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Made in

PNG

Manufacturing Agribusiness Fisheries Forestry

2012

Showcasing Papua New Guinea’s produce and producers

www.madeinpng.com


Contents Foreword by Murray Woo, Chairman of the Manufacturers Council of Papua New Guinea...................................................... 4

FEATURES  NG’s manufacturers: adding value, adding skills................................................................ 6 P Despite being overshadowed by the natural resources sector, manufacturing adds tremendous value to the PNG economy.

Competitiveness and PNG goods......................................................................................... 14 PNG produce is in demand and home and overseas, what factors are influencing its competitiveness? K K Kingston, 40 years old and growing fast....................................................................... 16 It is all happening at K K Kingston, one of PNG’s largest manufacturers. The company may be turning 40 in 2012, but is evolving at a furious pace.

Twenty-five years of Nestlé in PNG..................................................................................... 24 From modest beginnings, the Swiss food giant is now a major employer in PNG. Nestlé Pacific Islands Managing Director Eugene David tells us what the future holds.

Improving PNG’s business environment............................................................................. 45 Papua New Guinea’s producers face many challenges in developing their businesses, although things are looking up.

SECTOR PROFILES

RESOURCES

Manufacturing...................... 18

Map of PNG’s provinces and their produce..................................... 26

Agribusiness......................... 28

Made in PNG directory of useful contacts and information........... 47

Fisheries............................... 36 Forestry................................. 41

PNG’s trade treaties......................................................................... 48 Profile of Lae, PNG’s industrial capital........................................... 49 Manufacturers Council of PNG members....................................... 50

This publication was made possible through the support of the following organisations:

R D Tuna

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Fo r e wo r d

Foreword by Murray Woo, Chairman Manufacturers Council of Papua New Guinea Welcome to the second edition of Made in PNG, your guide to the wide array of goods and foods grown, processed and produced in Papua New Guinea—and the people who produce them. When we launched this publication last year, the goal was to raise awareness of those sectors that provide most Papua New Guineans with their livelihoods. These sectors have tended to get overshadowed in the international business media by PNG’s dynamic mining and petroleum sectors, yet it is agribusiness, fisheries, manufacturing and forestry that will be critical if PNG is to achieve a genuinely diversified and resilient economy. As you will see in these pages, PNG already has much to be proud of in these areas. In agriculture, we lead the world in the production of sustainable, traceable palm oil, while our cocoa and coffee and other commodities are in demand globally. Our rich fisheries produce roughly 17% of the world’s tuna catch, supported by a fast-growing onshore processing industry. Meanwhile, sustainable forestry practices

Made in PNG is published by Business Advantage International Pty Ltd, Level 27, Rialto South Tower, 
525 Collins St, Melbourne, Victoria 3000, Australia, tel +61 3 9935 2977, fax +61 3 9935 2750
 www.businessadvantageinternational.com This publication is available free online at www.madeinpng.com. Additional printed copies can be purchased for AUD$35.00 (incl GST and postage) from the above address or by emailing info@businessadvantageinternational.com.

and value-adding activities are allowing PNG to make the most of its vast forestry resource. In my own sector—manufacturing—major investment is occurring across the board, as local manufacturers respond to increased domestic demand in PNG; demand driven by years of strong economic growth, increased employment opportunities and an encouraging investment outlook. Not only are we supplying import replacements for many products; we are also increasingly looking to export markets. The response to Made in PNG from buyers, decisionmakers and business people has been so positive I am pleased to announce that it will now become an annual publication. I’m sure you will agree once you have read through these pages that there is some great news to tell the world about what we make and produce here in PNG. The Manufacturers Council of Papua New Guinea remains pivotal to achieving a favourable business environment in PNG. With your support, the MCPNG will continue to assist businesses in leveraging many more opportunities in the future.

Published in partnership with the Manufacturers Council of Papua New Guinea.

Business Advantage International would like to thank Murray Woo and Chey Scovell of the Manufacturers Council of PNG and Alan McLay of the Lae Chamber of Commerce and Industry for their kind assistance on this project.

© Copyright 2012 Business Advantage International Pty Ltd Project Director: Robert Hamilton-Jones (rhj@businessadvantageinternational.com) Publishing Director: Andrew Wilkins (aw@businessadvantageinternational.com) Editorial: Tim Coronel, Samantha Magick, Rod Myer Design: Alicia Freile Cover images: New Britain Palm Oil Ltd, Pacific Islands Trade and Invest, AkzoNobel, K K Kingston

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DISCLAIMER Made in PNG is a general guide to some potential business opportunities in Papua New Guinea’s productive sectors and is not designed as a comprehensive survey. The opinions expressed herein are not necessarily those of the publisher and the publisher does not endorse any of the businesses or products featured, nor does it accept any liability for any costs or losses related to dealings with entities mentioned in this publication. Readers are strongly advised to pursue their own due diligence and seek relevant advice before making any business or investment decisions.


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Credit: Rocky Roe/K K Kingston

PNG’s manufacturers: adding value, adding skills  espite being overshadowed by the natural resources sector, manufacturing adds D tremendous value to the PNG economy, as Rod Myer discovers. With PNG experiencing economic growth of above five per cent in recent years and manufacturing employing up to 25% of the nation’s formal workforce, the country’s factories are perhaps the unsung heroes of PNG’s rising wealth and manufacturers are feeling positive about their prospects. ‘I anticipate five-to-10 years of solid growth in PNG, driven by the expanding middle class,’ says Aarish Shah, Managing Director of Pacific Foam, which has been manufacturing furniture, homewares and packaging in Papua New Guinea since 1978. While Shah expects growth to be slightly lower than the ‘extraordinary’ levels experienced in the last three or four years, there is still plenty of upside and it’s not all based in resources. ‘The PNG LNG [liquified natural gas] project has been in a way a red herring. It certainly kick-started growth around Port Moresby but a lot of growth in other areas has come from soft commodities like coffee and cocoa, as well as the expansion in manufacturing and other sectors leading to job creation and higher family incomes,’ he says.

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Job creation The industrial growth in recent years has not just been in profits; it is filtering down to the cities and towns of PNG through job creation, investment and import substitution. Shah says Pacific Foam has increased its workforce from 250 to 300 in the last three years and the opportunities for the company will continue. ‘We employ about 500 people and that number rose by 80 last year,’ says Phil Kelly, General Manager of diversified food and condiments manufacturer, Laga Industries. Laga has experienced growth of 15% a year in recent years, he says. Meanwhile, Lae Biscuit Company’s Chief Executive Officer Ian Chow is building his business on the back of its recent 65 million kina (US$31 million) investment in a new factory at Kamkumung in Lae. The facility doubled the workforce in Lae to about 450 people and provides some of the best wages and conditions for manufacturing workers in PNG. Michael Kingston, Managing Director of K K Kingston, is another who says manufacturing is making a significant contribution to the


We’re making it in

PNG

KK Kingston is celebrating its 40th Anniversary in 2012. We are proud of our commitment to manufacturing a wide range of quality consumer and industrial products in PNG. We continue to develop and grow our business in PNG, consistently upgrading our production and raising our standards.

www.kingston.com.pg


F e at u r e

lives of ordinary Papua New Guineans. ‘After the construction phase, the ExxonMobil LNG project is expected to provide about 800 long-term jobs for the life of the project. We currently employ 800 people, so in terms of employment our contribution is not so different. Most manufacturers employ a substantial number of people,’ says Kingston.

Responsive to local needs K K Kingston is a diverse manufacturer, producing chemicals, paper products, food containers, tanks and storage bins. Michael Kingston says the manufacturing sector’s contribution to PNG goes beyond the immediate economic effects in ways not well understood. Firstly, there’s the skills base. ‘We’ve had a large number of people complete apprenticeships here who either stay with us and contribute or go onto bigger and better things. Manufacturing adds to the human capital of the country.’ ‘Then there’s responsiveness. If someone orders a specific product from Asia, it might take eight weeks to get here while we can do it in two. Local manufacturers also have the ability to tailor-make products for local needs,’ Kingston says. Getting consumer goods and food to the stores in PNG quickly from local manufacturers means they have a longer shelf life, cutting inefficiency and waste, he says.

‘We put 40 litres of ice-cream a week into the [Lae hospital] cancer ward and we sponsor different sporting activities,’ says Laga’s Phil Kelly. ‘When the Rabaul Queen sank [in February 2012] and hundreds of people came to Lae for medical treatment and were living in tent cities, we supplied the army with clean water [produced at the company’s factory] for a month.’ Manufacturers Council of PNG Chief Executive Officer Chey Scovell observes that more than half of his members made contributions to the community (in sponsorships, grants, etc) in excess of half a million kina per annum (US$235,000), with about 10% of members giving more than 1.5 million kina (US$706,000).

Major new investment Industry is reinvesting in PNG to ensure it can harness further benefits as the economy grows and becomes more sophisticated. And the investment is coming from both local and multinational firms. ‘We’ve just opened a production facility in Port Moresby that became fully operational in February 2012,’ says Coca-Cola Amatil’s (CCA’s) PNG General Manager Peter Carey. ‘Using the latest technology the new production line turns PET plastic preforms into drink bottles, fills them with carbonated soft drink, labels them, puts on tops and packs the finished product in one process. It represents a 34 million kina (US$16 million) investment for CCA. ‘No other technology currently does things in that order. The new plant is running on one shift employing 15 extra people and it more than doubles our PET capacity. Last year, before we opened

‘Manufacturing adds to the human capital of the country.’

Putting back into the community Manufacturers are also heavily involved in community building with their products and resources.

The iconic Flame brand of flour is produced in PNG by Goodman Fielder.

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Credit: Goodman Fielder


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Producer Profile

PNG Taiheiyo Cement

P

apua New Guinea’s only cement manufacturer is riding the wave of soaring demand from the real estate, mining and public sectors. ‘2011 sales increased by about 20%, to 155,000 tonnes,’ says Makoto Kagamida, Managing Director of PNG Taiheiyo Cement. The increase in demand means PNG Taiheiyo is close to its production capacity of 200,000 tonnes, says Kagamida, so there are plans to expand. ‘We have a plant expansion blueprint,’ he says, adding that land availability and the reliability and cost of utilities such as electricit are issues. ‘We will soon start importing cement from Taiheiyo Cement Group in Asia until the plant expansion is complete ... this may need to increase.’ PNG Taiheiyo operates a modern plant—the first of its kind in the South Pacific—in Lae. The operation includes a cement grinding mill, storage silos, automatic packing machines, and a jetty which can cater for vessels up to 15,000 tonnes. It produces ASTM Type 1 Portland cement, importing all high quality raw materials such as clinker from its Japanese parent company, Taiheiyo Cement Corporation (TCC). It then processes (grinds), packs and distributes cement to domestic and export customers, following serious quality control. TCC bought out PNG Taiheiyo Cement in 2000 in accordance with the then-PNG Government’s privatisation policies. PNG Taiheiyo Cement also exports to the Solomon Islands, Vanuatu and to parts of Micronesia—countries where the local markets are still too small to support their own plants.

Credit: PNG Taiheiyo Cement

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it, we were running at essentially full capacity and it has given us in Moresby a PET capacity we didn’t have before,’ Carey says. (See box on page 13 for more on this investment.) This added capacity in Port Moresby is important because southern PNG represents about 40% of sales for the group. Now, CCA employs nearly 1000 people in PNG and the outlook is for more, with sales volumes for the company growing at 10% a year for the last five years. ‘Our major growth area is the Highlands, where a lot of resource development is going on and boosting income levels,’ Carey says. Manufacturing investment is, naturally enough, being focused on PNG’s industrial heartland in Lae, Morobe Province. There, CCA has more spending in the pipeline, with a 230 million kina (US$108 million) redevelopment of its major Lae plant likely in the next five years. S P Brewery is in the midst of a 150 million kina (US$71 million) expansion ‘that will add 40% to our output. We’re increasing the size of our factory and upgrading machinery,’ says S P’s General Manager Stan Joyce. With growing national income and beer consumption rates only half of the south-east Asian average (and 13% of Australia’s), there’s plenty of room for growth. Michael Kingston says the big investment made by his company in recent years has changed the nature of the workforce, increasing skill levels and cutting manual work. ‘A filling line for bleach that used to run with 30 people now runs with five per shift and produces three times as much output. In terms of quality and safety, automation is the future,’ he says. Meanwhile, Lae Biscuit Company is projecting growth to 2015 and beyond, and is building on its investment with the introduction of new products: ‘We’ve just launched a new coconut snack product in the last month or so and there is strong demand in the market,’ says Ian Chow.

Finding ways to cope A lack of skilled labour remains a significant constraint for industry development in PNG but business finds ways to cope. ‘We’re investing in graduate management projects and overseas training projects,’ says S P Brewery’s Stan Joyce. ‘Our workforce is 97% local and there are Papua New Guineans in senior management,’ he says. Woefully inadequate infrastructure in areas such as ports, roads and power is a serious constraint which helps produce ‘a general environment for manufacturing in PNG that is expensive,’ says Joyce. Laga’s Kelly agrees: ‘We’ve got very expensive and unreliable electricity so we’ve had to invest in a huge 75 kVA uninterrupted power supply to ensure production reliability and protect electric motors in the plant,’ he says. There is some light at the end of the infrastructure tunnel, with improvements to roads around Lae and the awarding of the 700 million kina (US$330 million) contract to China Harbour Engineering to redevelop the Lae port. ‘That will make an S P Brewery’s Stan Joyce enormous difference to all manufacturers,’ says Michael Kingston. (See page 45 for more on infrastructure.)


png ’ s m a n u fact u r e r s : a d d i ng va lu e , a d d i ng s k i l l s

Papua New Guinea’s Top Export Markets

Lae Biscuit Company’s factory in Kamkumung, Lae. Credit: Lae Biscuit Co.

