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Economy of Papua New Guinea

From Academic Kids

Contents

Overview

Papua New Guinea is richly endowed with natural resources, but exploitation has been hampered by the rugged terrain and the high cost of developing infrastructure. Agriculture provides a subsistence livelihood for the bulk of the population. Mineral deposits, including oil, copper, and gold, account for 72% of export earnings. Budgetary support from Australia and development aid under World Bank auspices have helped sustain the economy. In 1995, Port Moresby reached agreement with the IMF and World Bank on a structural adjustment program, of which the first phase was successfully completed in 1996. In 1997, droughts caused by the El Niño weather pattern wreaked havoc on Papua New Guinea's coffee, cocoa, and coconut production, the mainstays of the agricultural-based economy and major sources of export earnings. The coffee crop was slashed by up to 50% in 1997. Despite problems with drought, the year 1998 saw a small recovery in GDP. Growth increased to 3.6% in 1999 and may be even higher in 2000, say 4.3%.

Economy - in greater depth

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 labour sector consequently also is limited.

Mineral Resources

In 1999 mineral production accounted for 26.3% of gross domestic product. Government revenues and foreign exchange earning depend heavily on mineral exports. Indigenous landowners in areas affected by minerals projects also receive royalties from those operations. Papua New Guinea is richly endowed with gold, copper, oil, natural gas, and other minerals. Copper and gold mines are currently in production at Progera, Ok Tedi, Misima, and Lihir. New nickel, copper and gold projects have been identified and are awaiting a rise in commodity prices to begin development. A consortium led by Chevron is producing and exporting oil from the Southern Highlands Province of Papua New Guinea. In 2001, it expects to begin the commercialization of the country's estimated 640 km³ (23 trillion cubic feet) of natural gas reserves through the construction of a gas pipeline from Papua New Guinea to Queensland, Australia.

Agriculture, Timber, and Fish

Papua New Guinea also produces and exports valuable agricultural, timber, and fish products. Agriculture currently accounts for 25% of GDP and supports more than 80% of the population. Cash crops ranked by value are coffee, oil, cocoa, copra, tea, rubber, and sugar. The timber industry was not active in 1998, due to low world prices, but rebounded in 1999. About 40% of the country is covered with exploitable trees, and a domestic woodworking industry has been slow to develop. Fish exports are confined primarily to shrimp. Fishing boats of other nations catch tuna in Papua New Guinea waters under license.

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 are perennially the strongest U.S. exports to Papua New Guinea. In 1999, as mineral exploration and new minerals investments declined, so did United States exports. Australia is Papua New Guinea's most important export market, followed by Japan and the European Union. Crude oil is the largest U.S. import from Papua New Guinea, followed by gold, cocoa, coffee, and copper ore.

U.S. companies are active in developing Papua New Guinea's mining and petroleum sectors. Chevron operates the Kutubu and Gobe oil projects and is developing its natural gas reserves. A 5,000 to 6,000 m³ (30,000-40,000 barrel) per day oil refinery project in which there is an American interest also is under development 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.

Development Programs and Aid

Australia is the largest bilateral aid donor to Papua New Guinea, offering about $200 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. 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, including the United States, and mission church workers also provide education, health, and development assistance throughout the country.

Current Economic Conditions

(as of 2003)

By mid-1999, Papua New Guinea's economy was in crisis. Although its agricultural sector had recovered from the 1997 drought and timber prices were rising as most Asian economies recovered from their 1998 slump, Papua New Guinea's foreign currency earnings suffered from low world mineral and petroleum prices. Estimates of minerals in exploration expenditure in 1999 were one-third of what was spent in 1997. The resulting lower foreign exchange earnings, capital flight, and general government mismanagement resulted in a precipitous drop in the value of Papua New Guinea's currency, the kina, leading to a dangerous decrease in foreign currency reserves. The kina has floated since 1994. Economic activity decreased in most sectors; imports of all kinds shrunk; and inflation, which had been over 21% in 1998, slowed to an estimated annual rate of 8% in 1999.

Citing the previous government's failure to successfully negotiate acceptable commercial loans or bond sales to cover its budget deficit, the government formed by Sir Mekere Morauta in July 1999 successfully requested emergency assistance from the International Monetary Fund and the World Bank. With assistance from the Fund and the Bank, the government has made considerable progress toward macroeconomic stabilization and economic reform.

Statistics

GDP: purchasing power parity - $11.6 billion (11.6 G$) (1999 est.)

GDP - real growth rate: 3.6% (1999 est.)

GDP - per capita: purchasing power parity - $2,500 (1999 est.)

GDP - composition by sector:
agriculture: 25%
industry: 35%
services: 40% (1999 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 1.7%
highest 10%: 40.5% (1996)

Inflation rate (consumer prices): 16.5% (1999 est.)

Labour force: 1.941 million

Labour force - by occupation: agriculture NA%, industry NA%, services NA%

Unemployment rate: NA%

Budget:
revenues: $1.6 billion
expenditures: $1.9 billion, including capital expenditures of $NA (1998 est.)

Industries: copra crushing, palm oil processing, plywood production, wood chip production; mining of gold, silver, and copper; crude oil production; construction, tourism

Industrial production growth rate: NA%

Electricity - production: 1,700 GWh (1998)

Electricity - production by source:
fossil fuel: 69.54%
hydro: 30.46%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 1,600 GWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: coffee, cocoa, coconuts, palm kernels, tea, rubber, sweet potatoes, fruit, vegetables; poultry, pork

Exports: $1.9 billion (f.o.b., 1999 est.)

Exports - commodities: oil, gold, copper ore, logs, palm oil, coffee, cocoa, crayfish and prawns

Exports - partners: Australia 20%, Japan 13%, Germany 7%, South Korea 5%, Philippines 4%, United Kingdom 3% (1998)

Imports: $1 billion (f.o.b., 1999 est.)

Imports - commodities: machinery and transport equipment, manufactured goods, food, fuels, chemicals

Imports - partners: Australia 51%, Singapore 10%, Japan 8%, United States 5%, New Zealand 5%, Malaysia 3% (1998)

Debt - external: $2.4 billion (1999 est.)

Economic aid - recipient: $400 million (1999 est.)

Currency: 1 kina (K) = 100 toea

Exchange rates: kina (K) per US$1 - 2.7624 (November 1999), 2.520 (1999), 2.058 (1998), 1.434 (1997), 1.318 (1996), 1.276 (1995)

Fiscal year: calendar year

See also


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