Coke's coffers crammed with kina as dollar crunch hits Papua New Guinea
(Reuters) – Coca-Cola has mastered the business of getting its sweet, fizzy drinks into even the most isolated of Papua New Guinea’s far-flung tropical islands and mountain villages.
But getting the proceeds out of the South Pacific nation is proving much more troublesome, undermining efforts by the host of this month’s APEC meeting to portray itself as an attractive destination for international investment.
Australian-listed Coca-Cola Amatil, which distributes Coke in the region, recently disclosed it was holding more of PNG’s kina currency than it wanted due to foreign exchange restraints, a complaint echoed by other big businesses.
The restrictions, used to prop up the kina by fixing its value in a narrow band, have created a shortage of dollars and a weeks-long queue to buy them. That is stifling business investment and with it, the country’s economic prospects, business leaders say.
“For most customers, it has provided an impediment to the growth of their business,” said Robin Fleming, Chief Executive of Bank South Pacific, PNG’s biggest commercial bank and largest foreign exchange dealer.
“It’s really strained some of those relationships with their suppliers overseas,” he said on the phone from his office in the dusty seaside capital, Port Moresby.
Port Moresby is the venue for this month’s Asia Pacific Economic Cooperation summit of world leaders and PNG is hoping to use the high-profile event to showcase the nation and its investment credentials.
PNG Prime Minister Peter O’Neill said earlier this year that after APEC, “everyone will remember where Papua New Guinea is” and not confuse it with an African country.
Papua New Guinea has one of the largest economies in the Pacific Islands region, backed by mining, timber, fishing and huge energy reserves.
Riding booming commodity prices, the kina touched as high as $0.47 in 2013 but fell as low as $0.33 the following year when the oil price plunged.
Demand for kina also dropped away sharply since the end of construction in 2014 of a giant LNG project led by Exxon Mobil Corp.
The dollar shortfall was exacerbated by lower-than-expected tax receipts from the PNG LNG project and disruptions to copper and gold exports.
Papua New Guinea’s central bank responded by fixing the currency to a 150 basis point band either side of about $0.41 in June 2014. That made dollars cheaper overnight, driving a spike in demand exceeding meager supplies held locally by exporters.
Demand for foreign currency exceeded supply by about $500 million in August, according to Papua New Guinea’s central bank’s most recent policy update.
That has left businesses – even those earmarked for priority access to foreign currency such as food, fuel, aviation and medicine – pleading with suppliers to accept late payments.
“It does make it a challenge to get the currency you need to import materials,” such as sugar, aluminum tins and plastic bottles, Coca-Cola Amatil’s Sydney-based spokesman Patrick Low said.
Meanwhile, CCA’s stockpile of cash in kina jumped by more than a third over the 12 months to June 30 to 687 million kina ($200 million), half-year accounts show.
Other businesses find themselves similarly hamstrung.
“We need to minimize our purchasing in Australia,” said Ariel Sarangya, who manages a computer shop in the highlands and has cut back buying stock due to a lack of foreign currency.
“You need to wait up to three months, sometimes more than that, it’s up to the banks. We have to take whatever they give.”
Heineken subsidiary South Pacific Brewery Ltd has quit all non-essential capital expenditure since the crunch began and has struggled to remit dividends to its parent, managing director, Stan Joyce, told Reuters.
The company even briefly considered buying coffee and trying to sell that offshore to bring in some U.S. dollars, he added.
Economists say the solution is to let the kina gradually fall to encourage dollars to flow.
But the government is staking its hopes on an anticipated $13 billion in foreign investment expected as part of an expansion of the PNG LNG project, and recovering commodity prices, to stabilize the currency.
It has also cut dollar-denominated imports of fuel and last month raised $500 million with its debut sovereign bond issue.
“Much work going into import replacement, bringing fishing and logging industries processing onshore, lowering transport, energy and communication costs,” Treasurer Charles Abel said in an email, adding the backlog should be cleared by year’s end.
Businesses and economists are less sure, and say restraints need to be dropped before investment flows again.
In the meantime, though, Coke is flowing just fine, with PNG revenue and earnings up for the half-year.
“The most popular drink here in Papua New Guinea is Coke,” said Raymond Yafus, a storeman at a supermarket in PNG’s second-largest city, Lae.
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