNG's aging mines and oil fields. Overall real GDP growth is projected to be only about 1.6% (well below the population growth rate -- estimated at between 2.3% and 2.8% annually) in 1996. Overall real GDP is expected to contract slightly in 1997 before a strong resurgence of total growth (4.6%) in 1998 anticipated from the onset of new production at the Lihir gold mine and Gobe oil field development. Even this growth spurt will be short-lived unless additional new production can be brought on stream to replace expected declining production from most existing mining and petroleum projects. PNG depends heavily on imported goods and services, both for consumption and as inputs for its exports. According to the Central Bank, year-on-year inflation reached 18.7% for the quarter ending December 31, 1995. The Government projected continuing inflationary pressures in the first half of 1996, as the depreciation of the kina continued to work through the economy, with inflation for 1996 estimated at 6.7%. By the quarter ending June 31, 1996, year-on-year inflation had fallen only to 15.9%. In mid-1995, the Government reached agreement with the IMF and World Bank on macroeconomic targets and a series of policy reforms designed to restore economic stability and achieve strong future growth. Under the Structural Adjustment Program (SAP) agreed with those institutions, PNG was scheduled to receive, in two tranches, balance-of-payments support and Economic Recovery Program (ERP) loans totalling US$358 million from a variety of lenders in 1995 and 1996. PNG received the first tranche of loan funds, approximately US$200 million, in August 1995. However, release of the second tranche was significantly delayed after the World Bank indicated that it was not satisfied with the Government's implementation of several agreed policy reforms. The ERP loan was originally to be available for drawing only through September 30, 1996. In late September, the Government and World Bank officials finally reached agreement allowing extension of the loan term to December 31, 1996. The second tranche of funds will be released only after the Government fulfills various conditions, including passage of a fiscally responsible 1997 national budget at the November sitting of Parliament. The Government has forecast double-digit real growth in the construction sector through the end of the decade, peaking at estimated 22.4% growth in 1996 and 17.5% growth in 1997. Work on the $673 million Lihir gold mine project is the principal contributor to the anticipated construction boom. In addition, construction projects involving airports, highways, disaster rehabilitation, development of the Gobe oil field, and a petroleum refinery are planned or being implemented. The agriculture, forestry, and fisheries sector is expected to enjoy real growth in the 3 to 5% range for the remainder of the decade. Export-volume increases are expected for all agricultural commodities, including cocoa, coffee, palm oil, tea, fisheries and copra. If the Government maintains its commitment to sustainable development of the forestry sector, log-export volumes are expected to increase only slightly. Government Role in the Economy The government has had a prominent role in the PNG economy, with government expenditure averaging about 30% of GDP since 1990. Government has also accounted for about a third of formal employment. A relatively young country, PNG has not developed a large number of government-owned or -subsidized enterprises. However, the government has intervened heavily in economic activity through an extensive system of licensing and approval requirements and through trade restrictions, tariffs, and price controls. The SAP calls for privatization, liberalization of trade and investment, reduction in public service employment and decontrol of prices. Implementation of many of these reforms is underway, either pursuant to the SAP or as part of PNG's participation in APEC and new membership in the WTO. As a result of the expansionary fiscal policies pursued from 1991 through the first half of 1994, the most significant constraint facing the economy was the persistent loss of international reserves. The continuing declining trend in international reserves culminated in a 12% devaluation of the kina against the U.S. dollar in September 1994. The devaluation failed to restore foreign-exchange levels, so the Government decided in October to allow the kina to "float." At its lowest point in September 1995, the currency had depreciated a total of about 31% against the U.S. dollar. As of October 30, 1996, the exchange rate had been relatively stable during 1996, averaging around 1.32 kina to the U.S. dollar (a depreciation of about 28% from pre-devaluation levels). Since PNG received the first tranche of ERP loans under the SAP, the balance-of-payments situation has improved markedly. Central Bank statistics for June 1996, the most recent month available, show 3.9 months of non-mining import cover and 2.8 months of total import cover. The Government has forecast improvement in PNG's balance-of-payments position after 1995 and reasonable levels of reserves (2-3 months of total import cover) for the remainder of the decade. Because PNG lies off the major sea routes and generates little cargo itself, sea-freight costs to and from PNG are high, and service to and from the rest of the world is infrequent. Transportation by road within the country is difficult and expensive due to the mountainous terrain. The capital, Port Moresby, is accessible from the rest of the country only by sea or air. In the center of the country, the Highlands Highway links the port of Lae to major centers in the Highlands. Little additional road development has taken place, and maintenance of existing roads is poor. Road transportation is further complicated during wet weather when roads and bridges can be closed due to landslides and floods. Travel on the Highlands Highway was also complicated in 1995-96 by incidents of banditry at roadblocks and looting of disabled trucks. On a few occasions, portions of the Highway have been closed by villagers protesting grievances against or seeking compensation from the Government. Because of the lack of roads between the major population centers, products must be unloaded at various ports and then transported inland by road. The ports of Port Moresby and Lae together handle 70% of the country's imports. Port Moresby is the focal point for the National Capital District and Central Province. Lae serves Morobe province and the Highlands. Other important ports are located at Madang, Wewak and Rabaul. Electric power reaches only about 12% of PNG's population, electricity costs are high, and power is subject to interruption and fluctuations. Although telephone service is sophisticated and fairly reliable, especially in the urban areas, only about 2% of the population currently has residential service. Cellular telephone service was introduced in the Port Moresby area in 1996. Internet access is available but at high cost. Expansion of the telecommunications network and rural electrification represent long-term trade opportunities for exporters of necessary technology and equipment.
