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COUNTRY BRIEFS


GENERAL INFORMATION

Papua New Guinea has a population of approximately 6.3 million. The PNG mainland and its six hundred islands have a total area of 463,000 square kilometres. Most of the people are Melanesian, but some are Micronesian or Polynesian. There are over 700 language groups, reflecting the diverse origins of the people. English, Tok Pisin (Pidgin), and Hiri Motu (the lingua franca of the Papuan region) are the official languages.

The spectrum of PNG society now ranges from traditional village-based life, dependent on subsistence and small cash-crop agriculture, to modern urban life in the main cities of Port Moresby (capital), Lae, Madang, Wewak, Goroka, Mt Hagen, and Rabaul. Some 85 per cent of the population directly derive their livelihood from farming, and 15 per cent of the population live in urban areas. It is estimated that the population is growing at a rate of approximately 2.5 per cent per annum.

History

Archaeological evidence suggests human settlement on the island dates back at least 60,000 years. Migration probably occurred by sea from South East Asia during an ice age when sea levels were lower and distances between islands shorter.

Post-war developments

In 1949, the Papua and New Guinea Act confirmed the administrative union of New Guinea and Papua under the title of 'The Territory of Papua and New Guinea' and placed it under the international trusteeship system. The Act provided for a Legislative Council (established in 1951), a judicial organisation, a public service, and a system of local government. The first House of Assembly, which replaced the Legislative Council in 1963, opened on 8 June 1964. In 1972, the name of the territory was changed to Papua New Guinea and elections saw the formation of a ministry headed by Chief Minister Michael Somare, who pledged to lead the country to self-government and then to independence. Independence from Australia was proclaimed in 1975, and Somare became the first Prime Minister of the Independent State of Papua New Guinea.

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POLITICAL OVERVIEW

System of Government

Papua New Guinea is a constitutional monarchy. The Head of State is HM Queen Elizabeth II, represented in Papua New Guinea by a Governor-General. The Governor-General is elected directly by Members of the National Parliament and performs mainly ceremonial functions.

On 10 December 2010, the Supreme Court ruled that the July 2010 appointment of Governor-General Sir Paulias Matane was unconstitutional due to procedural failures. On 25 February 2011, Sir Michael Ogio was sworn in as Papua New Guinea’s ninth Governor-General.

Papua New Guinea has three levels of government - national, provincial and local. The National Parliament is a 109-member unicameral legislature elected for five-year terms by universal suffrage. The Prime Minister is appointed and dismissed by the Governor-General on the proposal of Parliament. The Cabinet – known as the National Executive Council or NSC – is appointed by the Governor-General on the recommendation of the Prime Minister.

Members of Parliament are elected from 18 provinces, the Autonomous Region of Bougainville and the National Capital District. Parliament is made up of 89 single-member electorates and 20 regional electorates. The regional electorates correspond with Papua New Guinea’s provinces and the National Capital District – members from these electorates also serve as the provincial Governors. Each province is responsible for its own provincial assembly and administration.

The Supreme Court, National Court, and local and village courts form the independent justice system.

Political system

Historically, there has been a high turn-over of parliamentarians at general elections in Papua New Guinea. In 2002, for example, around 80 per cent of sitting members lost their seats. Up to and including the June 2002 general election, members of parliament were elected on a first-past-the-post basis, and they frequently won with less than 15 per cent of the vote. After the 2002 election a system of limited preferential voting was introduced, under which voters are required to list a first, second and third preference.

To date, no single party has won enough seats to form a government in its own right; all governments have been coalitions. The main parties include the National Alliance (NA), PNG Party, People's Action Party (PAP), People's Democratic Movement (PDM), PANGU Pati, United Resources Party (URP), People's National Congress (PNC), People's Progress Party (PPP), New Generation Party (NG) and the Rural Development Party (RDP).

The Organic Law on Integrity of Political Parties and Candidates (OLIPPAC) or 'Integrity Law', was enacted by the Morauta Government in 2001, with the aim of strengthening political parties and the executive government in PNG. The OLIPPAC included regulations on the formation, composition and funding of parties; limitations on how MPs could vote on a motion of no-confidence against the executive; changes to the rules on the formation of government, defections from political parties and offences for breaking the law; and restrictions on independent MPs. Sections of the OLIPPAC were declared unconstitutional (#OLIPPAC) by Papua New Guinea's Supreme Court in July 2010.

