Papua New Guinea's GDP per capita: Trends, composition, challenges, and prospects

Papua New Guinea is a lower-middle-income country with a GDP per capita of *$2,708 in 2022. While this is lower than the global average, Papua New Guinea's GDP per capita has been growing steadily in recent years. The mining sector is the largest contributor to the economy, followed by agriculture, forestry, and fishing. However, the country faces a number of challenges to further development, including a large informal sector, high levels of poverty and inequality, limited access to basic services, poor infrastructure, and a challenging business environment. Despite these challenges, Papua New Guinea has the potential to achieve strong economic growth in the coming years. Policymakers can focus on promoting economic diversification, investing in infrastructure and social services, improving the business environment, and reducing poverty and inequality to boost GDP per capita and create a brighter future for all Papua New Guineans.

*The World Bank classifies countries as lower-middle-income if their GDP per capita is between $1,046 and $4,095. Papua New Guinea's GDP per capita of $2,708 is therefore in the lower end of the range for lower-middle-income countries.

The PNG LNG project has had a significant impact on Papua New Guinea's GDP per capita, boosting it by an average of 1.5% per year since 2014. It has also created jobs and reduced poverty, although this impact was largely evident during the development phase. Since then, the project has not generated as many new jobs or opportunities, but it has continued to generate tax revenue for the government.

Introduction

Gross domestic product (GDP) per capita is a measure of economic well-being. It is calculated by dividing the total value of all goods and services produced in a country (GDP) by the population. GDP per capita is often used to compare the living standards of different countries.

Papua New Guinea is a lower-middle-income country with a GDP per capita of $2,708 in 2022 (World Bank). This is lower than the global average of $12,241. However, Papua New Guinea's GDP per capita has grown by an average of 2.5% per year over the past decade.

Trends

The growth of Papua New Guinea's GDP per capita has been driven by a number of factors, including strong growth in the mining and construction sectors, as well as an increase in government spending on infrastructure and social services. The mining sector is the largest contributor to the economy, accounting for around 20% of total output. The other main sectors of the economy are agriculture, forestry, and fishing (16%), construction (12%), and wholesale and retail trade (11%).

Papua New Guinea's GDP per capita comparison

Composition

Papua New Guinea's economy is heavily dependent on the mining and oil and gas sectors. This makes the economy vulnerable to fluctuations in commodity prices. The government is working to diversify the economy and reduce its reliance on mining. However, this process will take time.

In addition to mining, Papua New Guinea has a significant agricultural sector. Agriculture employs around 80% of the population and contributes around 16% to GDP. However, agricultural productivity is low and many farmers live in poverty. The government is working to improve agricultural productivity and support farmers through programs such as the Special Agriculture and Business Lease (SABL) program.

Logging Special Agriculture and Business Lease (SABL) areas

Challenges

Despite recent economic growth, Papua New Guinea faces a number of challenges to further development. These challenges include:

• A large informal sector, which is estimated to account for over 80% of the economy.
• Limited access to basic services such as education and healthcare.
• High level of systemic and sytematic corruption.
• A challenging business environment.
• High levels of poverty and inequality.
• Poor infrastructure.

The informal sector is a major challenge for the Papua New Guinean economy. It is difficult to tax and regulate the informal sector, which limits the government's ability to raise revenue and provide services. The informal sector also deprives workers of important benefits such as social security and minimum wages.

High level of systemic and sytematic corruption

Poverty and inequality

Poverty and inequality are also major challenges for Papua New Guinea. According to the World Bank, around 40% of the population lives below the national poverty line. Inequality is also high, with the richest 10% of the population earning more than 40% of the country's income.

Papua New Guinea also faces a number of challenges in terms of access to basic services. The country has a high illiteracy rate and many people lack access to healthcare. Infrastructure is also poor, with many roads and bridges in need of repair.

Finally, the business environment in Papua New Guinea is challenging. The country has a complex regulatory environment and corruption is a problem. This makes it difficult for businesses to operate and invest in the country.

Prospects

Despite the challenges listed above, Papua New Guinea has the potential to achieve strong economic growth in the coming years. The country has a wealth of natural resources, a young and growing population, and a government that is committed to economic reform. If the government can successfully address the challenges listed above, Papua New Guinea can achieve significant progress in terms of economic growth and poverty reduction.

Conclusion

Papua New Guinea has made significant progress in recent years in terms of economic growth and poverty reduction. However, the country still faces a number of challenges, including a large informal sector, high levels of poverty and inequality, limited access to basic services, poor infrastructure, and a challenging business environment.

Policymakers can focus on promoting economic diversification, investing in infrastructure and social services, improving the business environment, and reducing poverty and inequality to boost GDP per capita and create a brighter future for all Papua New Guineans.

