Infrastructure

Industrial Facilities
Legal System
Financial System
Support Services
Labour
Land Tenure
Land Mobilisation Programme (LMP)
Land and Environmental Considerations
Institutional Framework
Department of Commerce and Industry
Investment Promotion Authority (IPA)
Export Pacific Program (EPP)
Integrated Investment Promotion Programme
Company Registry and Investment Information Database
Small Business Development Corporation (SBDC)
Industrial Centres Development Corporation (ICDC)
Export Assistance

Industrial Facilities

There are business facilities for medium and small scale industries in and near the main towns in all provinces in Papua New Guinea. These areas are generally well served by the appropriate air, sea and road transportation networks, as well as other necessary components of infrastructure such as the supply of water and electricity and telecommunications facilities.

The city of Lae has earned the reputation of being the manufacturing capital of Papua New Guinea because of its location among major shipping, road and airline routes. Port Moresby, Mt Hagen and Madang are other well developed cities where major industries and businesses are located.

The development of resource projects in non-urban areas has also resulted in the emergence of almost self-sufficient communities in parts of the country which otherwise may have remained isolated with only limited formal economic activity.

The physical characteristics of the country have prohibited the development of an extensive road network and the often extreme weather patterns present enormous challenges to the architects and engineers of infrastructure developments.

However, the mountainous terrain has resulted in the development of hundreds of airstrips throughout the country enabling inter-village and inter-provincial travel. Shipping and other forms of water transport have evolved also out of necessity in response to the great expanses of ocean and huge inland waterways.

Essential services for the operation of basic businesses are available in most towns and villages but there is still room for further improvement and development. The Government places infrastructure development and maintenance high on its agenda but, like other Governments, is constantly juggling resources to meet the demands from the community.

However, investors can be assured that all basic infrastructure is available for business in Papua New Guinea. For larger scale investment projects, the Government and the private sector have the resources to put in place any other specific requirements.

In this section, the business environment and institutional framework is highlighted. Further details on transportation and telecommunications infrastructure can be found in Section 8.

Legal System

The legal system in Papua New Guinea is based largely on the Australian system which, in turn, has its roots in the English system. Court hearings are held in English and the law is applied fairly. The final court of appeal is the Supreme Court of Papua New Guinea. There are, however, areas where the traditional or "customary" law applies. Under the Constitution, courts are required to have regard to both the common law and the customary law. This "underlying" law is determined by the courts and can be particularly important when dealing with cases about land tenure and the use of natural resources. Further information about the regulatory environment for business can be found in Section 6.

Financial System

The Papua New Guinea banking system is made up of the Central Bank, Bank of Papua New Guinea, a number of commercial banks and finance companies, and the Rural Development Bank of Papua New Guinea. The Papua New Guinea Banking Corporation is wholly-owned by the Government. Most others are subsidiaries of international (mainly Australian) banks.

The main objective of the Rural Development Bank of Papua New Guinea is to provide finance to Papua New Guinea enterprises for agricultural, industrial and commercial projects.

Other financial institutions include savings and loan societies and larger government-owned superannuation funds. Some of these institutions are tipped to become listed on the stock exchange when it is established in Papua New Guinea. Already, there are many companies operating in Papua New Guinea which are listed on stock exchanges in Australia and Asia, Europe and the United States. Many other companies have indicated their intention to list on the new domestic exchange.

Fund raising in Papua New Guinea is limited by the small domestic market. While some finance is available from the banking system, overseas investors are unlikely to secure substantial funds locally. A new operation would normally need to bring funds from overseas to establish a project, in which case the central bank generally requires a debt to equity ratio of 5:1.

Exchange controls are applied in Papua New Guinea and are administered by the central bank, the Bank of Papua New Guinea. These controls are applied to protect the country's reserves. Approval is readily given for the repatriation of after-tax profits of foreign-owned enterprises. Other current account payments for legitimate business reasons generally present no problems.

Support Services

Papua New Guinea has many professional firms in operation which support the broader business community. These include accounting and legal firms, engineers, architects, surveyors, and other technical fields. There are a large number of retail and wholesales operators, building and road construction contractors, manufacturers of a wide variety of products and generally, all the types of businesses which could be expected to be found in a vibrant and rapidly growing economy.

