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 fivefold 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 Government Body
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 in 2015. A 22-member council headed by the prime minister and including ministers from sectors such as treasury, planning and finance will oversee the SMEC. The structure of the bill is similar to 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.
In mid-2013, the Department of Trade, Commerce and Industry 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 & Training Needs
The World Bank has pointed to 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, and the perception persists among banks that small businesses are high-risk. However, funding is not the only hurdle to the success of SMEs. 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 2015. To counter this high failure rate, closer attention is being paid to helping new entrepreneurs develop a medium-term business plan.
In the private sector, ANZ Bank announced the MoneyMinded SME Business Basics Programme in April 2015 to help 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 into the community,” said Mark Baker, ANZ’s chief executive for PNG.
The need for improved business and financial training was underscored in late March 2015, 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 initiative 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 depend on small-scale informal businesses for their livelihood, despite large external investments in PNG’s resource sector. To help address this discrepancy, 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 argued 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.