Papua New Guinea Angency for International Development

Papua New Guinea Agency for International Development

Papua New Guinea ("PNG") comprises some 700 islands in the southwestern Pacific. About 85% of its total land area is located in the eastern half of the island of New Guinea, which PNG shares with Indonesia. The rest of its territory consists of offshore islands, including New Britain, New Ireland, Manus and Bougainville. The climate is tropical and a monsoon season produces heavy rainfall. PNG produces coffee, cocoa, copra and palm oil for export and also has rich reserves of gold, copper, oil and timber.

Papua New Guinea is located on the eastern half of the island of New Guinea and is 160 kilometers north of Australia. The western half of the island is Irian Jaya, a province of Indonesia. Papua New Guinea comprises both the mainland and some 600 offshore islands. It has a total land area of 460,000 square kilometers and is about the same size as Thailand, located just south of the equator. Papua New Guinea experiences a moderate tropical climate with high levels of seasonal rainfall.

Papua New Guinea's geography includes high mountains, deep valleys and swift rivers in the interior, while tropical forests and swampy inlets dominate the coastal region. Papua New Guinea has a population of over 4.4 million people. The majority of the people live in the highland valleys, many in isolated villages. Apart from the National Capital District (NCD), population density is relatively low. Around 15 per cent of the population lives in the major urban areas. The major city and capital of the country is Port Moresby with a population of about 271,813.

Listed below are health and welfare statistics for Papua New Guinea:

PNG has a population 4.4 million, 15% in urban areas with the balance scattered around the country in small villages.
The per capita gross domestic product in PNG is $5,280.
The unemployment rate in PNG is 30%.
The literacy rate in PNG is 72% at a national level. Literacy rates are low, at about 45 percent and even lower for English literacy (the language of instruction in PNG), at about 29 percent.
Papua New Guinea's educational enrollments are among the lowest in Asia. The rate of attrition and dropouts at primary level is exceptionally high at 40 percent. And the situation does not appear to be improving.
Inflation is 17%.
Population below the poverty line is 37%.
Key industries include: copra crushing, palm oil, plywood and wood chip production, mining of gold, silver and copper and crude oil production.
Exports: Australia 30%; Japan 12%; Germany 7%; South Korea 4%; Philippines 3%; UK 3%, Other 41%
Imports: Australia 53%; Singapore 13%; Japan 6%; US 4%; New Zealand 4%; Malaysia 4%; Other 16%
Total foreign debt in PNG is US $1.75 billion, or 58% of GDP.

Papua New Guinea gained independence in 1975. This followed several years of internal self-rule by a democratically elected Chief Minister and Government. The population enjoys universal adult suffrage and there is freedom of the press and of speech. The National Government consists of three independent branches - the executive, the legislature and the judiciary. Executive power is vested in the National Executive Council (NEC) or Cabinet, which comprises the Prime Minister and usually about 27 Ministers.

There are 19 provinces in Papua New Guinea as well as the National Capital District. The provincial governments have a similar constitutional arrangement to the National Government and have concurrent power with the latter in areas such as agriculture, business development, town planning, forestry and natural resources. National laws, however take precedence over provincial laws if there is conflict.

In PNG unlike most western countries, the land area is 97% tribal held. The Government (whether Federal or Provincial), a mining company or any other interested party must get permission from the Tribal Landowners in order to access the area. To simplify the daunting process for both Government and Investors, Tribal Landowners group come together to form Land Owner companies to deal with third parties inclusive of Government, who wish to access or invest in the land owned collectively by the ILG's.

Generally, investors needing to use customary land will have to determine who the relevant landowners are and negotiate directly with them. Experience shows that mutually satisfactory arrangements have been reached on several major projects. Under the Land Act, no foreign investor may own the limited amount of freehold land; instead, they may lease freehold land from the State for a fixed term. Leasehold and freehold land transactions are recorded by the Register of Titles.

Land Groups Incorporation Act

In PNG, customary groups play an important and major part in the people's social, economic, political and cultural lives. So as to protect the interests of the customary groups dealing with their customary land for project development purposes, the government passed the Land Groups Incorporation Act ("the Act") in 1974, on the eve of the country's independence. The Act is a suitable law giving legal recognition to clans and other customary groups, with the purpose of: (i) enabling customary landowning groups to be recognized as legal corporate entities; and (ii) providing for the manner in which they deal with their customary land, so that the dealings will re recognized by law. In summary, the Act provides a legal structure for the landowning group to manage its own internal affairs and make binding decisions and to enter into legally binding agreements with outside organizations.

Right to Ownership and Establishment

Private entities may freely establish, acquire and dispose of interests in business enterprises, subject to laws requiring registration and certification of companies.