PNG governments are protected by the Constitution from no-confidence motions for the first 18 months of a five-year term. Once the 18-month moratorium expires, a successful no-confidence motion results in an alternative Prime Minister (nominated in the no-confidence motion) being able to form a new government without the need for a national election, unless the no-confidence motion occurs during the last twelve months of a five-year term in which case a national election must be held. With the exception of the 2002-2007 and 2007-2012 parliamentary terms, changes in government following motions of no-confidence have been a characteristic of Papua New Guinea politics since independence.

Recent political developments

At national elections held in June and July 2007, incumbent Prime Minister Sir Michael Somare's National Alliance party won the highest number of seats (27 out of 109). At its first sitting, on 13 August, the new Parliament elected Sir Michael as Prime Minister for another term. National Alliance led a coalition which included the People's Action Party, United Resources Party, PANGU Pati, People's National Congress, People's Democratic Movement and a number of smaller parties. The Opposition included former Prime Ministers Sir Mekere Morauta (PNG Party), Sir Julius Chan (People's Progress Party), and former Treasurer Bart Philemon (New Generation Party).

On 7 July 2010, Papua New Guinea’s Supreme Court ruled that sections of the OLIPPAC were constitutionally invalid, including those provisions that required MPs to vote along party lines on matters like the budget and motions of no confidence. The ruling also freed MPs to resign from or switch political parties, something which had previously been prohibited under that law.

In February 2011, Sir Michael was suspended from office for two weeks, following a decision by the Leadership Tribunal. Sam Abal was appointed acting Prime Minister. On 19 April 2011, Sir Michael issued a press release indicating he would be taking sick leave and appointed Sam Abal to continue as Acting Prime Minister until further notice. In July 2011, Arthur Somare released a statement on his family’s behalf indicating that Sir Michael was unlikely to resume his office and that Parliament should begin proceedings to remove him on medical grounds.

In August 2011, Works Minister and former Treasurer, Peter O’Neill was voted in on the floor of parliament, by a margin of 70-24 votes, as the Prime Minister of Papua New Guinea. Those backing him included the previous Opposition along with some members of the former government. The rest of the former government, led by Sam Abal, have gone into Opposition. They have also commenced a range of legal challenges to the manner in which O’Neill was elected. At the time of publication, some of these legal challenges have been unsuccessful; others have yet to be finalised.

Elections are due in PNG in mid 2012.

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BILATERAL RELATIONS

Introduction

Geographic proximity and historical links have given Papua New Guinea a special place in Australia's foreign relations. Thirty-five years after Papua New Guinea's independence, Australia's relationship with the country is one of our most complex and wide-ranging. Australia has a strong interest in Papua New Guinea's sustainable development and stability. The presence of approximately 10,000 Australians in Papua New Guinea is also of significant interest to the Australian Government.

Key aspects of the bilateral relationship are encompassed in a number of formal bilateral arrangements. The umbrella agreement is the Joint Declaration of Principles (http://www.dfat.gov.au/geo/png/jdpgr_aust_png.html) of 1987, revised in 1992. Specific arrangements include: the Papua New Guinea-Australia Trade and Commercial Relations Agreement (http://www.austlii.edu.au/au/other/dfat/treaties/1991/37.html) (PATCRA II); the Agreement for the Promotion and Protection of Investment (http://www.austlii.edu.au/au/other/dfat/treaties/1991/36.html) (APPI) ; the Double Taxation Agreement (http://www.austlii.edu.au/au/other/dfat/treaties/1989/37.html) ; the Treaty on Development Cooperation (http://www.austlii.edu.au/au/other/dfat/treaties/1992/23.html) ; the Torres Strait Treaty (http://www.dfat.gov.au/geo/torres_strait/index.html) ; the Joint Agreement on Enhanced Cooperation (http://www.dfat.gov.au/geo/png/ecp.html) agreed in July 2004; and the Partnership for Development (http://www.dfat.gov.au/geo/png/19_forum_joint_statement.html) , which was signed by the Australian and Papua New Guinea Governments on 21 August 2008.

At Ministerial Consultations in Alotau in 2010, ministers agreed that the bilateral relationship was at a turning point. Reflecting the maturing bilateral relationship, ministers agreed to explore an umbrella economic cooperation agreement encompassing development assistance, trade and economic cooperation. Ministers agreed to chart new directions for Australia's development assistance cooperation and to review the use of technical advisers to ensure a more targeted allocation of advisers and an overall reduction in the level of advisory support in the aid program. Ministers also agreed that officials would conduct a rapid capacity assessment for the PNG LNG Project.