1. Australia

6872.6 million kina

2. Japan

2273.4

3. Philippines

1188.3

4. China

985.3

5. Germany

940.9

6. Netherlands

836.9

7. South Korea

401.4

8. Great Britain

322.3

9. United States

275.5

10. Italy

267.8

11. Spain

253.1

12. Malaysia

236.2

13. Singapore

146.9

14. Belgium

42.6

15. Taiwan

34.8 Source: Bank of PNG (2011 figures)

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Producer Profile

Laga Industries

L

aga Industries is a big name in PNG manufacturing, producing, blending and importing a wide range of foodstuffs, condiments and beverages. Originally formed in 1975, a merger with Trade Winds Liquor in 2008 dramatically broadened its suite of products.

‘The introduction of the water line was the spur to the investment in extrusion. Water is such a high-volume product, we decided to put in the extrusion machine to blow the preforms for the bottled water,’ Kelly explains.

Today, it produces a range of ice cream and freezer dairy products, vegetable oils, health and beauty care products and condiments and seasonings under brand names including Highlands Meadow oils and Gala ice cream.

Lae-based Laga is also investing in its traditional ice cream business.

Its alcoholic beverage labels include Trade Winds Spirits and the Moscow and Cougar brand pre-mixed drinks. General Manager Phil Kelly is bullish about the future, saying the company is investing and in the last year has boosted employment levels by 80 to around 500 people. ‘Growth has been in the mid-double figures in the last few years,’ Kelly says. Some of that employment jump came with the opening of a new production line for bottled drinking water which ‘is a new beverage for us,’ according to Kelly. Other new developments include an extrusion machine to produce the plastic preforms from which much of the company’s food and beverage containers are made. Credit: Laga Industries

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‘We’re very much into developing our ice cream, which is the cornerstone of our business. We’re investing a lot of money into that this year, putting another 400-odd freezers out there [into retail stores that stock Gala Ice Cream] and putting new equipment into our manufacturing plant,’ says Kelly.


png ’ s m a n u fact u r e r s : a d d i ng va lu e , a d d i ng s k i l l s

Coca-Cola Amatil opens new plant

C

oca-Cola Amatil (CCA) is spending up big in Papua New Guinea because Papua New Guineans are buying its products like never before. So strong was the PNG performance in the 2011 financial year that CCA Chairman David Gonski singled it out in the annual report, saying ‘CCA’s record 2011 profit result was driven by strong performances from the Indonesian and PNG operations.’ Indeed, PNG’s individual performance is underscored by the fact that its executives scored a 129% rise in the metric used to calculate their performance-based pay for that year, the largest rise of any group in the company. CCA has just finished a 34 million kina (US$16 million) capital spend that has given it a cutting-edge, automated production line in Port Moresby to help service growing demand in the south of the country. Now it is planning a five-year, 230 million kina (US$108 million) redevelopment of its Lae production base that will provide capacity to deal with strong PNG demand growth until 2020 and push its employment levels in the country to 1500. ‘We’re probably looking at employing 100 extra people a year for the next five years, so that means we’ll have 1500 in five years’ time,’ says CCA’s PNG General Manager Peter Carey. CCA justifies that sort of investment with reference to the strong growth it has experienced in the recent past. ‘It’s quite exciting the way the business has been growing, with volumes up 10% annually for the last five years,’ says Carey. The investment at Lae will boost output on the product lines already in place there and add new lines to the current product offering of soft drinks in PET bottles, water, cordials, fruit juices and canned soft drinks. While there is growth for CCA throughout the whole country, the Highlands region is the sweet spot at the moment as resource development boost activity in the area.

Coca-Cola Amatil PNG General Manager Peter Carey addresses guests at the official opening of the company’s Port Moresby Manufacturing Facility in May 2012. Credit: CCA PNG

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Coca-Cola is one of many international brands now manufactured in PNG. Credit: Coca-Cola Amatil

Competitiveness and PNG goods PNG’s producers are continuing to profit from the country’s unprecedented economic boom as well as high international commodity prices, but they still face a mighty array of challenges. Made in PNG asks what factors influence the demand for PNG goods at home and overseas.

Y

ou might assume that, given its low per capita GDP, Papua New Guinea would be a low cost place to manufacture. Anyone involved in local industry would quickly put you straight, however. The country’s inadequate infrastructure affects producers more than any other sector (see page 45), with costly and erratic power supply, clogged ports and crumbling roads all applying upward pressure on a producer’s unit cost. Even labour costs are relatively high: the minimum wage may be just 2.29 kina (US$1.10) per hour, but skilled workers are at a premium, meaning competition for technical know-how is high. Furthermore, the country’s strong currency not only makes locally-produced goods harder to export, but makes them less competitive on the domestic market against low-cost imports, especially from Asia. Those imported products are of variable quality, however, on account of the relative lack of supervision of goods imported and retailed in PNG, and some are simply sub-standard. The implications of this can vary, but it might mean a piece of machinery is unsafe or a bottle of drinking water is not fit for consumption. 14

Opportunities for local producers This provides an opportunity for local producers who are able to build trust in their brands among PNG’s consumers and it is one reason for the ‘flight to quality’ that is prevailing among PNG’s manufacturers. Another is the emergence of a new consumer class in PNG with more aspirational tastes, as participation in the formal economy has grown. In any case, an increasing number of local products now proudly display the ‘PNG Made’ logo on their products—a mark which signifies quality as well as being an indicator of local origin (see box opposite). There are also products that have a limited shelf life, making importing impractical. This can include things as diverse as industrial coatings, cement and certain fast-moving consumer goods.

The thorny issue of tariffs Of course, local manufacturers are also protected by tariffs on certain imported goods. However, these have dropped considerably


C o mp et i t i v e n e s s a n d P N G g o o d s

since PNG’s accession to the World Trade Organisation in 1996. In fact, according to Chey Scovell of the Manufacturers Council of PNG (MCPNG), ‘PNG presently ranks in the top 10% worldwide for low tariffs, an anomaly considering our state of development.’ The MCPNG’s position is that further reductions in tariffs should be linked to the amelioration of the high-cost environment in which local manufacturers operate. Non-compliance further erodes the benefit of tariffs to local producers, with the under-declaring of goods imported to PNG reported to be commonplace. You’d think that mine sites at least would represent a healthy market for PNG producers but even here there are obstacles. Special tax incentives given to new mine projects allow them to import inputs (including food) tax-free, which makes local produce appear more expensive than it otherwise would. Perhaps the area where local producers have the clearest competitive advantage is in more specialised products: industrial machinery that needs regular maintenance, technical equipment that requires training or solution-based commercial sales that involve products made to order on short lead-times.

‘The area where local producers have the clearest competitive advantage is in more specialised products’

PNG made: the mark of quality

O

ver the last few years, the Manufacturers Council of PNG (MCPNG) has stepped up its ‘PNG Made’ campaign that encourages PNG consumers to buy locally-made products. The scheme centres around the ‘PNG Made’ logo, which acts as a mark to give consumers confidence that the local goods they are buying are of good quality. To qualify for use of the ‘PNG Made’ logo, 50% of a particular product’s cost of production must have been incurred in PNG. A wide range of locally-produced goods display the logo, ranging from food and beverages, to garments and industrial products. This increased promotion has primarily been through TV and radio advertising. In June 2012, the directors of the Manufacturers Council gave the CEO the green light to undertake a major review of the PNG Made brand. Now working with a local public relations firm, the Council’s board will be considering new and innovative approaches over the coming months to convey the importance and derived benefits of buying local.

Obstacles to exporting When it comes to exporting, PNG remains overwhelmingly an exporter of commodities (see Agribusiness on page 28). Besides the issue of price competitiveness referred to above, other obstacles to exporting processed goods include: • A lack of technical expertise/facilities in-country, eg in coffee roasting. One brand of organic PNG coffee on sale in Australia, for instance, is actually roasted and packed in the UK! • Market access, including increasing pressure from many international markets for certification that goods have been produced sustainably (eg timber, palm oil) • Inconsistent supply, due to supply chain issues (often stemming from poor infrastructure) • A lack of scale A less tangible impediment is the lack of a coherent export marketing strategy. Unlike most of its competitors, PNG does not even have a stand-alone export promotion agency. It is hardly surprising then that the 'PNG Made' brand enjoys little prestige overseas (one major producer talks of having to export at a discount just because the products originate in PNG). With the dust settled from the 2012 General Elections, the MCPNG is confident that the new Government and Cabinet line-up will be supportive of developing local industry. ‘Within one week of taking the position of Minister for Trade, Commerce and Industry, Richard Maru, came to Koki himself to see us,‘ says Council CEO Chey Scovell. ‘Key personalities in the O’Neill–Dion line up all have first-hand experience in the private sector, they are well aware of the issues and impediments and prior to taking office had been calling for the same reforms.‘

The PNG Made logo now appears on a wide range of goods in PNG.

Regional exports Nonetheless, exports are occurring in specific niche areas. ‘Given that PNG has the largest domestic market in the Pacific region, its manufacturing sector enjoys certain economies of scale that provide opportunities for our manufacturers to export products to smaller markets in the region,’ explains MCPNG President Murray Woo. In particular, the neighbouring Solomon Islands represents a quasi-domestic market for PNG goods. Paradise Foods sells its biscuits and snacks across the Pacific Islands—one of several PNG manufacturers (including K K Kingston, Woo Textile and PNG Taiheiyo Cement) to do so. S P Brewery now exports its signature S P Lager to Fiji, as well as Australia. Meanwhile, companies such as Lae Builders and Contractors, PNG Forest Products and Cloudy Bay Sustainable Forestry are leading the way by showing that round logs need not be PNG’s only timber-based exports, by selling their furniture and plywood to markets including Australia and New Zealand. Finally, tuna canned or loined in PNG is being exported by a fast-growing local fish processing industry, particularly to Europe, where PNG tuna benefits from free-market access. 15


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A level playing-field: K K Kingston’s new facility will remove significant operational obstacles. Credit: K K Kingston

K K Kingston: 40 years old and growing fast K K Kingston, one of PNG’s largest manufacturers, turns 40 in 2012. Paying a visit to its HQ in Lae, Robert Hamilton-Jones found the company evolving at a furious pace.

‘W

e’re bursting at the seams,’ declares K K Kingston’s General Manager Michael Kingston. We are sitting in the boardroom of the company’s head office in Lae, having a preliminary chat before viewing the company’s facilities. His point is perfectly illustrated a few minutes later when a couple of managers enter the room to make a quick cuppa, and it becomes apparent that the boardroom doubles as an executive tea room. From there, it’s just a few steps to the company’s main Lae industrial showroom, catering mainly to local tradespeople. On through a door and around the corner and suddenly we find ourselves in a factory producing plastic bottles for soft drinks. Next, it’s up a narrow wooden staircase to squeeze into a room where machinery tools are repaired. Our journey through the rest of the site twists and turns in similar fashion, revealing more production lines (plastics and chemical) interspersed with packed warehousing areas where pallets of finished goods jostle for space with raw materials.

Exponential growth But the tour is far from over because the company has no less than three other, albeit smaller, sites dotted around central Lae, responsible for rotomoulding (the ubiquitous ‘Tuffa’ tanks) and paper/cooking oil products. ‘We often have to move raw materials, work in progress or

finished goods between a plethora of different sites’, explains Michael Kingston. And yet he speaks with understated relish rather than frustration, for two reasons. The first is that the clutter and fragmentation is the consequence of the company’s exponential growth, which has seen one of PNG’s largest manufacturers of industrial machinery and equipment double in size in the past five years alone. The company has benefitted not just from the general upswing in the PNG economy, but even more so from its particular role as a major equipment supplier to the country’s galloping natural resources sector.

Building a new home The second is that there is light at the end of the tunnel. The final leg of the tour sees us make a longer drive, out to the Kamkumung (or ‘Speedway’) district on the outskirts of PNG’s manufacturing centre. Just after passing the recently-constructed Lae Biscuit Company factory, we turn off into a huge lush paddock, part of which is staked out. This 110,000 square metre (very) green-field site has been acquired by K K Kingston to consolidate virtually all its Lae operations under one expansive roof. The new manufacturing and distribution hub will initially occupy 26,000 square metres of ‘under-roof’ space and 60,000 square metres in total.

A range of K K Kingston’s PNG-manufactured polyethylene containers. Credit: K K Kingston

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K K K i ng s t o n : 4 0 y e a r s o l d a n d g r ow i ng fa s t

‘We’re just about to award a new contract for the civil engineering side of things,’ says Michael Kingston (speaking in mid 2012). ‘Similarly, we’ve just about finished all the design work for the buildings and services for the site. We hope to relocate sometime in 2014.’ It is not difficult to appreciate the transformative effect that moving to a purpose-built, modern and larger facility will have on the company’s operations. The immense efficiencies and newly acquired scalability it will deliver will essentially launch the company into a new era. It will certainly provide a huge boost to the company’s ongoing and vigorous efforts to raise the standard of its production and improve workplace safety. In December 2011, K K Kingston attained ISO 9000 Certification as the cornerstone of a wide-ranging project to overhaul its production processes. While a lot of progress has already been made, there is inevitably a limit to what can be achieved in the existing operational environment.

