OBG talks to Murray Woo, Chairman, Manufacturers Council of Papua New Guinea

 Interview: Murray Woo

How can manufacturing in PNG remain competitive while production costs remain relatively high?

MURRAY WOO: There is no doubt that production costs are high due to poor infrastructure, distribution costs, telecommunications, and security and so on. However, some companies have turned to automation and diversification in their business models to remain competitive, and the sector is trying to convince the regulators that we do not want import tariffs to be reduced further. In addition, the government needs to help mitigate the social and economic impact of competitive manufacturers potentially being forced out of the market, which could give rise to unemployment and social unrest. Firms that are no longer competitive will not remain in business.

To what extent do businesses in PNG export, and what are the major challenges they face?

WOO: Most manufactured products here in PNG are for internal consumption and import replacement. Therefore, the level of penetration of PNG products in overseas markets is not significant. The companies that are successfully exporting overseas face multiple challenges including product testing onshore, turnaround time in export documentation, biosecurity and other regulatory issues. The palm oil and coffee industries are the leaders in manufacturing exports and will continue to see demand outstrip their supply capacity. Once infrastructure and internal regulatory constraints are addressed, the export potential for a number of other food and lifestyle-based products will see strong growth.

Which new international markets offer PNG’s manufacturers the most potential for their products?

WOO: Despite the global gloom at this time, especially in Europe, fish offers potentially lucrative export opportunities to this region. The Pacific region of small island states afflicted by the tyranny of distance and small economies where PNG is comparably large, shall continue to offer lucrative potential for exporters.

Despite the political support given by Australia and New Zealand via their Pacific Agreement on Closer Economic Relations Plus agenda, the stringent biosecurity requirements and technical barriers to trade will ensure that the exports focus for PNG manufacturers is on the EU, US and Asian markets.

What infrastructural improvements are required to help boost the manufacturing industry?

WOO: At the council we talk about the importance of availability, reliability and affordability. Power, water and transport-related infrastructure are all in need of urgent attention. We have been working with the government and international partners on trade-related infrastructure, which all agree is critical not only for local industry but all commerce-related activity. Ports and power need immediate attention. Once these are available, improving their reliability and affordability would likely make the biggest impact on development.

How well diversified is the manufacturing industry, and is there a danger of overdependence on energy and mining sectors?

WOO: Our manufacturing industry is neither dependent nor reliant on the liquefied natural gas (LNG) and mining sectors. LNG and resource projects have increased the level of employment of foreign and local workers. However, beyond their general consumer spending on foodstuff items, local industry has seen little growth in demand driven by this sector. The bulk of demand and growth continues to come from the general domestic market. Prior to large discoveries of energy and mining resources, PNG had been fortunate enough to have a relatively diverse manufacturing industry. However, as previously mentioned, the poor state of infrastructure, unavailability of services and unclear regulatory environment have not supported labour-intensive or large industries. The increasing penetration of cheaper imported goods has been largely responsible for the decline in local manufacturing.