Interview: Matthew Lewis, Managing Director, Hornibrook NGI
How would you characterise the outlook for Papua New Guinea’s construction sector in 2018?
MATTHEW LEWIS: The year of 2017 was somewhat below average; the main challenge came from the shortage of foreign currency, which limited many companies from importing their materials from abroad. Events like the South Pacific Games drove growth for considerable periods in the past, however, the foreign currency problems prevented that in 2017 and may continue to do so in 2018. The government is currently receiving international support to tackle this problem.
The biggest drivers of the construction sector in 2018 will be foreign aid projects, particularly those coming from China and Australia. Furthermore, a lot of new facilities will need to be built in time for the country to host APEC, with Port Moresby likely to see most of the construction. Nevertheless, APEC will not be the only driver of growth; other important construction projects will be situated around the development of the extractive industries. Recovering commodity prices will benefit the mining sector, resulting in new facilities and upgrades. We also expect government investments in bridges, roads and other major infrastructure programmes. These investments will be in line with the country’s diversification and self-sufficiency plans.
What steps can be taken by local companies to improve supply chain integration?
LEWIS: The shortage in foreign currency changed the dynamics of the market; companies with foreign currency accounts had to convert them into PNG kina. It then become increasingly difficult to import construction materials, and this resulted in shortages. The ideal situation would be to buy those materials locally, but the reality is that there really is not much available in PNG besides an abundance of concrete. Only the bigger companies that are vertically integrated generate a competitive advantage out of this situation. Tax incentives might promote more domestic production. The manufacturing council does great work but at the same time has limited power – this situation will be hard to change in the next 10 years.
An additional challenge comes from the government currently following the IMF recommendations by setting import tariffs. You can only do that when the facilities and incentives are in place to produce such materials domestically. Instead of generating tax out of a small amount of imports it would be better to lower tariffs. This would drive construction activity and might eventually generate even more tax revenue.
What is the potential demand for construction projects outside Port Moresby?
LEWIS: The difference in demand for construction activity between Port Moresby and the rest of the country is immense. While the majority of the population live in the Highlands Region, the capital sees the bulk of infrastructure spending. It’s also logical given that Port Moresby is the seat of government, the city where many organisations are based and the location where the main APEC events will take place. If Port Moresby is the brain of PNG, then Lae is its heart. The port city is the centre of economic activity and connects the majority of the population by sea routes and roads. Yet, this important region barely sees any investment. Some of the main challenges to doing business here are insufficient logistics and the lack of support services.
The regions outside of Port Moresby need more governmental spending in the form of infrastructure and other services such as airports, hospitals, bridges, wharfs and roads. If managed carefully, these construction projects can create a trickle down effect to the population and local companies. For example, the Highlands Highway is a project that needs to happen as it will unlock the agricultural and manufacturing potential of all the connected regions. Besides logistics, security, land rights issues, regular blackouts and insufficient medical services are other major challenges.
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