Automation The relocation will also expedite the automation of its production, a process that has already yielded some remarkable results, as Michael Kingston reveals: ‘We used to produce say 30 tonnes of a certain chemical every two days, but since automating the process we produce 30 tonnes per 10-hour shift. So, incredible improvements in productivity, and there’s been a total elimination of workplace injuries in that process.’ It is interesting to note that, in spite of this embracing of automation, galvanised by a significant increase in PNG’s minimum wage in early 2010, the company’s total head count has continued to rise.

A 40-year history in PNG

Despite its growth—it now has over 800 employees—the company still retains a strong sense of being a family business. During our visit we stopped and spoke to several employees on the shop-floor who had worked with the company for many years and who repeatedly referred with genuine affection to the friendly atmosphere that prevails in the firm, while the company’s reputation is more or less synonymous with the family name.

K K Kingston’s General Manager, Michael Kingston

A more corporate structure At the same time, as it has grown the company has recognized the importance of adopting a more corporate structure, at board level at least. In 2010, it became the first producer in PNG to receive direct investment from the International Finance Corporation (IFC), the private sector arm of the World Bank. The presence of an institutional investor on the board placed the company on a more formal footing (including more rigid reporting requirements) and is expected to provide a stepping-stone to a listing on the Port Moresby Stock Exchange (POMSoX) in around four years’ time. Of course, the deal struck with the IFC (in partnership with the Pacific Islands-focused venture capital specialist, the Kula Fund) also provided a ringing endorsement of the company’s prospects and its vision for the future. Back in the communal boardroom, that prompts a final question of just what the company’s main goals are for the next decade, listing aside? Michael Kingston pauses briefly before summing up thus: ‘To continue growing, to make K K Kingston an employer of choice for all those skilled workers out there, and to continue our mission of demonstrating that Papua New Guinean companies can produce quality products and compete with the best.’

‘Despite its growth— it now has over 800 employees—the company still retains a strong sense of being a family business’

It is highly appropriate to be talking about K K Kingston reaching a watershed at this moment since the company celebrates its 40-year anniversary in 2012. In fact, it was founded by Michael’s father, the eponymous Keith K Kingston, who remains very involved in the business and is the major shareholder. The company’s longevity also translates into an important competitive advantage in a market sector that is often highly technical, in the form of years of accumulated product and market know-how.

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S ec to r P r o f i l e

Credit: Annie’s Pottery

Credit: Beyond Art

Credit: Pipemakers

Manufacturing The range of products manufactured in Papua New Guinea is growing all the time. The range of goods made in PNG is quite impressive. Much of PNG’s manufactured produce is aimed at a domestic consumer market that is growing so rapidly—albeit from a low base—that many local manufacturers are struggling to meet demand. Many producers also cater to the business-to-business market, especially the booming mining, petroleum and construction sectors. Given PNG’s wealth of natural resources, it is little surprise that downstream processing plays an important role in the manufacturing sector. Examples include the loining and canning of fish, converting local timber into plywood, roasting coffee and even the refining of gold. At the same time, the potential exists to significantly expand the scale and scope of downstream processing. In global terms, PNG’s manufacturing sector is small and has a high cost of production. Naturally, this acts as a barrier to exporting, and yet local producers are increasingly finding new markets, particularly in the neighbouring Solomon Islands and other Pacific Islands, but even in Australia and New Zealand (see page 14 for more on PNG exports).

Asserting PNG quality There is certainly no doubting the ability of PNG to produce high quality goods, be it S P Lager (that has penetrated the fiercelycompetitive Australian market), industrial products from K K Kingston (see page 16) or the stylish furniture produced by Cloudy Bay Sustainable Forestry (see page 44). Multinationals such as Nestlé (see page 24), Coca-Cola Amatil (see box on page 13) and Dulux (see box on page 20) manufacture their renowned brands in PNG, while local manufacturers Paradise Foods has gained international acknowledgment for its model operation.

‘There is certainly no doubting the ability of PNG to produce high quality goods’

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Important contribution

PNG’s manufacturing sector reportedly employs around a quarter of the formal workforce, while its contribution to GDP is estimated at between six and 11.5%. Much of PNG’s existing manufacturing sector is centred around Lae and, to a lesser extent, Port Moresby. In a recent survey of its members, the Manufacturers Council of PNG discovered that more than 75% were planning greater investment into the future than over the previous three years.


M a n u fact u r i ng

Papua New Guinea’s non-mineral exports Commodity

million kina

Palm oil

1477

Coffee

927

Forest products

768

Cocoa

320

Marine products

260

Copra oil

174

Copra

71

Rubber

41

Tea

14.2

Other

291

The range of goods produced in PNG • Beverages: beer, soft drinks, vodka • B  uilding: pre-fabricated building (wood/steel), roofing materials, cement, plywood • F  ood: biscuits, snacks, noodles, baking products, canned meat/ fish, smallgoods • Handicrafts: pottery, embroidery • Household items: furniture, beds, mattresses, cooking utensils • Industrial products: chemicals, water tanks • Packaging: aluminium cans, corrugated cardboard • Paints and coatings

Source: Bank of PNG (2011 figures)

The PNG Government is seeking to encourage local production by offering incentives and concessions to manufacturing enterprises. Incentives include export sales exemptions and wage subsidies (see box on page 21). The government is also attempting to address the factors limiting growth of this sector, particularly infrastructure problems such as road maintenance and upgrading around Lae (see page 45).

• Personal care products • Printing: offset and digital • Refined petroleum • Textiles: footwear, school uniforms

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S ec to r P r o f i l e

Producer Profile

DuluxGroup (PNG)

D

uluxGroup’s PNG headquarters are in Lae, where it has manufactured paint and chemicals for over 40 years. It employs about 100 people between Lae and Port Moresby, and has trade depots in Kimbe, Kokopo and Madang. Today, its activities involve the production of surface coating, preparation and chemical products and related services. It supplies industrial chemicals to the mining, oil and gas, agriculture, food and beverage and water treatment sectors. Seventy per cent of its coatings products are produced locally.

Best of both worlds The PNG operation enjoys the best of both worlds with its local manufacturing and distribution presence able to draw upon the substantial resources of its Australian parent company, which is listed on the Australian Stock Exchange with a market capitalisation of around AUD$1 billion.

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Investing time and funds ‘We invest considerable funds and time in product innovation, to ensure we keep pace with PNG’s current construction boom and broader social trends’, says Andrew Gunn, General Manager of DuluxGroup (PNG). ‘This includes an increased focus on environmentally-friendly products.’

‘We invest considerable funds and time in product innovation, to ensure we keep pace with PNG’s current construction boom and broader social trends.’

Revenues from PNG grew in 2011, spurred on by the resources boom, and the company plans to continue to invest in

Seventy per cent of DuluxGroup’s coatings products are made in PNG.

consolidating its position with mining, construction and industrial customers, with particular focus on the increased commercial activity created by the ExxonMobil-led LNG project.

It also has a strong focus on product knowledge training, through the Dulux Academy, and organises the ‘Architctures and Builders Expo’ annually to strengthen the network of architects, builders, specifiers, contractors and resellers.

The company’s other notable recent achievements in PNG include the relaunching of the Selleys brand to major reseller customers and an agreement to sponsor restoration work at the Port Moresby Botanical Gardens.


M a n u fact u r i ng

Incentives for manufacturers

T

he PNG Government offers a number of incentives to help develop the local manufacturing sector. For example:

• Industrial plants not previously used in PNG are eligible for increased depreciation up to 100% of cost. • The initial year accelerated depreciation allows faster writing down of the capital cost of certain new assets. • Double-deduction for export market development costs for goods made in PNG, or where PNG labour cost exceeds 10% of the sale price of the product. • Profit made from export sales of certain PNG-made goods qualify for company income tax exemptions for the first three years. A different formula applies for exemptions for the next four years. • A duty drawback rebate paid to exporting manufacturers when they export goods of the same value as the amount of duty already paid on the raw material. • Companies manufacturing new products may receive a subsidy payment of 10-40% for up to five years based on a percentage of the relevant minimum wage for each full-time local employee. Source: PNG Investment Promotion Authority

Credit: Nestlé

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S ec to r P r o f i l e

Mill sterilisers for the processing of palm oil. Credit: NBPOL

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M a n u fact u r i ng

Producer Profile

AkzoNobel

I

f you have spent much time in PNG you may not necessarily have heard of AkzoNobel, but you’ll almost certainly be familiar with its Taubmans and International brands of paint. In fact, AkzoNobel is the world’s largest paints and coatings company and employs more than 55,000 people worldwide.

AkzoNobel recognises that its greatest asset is its people, and the company continually endeavours to develop its human capital by training and upskilling. One example of this is the participation of its technical staff in the National Association of Corrosion Engineers (NACE) coatings inspector programme.

AkzoNobel entered the PNG market in 1998 through the acquisition of  Courtaulds Group, and its present product range includes not only Taubmans Decorative Coatings, but also International Marine and Protective Coatings and car refinish through its Lesonal brand.

The company is particularly proud of its waste management programme which is part of its overall sustainability road map with the objective to reducing waste, water and energy consumption over the coming years. It is also the first industrial company in PNG to export waste for recycling in Australia.

AkzoNobel has an extensive distribution network throughout PNG, with four branches in Port Moresby, Lae, Mt Hagen and Kokopo and many resellers throughout the country. ‘We can provide solutions on demand for major projects,’ says Managing Director Mikael Ruben. ‘Clients such as mines, subcontractors to the PNG LNG Project or dockyards require products to be made to order at short notice and we have a supply chain to cope with these demands.’ AkzoNobel’s decorative coating sector is the most dominant, and the company works closely with architects and builders, arranging annually the prestigious PNGIA/Taubmans Design Award in partnership with the PNG Institute of Architects. AkzoNobel provides anti-corrosive paint to PNG’s Dockyard. Credit: AkzoNobel

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F EATURE

Nestlé’s factory in Lae, Morobe Province. The Switzerland-based food giant has had a presence in the PNG market since the 1970s. Credit: Nestlé PNG

Twenty-five years of Nestlé in PNG 2012 marks 25 years of successful manufacturing in PNG for global food giant, Nestlé.

N

estlé is one of the world’s leading food and nutrition companies, employing more than 330,000 people worldwide and with more than 460 factories across 83 countries. From its humble beginnings in PNG in the late 1970s, Nestlé operations have grown to include a local manufacturing plant in Lae, which produces Maggi Instant Noodles and repacks Maggi Kakaruk Cubes, Nescafé coffee, Milo chocolate malt drink and Sunshine milk powder. Nestlé entered the PNG market when it began importing instant noodles from Malaysia and Australia. The growing demand from Papua New Guinean consumers during these early days led the company to investigate establishing a local factory to supply instant noodles and Nescafé coffee to the local market. The Lae Maggi

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Factory was opened in 1987 and has steadily increased production due to strong growth in the instant noodles and stock cubes business. ‘We have a strong 25-year history of providing quality products to consumers, nutrition education to the community, and good employment opportunities to our staff,’ says Eugene David, Nestlé Pacific Islands Managing Director.

Global expertise and local support Eugene David says that, in addition to its strong connection with PNG’s manufacturing industry, Nestlé also supports local agriculture with production of Nescafé Nuigini Blend coffee using arabica beans from PNG.


2 5 y e a r s o f n e s t l é i n png

‘We remain committed to investing in PNG and are planning to make further investments in our manufacturing facilities.’ Nestlé Pacific Islands Managing Director, Eugene David

Nestlé utilises its global knowledge and expertise to provide PNG consumers with product innovations that address key local health concerns. This year, Nestlé started to fortify its instant noodles with key vitamins and minerals, including iron, zinc, iodised salt, and vitamins B1, B2 and B3. Nestlé actively engages with consumers to ensure they have access to information that will help them make informed food choices. The Hamamas Dei nutrition roadshow, which commenced this year, promotes good nutrition and healthy lifestyles through a diet education program designed specifically for consumers in villages.

Employment, training and growth

Today, Nestlé PNG employs more than 400 people in its Lae Factory and commercial offices, who are provided with best-practice training and development opportunities. Nestlé believes its people are its most important asset, and provides staff with ongoing training based on local and global expertise. ‘We pride ourselves on providing good career opportunities to our staff by continuing to invest in training and development,’ says Eugene David. The Nestlé PNG plant is a modern factory environment that provides staff with a safe workplace. The company recently celebrated a record six years without workplace injuries, marking its ongoing commitment to safety. Eugene David is confident in the long term future of Nestlé in PNG: ‘We remain committed to investing in PNG and are planning to make further investments in our manufacturing facilities in 2013 so that we can meet local consumer demand,’ he says. ‘This is a strong testament to Nestle’s continued confidence in PNG and its commitment to continue delighting PNG consumers in the years to come.’

