Issues Affecting Foreign Investors in Papua New Guinea.

Papua New Guinea is a developing country thus the country needs foreign investment to development
in its socioeconomic developments. The term foreign investment refers to country’s inflow of capital,
assets, equipment and technology from foreign countries into Papua New Guinea at investor’s point of
view in making profits while in Papua New Guinea’s perspective it brings development. Foreign
investors are the foreign companies that could be multinational firms and individuals investing in
Papua New Guinea in different sectors of businesses.

The investment is vital for a country’s development as it open windows for development, employment
and economic growth. Papua New Guinea is known for its abundance in natural resources including
minerals resources, marine resources, forest products and agriculture which attract more investors from
aboard. However, there are some hindering factors for Papua New Guinea to get more investors coming
to invest in these mentioned sectors in the country. And these factors are problems and risk faced by
already existing foreign investors in the country.

In this essay will explain some of these problems and risks faced by the investors in Papua New Guinea
in their operations. The problems and risks that will be discussed here are foreign exchange risk,
market risk and country risks (political and legal) in relation to social unrest, landowner’s
dissatisfaction and criminal activities around the country.

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 Exchange Rate Risk affecting Trade and Investment in Papua New Guinea.

Foreign exchange market is the most complex market of its own. The foreign exchange market in
general view is the market of world currencies, where one currency is quoted in terms of another
currency for trade, arbitrage profits and exchange purposes. The price at which these currencies are
traded or exchanged is the foreign currency exchange rate. The exchange rate is the price that
determines the quantity of capital, money and other items moving in and out of a country as all items,
meaning products and services and technological inventions from developed nations to developing
nations and raw materials from developing nations to developed nations. In short, the foreign exchange
market promotes and facilitates the international trade and investment by enabling the currency
conversion of different countries around the clock throughout all global markets.

PNG’s Kina against currencies of some of its most commonly trading countries at spot exchange rate from
2010 to current year (2024).
PNG Kina per:
Year US Dollar Aus. JP Yen HK Dollar China UK Pound
Dollar Yuan
2010 0.3489 0.4096 32.9079 2.937 2.5541 0.2458

2011 0.4261 0.4154 34.1107 3.338 2.7685 0.2676

2012 0.4857 0.4694 38.803 3.7687 3.0654 0.3065

2013 0.4353 0.4531 42.7537 3.401 2.6971 0.2808

2014 0.3889 0.4329 41.2991 3.0227 2.4012 0.2368

2015 0.3614 0.4817 43.8251 2.8076 2.2746 0.237

2016 0.3193 0.43 34.7735 2.4798 2.1219 0.2365

2017 0.3134 0.409 35.1551 2.4428 2.1187 0.2434

2018 0.3042 0.4075 33.5947 2.3851 2.0124 0.2282

2019 0.2955 0.4252 32.222 2.316 2.0421 0.2316

2020 0.2883 0.4193 30.7913 2.2368 1.9908 0.2249

2021 0.2833 0.3776 31.1284 2.2028 1.8288 0.2061

2022 0.2836 0.4092 37.2965 2.2218 1.9113 0.2302

2023 0.2776 0.4182 39.0004 2.1749 1.9644 0.2234

2024 0.2647 0.4035 39.5682 2.0711 1.8978 0.2093

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Figure 1. Shows the equivalent of 1Kina to PNG’s most trading currencies at spot exchange rate since
2010.
The good health and performance of kina’s value against currencies of Papua New Guinea’s trading
partner countries of the world attracts foreign investors to invest in the country. However, the kina
value has depreciated over the years and is also depreciating every now and then.
This is an issue affecting most of the foreign investment companies operating in the country. Most of
these investors have invested mostly in the development of resources sectors expecting that the
economy will boom in near future. Some of the investors dissatisfied, they do not get the results they
wanted out from their investment due to fall in the value of kina, even some of the companies’ initial
investment amount are impairing over the years.

Social Unrest, Riots and Protests are Disasters to Foreign Investors in Papua New Guinea.

