Westpac Business Advantage CEO 100 Survey
Business Advantage International has run a survey of senior PNG executives every year since 2012. Known as the PNG 100 CEO Survey the 2023 survey charted a lift in optimism for profits, investment and, in particular, employment.
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Business Advantage International has run a survey of senior PNG executives every year since 2012. Known as the PNG 100 CEO Survey the 2023 survey charted a lift in optimism for profits, investment and, in particular, employment. While this survey sets a positive tone for the year the report continues to highlight the ongoing difficulties PNG firms face in accessing foreign exchange, the unreliability of telecommunication services and the problems with security/law and order.
The global surge in Inflation was a significant factor through 2021 and 2022 so it is hardly surprising that the level of concern for inflation has lifted to a level not seen since 2013. However, with global inflation already showing signs of moderating, and with the Kina holding firm, it is likely that PNG inflation is also close to a peak and should moderate through 2023.
The strength of the Kina does, however, create significant issues for many PNG businesses. Foreign exchange, or the lack of access to it, is the number one hinderance to PNG businesses. For the last two years it was replaced by Covid restrictions (2021) and regulatory uncertainty (2022). At a weighted average of 4.1 this is strongest print foreign exchange being a critical impediment since 2017 (also 4.1).
This year the survey included a question on supply chain issues as this has become a significant global issue since the outbreak of Covid. Only some sectors appear to have been affected by supply disruptions so it did not rank as highly as other impediments. However, for those that it did affect the ranking was quite high.
It is important to note the survey was conducted late in 2022/early 2023 and it capture the optimism business had for the re-election of the Marape government and the implementation of the latest Papua LNG project. In the end, the announcement of the feed stage for the project has been announced while business have been rocked by a series of changes to tax and customs arrangements all adding to the stress of the ongoing lack of foreign exchange. For business to invest into the PNG economy, to provided critical infrastructure not just for the coming LNG project but also to create well paid jobs, work needs to be done to reduce the uncertainty that recent conditions have created.
From the 2023 survey, we have identified four key highlights:
1. Business conditions bounce back to levels not seen since 2019 setting the scene for a positive year.
We have combined the expectations for profits, investment and recruitment into a single index with a weighted net balance of those expectation; a Business Conditions Index if you will.
The Business Conditions Index improved in 2023, lifting to 58.8 from 49.1 in 2022, for the strongest print since 2019 (58.8). Back then reported GDP lifted 5.9% while the non-minerals sectors lifted 2.4%. The ADB is forecasting GDP to grow 4.9% this year, an improvement on their earlier forecast of 4.7%, and seems reasonable given the economy is recovering from the Covid lockdowns and there is a constructive outlook for commodity prices.
2. Profit, investment and recruitment expectations improved further in 2023 with recruitment sentiment at a record high.
The Profit Expectation Index lifted to 55.5 from 55.5 and while this is 15.5% stronger than the historical average it is still lower than the 90.0 print in 2019. The Investment Expectation Index lifted to 97.4 a significant improvement on the 55.5 print in 2022 and some 53.7% higher than the historical average, although this is less the 113.3 print in 2019 which is the historical high.
More significant was the surge in the Recruitment Expectation Index which hit a historical high of 84.6 from 56.8 in 2022. It is also significantly higher than the previous high of 66.7 in 2012 and 85.5% higher than the historical average. This is a very promising sign for stronger growth in formal employment.
Over its 12 years, the PNG 100 CEO Survey has tended to report that recruitment is expected to grow (2014 was the only year to report negative recruitment expectations) while the official employment data has been more volatile. This suggests there is an upward bias in recruitment expectations so we compared growth in employment to Recruitment Expectations relative to their historical average. In our chart the historical average is equal to 50.
The 2023 Business Advantage survey is pointing to a solid recovery in employment through the year, possibly as strong as a 6% gain through the year. However, a lot will depend on the path taken by public sector employment in regards to how formal non-minerals employment pans out this year.
3. The lack of foreign exchange returns as the most critical impediment PNG businesses are facing.
From 2016 to 2019, as liquidity improved in the foreign exchange market FX dropped down the list as a critical impediment. In 2020 it popped back up to 4.0 to be the most significant constraint only to ease back to 3.9 in 2021 being beaten by the Covid restrictions (4.4). It then eased further to 3.5 in 2022, the lowest print since 2015 (3.5) suggesting there had been a further improvement in market liquidity.
Through 2022 the focus shifted to fighting inflation with BPNG placing an increased emphasis on the stability of the currency. This resulted in a reduction in market liquidity with foreign exchange being a critical impediment lifting to 4.1, the highest print since 2017 (4.1).
4. Inflation became a greater concern but still less of a concern than foreign exchange, security, skill shortages, unreliable telecoms and utilities, lack of government capacity and regulation uncertainty.
Inflation has been a rising issue in the survey since hitting a low of 2.6 in 2021 lifting to 2.9 in 2022 rising to 3.5 in 2023. While this is a meaningful lift it has still left inflation as less of a concern than foreign exchange (4.1), security (3.9), skill shortages (3.8), unreliable telecom (3.9) and utilities (3.8), lack of government capacity (3.8) and regulatory uncertainty (3.8).
The lift in inflation as a critical impediment is hardly surprising given rising inflationary pressures saw food, household contents and transportation prices print double digit gains in the year to September with the overall CPI lifting 6.3% in the year. It has been estimated that a 10% deprecation of the Kina against the AUD could add up to 0.6ppt to the CPI over a year. As such is hardly surprising that through 2022 the BPNG focused on currency stability at the cost of foreign exchange liquidity so it is not surprising that businesses see access for foreign exchange as a bigger issue than inflation.
Global supply chain pressures have eased considerably and there has been a step down in the pace of global inflation. With food prices stabilising at a lower level along with stability in the Kina we expect inflationary pressures to ease through 2023 and so see inflationary concerns also ease. As such we expect the BPNG’s focus on currency stability to also ease improving market liquidity.
Security/law & order have been a consistent issue and given the disruption associated with the 2022 election it is not surprising it lifted to 3.9 in 2022 from 3.8 in 2021 and the highest level of concern since 2016 (4.0). But it should be noted it is still well down on the 2013 peak of 4.4 and we would expect to see it ease though this year.
Telecommunications had been on an improving trend from a peak of 4.2 in 2019 so it is disappointing to see if lift to 3.9 in 2023. The unreliability of utilities is also become an increasing concern after hitting a low of 3.5 in 2021 only to lift to 3.8 by 2023. We would hope this trend in these critical services can be reversed.
Given the expectation for an increasing demand for labour it is not surprising that the lack of expertise and skills is also becoming an increasing concern. Lifting to 3.8 this is the strongest print since 2019 (3.8) when the economy grew 5.9% and non-mineral employment grew close to 2% in the year to June 2019. With employment already up more than 3% in the year to June 2022, and Recruitment Expectations suggesting this could rise up to 6% through this year, with economic growth close to 5% then it is only logical that the demand for skilled labour is also going to increase bumping up against constrained domestic supply.
The 2023 PNG 100 CEO Survey was conducted between November 2022 and January 2023. The survey polled senior executives from a representative sample of PNG’s largest companies, across all sectors of the economy. For the full survey report, visit www.businessadvantagepng.com.
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