Maggi stock cubes remain a staple of Nestlé’s PNG business. Credit: Nestlé PNG

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Papua New Guinea’s Provinces & key produce

MANUS Marine products

WEST SEPIK (SANDAUN) Gold, copper, forestry, marine products

EAST SEPIK Fisheries, forestry, vanilla, cocoa

INDONESIA

MO MASE

Bismarck Sea

MADANG Fish processing, sugar, nickel, cobalt

ENGA Gold, silver

HELA

Mount Hagen

Coffee, tea

Oil/gas

HIG HLAN DS

CHIMBU (SIMBU) Coffee

SOUTHERN HIGHLANDS Oil/gas

WESTERN PROVINCE

Goroka

EASTERN HIGHLANDS Coffee

GULF

Copper/gold, forestry, aquaculture

Madang

WESTERN HIGHLANDS Coffee, tea JIWAKA

Oil/gas, marine products

SOUTHE RN

Gulf of Papua

Lae

MOROBE Manufacturing, logistics, coffee, livestock, fish processing, forestry, gold, copper

CENTRAL Fisheries, forestry, gold, rubber

Daru

NORTHERN (ORO PROVINCE) Palm oil, coffee, cocoa, copra

Port Moresby

Torres Strait

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AUSTRALIA

NATIONAL CAPITAL DISTRICT Manufacturing, logistics


www.businessadvantageinternational.com

Kavieng

Š Copyright 2012 Business Advantage International

NEW IRELAND Gold, marine products, forestry, palm oil, cocoa, copra

Kokopo

EAST NEW BRITAIN Cocoa, copra, forestry, gold, organic spices

Kimbe

WEST NEW BRITAIN Palm oil, forestry

NEW

G UINEA

I S L A NDS BOUGAINVILLE (AUTONOMOUS REGION) Copper, cocoa, copra

Solomon Sea

Coral Sea Alotau

MILNE BAY Copra, coffee, cocoa, spices, marine products, gold, forestry, oil palm

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S ec to r P r o f i l e

Planting oil palms at Ramu. Credit: NBPOL

Agribusiness PNG

’s agricultural sector has a number of competitive advantages, including high seasonal rainfall, good quality soil and low-intensity methods. The absence of pesticides and artificial fertilisers presents opportunities for PNG to position itself as a leading organic producer. Palm oil, coffee and cocoa are Papua New Guinea’s three most valuable agricultural commodities, together representing almost 80% of PNG’s total agricultural export values. Other agricultural products include copra, rubber, spices, sugar and tea. PNG-reared livestock, especially beef, poultry products and pigs, also supplies a growing local market.

Important contribution Papua New Guineans are a nation of farmers. While agriculture only accounts for about 25% of Papua New Guinea’s GDP, about 85% of PNG’s people are engaged in food production at a subsistence level. They grow food crops and breed domestic animals for their own communal use, then produce cash crops on any excess land, supplying a number of larger agribusinesses which aggregate and market their produce. PNG agricultural exports are currently booming. In 2011, agricultural exports were worth 3.7 billion kina (US$1.74 billion)—a 28% increase on the previous year.

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Challenges While this is encouraging, the commercial performance of the agricultural sector over the past decade has until recently been modest. Expansion of agribusiness has been inhibited by inadequate and poorly maintained transport infrastructure, marketing issues, and law and order problems. The commercial use of customarily held land is also legally complicated. The established process of issuing Special Agricultural and Business Leases (whereby the landowners lease their land to the PNG Government, which takes the responsibility for leasing it to a developer), has been subject of a Commission of Inquiry since 2011 following reported abuses to the system.

Palm oil Palm oil is now PNG’s most valuable export crop. The value of palm oil exports in 2011 was 1.48 billion kina (US$700 million), a 44% increase over the preceding year due to high world prices and higher production. About 55% of the oil palm is grown on estates, and the industry directly supports over 20,000 smallholder families. The oil palm is turned into four products: crude palm oil, palm kernel oil, refined palm oil and palm kernel expellent, which is used for stockfeed. All PNG palm oil is exported to the United Kingdom and the European Union.


Ag r i b u s i n e s s

Three major schemes—Hoskins, Bialla and Popondetta— produce most of PNG’s palm oil and all operate their own mills. The Hoskins project area contributed more than half of total production in 2007. Newer projects are underway in Milne Bay and New Ireland. In 2007, plantings also commenced in Central Province and in Sandaun Province. New Britain Palm Oil Limited (NBPOL) is Papua New Guinea’s largest oil palm plantation and milling operator. It has more than 78,000 hectares under management for oil palm production, eleven oil mills and two refineries. NBPOL also has a palm oil refinery in Liverpool, England, to meet the demands of European Union food manufacturers and in February 2012 commissioned a new bakery fats plant on the same site. It also has a joint venture with European confectioner Ferrero in PNG (see interview on page 34 for more on NBPOL’s activities.) NBPOL subsidiary Ramu Agri Industries only recently entered the oil palm sector, with its first shipment to Europe in 2008. Another new player is Malaysia’s R H Group (see page 36).

Copra In PNG, three products are made from the nut of the coconut palm: copra, copra oil and copra meal. Most of the production is by smallholders and concentrated in New Britain, followed by Madang, New Ireland and Bougainville. There are two large copra mills operating in Madang and Toboi, outside Rabaul, plus several very small operations producing copra oil. In 2008, most copra in PNG was processed into copra oil and exported to Europe, by companies such as W R Carpenter (PNG) Ltd and Coconut Oil Production Madang Ltd and Essential Extracts Ltd. High-value coconut products such as virgin coconut oil, coconut cream, timber and biofuel offer PNG’s industry some longer-term possibilities, if governance and investment strategies can be resolved. A portion of PNG’s 260,000 hectares of coconut palms also needs rehabilitation or replanting.

‘While agriculture only accounts for about 25% of Papua New Guinea’s GDP, about 85% of PNG’s people are engaged in food production at a subsistence level.’

Cocoa PNG cocoa has between 75% and 85% fine cacao flavour—an indicator of quality—and PNG is one of the few countries where cocoa can grow organically. Cocoa generates about 22% of the value of PNG’s agricultural exports, with a value of 320 million kina (US$134 million) in 2011. More than 65% of the crop is produced by rural households and the rest on plantations. The PNG Cocoa Board is responsible for regulating and developing the cocoa industry, and for supporting research and extension services. Regulatory responsibilities include quality control, issuing of export licences and fermentaries registration. There is also a push to explore downstream processing opportunities such as cocoa liquor and cocoa butter. The PNG Government has targeted 100,000 tonnes of cocoa exports by 2016. The ability to reach this target depends on improving the yield of smallholders. The average cocoa production per family in PNG (300kg per hectare per year) is low, although experts believe this could be significantly improved with better pest and disease management, pruning of trees and shade management. The destination markets for PNG’s cocoa (in order of size) in 2006 were the US, Belgium, Malaysia, Singapore, Indonesia, Thailand, Germany, UK, China, Netherlands, Switzerland, France, Australia and New Zealand. The Papua New Guinea Directory of Exporters 2010-2011 lists 25 cocoa exporters. NGIP Agmark, a diversified agri-business, is the largest of these exporters by a wide margin, exporting approximately 70% of PNG’s cocoa crop directly to the world’s largest chocolate manufacturers. NGIP Agmark listed on the Port Moresby stock exchange in July 2009. Established in late 2006 and funded by the New Zealand Agency for International Development (NZAID), Bris Kanda Incorporated is a rural enterprise development program to promote economic growth in the rural areas of the Huon Gulf District in Morobe Province. The program has funding for another five years and aims to become one of the highest cocoa producers in the country within a year or two. Meanwhile, local manufacturer Paradise Foods has launched its Queen Emma brand of chocolate made entirely from PNG cocoa (see box on page 31).

Rubber Rubber exports totalled around 41 million kina (US$19.2 million) in 2011, with North Fly Rubber in PNG’s remote Western Province a noteworthy producer. North Fly Rubber is arranged on a cooperative model and is owned by around 3000 rubber-growing families. Growers deliver their cup rubber to a designated collection point in their area where it is transported to the river port of Kiunga. There, it is processed in North Fly Rubber’s factory and converted into a form in which it can be exported to markets such as Europe, China and Australia. There, it is manufactured into pillows, mattresses and other latex products.

Spices Vanilla has been the most lucrative of spice exports to the US, Europe and Indonesia in recent years although it has been subject to dramatic price fluctuations. It requires a move to centralised curing, rather than the village-level curing being undertaken, if it is to prosper. Other spice crops include black pepper, cinnamon, nutmeg, mace, patchouli and turmeric, plus a range of essential oils. Amruqa (formerly Pacific Spices), based in East New Britain, has 218 certified organic producers and 1500 conventional farmer suppliers. It opened the first processing plant of its kind to produce oil of vanilla and pure vanilla extract in 2010. Amruqa exports to Australia, the US, Taiwan, Japan and some European countries,

PNG rubber is sold to Europe, China and Australia.

29


S ec to r P r o f i l e

case study

Vital support for PNG agribusiness

PNG agricultural supplier Farmset is expanding its physical presence and product lines, as the country’s timber and agribusiness sectors continue to grow.

F

armset is in the business of retailing and wholesaling chemicals and fertilisers, and more recently, machinery to the forestry and agribusiness sectors. What began in 1969, with the formation of the Farmers’ and Settlers’ Co-operative in the New Guinea Highlands, is now a 100% PNG-owned company with 200 employees, 10 branches, headquarters in Goroka and a distribution network that spreads beyond PNG to other markets in the south-west Pacific.

Farmset’s owner, K K B Kainantu, has itself a large and varied shareholder base, from prominent PNG corporations to smallholders and individuals. Farmset’s Regional Manager for the Momase region of PNG, Robert Foley, tells Made in PNG that, while Farmset’s business was once entirely with major corporate producers, a much bigger portion is now with local landowners. It is building a new site in Madang and has plans to expand its Lae site. It is also about to begin production of a new animal health product. While Farmset supplies forklifts, trucks and generators, among many other machinery products, it also offers maintenance and repair services, and provides training to new and lesser-qualified technicians.

cultivates a local market and also sells online. Other exporters in this sector include Port Moresby-based company, Paradise Spices.

Livestock The key commercial livestock in PNG are pigs, chickens and cattle, and livestock contributes 13% of total domestic food production. Mainland Holdings is PNG’s main chicken producer, selling fresh and frozen birds plus eggs. It expects domestic demand to increase by 25%, driven by economic activities in other sectors. It is investing in chicken sheds and expanding its growers’ network to meet the expected demand (see page 33 for more). Ramu Agri Industries is focusing on improving its cattle production while Trukai has established an agricultural division that focuses on cattle farming. Another key poultry producer is Zenag Chicken.

Other crops About 10% of tea produced in PNG is used locally, with the rest exported to Russia, Germany, the United Kingdom, the US and other markets. The only exporter is WR Carpenter and Co, which has five estates. The tea is grown without any chemical pesticides, and around 10% is packed in value-added form. Between 7000 and 10,000 tonnes of sugar are exported each year, when there is a surplus to domestic needs. NBPOL-owned Ramu Agri Industries is the only commercial cultivator, with 7720 hectares of sugar cane under management. The domestic sugar industry is protected from imports by a tariff of 40% as of early 2011.

There is an increasing demand for beef in PNG. Credit: NBPOL

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Mainland Holdings’ crocodile farm in Lae exports crocodile skins to Europe.

Most sugar produced in PNG is for domestic consumption. Credit: NBPOL


Ag r i b u s i n e s s

Spotlight

A taste of Paradise: the journey of PNG’s first commercial chocolate

F

or over 100 years, cocoa has been a driving force behind commercial agriculture in PNG. But until now there has been little local use of PNG cocoa; instead, large quantities have been exported. In 2011, Paradise Foods Limited embarked on a new project to process PNG-grown cocoa beans into world-class single-origin chocolate couverture, investing in the establishment of a pilot plant in Port Moresby. ‘Our chocolatiers have been developing fine covertures using recently developed equipment that is able to process PNG’s unique rich cocoa beans to chocolate from a single source,’ says David Peate, Managing Director of Paradise Foods. ‘This means we are able to use the whole bean without any additional cocoa butter, which has resulted in a very pure, rich taste.’ Paradise Foods, through its Queen Emma Chocolate Company, has developed three types of chocolate: Dark Couverture, Lovina Milk chocolate and Queen Emma Gold, each with a distinctive taste profile.

100% pure PNG product The Dark Couverture is produced from a single-source Cocoa Bean from plantations in New Britain, Bougainville, Sepik, Kokoda, Madang and Morobe. Peate says ‘It is 100% pure PNG product. It is made out of 75% cocoa liquor, Ramu sugar and organic vanilla that is all grown here in PNG. Even the box is made from local kunia grass!’ Executive Chef of Port Moresby’s Crowne Plaza Hotel, Gavin Wilcock, has been testing the Queen Emma dark couvertures:

‘We would like to ensure that PNG gets international recognition and benefits from the crops that we use’

‘The PNG dark couverture has a very distinct taste,’ Wilcock declares. ‘It has a biting, beautiful flavour that makes the palate beg for red wine.’ In contrast to the dark chocolate couverture, Lovina Milk chocolate and Queen Emma Gold display light and delicate chocolate flavours.

Packaging the chocolate.

