In light of the news about Toyota not manufacturing cars in Australia from 2017 onwards, one wonders whether the loss to Australia could be a gain or at the very least an opportunity for cars to be manufactured in PNG.
It’s not as simple as it sounds but it is an opportunity. But one needs to understand why Toyota has pulled the plug before it considers the potential (if any) in PNG.
Two reasons from analysts over Toyota’s decision is, firstly, the weaker exchange rate and the other has nothing to do with currency but rather to do with globalisation and Australia not competing in terms of low manufacturing costs.
In relation to the latter, reports indicate that global automakers have been building new factories and ramping up capacity in countries like Indonesia where burgeoning middle class and lower costs make it an increasingly attractive production base.
The demand for vehicles and in particular motor cycles is high in Indonesia largely due to its poor public transport system and an increase in income levels. Because of this, anyone who can afford a set of wheels is definitely buying.
With the Indonesian market getting stronger and stronger other car makers are injecting millions of dollars to expand or reopen car assembly plants in a bid to grab their share of this growing market.
In Papua New Guinea, we too have a poor public transport system. While this may be a reason to consider manufacturing cars in the country there are some obvious benefits with this opportunity. Some of these benefits are as follows:
- Increase in employment
- Increase in tax revenues
- Increase in skill and training
- Expanding Government’s revenue base
- Possibility of dealers competing resulting in low cost of vehicles
As with any venture, there are some obvious hurdles to take into account.
Firstly, the car manufacturing industry is both labour and robot intensive. The latter will require a lot of investment both in time, labour and equipment.
Secondly, the manufacturing plant although central to the whole process is only a part of it. According to Australian government data, Australia’s car industry includes about 150 companies working in sectors from components to tooling, design and engineering, with more than 45,000 people employed directly in the car and parts-making sectors. The question is whether PNG has the capabilities and resources to cater for the demands of this industry to make the whole venture sustainable.
Under present circumstances, that is quite a daunting task. Mainly because PNG lacks the basics in providing efficient services. PNG Power for example is widely known for its not too efficient services. Regular blackouts creating frustration and costing money is a significant impediment to any service delivery let alone an industry like a car manufacturing plant that relies so much on electricity to power its robots.
Even if the idea does eventuate, the other possible problem as faced by the Australian manufacturers is the competitive nature of the industry on a global level. To an extent and aside from the issue of currency, Australian manufacturers have been outdone by growing markets like Indonesia where the cost making cars is very low. If Papua New Guinea is to compete, it will need to compete against the likes of Indonesia.
The Government can support this industry by creating policies that can lower costs and encourage both local and foreign investment for the venture to take off.
Can Papua New Guinea have its own market?
According to the PNG Customs website, there has been an increase in purchasing of cars from overseas dealers. It does not provide any figures as to the number of cars that pass through them. While this does indicate that there is certainly a demand for vehicles, whether this number is enough to make the market sustainable is another question.
There is also the possibility to widen the market to include other Pacific nations, however, one would need to know how of a demand there is from other Pacific islands and secondly whether the demand is enough to create a viable market.
All in all, if the Government is ever going to give this some serious thought it will first need to assist the key service providers like PNG Power to provide more efficient and reliable service. It will also need to provide an environment that is conducive to making this industry successful and sustainable. It is a very technical oriented industry that will also require a lot of foreign input.
What do you think? Is this something the Government should take a look at?