The Independent State of Papua New Guinea is a Westminster-style parliamentary democracy within the British Commonwealth. The British monarch serves as the Head of State, and is represented in PNG by a Governor General. The three branches of government are the legislature, the executive, and the judiciary. The National Parliament is the law-making institution in PNG. The National Executive Council, or Cabinet, determines policy for the country. An independent judiciary interprets the Constitution and protects basic rights enunciated therein. PNG law stems from: the Constitution; the organic laws; acts of Parliament; emergency regulations; subordinate enactments; and the underlying law (traditional/customary laws). The country is divided into 20 provinces. Under the constitutional amendments of the "Organic Laws" of 1976, these provinces were granted some political autonomy. However, with the passage of the Provincial Government Reform Bill in June 1995, the provinces lost much of their autonomy. The controversial reforms have resulted in political conflict and slow implementation of the new system has caused a decline in basic services, particularly in rural areas. Since independence on September 16, 1975, PNG has enjoyed peaceful democratic transitions of power. National elections are held every five years; the next is scheduled to take place in June 1997. There are at least 10 political parties active in PNG. Since no party has ever achieved a clear majority in Parliament, governments are formed through negotiated coalitions. Alliances are fluid and pragmatic, and most of the parties take similar stances on many issues. The frequency of changes in government has been reduced by the enactment of a "grace period" giving a new government 18 months in office before it can be subject to a vote of "no-confidence." An existing constitutional provision already provided a one-year period of relative invulnerability before a scheduled national election. September 1996 marked the 21st Anniversary of PNG's independence. Prior to 1975, the country was a combined UN Trusteeship/colonial possession under Australian administration. PNG's friendly relationship with the United States began during World War II, when large numbers of U.S. troops fought successfully to expel Japanese invaders from numerous regions of the territories that became PNG.
IV. MARKETING US PRODUCTS AND SERVICES Distribution and Sales Channels The total potential market for consumer products is small and extremely fragmented. The main townships are isolated from each other by inadequate communications, and many people with cash to spend still live in outlying villages. In the major urban centers of Port Moresby, Lae, Goroka and Mount Hagen, retail shopping is dominated by the major supermarket chains and a small number of independent stores. In fact, companies related to the major supermarket chains are both importers and wholesalers for a wide range of imported, Western-type products. Through their wholesale operations, these companies also serve as a type of distribution network to the villages. Accountancy and law firms in Port Moresby probably have the best contacts and access to information necessary to locating a suitable partner in PNG. In addition, "match-making" with potential joint-venture partners is one of the key functions of the Investment Promotion Authority (IPA). To this end, IPA lists foreign and Papua New Guinean investors seeking joint-venture partners in its monthly newsletter and can provide more personalized assistance to the prospective exporter or investor. The Small Business Development Corporation and the various Chambers and Industry Associations also can be helpful in this regard. The Embassy publishes a bi-monthly commercial newsletter that can publicize interest by U.S. businesses in finding partners. Steps to Establishing an Office All foreign enterprises doing business in PNG must be certified by the IPA and registered with the Office of the Registrar of Companies. Companies intending to set up an office in PNG should consult a local attorney regarding these and other requirements. The most significant barriers to U.S. exports are the small size of the market, the distance to the market, infrequent shipping schedules, and Australia's market dominance. Because of ingrained habits, colonial ties, and the monopolistic nature of several industrial sectors, many importers continue to buy from traditional suppliers, even when other suppliers offer more competitive pricing. Since the purchasing power of the kina has diminished, importers are becoming more receptive to new sources of supply. To compete with traditional commercial ties, U.S. exporters need to visit PNG often. They must also be committed to follow up on their visits by phone, letter, and fax. Competitive financing is a key factor in large projects. For consumer goods, the ability to consolidate cargo and ship mixed containers will be an important plus. Advertising and Trade Promotion Advertising, some of it fairly sophisticated, is carried in Port Moresby's two daily newspapers, the "Post-Courier" and "The National", and in a weekly newspaper, "The Independent"; on radio stations owned by the National Broadcasting Commission; on PNG's one broadcast television channel, EM-TV; and on the privately-owned FM radio station, Nau-FM. Exporters of consumer goods may wish to consider advertising in Melanesian Pidgin, the lingua franca of most Papua New Guineans. The Embassy mails a bi-monthly commercial newsletter to over 80 key importers in PNG to publicize information it receives on U.S. exporters seeking buyers and distributors for their products. Price controls are in effect for a number of consumer goods, mainly food products. These controls are poorly enforced, and are scheduled to be phased out under the SAP. At present, the most important limitation on the ability of foreign suppliers to sell to the Government is the latter's persistent cash-flow problems. Initial contact should be made with the Department that would use the product or service. Final approval of purchases must be made by a centralized Tenders Board. Protecting Your Product from IPR Infringement PNG has not yet signed on to the major international intellectual property rights (IPR) conventions. It plans to deposit instruments of accession to the World Intellectual Property Organization (WIPO) by December 1996. Piracy of videos, broadcast television, and music cassette tapes occurs. PNG became a member of the World Trade Organization in 1996, and the IPR situation should improve as PNG begins to implement its obligations under the Uruguay Round TRIPS Agreement. Proprietors of trademarks may register with the Registrar of Trade Marks, established in 1979. Generally speaking, routine export transactions should not require the services of an attorney. If a contract is being entered into or a dispute has arisen, it is wise to retain a local attorney. There are several reputable local firms, many of them associated with Australian law firms, to choose from. A list can be obtained from the Embassy.
