Increased investment in transport infrastructure is expected to provide a boost to Papua New Guinea’s logistics sector, with new, long-term projects set to improve connectivity and support government plans to expand targeted industries.
In June the Asian Development Bank (ADB) approved US$866.5 million in funding for the upgrade and maintenance of the Highlands Highway, one of PNG’s main logistical arteries.
The project will see the rehabilitation of large stretches of the 1,200km route, improving connectivity and road safety. As well as ADB financing, funding will come from other development partners and the PNG government, bringing the overall investment to just over US$1 billion for the 10-year project.
The upgrade has national importance, as the highway runs from the main port of Lae through mountainous regions and into the Enga Province, serving around 40 per cent of the population.
In addition to road works, the investment programme will support the establishment of logistics platforms and services for agricultural production, as well as help modernise other forms of transport infrastructure.
Highway work to support logistics and export growth
Improved access to the Highlands region should support the growth and competitiveness of the logistics sector, and back up government plans to boost exports.
At present, the imbalance between inbound and outbound cargo has been cited as a key contributor to slow turnaround times and the high costs endured by freight carriers.
Many planes and ships bringing goods to the country often leave either empty or carrying exports at volumes lower than their capacity, which affects local logistics costs.
According to the World Bank, the average cost of exporting goods from PNG was US$1,335 in 2014, the most recent year for which figures are available, considerably higher than Singapore (US$460), Indonesia (US$572) and Australia (US$1,200).
To address this issue, it is hoped that improvements to national transport infrastructure outlined in the long-term development plan Vision 2050 will pave the way for the cheaper transport costs, which could unlock growth opportunities in targeted agri-processing and industrial sectors.
“The upgraded Highlands Highway will not only improve connectivity, but also help drive inclusive economic growth,” David Hill, country director of the ADB, told OBG.
“Although more infrastructure investment is needed to improve transport links across the country, the recently approved 10-year Sustainable Highlands Highway Investment Programme will connect PNG’s Highlands – a region with a lot of mining activity and vast opportunities for agri-businesses – with the country’s most important port, Lae, which was recently upgraded by ADB financing.”
Extraction industries continue to provide short-term logistics opportunities
While government plans to improve infrastructure and diversify the economy are not expected to translate into benefits for the logistics sector immediately, in the near term operators stand to receive a boost from proposed projects in the extraction industries.
Such projects are major drivers of logistics sector growth, according to Mark Schell, country manager of international carrier DHL Express, who noted that logistics services experienced high levels of growth during the development stage of recent large-scale liquefied natural gas (LNG) undertakings, only to fall back to pre-construction levels once work was completed.
“When these large projects are under development you can expect growth of 10 to 40 per cent; but once completed, the following year can see a reduction of 10 per cent year-on-year,” he told OBG.
In terms of potential developments, French energy giant Total is reportedly looking to further develop reserves in the Elk-Antelope gas field, while ExxonMobil is assessing the feasibility of a proposed third LNG train at the PNG LNG project.
In the mining industry, the planned US$2.3 billion Wafi-Golpu copper and gold mine is expected to come on-line in 2020, and production at the Chinese-backed Frieda River copper-gold project in the Western Province is slated to start in 2024.
This Papua New Guinea economic update was produced by Oxford Business Group