Reserving small businesses for PNGns – are we ready for this?
25 May 2016
BUSA JEREMIAH WENOGO | PNG Informal Economist | Edited extracts
UPON the launch of the new Small-Medium Size Enterprise (SME) policy and its masterplan the Minister for Trade, Commerce & Industry announced that the government would look into introducing legislation to reserve certain business activities for Papua New Guineans.
This proposition is very popular among many Papua New Guineans as there is evidence to suggest that most simple businesses which can be run by Papua New Guineans like tucker and trade store are being operated by foreigners.
Regardless, such popular moves should be done strictly from a business sense and not for political convenience.
Localisation and nationalisation if done properly could unleash enormous growth for local enterprises. However, if done purely for political reasons, they could turn disastrous and defeat the intention of the SME policy.
The idea that businesses which require less capital should be reserved for Papua New Guineans makes a lot of economic sense especially when the majority of our population is unskilled and semi-skilled.
But at the same time we don’t want to unnecessarily stifle competition that is crucial to further business growth.
More needs to be done by the government to unlock capital in our economy. The informal economy, where much of the capital is locked-in, needs to be nurtured by the government not neglected.
This is where setting up incubation centres is a wiser policy approach than the imposition of a blanket reserve on all businesses in PNG.
Businesses need to be protected but they also need competition to be efficient both locally and globally. This is where the idea to protect certain businesses while freeing up others for partnership ventures with foreign investors and open competition is a sensible approach.
A quick glance through the SME policy, especially the categorisation of different levels of SMEs, is sure to arouse fear in the minds of many foreigners operating businesses in PNG.
This is so especially when the Minister has said that, within a period of three years, all businesses that fall under the business reserve lists will have their ownership transferred to Papua New Guineans.
While industries across the board will be affected by the proposed mandatory transition, the agriculture sector, which plays a vital role in sustaining the needs of many Papua New Guineans, will struggle the most.
Already the controversy surrounding the Special Business Agriculture Lease (SABLs) has prompted the government to explore other strategies to revive the sector.
The injection of much needed capital, technical skills and technology primarily by the private sector has led to increases in quality, yield and revenues to landowners and improved employment, royalties and dividends, infrastructure development and other benefits.
In light of this, the government should give credit where it is due. Competition is not bad and private sector injections of capital and management skills are essential in reforming the agriculture sector to make it more viable so that it can sustain the needs of the nation’s people as well as contribute revenue to government coffers.
The government has failed miserably to prioritise the agriculture sector and the result is visible in huge chunks of land allocated for agricultural activities left undeveloped and estates and plantations now just a replica of their former state.
From this perspective what is the guarantee that handing it over on a golden platter to locals will maintain its viability? The cost involved could quite frankly be enormous.
After all most of our agriculture produce is destined for the international markets and our local knowledge needs to be elevated to a level where we can compete globally.
It remains to be seen if Papua New Guineans can be effective in taking over these roles from foreigners in the event the government implements its reserve list. There is no doubt Papua New Guineans are capable but our track record thus far portrays a different outlook.
Perhaps the time is not yet right for PNG to embrace the reserve list. As a nation we need to fully develop our informal economy if we are serious about building a large national grid of indigenous businesses to power up the economy into the next century and beyond.
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