A tough nut to crack: legislating for PNG’s informal economy

BUSA JEREMIAH WENOGO & JOHN CONROY | DevPolicy Blog | Extract

IN Papua New Guinea it is government policy to encourage growth and development of the informal economy. This may surprise observers aware of how often the ‘informal sector’ is the subject of controversy.

After years of effort, a national informal economy policy was adopted by the National Executive Council in 2011, driven by the then Minister for Community Development, Dame Carol Kidu. She was supported in this by the Consultative Implementation and Monitoring Council.

Sadly, the policy lost momentum after Dame Carol departed the Ministry and retired from politics. Three changes of Minister and loss of continuity in the senior bureaucracy have contributed to stasis in the meantime.

As Dame Carol found, gaining support for the policy was an uphill task in the face of entrenched antipathy to the ‘informal sector’ among some members of the PNG political class.

At both local and national levels there are many examples of this antipathy, which reflects an elite psychology distanced from ordinary people who throng the streets and markets of the towns. It suggests an inferiority complex, a sense of shame that such people are a barrier to ‘modernisation’.

The epicentre of this disgust is the street trade in buai (betel nut, Areca catechu). While city authorities are entitled to feel that public consumption resulting from the trade is a blight on the appearance of towns and a risk to public health, it is also a model domestic industry, in terms of the numbers of people it supports, the income generated, and the efficiency of its logistical system.

We can soon expect to see vendors of buai and other commodities cleared from the streets of Port Moresby as part of a clean-up in preparation for the South Pacific Games. What we cannot expect any time soon is a sensible attempt to solve the dilemma — not of the buai trade itself, but of the public consumption of betel nut — while retaining the considerable economic benefits it yields to low-income people.

It is a mark of the immaturity and limited scope of the PNG informal economy that it still lacks a sufficiently diversified set of activities, so that a single informal industry has assumed such notoriety.

The national policy adopted by the National Executive Council suggests measures to encourage a more diverse set of ‘informal’ activities, but implementation of these has been slow due to budget constraints.

In PNG the informal economy is too small, not too large and is still too limited in scope, scale and contribution to national output. A better functioning and more diverse informal economy is seen as necessary to increase the efficiency of linkages between mineral enclaves and the broader population.

A new Minister for Community Development, Youth and Religion (Hon Delilah Gore) and a new Departmental Secretary (Anna Solomon) now give hope that the national policy can gain traction and impress itself on a broader range of government agencies.

Certainly the Department seems now to have a renewed sense of ownership and commitment to the policy.

You can read the complete article here

Busa Jeremiah Wenogo is an economist working with the Consultative Implementation and Monitoring Council in Port Moresby. John Conroy is a Visiting Research Fellow at the Crawford School, ANU

PNG's settlements - beer, loud music, drugs & gambling

BUSA JEREMIAH WENOGO

A short distance away from our house a bass speaker can be heard pumping music at force into the airwaves.

The screams of drunken ecstasy and sound of beer bottles smashing on the road send shivers along our spine as we sense that trouble is just around the corner.

Since we moved into Erima settlement, we have witnessed several alcohol related fights mostly instigated by youths who decided to get a cheap high by drinking coffee punch and smoking weed.

Normally when these fights break out, the sound can be heard miles away: iron roofs and fences rattling with pelted stones and the splinter of beer bottles smashing at random.

So on Friday our family knows that the coming weekend will be agonisingly long for us as we have to weather the nuisance that starts early in the morning, peaks in the evening and continues until Sunday.

Friday reluctantly welcomes the weekend most of which will be occupied by drunkards roaming the streets causing trouble.

At other times drunken men and women can be heard chanting in unison and dancing to the tune of traditional songs. The first night we moved into Erima we found it difficult to sleep because of the deafening sound coming from our next door neighbour.

We were drowning in insanity as music, cranked up to an unbearable level, crowded out every scrap of peace and calmness. Fortunately, as time went by, we got used to it and now we largely ignore it altogether. We somehow became sound proof.

When our ears are not battered by alcohol-inspired noise our eyes are made sore by the sight of idle settlers clustered at a certain hideous location to conduct their gambling. Bingo and card playing are most common.

Old, young, youths, mothers and fathers engage in these activities. I often wish these gamblers, especially the kids, would develop similar concentration when in school. We would see many more students making it to higher levels of education. Yet it is true that, lacking the required resources to support their children, parents in settlements cannot help but watch as their kids’ bright future gets dimmer by the day.

In the community where I currently live, I noticed that people’s backward mindset is central to the lack of development. As a result, water was disconnected several years ago and the electrical current arrives but sluggishly.

The lack of such vital services has primarily been due to the community not showing real ownership. Settlers in my community generally don’t like the idea of spending money in order to access utilities, convinced that they should be provided freely by the state.

So they go through their days thinking and acting as if they are still back in the village. This also means a blatant disregard for the rule of law and unnecessarily penalises honest and hardworking ratepayers.

Recently a water committee was set up to take care of a common water tap. Users were required to pay a minimum fee of K15 per month to allow them to fetch water from the tap. It can be as high as K30 a month depending on the size of the family.

Given that I have a pretty large family that consists of my wife and son, two younger siblings, my parents, my sister, her husband and her son, I normally pay K15-20 per month.

We pay but most of the settlers don’t, assuming the committee is collecting the rent for its own personal use. Yet when they need water, they resort to the tap. The money goes on beer, music, drugs and gambling.

The paradox of most PNG settlement is that, although they have become safe havens for social disorder, politicians don’t have the courage to make hard decisions to deal with the problems.

It has been shown time and again that settlements play a major part in determining the outcome of general elections in urban constituencies. So even though they are a problem to development, getting rid of them is a political challenge.

