Foreign direct investment into Papua New Guinea dropped in the first quarter of 2020, according to Investment Promotion Authority figures. Meanwhile, business expresses concern over proposed changes to PNG’s investment laws.
The Investment Promotion Authority’s (IPA’s) Opportunity newsletter said that ‘there was a decline in foreign investment entry in the first quarter of 2020 as compared to that of the final quarter of 2019.’
The IPA figures indicate that total foreign direct investment (FDI) fell by more than 80 per cent. ‘Values for the final quarter of 2019 was K492.5 million while that of the first quarter, as at 27 February 2020 was K96.9 million,’ the IPA said.
According to the World Bank, in 2019 FDI into Papua New Guinea was US$335 million (K1.16 billion), a slight decrease from 2018 when it was US$338 million (K1.17 billion).
If PNG’s first quarter FDI performance continues for the rest of the year, it would equate with K387 million, a drop of about two-thirds from the 2019 level.
The amount of new employment created by FDI also fell in the first quarter of 2020.
‘With respect to the proposed jobs, a total of 2,420 jobs were recorded in the final quarter of 2019 while the first quarter as at 27th February 2020 recorded 783 jobs in total. Generally, there was a decline in the number of jobs created in the first quarter of 2020 in comparison to that of the final quarter of 2020.’
State of Emergency effect
The IPA said that there is ‘no doubt’ that the State of Emergency (SoE) had an impact on businesses.
‘Given the slowdown on businesses triggered by the pandemic, getting new investors into the country is a greater challenge.
‘The effect of the pandemic obviously affected the number of Foreign Direct Investments (FDIs) coming into Papua New Guinea. IPA’s key focus now is more towards investment retention and aftercare services.’
‘You get less foreign investment, less coming in. So overall it is a negative.’
The most FDI approvals, in both the last quarter of 2019 and the first quarter of 2020, were given to Chinese investors, followed by Australia, Malaysia and the Philippines. Singapore, China and Japan had the highest proposed FDI for the first quarter of 2020.
Reserve list changes on track
The PNG government’s approach to attracting foreign investment is under review. Commerce and Industry Minister William Duma has said that there will be a new list of activities to be reserved exclusively for PNG businesses as part of the proposed changes to the IPA Act 1992. He said the new list would be presented in the last session of Parliament for 2020.
Duma noted that, as a developing country, PNG continued to ‘rely on foreign expertise to take part in some of those activities so we have to be very careful to strike our balance.’
While the country will still need some foreign investments, he said, those industries that have now ‘come of age’ in PNG will be ‘restricted indefinitely.’
Meanwhile, there are reports that Prime Minister James Marape told a recent small and medium business breakfast that foreign investors would have to provide millions of kina, to be held by the Bank of PNG, if they want to operate in PNG.
John Leahy, President of the Papua New Guinea Chamber of Commerce and Industry, told Business Advantage PNG that such a measure would not help ameliorate PNG’s foreign exchange challenges. ‘It is simply an additional cost on business having that capital tied up. You get less foreign investment, less coming in. So, overall, it is a negative.’
Leahy said there is a fiduciary reason to have such a policy in the financial sector: for capital adequacy to protect consumers. But otherwise he believes it is inappropriate.
‘Every business is different. Some businesses don’t require very much capital at all. Service businesses don’t have much capital tied up. So to require them to part with money like that is ridiculous.
He said such a policy would also contribute to inflation. ‘Trading businesses operate on such a small margin; they are trying to fund their working capital all the time. It would add to prices. They will have to increase the margin on all their trading activities. It doesn’t make any sense.’
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