In Alotau, the former Australian Minister for Foreign Affairs, Stephen Smith, co-signed with the former PNG Minister for Foreign Affairs, Trade and Immigration, Sam Abal, the Second Joint Understanding on the Owen Stanley Ranges, Brown River Catchment and Kokoda Track Region , to ensure the Kokoda Track area retains its special properties. Mr Smith and Mr Abal also signed a Memorandum of Understanding on Papua New Guinea’s participation in the Pacific Seasonal Worker Pilot Scheme, and exchanged letters confirming arrangements to facilitate the cross-border movement of officials and health professionals in the important shared border region of the Torres Strait.

Further information is provided in the outcomes document (alotau-joint-statement.pdf) produced as part of the Alotau meeting.

Australia-Papua New Guinea Ministerial Forum

The Australia-Papua New Guinea Ministerial Forum (http://www.dfat.gov.au/geo/png/ministerial_forums.html) is the highest-level regular meeting between the two countries. Foreign ministers from each country traditionally lead their delegations to the Forum. In the past, Ministers in charge of the treasury, finance, defence, justice, immigration, police, customs, trade and transport, among others, have attended. The Forum usually includes an opportunity for the business community to engage with ministers from both countries.

Australia hosted the 19th Australia-PNG Ministerial Forum on 10 June 2009 in Brisbane. Then Foreign Ministers Mr Smith and Mr Abal co-chaired the Forum, possibly the largest bilateral meeting ever held in Australia.

The 19th Ministerial Forum demonstrated the importance both countries attach to the bilateral relationship. Eight ministers and three parliamentary secretaries from Australia, and 17 ministers from Papua New Guinea participated in the Forum, which also provided an opportunity for close engagement between government delegates and business representatives on commercial and trade issues.

The 19th Ministerial Forum took forward the comprehensive outcomes of the 18th Ministerial Forum, which was hosted by Papua New Guinea in April 2008 in a spirit of renewal and cooperation following the March 2008 visit to Papua New Guinea by former Prime Minister Rudd. The 19th Ministerial Forum also built on the goodwill generated by the visit to Australia in April-May 2009 by then Prime Minister of Papua New Guinea, Sir Michael Somare.

Key outcomes from the 2009 Australia-Papua New Guinea Forum included:

-- endorsement of the first five implementation schedules to the Partnership for Development and three new priority areas; terms of reference for a review of the Development Cooperation Treaty; and revised arrangements for the Strongim Gavman (http://www.dfat.gov.au/geo/png/sgp.html) Program

-- the signing of a Memorandum of Understanding for Cooperation on Sustainable Forest Management (http://www.maff.gov.au/media/media_releases/2009/june/agreement_with_png_another_step_forward_in_fight_against_illegal_logging) and a Work Plan to advance cooperation under the Forest Carbon Partnership

-- announcement of $1 million in funding to the Kokoda Development Program (http://www.environment.gov.au/minister/garrett/2008/mr20081119.html) (for basic services for local communities) and $250,000 to the Kokoda Track Authority (for upgrades to trekking infrastructure)

-- announcement that the first Fuzzy Wuzzy Angel commemorative medallion would be presented on PNG's Remembrance Day (23 July)

-- other important issues discussed included the impact of the Global Economic Crisis; PACER Plus (http://www.dfat.gov.au/fta/pacer/index.html) ; the Liquefied Natural Gas Project; defence; policing; and Torres Strait (http://www.dfat.gov.au/geo/torres_strait/index.html) cooperation.

More information can be found in the Communiqué (http://www.dfat.gov.au/geo/png/19_forum_joint_statement.html) .

Development cooperation

Reflecting the strong ties between Australia and Papua New Guinea, the development cooperation program is one of Australia's largest bilateral aid programs.

-- See also Australia's Aid Program to PNG (http://www.ausaid.gov.au/country/papua.cfm)

Defence relations

The bilateral Defence Cooperation Program involves the provision of assistance in training and technical advice, as well as a number of bilateral exercises that are conducted on a regular basis. Support is provided by 22 ADF personnel and one defence civilian who fulfil a variety of advisory and in-line roles in the PNG Defence Force.