The finished Queen Emma chocolate Credit: Paradise Foods

Quality assured The process begins with the sourcing of highest quality cocoa beans from the growing regions of PNG. After initial post-harvest processing, the beans are brought to the plant in Port Moresby, which converts them into fine dark covertures. Beans are cooled and checked before being transferred to a winnow, where the shell is separated from the cocoa.

The cocoa is then ground to a fine paste and transferred to the ball mills where the sugar and other ingredients are added. The chocolate is milled for a number of hours to develop a fine texture before being transferred to the chocolate temper. After tempering, the chocolate is poured into moulds to cool before the packaging process can begin. ‘We would like to ensure that PNG gets international recognition and benefits from the crops that we use,’ Peate emphasised. The project also represents a new career opportunity for Papua New Guineans, as well as contributing to the development of other PNG-made products.

The Queen Emma chocolate brand is building on PNG’s excellent reputation as a producer of full-flavoured cocoa.

Credit: Paradise Foods

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S ec to r P r o f i l e

Coffee: a major PNG export

C

offee is one of PNG’s major agricultural commodities, with exports worth 927 million kina (US$433 million) in 2011—a huge increase on 2010. Two varieties are grown: robusta in the coastal areas and arabica in the Highlands. There are approximately 64,000 hectares under coffee across 14 of PNG’s provinces, most managed by smallholders. It is estimated that 2.5 million Papua New Guineans rely on coffee as their main source of income.

(represented in PNG by Monpi Coffee Exports Ltd) and Volcafe (local subsidiary PNG Coffee Exports), and Germany’s Neumann Kaffee Gruppe (local subsidiary New Guinea Highlands Exports). Key local coffee producers include Carpenter Estates (a subsidiary of the diversified W R Carpenter Group), Coffee Connection, and Kongo Coffee in Simbu Province.

The Coffee Industry Corporation (www.coffeecorp.org.pg) provides statutory oversight of the industry, as well as research and grower support. It is also empowered to buy and sell coffee.

Because of its longer packaged life, most coffee from PNG is exported as green beans. However, according to the Coffee Industry Corporation, there are seven companies that roast beans in PNG. These include Carpenter Estates, which markets its premium roasted coffee under its Sigri brand, and Kongo Coffee.

PNG produces roughly one million bags of green coffee beans annually (annual world production is currently about 125 million bags). It exported coffee to 29 countries in 2006, with the major coffee markets being Germany, the United States, Japan and Australia. PNG’s slightly fruity beans attract a reasonable price, typically slightly below the price for Columbian coffee.

Organic certification is considered the quickest and easiest way of adding value to the same coffee. This is providing an opportunity for companies such as Coffee Connection to market PNG coffee as organically certified. This certification, plus the sale of coffee under the internationally recognised Fairtrade brand, has the potential to enable growers to achieve higher incomes.

The key coffee-producing provinces are Western Highlands and Eastern Highlands, which between them account for more than 80% of production. Goroka in Eastern Highlands Province is the major commercial centre for coffee, and the headquarters of several of the larger coffee exporters and the Coffee Industry Corporation.

The coffee sector does face challenges, however. PNG’s strong tradition of customary land ownership mitigates against large plantations with their better economies of scale, while poor roads and high rainfall in PNG’s Highlands region often prevent the coffee crop getting to port (usually Lae) in a timely manner. Also, the requirements of organic certification can often be beyond the capacity of smallholders. The coffee export business is also a cash-intensive business, with most companies advancing cash payments to their growers to ensure supply.

The three major international coffee companies operating in PNG are Switzerland’s Ecom Agroindustrial Corporation Ltd

Credit: Mainland Holdings

Credit: ADB/Ian Gill

Credit: MCPNG

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Credit: Pacific Islands Trade and Invest


Ag r i b u s i n e s s

The inside view:

Mainland’s recovery

After years of under-investment and poor performance, major diversified PNG agribusiness, Mainland Holdings, received a stabilising investment from local superannuation fund NASFUND at the end of 2010. Bob Hansen, appointed Mainland’s Chief Executive Officer in May 2012, provides an insight into the challenges the company is facing, and outlines a strategy to place it on a sustainable and profitable footing. Mainland has between 2000 and 2500 employees, plus we have four hundred smallholder growers on our books, and we’ve got a turnover of nearly 300 million kina (US$141 million). It’s been operating really only on a break-even basis and I’ve been asked to come and help them recover the profitability. My previous job was with a company called Sunny Brand Chicken in Byron Bay, Australia. Westpac asked me to go there and do a recovery for them. It was a poultry company with a turnover of AUD$110 million. I returned the company to profitability, and sold it to major producer, Ingham. I was here at Mainland between 1976 and 1986, and I actually designed and built a lot of the facilities during that time. Coming back was quite pleasing. Most of the facilities that are still there are in good condition.

Mainland Holdings’ Bob Hansen

There are, however, some facilities that need a lot of work because they’ve had tough times here for four or five years and have spent little money on some really key facilities. Those facilities do need re-work or upgrading. That’s going

to be a big challenge—finding the capital to do that. We haven’t had that discussion at Board level yet, but it will have to be a combination of equity and funding. There’s certainly a feeling among current shareholders that they want to keep Mainland a PNG company, so that’s going to narrow some of our options going forward. We’ve pulled the business back to really just agricultural products: chickens, eggs, flour, stock feed and crocodiles. Our Mainland Coffee division was sold, the Huon Electrical wholesale and contracting service has closed, and we’ve pulled back the ABCO Transport trucking business to service just our own businesses. I don’t think there’ll be more trimming of the company. What we’ve done is tried to focus on what we consider to be our core business: intensive livestock, feed milling, and agricultural type food products. What we’re trying to do is reinvest in those businesses and use them as a base to grow. We have a huge land portfolio and we use a lot of that portfolio for live poultry. We are also looking at some alternative uses for the land as well. I think there are opportunities to grow the business with product development and with exports, and we’ll be restructuring our management team around that basis. For us, there is a lot of opportunity. We just have to get our own house in order, which I’m hoping we’ll have done by the end of 2012, and then we’ll be ready to go.

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S ec to r P r o f i l e

interview:

Taking PNG sustainable palm oil to the world

Palm oil, sugar and beef producer, New Britain Palm Oil Limited, is PNG’s leading agribusiness, with almost 100,000 hectares under its management across several provinces. Made in PNG asked Jamie Graham, General Manager of NBPOL subsidiary Ramu Agri Industries, about the next steps for this PNG success story.

N

BPOL’s recent growth has been impressive, growing from a turnover of US$225 million to US$780 million in just five years. One of the factors behind that is clearly the increased worldwide demand for palm oil. How do you see that demand being reflected in your activities on the ground? We’re working on continued expansion of palm oil within PNG. At Ramu [in Morobe’s Markham Valley], we’ve already got our first area of land leased, but we’re working on a number of other areas too. Growth will be achieved by a mix of both plantations and smallholders, particularly at Ramu: we feel there’s an opportunity there to increase the number of smallholders and engage more people directly. The whole strategy of the business is about producing traceable, sustainable palm oil.

NBPOL has built its export success on the production of sustainable and traceable palm oil, certified and audited by the Round Table on Sustainable Palm Oil. Credit: NBPOL

What other new investments is NBPOL making as a result of its growth? A new bakery fats plants adjacent to our processing refinery in Liverpool, England, is going through commissioning at the moment, and a new fractionation plant in West New Britain is being built, specifically dedicated to [Italian confectionary giant] Ferrero. Ferrero wants palm oil products of a specific type, and they were prepared to do a joint venture and basically invest in us, mainly because of our sustainability credentials as well as the fact that we’ve got a good track record of quality and reliability. So, they could not only get exactly the product they needed, but they could trace it right back to source. I haven’t heard of anywhere else in the world where it’s been done. How about Ramu Agri Industries, which NBPOL acquired in 2008? There seem to be some positive signs as far as improved sugar production is concerned … Sugar production’s going well. We’re in the midst of the harvest at the moment, and it’s promising to be a successful season. We’re very pleased with the results we’re had from the basic renovation of our refinery, and we’re producing much higher yields for every tonne of molasses now, which is good news. On the beef side of things, we have a pasture improvement programme, and we’re in the process of building an extension to the feed lot, which will take the current capacity up from 1200 to 2000 head of cattle. The entire group has 20,000 head of cattle all up, all for domestic consumption, and we’ve got some very good orders coming in. There are great opportunities—at least 55% of the beef consumed in PNG is imported— and Jamie Graham domestic demand for beef is going

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NBPOL’s joint venture with global confectioner Ferrero—a fractionation plant in West New Britain Province. Credit: NBPOL

up. There are a lot more Papua New Guineans who’ve got higher disposable incomes than they have had in the past and that’s largely to do with the mining boom. So yes, the demand for beef has certainly gone up and some of our customers are expanding their operations, so we’re trying to keep up with their demand. Everything we produce we can sell. Are there any plans to add any new businesses, or will NBPOL be sticking to its guns: sugar, beef and palm oil? For the next five years, that’s what we’re looking at, but if there are opportunities with a market and we can make a profit, then we would look at something as long as it’s agriculture-based. If we felt that sorghum production, for instance, had a market here, and that it was going to turn a profit, albeit even a more modest profit, we would certainly look at that and present it to the Board. This is because some of the land in the Markham Valley is just not suitable for oil palm production, and nor would it be worthwhile expanding the sugar much more, mainly because of the distance in cartage. One of the reasons we’ve got good quality sugar is because of the good quality cane; its freshness. If we went further afield, we wouldn’t be able to guarantee that.


Ag r i b u s i n e s s

Spotlight:

Focus on palm oil

P

alm oil production has the potential to play a major role in economic development at local and national levels. Industry development now underway in PNG shows that the returns on investment for local communities involved in palm oil plantations or smallholder systems can be high. This is particularly important for PNG, where over 80% of the population is located in rural areas known to suffer from high levels of poverty. The growth of the palm oil industry in PNG has already had a significant effect on economic development and poverty alleviation. Palm oil has been PNG’s largest agricultural export earner since 2000. Since 2005, palm oil exports have increased by 159%. Palm oil projects can bring economic and social development to remote rural areas. Research shows that, in the last 15 years, palm oil has recorded the greatest increase in real income out of PNG’s major crops including cocoa, copra and coffee. In fact, smallholder annual returns from palm oil in PNG are now almost twice PNG’s minimum wage and close to 10 times those taken from cocoa production. Today, around 166,000 Papua New Guineans live in rural households that produce palm oil, while many others derive incomes from peripheral activities. In addition, close to 16,000 people are directly employed in palm oil processing. This makes the industry second only to the public service in terms of formal employment and marginally ahead of the forest industry.

The Sigite Mukus Integrated Rural Development Project Rimbunan Hijau PNG (R H) has been investing in the PNG economy for over twenty years. R H was once primarily a forestry operator, but the group has

Credit: R H Group

diversified into sectors such as retail and property, media, transport and shipping. R H employs close to 7700 people across the country.

‘In the last 15 years, palm oil has recorded the greatest increase in real income out of PNG’s major crops including cocoa, copra and coffee’

Now, R H has moved into the palm oil industry, through the Sigite Mukus Integrated Rural Development Project in Pomio, East New Britain. The project, currently in the development stage, is an approved area for agriculture development of 42,000 hectares, with 31,000 ha allocated for oil palm development. Three oil palm mills with corresponding crude oil bulking stations will be constructed near the coast, within pumping distances of jetties built to receive transport barges.

Over 500 Papua New Guineans currently work at the Pomio project, developing a new nursery of close to a million seedlings, and in ongoing timber and agriculture operations. R H estimates local employment will increase to more than 3000 over the next three years. The benefits of the Pomio project are already beginning to filter through the community, with increased incomes for those employed by R H boosting the local economy.

Transport infrastructure investment R H plans to develop new transport infrastructure as well as education and health facilities over the coming years. R H has already begun construction of a road network to connect the project area with rural villages and nearby urban centres. Alongside the road projects, construction of a base camp complete with electricity, water, VSAT and a mobile phone tower is already underway. This camp will be the first of a number of new facilities constructed by R H in the district. Palm oil seeds Credit R H Group

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S ec to r P r o f i l e

Fish processing is a growing industry in PNG, especially along the country’s northern coast. Credit: MCPNG

Fisheries Fisheries has emerged as one of PNG’s most dynamic sectors, following a wave of investment from Asia. In this special feature, Samantha Magick speaks with some of the sector’s key players about its current state and the prospects for further expansion.

I

n 2010, PNG supplied about 17% of the world’s tuna catch, a figure that has been steadily rising in recent years. The Bank of PNG reports that the value of marine products exported in 2011 was 151.1 million kina (US$73.7 million). This 32.5% increase on 2010 exports was fueled by bigger catches and higher market prices. Frozen tuna makes up about half of PNG’s tuna exports, followed by canned tuna, cooked loins, fishmeal and chilled tuna. The Managing Director of R D Tuna, Pete Celso, says the raw value of PNG’s tuna catch per annum is about US$1.35 billion, but that this figure could more than double to US$2.7 billion with more value-added processing.

