Interview: Alfred Yau
Which regions hold the most growth potential for the retail sector, and what are the main challenges to expansion across the country?
ALFRED YAU: Port Moresby, as the capital city, will continue to see a growing retail sector – so long as extractive sectors continue to expand. Outside of Port Moresby, Sepik Provinces have the most growth potential. The region has an abundance of farming and mining activities, and provided that incomes continue to increase alongside economic growth, I suspect it could emerge as a new retail centre. As disposable incomes rise, the general level of demand increases, which leads to business owners expanding their operations, augmenting the velocity of revenue growth as a result. Morobe Province also has potential, as the proposed multibillion dollar Wafi-Golpu mining project will drive economic development around Lae, Wau and Bulolo.
A primary challenge associated with footprint expansion is land ownership disputes. Even if disputes are resolved, there is still a lot of bureaucracy associated with the acquisition of permits – a process that can take months to complete. Additional downsides include poor logistics and timeliness: shipping is often expensive due to infrastructure gaps and the transportation of goods can suffer as a consequence. PNG does not yet have a well-developed financial sector. The number of banks is limited, which means there is little competition for a loan to finance a retail expansion, for example.
What growth strategies do you view as most effective for increasing profitability and productivity in the retail sector, without increasing risk?
YAU: In a retail market like PNG it helps to have your own brand to allow for product differentiation. However, in order to have that, a retailer needs scale, which is not feasible for smaller players. Technology can help increase competitiveness, but in order to capitalise on technology, we need to first secure the fundamental building blocks to enable growth. In order to move up the technology curve, we need secure and reliable utilities – it is not possible to automate if there are persistent utility gaps. Enhancing technology could in some cases, where there is unreliable electricity supply, be a liability. In this situation shifting entire production mechanisms from laborious work to automation would be difficult and incur high costs.
How would reforms aimed at improving the ease of doing business benefit the retail sector?
YAU: We could increase the ease of doing business by simplifying the tax code and reducing the rate of taxation. As it is, the tax base is small in PNG. If we were to provide tax relief to businesses, then we would see more efficient investment from the private sector, which would in turn spur growth. Banking reform would also allow more banks to operate, increasing financial options and driving down financial costs.
Is there potential for e-commerce to transform the retail sector in the short to medium term?
YAU: For e-commerce to take off, we need enhanced infrastructure and payment facilities. These fundamentals are currently lacking but could transform the sector, though there seem to be no short-term workable solutions. Even if we did have digital payment channels, the product delivery would remain a challenge. In the medium term, as mobile penetration increases, we will likely see innovation. On a global level, innovators are typically banks. In our case, innovation needs to be driven by retail: e-commerce takes business away from banks, as they rely on a range of fees that are no longer applicable if transactions are completed via these platforms. There is a digital shift under way, supported by a youthful demographic and rising mobile penetration, which could help make the shift to e-commerce more manageable. In fact, Bank South Pacific has created an online payment gateway on their system, which some merchants have integrated into their online stores.