As Business Advantage’s PNG 100 CEO Survey reveals, leading companies are performing exceptionally in spite of facing an array of severe impediments. We take a closer look at some of the daily challenges faced by companies doing business in Papua New Guinea and find out how they are overcoming them.

Office space in central Port Moresby is hard to come by

At the beginning of 2011, a well-known global fast-moving consumer goods (FMCG) company decided to open a sales office in Port Moresby in response to rapidly rising demand from PNG. It quickly realised this was going to be easier said than done: finding suitable premises at a reasonable rent proved impossible, while sourcing the personnel it needed was not much easier.

The commencement of the multi-billion dollar PNG LNG project has pushed the nation’s strong, sustained economic growth into overdrive. The consequence has been soaring inflation, severe capacity constraints in utilities and key government departments and, in the capital at least, an overheating property market. Little wonder PNG’s ranking in the IFC/World Bank Group’s benchmark ‘Ease of Doing Business Survey’ fell from 97 to 101 in 2012.

 ‘The construction phase of the LNG Project will peak over the next 12 to 18 months, meaning there will be a rush for workers.’

Property values and rents do at least appear to have peaked, as supply has started to catch up with demand (for instance, several major corporations have moved out of Port Moresby’s central business district to the new Harbourside complex at Konedobu), but when it comes to skills, PNG is currently facing something of a ‘perfect storm’.

Education and training conundrum

At the root of the problem lies a decline in school education standards over recent years.

‘The generation entering the workforce now has a literacy rate of 48%,’ comments Carolyn Blacklock, IFC Resident Representative in PNG, ‘and those who cannot read and write are not necessarily in rural areas. That makes it pretty difficult to get a job.’

There is a also a paucity of vocational training places, especially geared towards the thriving natural resources sector, obliging many firms to provide extensive training in-house. ‘We are a training organisation in our own right in PNG,’ says David Purcell, CEO of Ela Motors. ‘A motor dealer shouldn’t be a training organisation, but we have to be.’

While the overall level of education is lower than in more developed countries, institutions such as Divine Word University in Madang and the Papua New Guinea Institute of Banking and Business Management, which runs the Enterprise Center for the PNG LNG Project, have developed good reputations.

Finally, an increasing number of skilled Papua New Guineans are finding work overseas, particularly in neighbouring Australia that is enjoying its own mining boom. It is estimated that 1000 Papua New Guineans work in the Western Australian mining industry alone.

‘Any Papua New Guinean with a globally-recognised qualification, like a mining engineer or metallurgist, can go and work overseas. We were recently asked to source diesel fitters from PNG to fill positions in Australia,’ says Scott Roberts, Managing Principal of Cadden Crowe.

Increased salaries

It was in this environment that the PNG LNG Project started recruiting in earnest in 2009–2010, acting as a magnet for local talent and driving up the wages of skilled workers. Little data is available on just how much salaries have risen over the past few years but, as Air Energi’s Julian Counsel explains, ‘Our clients understand that they will often have to pay above the going rate in order to find the right person. The construction phase of the LNG Project will peak over the next 12 to 18 months, meaning there will be a rush for workers. But it is already very hard to find skilled Papua New Guineans as they are tending to avoid short-term contracts.’

Larger firms are increasingly obliged to recruit expatriate workers in increasing numbers. While the traditional source for these has been Australia, there has been a clear shift towards the Indian subcontinent since 2009, while many short-term contractors for the LNG Project are coming from the Philippines. Hiring expats is an expensive option (it is not uncommon for total cost of employing expat executives to be as much as one million kina—US$470,000) and obtaining their employment permit and visa anything but straightforward. Anecdotal evidence suggests it is getting more difficult to bring non-nationals into PNG on work visas due to capacity constraints in relevant government departments caused in part by the LNG project.