Labour

There is a large pool of labour in Papua New Guinea. The wage rates are low by developed country standards and productivity continues to improve as training is increased and improved.

As the skills of the local workforce are still being upgraded, many new ventures, particularly those requiring technical know-how, still rely on some contracted foreign managerial and supervisory staff.

While recognising the legitimate need and use of overseas personnel for skills transfer, the Government of Papua New Guinea also insists that there is concurrent training of Papua New Guineans to eventually assume more responsible roles in the workforce. Before employing expatriates, a business must submit a plan to the Department of Industrial Relations outlining the training to be given to Papua New Guinea staff. Once the requirements are satisfied, a new business may obtain work permits for expatriates.

Further information about human resources can be found in Section 5. Further information about the regulations relating to visas and work permits for expatriates can be found in Section 6.

Land Tenure

Legitimate land ownership and the right to exploit most natural resources is vested with the people of Papua New Guinea. Ownership is mainly governed by traditional law. About three per cent of the land in Papua New Guinea, or about 600,000 hectares, is outside of this system and this is almost entirely owned by the National Government. It is generally referred to as alienated land. Most alienated land is in urban areas but some plantations in rural areas occupy alienated land. Only 30,000 hectares of alienated land is freehold and 60,000 hectares is used for public purposes. About 200,000 hectares is leased to the private sector.

Under the Land (Ownership of Freehold) Act, no foreign investor or non- citizen is allowed to own freehold land. Leasehold land for specified purposes is, however, available for long-term tenure (usually 99 years). Investors involved in manufacturing operations usually face little difficulties with land availability. Those involved with resource or agricultural projects should appreciate, however, that access to land may require more effort and understanding. But it is certainly not impossible to mobilise land for investment if the traditional landowners are involved in all aspects of development.

The Government will assist investors in large projects that are vital to the economic growth of the country - it has the right to do so under the Land Act. Nonetheless, the Government is generally restricted to protecting traditional property rights and investors will not be allowed to negotiate directly with the local owners. If handled properly, with the Government's involvement, the experience of other investors has shown that mutually satisfactory agreements can be readily developed.

The Government's reform initiatives in land tenure will contribute to economic growth and employment creation through more productive use of land resources.

Land Mobilisation Programme (LMP)

The institutional reforms being implemented under this programme emphasise the Government's commitment to social and economic development throughout the country. The reforms ensure the promotion of land-based activities in co-operation with the provinces.

The main objectives of the LMP include providing effective land services to all land users (surveying, land transfer and disposal, title registration, valuation, land acquisition, dispute settlement, mapping, and physical planning). The programme is also designed to enable customary landowners to increasingly participate in the development of their land and to optimise the use of the stock of alienated land.

The Government's policy and priorities on land resources in the medium term are contained in the LMP. It is promoting the formation of landowner groups and investigating ways to mobilise their land for development. Measures being considered include lease-back arrangements and land tenure conversions. Investors will be encouraged to accept those communal arrangements as security against which to extend credit for priority development purposes, especially for the development of trade and industry.

The LMP ceased in June 1996, however, some components of the program exist today.

Land and Environmental Considerations

Papua New Guinea is home to as much as 5% of the world's fauna and flora in a variety of diverse ecosystems. The principal threat to biodiversity comes from the conversion of prime habitats to other uses.

A majority of the population is dependant upon the renewable resources sector - agriculture, hunting, fisheries and forestry - for subsistence. Such resources are, however, only conditionally renewable - subject to sound resource management and the use of appropriate harvesting practices. The Government is promoting alternative income-earning opportunities to create a conservation interest in land.

The scope for the development of ecologically-sustainable industries is excellent. There are great prospects for biogenetic engineering, utilisation of traditional medicines in the pharmaceutical industry, the development of other extractive industries and eco-tourism.

Institutional Framework

The Government's plan for developing all industrial and commercial sectors in Papua New Guinea by the Year 2000 recognises the vital contribution of the private sector to the overall development of the national economy.

A major revitalisation of existing investment incentives, along with the institutional strengthening for implementation of industrial policies, is already in place.

The actual implementation of industrial policies is undertaken by various statutory authorities within the Ministry of Commerce and Industry.

Those authorities and their briefs are described below.

