Economy of Papua New Guinea

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The economy of Papua New Guinea is largely underdeveloped. It is dominated by the agricultural, forestry, and fishing sector and the minerals and energy extraction sector. The agricultural, forestry, and fishing sector accounts for most of the labour force of Papua New Guinea, while the minerals and energy extraction sector is responsible for most of the export earnings.

PNG's GDP growth has been driven by the extraction industries and real GDP growth per capita has averaged 4% since mid-2000. The country has made significant progress investing proceeds from oil and gas in infrastructure building. As a result, its major cities like Port Moresby and Lae have received increased international investor attention, giving rise to an unprecedented building boom to exploit the opportunities presented by the country's rise as a regional economic leader in the South Pacific region. This is well supported by its strategic location as a Pacific's gateway to Asia as well as its comparatively huge landmass and demographic profile (almost 7 times that the rest of smaller Pacific Island nations)

The International Monetary Fund has reported that despite PNG's poverty, it is richly endowed with natural resources, but exploitation has been hampered by the rugged terrain and the high cost of developing infrastructure. Agriculture provides a subsistence livelihood for the bulk of the population. Mineral deposits, including oil, copper, and gold, account for 72% of export earnings.

Budgetary support from Australia and development aid under World Bank auspices have helped sustain the economy. Australia is PNG's largest aid donor, providing $A506 million ($US376 million) in aid in 2016. In 1995, the PNG government reached an agreement with the International Monetary Fund (IMF) and World Bank on a structural adjustment program, of which the first phase was successfully completed in 1996. In 1997, droughts caused by the El Niño weather pattern wreaked havoc on PNG's coffee, cocoa, and coconut production, the mainstays of the agricultural-based economy and major sources of export earnings. The coffee crop was slashed by up to 50% in 1997. Despite problems with drought, there was a small recovery in GDP in 1998. Growth increased to 3.6% in 1999 and may be even higher in 2000, say 4.3%.

Video Economy of Papua New Guinea

Economy

The economy generally can be separated into subsistence and market sectors, although the distinction is blurred by smallholder cash cropping of coffee, cocoa, and copra. About 75% of the country's population relies primarily on the subsistence economy. The minerals, timber, and fish sectors are dominated by foreign investors. Manufacturing is limited, and the formal labour sector consequently also is limited.

Maps Economy of Papua New Guinea

Mineral resources

In 1999, mineral production accounted for 26.3% of gross domestic product. Government revenues and foreign exchange earning minerals. Copper and gold mines are currently in production at Porgera, Ok Tedi, Misima, Lihir, Simberi and Hidden Valley. As of 2014, talks of resuming mining operations in the Panguna mine have also resurfaced, with the Autonomous Bougainville Government and National Government of Papua New Guinea expressing interest in restarting mining operations in the area. New nickel, copper and gold projects have been identified and are awaiting a rise in commodity prices to begin development. At early 2011, there are confirmation that Mount Suckling project has found at least two new large highly prospective porphyry bodies at Araboro Creek and Ioleu Creek. A consortium led by Chevron is producing and exporting oil from the Southern Highlands Province of Papua New Guinea. In 2001, it expects to begin the commercialization of the country's estimated 640 km³ (23 trillion cubic feet) of natural gas reserves through the construction of a gas pipeline from Papua New Guinea to Queensland, Australia. That project was shelved.

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Agriculture, timber, and fish

The agricultural, forestry, and fishing sector accounts for most of the labour force of PNG. Agriculture currently accounts for 25% of GDP and supports more than 80% of the population. Most agriculture is subsistence, while cash crops are exported. The main crops by value are coffee, oil, cocoa, copra, tea, rubber, and sugar. The timber industry was not active in 1998, due to low world prices, but rebounded in 1999. About 40% of the country is covered with timber rich trees, and a domestic woodworking industry has been slow to develop. Fish exports are confined primarily to shrimp, although fishing boats of other nations catch tuna in Papua New Guinea waters under license.

Papua New Guinea is the largest yam market in Asia.

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Industry

In general, the Papua New Guinea economy is highly dependent on imports for manufactured goods. Its industrial sector--exclusive of mining--accounts for only 9% of GDP and contributes little to exports. Small-scale industries produce beer, soap, concrete products, clothing, paper products, matches, ice cream, canned meat, fruit juices, furniture, plywood, and paint. The small domestic market, relatively high wages, and high transport costs are constraints to industrial development.

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Energy

Electricity - production: 3.35 billion kWh (2012 est.) Electricity - consumption: 3.116 billion kWh (2012 est.)

A study by Bloomberg New Energy Finance ranked PNG in the top 10 for potential renewable resources, with about 2.5 GW of these but only 2% of it exploited.

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Finance

The Bank of Papua New Guinea (BPNG) is the central bank of Papua New Guinea. Its main function is to issue currency and to act as the banker and financial agent to the Government. It is also in charge of regulating banking and other financial services and manages the gold, foreign exchange and any other international reserves of Papua New Guinea.

