DEV NADKARNI | Islands Business | Extracts

THE MIDDLE OF LAST YEAR saw murmurs about an impending slowdown in the Australian natural resources sector, which snowballed into fears of a possible downturn in the coming 18-24 months as the year wore on.

Papua New Guinea’s resources sector, which has been growing at a clipping pace especially since the turn of the century, is inextricably linked with Australia’s.

So any slowdown in Australia is bound to have an impact on PNG. And this may well become somewhat evident this year.

But the effect is unlikely to be a cause for any immediate worry. To begin with, no one is talking about a downturn in Australia, at least as yet.

What we see is a slowdown in the growth rate, which had been rather unusually high in the past decade or so on the back of the double digit growth rates in the fast growing emerging economies of China and India.

Growth rates the world over have been either negative, zero or in the case of the emerging economies, slowed down since the global financial crisis unfolded.

It’s this inevitable domino effect that we are now beginning to see in the Australian resources sector. By no means is it likely to be here to stay?

China, India and Brazil have a long way to go on their journey of development and their growth rates will begin to pick up sooner rather than later but that is unlikely to happen this year unless market sentiments around the world dramatically improve.

A couple of factors that this may depend on are the continued uptrend in European confidence and the avoidance of what has been the ‘financial cliff’ in the United States.

Given this backdrop, this temporary slowdown in the Australian resources sector is unlikely to affect PNG in any substantial way.

Also, other new mining investments in the pipeline will also likely soften the impact of any slowdown in the sector.

Given the boom of the past several years, investible funds available to PNG companies have been growing and many have forayed bravely into the region in an unprecedented manner.

We have seen PNG companies venture increasingly into Vanuatu and the Solomon Islands as well as Fiji and even far afield as Samoa with projects ranging from mining and the exploitation of resources to fisheries, banking and hospitality.

This trend will undoubtedly grow this year and more PNG businesses look towards setting up activities offshore and expanding its footprint.

Politically, this buoyant mood has confidence of the member countries of the Melanesian Spearhead Group (MSG) over the past few years and the grouping—comprising Fiji, PNG, Solomon Islands and Vanuatu—has increasingly become a force to be reckoned with around the region, although resented by countries that are not members.

MSG will continue to grow and its gravitas in the region, fuelled by its members’ growth in the resources sector, will see the grouping’s importance rise—at least in business and trade, if not politically.