Despite being overshadowed by the natural resources sector, manufacturing adds tremendous value to the Papua New Guinea economy, as Rod Myer discovers.

Credit: K K Kingston/Rocky Roe

With PNG experiencing economic growth of above five per cent in recent years and manufacturing employing up to 25% of the nation’s formal workforce, the country’s factories are perhaps the unsung heroes of PNG’s rising wealth and manufacturers are feeling positive about their prospects.

‘I anticipate five-to-10 years of solid growth in PNG, driven by the expanding middle class,’ says Aarish Shah, Managing Director of Pacific Foam, which has been manufacturing furniture, homewares and packaging in Papua New Guinea since 1978. While Shah expects growth to be slightly lower than the ‘extraordinary’ levels experienced in the last three or four years, there is still plenty of upside and it’s not all based in resources.

‘The PNG LNG [liquified natural gas] project has been in a way a red herring. It certainly kick-started growth around Port Moresby but a lot of growth in other areas has come from soft commodities like coffee and cocoa, as well as the expansion in manufacturing and other sectors leading to job creation and higher family incomes,’ he says.

Job creation

Lae Biscuit Company’s factory in Kamkumung, Lae

The industrial growth in recent years has not just been in profits; it is filtering down to the cities and towns of PNG through job creation, investment and import substitution. Shah says Pacific Foam has increased its workforce from 250 to 300 in the last three years and the opportunities for the company will continue.

‘We employ about 500 people and that number rose by 80 last year,’ says Phil Kelly, General Manager of diversified food and condiments manufacturer, Laga Industries. Laga has experienced growth of 15% a year in recent years, he says.

Meanwhile, Lae Biscuit Company’s Chief Executive Officer Ian Chow is building his business on the back of its recent 65 million kina (US$31 million) investment in a new factory at Kamkumung in Lae. The facility doubled the workforce in Lae to about 450 people and provides some of the best wages and conditions for manufacturing workers in PNG.

Michael Kingston, Managing Director of K K Kingston, is another who says manufacturing is making a significant contribution to thelives of ordinary Papua New Guineans. ‘After the construction phase, the ExxonMobil LNG project is expected to provide about 800 long-term jobs for the life of the project. We currently employ 800 people, so in terms of employment our contribution is not so different. Most manufacturers employ a substantial number of people,’ says Kingston.

Responsive to local needs

K K Kingston is a diverse manufacturer, producing chemicals, paper products, food containers, tanks and storage bins. Michael Kingston says the manufacturing sector’s contribution to PNG goes beyond the immediate economic effects in ways not well understood.

Firstly, there’s the skills base. ‘We’ve had a large number of people complete apprenticeships here who either stay with us and contribute or go onto bigger and better things. Manufacturing adds to the human capital of the country.’

‘Then there’s responsiveness. If someone orders a specific product from Asia, it might take eight weeks to get here while we can do it in two. Local manufacturers also have the ability to tailor-make products for local needs,’ Kingston says. Getting consumer goods and food to the stores in PNG quickly from local manufacturers means they have a longer shelf life, cutting inefficiency and waste, he says.

Putting back into the community

The iconic Flame brand of flour is produced in PNG by Goodman Fielder

Manufacturers are also heavily involved in community building with their products and resources. ‘We put 40 litres of ice-cream a week into the [Lae hospital] cancer ward and we sponsor different sporting activities,’ says Laga’s Phil Kelly. ‘When the Rabaul Queen sank [in February 2012] and hundreds of people came to Lae for medical treatment and were living in tent cities, we supplied the army with clean water [produced at the company’s factory] for a month.’

Manufacturers Council of PNG Chief Executive Officer Chey Scovell observes that more than half of his members made contributions to the community (in sponsorships, grants, etc) in excess of half a million kina per annum (US$235,000), with about 10% of members giving more than 1.5 million kina (US$706,000).

Major new investment

Industry is reinvesting in PNG to ensure it can harness further benefits as the economy grows and becomes more sophisticated. And the investment is coming from both local and multinational firms.

‘We’ve just opened a production facility in Port Moresby that became fully operational in February 2012,’ says Coca-Cola Amatil’s (CCA’s) PNG General Manager Peter Carey. ‘Using the latest technology the new production line turns PET plastic preforms into drink bottles, fills them with carbonated soft drink, labels them, puts on tops and packs the finished product in one process. It represents a 34 million kina (US$16 million) investment for CCA.’

No other technology currently does things in that order. The new plant is running on one shift employing 15 extra people and it more than doubles our PET capacity. Last year, before we openedit, we were running at essentially full capacity and it has given us in Moresby a PET capacity we didn’t have before,’ Carey says.

This added capacity in Port Moresby is important because southern PNG represents about 40% of sales for the group. Now, CCA employs nearly 1000 people in PNG and the outlook is for more, with sales volumes for the company growing at 10% a year for the last five years.

‘Our major growth area is the Highlands, where a lot of resource development is going on and boosting income levels,’ Carey says.

Manufacturing investment is, naturally enough, being focused on PNG’s industrial heartland in Lae, Morobe Province. There, CCA has more spending in the pipeline, with a 230 million kina (US$108 million) redevelopment of its major Lae plant likely in the next five years.

S P Brewery is in the midst of a 150 million kina (US$71 million) expansion ‘that will add 40% to our output. We’re increasing the size of our factory and upgrading machinery,’ says S P’s General Manager Stan Joyce. With growing national income and beer consumption rates only half of the south-east Asian average (and 13% of Australia’s), there’s plenty of room for growth.

Michael Kingston says the big investment made by his company in recent years has changed the nature of the workforce, increasing skill levels and cutting manual work. ‘A filling line for bleach that used to run with 30 people now runs with five per shift and produces three times as much output. In terms of quality and safety, automation is the future,’ he says.

Meanwhile, Lae Biscuit Company is projecting growth to 2015 and beyond, and is building on its investment with the introduction of new products: ‘We’ve just launched a new coconut snack product in the last month or so and there is strong demand in the market,’ says Ian Chow.

Finding ways to cope

S P Brewery’s Stan Joyce

A lack of skilled labour remains a significant constraint for industry development in PNG but business finds ways to cope. ‘We’re investing in graduate management projects and overseas training projects,’ says S P Brewery’s Stan Joyce. ‘Our workforce is 97% local and there are Papua New Guineans in senior management,’ he says.

Woefully inadequate infrastructure in areas such as ports, roads and power is a serious constraint which helps produce ‘a general environment for manufacturing in PNG that is expensive,’ says Joyce.

Laga’s Kelly agrees: ‘We’ve got very expensive and unreliable electricity so we’ve had to invest in a huge 75 kVA uninterrupted power supply to ensure production reliability and protect electric motors in the plant,’ he says.

There is some light at the end of the infrastructure tunnel, with improvements to roads around Lae and the awarding of the 700 million kina (US$330 million) contract to China Harbour Engineering to redevelop the Lae port.

‘That will make an enormous difference to all manufacturers,’ says Michael Kingston.

Papua New Guinea’s Top Export Markets

1. Australia 6872.6 million kina

2. Japan 2273.4

3. Philippines 1188.3

4. China 985.3

5. Germany 940.9

6. Netherlands 836.9

7. South Korea 401.4

8. Great Britain 322.3

9. United States 275.5

10. Italy 267.8

11. Spain 253.1

12. Malaysia 236.2

13. Singapore 146.9

14. Belgium 42.6

15. Taiwan 34.8

Source: Bank of PNG (2011 figures)

This article first published in Made in PNG 2012