Sitting between the Coral Sea and South Pacific Ocean, Papua New Guinea is known more for its expanses of beautiful, untamed land and legends of cannibalism than it is for any economic potential. But in the past five years, the country of 7.8 million people has experienced an average annual real GDP growth rate of 7.5%, and is projected by the Asian Development Bank (ADB) to be the world’s fastest growing economy in 2015, with a GDP growth rate of 21%.

Multinational companies are sitting up and taking notice, keen to cash in on the natural resources found in Papua New Guinea's mountainous terrain, particularly as prudent fiscal policies have improved the country's business climate. However, with these vast opportunities come an entirely new set of challenges, for both the country's authorities and potential investors. 


Papua New Guinea is no conventional developing economy. Its lush, volcanic landscape is home to numerous tribes, many of which have little or no contact with the outside world. About 80% of the country’s population lives in rural areas with no access to electricity, and is dependent on subsistence agriculture. Crime levels are high and diseases such as HIV, cholera and malaria are endemic. Transparency International ranked the country as one of the most corrupt in the world in 2012, and about 70% of papua New Guinea's population lives in poverty, according to the World Bank. 

Natural talents

Despite these challenges, the country has progressed on several fronts. “Twenty years ago we had to explain to people where Papua New Guinea was on a map. Now, all the international investors know who we are,” says Dairi Vele, the country's treasury secretary. Aid from Australia, the World Bank and the ADB has fallen from 20% of state revenue in 2003 to approximately 10% in 2015. The government has been working to attract foreign investment, liberalise the telecommunications and aviation sub-sectors, and develop the country's abundant natural resources in the hope of becoming a major world energy exporter. It has also launched an independent commission against corruption and an external watchdog aimed at improving transparency. 

Papua New Guinea is the largest exporter of cash crops among Pacific Island countries, and between 2003 and 2013 was the largest recipient of foreign greenfield projects in the 'Small Island Developing States' countries. About 30% of the country’s 9349 kilometres of roads were paved as of 2011, leaving a great deal of room for large-scale infrastructure development – Papua New Guinea’s investment promotion authority says that in 2013, 24.6% of FDI coming into the country was in the construction sector. This, coupled with low labour costs and abundant natural resources including natural gas, crude oil, metals, and timber, makes Papua New Guinea a very interesting prospect for foreign investors. 

“Our government’s priority is to build infrastructure that will support our rapid economic growth,” says Papua New Guinea prime minister Peter O’Neill, who took office in 2012. Major projects are under way to develop transmission networks, roads and public buildings – more than $900m is planned to be spent on building and upgrading power plants, another $1.5bn will be spent on road and highway projects, and several hundred million US dollars are slated for the development and expansion of capital city Port Moresby's national airport and coastal container ports. 

Prominent industries in Papua New Guinea such as mining, timber and fisheries are dominated by foreign investors, thanks to business-friendly policies that often allow for 100% foreign-owned enterprises to operate in the country. Major multinationals in Papua New Guinea come from the US, Japan, Malaysia, China, Australia and New Zealand, with the US leading the list as the source of 38.7% of the country's total FDI. This is largely because of Exxon Mobile’s $19bn liquefied natural gas (LNG) project, the largest in the Papua New Guinea's history. “The Papua New Guinea LNG project has doubled the size of the country's economy since 2009,” says Mr O’Neill, who adds that the deal has the potential to triple export revenue. Yearly production capacity is projected at 6.9 million tonnes over 30 years. 

Security worries 

Given its unforgiving terrain and high crime rate, worker safety in Papua New Guinea is a concern for many potential investors. Andrew Barry, managing director of Exxon in the country, says that contrary to perception, he finds the environment safe for his employees. “We have now logged 48 million working hours without a single worker injury,” he says. Exxon has also invested $236m in local education facilities, health clinics and infrastructure, and put more than 1600 Papua New Guineans through its technical training courses. 

“We are investing in providing safer communities for both citizens and businesses,” says Mr O’Neill. “We have doubled investment in law enforcement since taking office – it’s increased to about 10% of our entire budget.” 

A mine of challenges 

Mining is a further source of considerable inward investment in Papua New Guinea – Newcrest Mining, Australia’s largest listed gold miner, operates Lihir gold mine, the third largest gold-producing mine in the world. Angolan-Australian multinational BHP Billiton runs Ok Tedi, Papua New Guinea’s oldest gold and copper mine, and the jointly owned $2.1bn Ramu nickel and cobalt mine run by Canadian and Chinese multinationals Barrick Gold and Metallurgical Corp is Papua New Guinea’s largest FDI project behind Exxon’s LNG facility. 

Mining interests often come into conflict with PNG’s landowner laws, however. “The government only owns 3% of the land. Our laws state that everything else is owned by individuals or clans, by the people,” says Mr Vele. Ian Currie, the owner of exploration company Papua Mining, says: “I think the climate is good, but it is still difficult. For us, the landowner issues pop up every day. But in terms of enforcing contracts, it’s very simple. If you play by the rules, you have nothing to fear.” 

Environmental conservation and human rights groups have also raised several claims against mining companies, not only because of environmental damage but for what they claim is violent abuse of workers and local residents in mining areas. “Our government has created an environmental protection authority that works directly with the investors in making sure that the highest global standards are maintained,” says Mr O'Neill. However, as such cases continue to be reported, the effectiveness of these reforms has yet to be determined. 

Investing in local 

Papua New Guinea’s Medium Term Development Plan (2011-2015) has focused on growing non-resource industries by offering tax incentives to investors in areas such as tourism and travel. “We have a country with more than 800 different languages and a thousand different tribes,” says Mr O’Neill, “so there is cultural diversity and traditional societies providing for a unique tourist experience.” 

“We’ve invested a substantial amount of money in expanding our ports – we’ve started to see cruise ships coming to our shores. So ports and airports are key investment areas to develop both business and tourism.” 

Papua New Guinea also has huge potential for hydropower, which provides half of the country’s electricity. Its electricity infrastructure is lacking, however – a mere 20% of the population has access to a consistent power supply, and it is expensive. “The LNG project should reduce power costs by up to 65%," says Mr Vele. "That is our focus – building enabling infrastructure that benefits the mining and petroleum sector to the agricultural and SME sector.” While the highest yield is in extractive sectors, the vast majority of Papua New Guineans work in industries such as agriculture and SMEs, making these areas critical to the country's economic wellbeing. 

“We’ve had 14 consecutive years of positive growth,” says Mr Vele. “The challenge now is to slingshot that to the rest of the economy and our people. It’s no good having these growth numbers if people’s lives aren’t being touched.”