Economic conditions in Papua New Guinea may be challenging but Michael Kingston, Chief Executive of diversified manufacturer K K Kingston, tells Business Advantage PNG that the company’s diversified operations give it some strategic options. He also says a weaker exchange rate may open up opportunities.

K K Kingston’s Michael Kingston

‘What we try to do is take the attitude that every cloud has a silver lining,’ says Kingston. ‘So we look at the environment and say: “What do we think is happening in the economy? What is the outlook for the next 6-12 months and what are we going to do to exploit some of the opportunities it presents?”

‘Even if the backdrop is a negative backdrop, there are always opportunities created in adverse economic situations.’

Kingston identifies the weakness of the kina as one such opportunity. ‘It is one of our number one challenges but it actually also has some positives, in a way. Many of the wholesalers around the country, who might have imported their own cooking oil in the past, are saying: “Well, because it is such a low margin product, and we have to manage our foreign currency, we have to reprioritise. Anything that generates less than a certain amount of margin we are going to buy locally in order to conserve our scarce supply of foreign currency.”

‘Diversification creates a partial hedge when economic conditions are difficult.’

‘Cooking oil is certainly a low margin product. It gives us potentially a much larger market. We have seen quite a substantial increase in our demand. If we can find a way to continue to have supply of raw materials then the current situation is a boon to us, in many cases.’

Diversification

K K Kingston, which was founded in Lae in 1972, is a heavily diversified manufacturer. The company’s divisions are: commercial (specialty chemicals), retailing of its manufactured household consumer products, a hire service arm for industrial and construction equipment, supply of industrial equipment and the sale of water tanks and other rotomoulded products.

Kingston says such diversification creates a partial hedge when economic conditions are difficult. He says when the mining sector turned down the company’s exposure to the consumer market and commercial and industrial markets provided a ‘buffer.’

‘Probably our biggest concern at the moment is ongoing supply of fuel and other key commodities.’

But the effect is not automatic and eventually weaker economic conditions affect all of the company’s operations. ‘We definitely have to think it through and respond and take an active position to try and realize these hedging opportunities. Nothing happens if you don’t do anything.’

Kingston adds that the strategy emphasises caution. ‘It is right now a question of minimizing risk. Committing oneself to large capital investment projects when there is so much uncertainty is not probably the best decision.

‘Probably our biggest concern at the moment is ongoing supply of fuel and other key commodities. There have been a number of occasions when it has been reported that the country was pretty close to running out of fuel and other critical commodities. If the country did indeed run out of fuel that would be a major problem for all of us.’

Local workers

Inside a K K Kingston laboratory. Credit: Rocky Roe

Kingston’s management philosophy is very much focused on developing local workers.

‘My general aspiration is to try and nationalize as much of the workforce as possible to minimize the number of expatriate employees we have. The reason for that is primarily longevity of employment,’ he says.

‘Most expatriate employees aren’t here for a long time; they are here for a particular period of time to save up some money and go somewhere else.

‘We have many PNG employees, on the other hand, who have been with us for decades. That kind of continuity is fantastic.

‘We appreciate it and I’d like to see a lot more of it. The goal has been over time to put more and more Papua New Guineans into senior management positions and to give them exposure to best practice, to mentor them and train them so that they can take more and more senior positions in the organization over a period of time.’

Kingston says he expects commodity prices to stay soft this year, and does not anticipate any new resource industry activity in Papua New Guinea in 2016. But despite the more bearish conditions in the mining sector, there are opportunities.

‘We are finding that because the prices of commodities are a lot lower than they were before: every miner and oil and gas person in the world is looking for ways to shave costs. We are finding that the doors of the procurement offices are not as closed as they used to be. We are getting an invitation to tender where perhaps we weren’t in the past.’