PNG 2024 CEO100 Survey
Last year, profits fell short of expectations and yet CEOs remain optimistic about profits in 2024 while recruitment and investment expectations have held onto most of their 2023 gains. So despite the delay to the Papua LNG Project, PNG businesses remain optimistic about the outlook.
For the chart pack from the presentation to the POMCCI Breakfast 20th March 2024 see Westpac Business Advantage CEO100 2024 (PDF 2MB)
Since 2012 Business Advantage International has run the annual PNG 100 CEO Survey of senior PNG executives. It explores the CEOs’ expectations for profits, investment and employment, as well as how the previous year’s profits compared to expectations. Perhaps most importantly, though, it uncovers critical impediments facing PNG businesses.
The 2024 survey found that while 2023 profits fell short of expectations, CEOs are nevertheless expecting profits to improve this year. For 2024, recruitment and investment expectations have held onto most of their 2023 improvement. The top six critical impediments to PNG businesses are, in order of importance: availability of foreign exchange, security/law & order, unreliable utilities, lack of government capacity, the shortage of skills & expertise and regulatory uncertainty.
The survey was conducted from November 2023 to January 2024 with respondents surveyed before the recent outbreak of civil unrest in Port Moresby. Despite that, 88% said security/law & order was either mission critical or very important, compared with 65% in 2023. Given recent events, if the survey had been re-run now, security/law & order would probably be listed as the top-ranking issue.
Concerns about inflation lifted to the highest level in the history of the survey, with 62% of firms suggesting it is a mission critical issue, or a very important concern. Even so, it did not make the top six among significant issues, highlighting how significant the other issues are. Inflation did, however, rise from the rank of eighth in 2023, when 55% mentioned inflation as a mission critical issue or a very important concern, to seventh.
From the 2024 survey, we have identified five key highlights:
1. Profits are expected to grow but given the disappointment last year, they have moderated for 2024.
The Profit Expectation Index eased back to 47.2 in 2024, down from 77.8 in 2023 and below the longer-term average of 65.8. Highlighting this shift, the number of respondents expecting profits to substantially exceed, or somewhat exceed, last year has fallen from 38% to 28%. This is not surprising given that 38% of respondents reported that profits fell slightly below expectations for 2023, taking the outcomes index down to –5.4, below its long-term average of 7.5. So, while the profit outlook remains positive, it has taken a hit from the difficulties experienced in 2023 resulting in a muted outlook for 2024.
As noted above the Profit Expectations Index tends to be significantly positive while the Profit Outcome Index tends to be only slightly positive, with an average of 7.5. This is not surprising given that firms tend to be optimistic about growth opportunities. Adjusting both series for their long-run average makes it clearer that the Profit Expectations Index tends to rise after a year of strong profits and fall after a year of weak profits. It is also worth noting that this years profit expecatations are just a touch less than average.
2. Despite profits expectations below the long-run average, recruitment and investment held up.
In 2023 the Recruitment Expectation Index surged to a historical high of 84.6, significantly stronger than the previous high of 66.7 in 2012 and well above the historical average of 47.9. This is a promising sign for stronger growth in employment continuing, following on from the growth in non-minerals employment of +2.9%yr at September 2023. Move forward to the 2024 CEO100 Survey, the Recruitment Expectations Index eased back to 75.7 with the share of those expecting either a substantial or slight increase in staff falling from 64.1% to 62.1%. Nevertheless, at 75.7 the index is well above the long-run average of 47.9, so while it is pointing to a slightly more modest pace of employment growth, it is still consistent with non-minerals employment growing through 2024.
The Investment Expectations Index rose to 97 .4 in 2023, the highest since 2019 (113.3) and well above the long-run average of 65.0. This year, the Investment Expectations Index fell to 83.8 with the share of those expecting either a substantial or slight increase in investment falling from 71.8% to 64.9%. As such, we think that investment can remain an important source of growth for the PNG economy even it might be a bit softer than it was in 2023.
It is unusual for both the Recruitment and the Investment Indexes to hold well above their longer-term averages when the Profits Index is well below. This may be, in part, due to rising inflationary pressure (as noted by the rise in firms reporting inflation as a critical concern), with the belief this pressure will be temporary. As such, firms are prepared to take a bit of a hit on profit while keeping a focus on growth via recruitment and investment. If this is the case, then it is vital that policy focuses on supporting PNG businesses through 2024. If instead profits disappoint again, it is likely to put 2025 employment and investment decisions at risk.
3. With investment and recruitment holding up, the 2024 Business Conditions Index remains positive even if it is not as strong as it was in 2023.
Westpac combines the expectations for profits, investment and recruitment into a single index, the Business Conditions Index.
The Business Conditions Index softened in the 2024 survey, falling back to 68.9 from 2023’s strong reading of 93.3. The short history of the series, and the disruption from the COVID lockdowns in 2020 and 2021, make it difficult to draw a clear relationship between the Business Conditions Index and economic growth. However, the above-average result is still a positive sign, particularly for non-extractive (non-minerals) growth.
4. The lack of foreign exchange returns is the most critical impediment facing PNG businesses.
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 to be the most significant constraint only to be beaten by the COVID-19 restrictions in 2021. It then eased further in 2022 suggesting further improvement in market liquidity until the BPNG shifted focus to fighting inflation thus placing an increased emphasis on currency stability. As a result, foreign exchange as a critical impediment surged to an average score of 4.1 out of 5 in 2023 to again be the leading impediment. CEOs reported that the situation deteriorated further through 2023 with the 2024 survey reporting FX concerns lifting to 4.6, the highest reported level of concern about any factor in the history of the survey. So, despite the BPNG allowing a modest devaluation of the kina through the second half of 2023, 93.9% of firms reported that FX was a mission critical or very important concern.
5. Security/law & order, unreliable utilities and the lack of government capacity are all significant hinderances to PNG businesses.
Security/law & order have been a consistent issue. Our review of the 2023 survey suggested that the smooth transition to the Marape administration raised hope that these concerns would ease through the year. In the end, this was not the case. Even before the recent Port Moresby riots the level of concern lifted to 4.4, with 88% of firms citing security/law & order was a mission critical issue or very important concern. This result was on par with the previous high in 2013, following 2012’s political unrest including a limited military mutiny. If the survey were re-run after the recent riots, these concerns would be likely to have increased further.
Since 2019 the concern about unreliable utilities has been high but relatively stable, scoring between 3.5 to 3.8. However, in 2024 it jumped to 4.3, the highest level of concern for utilities in the history of the survey . With 88% of CEOs reporting the unreliable utilities were a mission critical issue or very important concern, its rank lifted from 4 in 2023 to 3 in 2024.
What is also a critical highlight is the jump in concern about the lack of government capacity. This concern scored 3.8 in 2023 and had been ranging between 3.4 and 3.9 since 2014. However, in 2024 it jumped to 4.2, the highest level for this question in the history of the survey, taking it from a rank of 6 to 4. More than 80% of CEOs reported that the lack of government capacity was a mission critical issue or a very important concern.
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