Foreign exchange shortages open up opportunities for Papua New Guinea’s manufacturers

The difficulty in getting foreign exchange is making goods made in Papua New Guinea more attractive, local manufacturers tell ‘Business Advantage Boardroom’, which aired last night on national broadcaster, EMTV. But a lack of protection against cheap overseas competition remains a problem.

‘We have clients who don’t want to go through the hassle of getting the foreign exchange,’ says Frank McQuoid, Chairman of steel fabricator, Steel Industries. ‘They know when they come to our company they can pay for their product in PNG kina.’

‘My competition from Fiji you hardly see on the shelves now,’ observes Ernestine Maxtone-Graham, founder of MaxtoneHaus, a company that makes beauty products from PNG-produced coconut oil.

From Left: Frank McQuoid, Ernestine Maxim-Graham, Chey Scovell and Andrew Wilkins Source: Business Advantage International

From left: Frank McQuoid, Ernestine Maxtone-Graham, Chey Scovell and Andrew Wilkins on ‘Business Advantage Boardroom’, a co-production of EMTV and Business Advantage International

Chey Scovell, Chief Executive of the Manufacturers Council of PNG agrees PNG’s currency situation is creating gaps in the market for local manufacturers:

‘A lot of the fast-moving consumer goods (FMCGs) are where the local manufacturers are really going gangbusters—and smallgoods manufacturers as well.

‘We have five new indigenous manufacturers located throughout the Highlands.’

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‘Saveloys have had a big kick as well, although not so much because of the foreign exchange.’ Scovell says lamb flap prices, ex-New Zealand, have, in 18 months, had a fourfold increase in price.

‘People are making saveloys in PNG. We have five new indigenous manufacturers located throughout the Highlands. That is something we have never really had before: people taking value-added and manufacturing industries of a significant scale into the heartland where people are. It is really positive.’

Protection?

McQuoid says the solution to the cyclical swings of the economy is for PNG manufacturing to receive greater protection against foreign imports. He says the metal trades industry has about 20 per cent of the domestic market, with about 80 per cent being imported.

‘A growth of 10-15 per cent is well within the scope within the demand that we currently have.’

‘If we can get a bigger chunk of the market there is an opportunity, without any economic growth whatsoever, to be five times as large as we are now.

‘We know that that is not going to happen but certainly a growth of 10 to 15 per cent is well within the scope of the demand we currently have.’

A new housing project near Eight-Mile, just outside of Port Moresby, launched last month. Credit: PNG Loop

A new housing project near Eight-Mile, just outside of Port Moresby. Credit: PNG Loop

McQuoid says the vast majority of imports into PNG are duty free. ‘Any project that is large enough and wants duty free protection goes to the National Executive Council, say: “It is in the national interest to lower our costs,” and in come (duty free) imported goods.

‘You can stand at the airport and look out and you can see a whole new city out there: 5,000 new houses. How many came from China? This is an issue that should be looked at.’

Housing

Scovell says the local industry has the capacity to meet demand. He says PNG companies providing prefabricated houses in either timber or steel are currently producing 800 to 1200 homes a month.

‘That relies entirely on the government not rewarding a contract to two or three importers to import 98 per cent of the houses. Then you won’t have an industry for PNG.’

‘The government has plans to roll out 100,000 in the first year, getting up to 300-400,000 per annum. At the moment, they look at local industry and say: “We have to import them from overseas because the local industry can’t meet the demand”.’

Scovell says there has been commitment from the government to use local companies. ‘We know that, in about 12-to-18 months PNG companies—as well as new entrants that we don’t know about that come in—could increase their output to about 8,000-10,000 per month.

‘That relies entirely on the government not rewarding a contract to two or three importers to import 98 per cent of the houses. Then, you won’t have an industry for PNG.’

Quality

Scovell says that PNG quality standards are mostly sound, unlike many of the imported products. ‘We even have issues with bridges coming into the country under the guise of meeting Australian standards that don’t meet the standards. You can get them made locally more affordably and which meet the standards.’

‘I am very proud that if you get coconut from PNG it is good coconut oil.’

Scovell says Maxtone-Graham’s coconut oil products are regarded internationally as the ‘Maserati’ product.

‘Everyone in the world is talking about it,’ says Maxtone-Graham. ‘The coconut industry itself is looking at ensuring that the coconut product that comes out of PNG does meet the quality standards. That, for me, is very important. I am very proud that if you get coconut from PNG it is good coconut oil.’

 

‘Business Advantage Boardroom’ is a co-production of EMTV and Business Advantage International and is broadcast quarterly as part of EMTV’s ‘Business PNG’ program.

Comments

  1. Rohan says:

    Something else that would make PNG goods relatively more attractive making the kina more competitive! (i.e. stopping the forex restrictions, widening or removing trading bands and allowing for depreciation), this would also ease the foreign exchange shortages and increase DOMESTIC competitiveness against cheap overseas imports by making the foreign imports relatively more expensive. And it would make PNG EXPORTS more competitive in the foreign market too. A depreciation of the kina could have the same impact as protection for domestic producers, except would be better for GDP growth. Stopping forex restrictions is a win win for local producers, the business councils and manufacturing councils should start advocating for this, it is clearly in their own benefit.

    We just saw in this Business PNG episode the benefit for local producers when imports become expensive or unavailable due to foreign exchange shortages. (Hopefully) the foreign exchange shortages will not last forever, so if domestic producers want to be able to compete against foreign imports in the long term, they should argue to increase the price of foreign competitors through foreign exchange competitiveness (depreciation). From a whole of economy perspective, this will be very much better for GDP and cheaper than imposing tariffs.

  2. Good for them But Coconut oil and steel cannot keep the PNG economy running. We need Fuel and Food.. Puma energy imports most of their fuel as with Trukai rice, shipping companies need to pay their bunkering payments to bring goods in & out of the country. Companies are laying off employees because sales have dropped. PNG is an Import based economy. End of Story.The government & Central Bank need to address this issue of foreign currency shortages, Who doesn’t say the local producers will just lift their prices once they get the monopoly? very poor coverage of the issue. The coverage should be around what is the government doing to address FX shortages

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