What does Papua New Guinea need to do to add more value to its produce and create more local jobs? Chey Scovell, CEO of PNG’s Manufacturers Council has told a Business Advantage PNG briefing that the country is already doing better than many think, and that a ‘holistic’ approach is needed to boost the manufacturing sector further.

PNG has some surprising comparative advantages in manufacturing.

‘If you have a look at the level of FMCG (fast moving consumer goods) manufacturing in Papua New Guinea compared to somewhere like Australia or New Zealand – countries that have high labour costs and high regulatory costs – we are actually doing pretty well. People get quite surprised when they realise we have got a couple of beverage bottler,’ says Scovell.

With a world-class brewery such as Paradise Breweries, the blending and mixing of cigarettes, and potential for noodles manufacturing for the Australian market, Scovell notes PNG has many strengths.

He explained PNG’s strength is not necessarily its low labour costs, which often cancels out because of low productivity levels.

‘There is still a huge opportunity for more for the players that are there, particularly the small goods manufacturers, the snack foods, the low cost FMCG items and household items. There is a huge demand.

‘The size of the market in Papua New Guinea is quite considerable, and penetration is still very low. Most people would say that Papua New Guineans eat too much ice-cream and soft drink, or drink too much beer, but our per capita consumption is one of the lowest in the world, which tells you that the market penetration is still minute; that opportunity is there.’

Exports

Manufacturing Gala ice cream at Laga Industries Credit: Laga

Scovell described two dimensions of value adding: import substitution (replacing imports with production from local suppliers) and exports in areas where PNG has comparative advantages other than just the resources in the ground.

He argued that adding value to primary industry production (agriculture, forestry and fisheries) can succeed in both domestic and foreign markets. One sector with potential is coffee.

‘If PNG could regularly and reliably produce four or five million bags of coffee – quadrupled the output – the world would suck it up,’ he said. ‘It is pleasing to see more high value [coming from] people doing roasting and blending here.’

Scovell cautions that because PNG people own their land, agriculture based on economies of scale over huge areas will not be possible. Instead, crops that have high profit margins, such as papaya or rambutans, should be selected. ‘That is where the focus should be: tropical fruits, broccoli, cabbages. We are largely organic so we can get to premium markets for premium price.’

In the extractive sector Scovell said there is potential to move into areas where developed countries are reluctant to continue. ‘In PNG it is about seizing that opportunity where [other] countries are not keen. [For example], in Australia all the heavy industry has gone. It is very difficult to get a permit to get clay out of the ground to make bricks, let alone to burn gas or coal or anything like that.

‘So there is a space there for Papua New Guinea to leapfrog in technology. Not everything has to be made in India, China, Brazil and a couple of other countries.

‘Papua New Guinea can utilise its resources. We have got the energy. We have got clay, the sands.  We have got all the ingredients. We have a huge potential labour market because unemployment is a massive problem. And we have got a pressing need to develop the country.’

Holistic

Scovell said that what is required is a system-wide approach: looking at all aspects of the nation’s infrastructure, business regulations, supply chains, issues of land access and security. He is not convinced that Special Economic Zones are the long-term answer.

‘I think there is huge potential, once we get the roads fixed and the port services [operating] – those supply chain issues. These are holistic things. This is my issue with the zones. If you go and put the infrastructure in one place, what about everywhere else?’