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT Note: Developers of major projects in PNG frequently commit to using local suppliers to the extent possible. Developers of mining and petroleum projects must procure goods and services locally whenever they are competitive on a delivered cost and quality basis. U.S. companies that associate themselves with local firms may enjoy an advantage in winning contracts. Equipment/Services for Oil and Gas Exploration and Development Significant oil reserves have been discovered in the Gobe and Southeast Gobe fields in the Gulf and Southern Highlands provinces. Project participants have been granted predevelopment licenses and are poised to apply for petroleum development licences (PDLs). If the project proceeds to development, construction could start as early as late 1996. Recent landowner concerns may delay the grant of the PDLs by several months while the State and operator negotiate and conclude agreements with landowners. Capital costs of development are estimated at about US$300 million. Peak production is estimated at 50,000 barrels per day. The fields will be operated by Chevron Niugini. Oil Search, a partner in the existing Kutubu Joint Venture, announced on August 21, 1996 that hydrocarbons had been found at Moran-1X, an exploration well within the area covered by the PDL for the Kutubu field. Further evaluations are being undertaken to determine the extent of the discovery. Economic viability of the discovery will be enhanced by its proximity to the existing Kutubu development, including an oil pipeline. Companies currently exploring for oil and gas in PNG include Chevron, Exxon, Occidental, British Petroleum, Barracuda, Union Texas, Oil Search, and several others. Exploration activity increased substantially in 1996 and suppliers of drilling equipment and services should enjoy significant export opportunities in the medium-term. Construction of a gold mine on Lihir Island began in late 1995 and was 36% complete by July 1996. First production from oxide ore is expected in May 1997. Commencement of production from sulfide ore is anticipated in October 1997. The operation's reserves, conservatively estimated at 14.6 million ounces of extractable gold, will make it one of the largest gold mines outside South Africa. Capital expenditure for the mine and related facilities is estimated at US$ 673 million. Construction of several other smaller mines is under way or planned. Forestry Equipment and Services PNG is blessed with a rich and abundant tropical forest resource. The value of PNG's round-log exports grew almost six-fold from 1990 through 1994, while the volume of log exports tripled. Log exports fell significantly in 1995, to a value of US$339.3 million and a volume of 2.5 million cubic meters, primarily due to adverse weather conditions. Logs are now PNG's third-largest export-earner, after crude oil and gold. The Government has pledged that log exports will stabilize at around 3 million cubic meters, reflecting the current estimated maximum sustainable annual yield. At present, only a tiny fraction of PNG's forest products are processed before export. The Government is actively encouraging more downstream processing, although its announced goal of phasing out round-log exports by the year 2000 may not be achievable. The large-scale logging industry could provide export opportunities to U.S. manufacturers of heavy equipment. In addition, environmental groups anxious to preserve PNG's outstanding biodiversity are encouraging and supporting small-scale community-based operations, which may be of interest to manufacturers of appropriate technology such as portable sawmills and chain saws. Finally, industrial loggers and others have announced plans to open large-scale processing facilities, including chip mills, saw mills and plywood plants, offering an opportunity for imported equipment. Aircraft and Helicopters, Parts and Service Due to its limited road network, PNG depends heavily on air transportation. In addition, mineral and hydrocarbon exploration in remote locations depends on helicopters. A logging company hopes to begin heli-logging in Gulf Province. Several third-tier airlines and helicopter companies are active in PNG. The first phase of redevelopment of Jacksons International Airport in Port Moresby is nearing completion. The contract, awarded to the local subsidiary of a New Zealand company, includes building and civil works for international and domestic passenger terminals, associated aircraft parking areas and taxiways, access roads and car parks. The second phase of the project will include equipment and systems for air navigation, airfield and approach lighting, and the airport power system. Two competing oil refinery projects have been approved by the PNG Cabinet. Both projects have U.S. corporate involvement. One is intended for the Port Moresby area, while the other would be built near the terminus of the Kutubu pipeline; each would have a capacity of 30,000 barrels per day. The promoters of both projects are currently seeking financing and meeting final Government approval requirements. It is unlikely that the market in PNG can support more than one of these projects. The 1996 Government budget allocated over US$65 million to the national Department of Transportation for highway and road projects. Once under way, the projects could generate a demand for heavy equipment from U.S. suppliers. Progress in implementing the projects has been slow. PNG has obtained a multi-million-dollar assistance package to reconstruct Rabaul, a major port and population center in the New Guinea Islands, largely destroyed by volcanic eruptions in September 1994. The Rabaul airport was destroyed and will not be rebuilt. The Japanese Government is providing finance for expansion of the nearby Tokua airfield. Effective implementation of donor-funded relief programs in disaster areas is a key SAP objective. Finally, rehabilitation of infrastructure on Bougainville Island, heavily damaged during a protracted insurgency, will need to commence when peace is restored to the island. The Australian Government already has pledged substantial assistance for such an effort. Bilateral and multilateral donors have had difficulty operating on Bougainville since the lifting of a cease-fire in March 1996, which prompted an escalation of the conflict during the year. Ethnic Hair-Care Products and Cosmetics Several potential importers have contacted the Embassy's Commercial Section to locate suppliers of hair-care products. Manufacturers of beauty products for the African-American market could find PNG a small but growing niche market. This market will only expand as more Papua New Guineans enter the cash economy. Increasing public concern about the quality of drinking water in Port Moresby has increased the market for competitively-priced water-purification equipment. Crime, including violent crime, is a major threat in Port Moresby and other urban centers. Businesses, expatriates, and upper and middle-class Papua New Guineans rely heavily on security fencing, alarms, and guard services, creating a large market for suppliers to the many thriving security companies here. Finally, stand-by power generation is a necessity for businesses in most areas of Papua New Guinea. Manufacturers of appropriate equipment should find trade opportunities here. There is a thriving market for lightweight used clothing among low-income Papua New Guineans. Some of the major distribution companies import used clothing by the container-load which they then sell by the bale to retailers. Exporters of reliably sorted Grade B used clothing suitable for warm climates should explore this market. PNG grows very little rice, the staple food of many Papua New Guineans. A single Australian company supplies almost all of PNG's requirements for imported rice, over 150,000 metric tons per year. Several local importers have expressed interest in establishing a long-term relationship with a U.S. rice supplier which would be prepared to make the commitment necessary to secure a share of this potentially profitable market. The 1995 drought in Australia caused purchasers of feed-grains and wheat to look for new sources of supply. In 1995, for the first time, corn was one of the top five U.S. exports to PNG. The expanding domestic