PNG, BSI outline guides

Business and Development

PNG, BSI outline guides for foreign investors

From Port Moresby and Honiara correspondents

Papua New Guinea has come up with guidelines to be followed by foreign investors in the new self governing nation, and at the same time, the Solomons has put forward proposals which are expected to be come its policy on the same matter.

The PNG guidelines were an nounced by the Chief Minister, Mr Michael Somare in Port Moresby.

In Honiara, the Chairman of the Commerce and Industry Committee of the BSIP Governing Council, Mr David Kausimae, introduced his policy with the comment that he believed “there would be little change in the proposals when policy is set next year”.

The guidelines for foreign invest ment announced by Mr Somare, on November 26 are, in essence, a re statement of the intentions expressed in the 1973-74 Eight-Point Improve ment Programme which the national coalition government tabled during the August sittings of the House of Assembly.

Foremost is the proposed creation of a National Investment and De velopment Authority, a statutory body whose policy will be controlled by a cabinet committee chaired by the Minister for Finance.

The new authority will have the job of ensuring that investment con tributes to the development of an economy giving New Guineans greater employment opportunities, and an increase in real income.

It will register all existing and new foreign enterprises (thereby indicat ing the government’s approval of par ticular projects), monitor the inflow, provide information for planning purposes, and assess whether benefits offered under legislation should be granted.

NIDA may also recommend on the establishment of government rations to carry out industrial de velopment, eg industrial estates; or assist where private investment is not forthcoming in an industry given high priority by the government or where industry has to be maintained or ex panded to serve regional needs.

The authority will have overall

responsibility for establishing in dustrial estates or free trade zones, and it is to collaborate with the Central Planning Office and depart ments in all aspects of investment planning. NIDA will, in fact, be in volved in all phases of investment in flow and operations.

The eight-point plan did make it quite clear that the government be lieves foreign investment will be needed for a considerable time to come. The new guidelines now seek to attract it by giving investors the basic rights of: • Remitting reasonable earnings and capital, subject to existing taxation and exchange control laws; • Being treated equally under the tax laws unless special provisions are agreed to by the investor; • Respect by the government for conditions contained in bi-lateral or multi-lateral agreements entered into, and settlement of any disputes by the Papua New Guinea courts and, where neces sary, reference to the convention on the Settlement of Disputes.

The Chief Minister referred to the range of incentives offered to existing or potential investors. The most im portant are that personal and com pany tax rates are lower than in Australia, import and customs duties on raw materials are relatively low or non-existent, and certain tax holi days are available.

Mr Somare mentioned that a system of reduced taxes for five years would be introduced in place of the pioneer certificate system. It can be assumed from this, in view of the government’s intention to develop rural areas, that investment assisting decentralisation will be favoured.

Among other basic incentives that may be offered are tariff protection and exemption or reduction in import duties.

The reaction to the new guidelines among foreign investors in the country has generally been favour able. But there is disappointment that the government has not spelled out

how and when it will exercise the right which it reserves to acquire equity in any new venture, “where it considers it is necessary to achieve its stated aims”.

Also it has not said what measures will be taken to achieve its aims that no expatriate occupy a position for which a suitably qualified New Guinean is available. (If no New Guinean is available, then training will have to be given to somebody to fill it.) While it is difficult to see how the government could at this early stage have done more than give an outline of NIDA’S objectives, it will be necessary for it to provide details, preferably incorporated in legislation and/or the new authority’s ‘rules’, if sizeable foreign investment is to be attracted to the right locality, at the right time.

Kausimae’s policy m the BMr recognises the need for an industrial base to supplement the development of natural resources, and the govern ment welcomes direct foreign invest ment. It adds: “However, government has no wish to exchange political for economic dependence and for that reason it intends to retain full overall control of the development of resources in the Solomon Islands, mainly by fiscal and exchange control policies, and

where appropriate through equity par ticipation. It will remain the master in its own home.”

The aim of the government’s fiscal and exchange control policies will be to ensure that the public, through taxation, receive a reasonable slice of profit, and it will also “encourage re investment in the Solomons and allow without obstruction repatriation of profits after tax, and where appro priate, capital”.

The government will encourage only investment that is likely to be viable and not cause social dis advantages. No foreign investor “will be able to build up a position of un due dominance in the economy as a whole”. Should this start to happen, the government might seek to achieve a major holding in the industry. The guidelines specially mention a copra mill and meat exporting plant as two industries which must not be allowed to be controlled by one major pro ducer.

The guidelines continue: “Overseas investors must recognise that there are areas of economic activity into which they will be pre vented from entering; for example only in the most unusual circum stances will new overseas investment in general trading be permitted. The policy of government is to encourage local people to piny as full a part as

possible in the commercial life of the country; overseas investors should be aware of this.”

The government will assist investors with tax concessions and customs remissions where they are needed, but will expect that local people be trained to take over from expatriates “as quickly as is reasonable”.

Bank optimistic

about PNG

Papua New Guinea should not have a foreign exchange problem for at least the next decade, according: to the December issue of the Bank of New South Wales quarterly Re view.

In a survey of the economic prob lems facing an independent Papua New Guinea, the Wales said that the country could look forward to balanced trade mainly as the result of exports of Bougainville copper.

Japan, West Germany and Spain have guaranteed to buy 1,992,50 C tons of copper concentrate at ruling market rates with a floor price ol US 30c per lb over 15 years.

Since copper at present constitute; half of PNG’s exports, such an ar rangement should assure the continu ation of substantial foreign exchangi

earnings whatever might be the pros f pects for its agricultural exports.

The Bougainville copper project has f boosted PNG’s exports to a point where they can offset imports. > Balanced trade, together with foreign aid and, perhaps, a re-invigorated capital inflow, should result in PNG not being short of foreign exchange I reserves for at least the next decade.

PNG is also fortunate in that it is not heavily indebted to other countries.

At present its indebtedness to multi-lateral aid agencies was only $41.3 million which did not impose a severe drain on its foreign ex change resources, the Review said, and added: “Furthermore, although Papua New Guinea’s rate of inflation is higher than in recent years, it is still slow compared with the rates experienced by most other developing countries.”

In the last financial year, the con sumer price index went up by only 4.8 per cent which is lower than t increases being experienced in the supposedly stable economies of Aus tralia and New Zealand.

The Wales said that PNG should not have to exercise stringent ex change controls or resort to import licensing to balance its external trade.

Absence of such measures should act as a spur to attract sorely-needed foreign capital, which would enable PNG to surmount many of the prob lems endemic to the economies of developing countries.

However, a foreign capital inflow would be required to offset low private savings. The advent of self government and independence had made foreign investors more hesitant to commit capital in Papua New Guinea. This reluctance applied es pecially to Australian investment which was unused to, and therefore shy of, a politically uncertain environ ment.

“If the vacuum left by Australian investors is to be filled, the most likely source will be international corporations, especially for big pro jects involving the exploitation of natural resources,” the bank said.

“Such corporations are more used to dealing with political vagaries, and in any case they consider PNG positively stable compared with more turbulent states in Africa, Asia and South America.

“Nevertheless, the immediate prob lem is that foreign capital has largely aried up and is being withheld pend ing the outcome of independence.

Ironically, those advocating a post ponement of independence so as to allay fear about the future are merely prolonging uncertainties rather than aelpmg to resolve them,” the Wales added.