Mahesh Patel, Managing Director, CPL: Interview

Interview: Mahesh Patel

What is the short- and medium-term outlook for the retail sector in Papua New Guinea?

MAHESH PATEL: The retail sector will continue to grow as the population grows, although the pace is currently slower than it should be. PNG is still very dependent on its natural resources, such as liquefied natural gas and mining products, and low commodity prices have had a significant impact on the market. There is also a lack of diversification and job creation. Future growth of the sector depends on the amount of money generated by developments currently taking place, such as resource projects. While challenges remain, we are certain that we will make progress in 2019 and recover from the setbacks of the previous year, such as challenges due to the organisation of APEC and the impact of the May earthquake.

Nevertheless, when making investment decisions, it is important to also look at the long-term picture. This is more positive, given the potential of resource projects and agricultural development, and the results of the government’s efforts to improve organisation and diversification. New jobs are also set to be created in the years ahead as PNG’s promising downstream development continues and digital technology accelerates. Although this may take some time, progress is imminent and it will be permanent. Around 50% of the population is below the age of 20, providing a young consumer base that is hungry for digital development.

How do you assess government strategies to limit counterfeit products and illicit trading?

PATEL: At the moment there is not a clear strategy to limit counterfeit products or illicit trading. The creation of a Customs task force is a positive step, but this needs to extend across the entire ecosystem, from border checks to policing, although it is impossible to assess the exact size of the illicit trading market. The counterfeit market, which includes the copying of intellectual property (IP) and the import of fake products from abroad, is growing quickly and poses one of the biggest challenges to PNG’s retail and manufacturing sectors. There are no regulations in place to protect IP, meaning that designs can easily be replicated at an inferior quality and lower price. There is also a challenge posed by shops, which can circumvent goods and services tax. The lack of enforcement against these outlets can put domestic companies at a disadvantage as they operate under different regulations. However, it may also encourage local companies to offer better quality products in order to compete in this imbalanced market. These examples show that it is important for there to be a multi-agency approach to limiting counterfeit and illicit trading, not just in PNG but across the world.

Which measures have been put in place to incentivise self-sufficiency, and what more can be done?

PATEL: Duty protection has been introduced to encourage domestic manufacturing and boost local job creation. However, when supporting local producers, such as farmers, obtaining regular and consistent supplies can be a challenge. There are high-quality products made in PNG, but transport and logistics can create difficulties. For example, we often charter aeroplanes to receive products from within the country, which creates added costs.

PNG should consider creating a central buying agency, as has been developed in some other emerging markets. This would protect local farmers in the sale of their produce, making it easier to buy domestic products. Additionally, prices would be reduced and new jobs would be created. Infrastructure incentives, such as roads and electricity, are also important. Power fluctuations result in damage to perishable products, even in the case of back-up generators. The foreign currency shortage – despite its negative impact in other areas of the economy – also showed retailers that a range of products are able to be sourced locally.