Business outlook remainschallenging
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PwC PNG Business Barometer Survey
58%of businesses surveyed experienced negativegrowth in the first half of 2016
79%say that the outlook over the next six monthswill remain challenging and are not optimisticthat they can improve their results
2August 2016
This report containsthe responses fromour H1 2016 PwCBusiness BarometerSurvey. The surveyreflects the responsesof businesses from 11different sectorsof the economy. Thefindings are the viewsof respondents andnot of PwC.
Port Moresby’s Fairfax Harbour
FinancialServices
Oil & Gas,and Mining
Engineeringand
Construction
Insurance IndustrialManufacturing
Business &Professional
Services
Banking &Capital
Markets
Retail &Consumer
ICT State-ownedEnterprise
Diversified
Revenue and profitability down in the first sixmonths of 2016
of respondents experienced negative growth at the top line in the first half of the2016 financial year compared to this time last year. Over half of the businessesin this group experienced more than a 10% drop in revenue and over36% experienced a greater than 20% decline.
For most of these businesses the reduction in revenue adversely impactedprofitability by up to 20%. Almost 11% of businesses suffered more than a20% decline in profitability.
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58%
PwC PNG Business Barometer Survey – H1 2016
Many respondents say they are now reacting with a number ofinitiatives to improve business performance or at least stemlosses. Re-sizing their businesses has meant reducingheadcount, but other initiatives are also being explored. Whileinternal initiatives are underway they also cite thatGovernment can help by addressing some fundamentalimpediments to investment and growth.
There were some growth stories. 35% ofrespondents showed some growth but this wasnot sector specific. That said, most are now lessoptimistic about the outlook indicating thatrevenues and profits are likely to fall over thenext half.
62% of businesses
said that the lack offoreign currency hasadversely impactedtheir business
The lack of foreign currency was identified as thesingle biggest impediment to business growth
When asked what were the key impediments to business the single biggest factor was thelack of foreign currency in the domestic market. 62% of businesses indicated that thisissue had adversely impacted their business and impeded growth. 33% indicated there wasno impact and 5% indicated it was favourable.
Respondents to the survey recognized the complexities of the foreign currency issue andthe policy challenges presented, and while proffering some solutions, there was no onepreferred policy direction being proposed. They did however express a desire for moredebate on what the right policy framework might be going forward, given the currentoperating environment.
As the survey shows, not every business was impacted but there seemed to be agreementfor a stable currency, greater transparency of information on currency availability and howthis issue will be addressed going forward so that they could make more informed businessdecisions. In addition, in future, respondents wanted more consultation and debate forsuch policy changes, and more implementation time.
4PwC PNG Business Barometer Survey – H1 2016
PwC PNG Business Barometer Survey – H1 2016
The political landscape and discourse heavilyimpacts business growth and investment appetite
No impact
Invest elsewhereStop investments
47%10%
38%
5%
Delay investments
62% of survey respondents indicated that the recent political events has caused them to re-think theirinvestment strategy. Of this group. 5% have stopped further investment, 10% are looking outside ofPNG for investment opportunities and 47% are delaying investments.
At the other end of the spectrum, 38% of respondents indicated that they weren’t impacted at all.Notwithstanding this response most of the same respondents wanted more political stability.
Respondents wanted more constructive discussion on how thegovernment is addressing some of the real economic challenges thatcurrently face the country. Businesses feel it is their issue as welland want greater engagement to help solve the many challenges.This however requires earlier, more regular and genuineconsultation.
Many respondents wanted more clarity from government on someof the recent proposed legislative changes, such as the SME policy,the Land Act and the Mining Act. These were the sorts of issues theywanted more focus on. They felt that certain of the changesproposed and the ensuing discourse were potentially harmful to theeconomy and investor confidence. They also felt that the proposalswere counter-intuitive or not aligned to the nation’s desire to growthe economy.
Impact on investmentstrategy?
5
Businesses are concerned about the outlook
79% of
businesses are notoptimistic about theirgrowth prospectsover the next sixmonths of the year
6
Growth. Few respondents sawopportunities for organic growth.Some felt that they could improvetheir access and distribution tomarket or focus on new products andservices as a way to growth. In orderto maintain their business most werein a holding pattern or curbing theirspend.
Almost 17% of respondents viewedthe current environment aspresenting opportunities forinorganic growth or acquisitions. Onthe flip side, some see theopportunity for divestment ofmarginal assets and businesses.