Land Tenure Concerns

Land is an extremely important element within customary PNG society. Land disputes cause long-term difficulty for investors and the Government and constitute a serious impediment to development. Approximately 97% of the total land area of PNG remains in the hands of customary owners, who make decisions about land usage by consensus. There are often multiple claimants to a given parcel of land. There is no general registration of customary land. Although the Government desires to eliminate constraints to effective land utilization, mobilization and transfer, it cannot move appreciably faster than desired by members of customary societies. In July 1995, rumors that a World-Bank-financed Land Mobilization Program would force registration of customary land prompted violent unrest on university campuses and in the Highlands.

Under the Land Act, no foreign investor or non-citizen may own the limited amount of freehold land; instead, such a person or entity may lease freehold land from the State for fixed term. Leasehold and freehold land transactions are recorded by the Registrar of Titles. Customary land cannot be mortgaged. With Government permission, leaseholds are eligible for use as security. Secured interests in chattels are recognized and registered, but enforcement is often a practical problem. Generally, investors needing to use customary land will have to determine who the relevant landowners are and negotiate directly with them. The exercise requires time, patience, cultural sensitivity and help from experienced local interlocutors. However, experience shows that mutually satisfactory arrangements have been reached on several major projects. Under the Land Act, any dealing in customary land, including leases, easements, rights, powers or privileges over land, is null and void without Ministerial approval.

Investment Protection Act

Investors sometimes agree to meet performance requirements in order to gain approvals to establish, maintain or expand given investments. The Investment Promotion Act provides some guarantee against discrimination against foreign investment. There is no general requirement that investors purchase from local sources, but agreements may stipulate local procurement of goods of equivalent price and quality. There is no general legal requirement that nationals own shares in foreign investments, the share of foreign equity will be reduced over time, or that technology be transferred on certain terms. However, stevedoring companies must be at least 51% owned by nationals and the Government normally exercises its right to acquire equity in mining and petroleum projects. There are no government-imposed conditions on permission to invest in, for instance, a particular geographic area. There are categories of employment to be performed only by Papua New Guineans. These are jobs for which the government has determined that PNG has a sufficient skilled workforce. A foreign worker must have a work permit to be employed in PNG. The sponsoring employer must show an intention to train local workers and to "localize" the job as soon as possible.

Two distinct economies coexist in Papua New Guinea - the traditional and the cash economies. The traditional sector, mainly subsistence and semi-subsistence farming, supports about 85 per cent of the population. Most villages are self-sufficient and small surpluses of produce are available for trading. Papua New Guinea exports mainly minerals and agricultural commodities. The National Government encourages more production onshore for the needs of the population and for export. The economy is dominated by mineral and petroleum projects. However, the agriculture, forestry, fishing and manufacturing sectors combined still account for a significant portion of the nation's gross domestic product. Total exports from Papua New Guinea are valued at more than US $2 billion, major exports being minerals (gold, silver, copper and crude oil), timber, coffee, palm oil, cocoa and copra.

The PNG Government welcomes foreign investment. The Government created the Investment Promotion Authority (IPA) in 1992 to facilitate and certify foreign investment. Although IPA has not yet become a "one-stop shop," it is often the first point of contact for potential investors and provides them with information and assistance in obtaining relevant government approvals.

A foreign enterprise (one that is 50% or more owned by non-citizens, or is controlled by non-citizens) must be certified by the IPA before it may conduct business activity. Certain activities are reserved for locally owned or joint-venture enterprises. As part of the SAP, the Government pledged to eliminate the Reserved List progressively. Business activities relating to manufacturing and construction were removed from the Reserved List in 1995. Elimination of the Reserved List has been one of the more controversial aspects of the SAP and there has been little additional progress in reducing the number of reserved activities.

PNG policy favors privatization of public business entities and the Government has sold interests in sugar, oil palm, forest-products and insurance businesses. In 1996 the Government sold 49% of the shares in Orogen, a company which holds the State's interest in various major mining and petroleum projects, in a public stock offering. Papua New Guineans had the opportunity to acquire Orogen shares at a reduced price before they were offered to foreign investors. The Papua New Guinea Banking Corporation (PNGBC) and Air Niugini are candidates for privatization, though the structure and timing of any sale has yet to be announced.

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. Fund raising in Papua New Guinea is limited by the small domestic market. While some finance is available from the banking system, such as the Rural Development Bank of Papua New Guinea who provides financing to Papua New Guinea enterprises for agricultural, industrial and commercial projects, overseas investors are unlikely to secure substantial funds locally. A new operation would normally need to bring funds from overseas to establish a project.