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From scoping to systemic change | how MDF cherry picks its partnerships

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The Market Development Facility (MDF) has been working in Papua New Guinea (PNG) since July 2015. A multi-country facility, the decision to expand MDF’s portfolio into PNG was informed by the strong potential that the country has for economic diversification, coupled with the market challenges that constrain the country in realising a diversified economy.

MDF works by stimulating economic growth, working in strategic sectors of the economy, through carefully selected partnerships with the private and public sector. It works with these partners to develop new products and services, innovations, ways of doing business or regulatory reforms to provide increased income and employment opportunities for poorer populations.

NKW Fresh - Bitoi 05In the initial scoping mission to PNG in November 2014, the MDF team took a broad look at the PNG economy to ‘scope out’ the areas to initially tap into. Three areas were identified – fresh produce, aquaculture and livestock, and economic diversification. This third area was to move the population away from a reliance on agriculture and towards opportunities in manufacturing, tourism and other urban-based sectors.

With a complex market systems approach that doesn’t show instantaneous results, it can be difficult for external parties to appreciate the path that has been taken, by both MDF and our partners, to reach a point where innovative business models can be executed. The extent to which different sectors of the economy have been explored is also not always immediately obvious to those sitting outside of the project office.

In PNG, the work undertaken by the MDF team in the tourism and hospitality engagement area is an example of how the ‘results’ do not reflect actual progress in terms of understanding the sector and identifying where and how to influence growth. Despite only having one partnership signed at the time of writing, the MDF team has amassed a treasure trove of learning, insights and understanding as to the challenges that businesses in the industry face.

MDF’s early discussions in this area took place with the Tourism Promotion Authority (TPA) with a focus on: cruise tourism, a growing sector in PNG with 26 ships docking annually in Alotau alone; how to ensure tourists understood what and where local handicrafts were available to purchase; how to train guides so that they offered better service; and how to develop more niche products, such as around surfing and PNG’s colourful cultural shows. It was through discussions with TPA that the team explored two tourism hubs, Milne Bay and Rabaul, both of which are relatively organised and safer for tourists when compared to areas as yet not exposed to tourism.

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In September 2015, the team travelled to Goroka in the heart of the Eastern Highlands to meet tour operators at the Goroka Show, the longest running ‘singsing’ festival in PNG. Despite being the largest cultural activity in the country, the team found that there were actually less than 100 international visitors that had travelled specifically to visit the show. Even if the team were able to support tour operators to double their visitors to the event it wouldn’t have a very significant impact.

In Milne Bay the discussions focused on the logistical challenges associated with cruise ship dockings in Alotau. Alotau is a small town of 16,000 people, and the influx of approximately 2,000 visitors per cruise ship is more than the local infrastructure can deal with. One solution to address this would be for someone to invest in a large bus to transport tourists to the local sites but the reality is that, other than on these occasions, the bus wouldn’t be used and no one was prepared to invest. However, MDF’s discussions did result in some indirect returns. Through talking to people about the logistical issues, the team encouraged local business owners to think of utilising taxis to create unique packages for elderly and disabled tourists. This didn’t result in a partnership, but it did prompt a local operator to take up the idea, thus proving that every time the team talks to a business it can trigger thought processes that lead to other commercially viable ideas.

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From there it was a hop, skip and a jump across to East New Britain, one of the New Guinea islands where the team met with local hotels, the tourism bureau and hire car companies. During this trip, one of the major hotel operations in Kokopo revealed that it only had 1-2 non-business-related tourists visiting per month, with the rest of its occupancy coming from the public and corporate sector. Another indicator of the ‘low base’ from which growth in the tourism industry would emerge, and that fostering strong partnerships that would result in impact of any significant depth or scale was going to be a challenge.

Snowpas8This led the team to start thinking in a different way about the sector. Instead of venturing into this market place by working with businesses, they started to look at more strategically positioned actors who could influence the sector and bring other players together.

This thinking informed the first partnership in this engagement area, Village Huts. The MDF team had heard of a business who had a website on which local guesthouses in remote locations could advertise their accommodation, however, the website was not working. The concept of allowing local business owners to reach out to potential tourists to advertise their services through one online portal was potentially transformational. These small business owners often live in rural locations where connectivity is limited. Their guesthouses attract so few visitors that there is little to now incentive to invest further. However, a service like that provided by Village Huts offers a low-risk investment option and potentially opens up a new market for them.