Union (EU) for canned tuna and cooked loins. Chilled tuna goes to Japan, and fish meal goes mainly to Australia, Sri Lanka and Japan. PNG canned tuna can enter the EU market quota- and dutyfree. Imports to the EU were 15,600 tonnes in 2010, with that amount expected to double in 2012. A recent European Commission report confirmed the importance of this duty-free provision to the PNG sector: ‘Over the medium–longer term, global sourcing will play an increasingly important role in the development and survival of PNG’s tuna processing industry. Duty-free market access to the EU, coupled with global sourcing, makes onshore investment in PNG a more attractive prospect.’ At the time of writing, negotiations with the United States over the US–Pacific Islands Multilateral Tuna Fisheries Treaty were continuing, with a gap to be bridged over the number of fishing

‘We will do everything possible, under the sun, under the moon to make sure that this industry remains sustainable’

Markets diversifying The main markets for PNG tuna are Thailand, the Philippines, American Samoa and Japan for frozen tuna; and the European 36


Fisheries

the Pacific Marine Industrial Zone (PMIZ—see page 40). But there is also significant investment activity in Lae, at the Malahang Industrial Centre, where Thai Union of Thailand, Century Canning of the Philippines, and Frabelle have set up a joint venture, Majestic Seafood Limited. Their US$25 million plant will process 350 tonnes per day. About 80% of its canned tuna will be exported to the European Union and the remainder sent to the United States, Japan and other markets. Plant construction was almost complete at the time of writing. Frabelle is building a new vessel to supply Majestic. The National Fisheries Authority (NFA) has issued four fishing licences to supply the plant during its initial phase, and a further six licences are likely to be issued when production increases. All will be PNG-flagged.

Expanding canning operations

days per season on offer, and the fee to be paid for those days. The treaty governs US access to fisheries in a number of Pacific Island exclusive economic zones. PNG has been playing a leading role in the negotiations, also lobbying for duty-free access to the US market for its canned tuna and other tuna products. China, currently the fourth largest importer of fish in the world, is also emerging as an important potential market. Director of the International Cooperation Department of People’s Republic of China Fisheries Bureau, Xiaobing Liu, says it could open up its vast market to Pacific Islands. ‘China is one of the major fisheries countries, with the greatest number of fishing vessels and fishers in the world, while PNA [Parties to the Nauru Agreement] countries have the largest fishing ground of tuna in the world,’ says Liu. ‘There is a great potential opportunity to cooperate between two sides.

Frabelle has also expanded its cannery operations, according to General Manager-Cannery, Rainer Agbunag. Frabelle has invested US$2 million in plant equipment that now enables it to raw pack fish, and then cook it in the cans, rather than cooking it twice— before and after canning—as was previously the case. ‘This has increased our capacity by 20 metric tonnes. The quality will improve in terms of flavor retention versus the other process of pre-cooking,’ Agbunag says. Frabelle exports most of its canned output to Europe, but Agbunag says there is still room for growth in the domestic market. The PNG Government has also signed an agreement with Nambawan Seafoods to establish a tuna processing plant in Lae. Nambawan Seafoods Tuna is a joint venture between Trans Pacific Journey Fishing Corporation and TSP Mariner Industries of the Philippines. It aims to process 150 metric tonnes of tuna per day at its tuna loining and canning plant. A Chinese company, the Zhejiang Zhenyang Group, has also signaled its desire to set up a US$25 million tuna processing plant. The proposal follows Chinese Government support for the sector, in financing infrastructure for the PMIZ and funding a frozen tuna processing facility in Lae. The plan will process 250 metric tonnes to 300 metric tonnes of tuna a day and employ some 3000 local workers. NFA Managing Director, Sylvester Pokajam, says Lae is also attracting interest from Korean and Chinese investors. The Asian Development Bank is funding Lae’s port expansion but Pokajam says there is still a problem meeting demand there: ‘We are thinking of building another fisheries wharf in Lae which is just a few kilometres away from the Malahang Industrial Centre. We are still talking to the various governments of Korea, China and Japan, hopefully we will get one of them to come good with that.’

New investments and expansion

Incentives for fisheries

Much of the new investment in fisheries has been in anticipation of

The PNG Government offers a number of incentives to investors

PNG lobster tails are a popular export.

PNG-canned tuna is not only exported to Europe, but is marketed locally under several competitive brand names.

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S ec to r P r o f i l e

Key players in fisheries

R

D Tuna PNG is Papua New Guinea’s largest tuna canner. The Philippines-owned company is based in Madang. R D Tuna operates 17 fishing vessels in PNG waters and sells its products under the Diana, Dolly and Dolores brands. With Fairwell Fishery Group of Taiwan and Tri Marine International of the United States, R D Tuna has formed a joint venture under the name Niugini Tuna Limited, and has signed an agreement with the PNG government to operate in the Pacific Marine Industrial Zone (see page 40). R D Tuna is currently being considered for accreditation under the Marine Stewardship Council’s sustainability and traceability policies. Malaysian-owned International Food Corporation (IFC), based in Lae, produces Besta canned mackerel and is moving into the tuna canning market. About 95% of the tuna will be exported to Europe, with the remainder sold locally. The plant is expected to generate 2000 jobs over the next several years. Credit: IFC

IFC produces more than 6000 cans of mackerel per day, and makes its own cans, dresses and cleans its own fish, and cans and pressure-cooks its products. Unused fish is turned into fishmeal. Filipino-owned tuna firm Frabelle Fishing Co opened its own tuna loining and canning plant in Lae in 2006, and also owns and leases purse seiner vessels. It handles all stages of the canning process, including can making, printing and canning. Eighty percent of its product is exported to the European Union, with the remainder sold locally under the Isabella brandname. Frabelle’s cannery is fully EU-compliant. The company has requested eco-accreditation by the Friends of the Sea and has complied with the Earth Island Institute’s dolphin safe standards.

in the fishing sector. Expenditure on new plant or articles for commercial fishing activities qualifies for a 100% accelerated depreciation deduction. Profits from the export sale of canned, loined and smoked fish are exempt from company income tax for the first three years of export and additional concessions apply for a further four years. Investors may also qualify for double deductions for export market development costs and staff training.

Sustainabilityand traceability PNG is increasingly gaining a reputation for sustainable fisheries. ‘We will do everything possible, under the sun, under the moon to make sure that this industry remains sustainable and we will tightly control fishing in PNG waters,’ says Pokajam. ‘It’s all now about sustainability and traceability’ says R D Tuna’s Pete Celso. R D Tuna is PNG’s largest canning company, and is being considered for accreditation under the Marine Stewardship Council’s sustainability and traceability policies. ‘PNG has undergone major improvements and capabilities that can probably be considered the best so far in the Pacific region,’ he says. In July 2011, the Marine Stewardship Council (MSC) awarded the PNA countries, including PNG, a certificate of approval for catching tuna in free schools, rather than using fish-aggregating devices (FADs). This means 30% of skipjack caught in the PNA fishery, 38

With the Thai Union of Thailand and Century Canning of the Philippines, Frabelle is setting up a 350-tonnes-a-day venture, the Majestic Seafoods cannery in Lae. South Pacific Seafood is a 75% PNG-owned/25% Philippinesowned company with plans to invest in fishing port facilities in Central, West New Britain, Morobe, Milne Bay and Manus provinces. Ailan Seafoods Ltd in Kavieng, New Ireland, buys reef fish, snapper, mackerel, crayfish, lobsters, beche-de-mer, and trochus shells and exports them in chilled form. It also farms milk fish, grouper and other saltwater fish in sea cages, and fillets fish for export.

and 16% of the skipjack caught in the Western and Central Pacific Fisheries Convention area, can display the MSC eco-label. ‘With MSC certification of the PNA’s free-school skipjack operations, our customers can be confident that the free-school tuna caught in our waters meet the highest standards for wellmanaged and sustainable fisheries,’ said the PNA’s Director, Dr Transform Aqorau. Meanwhile, Fair Well Investment, a Port Moresby-based fishing company, has signed an agreement with the National Fisheries Authority and World Wildlife Fund to trial the use of circle hooks in its long-line fishing operations.

Coastal and small-scale fishing The PNG Government has also put renewed emphasis on coastal and smaller-scale fishing. PNG’s coastal fishing industry focuses on prawns, lobsters, barramundi, beche-de-mer, trochus shells, pearl shell and green snail. Some trout and carp farms are located in the Highlands region (see opposite page). The National Fisheries Authority (NFA) has recently deployed an Inshore Fishing Aggregating Device (IFAD) program in East Sepik province, with a view to introducing it in other maritime and Highlands provinces. ‘We feel IFAD will help ease the pressure that is currently being exercised on the reef system,’ says the NFA’s Pokajam.


Fisheries

Spotlight:

Aquaculture

A

quaculture is a potentially important industry for income generation and food security throughout many parts of PNG.

While exact statistics are difficult to come by, pond culture of carp, tilapia and rainbow trout has increased significantly in recent years. Over 10,000 farmers are engaged in the sector throughout inland areas with the value of production estimated at 10 million kina (US$4.8 million), according to the National Fisheries Authority (NFA). Recent aquaculture initiatives include cultivation of silver-lip pearl oysters on Samurai Island, prawn culture in earthen pods in Rabaul, and the upgrading of Naqo Island Mariculture and Research Station.

hatchery, storage, administration building and staff accommodation. A bio-filtration and aeration facility is capable of producing up to 500,000 ‘fingerlings’ (young fish that have developed to about the length of a finger) per annum. These fingerlings will be used to rejuvenate the Fly River barramundi stocks, and stock a ‘cage culture’ project empowering the rural communities in the Middle and South Fly to farm barramundi.

‘PNG farmers are beginning to specialise in specific parts of the fish aquaculture custody chain’

‘There is a big push on at the moment. In fact, I have created a new [aquaculture] division within the NFA and we are moving in a big way,’ says the NFA’s Managing Director Sylvester Pokajam. ‘We have got a [cooperation] agreement with the CSIRO in Townsville and we have built the extension facility at Naqo Island.’

Naqo Island Infrastructure at Naqo Island, in New Ireland province, includes a hatchery, algal and wet labs, indoor and outdoor larval tanks and quarantine areas. Project ideas being researched there include trochus community restocking trials, cage-farming rabbit fish, introducing new seaweed types, mariculturing marine ornamentals and mabe pearl culture trials. The NFA is also looking to forge a partnership with the Eastern Highlands provincial government to refurbish and re-equip an existing research facility, in order to offer extension services to other parts of the Highlands.

Barramundi in Western Province

Private-sector specialists PNG farmers are beginning to specialise in specific parts of the fish aquaculture custody chain. Private-sector tilapia and carp hatcheries are being established as stand-alone businesses. These now act as district-level distribution centers for both fingerlings and feed, each supplying as many as 100 other farmers.

Among the specialists are Potsy Tilapia Hatchery in Morobe, which sells tilapia fingerlings for pond stocking throughout the province. Kotuni Trout Farm in Goroka is being revived as a community project and aims to breed stock on its on-site hatchery, while Sirinumu Dam tilapia cage culture farm supplies tilapia in Port Moresby, and is working towards supplying fingerlings throughout southern PNG. Private ‘sector uptake of public-funded initiatives in aquaculture is seen as promising. ‘When measured in terms of sheer numbers of farmers, volume of production, and economic sustainability of projects, PNG is a clear leader. The spirit of enterprise is alive and well, and farmer motivation is high,’ wrote Tim Pickering of the Secretariat of the Pacific Community’s Aquaculture Program in a November 2011 report. ‘Specialisation of activities within the fish custody chain, such as the emergence of private hatchery operators, is one hallmark of a successful and maturing industry.’

The 28 million kina (US$12.7 million) Western Province Sustainable Aquaculture Project in Daru includes a barramundi

Barramundi are now being bred for release into PNG’s river systems. Credit: PNGSDP

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S ec to r P r o f i l e

The Pacific Marine Industrial Zone: an update

W

ork on the flagship project of Papua New Guinea’s fisheries industry, the Pacific Marine Industrial Zone (PMIZ) in Madang, is progressing steadily, with the presentation of the design concept in early 2012. While National Fisheries Authority Managing Director Sylvester Pokajam concedes ‘it has been slow going,’ he also says it has been important to get the engineering specifications right. The PNG Government says the project is on schedule. Detailed design will take an estimated six months and construction for the project’s first phase will take three years. The PMIZ will provide wharfing, berthing, processing and other facilities for national and regional fishing operators at a 215-hectare site 30 kilometres north of Madang. The zone will help mitigate against limitations currently hampering the industry, by creating economies of scale and greater efficiency. The project represents a US$161 million investment over two phases. China Eximbank is providing a US$73 million concessional loan to finance the first phase of construction, while the PNG Government is contributing an additional US$23 million. With only 1.6 million kina (US$750,000) remaining for PNG to pay for its counterpart funding, there are hopes project consultant China Shenyang International Economics and Technical Cooperation Corporation will start construction within a year or two.

