Papua New Guinea’s producers are continuing to profit from the country’s unprecedented economic boom as well as high international commodity prices, but they still face a mighty array of challenges. Made in PNG asks what factors influence the demand for PNG goods at home and overseas.

Coca-Cola is one of many international brands now manufactured in PNG. Credit: Coca-Cola Amatil

You might assume that, given its low per capita GDP, Papua New Guinea would be a low cost place to manufacture. Anyone involved in local industry would quickly put you straight, however.

The country’s inadequate infrastructure affects producers more than any other sector, with costly and erratic power supply, clogged ports and crumbling roads all applying upward pressure on a producer’s unit cost. Even labour costs are relatively high: the minimum wage may be just 2.29 kina (US$1.10) per hour, but skilled workers are at a premium, meaning competition for technical know-how is high. Furthermore, the country’s strong currency not only makes locally-produced goods harder to export, but makes them less competitive on the domestic market against low-cost imports, especially from Asia.

Those imported products are of variable quality, however, on account of the relative lack of supervision of goods imported and retailed in PNG, and some are simply sub-standard. The implications of this can vary, but it might mean a piece of machinery is unsafe or a bottle of drinking water is not fit for consumption.

Opportunities for local producers

This provides an opportunity for local producers who are able to build trust in their brands among PNG’s consumers and it is one reason for the ‘flight to quality’ that is prevailing among PNG’s manufacturers. Another is the emergence of a new consumer class in PNG with more aspirational tastes, as participation in the formal economy has grown.

In any case, an increasing number of local products now proudly display the ‘PNG Made’ logo on their products—a mark which signifies quality as well as being an indicator of local origin.

There are also products that have a limited shelf life, making importing impractical. This can include things as diverse as industrial coatings, cement and certain fast-moving consumer goods.

The thorny issue of tariffs

Of course, local manufacturers are also protected by tariffs on certain imported goods. However, these have dropped considerably since PNG’s accession to the World Trade Organisation in 1996. In fact, according to Chey Scovell of the Manufacturers Council of PNG (MCPNG), ‘PNG presently ranks in the top 10% worldwide for low tariffs, an anomaly considering our state of development.’ The MCPNG’s position is that further reductions in tariffs should be linked to the amelioration of the high-cost environment in which local manufacturers operate.

Non-compliance further erodes the benefit of tariffs to local producers, with the under-declaring of goods imported to PNG reported to be commonplace. You’d think that mine sites at least would represent a healthy market for PNG producers but even here there are obstacles. Special tax incentives given to new mine projects allow them to import inputs (including food) tax-free, which makes local produce appear more expensive than it otherwise would.

Perhaps the area where local producers have the clearest competitive advantage is in more specialised products: industrial machinery that needs regular maintenance, technical equipment that requires training or solution-based commercial sales that involve products made to order on short lead-times.

Obstacles to exporting

When it comes to exporting, PNG remains overwhelmingly an exporter of commodities (see Agribusiness). Besides the issue of price competitiveness referred to above, other obstacles to exporting processed goods include:

• A lack of technical expertise/facilities in-country, eg in coffee roasting. One brand of organic PNG coffee on sale in Australia, for instance, is actually roasted and packed in the UK!
• Market access, including increasing pressure from many international markets for certification that goods have been produced sustainably (eg timber, palm oil)
• Inconsistent supply, due to supply chain issues (often stemming from poor infrastructure)
• A lack of scale

A less tangible impediment is the lack of a coherent export marketing strategy. Unlike most of its competitors, PNG does not even have a stand-alone export promotion agency. It is hardly surprising then that the ‘PNG Made’ brand enjoys little prestige overseas (one major producer talks of having to export at a discount just because the products originate in PNG).

With the dust settled from the 2012 General Elections, the MCPNG is confident that the new Government and Cabinet line-up will be supportive of developing local industry. ‘Within one week of taking the position of Minister for Trade, Commerce and Industry, Richard Maru, came to Koki himself to see us,‘ says Council CEO Chey Scovell. ‘Key personalities in the O’Neill–Dion line up all have first-hand experience in the private sector, they are well aware of the issues and impediments and prior to taking office had been calling for the same reforms.‘

The area where local producers have the clearest competitive advantage is in more specialised products

PNG made: the mark of quality

Over the last few years, the Manufacturers Council of PNG (MCPNG) has stepped up its ‘PNG Made’ campaign that encourages PNG consumers to buy locally-made products.

The scheme centres around the ‘PNG Made’ logo, which acts as a mark to give consumers confidence that the local goods they are buying are of good quality. To qualify for use of the ‘PNG Made’ logo, 50% of a particular product’s cost of production must have been incurred in PNG. A wide range of locally-produced goods display the logo, ranging from food and beverages, to garments and industrial products.

This increased promotion has primarily been through TV and radio advertising.

In June 2012, the directors of the Manufacturers Council gave the CEO the green light to undertake a major review of the PNG Made brand. Now working with a local public relations firm, the Council’s board will be considering new and innovative approaches over the coming months to convey the importance and derived benefits of buying local.

Regional exports

Nonetheless, exports are occurring in specific niche areas. ‘Given that PNG has the largest domestic market in the Pacific region, its manufacturing sector enjoys certain economies of scale that provide opportunities for our manufacturers to export products to smaller markets in the region,’ explains MCPNG President Murray Woo.

In particular, the neighbouring Solomon Islands represents a quasi-domestic market for PNG goods. Paradise Foods sells its biscuits and snacks across the Pacific Islands—one of several PNG manufacturers (including K K Kingston, Woo Textile and PNG Taiheiyo Cement) to do so. S P Brewery now exports its signature S P Lager to Fiji, as well as Australia.

Meanwhile, companies such as Lae Builders and Contractors, PNG Forest Products and Cloudy Bay Sustainable Forestry are leading the way by showing that round logs need not be PNG’s only timber-based exports, by selling their furniture and plywood to markets including Australia and New Zealand.

Finally, tuna canned or loined in PNG is being exported by a fast-growing local fish processing industry, particularly to Europe, where PNG tuna benefits from free-market access.

First published in Made in PNG 2012