Internal restructuring andconsolidation. While most of therespondents were delayingsignificant capital spend, somebusinesses that had surplus cash, areusing the opportunity to “update”their existing capital assets, includingproperties, in readiness for theeconomic up-cycle.
PwC PNG Business Barometer Survey – H1 2016
79% of our survey respondents were concernedabout the outlook for the remainder of 2016indicating they don’t expect any growth orimprovements in profitability. A significantnumber of businesses (more than 20%) areconcerned that both revenue and profitabilitywill see a further decline over the next sixmonths.
To maintain results or stem a further reductionthe following key initiatives were shared withus in the survey:
Reducing headcount. 50% ofbusinesses had attrition rates of around 1-10% but over 1 in 5 businesses hadheadcount reductions of over 20%.
Improving productivity. 44% ofbusinesses indicated that the single factorthat would have most impact on theirbusiness would be to focus more onproductivity. Various productivitymeasures were being considered,including streamlining processes,leveraging technology and automation toimprove efficiencies and cut costs.
PwC PNG Business Barometer Survey – H1 2016
8 ways to regain business confidence
7August 2016
When asked what changes businesses want to see tocreate an environment more conducive to investment andgrowth, the following were identified by surveyrespondents as critical. Key messages from business isthat more needs to be done sooner.
Address fiscal challenges and communicate thestrategy for doing this
Tackle foreign currency availability issues
Create a more investor-friendly framework againstwhich proposed policy changes should be evaluated
Engage early with business on proposed policy andlegislative changes to minimise shocks to businessand the economy
Address corruption, improve governance and enforcevalue for money procurement
Reduce cost of the public sector, improve servicedelivery of State-owned enterprises or co-opt theprivate sector
Address infrastructure needs based on a clearprioritised plan
Get serious about law and order.
PwC PNG Business Barometer Survey – H1 2016
Key takeaways
Infrastructure – remains an impediment forbusiness and needs more focused attention
Laws and regulations – businesses wantmore timely and genuine consultation onpolicies and policy changes; and a moreinvestor friendly framework
Government and public sector –improving fiscal management is seenas essential, along with a more efficientand productive public sector
Foreign currency – availability of foreigncurrency is seen as the biggest immediatebusiness issue
Collaboration – key to creating an environment conduciveto growth and investment is genuine collaboration betweengovernment and business
Innovation – not high on the agenda but may presentopportunities around cost cutting, better access tomarkets, and productivity gains
Operations – streamlining processes,through leveraging technology is anotherinitiative being explored to improveproductivity but technology infrastructureremains an impediment
Sustainability – businesses areturning to productivity to ensure amore sustainable business modelgoing forward
People and talent – reduction inemployee numbers has been one way ofmanaging results but not good overall forthe economy. Improving quality of talent isalso getting attention
Growth – business confidence is low and outlookchallenging. Businesses are implementing someinitiatives to counteract this outlook, including looking forinorganic growth opportunities
Insights
8
Further information - www.pwc.com/pg
Survey methodology
We surveyed businesses from 11 different sectors of the economy covering a period from 27 July 2016 to 16 August 2016. The purpose of the survey is to capture in the form of a quickpoll of businesses on various topical questions. The findings are the sentiments of those that responded. The questions were both open ended questions that required a written freetext response, as well as multi-select responses. The findings in the survey are analysed and themed based on the survey responses received. We used an online survey to elicit theresponses on a confidential basis and have therefore not audited or validated the responses. The views expressed are those of the survey respondents, not of PwC.
About PwC and this publication
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed todelivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/pg.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained inthis publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the informationcontained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyoneelse acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2016 PwC. All rights reserved. PwC refers to PwC in Papua New Guinea and/or the PwC network and/or one or more of its member firms, each of which is a separate legal entity.
Please see www.pwc.com/pg
PwC PNG Business Barometer Survey – H1 2016
PwC – Port Moresby
Jonathan Seeto Grant Burns David Caradus Rajul MakanManaging Partner Partner Senior Tax Counsel [email protected] [email protected] [email protected] [email protected]
Christopher Hansor Alison Judd Jason EllisPartner Partner [email protected] [email protected] [email protected]
Stephen BeachPartner (Lae)[email protected]
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Kanthan [email protected]
