Interview: Michael Kingston
How would you define Lae’s corporate landscape, and how has it evolved over the years?
MICHAEL KINGSTON: Historically Lae’s corporate landscape has always been quite cosmopolitan, with expatriates and global companies working under the same roof as Papua New Guineans. By contrast, in recent years Papua New Guinea-owned businesses are becoming increasingly prominent thanks to an emerging middle class that is more involved than ever in shaping the socio-economic fabric of our nation. Needless to say, I think that this is a positive development for PNG and it is exciting to see local companies move up the ranks and compete with stronger international players.
If we take KK Kingston as an example, over the years we have gone from being purely an importer and reseller of machinery and industrial products to being a manufacturer that takes advantage of Lae’s competitive advantages to reach the rest of the country. Today manufacturing accounts for as much as 85% of our turnover. A number of companies in Lae have been through a similar process, which I believe is a testament to the city and the wider region’s transformation into the manufacturing hub of PNG.
How would you assess the country’s present economic situation, and how is it impacting the business environment in Lae?
KINGSTON: Just as for the rest of the country, the business environment in Lae is getting increasingly tougher. The cost of doing business is not getting any cheaper, while infrastructure development lags behind the growing demand. Competition is also mounting, even though globally PNG is not yet a hotly contested market.
Against this economic backdrop, the system badly needs legislation to improve the general business climate, but some of the measures introduced by the current administration – like increasing the minimum wage – seem to be pointing in another direction. When prices go up, demand goes down, hindering job creation. High unemployment among young people creates social instability, and this is something that we need to tackle quickly if we want to avoid social tension in the future. There is also less cash in the local economy at the moment, as opposed to a few years ago during the boom from the construction of the PNG liquefied natural gas project. As a result, more people are resorting to opportunistic crime than 10 years ago.
How would you compare Lae’s economy to Port Moresby’s, and how are the two interconnected?
KINGSTON: Port Moresby has the tendency to develop economic bubbles of various sorts and the construction of the South Pacific Games facilities may turn out to be one of them, although it supported economic growth at the time. By contrast, Lae doesn't attract the same level of investment and its fortunes are very closely tied up to key sectors like mining and agriculture, which unfortunately continue to struggle at the moment due to low global commodity prices.
Unlike extractive industries, where you tend to find that the benefits are shared among a small number of people, agriculture has a much broader effect and it quickly impacts the livelihood of entire communities.
The price of commodities like coffee, palm oil and cocoa determine the purchasing power of the population in the Lae region, which is why manufacturers are moving away from higher-grade products and back towards staple products. This is a trend we watched happen during the last quarter of 2014 and continue into 2015. As a result, the corporate landscape is undergoing a period of consolidation, readjusting its cost structure in order to retain market competitiveness.
In favour of the current administration, I can say that we have seen a significant improvement in the road network, with more work done in the last couple of years than in some past decades. It is easy to be critical about the pace of the process, but I think that many people underestimate how difficult such projects can be in PNG, once you take into account prominent hurdles such as landowner, resettlement and compensation issues.
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