Interview: Graham Boddington, General Manager, Northbuild Construction
How attractive is Papua New Guinea’s construction sector to both local and international companies?
GRAHAM BODDINGTON: In general, the business environment for construction-related projects cannot be described as attractive at this time. Over the last 12-18 months companies have had difficulty finding international joint-venture partners. PNG is considered too risky, while the Australasia market remains profitable. Regardless, demand for the 2018-19 period is expected to largely come from housing. The residential segment has high demand for new products, and the PNG home-buyer has become more sophisticated and informed than what the local market is currently catering to. The heightened demand for more options in housing is partially attributable to the “one size fits all” approach regarding home design. Most builders are focused on houses they can purchase in parts from abroad and deliver locally as efficiently as possible. This no longer represents what PNG buyers want. Furthermore, to improve housing options, an increase in government spending on power, water and sewage infrastructure could have a significant impact on residential construction. It would open up land for development, which will bring more new houses onto the market and result in lower home prices. In turn, this will make it more affordable for locals to own a home for the first time.
What is the strength of domestic supply chains?
BODDINGTON: Local supply chains for the construction sector are normally well resourced. The market has both major suppliers of construction materials and equipment, and a few smaller operators who have entered the market over the last 12-18 months. Strengthening local supply chains outside the Port Moresby area would be ideal, but that is only a real possibility with an upturn in the economy and an increase in spending on regional projects and infrastructure. It should be noted that the current tariff system for construction materials and equipment protects local industry. However, a quick review of the tariffs shows that the protection of local industry is gradually being eroded as local businesses become more efficient or fall by the wayside. Regardless, tariffs protecting infant local industry remain and are important. In terms of costs, PNG is not a cheap place to do business. Besides buying materials, significant operating costs include staff salaries, property rent and maintenance. All of these are interrelated and reducing any of them negatively impacts the rest. Finding the right balance without suffering too much of a lag when projects gear up can be challenging.
How important are internationally funded projects to the domestic construction industry?
BODDINGTON: Internationally funded projects are important because they usually include contractual requirements to ensure delivery is at least to minimum Australian standards. Companies must make investments to train their workforce to meet these standards and to understand why they are significant. The sector relies on such projects for sustaining the level of professionalism in the workforce. Furthermore, an important way to realise major projects is by using public-private partnerships (PPPs). This is not only the case for infrastructure, but also for public housing, for example. There is a lot of potential for more elaborate PPP frameworks. The current government has demonstrated a strong desire to work closely with local firms, but the framework to complete these transactions can be cumbersome. Regardless, increased infrastructure spending will assist in unlocking land parcels across the country. Basic services like electricity, sanitation and water need to be delivered by the government, while roads – other than major arterials – could possibly be delivered by the private sector. As long as residential subdivisions are planned properly along with genuine input from town planners, the road network and everything that goes along with it could be included within the construction sector’s delivery framework.
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