PNG’s STRONG ECONOMIC performance continued in 2010, supported by resurgent minerals production and investment in new projects.
GDP is expected to have expanded by 7%, following 5.5% growth in 2009. After contracting 1.8% in 2009, minerals output is estimated to have expanded by 5.4% in 2010, despite strikes affecting major mines in the first months of the year.
Activity in the non-minerals sector also accelerated, expanding overall by 8.2% in 2010 following 5.3% growth in 2009. This upturn was led by sectors most linked to minerals production and the growing income streams they are generating. Construction, manufacturing and retail trade all recorded 20-30% increases. Activity in the transportation and communications sector, which benefited from deregulation earlier in the decade, is estimated at have grown by near 16% in 2010.
The large PNG-liquefied natural gas project moved towards full construction phase, but suffered temporary disruptions due to landowner actions. Construction of the $15 billion project’s first phase is scheduled to complete by mid-2014, although there are risks of this slipping.
Local landowners have slowed or temporarily halted construction work at various sites in recent months. These interventions generally relate to alleged grievances regarding payment of land use compensation and business development grants by the central government to landowner groups. The central government has started distributing funds and has announced spending plans in anticipation of the PNG- LNG revenues.
Other announcements include a K157 million plan to build a national broadband network, piggybacking on the LNG fibre-optic cable.
The strong growth in construction and investment activity is creating capacity constraints and inflationary pressures.
Supply limits are being reached in particular sectors, such as property in Port Moresby and Lae, skilled labour, construction equipment and shipping facilities.
Businesses with looser budget constraints—generally the minerals investors themselves—are able to secure supplies and skilled labour by bidding up prices. Established firms, including the public sector, face growing difficulty in retaining staff.
Optimism continues to surround PNG’s medium-term economic outlook, but the risks are significant, as the government recognises. Growth is expected to slow modestly from recent strong rates.