Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
PNG continues to be prone to international shocks such as the recent Ukraine Russia War. Falling global commodity prices and the pandemic-related economic downturn has affected the country over the past several years. This has resulted in a decline in capital/infrastructure investment, a drop in income tax collections, as well as a shortage of foreign exchange. Core industries have not been performing to expected potential due to the lack of investment by private sector and government intervention.
With per capita GDP at USD 2,2916 in 2021, PNG is a low-income country where the average consumer has limited purchasing power. PNG’s economy has contracted in the past three years and the cost of living for households and businesses have increased significantly. These higher costs are mostly felt by those on low incomes and in more expensive urban areas in the country for example Port Moresby and Lae city. The Asian Development Bank predicts that inflation in PNG will persist, rising by 4.4 per cent in 2022, because the Papua New Guinean Kina will continue to depreciate and there will be more quantitative easing from the Bank of PNG.
The 2022 PNG 100 CEO Survey conducted between October 2021 and January 2022, highlighted that apart from the COVID-19 pandemic and restrictions, regulatory uncertainty, law and order, and government capacity constraints have the biggest impact on business and will continue to do so in the coming years.
PNG’s complicated land tenure system continues to hinder investment activities, while widespread law and order problems are a considerable burden and obstacle for both private and government investment. Security and law and order are an ongoing challenge to PNG’s economic development.
Corrupt practices also remain a hindrance to business and investment opportunities. According to the PNG National Research Institute, corruption in the public sector is believed to be one of the main constraints for doing business in PNG, particularly for small enterprises. This is reflected in PNG’s relatively low ranking in Transparency International’s 2021 Corruption Perceptions Index, where the country ranked as the 124th least corrupt nation out of 180 countries.
Political instability and frequent changes to key cabinet ministers often result in new policy reforms that are less socialized and often have a negative impact on the private sector. Increasing regulatory concerns also continue to be a challenge for potential investors. In 2021, the PNG government introduced the monopoly tax on Bank South Pacific and Digicel who have a monopoly in PNG’s banking and telecommunications markets. This will adversely affect shareholders of both companies but also impact investor confidence.
The public sector is ineffective and lacks capacity and resources to deliver on its mandated roles and responsibilities. The full and effective implementation of policies and the enforcement of laws and regulations remain the biggest challenges for the PNG government. Proper intragovernmental coordination within the public sector suffers from a lack of institutional governance and compliance.