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Papua New Guinea, on the Maritime Silk Road?

Nowhere are the challenges, and perhaps also the opportunities of development, greater than Papua New Guinea.  One interesting opportunity for development is the nation’s potential role in the Maritime Silk Road between China and the South Pacific.  I recently visited, accompanying a business delegation led by the Vice-Mayor of Chinese megacity Shenzhen, Ai Xuefeng.

Papua New Guinea is a land that some would say time forgot.  A place of tropical forests and spectacular coral reefs, for most of its people it is a place largely untouched by economic development.

But in the years to come, the times will suit Papua New Guinea.  Rich in energy and resources, strategically positioned on trade routes to global business hubs – including China – Papua New Guinea has massive potential for development for its seven million people.

There is no doubt that there are numerous hurdles to overcome.  Papua New Guinea is one of the world’s poorest countries, with millions living a subsistence lifestyle.  There are huge governance challenges in bringing the nation into the modern world with rule of law.  There are current budgetary and debt problems.  And economic development has been constrained by an acute lack of key infrastructure, such as electricity and roads.

But economic development is coming.

Papua New Guinea has recently invited multinational oil and gas firms to develop its abundant Liquid Natural Gas (LNG) resources.  A first LNG project, worth $19 billion, has been developed and began exporting to China last year.  A second LNG project is about to get the go ahead.   Large gold and copper mines are also poised for development.

Papua New Guinea has significant seabed resources ready for exploitation, now that the technology to access them is becoming viable.  In its Exclusive Economic Zone of 2.5 million square kilometres, the Pacific nation has vast fisheries, including 18% of the world’s tuna.  It also has huge forests.  Indeed, Papua New Guinea is the world’s top exporter of tropical timber.  Papua New Guinea also has plenty of land for agriculture, mostly undeveloped, which could yield much more than the current crops of palm oil, coffee and cocoa.

And with its spectacular scenery, pristine reefs for diving and rich diversity of cultures, Papua New Guinea’s tourism industry has plenty of scope to grow.  The flight from Hong Kong to Port Moresby is six hours and then beautiful diving spots are a further short domestic flight away.  Tourism is extremely under-developed and so far caters mainly to adventurous Australian and European travellers.

Papua New Guinea is a sound investment destination and expected infrastructure development will unlock strong growth in the medium term.  First, however, foundation infrastructure is needed and this is where the Maritime Silk Road will help.

State-owned PNG Ports has ambitious plans to develop Papua New Guinea as a hub for trans-Pacific shipping.  Given the strategic location of Lae, on the nation’s north coast, and growing trade between Papua New Guinea and China, the port authority has big plans that could transform the potential for agricultural, fisheries and industrial development, including in other neighboring Pacific Islands without adequate shipping links to China.

The development of new sea and air infrastructure and low cost, efficient logistical links to key markets will allow the development of not just commodity trade but also high value exports such as seafood, from coastal fisheries and aquaculture development, and fresh fruit and other agricultural products from PNG direct to China and beyond.

The potential to unlock agricultural potential is particularly exciting. 

While agriculture is a much smaller industry than mining, it is a major employer, with significant production of coffee and cocoa and smaller scale production of palm oil, with scope for further expansion.  Papua New Guinea’s low tech, organic production makes it an ideal source of branded, pure source products and there is an amazing story to tell – archaeological evidence indicates settlers in the Kuk Valley in the Highlands were some of the first people in the world to develop agriculture.

In 2018 Port Moresby will host the APEC Leaders Summit, putting the city on the world stage, including visiting leaders from the China, Japan and the United States.  It will be a major test for the new infrastructure being put in place in the capital.  In fact, there won’t be enough hotel rooms, even with new hotel construction underway, so excess rooms will be provided by visiting cruise ships.  Signs are Papua New Guinea will manage this major opportunity well.

The long term further development of China augurs well for Papua New Guinea.  Given their own development experience of recent decades, Chinese investors can see the potential of Papua New Guinea and are busy investigating opportunities throughout the archipelago for infrastructure, resources, energy, agriculture and fisheries development.

China has now become the second largest source of foreign investment in Papua New Guinea, after Australia.  Metallurgical Corporation of China (MCC) holds an 85% share of the Ramu nickel/cobalt mine in Madang Province.  In 2015, Zijin Mining Group bought a 50% share in Porgera gold mine.  UMC Energy is developing onshore and offshore oil and gas in partnership with CNOOC.

With long-term vision, it is entirely possible to see China helping to assist Papua New Guinea up the development ladder.   Chinese business will win as they develop Papua New Guinea’s untapped potential and it is vital that the people of Papua New Guinea must also win from this development.  To ensure they do, more attention is needed to cleaning up the development problems of corruption, law and order and carefully managing how business respectfully negotiates access – and shares profits – from traditionally held, customary land.

It’s time for Papua New Guinea and China to seize the day.  The results will be a truly significant extension of the Maritime Silk Road to the South Pacific.

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