Papua New Guinea is on the verge of stronger growth after a number of quiet years. Michael Kingston, Chief Executive of diversified manufacturer K K Kingston, shares with Business Advantage PNG the lessons he learned from the country’s last boom.

Lae-based manufacturer K K Kingston. Credit: Rocky Roe

K K Kingston is a diversified company that manufactures plastic products, cleaning products, mining reagents and bulk commodity chemicals, and has a cooking oil packaging business.

According to CEO Michael Kingston, the FMCG [fast-moving consumer goods] sector is experiencing the fastest growth currently.

‘The bulk of our sales are under our own brand names,’ Kingston says.

‘A lot of companies are looking at manufacturing locally, whereas previously the trend was the opposite—people were getting out of local manufacturing and offshoring.

‘Some of the tariffs have had an impact. Until recently, we were probably the last domestic bottler of cooking oil left.

‘Now there are four, maybe five, who are bottling locally.

‘My concern is that the boom that is going to happen with Wafi-Golpu and Total … may make our government once again see dollar signs associated with resource driven growth, and forget manufacturing and agriculture’

‘There was a period when there was less competition as people adjusted to the new legislative framework but the new productive capacity is now coming on stream and of course there is a lot more competitive pressure.’

Kingston says the difficulty in getting foreign exchange was also an influence in encouraging manufacturers to come on shore, but he notes that foreign currency shortages not only affect finished products.

‘Most raw materials we use are imported and it is still challenging to get foreign currency to pay for those raw materials on time.’

Lessons from the last boom

Michael Kingston

Kingston says the probable start up of new resource projects, notably the proposed Wafi-Golpu gold-copper mine and the Papua LNG gas project, will positively affect his business.

But he has learned some lessons from the last boom and is keen to avoid previous mistakes, when he allowed the ‘cost base to grow too quickly.’

‘We over-invested in assets and capacity that we didn’t really need, and we took on too much debt in anticipation of sustained growth that didn’t eventuate.’

This time, he says, he is aiming to keep his overheads constant, or even reduced.

‘I am focusing keenly on producing products at a lower cost-per-unit than previously by trying to do more with less.’

He is avoiding additional investment, reducing debt and looking to eke out more efficiencies and more productivity from the labour force, and ‘the assets we currently operate.’

Careful approach

Kingston, an economist, believes PNG must be careful in the way it approaches resource booms.

He says resource-driven growth tends to coincide with an increase in the Gini coefficient, a measure of the wealth gap between those who have and those who have not (the higher the coefficient, the greater the gap).

‘In countries that develop using a different model—we can look to East Asia where manufacturing has been a driver and could equally be a driver in PNG—the approaches to development tend to be far more inclusive.

‘In economies that have followed the path of import substitution industrialisation; followed by export-oriented industrialisation; followed by domestic consumption-driven growth, one usually sees a much more even distribution of rewards and economic benefits.

‘New productive capacity is now coming on stream and of course there is a lot more competitive pressure.’

‘My concern is that the boom that is going to happen with Wafi-Golpu and Total [the Papua LNG project] may make our government once again see dollar signs associated with resource driven growth, and forget manufacturing and agriculture—which are the biggest employers in the country.

‘The state could change the focus of their policies on investment and tax benefits to again focus on the resource sector, which would be a grave error in my opinion.

‘The changes they have made to fostering manufacturing and agriculture are long overdue. I hope that they continue to stick with those policies.’