PNG: Rise of retail

With confidence in Papua New Guinea’s economy rising due to the prospects of gas and mining wealth, the country’s retail market is expected to see significant expansion in the next few years.

Rising incomes and urbanisation suggest the retail and industry sector will gradually evolve away from its traditional focus on informal markets to new trends such as luxury goods and modern shopping malls and supermarkets.

Spurring on this growth is the PNG Liquefied Natural Gas (LNG) project, a gas production and processing facility in the Southern Highlands, Western Region and Port Moresby. Currently employing some 5000-6000 workers, the LNG project has stimulated strong demand in the retail sector which could be curtailed significantly when the construction phase of the project is over and the workforce is slashed to a permanent workforce of 500 to 600. Despite the concern over the impending elimination of these jobs, optimism remains that the revenue derived from subsequent energy exports will soften the blow.

“Sure it will have an impact, but PNG will continue to get money from the sale of the gas, which should trickle down to the retail sector,” Kevin Kelly, the group logistics manager for BNG Trading Company, told OBG.

In addition to the LNG revenue streams, there are numerous large-scale, multi-billion dollar resource investments in the pipeline that should continue to bring both crucial foreign investment funds as well as new sources of longer-term income for the country.

Because of this optimism, retailers are betting heavily that recent growth trends will continue and that there is still enough room in the market for further retail stores despite the addition of the newer large-scale shopping centers.

Retailer operator CPL, for instance, told OBG that it intends to build on its existing chain of supermarkets by constructing at least two new larger outlets in the coming years. These new stores will also reflect the sector-wide recent trend of building larger outlets offering a greater variety of goods, as the company’s existing stores average around 500 sq metres and the two newer ventures will both measure in excess of 2000 sq metres.

Another example of this trend can be seen in the country’s largest mall, Vision City Waigani, which recently opened its doors, though several entertainment options such as a cinema and nightclub are still being built. The mall’s anchor, Vision City RH Hypermarket, opened for business in October 2011.

At 31,435-sq-metres, the PGK1bn ($466m) Vision City Waigani project comprises 52 units of retail lots with a rental area of between 110 and 390 sq metres, according to Rimbunan Hijau PNG, a group of companies with interests in forestry, timber processing, palm oil, media, retail and property development. Its subsidiary company, Dynasty Development, was the main developer of the project.

Driving the growth in retail is an emerging middle class: GNP per capita rose from $1500 in 2004 to $2420 in 2010. As a result, consumers are increasingly eyeing aspirational purchases, such as cars and luxury goods.

“The middle class in PNG were not buying vehicles just three years ago. Now this new segment is starting to buy family or used vehicles, while the growing expatriate population and business class is boosting the demand for luxury and work vehicles,” said David Purcell, the CEO of Ela Motors, PNG’s leading automotive distributor.

The country is also gradually shifting towards shopping in modern supermarkets, with domestic wholesale and retail firms Super Value Store (SVS), TE (PNG) and RH Hypermarket increasing their branches and supply throughout the country. Home furnishings are also increasingly in demand, as evidenced by the growing popularity of stores such as HomeCentre and Seeto Kui.

As more modern shopping trends take shape, the government is still focused on improving the profitability and standards of the informal market, which supports some 85% of the population. A National Informal Economy Policy was launched in 2011 to promote “the informal economy as the ‘grassroots expression’ of the private sector and a partner in the formal economic system”.

Recognising the policy as an attempt to absorb micro-scale economic activities of the poor into the formal, regulated and tax-paying part of the economy, researcher John Conroy wrote on the Development Policy Blog that “further growth of the informal economy is a necessary step towards the emergence of a class of vigorous national entrepreneurs in [PNG’s] small and medium enterprise sector.”

However, for the sector to continue to evolve, rules on foreign investment in retail, which thus far have limited growth, will have to be loosened. A report on the PNG wholesale and retail industry, prepared by the Independent Consumer and Competition Commission in 2009, found that the government should review business registration procedures and remove restrictions on foreign investment into the retail sector. It also criticised Port Moresby for placing tariffs on imported goods that PNG wholesalers are unable to source domestically.

To ensure that the retail sector rides the wave of the country’s resource-related wealth, the proper infrastructure will need to be in place to encourage foreign investors. As this develops, along with a growing middle class and rising incomes, both the informal and formal retail economy stand to benefit.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Asia

Covid-19 and the Philippines: could co-working spaces fill the void as...

With the Covid-19 pandemic inducing a significant shift towards working from home as companies maintain social distancing, in the Philippines co-working spaces are emerging as a solution for firms...

In Retail

Strong retail activity forecast for Kuwait

Buoyed by steady economic expansion, Kuwait’s retail sector is expected to see solid growth in the second half of 2019 and beyond, though fluctuating consumer sentiment and policy changes could...

Latest

Covid-19 and the Philippines: could co-working spaces fill the void as...

With the Covid-19 pandemic inducing a significant shift towards working from home as companies maintain social distancing, in the Philippines co-working spaces are emerging as a solution for firms...