The Analysis of the Legal Environment in Papua New Guinea

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The legal environment includes state laws and decisions made by numerous commissions and agencies at all levels of government. In most democratic countries, the rule of law prevails over the arbitrary decisions of individuals. This paper seeks to analyze the legal environment of Papua New Guinea (PNG), citing the laws that govern its foreign direct investment, the challenges and opportunities that foreign investors are likely to encounter, as well as the recommendations for these opportunities and the challenges. Although there is a mixed reaction over the governance of PNG, the rule of law prevails in this state, posing various challenges and opportunities for businesses.

PNG is largely governed by its constitution and organic law. They form the supreme pillars under which the power to control PNG is derived (Demian 241). Jackson (n.p) states that the national parliament of PNG is a unicameral body with 111 members elected for five-year terms. Eighty-nine of them represent single-member open electorates, while the remaining 22 represent provincial electorates. The British monarch appoints the governor-general after being nominated by parliament. Parliament also elects the prime minister, who appoints the National Executive Ministers. He further posits that all acts inconsistent with these judicial, legislative, or executive procedures are invalid and ineffective. Therefore to the right of this information, it is evident that PNG is primarily governed by the rule of law as opposed to the arbitrary decisions of individuals.

The PNG government is still committed to creating an environment that enables business growth and attracts foreign direct investment. It intends to increase FDI in the mining and petroleum sector from $40.0 million in 2016 to $100.0 million by 2022 (“2020 Investment Climate Statements: Papua New Guinea”). Moreover, its legal environment is favorable for doing business and promotes international commerce. For instance, countries with a free trade agreement with PNG are not charged any tariff on trading. The government offers both direct and indirect taxation-based motivations for large and small venture projects. Significant tax breaks include: for three years, 100% of the net income obtained from export sales of a wide range of items is recognized as exempt income (“2020 Investment Climate Statements: Papua New Guinea”). Depreciation on new industrial units can be increased up to 100% of the cost. Furthermore, there are numerous incentives available for mining and petroleum-designated gas operations (Massa et al. n.p). Additionally, investors can benefit from incentives provided by a number of international treaties and agreements to which Papua New Guinea is a signatory.

In addition to tax breaks, there are investment dispute policies in PNG. Before having such problems adjudicated at the International Centre for the Settlement of Investment Disputes (ICSID) or another appropriate tribunal of which Papua New Guinea is a member, investment disputes are addressed through diplomatic channels or the application of local remedies (Massa et al. n.p). The Investment Promotion Act of 1992, administered by the IPA, also safeguards investors from expropriation, contract cancellation, and discrimination by offering the most favored nation protection. As a result, foreign investors can feel safer and easily resolve conflicts when they emerge.

In contrast, PNG imposes different trade restrictions on foreign direct investment. These challenges are enacted through legislation and only apply to entities defined by the United Nations Charter and Security Council Resolutions. For example, foreign nationals and corporations can purchase stock from domestic corporations. However, the share acquisition of state-owned firms by foreign investors is regulated by policy, with most local equity required to maintain the status quo and retain control of state-owned enterprises (Massa et al. n.p). Furthermore, foreign firms are prohibited from engaging in the following activities: Agriculture, forestry, and fishing on a small scale, mining on alluvial deposits, traditional arts and crafts, and certain small retail and wholesale businesses.

However, there are various opportunities for foreign investors from various countries. For instance, the government’s move to increase its foreign direct investment in the mining and petroleum sector offers American investors an excellent opportunity to invest in these areas. This opportunity requires proper planning to curb the environmental risks that come with it. For instance, Nwaila et al. state that “jointly preparing with relevant stakeholders and establishing clear guidelines for operations” is key to the success of this opportunity. As a result, if U.S. investors follow these guidelines, they can conduct business in PNG peacefully.

On the other hand, corporate security is among the obstacles American investors face in PNG. Most businesses in this country have been victims of crime and use private security guards and other security measures to defend themselves. Crime and the precautions taken to avoid it add significantly to business costs. As a result, most businesses regard the government as unhelpful. Furthermore, irregular payments to government officials appear to be on the rise, and corruption is ranked as the second most crucial reform objective.

To address these problems, American investors must create collaborative partnerships with the government and the private sector, which is a fundamental characteristic of a well-functioning economic environment. For instance, Sakawa and Naoki argue that dialogue and consultation foster trust and ensure businesses have a say in new policies affecting their operations. Additionally, Sakawa and Naoki posit that investors should persuade the government to increase efforts to combat corruption. They argue that this is possible through reforming public procurement and land management and strengthening current controls and safeguards.

In summary, it is evident that PNG is a democratic and state-owned country governed by the Supreme laws under the constitution and organic law. However, various challenges still hinder the development of growth and business. Therefore, the government should strive to enhance its relationship with foreign investors and increase opportunities for foreign stockholders across the globe.

Works Cited

“2020 Investment Climate Statements: Papua New Guinea.” U. S. Department of State, 2022, Web.

Demian, Melissa. “The States of Law in Papua New Guinea.” Law and Critique, vol. 32, no. 3, 2021, pp. 241-254.

Jackson, T.R. Independent State of Papua New Guinea: Government and society. Britannica, 2022, Web.

Massa, Stephen, et al. Doing Business in Papua New Guinea: Overview. Thompson Reuters, 2021, Web.

Nwaila, Glen T., et al. “The Minerals Industry in the Era of Digital Transition: An Energy-Efficient and Environmentally Conscious Approach.” Resources Policy, vol. 78, no.1, 2022. Web.

Sakawa, Hideaki, and Naoki Watanabel. “Institutional Ownership and Firm Performance under Stakeholder-Oriented Corporate Governance.” Sustainability, vol. 12, no. 3, 2020. Web.

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The Analysis of the Legal Environment in Papua New Guinea

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