Demand grows for construction supplies produced in PNG

In the absence of a well-developed local manufacturing base for building materials, Papua New Guinea’s construction sector has largely depended on imported materials over the years, which has translated into high costs and slow development. However, recent government policy changes geared towards reducing imports of capital goods and encouraging self-sufficiency could be a boon for domestic producers, which should help to lower operating costs for the sector over time.

Despite the overall lack of capacity, there are some established segments, including water tanks and steel products. Notably, the country has access to significant supplies of lumber, and local cement production is considered strong. The PNG Taiheiyo Cement factory in Lae, for example, has the capacity to produce 200,000 tonnes of cement per year. Monier, which was owned by Steamships Trading Company until 2005, produces ready-mix, pre-stressed, reinforced and precast concrete and masonry. In 2006 the company’s Nebiri Quarry in Port Moresby increased its annual capacity from 300,000 tonnes to 1m tonnes. The firm also supplies aggregate, sand, rock, road base and fill.

According to some industry players, local construction firms could source more of their required materials domestically, and it is possible to find products that meet local, New Zealand, Australian and international standards. “Transportation and timeliness may be difficult factors to manage, but most of the necessary products are available in PNG,” Richard McGuinness, managing director of Hausman Building Solutions, told OBG. “However, the government should put more incentives in place to support local industries.”

Imports

Currently, the majority of construction materials are still imported. Due to PNG’s proximity to Australia and New Zealand and their high quality of supplies, as well as Asia’s lower costs and economies of scale, companies are often compelled to import materials from overseas. Even though foreign suppliers may offer construction materials at a lower cost, the lack of foreign exchange available to pay for imports makes international purchases problematic. This shortage has been the main driver of demand for domestic building materials, though the sudden surge has also highlighted the country’s limited capacity. The trend of construction companies increasingly sourcing their materials domestically has resulted in a deficit of many products, with concrete being a notable exception.

State Support

As a result, the government has prioritised the materials manufacturing segment, tasking the National Housing Corporation with supporting the development of building materials-related businesses as part of the department’s broader purpose of facilitating the supply of affordable housing. Additionally, a study released by the National Research Institute in 2017 recommended that the government allocate more funds to research and development into the increased production and use of local building materials. However, no specific government policies or projects to this end had been released as of August 2018.

In addition to increasing local supply, trade policies could help ease import costs. The Tariff Reduction Programme, which was instituted under the guidance of the World Bank in 1999, was suspended in phases by the government in 2017 and 2018, with some tariffs being raised. Still, the import rates for many materials have been relatively low in recent years. Building blocks and bricks, for example, have been tariff-free since 2011, while duties on prefabricated structural components fell from 25% to 15% in 2015, and are set to decline to 0% in 2018. It has been suggested that rather than increase tariffs, the government should provide a tax credit to companies that produce building materials locally.