Ian Clough, Chairman, Brian Bell Group: Interview

Interview: Ian Clough, Chairman, Brian Bell Group

How do you view the growth prospects of Papua New Guinea’s retail industry in 2018?

IAN CLOUGH: I think the trend of the last few years will remain in the medium term. While there was a lot of optimism for 2018 because of energy and mining projects set for commencement, a number of these have been pushed back; therefore, we expect a limited number of big opportunities. Retail firms are looking for existing projects they can supply to, but economic activity and retail spending have been low. Despite the economic boost expected from hosting APEC in 2018, short-term sector upswings will be minimal.

Another challenge is the enforcement of regulations. There is discussion of retailers operating illegally or not working with the same guidelines as the rest of the market. Many long-standing and larger retailers have to compete with those not paying taxes, training staff or following guidelines, while contributing to their communities and meeting their obligations. In some cases, duties are over 30%, giving these questionable operators a distinct advantage. The government and regulators are doing what they can to enforce regulations; however, the problem remains significant. Resolving this will depend on the government being able to protect the market and secure tax revenue.

What circumstances are incentivising the country to become more self-sufficient?

CLOUGH: Local supply chains are important, and there is a lot of potential in that area. PNG is a very fertile country, so its agriculture should benefit food retailers. In terms of self-sufficiency, I also think about secondary manufacturing products, which are crucial to local consumers, such as furniture, pots, pans and plastic tools. Retailers have an obligation to source the best products for their customers with a focus on sourcing locally, as customers become aware of local products.

The shortage in foreign currency is also forcing companies to have a more inward look. Retailers have difficulty getting their products into the country, and sometimes it takes 70-80 days to get foreign currency, which makes strong relations with banks and suppliers a necessity. At the same time, you have to ensure that you source effectively to protect pricing and offer your customers great value. Value isn’t just about price.

Regulation is also critical. Foreign firms need to work with local partners to ensure they provide an ongoing legacy. In many cases, you see these firms bring their own materials, suppliers and workforce. When the project is over, they leave and take everything with them.

How have consumer trends in PNG evolved?

CLOUGH: Out of the 8m citizens, some 6.5m are subsistence farmers. This means that the retail market either actively supports agriculture or competes heavily for the remaining share. This “middle class” needs continued support, as it is growing, but not as quickly as the number of competitors. The tastes of consumers are changing. PNG is a young market and education has improved: consumers are now more aware of brands and digital technology. The country is in the top-20 Facebook users per capita. For these reasons, we see a lot of potential in the e-commerce segment, which is now mainly focused on niche products. Though the desire to buy online is there, secure payment, and cost and quality of data and logistics remain challenges.

Advertising is targeting Papua New Guineans under the age of 35, who are more concerned with quality and brands when buying products to furnish their houses. Due to this demand, value chains are improving, but the cost of living remains high. Thus, affordable housing is being sought outside of Port Moresby. Mount Hagen in particular is growing fast. This region is home to some 40% of the population. Lae and Kokopo are also attracting interest. Despite their potential, logistics remains a big issue in these remote areas. Prices are sometimes 30-40% higher because of transport costs; however, the Highlands Highway project could change this.