Recommendations

Here are some specific recommendations for policymakers in Papua New Guinea:

• Promote economic diversification by investing in sectors such as agriculture, tourism, and manufacturing.
• Invest in infrastructure and social services such as education, healthcare, and transportation.
• Improve the business environment by reducing regulatory burdens and combating corruption.
• Reduce poverty and inequality through targeted social programs and investments in human capital.

If the government can successfully address these challenges, Papua New Guinea can achieve significant progress towards its goal of becoming a high-income country.

Additional resources

Donor and reseaches

• World Bank: Papua New Guinea Country Overview
• International Monetary Fund: Papua New Guinea Country Report
• Asian Development Bank: Papua New Guinea Country Profile
• Papua New Guinea Government: Website
• Papua New Guinea Institute of National Affairs: Website

Academic journals and books

•  Asian Development Bank. (2022). Papua New Guinea Economic Update 2022.
• World Bank. (2022). Papua New Guinea Country Economic Memorandum: Building a More Resilient and Inclusive Economy.
• Lowy Institute. (2022). Papua New Guinea: Economic Challenges and Opportunities.
• Papua New Guinea Institute of National Affairs. (2022). Papua New Guinea Economic Outlook 2023

Papua LNG project: Total Energies, ExxonMobil, and Santos the main benefactors

 Papua New Guinea is a country located in the southwestern Pacific Ocean, north of Australia. The country has abundant natural resources, including natural gas, which has been a major source of revenue for the country in recent years. 

The Papua LNG project is one of the largest gas projects in the country, and it is operated by a consortium of three major oil and gas companies: Total Energies, ExxonMobil, and Santos.

Production started in 2014.

Stakes: Total Energies, ExxonMobil, and Santos

According to the data provided, the Papua LNG project is valued at USD10b, and the three companies have varying stakes in the project. 

Total Energies has a 40.1% stake, ExxonMobil has a 37.1% stake, and Santos has a 22.8% stake. 

However, the state (PNG Government) has a back-in right of 22.5%, which means that if it exercises this right, the equity of the three companies will be diluted. 

In this scenario, Total Energies will have a 31.1% stake, ExxonMobil will have a 28.8% stake, and Santos will have a 17.7% stake.

Image: Supplied

Papua LNG Project Awareness

Despite the economic benefits of the Papua LNG project, many Papua New Guineans are not fully aware of the details of the project. For instance, since the project was announced in 2014, it has earned the country over USD10b in revenue. 

However, this figure pales in comparison to the USD30b earned by the country's other LNG gas project, PNG LNG Gas, which started production in 2014. This highlights the need for more public education on the Papua LNG project and its potential benefits.

Papua LNG Project Benefit Negotiation

The negotiation process for the Papua LNG project was not without its challenges. In 2019, the country's then-minister for mining, Johnson Tuke, announced that the government had reached an agreement with the project's stakeholders on the terms for the development of the project. 

However, the agreement was met with protests from landowners and civil society groups, who accused the government of not consulting them adequately. 

The country's current prime minister, James Marape, has promised to review the country's resource laws to ensure that the country gets a fair share of the revenue from its natural resources under his motto Take Back PNG.

Challenges of the Papua LNG project

In terms of the benefits and challenges of the Papua LNG project, there are several factors to consider. 

On the one hand, the project has the potential to generate significant revenue for the country, which can be used to fund social and economic development projects. Additionally, the project can create jobs and boost local businesses. 

On the other hand, the project may have negative environmental impacts, such as deforestation and pollution. Additionally, there may be concerns about the equitable distribution of revenue and benefits among all stakeholders, including landowners and local communities.

SWOT analysis

A SWOT analysis of the Papua LNG and PNG LNG projects reveals the following:

Strengths:

• Both projects have the potential to generate significant revenue for the country.
• The projects can create jobs and boost local businesses.

Weaknesses:

• The projects may have negative environmental impacts.
• There may be concerns about the equitable distribution of revenue and benefits among all stakeholders.

Opportunities:

• The country can use revenue generated from the projects to fund social and economic development projects.
• The government can review its resource laws to ensure that the country gets a fair share of the revenue from its natural resources.

Threats:

• Protests from landowners and civil society groups can delay or halt the development of the projects.
• Fluctuations in the global oil and gas markets can impact the viability of the projects.

Another potential threat to the projects is political instability in the country. Papua New Guinea has a history of political instability and corruption, which can affect the smooth running of the projects.

Papua LNG and PNG LNG projects' potential

Despite these challenges, both the Papua LNG and PNG LNG projects have the potential to benefit the country significantly. 

It is important, however, that the government and the project stakeholders take into account the concerns of all stakeholders and ensure that the projects are developed in a socially and environmentally responsible manner. 

This includes consulting with local communities and landowners, addressing any environmental concerns, and ensuring that revenue and benefits are distributed equitably among all stakeholders.

Conclusion

The Papua LNG project is a significant development in Papua New Guinea's natural gas sector. 