Social unrest and riots are more common in Papua New Guinea and it caused so many losses to
businesses for both domestic and foreign investors. The damages and destructions are inevitable and
the losses incurred are much more to easily recover from credit facility and insurance claims. Over the
years, Papua New Guinea has experienced several riots and civil unrest due to political instability and
issues. The most recent one is ‘Black Wednesday’ on the 10th of January 2024 which has caused so
many destructions to investment properties and private properties worth millions of kina and loss of
lives. The aftermath effects of this riot is currently faced by the citizens and the government of this
nation now.

The figure 1 below shows the value of stocks and other assets lost by major business firms in Port
Moresby during the 10th January 2024 riot and looting in the city. The independent valuation teams
have carried out the survey and valuation process of losses of K1.273 billion incurred by businesses
was then published on 15th February 2024 on the Post Courier national newspaper.

Business houses lost millions of kina in riot and looting in Port Moresby.

Figure 2. Worth of loss incurred by major business houses in Port Moresby.

From the experience of this recent riot and some of the previous riots, civil unrests and protests, the
foreign investors have lost confidence to invest in Papua New Guinea as the risk is of higher volatile.
The other pressuring concern is that the country has high security issue that in the events the law
enforcement units are also seen to be involved and facilitating criminal activities. This is the major
concern and a threat to foreign investors to invest in the areas of higher security risks.
Most of the civil unrests, protests and riots are fueled by political foes causing fragments within
families, communities and tribes in everywhere. Our societies are full of drug addicts, ill mined people
and undisciplined youths which are hard to control and even hard for law enforcement units to control.
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Clearly there were deeper social causes at play as well. The riots brought to the surface the simmering
social tensions among the people caused by the country’s population with behavioral and psychological
disorders, the high cost of living, high unemployment, crime and corruption where disseminating of ill
advice of negative occurrences is seemed privilege for such people in the society.

The lawlessness of the country due to people’s misbehavior and psychological disorders as most
unemployed people living in towns and cities excessively using drugs and alcohol. Criminal activities
then to increase at an alarming rate in the country.
The rule of laws and Constitutions that govern our nation are not taken into consideration or respected.
Being law abiding citizens does not require anything or cost anything, yet people have tend to behave
differently. We lose confidence and respect for our fellow citizens by the ways they conduct in our
societies, the government and development partners have also lose confidence hence the national
development and progress is stagnant.
Good and stable mental condition is healthy, people’s actions and behaviors are outer reflection of their
mental state. However, here in Papua New Guinea, it seems that most of our population are seemed to
have psychological disorders. They can be easily get convinced by use of monetary or materialistic
things, or they can quickly react to any negative occurrences to further escalate it to larger scale. The
underlying causes are the excessive use and consumption of drugs, alcohol and other illicit products by
our youths, middle aged and even more elderly people as well. The cultural norms, ethics and
principles of life are not taught or learned by these groups of people thus people behaving differently,
they cannot differentiate good and bad or right and wrong. Whenever a conflicting situation arises,
people never analyze and react with calamity but instead they react and take actions which even further
escalate into bigger problems.

Government must provide basic services along with good policies in reaching out vast majority of
people in villages, encouraging people to farm, start up small and medium enterprises (SMEs) and
agricultural activities. This will boost village and local economy and overall nation’s economy. Major
government projects and developments may follow up throughout the country when people engage
themselves in meaningful activities that contribute towards their well-being and socioeconomic
wellbeing of the country. People will have no time for other illegal activities and unnecessary
movement into cities and towns looking for opportunities and money.
The towns and cities will be free from petty crimes, foreign visitors will be able to come as tourists and
foreign investments companies will also be able to do business in the environment where they have
confidence and where the security is guaranteed.

Landowner Dissatisfactions, Claims and Disputes of Project Areas.

In the recent years, Papua New Guinea has seen development through the investment on project
development in resources areas. There are tangible infrastructure development in terms of road
construction, bridge, electricity, school and aid post building which the government cannot be able to
provide for its citizens in the rural areas. Investors and developers have not only come to develop the
specific areas of interest and prospect areas where mineral deposits and extract minerals but have
contributed immensely on the development of the country. Most of mineral deposition areas are in far
more remote areas which are not easily accessible. The developers construct roads and bridges into the
areas, connect electricity and bring water supplies into areas before commencing their extraction
activities.

