Business Advantage Papua New Guinea
Manufacturing
Papua New Guinea’s manufacturers are finding different methods to deal with tough market circumstances.
PEOPLE ARE TAKING MANUFACTURING INDUSTRIES OF A SIGNIFICANT SCALE INTO THE HEARTLAND. Chey Scovell
The strategies business leaders adopt in difficult economic circumstances determine both the company’s capacity to survive and ability to benefit when the economy improves.
Many of Papua New Guinea’s manufacturers are facing just such a period. Some are employing highly defensive strategies; others are more prospective.
‘You are just more conservative,’ says Stan Joyce, Managing Director of SP Brewery, PNG’S largest brewer. ‘You protect what you have got, which is still a lot more than what we had before we started out on this wonderful journey. We will wait for the next wave to come through.’ Commodity prices Manufacturing accounts for about seven per cent of PNG’S GDP, according to the International Monetary Fund. The economy’s heavy dependence on resources industries means that the fate of manufacturers is heavily affected by what happens in the global commodity markets.
Nowhere is this more evident than in the availability of foreign exchange. Chey Scovell, Chief Executive of the Manufacturers Council of PNG says some PNG manufacturers are struggling because they cannot source their inputs.
Michael Kingston, Chief Executive of KK Kingston, says getting foreign currency is the number one issue. ‘The biggest challenge on everyone’s lips, and we are no different, is foreign exchange—obtaining sufficient foreign currency to pay our raw materials suppliers,’ he says.
‘ We are a fairly diverse company so there is quite a long list. We are not just grinning and bearing it, we are trying to find solutions to make the situation a bit more bearable.’
At the same time, some manufacturers are benefitting from the lack of foreign exchange as PNG companies and customers pursue local options. ‘ We have clients who don’t want to go through the hassle of getting the foreign exchange,’ says Frank Mcquoid, Chairman of steel fabricator Steel Industries.
‘ We have five new indigenous manufacturers of saveloys located throughout the Highlands— something we have never really had before,’ Scovell tells Business Advantage
PNG. ‘People are taking value-added and manufacturing industries of a significant scale into the heartland where people are. It is really positive.’ The kina Mikael Ruben, Managing Director at paint manufacturer Akzonobel PNG, says the level of the kina affects his company’s profit margins. ‘ We pay in US dollars, so that means that everything will become much more expensive,’ he says.
‘ We have several expats working in the company who get paid in foreign currency, so of course if the kina weakens that is also an additional operational cost.’
Joyce says one response is to move to local suppliers when possible. ‘There is no doubt we are doing that, you can do those things to mitigate it.’ Infrastructure The quality of infrastructure is an area of great concern to manufacturers, although Scovell says there have been many advances, especially with the roads. He says the government has invested in infrastructure ‘really for the first time since Independence’.
Ruben says the problems are ongoing. ‘ We have all the infrastructure matters: power cuts, water shortages, and high operational
costs, shipping around the country to our customers,’ he says. ‘That impacts on all the operational challenges of the company.’
Joyce agrees, pointing especially to the high cost of the internet and the lack of consistent power. ‘There are always logistical challenges. The Highlands Highway is another one.’ Different strategies The approaches of PNG’S manufacturers differ depending on the nature of their business and their position in the market. Jean-michel Lejeune, General Manager at Goodman Fielder PNG, says the company is taking a long-term view and embracing a counter-cyclical strategy.
Ruben says Akzonobel is looking to regain market share that it lost during the construction of the PNG LNG project, when other competitors entered the market.
Kingston says K K Kingston’s mix of offerings provides a ‘useful hedge’. ‘When mining is down, fortunately our exposure to the more general consumer market and the general commercial industrial markets acts as a nice buffer against the downturn in the mining sector.
‘That said, when there is a downturn in the mining sector it eventually flows through to the consumer sector and the commercial and industrial sector as well.’
Scovell says many manufacturers developed inefficiencies during the boom, which they are now addressing. ‘This downturn has put them in a position where they have had to maximize all their efficiencies—invest a little bit more in upskilling some of their people so they can improve their productivity a little bit.’