However, it is important that the government and the project stakeholders address concerns around environmental impacts, revenue distribution, and community consultation to ensure that the project benefits all stakeholders in the country. 

Additionally, the government should continue to review its resource laws to ensure that the country gets a fair share of the revenue from its natural resources.

Oil Search PNG Advises US$200 Million Write-Down Due to Oil Price Dip

Oil Search PNG, led by CEO Peter Botten, has recently advised a write-down of US$200 million to re-value the company in light of the recent dip in oil prices, as reported by The Financial Review. 

While this move may strategically position the company in terms of its assets and equity, it raises questions about the impact on shareholders and the assessment of the government's shareholding on behalf of Papua New Guineans. 

Has Peter O'Neill been misled into borrowing and investing heavily, and will the write-down affect the company's share price? And, what does this mean for shareholders and Papua New Guinea Government?

Share Price and Shareholders

A write-down of US$200 million is a significant amount that can greatly impact a company's value. However, it may also serve to put a positive spin on Oil Search's balance sheet and save face for CEO Peter Botten. 

The company has shown strong growth, and there may not be immediate cause for alarm. Nevertheless, shareholders may be concerned about the potential impact on the company's share price.

Positive signs can be seen, as Oil Search's share price has been picking up from a low of AUD6.93 in December 2014 to a high of AUD8.24 in February 2015. 

While there may be fluctuations in price, it remains to be seen whether the US$200 million write-down will have a negative effect on the share price. 

Share price is often considered a good indicator of a company's value in real-time, and if it drops again after the write-down, Peter O'Neill may not be able to solely blame the oil price dip, but also the actions of Oil Search's leadership.

Government Shareholding and Investment Decisions

As a major shareholder in Oil Search, the Papua New Guinea Government needs to carefully assess the value of its shareholdings before any write-down goes ahead. 

A fall in share price after a significant write-down could have devastating consequences for the government and the people of Papua New Guinea.

The write-down of US$200 million is a substantial amount, equivalent to double the operating revenue of Oil Search as of September last year. This could potentially erode a significant portion of the company's value. 

Questions arise as to whether this write-down is a mere smoke-screen to cover up poor investment decisions if any potential investments are cut. It is crucial for the government to thoroughly evaluate the situation and ensure that the best interests of Papua New Guineans are safeguarded.

Conclusion

Oil Search's recent announcement of a US$200 million write-down to re-value the company due to the dip in oil prices has raised concerns among shareholders and the Papua New Guinea Government. 

The impact on the company's share price and the government's shareholding needs to be carefully considered, and questions about the company's investment decisions need to be addressed. 

As the situation unfolds, all stakeholders, including shareholders and the government, will be closely watching the developments and their potential implications for Oil Search and Papua New Guinea's economy.

K8.6 Billion Debt Vs K16 Billion Budget - Why PNG Treasury Runs Dry and Impact On 2015 Budget

Two letters were released on two important political developments on the same day, Friday the 14th of November. The first was the 'unexpected' referral of the Prime Minister, Peter O'Neill, to Leadership Tribunal. Second is a letter from the Chief Secretary of Government seeking cooperation from department heads to minimise pressure on 2014 Budget. 

The PM and Minister for Treasury indicated that 2015 Budget was on course. Their intentions were to showcase to every citizen and overseas friend that all is under control. As long as there are no confirmed data to support the Budget presentation, no one will believe them.

Government circular No. 05/2014 indicated that all is not too well. Chief Secretary to the Government circular implied that treasury could run dry before the end of the financial year. Every financial year ends in March. Does it mean that department heads have not followed tight monetary policy over the last 8 months? Why this letter is 'urgent'? 

The reasons why the heads should take cost-cutting measures detailed in Circular Instruction No. 05/2014 are indicative. This means that those reasons are used as smokescreen to divert attention from nonconformity to 'strict fiscal conditions set in 2014 Budget'.

The reality is obvious. Take a look at the facts associated with commodity prices, overspending and Government Debt.

1. Decline in tax revenues due to falls in some key commodity prices

Gold and silver prices have fallen after the financial crises, but oil and gas prices are at record high due to high demand from South East Asian Countries like Japan and Taiwan. Coffee price is at its peak, including other agricultural commodities.

The problem is that government has neglected Agricultural commodities, instead it places value on Gold, Silver and Oil and Gas. 

2. Increased costs associated with the completion of facilities for the 2015 South Pacific Games

Preparation of the SPG has put a lot of strain on 2014 Budget. The games committee has overspent  and requested more. The Government initially allocated AU$9 million, about PNG K1.2 billion when Don Polye was the treasurer. The estimated budget for the games is AU$342 million (over PGK760 million)

One only wonders if such an amount would not eat into Government Budget.  

