Interview: Anthony Smaré
How can capital markets play a larger role in enhancing the broader economy?
ANTHONY SMARÉ: Capital markets generally operate well in Papua New Guinea. This is in part due to the effective regulation of banks, which has ensured that they have a depth of capital and are able to lend to businesses and individuals. Bank loans are the first source of external capital targeted by individuals and companies looking to grow. We can nevertheless improve the ways in which providers of equity finance, such as superannuation funds, can be sought out by companies and entrepreneurs. Superannuation funds in PNG are large providers of equity finance to businesses, but we are yet to find a way for small and medium-sized enterprises to access this capital sustainably. We would like to see lenders and borrowers able to seek debt finance directly rather than having to go through a bank. One possibility would be the issuance of corporate bonds. This will remain a challenge as long as high budget deficits continue to crowd out local borrowers – debt is being issued by the state at interest rates higher than companies can borrow from banks. If we can develop the equity and debt capital markets, we can reduce the cost of finance to businesses, while also improving returns to providers of capital at the same time.
What role can superannuation funds play in financing national projects and diversification?
SMARÉ: Superannuation funds are now large enough to finance national projects and contribute to diversification. However, due to the scale of some projects, they are only affordable to large investors. Nation-building projects – such as fibre-optic cables, power generation and motorways – may be viable if they are available at the right price and can deliver secure, sustainable and long-term returns. Funds are increasingly seeking out infrastructure investments, in particular, as longterm assets. In some cases, superannuation funds are large enough to finance projects alone. In other cases, projects may be so large that assistance is required from external partners. For example, Nambawan Super, alongside other investors, engaged in a project to build, own, operate and transfer a water treatment facility in Port Moresby, which successfully solved the shortage of potable water to the capital city. This is one way that superannuation funds can invest in a public-private partnership infrastructure project to benefit both members and the state. The key determinant when exploring a potential investment remains whether it will deliver a secure, long-term return.
In what ways can the country’s stock exchange increase its competitiveness?
SMARÉ: The Port Moresby Stock Exchange has recently come under new ownership and has been rebranded as PNGX Markets (PNGX). This change has brought with it new ideas, including plans to list both shares and debt securities. In addition, very few individual investors are able to participate in the stock market by buying and selling shares in their own name. It is in everyone’s interest to improve this situation.
One way we could achieve this is through the privatisation of state-owned enterprises (SOEs). An increase in the number of private investors would enhance the competitiveness of the market. There would be more trade and therefore more fee income available to brokers, who can then reinvest in their own businesses and publish research on their companies. The privatisation of SOEs would see more Papua New Guineans investing in capital markets, resulting in more capital to fund infrastructure development.
An increase in fee income would also enable PNGX to reduce listing fees, which are currently high and pose a barrier to private companies that may be interested in listing. Lastly, the new owners of PNGX have committed to improving the trading platform in order to allow international investors to see information on PNG-listed companies and to trade shares more easily.
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