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Despite helping the national government, provincial and district governments to delivery basic
infrastructure services direct to the rural areas and the people, the investment companies are confronted
by several issues from landowners of resources areas. Some of most common and suppressing issues
affecting foreign investors in resources areas of Papua New Guinea are false claims, landowner factions
and dissatisfaction of landowners over certain economic and development benefits.

According to some of the investor’s testimonies, Papua New Guineans have a custom of inflating
figures and compensatory amount over environmental damages and other claims. The investors and
mine developers expecting to pay less monetary benefits are also charged and confronted to pay more
even outside the lease agreements singed and outside of legal obligations. False claims are brought to
investors and developing companies, even the landowners bring same claim two or three times to the
companies by making slight changes to the names of affected people, places and date of occurrence.
False claims are business costs that have not been projected in their annual projections but the business
investors are forced and confronted to pay as the businesses incur the cost because of the country is
known to high security risk.

Landowner’s disagreement and factions within indigenous landowners groups (ILG) have sometimes
caused the operation and the progress of mines to halt. Self-centered individuals and leaders from
mineral host areas and affected areas have eagerness to take up leadership role in their respective
landowner group associations, their egos have created factions within themselves with the existing
leaders of the associations. Their battle for leadership roles and benefits have affected operations of
mines and other business investment. The classical example is landowners quarrel in Porgera Mine of
Enga province. Since the expiry of previous lease agreement in 2019, the mining operator Barrick
Niugini Limited and Porgera Joint Ventured have had negotiation with the national government,
provincial, district and local level governments for new terms and deals and to start the mining
operations immediately.
However, the landowners with different factions and ILG papers have caused inconvenience to the
government and investor to recognize which of them as legitimate landowner group or groups. There
are also many registered associations and leaders claiming to be from mining affected areas where the
tailings are dumped and nearby villages. This issue has prolonged reopening of Porgera mine since its
closure in 2019. The investors should have made some millions of kina profit when the gold price was
high in 2020, the mining equipment and properties are sitting ideal and impairing and depreciating in
value without being used for investors benefits. The government have also lost millions of kina tax
revenues during these years of mine closure which should have offset some of the budget deficits
experienced over the years.

Landowners are also affected by one of the major issue that is when they are dissatisfied with mining
and development benefits. This issue arises when the make government reform changes and those in
higher positions sign deals and agreements which are not of greater benefits to the landowners and
people of affected areas but of self-gain and prosperity when they take side with investors and make
decisions in favor of investors. Sometimes, the land royalty payments are not made to landowners and
are delayed up to several years or forever held in by successive governments. There more of landowner
payment issues in the country which the current government is yet to solve them out and make payment
while some have been made commitment already.

The Koiari people of Sogeri where they host the Sirinumu dam, supply power and water into Port
Moresby city are the group of people that most of times strike and closes the flow of water and power
into the city. Tari landowners of Hela gas projects have cried over their delayed land royalties ever
since the reign of Peter O’Neill, these group of people have flooded into the city following up the
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release of their land royalty payments have now taken control over every streets and vending and
causing nuisances in the city. Over the years, Porgera people have complained over environmental
damage funds from the previous operator and community development funds which released through
two (2) government arms, the provincial government (Enga Provincial Government) and local level
government (Lagaip Porgera District Government then, now new Porgera Paiala District). These two
(2) government have never provided any tangible development through use of community development
fund and equity shares paid to these governments from the mining.

Landowners may lead protests and strike over such issues which may close down mining’s and cease
business operations to extended period of time resulting in business losses, setting bad precedence and
bad reputation of the governments and in the areas and losing investors when they flee due to such
interruptions making it hard to attract new investors.

Criminal Activities a Hindrance to Foreign Investment and Economic Growth.

