Small and medium-sized enterprises (SMEs) are to receive new incentives in Papua New Guinea, as the government aims for a 10-fold increase in the number of such businesses, from 50,000 to 500,000, and a five-fold increase in the segment’s contribution to GDP, from 10% to 50%. This builds on a 12-point stimulus package launched in 2012, which included financial support and subsidised lending for SMEs.
New legislation passed in February 2015 established the Small and Medium Enterprise Corporation (SMEC), which replaced the Small Business Development Corporation as the lead agency charged with developing and promoting SMEs. The SMEC has been placed under the office of Prime Minister Peter O’Neill to draft a master plan for parliament before the end of the second quarter. A 22-member council, headed by the prime minister and including ministers from key portfolios such as Treasury, planning, finance, education and tourism, will oversee the SMEC's work.
The structure of the bill is based on a similar legislative framework found in Malaysia, according to the Minister for Trade, Commerce and Industry, Richard Maru, who visited several emerging economies to learn from their experiences. The Malaysian economy has been driven by a successful domestic SME sector, but in contrast, only about 90% of businesses in PNG are owned by foreigners.
In mid-2013, the Department of Trade, Commerce and Industry (DTCI) introduced a national interest test administered by the Securities Commission. Building upon this, the SMEC’s master plan is expected to be wide-ranging, including: a list of businesses restricted to local ownership, such as in agriculture and media; national content requirements; a foreign investment review board; and a dedicated SME Act offering tax incentives.
Funding and training needs
The World Bank has cited significant constraints to SME growth and investment in PNG. Chief among these was the difficulty in accessing credit despite liquidity in the banking sector. Many SMEs lack the collateral, information or guarantees needed to meet commercial banks’ requirements for lending, while banks perceive small businesses as high-risk.
Funding is not the only hurdle to the success of SMEs, however. The level of attrition among small businesses is high, with just 20% of SMEs in PNG surviving for five years or more, according to the prime minister, speaking in April. To counter this high failure rate, more attention is being paid to helping new entrepreneurs develop a medium-term business plan.
Among the private sector initiatives, ANZ Bank announced the MoneyMinded SME Business Basics Programme in April to assist new entrepreneurs gain a better grounding in finance and management. The launch recognises “that the development of successful SMEs is critical in PNG to generate new employment opportunities and to spread the economic benefits that flow from the large scale resources developments back in to the community,” said Mark Baker, ANZ's chief executive for PNG.
The need for improved business and financial training was underscored in late March, when only 10 out of 5000 applications for assistance through the National Development Bank’s retail incubator programme were successful. The main purpose of the programme was to provide indigenous PNG couples with training and support, which would eventually see them take ownership of shops created under the scheme.
Women in the spotlight
One of the focal points for the government’s new SME strategy will be the provision of business and employment opportunities for women, currently accounting for only a quarter of business entrepreneurs in PNG. According to the World Bank, many women and young people are depending on small-scale informal businesses for their livelihood, despite large external investments in PNG’s resource sector. To help address this discrepency, the World Bank and the government of PNG launched the SME Access to Finance Project, which will put increased emphasis on targeted training for women entrepreneurs.
However, representatives of women’s groups have complained that the government’s SME policy does not go far enough in advancing the interests of female entrepreneurs, such as increasing financial literacy and opportunities for women to own and operate businesses. In particular, it does not sufficiently address the grassroots and the cultural barriers women face when entering into business, Avia Koisen, the president of the PNG Women’s Chamber of Commerce and Industry, told the PNG Women’s Forum in March.