BPNG is engaged in developing policies to promote financial inclusion and is a member of the Alliance for Financial Inclusion, which had been formed in 2008. In 2013, BPNG made a Maya Declaration Commitment to create an enabling environment for building an inclusive financial sector in Papua New Guinea.

The currency of Papua New Guinean, issued by the BPNG, is the kina, which was introduced on 19 April 1975 to replace the Australian dollar.

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Trade and investment

In 2014, Papua New Guinea's merchandise exports were:

• 41% fuels and mining;
• 23.8% agriculture;
• 6.2% manufacturing; and
• 29% other.

Major destinations for merchandise exports include Australia (39.9%), the European Union (20.2%), Japan (11.7%), China (6.7%), and Singapore (5.6%).

In 2014, Papua New Guinea's merchandise imports were:

• 17.8% fuels and mining;
• 11.4% agriculture;
• 69.4% manufacturing; and
• 1.4% other.

Major source countries for merchandise imports include Australia (34.4%), Singapore (14.3%), the European Union (8.3%), China (6.9%), and Japan (6.4%).

Petroleum, mining machinery and aircraft have been the primary U.S. exports to Papua New Guinea. In 1999, as mineral exploration and new minerals investments declined, as did United States exports. Crude oil is the largest U.S. import from Papua New Guinea, followed by gold, cocoa, coffee, and copper ore.

U.S. companies are active in developing Papua New Guinea's mining and petroleum sectors. Chevron operates the Kutubu and Gobe oil projects and is developing its natural gas reserves. A 5,000-6,000 m³ (30,000-40,000 barrel) per day oil refinery project in which there is an American interest also is under development in Port Moresby.

Papua New Guinea became a participating economy in the Asia-Pacific Economic Cooperation (APEC) Forum in 1993. It joined the World Trade Organization (WTO) in 1996.

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Development programs and aid

Papua New Guinea is highly dependent on foreign aid. Australia has been the largest bilateral aid donor to PNG, providing $A506 million ($US376 million) in 2016. Budgetary support, which has been provided in decreasing amounts since independence, was phased out in 2000, with aid concentrated on project development.

Other major aid sources to Papua New Guinea are Japan, the European Union, the People's Republic of China, the Republic of China, the United Nations, the Asian Development Bank, the International Monetary Fund, and the World Bank. Volunteers from a number of countries, including the United States, and mission church workers also provide education, health, and development assistance throughout the country.

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Economic conditions

(as of 2003)

By mid-1999, Papua New Guinea's economy was in crisis. Although its agricultural sector had recovered from the 1997 drought and timber prices were rising as most Asian economies recovered from their 1998 slump, Papua New Guinea's foreign currency earnings suffered from low world mineral and petroleum prices. Estimates of minerals in exploration expenditure in 1999 were one-third of what was spent in 1997. The resulting lower foreign exchange earnings, capital flight, and general government mismanagement resulted in a precipitous drop in the value of Papua New Guinea's currency, the kina, leading to a dangerous decrease in foreign currency reserves. The kina has floated since 1994. Economic activity decreased in most sectors; imports of all kinds shrunk; and inflation, which had been over 21% in 1998, slowed to an estimated annual rate of 8% in 1999.

Citing the previous government's failure to successfully negotiate acceptable commercial loans or bond sales to cover its budget deficit, the government formed by Sir Mekere Morauta in July 1999 successfully requested emergency assistance from the International Monetary Fund and the World Bank. With assistance from the Fund and the Bank, the government has made considerable progress toward macroeconomic stabilization and economic reform.

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Statistics

Household income or consumption by percentage share:
lowest 10%: 4.3%
highest 10%: 36% (2008)

Labour force: 2.078 million

Electricity - production: 2,200 GWh (2008)

Electricity - production by source:
fossil fuel: 67.78%
hydro: 32.22%
nuclear: 0%
other: 0% (2008)

Electricity - consumption: 2,000 GWh (2008)

Electricity exports: 10 kWh (2008)

Electricity - imports: 0 kWh (2008)

Agriculture - products: coffee, cocoa, coconuts, palm kernels, tea, rubber, sweet potatoes, fruit, vegetables; poultry, pork, vanilla

Currency: 1 kina (K) = 100 toea

Exchange rates: kina (K) per US$1 - 3.14 (April 2016), 2.7624 (November 1999), 2.520 (1999), 2.058 (1998), 1.434 (1997), 1.318 (1996), 1.276 (1995)

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See also

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References

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External links

• PNG Survey of Recent (Economic) Developments: 2014-15, Australian National University / University of Papua New Guinea, September 2015
• PNG Economics, a blog by former Australian and Papua New Guinean Treasury official, Paul Flanagan
• The PNG Chamber of Commerce and Industry, a peak body for business representation in Papua New Guinea

Source of article : Wikipedia