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ECONOMIC OVERVIEW

PNG has a dual economy comprising a formal, corporate-based sector and a large informal sector where subsistence farming accounts for the bulk of economic activity. The formal sector provides a narrow employment base, consisting of workers engaged in mineral production, a relatively small manufacturing sector, public sector employees and service industries including finance, construction, transportation and utilities. The majority of the population is engaged in the informal sector. Migration to major city centres in the past decade has contributed to urban unemployment and social problems.

In comparison to other Pacific island countries, Papua New Guinea is in a reasonably strong macro-economic position, with the savings it accrued during the commodity boom acting as a fiscal buffer against the global economic crisis (GEC), and its financial sector relatively sheltered from the impact of the global credit crunch.

Economic growth in Papua New Guinea is expected to be strong in 2011, with contributions from both domestic and external sectors. Recent PNG Treasury forecasts anticipate growth of around 9.5 per cent in 2011, up from an estimated 7.1 per cent in 2010.

Inflation in Papua New Guinea declined in 2009 and 2010 to about 5 per cent. But inflation is forecast to rise significantly in 2011 to 8.5 per cent. Risks to the economy include the possibility of ‘resource curse’ impacts from LNG and mineral sector growth, and the disruption to the economy should major resource projects not proceed as expected. PNG government revenues remain vulnerable to volatility in global prices for gold, copper and oil.

The ExxonMobil-led PNG LNG project represents an enormous growth opportunity for Papua New Guinea and according to some estimates could contribute to an increase of 15 to 20 per cent in GDP per annum. The project is a vertically-integrated upstream natural and liquefied gas development with large facilities in the Southern Highlands and Port Moresby. Australian companies Oil Search and Santos have a substantial share in the project, with many Australian contractors providing technical support during the construction phase.

Australia and Papua New Guinea have a Joint Understanding on effective and transparent governance of the project's revenue, and the Australian Government has provided a loan of US$350 million to support the developers. Australia is supporting the development of a trained workforce by providing qualifications through the A$149.5 million Australia Pacific Technical College (595 students have already graduated). Australia is also working closely with Papua New Guinea on the establishment of sovereign wealth funds which will help to manage the LNG project’s revenue for use by future generations. Modelling is also taking place to determine the likely economic impact of the project.

Australia’s bilateral aid program in Papua New Guinea is our second-largest, totalling $457.2 million in 2010-11. The 1999 PNG-Australia Development Cooperation Treaty (DCT) provides the program’s overarching legal framework. A review of the treaty (encompassing the broader aid program), which was released in May 2010, encouraged the refinement of the capacity building model through reducing reliance on technical assistance and finding ways to streamline aid activities in PNG.

At the 2010 Alotau consultation, ministers agreed that the two governments would respond jointly to the review. They also tasked officials to consider options for replacing the DCT with an umbrella economic co-operation agreement. Such an agreement – covering development assistance, trade, business and investment cooperation – could reduce the emphasis on aid which has dominated the relationship since independence.

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BILATERAL ECONOMIC AND TRADE RELATIONSHIP

Australia is by far Papua New Guinea’s largest source of imports and is also its number one export market. In 2008, Australia purchased 28 per cent of Papua New Guinea’s merchandise exports, ahead of Japan and China, on 9.5 per cent and 5.5 per cent respectively. Australia provided 43.1 per cent of PNG merchandise imports in diverse categories including crude petroleum, civil engineering equipment, specialised machinery and vehicles. In 2008, Papua New Guinea’s other major import sources were Singapore at 15.8 per cent and China at 10.2 per cent.

In 2009 Australia imported $2.9 billion worth of goods from Papua New Guinea. Australia's merchandise exports to Papua New Guinea totalled $1.8 billion. Two-way merchandise trade is valued at around A$4.7 billion annually, making Papua New Guinea our 16th-largest trading partner.

The resource sector has traditionally been a focus of Australian investment in PNG, particularly gold mining and oil and gas. Key Australian companies in the mining and petroleum sector include Santos, Oil Search Ltd and Highlands Pacific Ltd.

Other key investors in Papua New Guinea include Australia-based companies Coca Cola Amatil, Campbell’s Australia Pty Ltd and Nestlé Australia.

Opportunities continue to exist for Australian companies to supply PNG's resource sector, particularly the PNG LNG Project, which will continue to look for competitive services, prompt delivery and good after-sales service.

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Last Updated: August 2011

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