poultry industry also has begun sourcing soymeal and other feed components from the U.S. A GSM-102 Program, instituted by USDA in 1994, is available to facilitate financing of exports of U.S. rice, wheat, wheat flour, feed grains (barley, including malting barley, white corn, yellow corn, sorghum, and oats), and canned vegetables. There is a considerable, though gradually declining, foreign expatriate community living in the major urban centers. This community and upper- and middle-income Papua New Guineans consume a wide range of imported, Western-type foods. Although the market is dominated by Australia and New Zealand, the U.S. Agricultural Trade Office in Singapore has identified market opportunities for U.S. companies to export the following food products: apples; frozen fries; snack foods; non-alcoholic beverages (particularly tetra-packed); confectionery; frozen entrees; frozen vegetables; and sauces, spices and salad dressings. In addition, food-product exporters should not overlook possibilities to supply catering operations at the country's major mining and petroleum venues. Significant Investment Opportunities PNG represents one of the most gold- and copper-enriched sections of the earth's crust. Based on production in 1995, PNG was the eighth largest copper producer and the tenth largest gold producer in the world. The later ranking will only rise when the Lihir gold mine begins production in 1997. Of the ten identified world-class gold and copper-gold deposits in the Western Pacific region, four are in PNG (Porgera, Lihir, Ok Tedi and Bougainville). PNG has potential as a producer of nickel, cobalt and chromite as well. Given the favorable geologic setting, the likelihood of exploration success in PNG is considered very high. Similarly, PNG's fiscal regime is competitive. The principal impediments to further development of the sector are uncertainty relating to compensation claims and other issues stemming from the traditional land tenure system, fiscal policy instability as the Government attempts to deal with landowner demands and budgetary issues, and the rugged topography of the country. Nevertheless, major mining companies continue to explore, to operate and to prosper. Exploration success rates are world-class in the Highlands Fold Belt area of PNG and generally exceed those of its neighbors in Southeast Asia. Recent improvements in seismic mapping techniques may extend the size of existing fields and aid in the discovery of new reserves. Although the fiscal regime ranks in the middle range of those offered in the region, the projects discovered to date are financially attractive, due to the high production rates and low cost-base of those developments. A developing infrastructure in the Highlands, including the Kutubu oil pipeline, makes production from small to medium-size oil fields profitable in the area. The Kutubu fields produce a light sweet crude oil suitable for production of transportation fuels. PNG exported around US$620 million of crude oil in 1995, of which exports to the U.S. totalled an estimated US$50 million. Natural Gas and Liquefied Natural Gas PNG has an estimated 15 trillion cubic feet (TCF) in proven, probable and possible natural gas reserves. Companies are currently investigating possibilities of utilizing PNG's strategic geographic location for access to the Asian liquefied natural gas (LNG) market. According to industry analyses, PNG could be well-poised to compete for the Asian market during a window of opportunity that will emerge between 2002 and 2010, provided it maintains an investment climate capable of attracting the capital of up to US$ 10 billion necessary to finance such an endeavor. In addition, several companies are studying possibilities of building a pipeline along the Kutubu oil pipeline route and across the Torres Strait to export natural gas to Northern Queensland, Australia. Such a project would cost an estimated US$1 billion. In cooperation with the petroleum industry, the Government developed a Natural Gas Policy in 1996 to serve as a basis for additional exploration and development. PNG has significant tuna resources that are currently being exploited only marginally. The primary Distant-Water Fishing Nations (DWFN) operating in PNG waters are the U.S., South Korea, Taiwan, and the Philippines. U.S. boats operate under the U.S.-South Pacific Regional Fisheries Treaty, which provides up to 50 licenses to purse-seiners per year. Other nations have made separate bilateral agreements with PNG. The Government is trying to attract investors to build on-shore fish-processing facilities and form joint ventures with local fishermen. A US$5-million tuna cannery is nearing completion in Madang Province. A larger US$50-million cannery planned by American investors, also for Madang Province, has not yet begun construction. The U.S. Government acknowledges the contribution that outward foreign direct investment makes to the U.S. economy. U.S. foreign direct investment is increasingly viewed as a complement to or even a necessary component of trade. For example, roughly 60% of U.S. exports are sold by American firms that have operations abroad. Recognizing the benefits of foreign investment for the U.S. economy, the U.S. Government undertakes initiatives such as Overseas Private Investment Corporation (OPIC) programs, investment-treaty negotiations, and business facilitation programs that support U.S. investors. OPIC has an agreement with PNG to enable it to provide insurance cover for businesses contemplating investment in PNG.
VI. TRADE REGULATIONS AND STANDARDS PNG became a participating economy in the Asia Pacific Economic Cooperation (APEC) forum in 1993. It formally acceded to the World Trade Organization (WTO) on June 22, 1996. In addition, trade liberalization is one of the key policy reforms required by the SAP negotiated with the World Bank. Therefore the situation with regard to tariffs, non-tariff barriers, import and export licenses is relatively fluid, but steadily improving. As part of its commitments in APEC and WTO, the Government is removing all non-tariff trade restrictions such as bans, quotas and licensing, a particularly important development for exporters of cement, rice, sugar, fresh fruits and vegetables, canned meat, beef, lamb and fish. The Government said it will soon announce details of a five-year timetable to lower duty rates on all imports to internationally acceptable levels. In November 1994, as a revenue-raising measure, the Government increased the middle band of PNG's single-column customs tariff schedule, covering 1,064 items, to 40%. The three basic rates are now 11%, 40% and 55%. Import duties were also increased on such special-item-import products as alcoholic beverages and tobacco products. At the same time, all government departments and statutory authorities became liable to pay import duties at prevailing rates. The 1996 budget reduced tariffs on a wide range of items, including: capital plant and equipment, chemicals, basic iron, steel, and aluminum products, fertilizers and pesticides -- all reduced to 8%; and on many inputs to the agriculture and fishing industries, a range of household electric appliances, dinghies and yachts -- reduced to 11%. In July 1996, the National Executive Council (Cabinet) decided to reduce duties on such formerly highly protected products as tinned mackerel, pork, barracuda, glass beads, imitation pearls and glassware. Membership in Free Trade Arrangements PNG has a bilateral trade agreement with Australia, the PNG/Australia Trade and Commercial Relations Agreement (PATCRA), under which PNG exporters have duty-free and unrestricted entry into the Australian market for most of their products. The South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) is a non-reciprocal agreement between Australia and New Zealand on one hand and the island nations of the South Pacific Forum on the other. It, too, provides duty-free, unrestricted and concessional access for most products originating in PNG. PNG is a signatory to the Lomé IV Convention, an agreement between African, Caribbean and Pacific (ACP) countries and the European Union (EU). This allows preferential access to markets within the European Community for most goods originating from ACP countries, including PNG. PNG also is a beneficiary of