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Niugini Tuna Limited—a partnership between the R D Tuna of the Philippines, Fairwell Fishery Group of Taiwan, and Tri Marine International of the US—has already signed an agreement with the PNG Government to operate at the zone. Its activities will include tuna fishing, tuna loining and canning, and fishmeal processing. The loining plant and cannery will produce an estimated 100 metric tonnes of raw tuna per day, while the food processing plant will process 200 metric tons of tuna fish daily. The operation is expected to employ 1500 people in its initial phase, with spin-off business opportunities in repair services, air freight, surface freight, financial services, and trading and retail outlets. R D Tuna already bases its tuna canning facilities in Madang. Chey Scovell, Chief Executive Officer of the Manufacturers Council of PNG, says the Pacific Marine Industrial Zone is one of the most important and misunderstood projects currently underway in PNG: ‘There is continued misconception that it is solely for fish canners and processors and will lead to increased fishing pressures. The site is actually a general industrial zone, with businesses from any sector able to benefit from a large-capacity container terminal and storage facilities, as well as physical sites on which to build and operate.’


s ecto r p r o f i l e

Sustainable forestry operations represent PNG’s future. Credit: Cloudy Bay Sustainable Forestry

Forestry Papua New Guinea’s forestry sector has bounced back from the 2008/9 slump, and is looking to value-adding, together with sustainability and traceability practices, for its growth.

P

apua New Guinea has immense forestry operations, with some 29 forest concessions covering 3.5 million hectares. Eight-four percent of PNG’s landmass is covered by forest, and 5.7 million hectares of this are potentially production forests. More than 60 commercial species of timber exist in the country, falling into three broad categories; major hardwoods, commercial hardwoods, and major conifers. Amongst the most valuable of the major hardwoods is kwila and rosewood. Commercial hardwoods have export potential but suffer some unreliability of supply. While most of its timber-related export income comes from the export of round logs (95% of all timberrelated exports in 2011), PNG does produce a range of forest products, including furniture, plywood and prefabricated buildings, for both domestic and export markets.

Processed timber products are exported to Australia, New Zealand and PNG’s South Pacific neighbours. Veneer is mainly sold to China and South Korea. Plantation products account for about 15% of exports.

‘84% of PNG’s landmass is covered by forest, and 5.7 million hectares of this are potentially production forests’

Industry bounces back

Exports of PNG timber rose sharply in 2010 and 2011, after suffering a definite slump during the global financial crisis of 2008/9. The Bank of Papua New Guinea reported forestry exports worth 768 million kina (US$361 million) in 2011, with some 3.5 million cubic metres of tropical hardwood shipped overseas. This marked a modest 3.3% rise in value on the previous year, but a massive 87% on 2009 figures. In 2011, the average export price for timber was 208 kina (US$97.86) per cubic metre, with prices in the first quarter of 2012 appearing to fall back somewhat. 41


S ec to r P r o f i l e

Major contributor In total, forestry contributes about seven per cent to PNG’s gross domestic product, plus millions of kina in taxes, landowner royalties, infrastructure development and work for more than 10,000 people. Most of PNG’s log exports go to eleven Asian countries: 89% to China, followed by Japan, Korea, India, the Philippines, Taiwan, Thailand and Vietnam.

Major industry participants Malaysian-owned R H Group is the largest player in PNG’s forestry sector. Other major industry participants include Cloudy Bay Sustainable Forestry Ltd (see box on page 44), Innovision (PNG) Ltd, Open Bay Timber Ltd, PNG Forest Products Ltd (manufacturers of Niu Homes—see box on page 43), Pac-Rim Hardwoods (PNG) Ltd, Stettin Bay Lumber Co. Ltd and Turama Forest Ind. Ltd.

New policy promotes value-adding Since January 2010, government policy has dictated that all newly-approved forest projects must contain a strong element of downstream processing. Producers already generate sawn timber, veneer sheets, plywood and processed timber exports, but these sectors will receive much greater emphasis.

Opportunities for expansion Other opportunities for further expansion of PNG’s forest industry include: the increasing domestic demand for timber and wood products driven by PNG’s major new resources projects; establishing plantations; and forest enhancement under climate change protocols. With five major producers already independently certified for legal origin and chain of custody, new export opportunities should arise in markets requiring third-party verification such as Australia, the USA and the European Union. The PNG Forest Authority plans to develop 240,000 hectares of commercially viable and sustainable

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Credit: MCPNG

forest plantations by 2030. Approximately 4000 hectares is expected to be contributed by private investors, including new entrants to the sector. Furthermore, the International Tropical Timber Organisation (ITTO) is working with the PNG Forest Authority to enhance forest law enforcement. Under a two-year pilot project, it will develop a timber tracking system at two timber concessions, develop a legality standard and industry code of conduct, and develop a forestry monitoring module for local stakeholders. According to the ITTO, the project could lay the foundations for future initiatives such as a national timber inventory, carbon sequestration monitoring, and certification.


Fo r e s t ry

Producer Profile

Niu Homes, new approach

N

iu Homes has a 30-year history of providing buildings for Papua New Guinea’s residential and industrial sectors, from 24-room complexes for mining camps to family homes. A division of PNG Forest Products, Niu Homes makes buildings which use renewable plantation pine and are entirely designed and made in Papua New Guinea. Its services extend from building design and product delivery to construction and fit-out. Roofing, electrical, plumbing and other hardware components are included in the prefabricated buildings, and complementary furniture packages are also available.

Currently, domestic customers make up approximately 60% of Niu Homes’ market, with the remainder being exported. ‘Our products have been placed extensively throughout PNG and surrounding areas including Lihir, Bougainville, Vanuatu, Samoa, the Solomon Islands and into Cairns, Australia,’ says Wallace. He believes there is room for growth in the export market, especially in neighbouring South Pacific countries.

‘We adopt a very stringent approach to quality, attention to detail, sustainability and serviceability.’

Niu Homes prides itself on its compliance with international standards. ‘[We] adopt a very stringent approach to quality, attention to detail, sustainability and serviceability in complimenting the integrity of our products,’ says PNG Forest Products Marketing Manager, Stuart Wallace. ‘This approach, in our opinion, is of extreme importance within the market.’

The operation employs 152 people, with staff in its design office, production facility, logistics and purchasing, shipping and national sales team. The production team in Bulolo mans day and night shifts.

Wallace says over the past year Niu Homes has built several commercial buildings, including duplexes, 16- and 20-room complexes, and a specially designed 40-room complex. The company is still looking to diversify its range. ‘[We] are expanding to include agricultural sheds and workshops, offices, classrooms, mess halls, assembly halls, clinics and aid posts, and ablution blocks,’ adds Wallace.

‘The markets we supply are extremely diverse,’ he continues. They include residential family and executive design houses, ranging in size from 20 to 220 square metres, to commercial models: two- and four-bedroom apartments, two-story duplexes and 16-, 20- and 24-room complex buildings commonly used as corporate housing, mining camp accommodation or at resort projects.

Exterior and interior Niu Home designs from PNG Forest Products. The homes are built from renewable plantation pine. Credit: PNG Forest Products

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S ec to r P r o f i l e

Producer Profile

Cloudy Bay Sustainable Forestry

The Cloudy Bay Sustainable Forestry Company operates to a simple formula: ‘high quality at a fair price.’

C

loudy Bay Sustainable Forestry Company places high value on sustainability. It received a Forest Stewardship Council (FSC) Controlled Wood and Chain of Custody accreditation in 2011. Since 2006, it has been developing a Forest Management Area in the Cloudy Bay region, 250 kilometres south-east of Port Moresby. It was awarded the country’s first 100%-downstream processing license by the PNG Forest Authority (PNGFA), covering 148,900 hectares. A subsidiary of the PNG Sustainable Development Program, its downstream processing capacity includes milling, planning, dressing, moulding, kiln drying and pressure treating.

Employment of workers from local villages continues to grow, standing at 74% of the workforce in 2011. This figure is expected to increase further as skills develop. Cloudy Bay has also moved from supplying solely on a ‘made to order’ basis to becoming a stockist, because ‘if there are products in stock, people will buy them,’ says Janssen. Under its Project Agreement with the PNG Forest Authority, Cloudy Bay must invest in infrastructure and many building projects have already been completed over the last three years. In 2012, it will construct five classrooms, two community halls, a health centre, road upgrading and building, and construction of three steel bridge.

Cloudy Bay also produces exotic furniture and kitchen units, and prefabricated homes and offices.

Expansion and quality improvement The company has plans to investigate a sawmill and plantation project in Western Province. ‘Plantation development is the best opportunity for forestry in PNG,’ says Cloudy Bay Managing Director Mike Janssen. The company also recently commissioned a new manufacturing shed, which will allow for the expansion of its prefabricated building division. Exceptionally high rainfall in 2011 meant the mill had to be closed twice, but enabled equipment to be upgraded and rebuilt. Janssen says this work has improved board quality and made planned production targets possible. The company expects harvesting production levels of 4000 cubic metres per day to be the norm in future. The company gets export inquiries from Asia and the European Union all the time, says Janssen, but with its current limited supply, it makes more sense to sell into the local market.

Local employment growing Janssen says he is looking forward to a period of ‘upgrading skills, reducing costs, and improving efficiencies and quality.’

Some of Cloudy Bay’s quality wooden furniture. Credit: Cloudy Bay

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‘Cloudy Bay is looking forward to a period of “upgrading skills, reducing costs, and improving efficiencies and quality.”’


F e at u r e

Traffic through PNG’s ports rose by 46% in 2011 (source: PNG Ports). Credit: Pacific Islands Trade and Invest

Improving PNG’s business environment Many of the success stories in this publication have occurred against significant odds. Papua New Guinea’s producers face many challenges in developing their businesses, although things are looking up.

A

s a developing country, Papua New Guinea lacks much of the infrastructure that businesses in developed nations take for granted: ubiquitous and well-maintained roads, reliable power supply, capacious sea ports, and modern airports. Government services in PNG, including those related to law and order, business regulation, education and training, are also significantly restricted in many areas due to a lack of resources and qualified personnel. It’s not just a problem money can fix, either; the country’s extreme terrain and high rainfall makes even the maintenance of existing infrastructure a constant labour, while the dispersed population, the largest portion of which is based in its remote Highlands, presents unique challenges for the delivery of services. Inevitably, where there has been a lack, the private sector has filled the gap as best it can. Thus, private power plants, wharves, roads, water supplies and training facilities are a feature of PNG’s business landscape.

This was amply demonstrated by the inaugural PNG 100 CEO Survey, conducted by Business Advantage International in early 2012, which asked CEOs in PNG to name the critical issues facing their businesses. Top of the list were:

Survey reveals critical issues

Positive signs

Throw in a decade growing domestic demand, and you have a business environment under significant stress.

While no-one believes the business environment can be improved overnight, there are encouraging developments.

• A shortage of skilled personnel and necessary expertise • Security and law and order problems • Unreliable utilities • Logistical challenges Given it is such a vital source of long-term employment, many manufacturers believe the government should do more to assist the sector. According to Ian Chow, CEO of the Lae Biscuit Company: ‘PNG’s manufacturing sector can provide stable employment opportunities but we face so many challenges. We’d like to see the new government make a real effort to assist local manufacturers.’

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F e at u r e

Firstly, improved revenues are allowing the PNG Government to address long-term under-investment in essential infrastructure. In its December 2011 Budget, it made its largest allocation ever for development, including 187 million kina for the development of PNG’s 89 districts, 170 million kina for infrastructure and other projects related to the PNG LNG project, 231 million for roads (including the Highlands Highway), 44 million for water and sanitation programs and 41 million for rehabilitation of hospitals. Secondly, a newly-instituted Sovereign Wealth Fund, to be funded through the State’s interests in major resources projects (most notably the ExxonMobil-led PNG LNG project), will enable the Government to recapitalise some of its ailing state-owned enterprises (SOEs), which have suffered from a lack of investment in recent times. Indeed, a portion of the fund has already been flagged for expressly such a purpose, while the creation of an Independent Infrastructure Authority to oversee investment in the country’s infrastructure has been mooted. This, accompanied by regulatory reforms that look set to enable more private sector involvement in the SOE space (mirroring reforms that have transformed the Information and Communications Technology sector—see box), are likely to deliver more investment, more redundancy in infrastructure and, ultimately, more reliability. The new PNG Government, elected in July 2012, also has a Public-Private Partnership Bill ready in draft form to consider, which could enable, for example, the construction of privately-built power stations. (However, as Deloitte PNG Managing Partner Lutz Heim observed in the 2012/13 edition of Business Advantage Papua New Guinea,‘it is likely that the more successful partnerships will take account of the PNG preference for retaining ownership of its assets, at least in part.’)

External investment and donor support Another positive factor is the investment PNG is receiving from international sources of finance such as the Asian Development Bank and aid organisations such as Australia’s AusAid. Ports have been a consistent bottleneck in recent years, with the situation exacerbated by the need to import a huge inventory of materials to not only build the massive US$16.5 billion PNG LNG Project but other future resources projects. PNG Ports, which runs PNG’s 16 gazetted ports, recorded a staggering 46% increase in volumes through its ports in 2011 alone. The ADB is financing a major expansion of PNG’s major port, Lae. The 800 million kina (US$376 million) Lae Tidal Basin Project will increase capacity significantly. According to now-retired Public Enterprises minister Sir Mekere Morauta, the new facility, which is expected to be completed in 2015 ‘will … spur other economic development in the region, including agriculture, by helping to lower the cost of taking goods to local and international markets as well as reducing the transport costs of inputs.’