Department of Commerce and Industry

The department is responsible for the formulation, co-ordination and monitoring of industrial development policies and relevant programme implementation. It aims to be the catalyst for development and the private sector's partner in progress by:

Assisting with the provision of a conducive economic environment;
Promoting international competitiveness;
Providing an effective and co-ordinated infrastructure and service support system; and,
(4) Mobilising and organising people, institutions and resources to achieve the Government's objectives and goals for industrialisation.
The department's programme initiatives include, among others, the development of the garment and textile industries, as well as wood and marine-based industries.

Generally, the department is responsible for policy formulation while actual programme development and implementation is carried out by statutory authorities within the department.

Investment Promotion Authority (IPA)

An integral component of the Government's industrial development strategy is the promotion of investment in Papua New Guinea. The IPA is responsible for these activities. Its focus is centred on attracting new investors to the country as well as encouraging existing investors, both foreign and domestic, to expand their investment.

The IPA's corporate plan clearly outlines its long and short-term objectives and programmes. It has specified the following investment growth objectives:

To increase the total value of annual investment in Papua New Guinea;
To increase the percentage of annual investment in the Papua New Guinea manufacturing sector; and,
To increase the percentage of annual investment from the domestic sector.
The IPA has developed close links with the private sector and has proven that it can successfully attract investment. It provides assistance to investors through marketing activities and by assisting with the identification of joint venture partners for both foreign and domestic businesses. One of its main tasks is the dissemination of relevant information to potential investors.

The IPA is currently committed to assisting foreign investment in Papua New Guinea through a number of donor assisted programmes. These include:

Export Pacific Program (EPP)

EPP is an IPA funded initiative aimed at encouraging PNG export potential companies to seriously consider exporting to neighbouring countries under the Melanesian Spearhead Group concept of free trade.

Integrated Investment Promotion Programme

This programme is supported by the United Nations Industrial Development Organisation (UNIDO). It is a specific program, led by a versatile business specialist and supported by several IPA staff, designed to identify projects for investment through industrial co-operation between local businesses and foreign partners. This may occur through the formation of joint ventures, marketing and supply agreements, technology transfers, or other ways. The projects promoted under this program can be promoted in any country in the world.

Company Registry and Investment Information Database

AusAID is assisting the IPA by funding a significant database project which will result in the full computerisation of the IPA's business registration division. This division houses the records of Papua New Guinea's companies and other business structures. The project will also benefit investors. At the completion of the project, investors will be able to access quickly and efficiently the most comprehensive information available on investment in Papua New Guinea.

Small Business Development Corporation (SBDC)

The corporation is responsible for the implementation of the Government's national business development programme, which is designed to encourage, promote and support the participation of Papua New Guinean entrepreneurs in ownership and management of business.

The SBDC's goals are:

To create a national cost-effective and efficient mechanism for the delivery of entrepreneurial development assistance to the small business sector;
To create an environment that will facilitate maximum small enterprise development in the country through the recommendation, development and implementation of appropriate policies and programmes and through the collection and dissemination of relevant information; and,
To improve the success rate and increase the number of Papua New Guinean-owned and operated small businesses through the provision of direct support and assistance.
To achieve its goals, it promotes networking arrangements, designed to foster co-operation among small business organisations. It also provides an information service, conducts various training courses and provides some consultancy services and offers certain financial assistance.

Industrial Centres Development Corporation (ICDC)

The ICDC was established by an Act of Parliament to implement the Government's industrial centres development programme. This is an integral component of the Government's infrastructure and support services programme.

It has programmed the establishment of industrial centres in four regions of the country by the Year 2000. The Malahang Industrial Centre in Lae, Morobe Province, is the first of those developments to be completed. The programme is designed to provide serviced land and factory facilities as an incentive for private investment in manufacturing and related enterprise.

The ICDC collaborates with IPA so it may take advantage of the Authority's facilities, particularly with respect to feasibility study programmes. They are an effective means of identifying industries and product lines suited to potential tenants of industrial centres. The IPA can assist with private sector contacts for identifying local sponsors and foreign investors who may be interested in locating at industrial centres.

Export Assistance

The Government will assist local producers with export potential. Activities are targeted in areas where supply capabilities are available or have the potential for development.

Papua New Guinea has commercial representatives located in Australia and Europe, while Papua New Guinea's diplomatic representatives in other countries can help to bring about greater foreign market awareness and demand for Papua New Guinea products.