the Generalized System of Preferences (GSP) under which certain tariff concessions are provided to its exports to the U.S. Canada and Japan offer similar arrangements. PNG, Solomon Islands, Vanuatu, and Fiji are members of the Melanesian Spearhead Group, which has agreed to reduce or eliminate tariffs on certain specified products traded within the group. VII. INVESTMENT CLIMATE Openness to Foreign Investment The PNG Government welcomes foreign investment, subject to conditions set forth in the Investment Promotion Act. Large-scale investment is concentrated in the mining and petroleum sectors. PNG is also rich in renewable natural resources, including forests and fisheries, and the government places a premium on increasing the downstream processing of these resources. Though the government favors investment, many investors trying to enter the market remain frustrated with the process. Potential investors often experience difficulties and delay in obtaining necessary clearances from a cumbersome bureaucracy. Large developments are inevitably contentious and quickly become political issues, necessitating cabinet decisions. Without consensus at this level, the investor faces additional delay. Several reports in the Australian and local media have charged corruption on the part of decision-makers. Some companies have reported delays in receiving investment approvals believed due to their refusal to pay bribes. The Government created the Investment Promotion Authority (IPA) in 1992 to facilitate and certify foreign investment. Although IPA has not yet become a "one-stop shop," it is often the first point of contact for potential investors and provides them with information and assistance in obtaining relevant government approvals. A foreign enterprise (one that is 50% or more owned by non-citizens, or is controlled by non-citizens) must be certified by the IPA before it may conduct business activity. Certain activities are reserved for locally-owned or joint-venture enterprises. Generally, the restrictions relate to the scale of the activity; hence, small-scale agriculture, hunting and coastal fishing, the manufacture of artifacts, and the operation of small retail outlets are restricted. Of more relevance to the foreign investor are restrictions on companies that provide various mining and construction services, and on the coastal transportation of bulk products or goods. As part of the SAP, the Government has pledged to eliminate the Reserved List progressively over the next three years. Business activities relating to manufacturing and construction were removed from the Reserved List in 1995. Elimination of the Reserved List has been one of the more controversial aspects of the SAP and there has been little additional progress in reducing the number of reserved activities. Just as there is a list of prohibited business activities for foreigners, there are categories of employment to be performed only by Papua New Guineans. These are jobs for which the government has determined that PNG has a sufficient skilled workforce. A foreign worker must have a work permit to be employed in PNG. The sponsoring employer must show an intention to train local workers and to "localize" the job as soon as possible. PNG policy favors privatization of public business entities, but progress toward that goal has been slow. The Government has thus far sold or is planning to sell interests in sugar, oil palm, forest-products and insurance businesses. In addition, in October 1996 the Government launched a public stock offering to sell 49% of the shares in Orogen, a company which will hold the State's interest in the Kutubu, Gobe (subject to issuance of PDLs to the developers), Porgera, Misima, and Lihir Projects and has the option to acquire interests in other current and prospective mining, gas, and petroleum developments. The shares are to be traded on the Australian Stock Exchange. The Mineral Resources Development Company, a wholly-owned subsidiary of the State, will hold 51% of the shares in Orogen. Taxation and Investment Incentives Personal income tax is charged on taxable income at progressive rates. The highest rate is 35%. Taxation of employee fringe benefits, which had been lifted in the 1993 budget to encourage investment, was reinstated as of January 1, 1995. Company tax rates on non-mining, non-petroleum taxable income are 25% for resident companies and 48% for non-resident companies. Resident companies are also liable to pay dividend tax at the rate of 17%, bringing the effective tax on distributed profits of resident companies to 37.75%. Taxable income from mining operations is assessed at the rate of 35% for resident companies and 48% for non-residents. The dividend tax raises the effective rate of tax on distributed mining income to 46.05% for resident companies. Taxable income from petroleum operations is assessed at the rate of 50% for both resident and non-resident companies. There is no liability for dividend tax with respect to dividends paid out of petroleum income. PNG has retained a number of incentives that involve the exemption from or deferment of tax liability for investors. These include an export-income incentive; a pioneer-industries scheme; a rural-development incentive; a wage subsidy; tax relief for staff training costs; and import-duty exemptions and drawbacks. All of these incentives are subject to certain conditions. A local law or accountancy firm should be consulted. Conversion and Transfer Policies The Bank of Papua New Guinea (BPNG), the country's central bank, has responsibility for managing the country's international reserves. While a taxation clearance may be required, it is possible, in most instances, for a commercial bank to approve foreign-exchange transfers without reference to the BPNG. The repatriation of capital due to non-residents is normally approved without delay. Dividend payments to overseas shareholders must be supported by appropriate corporate documentation subject to taxation clearance. Trading banks can authorize annual purchase of up to the foreign-currency equivalent of K500,000 by PNG residents, both corporate and individual, for any purpose, including deposit to offshore or domestic foreign-currency accounts. Except in the case of mining or petroleum enterprises, commercial banks may now approve offshore foreign-currency borrowing by residents of PNG up to a limit of K5 million. The borrower must maintain a debt to equity ratio of at least 5:1 -- a significant relaxation from the previous general ratio of 3:1. Various limits are placed on the permissible terms of such loans, including on the interest rate payable. New foreign-currency borrowing in excess of K5 million continues to be referred to the BPNG. In order to facilitate trade, the BPNG encouraged local banks to create a secondary forward exchange market for the kina, extending for 12 months. Demand was always limited, and the market was not terribly liquid. The BPNG's tightening of monetary policy, including an increase in the minimum liquid asset ratio, has restricted the willingness of some local banks to enter into forward contracts since the "float" of the kina in October 1994. Under the new "market-based" system, the value of the kina is determined according to screen-based trading among the commercial banks that have been authorised as dealers in foreign exchange. Accordingly, the value of the kina fluctuates daily. As of October 30, 1996, the exchange rate has been relatively stable in 1996, averaging about K1.32 to the U.S. dollar, with rates ranging from a low of K1.28 to a high of K1.36 to the U.S. dollar. The kina continues to be freely convertible and practical availability of foreign exchange to local business has been good since the Government received the first tranche of economic recovery loans due under the SAP in August 1995. The kina is not likely to depreciate significantly in the next year, provided that PNG receives the second tranche of Economic Recovery Program loans and meets macroeconomic targets agreed with the World Bank and IMF. Expropriation and Compensation The Constitution, supplemented by the Investment Promotion Act, provides that property shall not be acquired compulsorily except for a public purpose defined by law, in accordance with law, and with just compensation paid. The land belonging