A holistic development of Informal Economy is key to SME growth

By Busa Jeremiah Wenogo

In the SME Masterplan 2016-2030 that was recently launched; the Department of Trade, Commerce & Industry (DTCI) expressed its intention to take charge of and develop the informal economy in the country.

This no doubt makes a lot of sense especially when the Department is fully focused on developing the SME Sector in the country. It is hoped that with the proposed arrangement the informal economy can at last gain its fair share of limelight and subsequently, much needed boost. The current government does not seem to be interested in promoting informal economy as a separate agenda until and unless it is relevant to stimulating the growth of the SME Sector. Even under the current arrangement where informal economy is housed under the Department for Community Development & Religion (DFCDR), the policy has gained very little traction. Since its inception, the Department’s top brass has shown little or no interest interms of resource allocation for the sake of its implementation. This has forced the CIMC through its informal economy sectoral committee to parent the policy in the interim until the Department has a change of heart. Even now there are signs that the Department is still not sure what it would want to do with the policy. Perhaps the government is discouraged by this notion that vigorously promoting the informal economy would only lead to stagnation in the SME Sector growth as informal economy participants take advantage of the favourable conditions and remain static in the sector. Certainly researches have shown that informal economy vendors in PNG show little sign of transiting into the SME. This has the tendency to deprive the government from growing its formal private sector and expand its narrow tax base. Yet the reality is that PNG’s informal economy apart from the betelnut trade is not fully developed interms of its scope to be a genuine contributor to the national purse.

At present there is very little diversification of activities which is causing intense competition. One has to only venture into a nearby market or drive by and observe the stalls set-up along the road to confirm this. PNG’s informal economy is still plagued by basic constraints such as inhospitable government policy and regulations, lack of access to finance, poor financial literacy skills, lack of product development and market identification knowledge to penetrate or develop niche markets just to name a few. By encouraging the growth of the informal economy the government can still raise tax through the Goods and Services Tax given the close inter-dependent relationship between the formal and the informal economy. Unfortunately in PNG while the relationship is visible, policy makers tend to ignore its socio-economic contribution by placing greater emphasis on its contribution to filth in the city. 

Having the Department of Trade, Commerce & Industry coordinate the efforts of both informal economy and SME growth makes a lot of sense especially when one of the biggest challenges for the SME Policy is to create a viable pathway for informal economy to graduate/transit into the SME Sector. It is hoped that this will help the informal economy to ride on the political will and drive provided by the Minister responsible for Trade, Commerce & Industry.  This is almost a de javu where once upon a time the then Minister for Community Development Dame Carol Kidu was the main driver driving policy and legislative reforms to nurture the growth of the informal economy in PNG.

Regardless, informal economy unlike the SME Sector has a large social component that should not be discarded when attempting to work out the appropriate institutional set-up and support. There are large segment of the informal economy that composed of participants who are purely surviving on the income generated through informal economic activities compared to those who are “business minded”.  This group of people relies on the informal economy basically to “get by”. For this people the informal economy is a “safety net” from unemployment and poverty. Also majority of the informal economy participants are women, many of whom are “bread winners” in their family. However, their participation in the sector is hampered by violence, harassment and abuse inflicted on them by thugs and city authorities. This is where the role of the Department for Community Development & Religion as a welfare department becomes crucial. Department of Trade, Commerce & Industry may have the resources and political will at present to take on board the informal economy but they are likely to embrace informal economy strictly from an economic standpoint; which may take the spotlight away from the social issues impacting the sector. This means that if the Department of Trade, Commerce & Industry push on with its plan it will need to accommodate the Department for Community Development & Religion somewhere in the implementation plan of the policy. The DFCDR in its part needs to show a genuine concern and willingness to support the informal economy. If DTCI takes the lead DFCDR should embrace its leadership and work in partnership for the betterment of the 80-85% of Papua New Guineans.

In taking on board the informal economy DTCI must be willing to accept and respect the fact that a larger part of the informal economy may want to remain in the informal economy for a considerable period of time. That means that the Department needs to exercise considerable patience and put in place a realistic target and strategies to cultivate an “entrepreneurial mindset” that is ready to make a difference in the SME sector in its own timing. Too much unnecessary expectation may actually hurt the informal economy and derail DTCI and the government ambitious and noble plan to increase the number of PNG owned SMEs in the country.