Chairman, Honorable Ministers, Business Leaders, Government Officials, Distinguished Guest, Ladies and Gentlemen,

It is with great honor and pleasure to meet you at the opening of the 2nd Ministerial Conference of the China-Pacific Island Countries Economic Development and Cooperation Forum to discuss ways to further promote cooperation and development between Papua New Guinea and great China since the 1st Conference held in Fiji in April 2006.

This forum is very important for the private sector to discuss government policies and other issues that affect the development and growth of the private sector. The China - PIC Forum since its establishment has been playing a pivotal role in nurturing trade and investment links between Great China and PICs. Given the foregoing it is an honor for me here today to outline some of the significant improvements achieved so far in as far as Papua New Guinea’s relationship with China is concerned.

Since PNG recognized the “One China” policy and became the 112th country to establish diplomatic relations with China in 1976 after the signing of a joint communiqué in Beijing by the then current Prime Minister Sir Michael Somare, its trade statistics have indicated that the total volume of two way trade (imports & exports) amounted to a massive K1.7 billion (US$650 million) from 1996 – 2003 and is continuing to increase.

With trade and economic relations between PNG and PRC has hit over K1.7 billion, China is currently PNG’s third largest trading partner in the Asia Pacific region apart from Australia and Japan. Trade between the two countries has increased considerably. This we believe is attributed to China opening up its market recently under the wave of globalization.

PNG’s major exports to the PRC include copper, crude oil, logs, sawn timbers, veneer,
coffee, vanilla, crocodile skin, and marine products while imports from PRC accounts for garment, textile, footwear, base metal products, electrical appliances and others.

The potential to further expand this trade interest can be achieved through established bilateral trade arrangements. PNG has already put in place formal bilateral trade arrangements such as the investment protection and trade promotion agreement and double taxation treaty among others as vehicles to facilitate trade and investments between the two countries.

The Government of PNG through the Ministry of Commerce recognized that with proper marketing and capacity enhancement strategies, PNG can be able to strengthen its foothold in the huge Chinese market through mutual business cooperation.

The joint Communiqué of 1976 confirmed PNG’s “One China Policy” and has been the benchmark of the ever burgeoning relationship between the two countries over the years whereby exchange of visits have been made by the respective leaders, officials, and businessmen who, in doing so have helped expand the scope of bilateral relations in the areas of political, trade, economic, investment and development assistance.
 
Other formal agreements such as the Investment Promotion & Protection Agreement (IPPA), Trade Promotion Agreement (TPA), Double Tax Treaty (DTA) and others serve as vehicles for this mutual cooperation between China and PNG.

From the outset Papua New Guinea is now the largest trading partner of China amongst Pacific Island nations as reflected by the volume of trade and value in US Dollars outlined earlier. This will significantly increase with new initiatives in the joint exploration and exploitation by both countries of PNG’s vast natural resources in mining, natural gas, fishing, forestry, and agricultural commodities trade such as coffee, copra, cocoa, palm oil, etc.

Papua New Guinea also acknowledges the many development cooperation projects that China has assisted, in the provision of financial and technical assistance over the past thirty years.  Currently the Chinese Government is involved in four major areas of development cooperation which include: Economic and technical cooperation Program; Soft loans and Concession Loans; Infrastructure Development; and Technical Cooperation. Papua New Guinea continues to see China as an important development cooperation partner, from where appropriate development experiences can be shared by both countries to improve the quality of life of our people.

Papua New Guinea is confidently stands to gain significantly, spurred on from China’s fast pace of national development and industrialization.

Ladies and Gentlemen,

PNG is a commodity and resource based economy. It holds a high volume of natural resources that is yet to be fully developed to maximize its potential and benefits. The global economy is undergoing a huge change and economic growth lead by China. Commodity prices are very high at record levels. The global economic boom is driving investment particularly in resources rich economies like PNG, but the question of investment friendly environment domestically is another question. Are we ready to benefit from this current economic boom? Are we maximizing this opportunity of high commodity prices to broaden the economic base?

With those questions in mind, the PNG government wishes to translate the growth into broad-based that will benefit the whole population at large.

There are many challenges, but progress has been made. There has been political stability for the past 6 years and will continue on for the next four years. Debts levels have been brought down and budget is in surplus. These are very important cornerstone for investor confidence and economic growth.  In addition, the government is continuing to put in place appropriate policy frameworks and other necessary legislative reforms to encourage broad-based economic growth.