Finding a home

For the record, the FMCG multinational referred to above ended up hiring only the most essential staff, then entered into an agreement with one of its existing PNG suppliers to accommodate them within its own building and take care of their administration requirements. In the same outsourcing vein, the Port Moresby Chamber of Commerce and Industry’s Bizcentre serviced office product has also enjoyed a rapid take-up since its inception two years ago, while international serviced office provider Regus is rumoured to be setting up in PNG in 2013.

Traffic jams

Unsurprisingly, PNG’s transport networks are also struggling to cope with the new paradigm. The number of vehicles on Port Moresby roads has increased exponentially since 2007. Traffic jams, formerly unheard of, are now commonplace in peak hour and, at the time of writing, traffic chaos prevails after heavy rain washed away part of the principal arterial road, the Poreporena Highway.

Meanwhile, PNG’s main trunk road, the Highlands Highway needs urgent attention, with traffic volumes set to double over the next two years due to the PNG LNG Project. A recent feature in PNG Report magazine quoted the President of the PNG Road Transport Association calling for AUD$2 billion to be spent on urgently repairing and upgrading the 800km road that links Lae to the Southern Highlands.

There is some good news from Lae, though. PNG’s industrial capital has been nicknamed ‘pothole city’ due to the state of its roads but a major investment program over the past 18 months is addressing the problem. Lae Chamber of Commerce and Industry President Alan McLay reports that ‘the project is 90% completed but work is currently stalled due to an enquiry into misuse of funds.’

Busy ports

If existing roads can be upgraded relatively swiftly, funds and governance permitting, the same cannot be said for ports. The ports of Lae and Port Moresby have simply been swamped as a result of the sharp upturn in economic activity, resulting in considerable delays in consignments being cleared (and associated demurrage costs). While PNG Ports has a monopoly over PNG’s 16 gazetted ports, some private companies, such as Steamships and Curtain Brothers, have their own. Curtain Brothers completed an impressive new international wharf at Motukea Island north of Port Moresby at the end of 2010. Congestion at the ports is shifting more goods from sea to air freight. This can also result in delays, albeit in days rather than weeks, when there is simply not enough room on the plane for all the cargo destined for PNG.

‘We’re bursting at the seams,’ reports Mark Schell, Country Manager for DHL in PNG. The company plans to relocate to a new facility three times larger than its current one in 2013.

Law and order

Naturally, PNG’s recent political upheavals have only served to heighten concerns in the international business community about the country’s law and order situation. Security is one of the largest private sector employers in PNG, and adds a major overhead to most businesses. If the expenditure is unavoidable then according to Mike Day, Managing Director of G4S, at least the risk can be significantly minimised with the right behaviour:

‘For instance, know how exactly you are going to reach your destination, avoid certain areas, don’t travel alone at night. We provide a detailed security briefing to our clients to help keep them safe.’

The UK-based company is in the process of building a new head office complex in Port Moresby that will enable it to deploy state-of-the art technology to support its blue-chip clientele.

Outage outrage

‘Unreliable utilities’—specifically power, telecommunications and water—was one of ‘critical issues facing your business in 2012’ in the inaugural Business Advantage PNG 100 CEO Survey. Not only is electricity costly by international standards, but power cuts are frequent. Large companies invariably invest in back-up generators, while SMEs simply factor resulting lost productivity into their business plans.

Interruptions in the supply of water and power and outages in fixed line telecommunications networks present a particularly tough operating environment for local manufacturers.

‘We go through about 30,000 litres a day of water and we had no option but to invest in a back-up supply system even though it represented a big investment,’ says K K Kingston’s Michael Kingston.

Improving internet access

While new 3G mobile phone networks have provided a welcome alternative to landlines over the past four years, internet access remains costly and slow. This situation is likely to improve over the next couple of years, however, as a result of the deregulation of the ICT sector. Internet service providers such as Daltron and Remington are currently investing in new C-band satellite equipment that will increase download speeds and more reliable, expanded coverage in remote areas.

This article first published in Business Advantage PNG 2012/2013