Papua New Guinea has experienced a lot of critics from global community over social media platforms
about the high crime rate and criminal activities in the country. The most of the criminal activities
occur in urban areas of central business locations. The crime rate is caused by country’s high
unemployment rate, poverty and high illiterate rate. Settlements in towns and cities have emerged due
to movement of people from rural areas into urban areas and population growth. Government’s lack of
concentrations on people living in rural areas is another factor causing peoples movement into urban
areas.
As towns and cities are full of uneducated and unemployed people, the poverty is high. The poverty
then leads to other chain of social issues like people getting involved in criminal activities and illegal
activities to earn their living.

Everyday news articles from both The National and Post Courier, reports that there is one or more
robberies happened anywhere around the country. When looking into the facts, these robberies are
mostly or entirely on foreign companies operating and providing service in the country. The capacity of
providing services to our fellow citizens is lacking in the country as most of Papua New Guineans live
entirely benefiting from cronies and easy earnings while few can venture into businesses, provide
services and humanitarian services.

Most of the businesses that have spread out into rural areas of Papua New Guinea are mostly foreign
companies which the investors have taken many challenges like poor road conditions, distance,
disasters and deterioration of their products. In addition to these core existing challenges, theft and
robberies by criminals is risk that companies incur losses in huge amount and that sometimes ceases
businesses forever.

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 Effects of Covid-19 on Foreign Exchange Market and the Economy.

Covid-19 pandemic related economic downturn is the current issue that has severely affected Papua
New Guinea’s foreign exchange market and the national economy since 2019. The fall in global
commodity prices have an adverse effects in Papua New Guinea’s economy as there is shortage of
foreign exchange reserves, capital movement and infrastructure investment has been declined, income
tax collection has been dropped, overall gross domestic products and gross national income has been
declined tremendously in consecutive since 2019.
Pandemic-related global and national movement restrictions have weakened external and domestic
demand and affected commodity prices, which will lead to an economic contraction, wider financing
gaps in the external and fiscal accounts, and higher unemployment and poverty than previously
anticipated in 2020. The Covid-19 is the global pandemic that had affected the entire global economy
in terms of trade and foreign investment.
The Australian Government has provided a total of $102 million in funding to Papua New Guinea, $15
million from the Vulnerability and Economic Recovery Window and $87 million from the Fiscal Crisis
Window of which $5 million is from Department of Foreign Affairs and Trade (DFAT) central
Covid19 Fund. The US government and USAID have given funds of more than $16 million to combat
Covid-
19, HIV/AIDS and other public health concerns. The China President has presented a cheques of $300,
000 during his visit to PNG in 2020 in spite of the Covid-19 outbreak. Japan had supported the national
government with US$3 million. 31 October 2022 reports showed that in 2020, 35 development
agencies provided total funding support of US$1.9 billion in the form of grants and loans in response to
Covid-19 shocks. In combating and addressing above issue, Covid-19 pandemic related issue on Papua
New Guinea economy and foreign exchange market.

The national government should have preserve the reserve currencies given as aid funds by world’s
major economies including United States, Australia, China and Japan during the pandemic periods.
However, the government did not maintain enough of these funds for reserve currency therefore in the
current year and onwards the government must forecast its revenues from resource sector properly to
contain import, expenditures and debt settlement then to have balance of payments surplus.

The government must also aim at improvising and encourage to increase volume of export commodities
from agricultural sector including cocoa, oil palm, coffee, vanilla, forest products and fishery industry
including tuna, sea cucumber and others. By doing this will enable the government to maintain enough
foreign reserve currencies that will facilitate and support kina to be competitive in foreign exchange
market. When there is foreign reserves with the central bank then the kina will perform well against the
trading currencies of Papua New Guinea, this will enable and give confidence to foreign investors to
invest in the country with expectations of higher returns.

Country’s High Level of Debt to Gross Domestic Product (GDP) Ration.

The country is currently sitting on a high debt position, the excessive borrowings by successive
governments have resulting in high debt to GDP ratio. The national government have borrowed from
several agencies including international banks, state governments of developed economies,
organizations and corporations. The borrowings intended for facilitating balance deficits and for
development purposes have never been utilized properly thus the repayment to some of these loans
have been defaulted while others have been accumulated over the years.