Vital roads

T

he first phase of PNG’s information and communications sector deregulation occurred with the issuing of a mobile phone licence to privately-owned Digicel PNG in July 2007. Digicel immediately started to compete aggressively with stateowned incumbent, Telikom PNG. Mobile phone coverage in PNG exploded, as did the number of users—there are now an estimated 12 million mobile phones in PNG! Suddenly, delivery of services via mobile phone—from bill payments to phone banking—has become a reality (largest bank BSP has already set up over 200,000 mobile banking accounts). It has transformed business communication too, connecting buyers and sellers across the country. Phase 2 began in 2011, with the establishment of the National Information and Communications Technology Authority (NICTA), a new regulator charged with opening the sector up to further competition and removing any final Telikom PNG monopolies. Now, any company can apply for a licence to deliver any ICT service and many have already done so. Mobile phone, satellite and internet services appear to be the most popular areas for growth.

Bank of South Pacific CEO Ian Clyne displays a new-generation mobile EFTPOS machine, which takes advantage of the dramatic expansion of PNG’s mobile phone network.

In mid-2102, Lae and Madang were finally connected by fibre-optic cable, enabling businesses along the PNG mainland’s northern coastline to access internet services at previously unheard-of speeds.

country in the Asia-Pacific region. A 10-year US$640 million program supported in part by the ADB is currently rehabilitating and maintaining PNG’s 21 airports.

Power generation Load shedding by power stations in PNG is common, with demand for electricity often outstripping supply, particularly in Lae, PNG’s industrial hub. Power capacity is being built, however, with the Independent Public Business Corporation—the body that overseas PNG’s stateowned enterprises, including PNG Power—pushing through plans to rehabilitate the Ramu Hydro Scheme, which provides much of Lae’s Morobe Province with power. The project, which would involve rehabilitating and expanding the major Yonki hydroelectric dam as well as building a new ‘Ramu 2’ dam and power station, would increase output from 45 MW to over 180 MW. State utility PNG Power also added a further 20 MW to Port Moresby’s electricity grid in early 2012, but in the medium term is looking to gas-generated electricity as a major source of power for the nation’s capital.

‘Private power plants, wharves, roads, water supplies and training facilities are a feature of PNG’s business landscape.’

PNG’s 9000km of roads, in particular the vital Highlands Highway that connects PNG’s rural Highlands to the port of Lae, are in continuous need of repair. The PNG Government has signalled its intent to eventually seal all roads, while the ABD has committed US$400 million to assist with construction and maintenance over the next 10 years. In early 2012, the Asian Development Bank announced contracts worth US$120 million for road improvements in the Highlands region. Meanwhile, AusAid’s A$65 million (US$68 million) Transport Sector Support Program helped to maintain 2000 km of roads in 2011. Finally, with only small parts of the country traversable by road, PNG is more reliant on air services than possibly any other 46

ICT reform delivers business benefits


D i r e cto ry

Made in PNG Directory USEFUL CONTACTS

Industry

Government Department of Agriculture and Livestock www.agriculture.org.pg

Business Council of PNG +675 320 0700 executive@bcpng.org.pg www.bcpng.org.pg

Investment Promotion Authority of PNG Tel +675 308 4444 www.ipa.gov.pg

Lae Chamber of Commerce and Industry Tel +675 4722 340 lcci@global.net.pg

Ministry of Commerce and Industry Tel +675 3277 350 www.dci.gov.pg

Manufacturers Council of PNG Tel +675 321 7143 pngmade@global.com.pg

National Agriculture Quarantine & Inspection Authority PO Box 741 Port Moresby NCD Tel +675 3112 100 naqia@dg.com.pg www.naqia.com.pg

PNG Chamber of Commerce Tel +675 3201 988 pngcci@global.net.pg

National Fisheries Authority Tel +675 3090 444 www.fisheries.gov.pg Papua New Guinea Customs Services Tel +675 3226 983 Papua New Guinea Forest Authority Tel +675 3277 800 www.forestry.gov.pg

The Port Moresby Chamber of Commerce & Industry Tel +675 3213 077 bizcentre@pomcci.org.pg www.pomcci.com

INFORMATION RESOURCES

The PNG Investors’ Manual A handbook for investing and doing business in Papua New Guinea. www.pomcci.com The National PNG’s national daily newspaper, which also publishes the annual Papua New Guinea Yearbook (ISSN 1726-121X), a useful reference. www.thenational.com.pg The Post Courier PNG national daily newspaper www.postcourier.com.pg The PNG Exporters Directory Biennial publication by the Investment Promotion Authority outlining the industry sectors in PNG and who’s who in the exporting arena. www.ipa.gov.pg PNG White Pages PNG’s online telephone directory includes business and government phone numbers. www.whitepages.com.pg

Business Advantage Papua New Guinea PNG’s international business and investment publication, also online. www.businessadvantagepng.com

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D i r e c to ry

PNG’s trade treaties

P

apua New Guinea is party to a number of advantageous trade agreements that give its exports preferential access to markets all over the world. Here’s a brief summary. Papua New Guinea–European Union Economic Partnership Agreement (EPA) http://trade.ec.europa.eu/doclib/docs/2010/january/tradoc_145672. pdf PNG signed an interim EPA with the EU in 2009, which was ratified by the EU in early 2011 and by PNG in mid-2011. This bilateral agreement provides free market access for PNG exports to the EU and simplified Rules of Origin for processed fish. PNG, together with other Pacific ACP States, is in the process of negotiating for a comprehensive EPA with the EU. The Region aims to conclude negotiations at the end of 2012. The South Pacific Agreement on Trade and Economic Cooperation (SPARTECA) www.worldtradelaw.net/fta/agreements/spartecafta.pdf SPARTECA provides duty-free market access for PNG (and other Pacific Forum countries) exports into Australia and New Zealand. The Pacific Island Countries’ Trade Agreement (PICTA) www.forumsec.org PICTA is a trade agreement among the 14 Pacific Forum Island Countries that became operational on 1 January 2007. PNG is a party to PICTA and is currently in the process of completing the remaining domestic arrangements to announce their readiness to trade under PICTA. Parties are currently in the final stage of negotiations on PICTA Trade in Services, following which the PICTA Temporary Movement of Natural Persons (TMNP) Scheme would then be considered. The Pacific Agreement on Closer Economic Relations (PACER) www.forumsec.org PACER is a framework agreement on trade and economic cooperation between the countries of the Pacific Islands Forum, including Australia and New Zealand. PACER is not a trade agreement but aims to promote greater regional integration through trade facilitation and cooperation with a view to commence negotiations in the future.

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The Pacific Agreement on Closer Economic Relations Plus (PACER Plus) www.octapic.org or www.forumsec.org PACER Plus negotiations were launched in August 2009. PNG, together with 12 other Pacific Forum Island Countries, is negotiating PACER Plus with Australia and New Zealand. The aim of the negotiations is to go beyond a conventional free trade agreement to craft an agreement that would promote sustainable growth in the Forum Island Countries. PNG and Australia Trade and Commercial Relations Agreement (PATCRA) PATCRA allows duty free access for PNG products into Australia. Melanesian Spearhead Group Trade Agreement (MSGTA) Members: Papua New Guinea, Solomon Islands, Vanuatu and Fiji www.msgsec.info The MSGTA facilitates free trade, with some exemptions, between PNG and its Melanesian neighbours. The Agreement is currently undergoing a review. The Group has also recently established a Skills Movement Scheme (SMS) to facilitate movement of workers within the sub-region, with implementation expected to start in 2012. Research conducted by Julia Tijaja


ENGA

Gold, silver

Mount Hagen

WEST NEW B

Coffee, tea

H L A NDS

CHIMBU (SIMBU) Coffee

HERN HIGHLANDS Oil/gas

Palm oil, for

Goroka

EASTERN HIGHLANDS Coffee

GULF Oil/gas, marine products

T H ERN

u

K

WESTERN HIGHLANDS D i r e cto ry Coffee, tea JIWAKA

Lae

MOROBE Manufacturing, logistics, coffee, livestock, fish processing, forestry, gold, copper

CENTRAL

Gulf of Papua Lae: Papua New Guinea’s manufacturing hub Fisheries, forestry, gold, rubber

NORTHERN (ORO PROVINCE) Palm oil, coffee, cocoa, copra

Port Moresby

PNG’s second-largest city is the focal point for the nation’s downstream processing NATIONAL industries. CAPITAL DISTRICT

Manufacturing, logistics

A

lthough it plays second fiddle to the national capital Port Moresby, Lae in Morobe Province is PNG’s industrial capital and boasts considerable activity in manufacturing, trading, agribusiness and, more recently, fisheries. Many of PNG largest producers have their head offices here, including K K Kingston, Laga Industries, Mainland Holdings and (100 km away) Ramu Agri Industries. Local subsidiaries of international firms such as Nestlé, Coca-Cola Amatil, DuluxGroup and Japan’s PNG Taiheiyo Cement also call Lae home.

Local growth Unsurprisingly, PNG’s recent economic boom, spearheaded by the PNG LNG project, has also had a considerable impact on Lae. Perhaps the biggest recent driver of local growth has been Harmony Gold–Newcrest’s major new mining project at Hidden Valley, three hours drive from Lae and, to a lesser extent, the Ramu Nickel mine near Madang, from which significant benefits have flowed. One local business leader we spoke to has even greater hopes for the impact of the new Wafi-Golpu gold/copper project. A major local fisheries sector has sprung up over the past decade, with major processing facilities constructed by Frabelle (Philippines) and International Food Corporation (Malaysia).

Lae: the facts • Despite being the second city in a country of some six million, Lae has an official urban population of just 120,000 (2000 census) • It is situated on the Huon Gulf and is the capital of Morobe Province • Lae’s Nazdab Airport is a 30-to-40 minute drive from town • Lae is home to the well-regarded Papua New Guinea University of Technology (Unitech)

roads have earned it the nickname ‘pothole city’, while congestion at PNG’s busiest port leads to perennial freight delays. It also shares the same security problems as Port Moresby, with its accessibility making it an obvious destination for itinerants from the Highlands. There is some good news on the infrastructure front, however. A major initiative to improve the city’s roads commenced in 2011. While it is yet to be completed, progress has clearly been made. Early work has also begun on the long-awaited Lae Tidal Basin Project to expand the port.

The good times have also encouraged PNG’s larger manufacturers to make sizeable new investments in Lae, including S P Brewery and Lae Biscuit Company.

A transport hub

With its central location, access to the Highlands and port facilities, Lae is a natural industrial hub. Nowadays, 60% to 70% of all PNG’s trade passes through Lae, including 90% of coffee exports.

• Geographically central • PNG’s largest port facilities • PNG’s major road hub, located at the start of the Highlands Highway that links the heavily populated Highlands area to the coast • Regular flights to Port Moresby and other domestic centres

Infrastructure challenges Despite this, Lae is still beset by the kind of infrastructure challenges that are endemic in PNG. Its poorly-maintained urban

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D i r e c to ry

Manufacturers Council of Papua New Guinea members Members can be contacted through the Council on email pngmade@global.net.pg.

21C Limited

International Food Corporation Ltd

Pipemakers Ltd

AkzoNobel (PNG) Ltd

InterOil Refinery

PNG Brothers Grocery

Amalgamated Knitwear Industry Ltd

JKT Lim Ltd

PNG Forest Products

Amalpack Ltd

K K Kingston Ltd

PNG Organic Farm Product Ltd

Awute Coffee Producers

Kokoda Tailoring Ltd

PNG Salt Industries Ltd

Belltek Chemicals Ltd

Kongo Coffee Ltd

PNG Taiheiyo Cement Ltd

BMF Organic Products Ltd

Koyasi Printing Ltd

R & P Signs Ltd

British American Tobacco (PNG) Ltd

L & C Pacific Enterprise Ltd

R D Tuna Canners Ltd

City Pharmacy Ltd

Lae Biscuits Co. Ltd

Ramu Agri Industries Ltd

Cloudy Bay Sustainable Forestry Ltd

Lae Builders & Contractors Ltd

Rimbunan Hijau Timber Processing Ltd

Coca-Cola Amatil (PNG) Ltd

Laga Industries Ltd

Roots Organic Products Incorporated

Colgate Palmolive (PNG) Ltd

M & S Tsang Ltd

S P Brewery Ltd

Colorpak Ltd

Mainland Holdings Ltd

Senpack Ltd

Damba Ltd t/a Prima Smallgoods

Markham Culverts Ltd

Starland Ltd

Dulux (PNG) Ltd

Melanesian Spice Ltd

Steel Industries Ltd

DuluxGroup (PNG) Pte Ltd

Moore Business Systems (PNG) Ltd

Super Value Stores Ltd

Ela International Ltd

NCI Packaging (PNG) Ltd

Threadneedle Ltd

Frabelle (PNG) Ltd

Nestlé (PNG) Ltd

Treid Pacific (PNG) Ltd

Globe Manufacturing Ltd

Niugini Steel Corporation

Trukai Industries Ltd

Goodman Fielder International (PNG) Ltd

P C (PNG) Ltd

Vitis Industries Ltd

Goroka Coffee Roaster Ltd

Pacific Foam Ltd

W R Carpenter & Company Estates

GRG Business Publications

Pacific Industries Ltd

Wimble & Co. Ltd

Hornibrooks NGI Ltd

Panamex Pacific (PNG) Ltd

Wong Tim & Co. Ltd

Hugo Canning Ltd

Paradise Food Ltd

Woo Textile Corporation Ltd

ICBM Corporation

Paradise Organic Spice Ltd

Imprint Copy Centre Ltd

Pelgen’s German Smallgoods Ltd

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Listing correct as of May 2012



Made in PNG 2012