Australia and Papua New Guinea have signed a new economic co-operation treaty during Prime Minister Tony Abbott’s first formal visit to Port Moresby.

PNG Prime Minister Peter O’Neill told reporters on Friday the agreement would be the “cornerstone” of business and trade relations between the two countries.

Mr Abbott said Australia and PNG were more than friends.

“They are family,” he said.

As well, the relationship should be about trade as least as much as aid.

The agreement includes annual leader-level talks.

Papua New Guinea will host the APEC regional leaders summit in 2018, which Mr Abbott described as a “coming of age” for Australia’s neighbour.

“It will demonstrate that PNG is not only a very big player in the Pacific but is increasingly a player in the wider world,” Mr Abbott said.

The 16-page agreement recognises the “essential role” of private investment, both domestic and foreign, in fostering growth, creating jobs, expanding trade, improving technology and enhancing economic development.

“Each party shall, subject to its laws and regulations, accord nationals of the other party fair and transparent treatment with respect to matters in connection with their business, immigration and professional activities,” the treaty says.

It also sets out new rules governing aid and development cooperation in PNG, including an exemption from income tax for Australian aid organisations.