The Village Huts partnership was initially framed around funding for a coordinator who would travel to different locations in PNG to encourage local guesthouse operators to sign up to the website. The first hurdle, and delay, came when a suitable candidate could not be found for the coordinator role. This, in turn, delayed guesthouse registrations on the website. When the role was finally filled four months later, there was then a further delay with the travel as Village Huts attempted to align its trips with TPA, who do similar scouting activities with a set criteria for operators to comply with and it made sense for the two to work together. For three months Village Huts and TPA attempted to coordinate a visit with no success. Village Huts then headed out alone. Once in the field, the coordinator excelled and exceeded the registration target of three huts per month by far more than was anticipated. Over the course of a year, the coordinator completed six trips in six provinces and registered a total of 69 new guest houses.

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When the partnership was signed, MDF expected the website to be close to completion, however there were some bigger issues going on at the backend with the payment portal. In PNG, business do not have access to a merchant account, which means that businesses have to open offshore accounts for overseas visitors to make online payments. A significant barrier to the Village Huts web-based product. Despite lengthy discussions over six to seven months with the major banking institutions, Village Huts was still unable to resolve the issue. They eventually resorted to opening an account in Australia, which meant each payment was received by this Australian account, transferred to PNG and then onto the hut owner. Not an ideal situation as it slows down the process and incurs extra charges. However, it was the only payment option available. For village guesthouse owners, having access to the funds ahead of guests arriving is key to them being able to prepare in a cash scarce economy. On a positive note, the clunky solution allowed the site to go live and receive bookings.

The challenges faced through the Village Huts partnership, MDF PNG’s first partnership, provided valuable insights into the challenges faced by PNG businesses. It became clear that MDF’s partnerships in PNG were likely going to be slower to progress than in other MDF countries. The Village Huts website a good example – it took a year and a half for the site to go live. The MDF PNG team must demonstrate patience and persistence in finding the right solutions, and people with the appropriate attributes and skillsets. The team must also factor in longer timelines to get partnership activities up and running, and, importantly, for results to emerge.

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The Village Huts experience also generated two valuable cross-sectorial learnings: the need for skilled individuals is an issue across all sectors; and improved access to financial services and products, such as the payment gateway that is needed for people to be able sell products online.

The MDF PNG team has also begun exploring the hospitality space, beginning with discussions with recruitment companies to see if they are interested in offering basic training to candidates with the right soft skills. Early discussions with a recruitment company to invest in a facility went well, but as the team got to know the business better, it was decided that it wasn’t the right time for the business to invest in this function. The team is exploring with TPA to see if the Association might be the right fit to deliver some form of training to potential tour guides. Another example of the time invested in partnerships that are either delayed, or don’t eventuate was a potential partnership with a hair and beauty salon. The team spent six months in discussions with the salon owners, who wanted to expand the business to provide training for hairdressers. This potential partnership was framed around hiring a consultant to devise training modules. However, the business faced capacity issues which prevented them from progressing the idea further.

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Along with the slow but steady progress being made with partnerships, the team’s scoping in the sector has revealed some of the critical barriers that need to be removed to allow for growth. Major barriers to growth include the negative perception of PNG as an unsafe destination, challenges in getting visas, flight taxes, prohibitively expensive products and service-related efficiency. Significant events, such as elections also impact partnership activities, as experienced by the PNG team during the recent 2017 elections, during which a travel ban was imposed due to security issues. This impacted the pace of partnership activities across all strategic engagement areas.

IMG_6640 edit resizedChanging perceptions is a long and timely process, but one of the different approaches the team is exploring as a means of doing this is to encourage local tourism. Currently, travel costs are prohibitive for many Papua New Guineans, meaning they are unable to explore their own country. MDF is currently in discussions with TPA to reduce flight taxes. It is hoped to trial a reduction in taxes on flights to one or two select locations, such as Alotau, to test the commercial viability of the idea, specifically if cheaper tickets result in more tickets booked to these destinations. The plan is to also help businesses understand this domestic market and create products that are more suitable and affordable to local tourists. There is also currently no online visa system so this is an area currently being explored by the team, as well as how to make the arrival process in the country a little smoother for international visitors.

The problems that travellers face in getting to PNG are so severe that, during the field trip to Goroka, the team spoke to two tourists from the UK that had waited seven years to coordinate an organised tour to the show. In that time, there was such poor interest from other tourists to make a group tour viable it simply hadn’t happened.

Despite the challenges, it is undeniable that there are unique and untapped tourism opportunities for MDF to focus on in PNG. And, despite the setbacks, delays and dead-ends the team can find themselves faced with, it is through all of these that the valuable learning and understanding of the sector is built. Over time, these learnings will form the foundation of the team’s approach and ability to tap into and influence the area’s most likely to trigger long-lasting, sustainable growth.