3.  Increased costs on Government debt

Current government treasurer, in his 2015 Budget speech, said budget deficit is at K77 million and not K2.35 billion as expected from 2014 Budget. This is an oversight or deliberate attempt to divert from real debt. The amount does not include PNGK6 billion (about AU$2.7 billion) China's Exim Bank loan. The treasurer did not include the loan from Swiss bank UBS worth almost PNGK2.6 billion (AU$1.2 billion). 

It was reported that public debt service to cover interest payments stands at  K3.7 billion. Does this include both loans? What is the actual deficit brought forward from 2014? All these have to be factored into 2015 Budget and printed for all to see. 

In fact, PNG government has accrued a total debt of more than PNGK8.6 billion (K6b + K2.6b) since the Exim Bank loan. (That does not include other borrowings or repayments. or public debt of K3.7 billion or deficit from 2014 Budget of K2.35 billion). 

The conservative amount of K8.6 billion is factual based on both loans The nation's 2015 budget is around K16 billion. From the outset, one can see that debt level is at half the PNG's Annual Budget. 

Papua New Guineans and commentators have to see this figures clearly, and as it should be seen. The government has to tell us how much it has paid back. 2015 budget has to reflect all these figures in entirety. 

Apparently, Government of Papua New Guinea is placing all its hope on revenue from PNG LNG project. This is what the Prime Minister said in response to series of questions from the ABC news:

"GARRETT: You've just announced a 6 billion kina loan from China's Exim bank - that's worth almost 2.7 billion dollars. Critics say that is too big for PNG's budget. How do you respond?

O'NEILL: I think they underestimate Papua New Guinea's growth that is happening in the country. We are growing at an average of 8% over the last 10 years. We expect that growth to continue. We expect our economy to double by 2014. Our infrastructure in the country is declining to a state where some infrastructures are not able to cope with the demands of our people and our ecomomy. So when you look at this what solutions do you have? We need to program a massive overhauling and redevelopment of many of these infrastructures, particularly the transport systems in the country, and we are doing that by borrowing large sums of money. It sounds large but the draw down will not be in one single year. We are managing it prudently through our fiscal strategies that we have put in place and the projects are not going to be completed in one single cycle of a budget. So I don't think the stress levels will be that noticeable as the economy continues to grow. So I think our critics that are out there now stating that we are not able to manage such a large loan that has been sought through the Exim Bank of China we say this 'Do you want us to allow our infrastructures to continue declining? Do you want us to allow the economy to slow down and that there is no economic growth in the country? Do you want us to allow the unemployment figures to continue to rise?' Because when the economy does not grow the unemployment increases, all the other social sectors will decline. That is not a responsibility this government is prepared to accept. That is why the onus is on myself and the government to make sure that we rebuild the infrastructure in the country"

The stress level is clearly reflected in Chief Secretary's circular. The good news is that PNG LNG gas revenue will into government coffers starting 2015. 

Above all we must consider that PNG government will make just over K1 billion from its 16.8% stakes in the LNG project next year. Government's 10% stakes (149.4 million shares) in Oil Search contributes just over K70 million in first year of full production which is 2015. So, the anticipated revenue from the LNG project would contribute under K2 billion to Budget 2015.

It is certainly true that the Governments of Sir Michael Somare and Peter O'Neill have erred in using the PNG project as platform for more borrowing. PNG's budget has not doubled this year, not even next year when one takes a closer look at the rate of growth and debt level.

The country is likely to plunge deeper into debt.

PNG LNG | Do You Know ExxonMobil Can Recover Development Cost Under 5 Years

This analysis is based on the Prime Minister of Papua New Guinea (PNG) response to series of questions from the Opposition. Including latest report from the nation’s television broadcaster EMTV news on Liquefied Natural Gas (LNG) production in the country.

Many Papua New Guineans thought the US$19 billion earmarked for PNGLNG development was a huge investment. The amount actually spent was less.  A report from EMTV revealed that ExxonMobil saved over US$8 billion during construction phase.

To date over 42 shipments have left PNG shores.The Prime Minister, Peter O’Neill, when responding to Deputy Opposition leader questions about the shipments of LNG products, said a shipment was valued at US$50, 000, 000 on average. 

Expenditure margin has been reduced when ExxonMobil moved from development to production. Perhaps it is important to consider the savings of US£8 billion - a savings of 30% . Another good news for shareholders is that the company is likely to recover all the development costs – US$11 billion – in just 5 years.

For clarity: if 42 shipments worth on average US$50 000 000 each, ExxonMobile has made US$2.1 billion in six months. Double it to give US$4.2 billion in one year. So, in 5 years if oil price averages at the current rate, the project would have made US$21 billion.

So what does that mean? That means that the every shareholder would enjoy the fruit of their investments. What is not so right is the fact that PNG Government has borrowed heavily to partake in this business.

So, who is going to benefit from PNG LNG project?