to the Hides gas project and the airstrip servicing the Kutubu petroleum project were acquired by eminent domain and the Government intends to acquire the access route to the Gobe petroleum development sites by the same means. While the Government has not expropriated the tangible property of investors, past governments have been aggressive in asserting "property rights." The former Wingti Government, over the two-year period from 1992 to 1994, and particularly in relation to the mining sector, expressed a desire to increase ownership in development projects. With at least the implied threat of expropriation, the Government in 1993 acquired an additional 15% stake in the Porgera gold mine. The transaction was negotiated at market price, but the non-government joint-venture partners could be termed "willing sellers" in only a limited sense. These tactics continued during negotiations over the proposal to develop the Lihir gold mine. By law entitled to acquire a 30% share in the venture, the Government offered/threatened to acquire a half-interest in the project, again raising the specter of "expropriation." Upon taking office in August 1994, the current government of Sir Julius Chan abandoned the attempt to acquire additional equity in Lihir. The Government now seeks to restore investor confidence, particularly in the mineral and petroleum sectors. In March 1995, the Government announced that, with respect to new resource developments, landowners will be entitled to receive as "free" equity a 5% share of mining projects and a 2% share of petroleum projects. The issue of who would pay the development costs associated with the landowners' equity was not resolved until 1996, when it was decided that the resource developers and the Government would share the costs on a proportional basis. In May 1996, Prime Minister Sir Julius Chan announced that there will be no further changes in the mining and petroleum investment regime, except with respect to landowners' equity. Although the Constitution provides that the State owns all underground resources, land tenure issues in the resource sector continue to prove challenging for both the Government and resource developers. It is possible that, as landowners acquire equity in new projects, landowners associated with existing projects will press for equal treatment. The Government has not discriminated against U.S. investors vis-a-vis other foreign investors in setting investment policy or acquiring equity. PNG has a Western legal system inherited primarily from Australia. The courts, which are insulated from Government interference, provide a meaningful forum in which to enforce property and contractual rights, though the country does not have a written commercial code. The Insolvency Act is the source of bankruptcy law and controls the dissolution of failed corporations. PNG is a member of the International Center for the Settlement of Investment Disputes and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Land is an extremely important element within customary PNG society. Land disputes cause long-term difficulty for investors and the Government and constitute a serious impediment to development. Approximately 97% of the total land area of PNG remains in the hands of customary owners, who make decisions about land usage by consensus. There are often multiple claimants to a given parcel of land. There is no general registration of customary land. Although the Government desires to eliminate constraints to effective land utilization, mobilization and transfer, it cannot move appreciably faster than desired by members of customary societies. In July 1995, rumors that a World-Bank-financed Land Mobilization Program would force registration of customary land prompted violent unrest on university campuses and in the Highlands. Under the Land Act, no foreign investor or non-citizen may own the limited amount of freehold land; instead, such a person or entity may lease freehold land from the State for fixed term. Leasehold and freehold land transactions are recorded by the Registrar of Titles. Customary land cannot be mortgaged. With Government permission, leaseholds are eligible for use as security. (Secured interests in chattels are recognized and registered, but enforcement is often a practical problem.) While the Embassy can cite no politically motivated violence directed at U.S. investment projects, such danger (localized in nature) does exist -- the most obvious example being the 1988-89 attacks on the Panguna mine in Bougainville Island by Bougainville separatists that quickly closed the mine. U.S. projects would not become special targets by virtue of their ownership, but there is a tendency for local landowners to strike out at convenient symbols of wealth or authority to gain attention for their grievances or compensation demands against the PNG Government or others. Unsophisticated landowners often have exaggerated ideas about the value of their property. Resource developers often confront claimants who believe that the project should reimburse them for real or imagined damages, or provide services normally provided by government. Successful natural resource developers devote considerable resources and attention to community relations. In early 1996, landowner groups threatened to disrupt operations at the Kutubu petroleum project (operated by Chevron Niugini) unless the Government met their demands that additional equity in the project be transferred to them from the State's share. The dispute was eventually resolved amicably, without any disruption to production at the oil field. In August 1996, there were civil disturbances near the Porgera gold mine by landowners who were dissatisfied with the mine operator's distribution of compensation payments under the Water Resources Act. Although the disturbances resulted in damage to some Porgera Joint Venture property and the death of two local people, there was no disruption of production at the mine. Also in August 1996, disputes arose between Chevron Niugini, the operator of the Gobe petroleum project, and landowners after the operator began upgrading an access track in preparation for development. The disputes revolve around the landowners' level of equity participation in Gobe and the distribution of contracts at all stages of project development. The disputes temporarily halted pre-development activity. Negotiations are continuing between the landowners, the project operator and the PNG Government. Crime, particularly violent crime, is a serious concern in PNG. The phenomenon is to some extent connected to the widespread unemployment of semi-educated village youth who migrate to the major towns in search of jobs. Cultural factors, including a history of tribal warfare and the "payback" system, are also at play. While most businesses are able to carry on operations, the requisite security precautions add significantly to the cost of doing business. Security guards are a necessary supplement to high fences and razor wire. Precautions must be taken against payroll holdups. Insurance costs are high. The Government's current cash crisis has reduced the funds available to the police force, heightening the difficulty of apprehending hard-core criminals. Banditry and looting on the Highlands Highway occasionally disrupts delivery of equipment and supplies to mining and petroleum development sites. Performance Requirements/Incentives Investors sometimes agree to meet performance requirements in order to gain approvals to establish, maintain or expand given investments. The Investment Promotion Act provides some guarantee against discrimination against foreign investment. There is no general requirement that investors purchase from local sources, but agreements may stipulate local procurement of goods of equivalent price and quality. There is no general legal requirement that nationals own shares in foreign investment, that the share of foreign equity be reduced over time, or that technology be transferred on certain terms. However, stevedoring companies must be at least 51% owned by nationals and the Government normally exercises its right to acquire equity in mining and petroleum projects. There are no government-imposed conditions on permission to invest in, for instance, a particular geographic area. Right to Private Ownership and