PNG’s small but mighty manufacturing industry
Manufacturing in Papua New Guinea represents a comparatively small part of the economy. According to the World Bank, it constituted just two per cent of GDP in 2017, although other estimates put it between six and 11.5 per cent.
On the export side, the strongest performer is palm oil. According to the Bank of Papua New Guinea, palm oil exports rose by 180 per cent between 1998 and 2016.
Yet if the manufacturing sector is small, there is nevertheless some spirited activity.
One example is Pacific Foam, which claims to be the largest diversified packaging supplier in PNG. “We can meet all the packaging needs of the various sectors of the growing PNG economy: retail, wholesale, fast-moving consumer goods manufacture, food and beverage manufacture, agriculture, fisheries, construction, mining and resources, hospitality and catering,” says chairman Nihal Shah.
“While economic conditions are definitely very tough in the country today, Pacific Foam Group does see a bright long-term future and continues to invest in its manufacturing capabilities to grow its business and help the national goal to reduce reliance on imports.
“Today, we are a vertically integrated manufacturer with products that are proudly PNG-made and proven in the marketplace.”
Another prominent player is SP Brewery. General manager, Stan Joyce, says managing economic volatility is essential in PNG.
“If you’re planning a manufacturing business in PNG, you have to accept that the nice little 2–2.5 per cent growth that the economists and all those wonderful people in suits on the other side of the world want to have happen, won’t always be the case in PNG.
“Sometimes I go to meetings and tell the bosses about a 10 per cent growth in sales and they’re wondering how you did it. When you’ve got to explain a 15 per cent drop they want to know what you’re not doing. But you need to have that long-term view.”
Many manufacturers in PNG are overseas companies.
For example, KraftHeinz has two factories in PNG producing corned beef. In 1988, the company purchased the Hugo Canning Company and it has distributed from the Port Moresby warehouse since 2011. It also exports to the Solomon Islands and Vanuatu.
The Australian company Rhodes has a manufacturing and logistics plant in Port Moresby. Managing director, Emanuel Papas, says the company is geographically spread, with procurement and manufacturing operations in China, a back-end design office in the Philippines, a head office in Australia and local operations for each project.
Papas says establishing operations in PNG takes time, but once established it is relatively secure because of the high barriers to entry.
Some companies find conditions difficult, however. The paint manufacturer Akzo Nobel has pulled out of local manufacturing, citing high overheads. Although PNG labour is affordable, the other costs can be high.
The foreign exchange shortage is posing a challenge for many PNG businesses, including international manufacturers. But it can benefit the local players, according to Chey Scovell, chief executive of the Manufacturers Council of PNG.
He notes that it is opening up gaps in the market, especially in the fast-moving consumer goods space.
Frank McQuoid, chairman of steel fabricator, Steel Industries, says that many clients prefer to pay for their product in kina. He says, however, that it will be difficult for PNG manufacturers to survive without greater protection, observing that “the vast majority of imports into PNG are duty free”.
Many local PNG manufacturers are building on the advantage PNG has in agricultural produce.
According to Canadian vanilla supplier Aust & Hachmann, PNG is one of the premier producers of vanilla beans, and essence is locally manufactured. Another using this strategy is Ernestine Maxtone-Graham, director of MaxtoneHaus, who started a coconut oil processing plant at Kanudi in Port Moresby in 2015, buying copra from local farmers along the coastal villages in the Abau District of Central Province. MaxtoneHaus says it initially bought sun-dried coconuts, but then began purchasing whole coconuts and air drying them. The shell is used for fuel, the meat is pressed for oil and the remaining meal is sold to piggeries. “There is no wastage,” says MaxtoneHaus. Another option is to manufacture offshore using PNG raw materials. Papua New Guinean, Pana Wiya, principal of Village Coffee, is located in Sydney, Australia. He imports beans from Wau in Morobe Province, and the Eastern Highlands, then roasts them for the Australian market.
While economic conditions are tough in the country today, Pacific Foam Group does see a bright future and continues to invest in its manufacturing capabilities to grow its business and help the national goal to reduce reliance on imports.
Hard at work … (from top, clockwise) making ice cream at Laga Industries; Chey Scovell, the chief executive of the Manufacturers Council of PNG; beer from SP Brewery; PNG springs.