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.
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Interesting views. What I know from past experience was that there was never any intention to rapidly reduce the import tariffs to zero which will significantly impact local manufacturers. PNG is a member and signatory of various trade architecture which includes WTO, PICTA, MSGTA2 and other bilateral and all provide opportunities for dialogue with private sector. Another point is that, being a WTO there is commitment made to reduce tariffs to the bound-over limits but provides opportunities to members to justify protection if there is complaint made by another member. For other trade agreements there is all opportunities to consider development support or even to exclude or restrict goods that should not be part of the agreement. These goods once in restricted or excluded basket to not require tariff reductions. Perhaps I as a commercial consultant can assist MCPNG understand these better and also show how that can pro-actively participate in consultants. Another important aspect is not on import substitution but being competitive enough to be trade ready to leverage export opportunities on global scale to maximise economies of scale and grow manufacturing base. Increased production and exports of PNG made products will boost manufacturing output, productivity and bring in more foreign exchange to ease current forex issues. Something to explore and grow manufacturing platform and create job opportunities. Happy to discuss with MCPNG.