Establishment Private entities may freely establish, acquire and dispose of interests in business enterprises, subject to laws requiring registration and certification of companies. Protection of Intellectual Property Rights There are no laws governing patents or copyrights at present. Legislation governing the registration of trademarks came into force in 1979. PNG's recent membership in the WTO should, after the applicable transition period, bring the country's intellectual property regime within the standards mandated by the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). Prime Minister Chan has announced PNG's intention to become a member of WIPO. The Government currently plans to deposit its instruments of accession by December 1996. Regulatory System: Laws and Procedures Any large-scale investment proposal will require consultation with and among a number of governmental departments and may also be regulated by specific sectoral legislation. The bureaucratic procedure for resolving interagency differences is cumbersome; differences often cannot be solved except at the highest political levels. This involves delay and frustration for many investors. Though the government has not adopted anti-trust laws which might foster competition, it has regulated in the labor, health-and-safety, and environmental-protection areas. Bilateral Investment Agreements PNG has bilateral investment protection agreements with Australia and New Zealand. OPIC and Other Investment Insurance Programs PNG is a member of the Multilateral Investment Guarantee Agency (MIGA). OPIC has, in the past, provided political risk insurance and finance for projects in PNG. It is entertaining active applications for additional loans and insurance. Approximately 80% of the working population in PNG engages in subsistence agriculture and/or smallholder cash-crop production and is not engaged in formal employment. The literacy level and primary- and secondary-school enrollment are relatively low. A sizable pool of unskilled labor exists, but there is a shortage of skilled workers and management-level employees. It is common for professional and technical staff to be recruited from overseas, though there is a strong government policy encouraging localization. Businesses typically operate training programs. Wages were essentially deregulated, subject to a very modest minimum wage, by a Minimum Wages Board determination in 1992. Nevertheless, wages, particularly for skilled employees, remain high by regional standards. Strikes occur occasionally, though the union movement is relatively weak. The wages of public-sector employees, approximately one-third of the estimated 250,000 Papua New Guineans in formal employment, have been frozen through at least the end of 1996. In order to curb inflation, the Government has encouraged the private sector to resist "excessive" wage claims. Various public-sector unions are currently seeking substantial wage increases to compensate for inflation caused by the depreciation of the kina. Foreign Trade Zones/Free Ports Vanimo, near the border with Irian Jaya, Indonesia, recently has been declared a Free Trade Zone. Other centers with Free Trade Zone status include Daru in Western Province, Buka in North Solomons Province and Kerema in Gulf Province. The zones are in the very early stage of development. There is little PNG investment in other countries. The repatriation of capital by non-residents is relatively unrestricted, subject to the practical availability of foreign exchange. The bulk of foreign investment in PNG is in the mining and petroleum sector. Some major foreign-owned mining and petroleum companies active in PNG include: Chevron; British Petroleum; Exxon; Broken Hill Proprietary (BHP); Placer Pacific; Highlands Gold; Renison Goldfields; RTZ Corporation; Battle Mountain Gold; Japan National Oil Corporation; and CRA Ltd. Rimbunan Hijau, a Malaysian company, has extensive interests in the forestry sector. The BPNG publishes statistics on foreign equity holding in PNG companies. The most recent figures available are for 1995. These show Australia with K1,446 million, the United States with K91 million and the United Kingdom with K160 million. Other, smaller figures brought the total to K2,300 million. Foreign equity holding fell as a share of nominal GDP from 55% in 1990 to 33% in 1994. The overall decline in foreign equity investment during this period reflected the completion of major mining and petroleum projects, the absence of new major projects and some equity withdrawals from the mining sector, in conjunction with significant nominal GDP growth. In 1995, the ratio increased to 37% of nominal GDP, reflecting substantial inflows of equity associated with the Lihir gold mine project. No reliable aggregate statistics on at-risk capital investment by foreigners are available. Corruption by public officials is frequently reported in the media. A number of Members of Parliament have been charged with misappropriation of public monies. Many of these incidents have been related to misuse of "electoral development funds," and other discretionary funds granted to parliamentarians for use on development projects in their electoral districts. An independent Ombudsman Commission investigates allegations of corruption and refers appropriate cases to a Leadership Tribunal. Several politicians have been removed from office as the result of findings by Leadership Tribunals. Often, however, no further criminal action is brought against officials sanctioned by a Tribunal. The Ombudsman Commission suffers from inadequate funding. Accepting a bribe is a criminal act. Bribery is assumed by the media to be rife, but is infrequently prosecuted. There have been various independent investigations reporting failure by national and provincial government officials to follow normal competitive tendering procedures in awarding contracts for major infrastructure projects. Implementation of recommendations arising from such investigations has been poor. Some U.S. firms have attributed delays in receiving investment approvals to their refusal to pay bribes. U.S. mining and petroleum companies have not/not complained about solicitation for bribes in connection with investment in resource projects.
VIII. TRADE AND PROJECT FINANCING Brief Description of Banking System In 1994 and 1995, there was a significant improvement in the profitability of the banks and non-bank financial institutions due, in part, to gains from currency exchange transactions. During the 1995, a new bank, Maybank (PNG) Ltd, was granted a license, increasing the number of commercial banks in PNG to six and the number of branches to 50. Total assets of commercial banks were K2275.0 million at the end of 1995. Total assets of merchant banks and finance companies were K232.3 million. Total assets of savings and loan societies were K130.2 million as of June 1995. Foreign investors are able to obtain credit on the local market, subject to the equity requirements of the Central Bank. Under current practice, they are limited to K50,000 for the first two years of operation. Interest rates have recently fallen due to a relaxation of the tight monetary policy imposed at the time of the devaluation and "float" of the kina, and are expected to fall still further. Foreign-Exchange Controls Affecting Trading As a matter of regulation and policy, applications for all categories of current payment, including payment for imports, are normally approved readily; the majority by the commercial banks under delegated authority. Application for foreign currency to pay for imports must be accompanied by customs entry forms and/or shipping documents. General Financing Availability In June 1996, the BPNG lowered the Minimum Liquid Asset Ratio (reserve ratio) for commercial banks to 27%, from the former 32% requirement. This monetary easing has begun to lower interest rates. However, there is still much liquidity in the system. The November 1992 budget presentation stated the goal of opening a stock market in PNG, the PNGSX, to mobilize domestic saving and investment. Movement toward that goal is continuing, but has been extremely slow. Export Financing and Insurance The Export-Import Bank of the United States (EXIM) is open for cover for both public-sector and private-sector risks for short-term, medium-term, and