Things are looking up for Papua New Guinea’s manufacturing sector and moves are afoot to develop strategies to foster local companies. David James profiles the sector.

A PNG timber processing facility. Credit: ACIAR

Manufacturing in PNG is comparatively small, but it is vital for the country.

The sector only contributes about 3 per cent of PNG’s GDP, but according to the Government’s Medium-Term Development Plan, 2018–2022 (MTDP), it employs about half of the people in the formal sector in the country.

A strong manufacturing sector is thus crucial for developing the economy and stimulating broad-based economic growth.

Building on strengths

Most manufacturing in PNG is built off the country’s strength in agriculture and resource-based industries.

The largest manufacturing export commodities are palm oil, processed tuna, copra oil, processed timber, refined petroleum and liquefied natural gas (LNG).

The National Government has adopted a strategy of broadening PNG’s industry base to reduce the impact of volatility in the resources sector.

‘There are examples of PNG manufacturing companies globalising their production.’

It has also flagged that it will promote more manufacturing of forest products, while banning logging by 2020, according to the MDTP.

The MTDP also notes that ‘the Government will focus on developing key infrastructure such as the development of industrial parks in Port Moresby, Kundiawa and Lae among other priorities.’

Adding value

The Manufacturers Council of PNG’s Chey Scovell

The Chief Executive of the Manufacturers Council of PNG, Chey Scovell, emphasises the need to add value with manufacturing, especially with the nation’s agriculture.

He says there have been moves to provide better protection of PNG’s manufacturing. This view is supported by the 2018 PNG Economic Survey, a study conducted by researchers at the Australian National University (ANU) in Canberra. According to the survey, PNG’s 2018 budget introduced legislation that increased about 250 tariffs.

Six hundred proposed decreases in tariffs were abandoned.

It represented a rolling back of the 2012 Import and Export Customs Tariff Act, which legislated a series of tariff reductions in 2012, 2015 and 2018.

In 2017, however, the Tariff Reduction Program was suspended.

‘On average, the tariff increases were moderate (about 7 per cent), but there were some substantial increases,’ the ANU report says.

Tariffs were increased on clothing, household and consumer items, and some processed food, such as ice-cream. A 25 per cent tariff on milk, designed to support the Ilimo Dairy Farm, was introduced.

It is not just tariffs. Changing subsidies in the tuna industry so as to support fish manufacturing has also been a success.

Some companies are experiencing natural growth in demand. Vijay Kumar, General Manager of Poly Allied Products Limited, says the household market for his products is growing.

‘The end-user is happy to use Poly Pipe instead of copper pipe for water supply. Mining sector demand is also going up.’

‘If there is a renewed resources boom, it may encourage the government to “forget” manufacturing and agriculture.’ 

There are examples of PNG manufacturing companies globalising their production. For instance, New Britain Palm Oil, PNG’s biggest palm oil producer and largest private employer, has a refinery in Liverpool, England. Almost all of the company’s output goes to the European Union.

Concerns

Michael Kingston Chief Executive of K K Kingston. Credit: K K Kingston

PNG’s shift towards greater protection of its local industries is occurring in a context of greater protectionism worldwide.

The European Central Bank notes that trade protectionism is on the rise and the ‘drive towards economic integration that characterised previous decades has now faded.’

Economists believe that this will ultimately harm economic growth in developed economies because it will reduce cross border efficiencies (called ‘comparative advantage’).

In a developing country like PNG, however, where only a small proportion of the population is in formal work, there is less emphasis on increasing efficiencies and more on creating employment.

Michael Kingston, a trained economist and Chief Executive of diversified manufacturer K K Kingston, says the evidence in Asia shows that targeted protection of local industries can effectively improve national wealth and lead to greater economic equality.

He warns that if there is a renewed resources boom, it may encourage the government to ‘forget’ manufacturing and agriculture.

Another boost to prospects in the manufacturing sector is likely to be the establishment of the PNG Electrification Partnership (PEP) with Australia, the United States, New Zealand and Japan. This partnership aims to bring electrification to 70% of PNG’s population, and therefore business too.

Manufacturers need electricity but the business case for expanding PNG Power’s transmission grids has previously limited access.

‘One of the issues is you can build all the infrastructure, but how can you do it on a commercial basis? The PEP gives grants to build infrastructure even in areas where you don’t have the business case to justify financing it.’