Interview : Hulala Tokome
What kind of role can superannuation funds play in financing the economy?
HULALA TOKOME: Superannuation funds are important for generating capital in Papua New Guinea. The combined funds currently represent around PGK11bn ($3.5bn), or 16% of the country’s GDP. When these funds are invested into the economy, not only does it provide a return for investors, it also acts as a catalyst for socio-economic development, such as employment generation, wealth creation and tax revenue. One of the main priorities right now is to support the government in its diversification efforts from the resource extractive sector including oil, gas and minerals. Agriculture – which is also outlined in the national budget – is one untapped sector where this target can be realised. It is the biggest contributor to GDP, and a significant part of the population depends on it.
Other noteworthy activities include downstream processing of agricultural products, tourism, manufacturing projects to replace imports, power generation, and the development of revenue-earning infrastructure, like airports and seaports, to improve connectivity. Superannuation funds can play a key role in all these areas.
How can awareness about the importance of savings be improved among the local population?
TOKOME: Superannuation funds represent less than 10% of the country’s 8.5m citizens. This is a relatively small number, and it shows that 10% of the country’s population is supporting the other 90%. Because of that, PNG’s superannuation funds act more as a vehicle for social security. In times of financial hardship, members of these funds are able to tap into their deposits.
Legislation can help improve awareness of the importance of savings. Currently, employers contribute 8.4% of employees’ gross basic salary to superannuation funds and employees contribute 6%. One suggestion is to raise this by one percentage point for the employer, and two percentage points for the employee. That way, even if people tap into their deposits for social security purposes, some money remains. Another legislative change would be to ensure all companies contribute to superannuation and not just those with 15 employees or more. There should be universal coverage for the benefit of all citizens, not just a few. Overall, however, the growth of superannuation funds depends on financial inclusion and banking the unbanked. The entire financial sector shares a mutual interest in meeting this target. One solution to help improve financial awareness is technology. For example, blockchain can help to penetrate remote areas and reach unbanked populations.
What are some of the advantages to moving investments in superannuation funds offshore?
TOKOME: It is important to diversify your risk and spread out investments and not put everything in one basket. However, most of the investments in superannuation funds are made onshore. There is great interest to move offshore because it would boost capital streams and diversify portfolios, though PNG’s current business environment makes this difficult for both local and foreign investors. There are a number of barriers, one of which is that the local currency can only be unpegged by regulator intervention and not by market forces. This delays foreign investors, who prefer to enter the market following devaluation.
A related problem is the shortage of foreign currency, which means the build-up of capital offshore cannot be repatriated. One solution to easing investment of local and foreign capital in PNG is the Port Moresby Stock Exchange. However, our stock exchange is not sufficiently liquid due to a lack of trading and a strong capital market structure, though there is scope to develop this. In addition, a significant number of people do not understand the value of buying assets.
Changing this mentality will take time, but the hosting of key international events, such as APEC 2018, will help improve awareness and capitalise on potential interest.
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