In future this will become more evident as rapid rural-urban migration, the housing crisis and lack of state-owned land will increase the number of squatter settlements in Port Moresby. And they are very troubled places. Most of the unemployed labour force indulges in non-productive activities that add little benefit to the fabric of our country.

As the pace of development increases in cities like Port Moresby and Lae attracting more rural people to the bright lights, more beer will be consumed, the music will get louder, more youths will have their brains fried by marijuana and more kandis (card playing) will divert the idle.

This will accumulate to more social problems yet it is unlikely our politicians will be prepared to take a tougher stance on cleaning up these issues.

Instead, in an attempt to protect their electoral base, they will play things safe and nothing will change.

What we have then is a developmental paradox that will not need fancy policies and complicated laws but simple straight forward steps that a settler knows best.

PNG’s financial inclusion drive needs a Banking Ombudsman

BUSA JEREMIAH WENOGO

THE establishment of Papua New Guinea Banking Corporation (PNGBC) was one of the catalysts for the high level of financial inclusion in PNG in the past.

Yet political interference in the management of the bank’s affairs subsequently led to the government liquidating and selling it to Bank of South Pacific.

In those early days the PNGBC spread its wings to the far corners of PNG and ordinary Papua New Guineans opened simple passbook accounts to save their hard earned cash. School kids too.

Its closure cut off countless people from the formal banking sector and the road back into the banking sector for many Papua New Guineans under BSP has not been easy.

For those who decided to stay loyal to the bank through its transition into BSP, it has been a big challenge just to keep their accounts active.

While formal sector workers were able to maintain their accounts, those in the informal sector, mainly farmers, were not lucky.

Over time, the old bank’s policies were drastically changed to reflect the new management’s desire to develop the bank into a corporate entity capable of generating greater profit. The bank’s commercial interest took precedence over the government’s obligation to the community.

As a result uneconomical bank branches set up during PNGBC’s heyday were soon shut down. Stringent policies were introduced to ensure the bank did business only with those customers considered “bankable”.

These decisions cut off many people from accessing basic banking services. The World Bank found that almost 90% of the population was “unbanked” or “financially excluded”.

This represented a major development challenge for the government as most people were deprived from actively participating in economic development. Those excluded also included formal sector workers such as teachers, medical officers and plantation workers based in the rural areas.

Most of these professionals prefer to be paid in cash or by cheque than through bank accounts because of concern that bank fees and charges decimate savings.

The government asked how it could foster an environment to bank the unbanked population and through the ground-breaking National Informal Economy Policy 2011-2015 identified “microfinance” as an instrument to bridge that gap.

The success of the Nationwide Microbank Ltd and the PNG Microfinance Ltd showed the great potential of microfinance. Furthermore it unearthed the massive untapped demand in areas that were traditionally regarded as unbankable. Subsequently existing players like BSP embarked on extending their services into rural areas.

The microfinance industry has since expanded with WauMicrobank, Women’s Microbank and Pipol’s Microbank as part of a strategy to bank one million unbanked people by 2015. Furthermore, the introduction of mobile phone technology has allowed further penetration and with it massive uptake in the market. The rapid spread of mobile phones is further proof of the depth of the PNG market.

Mobile phone technology provides banks with a cost effective and seamless way of extending their services while providing people with the opportunity to access banking services at their fingertips.

The introduction of mobile phone as a service delivery platform will change the formal financial sector in PNG. This is due to the leadership shown by the Bank of Papua New Guinea in driving the agenda of financial inclusion from the outset.

Yet questions are being raised on the central bank’s ability to regulate and at the same time promote the expansion in the financial sector. Some fear the bank is compromising its traditional role as a policeman guarding against unfair play by financial institutions.

Others commend the bank for taking on this challenging role as promoter of a noble agenda. They view BPNG as the ideal driver given its wide ranging powers to introduce reforms and provide supervision to maintain the health of PNG’s formal financial sector.

Already the bank has included financial inclusion as one of its key policy priorities and has created a new unit to focus on driving it.

BPNG has been proactive and smart in ensuring it does not compromise its regulatory function through its Centre of Excellence in Financial Inclusion (CEFI). The establishment of CEFI can be seen as an attempt by the Bank to offload its promoter role.

While CEFI will coordinate financial inclusion activities, it remains to be seen how BPNG will address customer complaints. It needs to come down to a level where it can be reached by ordinary people.

In forums conducted by CIMC, participants have frequently expressed their desire to have BPNG establish branches in provinces to address customer grievances. This shows how widespread are the problems customers experience in banking.

The majority of customers in PNG are either illiterate or semi-literate. Most of these people are in the informal economy, largely composed of the agriculture sector. The government through its central bank has an obligation to protect the interest of ordinary Papua New Guineans who have accounts with these commercial banks.

In fact there are more complaints than compliments about the commercial banks’ unfair play. Complaints to banks for remedial action normally go through an internal investigation process. But whether the bank actually attends to the complaint or not is unknown.

When customers don’t receive feedback there is frustration. The establishment of a Banking Ombudsman will further strengthen the investigation of customer complaints. But, right now, customer confidence in the banking sector is lacking and this issue needs to be addressed quickly.

Regaining the trust and confidence of people is a pre-requisite to reducing the divide between the financially included and the financially excluded. Without instilling trust, the majority of Papua New Guineans will remain skeptical of the idea of financial inclusion creating an obstacle to the aim of increased access to financial services.

The time is ripe for the government to introduce a Banking Ombudsmen to ensure the interests of customers are protected. A Banking Ombudsman investigates and resolves disputes between customers and banking service providers. The entity is independent of its participants, customers, and government. Its services are freeand easy to use. One of the important elements is its ability to produce fair and independent findings concerning customer complaints.