long-term transactions. For short-term insurance, discretionary credit limits are withdrawn. Cover is not available unless specified in a Special Buyer Credit Limit or Issuing Bank Credit Limit endorsement, or Country Limits of Liability endorsement. The International Bank for Reconstruction and Development (IBRD), a member of the World Bank group, makes long-term loans at market-related rates to promote broadly based economic growth, frequently focusing on structural adjustment, sectoral reform, and individual project lending. Typically the World Bank does not finance the entire cost of a project. Rather, it finances the components of a project purchased with foreign exchange, which on average are about 40% of total project cost. Each project may cover a wide variety of sectors and can involve anywhere from one to hundreds of separate contracts, which in turn provide export business opportunities for suppliers worldwide. The Asian Development Bank (ADB), headquartered in Manila, Philippines, is an international financial development institution owned by 56 member countries of which the United States and Japan are the largest shareholders. The Bank lent $5.5 billion in 1995 to promote economic and social progress in its developing member countries. The energy sector received the largest share of lending, followed by social infrastructure, transport and communications, agriculture and agro-industry, finance, and industry and non-fuel minerals. The Bank's medium-term strategy focuses on poverty reduction, improving the status of women, population planning and environmental protection. The bank has also assumed a new role as a catalyst for development. In implementing this policy the bank will leverage its own financial resources through co-financing and other techniques to attract additional private capital in funding the development needs of its member countries. A Commercial Liaison Office (CLO) located at the U.S. Embassy in Manila, which reports directly to the Office of Multilateral Development Banks at the Commerce Department in Washington, assists U.S. suppliers and consultants in winning contracts on projects and activities funded by the Bank. The CLO includes a Senior Commercial Officer and two Commercial Specialists. One of the specialists represents the U.S. Agency for International Development's United States-Asia Environmental Partnership (US-AEP) at the Bank. The CLO works closely with the Manila-based U.S. Executive Director, who represents the United States on the Bank's Board of Directors. Since 1967, the U.S. has won $2.6 billion in overall procurement awarded for ADB-financed projects. In 1995, the United States won $333 million in procurement contracts and consulting services. This represents 9.36% of overall procurement from donor member countries. The U.S. has consistently ranked first in consulting services awards, capturing about 20 percent of total awards every year. Information on IBRD- and ADB-financed commercial opportunities in PNG is available from the US Department of Commerce offices listed in Appendix D or from the Embassy. PNG also receives significant amounts of project financing from the Governments of Australia and Japan, and from the European Union. The following is a list of all commercial banks in Papua New Guinea, together with their U.S. correspondent banks.
IX. BUSINESS TRAVEL The workday is 8:00 a.m. to 4:30 p.m. Monday to Friday for most people. Some retail businesses are open on Saturday and Sunday mornings from 8:00 a.m. to 12:00 noon. Banks are open from 9:00 a.m. until 2:00 p.m. from Monday to Thursday and from 9:00 a.m. to 5:00 p.m. on Fridays. Most business and government offices do not open on the weekends. Business dress is moderately casual, befitting PNG's tropical climate. Work attire usually consists of shirt and tie or sport shirt for men, and light business suit or dress for women. In most areas, lightweight clothing is appropriate year round, but warmer clothes may be necessary in the Highlands, especially in the evening. English is the official language of government and commerce and will be spoken by almost all people with whom the business traveller is likely to deal. However, the language understood by the majority of Papua New Guineans is Melanesian Pidgin. Entry Requirements: Tourists may obtain a 60-day visa for K10 (about US$ 7.50) at a Papua New Guinea diplomatic mission or for K25 (less than US$ 20) upon arrival at Port Moresby International Airport. The visa can only be obtained upon presentation of an onward air ticket and evidence of funds sufficient for the proposed stay. Business travellers must apply at a Papua New Guinea diplomatic mission to obtain a business visa. The one-year visa allows multiple entries not exceeding 60 days per visit and costs K250 (about US$ 190). For information on visa requirements for journalists, researchers, missionaries, etc., please call the Embassy of Papua New Guinea. Travellers may also wish to obtain a visa for Australia before travelling to PNG. Although Australia began participating in the Visa Waiver Pilot Program with the U.S. in July 1996, restrictions apply. Australian visas may be needed by U.S. visitors to PNG who stop over in Australia en route to or from PNG or who need to travel to Australia in an emergency. For information on Australian visa requirements, contact an Australian diplomatic mission. Information on Crime: Crime and personal security are serious concerns in PNG. Armed robberies and carjackings are a problem in Port Moresby and other urban areas. Armed robbery is sometimes accompanied by gratuitous violence. Criminals often victimize and rob persons who are part of large crowds. There is a danger of rape, including gang rape, in many urban and rural areas of PNG. Women should not walk alone in PNG, especially at night. Travellers to PNG should avoid using taxis or buses and should rely instead on a sponsor or on a rented car for transportation. Travel outside of Port Moresby by car at night can be hazardous. Roadblocks have been known to occur in broad daylight on the Highlands Highway. Reactions to road accidents involving fatalities or serious injuries can be emotional and violent, regardless of legal responsibility. Persons involved in accidents should proceed to the police station in the provincial capital.
X. APPENDICES Country Data
Domestic Economy
Employment Index September 1995 - 91.7 (June 1989 = 100) (Excludes the mining industry) *Average of closing BPNG rate for twelve months ending December 31, 1995. Closing BPNG rate on October 25, 1996 was US$ 1 = K1.33 Source: PNG Department of Finance and Planning, Statistical Tables appended to 1996 National Budget submitted November 1995 and 1997 Finance Bill. All figures should be treated strictly as estimates. **Source: World Bank projections Trade
Principal U.S. Exports (USD Millions) (top 5)**
Principal U.S. Imports (USD Millions) (top 5)**
*Source: PNG Department of Finance and Planning, Statistical Tables appended to 1995 National Budget submitted March 7, 1995. All figures should be treated strictly as estimates. **Source: U.S. Department of Commerce Investment Statistics Foreign Direct Investment Statistics The BPNG publishes statistics on foreign equity holding in PNG companies. The most recent figures available are for 1995. These show Australia with K1,446 million, the United States with K91 million and the United Kingdom with K160 million. Other, smaller figures brought the total to K2,300 million. Foreign equity holding fell as a share of nominal GDP from 55% in 1990 to 33% in 1994. The overall decline in foreign equity investment during this period reflected the completion of major mining and petroleum projects, the absence of new major projects and some equity withdrawals from the mining sector, in conjunction with significant nominal GDP growth. In 1995, the ratio increased to 37% of nominal GDP, reflecting substantial inflows of equity associated with the Lihir gold mine project. No reliable aggregate statistics on at-risk capital investment by foreigners are available. US and Country Contacts
International Address:
Via U.S. Postal Service:
Multilateral Development Bank Contacts
PNG Trade and Industry Associations
PNG Government Offices
Country Market Research Firms
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