Papua New Guinea Economy
 

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PAPUA NEW GUINEA
GDP: US$1.23 billion.
Growth rate: (2003 est.) minus 2.0% (IMF).
Per capita GDP: US$580.

Budget: Income .............. $56 Billion
Expenditure ... $60 Billion

Main Crops:
Wheat, corn, sorghum, soybean, sugar beets.

Natural Resources:
Lead, Zinc, Tin, Copper, Iron, Petroleum.

Major Industries:
Food Processing, Motor Vehicles, Consumer Durables.

NATIONAL GNP

Papua New Guinea is rich in natural resources, including minerals, timber, and fish, and produces a variety of commercial agricultural products. The economy generally can be separated into subsistence and market sectors, although the distinction is blurred by smallholder cash cropping of coffee, cocoa, and copra. About 75% of the country's population relies primarily on the subsistence economy. The minerals, timber, and fish sectors are dominated by foreign investors. Manufacturing is limited, and the formal labor sector consequently also is limited. High commodity prices in 2004 lifted both sectors after several years of declines.

Mineral Resources
Papua New Guinea is richly endowed with gold, copper, oil, natural gas, and other minerals. In 2001 mineral production accounted for 25% of GDP. This will inevitably decline as old discoveries are mined out. Years of sluggish exploration mean that few new deposits will be open in the coming years. However, recent regulatory and tax reform have led to a resumption of exploration which may boost the sector in the out years. Government revenues and foreign exchange earning have depended depend heavily on mineral exports. Indigenous landowners in areas affected by minerals projects also receive royalties from those operations. Copper and gold mines are currently in production at Progera, Ok Tedi, Misima, and Lihir. A consortium led by Mobil/Exxon hopes to begin the commercialization of the country's estimated 22.5 trillion cubic feet of natural gas reserves through the construction of a gas pipeline from Papua New Guinea to Queensland, Australia, however, the project has been stalled until major customers make purchase commitments. Interoil, an American firm, opened PNG’s first oil refinery in 2004. It will produce 30,000 barrels of product a day, covering all of PNG’s domestic requirements and leaving 15,000 b/d for export.

Agriculture, Timber, and Fish
Papua New Guinea also produces and exports valuable agricultural, timber, and fish products. Agriculture currently accounts for 30.4% of GDP and supports more than 85% of the population. Cash crops ranked by value are coffee, oil, cocoa, copra, tea, rubber, and sugar. About 40% of the country is covered with exploitable trees, and a domestic woodworking industry has been slow to develop. A number of South East Asian companies are active in the timber industry, but World Bank and other donors have withdrawn support from the sector over concern for unregulated deforestation and environmental damage. Although an official moratorium on log exports is currently in place, it is poorly enforced and logging continues at an unsustainable rate. PNG has an active tuna industry but much of the catch is made by boats of other nations fishing in PNG waters under license. Locally produced fish exports are confined primarily to shrimp.

Industry
In general, the Papua New Guinea economy is highly dependent on imports for manufactured goods. Its industrial sector--exclusive of mining--accounts for only 9% of GDP and contributes little to exports. Small-scale industries produce beer, soap, concrete products, clothing, paper products, matches, ice cream, canned meat, fruit juices, furniture, plywood, and paint. The small domestic market, relatively high wages, and high transport costs are constraints to industrial development.

Trade and Investment
Australia, Singapore, and Japan are the principal exporters to Papua New Guinea. Petroleum and mining machinery and aircraft have been the strongest U.S. exports to Papua New Guinea. These have slipped as mineral exploration and new minerals investments have declined.

Australia is Papua New Guinea's most important export market, followed by Japan and the European Union. The U.S. imports from PNG modest amounts of gold, copper ore, cocoa, coffee, and other agricultural products.

With the 2003 withdrawal of Chevron/Texaco, Australian companies are the most active in developing Papua New Guinea's mining and petroleum sectors. Exxon/Mobil retains a major share of natural gas reserves and is interested in building a pipeline to Australia. Interoil, an American firm backed by an OPIC loan, operates a 30,000-barrel a day refinery in Port Moresby.

Papua New Guinea became a participating economy in the Asia-Pacific Economic Cooperation (APEC) Forum in 1993. It joined the World Trade Organization (WTO) in 1996. It is an observer at ASEAN and a member of the ASEAN Regional Forum.

Development Programs and Aid
Australia is by far the largest bilateral aid donor to Papua New Guinea, offering about $300 million a year in assistance. Budgetary support, which has been provided in decreasing amounts since independence, was phased out in 2000, with aid concentrated on project development. In 2004, Australia and PNG reached agreement on the Enhanced Cooperation Program under which Australia will provide direct assistance, including 210 line police officers, to the PNG constabulary. Other major sources of aid to Papua New Guinea are Japan, the European Union, the People's Republic of China, the Republic of China, the United Nations, the Asian Development Bank, the International Monetary Fund, and the World Bank. Volunteers from a number of countries and mission church workers also provide education, health, and development assistance throughout the country. (Approaching $75 per capita, foreign assistance to PNG is substantial.) The U.S. funds a small HIV/AIDS project in PNG.

Current Economic Conditions
After years of decline and government deficit, PNG was bolstered in 2003/2004 by a general rise in commodity prices and by government steps toward spending control. The economy grew modestly and the government deficit fell from 8% of GDP to 1.7%. However, the commodity boom will be temporary and the nation continues to have serious problems of corruption, a lack of law and order, land tenure concerns stifling investment, political interference in businesses, and a lack of political will to adapt needed sweeping reforms. Mining output and oil production have led a general decline in output of the modern economy though some see long term hope in a resumption of exploration after recent regulatory reform.