Why has manufacturing in Papua New Guinea picked up in recent years? Business Advantage PNG speaks with Murray Woo, Chairman of the Manufacturers Council of PNG, to find out, and learn more about the challenges still facing the sector.

The Manufacturers Council of PNG’s Murray Woo. Credit: BAI/Morgan Roberts

Business Advantage PNG: What trends are you observing in Papua New Guinea’s manufacturing sector?

Murray Woo: Since the 2017 tariff reforms, there has been an upswing of import substitution in PNG.

This has provided local consumers and local businesses with more options to buy PNG-made goods, and created more employment opportunities.

The Manufacturers’ Council has seen an increase in membership numbers in the manufacturing of food and beverages such as cordial, soft drinks, and boutique alcohol products. There has certainly been an increase in investment in that industry.

There’s also been an increase in businesses investing in tobacco manufacturing. Some of them started as importers and saw an opportunity to manufacture locally. There is also an increase in membership from the construction industry.

Business Advantage PNG: Why is this expansion happening?

Murray Woo: The PNG Tariff Reform Program was to see a rapid race to zero [-rated tariffs]. It was put on pause in 2017, with some minor amendments made to provide some levelling in competitiveness.

This was at a time when global financial crises saw many markets in which imported goods were being produced benefitting from high levels of subsidisation and state support.

‘Successful manufacturing also relies on a healthy retail and distribution network to feed products into and this is now better than ever.’

So, it’s partly a result of this government policy, which was lobbied for by local business associations.

Previously, there was very unequal competition, where some businesses were bringing in container loads of soft drinks and dumping them on the market, often under-declaring their true value. The tariff situation is not perfect, but that kind of practice is harder to do now.

Business Advantage PNG: What other factors have played a part in the manufacturing resurgence?

Murray Woo: The inability to repatriate profits has effectively captured kina in the country. In an effort to minimise losses, as our currency also steadily depreciates, a number of businesses that were not in manufacturing have now made investments in this sector.

‘For reliability of supply, raw materials are sourced locally if available, even if they’re more expensive.’

It has been an interesting driver of growth, made possible only by this circumstance. These rather significant pools of trapped cash have been directed as capital into our sector.

Successful manufacturing also relies on a healthy retail and distribution network to feed products into and this is now better than ever.

Business Advantage PNG: What issues are affecting your sector currently?

Murray Woo: Of course, the dire state of trade-related infrastructure is the most significant – all the areas of transport, power, water, ICT, or education and training hamper growth and significantly erode competitiveness. Law and disorder is another serious issue affecting our sector.

Unfortunately, the ongoing impact of foreign exchange shortages on our sector has made it more challenging. This issue has been going on for a long time now and has resulted in medium-term constraining of operations and investment.

Manufacturers need raw materials, and we still heavily require raw materials to be imported because they’re not locally available. That touches on the availability of foreign exchange to pay for imports. For reliability of supply, raw materials are sourced locally if available, even if they’re more expensive.

Another concern of significance has been the continued erosion of good regulatory practice. Whilst the State and business share the same ambition of sustainable growth, unfortunately PNG has cemented this practice in which they introduce rule and policy reforms with little-to-no consultation. Going forward, I understand the government is now trying to initiate closer dialogue with the private sector.