The Government under the stewardship of Right Hon. Grand Chief Sir Michael Somare, Prime Minister of Papua New Guinea is very much committed to ensuring that current economic growth is translated into broad-based economic growth through the government policies empowerment of the people; rural development and poverty alleviation.

In the last government we laid the foundation of enhancing Papua New Guinea through its policy of “recovery and development” where it gave prominence to a private sector led growth spelt out in our Medium Term Development Strategy. 

PNG is on the road to economic recovery and growth. Growth rate is forecasted at 6.6 percent and this is largely due to expansion in the mining sector and high global commodity prices.

Ladies and Gentlemen,

To take advantage of this global economic growth and high commodity prices, my ministry is working strongly to promote and develop a strong manufacturing base for the economy based on comparative advantage.

Currently, PNG’s exports are largely raw material or semi-processed which has to be translated into value added products thus creating employment and earn higher value for our products. PNG cannot continue to export raw and semi-processed goods which are vulnerable to fluctuations in world commodity prices.

In order to create a conducive and an enabling environment for the private sector, the government continues to undertake major reforms to enhance the private sector and attract foreign direct investment. Major changes to the legislation framework have been undertaken not only as a commitment to world trade organization and other trading arrangements but to encourage foreign direct investment and private sector growth. Some of which are:

tariff reduction program implemented in 1996 has ensured a significant decrease in the intermediate tariff rate from a high of 30% to 15%, protective rate from 40% to 25% and the prohibitive rate from 55% to 40% as of 2006;

- our reserved activities list has been greatly relaxed and minimized;
- creation of a one-stop-shop facility stream lining business facilitation process;
- granting permanent residence status based on investment value over us$300,000;
- privatization of state owned enterprises;
- removal of training and localization plan required for work permit applications;
- enactment of intellectual property legislation;
- partial deregulation of foreign exchange control;
- opening up the services sector; and
- rehabilitation of transport infrastructure.

Other Sectoral policies have also been put in place as well. Some of which are;

1. Small and Medium Enterprises Policy;
2. National Investment Policy (volume 1 & 2);
3. Free Trade Zone act;
4. Reactivation of Cooperatives Societies
5. Competition Policy;
6. National Agriculture Development Plan;
7. Tourism Promotion Master Plan; and
8. Transport Infrastructure Development Plan

Ladies and Gentlemen,

We cannot deny the fact that the cost of doing business is very high in PNG making difficult to attract new foreign Direct Investment due to problems such as high transport cost, law and order, and infrastructure to name a few. Therefore, the government provides incentives to foreign investors on new investments and on discriminatory basis. They are both fiscal and non-fiscal incentives.  Some of the fiscal incentive are;

- export income exemption
- rural development incentive
- double deduction for export market development costs
- staff training double deduction
- initial year accelerated depreciation provision

The non-fiscal incentives can be that the government through my Ministry provides industrial infrastructure facilities for investors in light industrial activities.

We are also fully aware that growth based on mineral and petroleum resources alone can be short lived. A shift of focus to developing other sectors of the economy is of paramount importance for the government if we are to ensure a sustainable economic base for PNG.

Ladies and Gentlemen,

Over 80% of PNG’s population are rural based and continue to depend on the semi-subsistence agriculture sector for their livelihood.  This means to say that only 20% of the population are in the urban centers of which a significant portion is involved in the private sector both in the formal business stream and the informal sector.

To increase our current private sector and to ensure a higher economic growth performance there is a challenge for us to develop our human resources base.

The number of Chinese citizens who travel to PNG for various purposes such as tourism, consultancy, pursuing trade and investment opportunities as well as employment has increased over the recent past years. During this period, many companies representing China’s State interests have also established operations in PNG setting up factories in manufacturing sector, investing in resource sectors and joint ventures with PNG-based companies.

PNG also acknowledges that the Chinese Government has attached great importance to the cooperation with us and has continued to support the us in our efforts to alleviate and activate our economy to a higher level. At the same time it must be noted too that PNG has also been the largest recipient nation of China’s assistance among the South Pacific Island nations.

Whilst we encourage Chinese businesses to explore and invest further in the extraction of our natural resources, we would like to see that happen in a genuinely sustainable manner without compromising the environment, laws of our country, etc. PNG would like to see increased investment especially in manufacturing or downstream processing to add value to our natural products for higher returns both for the country and investors.

Finally in thanking the Chinese Government as well as the business community for the continuous support accorded to PNG so far, we ask for your understanding to continually support us to build an economy that we all will be proud of and beneficial in the long run.
 

Thank you.