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The major development partners and lending institutions to Papua New Guinea are Australian
government, New Zealand government, Chinese government and China Exim Bank, Japan and Japan
International Cooperation Agency (JICA), United States government, Asian Development Bank
(ADB), Universal Bank of Switzerland, World Bank and International Monetary Fund (IMF).

In December 8th 2023, the Commonwealth of Australia and the Independent State of Papua New
Guinea (PNG) signed a Loan Agreement for a$600 million. This loan is provided in response to a
request from PNG Prime Minister, Hon James Marape MP to meet the 2023 budget financing. New
Zealand government has provided a funding of USD$850,000 to PNG Treasury in pursuit of its
development goals.

Figure 3. PNG’s national debt to gross domestic product from 2018 to first quarter of 2024 and the
projection of years 2025,2026, 2027 and 2028.

The good health of the economy is what attracts foreign investors. The volatility of countries risk to fall
from high national debt to gross domestic product scares off foreign investors. The risk of them losing
value of their assets to investor’s home currency as kina losses value when the government services
foreign debt from the export revenues earned. Over the recent years, the foreign investment companies
have already experienced these problem. When the economy is seen hard to wake up and recover,
foreign investors may not be able to invest as they will lose the value of their investment without
making profits.

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Recommendations.

From the above observations and analysis, the government is solely responsible for solving above
problems encountered and confronted by foreign investors and by the nation as a whole. It is therefore
starts with the government’s decision making, law reforms and amendments, effectively execution of
the laws made, government budgets, proper development inline available funds, disbursement of funds
directly impacted areas and in the areas of most effectiveness and changes to lives of peoples and living
standard.

First recommendation regarding foreign exchange risk and high debt to gross domestic product ratio
(market risks) is that the government should promote domestic investment internally, promote and
support Papua New Guinea national companies to invest in foreign investment opportunities. By doing
this, the country gross domestic product (GDP) will increase and at the same time the gross national
product (GNP) of Papua New Guinea will also increase. This will boost local economy, job
opportunities will be created and unemployment rate will be reduced. Investment aboard by national
companies will bring more foreign currencies into country, the government will have surplus balance to
service national debts and be able borrow from internal sources with lower interest rate and flexible
time to repay. Foreign investor by looking at the nation’s good health of economy and prosperous
economy will have greater interest to invest in the country.

The second and for most recommendation is that the government should set up some youth mentorship
and rehabilitation programs, life skills and literature training institutions, fund more money on youth
development programs and empower and encourage youth participation in socioeconomic
developments of the nation. This initiative alone will solve two (2) problems of Civil Unrest and Riots
and the Criminal Activities in the country. This achieved when the youths who cannot make through
formal education systems that are heavily involved in criminal and illegal activities will be trained,
mentored and equipped with basic skills that will enable them to work hard to earn their living in right
ways that will also contribute towards the development of this nation as a whole.

Final recommendation on landowner’s dissatisfactions, claims and disputes is also directed towards
government and its concern departments. First it starts with the land department and the respective
resources sector departments (mining and petroleum, coffee, forest, environment and conservation or
marine resources departments), followed by national monitoring and planning department then the
finance and treasury departments in chronological processes. The state agencies through lands
department and concern resource department should liaise national monitoring and planning
department to carry out surveys on field to identify the legitimate landowners of both the host areas and
the affected areas. Once they are identified, the lands department should issue ILG certificates for state
agencies like mineral resources authority to gazette for budget and disbursement of funds and benefits.
The finance and treasury departments should now rely on the most reliable and creditable information
provided by the above departments to release any funds and monetary benefits them national
government provides for the landowners.
By doing this, the funds should go direct to the legitimate landowners who are already been made
known clearly or identified. Any foul plays by provincial and district governments, landowners
association leaders be deal forthwith by the laws. As this sets basis, the landowners will be more
satisfied as do the investors too.

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