ECONOMY
Papua New Guinea is rich in natural resources, including minerals, timber, and fish, and produces a variety of commercial agricultural products. 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 continued to be slow in 2007. The service industry was stable, while tourism shows potential and remains largely untapped. Generally, economic activity continued to grow in 2007. The growth was boosted by favorable international commodity prices. Employment grew modestly. The financial sector enjoyed high liquidity, with increased lending due to low interest rates. Inflation remained low.
Mineral
Resources
Papua New Guinea is richly endowed with gold, copper, oil, natural gas, and other minerals. In 2006 minerals and oil export receipts accounted for 82% of GDP. Government revenues and foreign exchange earnings depend heavily on mineral and oil exports. Indigenous landowners in areas affected by minerals projects also receive royalties from those operations. Copper and gold mines are currently in production at Porgera, Ok Tedi, Misima, and Lihir. A consortium led by Exxon/Mobil hopes to begin the commercialization of the country's estimated 22.5 trillion cubic feet of natural gas reserves through the construction of a liquefied natural gas (LNG) production facility by 2010. Interoil, an American-owned firm, opened Papua New Guinea's first oil refinery in 2004 and is exploring the feasibility of building a liquefied natural gas production facility by 2012 with production capacity of 32,500 barrels of product per day.
Agriculture,
Timber, and Fish
Papua New Guinea also produces and exports valuable agricultural, timber, and marine products. Agriculture currently accounts for 13% of GDP and supports more than 75% of the population. Cash crops ranked by value are coffee, oil, cocoa, copra, tea, rubber, and sugar. About 40% of the country is covered with exploitable trees, but a domestic woodworking industry has been slow to develop. A number of Southeast Asian companies are active in the timber industry, but World Bank and other donors have withdrawn support from the sector over concern for unregulated deforestation and environmental damage. Recently enacted forestry legislation has exacerbated those concerns. Papua New Guinea has an active tuna industry, but much of the catch is made by boats of other nations fishing in Papua New Guinea waters under license. Papua New Guinea is a signatory to the South Pacific Tuna Treaty (SPTT), under which U.S. purse seiners fish for tuna in the exclusive economic zones (EEZs) of the Pacific Island parties. Locally produced fish exports are confined primarily to shrimp.
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.
Trade
and Investment
Australia, Singapore, and Japan are the principal exporters to Papua New Guinea. Petroleum and mining machinery and aircraft have been the strongest U.S. exports to Papua New Guinea.
Australia is Papua New Guinea's most important export market, followed by Japan and the European Union. The U.S. imports modest amounts of gold, copper ore, cocoa, coffee, and other agricultural products from Papua New Guinea. Most of those exports take place through third countries.
With the 2003 withdrawal of Chevron/Texaco, Australian companies are the most active in developing Papua New Guinea's mining and petroleum sectors. Exxon/Mobil retains a major share of natural gas reserves and is constructing a liquefied natural gas processing facility. Interoil, an American-owned firm backed by an Overseas Private Investment Corporation (OPIC) loan, operates an oil refinery in Port Moresby and is exploring the feasibility of building a liquefied natural gas processing facility. China is increasing its investment in Papua New Guinea, including development of the $1 billion Ramu nickel mine.
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. It is an observer at ASEAN and a member of the ASEAN Regional Forum. It has preferential tariff agreements with the markets of Melanesian and Pacific Island neighbors through the Melanesian Spearhead Group (MSG) Trade Agreement and the Pacific Islands Countries Trade Agreement (PICTA).
Development
Programs and Aid
Australia is by far the largest bilateral aid donor to Papua New Guinea, offering about $355 million a year in assistance. Budgetary support, which has been provided in decreasing amounts since independence, was phased out in 2000, with aid concentrated on project development. In 2004, Australia and Papua New Guinea embarked on the Enhanced Cooperation Program (ECP), under which Australia agreed to provide direct assistance, including 210 line police officers, to the Papua New Guinea constabulary. The ECP met with initial success, but was abruptly ended when Papua New Guinea's Supreme Court stripped Australian police officers of immunity in May 2005. Virtually all ECP personnel left Papua New Guinea following the court's decision. The governments of Papua New Guinea and Australia are now involved in protracted negotiations on a scaled-down version of the ECP.
Other major sources of aid to Papua New Guinea are Japan, the European Union, the People's Republic of China, Taiwan, the United Nations, the Asian Development Bank, the International Monetary Fund, and the World Bank. Volunteers from a number of countries and mission church workers also provide education, health, and development assistance throughout the country. Foreign assistance to Papua New Guinea is approximately $46 per capita. The U.S. funds a $1.5 million-per-year HIV/AIDS project in Papua New Guinea.
Current
Economic Conditions
After years of decline and government deficit, Papua New Guinea was bolstered in recent years by a general rise in commodity prices and by government steps toward spending control. The economy continues to grow modestly and the government recorded a modest surplus in 2007. However, the economic improvements are based almost entirely on high commodity prices and the nation continues to have serious problems of corruption, a lack of law and order, land tenure concerns stifling investment, political interference in business, and a lack of political will to adopt needed sweeping reforms.
Economy(2006 est.)
Nominal GDP (2006): U.S. $5.6 billion; PGK 17.3 billion.
Average exchange rate (2006): U.S. $=Kina 3.06.
Real GDP growth rate (2006): 3.7%.
Inflation rate (2006): 2.9%.
Per capita GDP: U.S. $903.
Natural resources: Gold, copper ore, crude oil, natural gas, timber, fish, oil palm, tea, rubber, logs.
Forestry (4% of GDP); marine (1% of GDP); minerals and oil (82% of GDP).
Agriculture (13% of GDP): Major products--coffee, cocoa, coconuts, palm oil, timber, tea, vanilla.
Industry (25% of GDP): Major sectors--copra crushing; palm oil processing; plywood production; wood chip production; mining of gold, silver, and copper; construction; tourism; crude oil production, refined petroleum production.
Trade: Exports--66% of GDP: gold, copper ore, oil, timber, palm oil, coffee. Major markets (in order by value--high to low)--Australia, Japan, Philippines, Germany, South Korea, China, United States, United Kingdom, Singapore, and Malaysia. Imports--31% of GDP: machinery and transport equipment, vehicles, manufactured goods, food, mineral fuels, chemicals. Major suppliers (in order by value--high to low)--Australia, United States, Singapore, Japan, China, New Zealand, Malaysia, Hong Kong, Indonesia, and United Kingdom.
