Reserve business sensibly

By Busa Jeremiah Wenogo

Upon the launch of the new SME Policy and its Masterplan the Minister for Trade, Commerce & Industry quickly announced that the government would look into introducing legislation to reserve certain business activities for Papua New Guineans. This proposition is said to be very popular among many Papua New Guineans. Certainly by observation there are evidence to suggest that most simple businesses which can be run by Papua New Guineans like tucker/trade store are being operated by foreigners. Regardless, such popular moves should be strictly done from a business sense and not for political convenience. Localization and nationalization if done properly could unleash enormous growth for local enterprises. However, if done purely for political reasons 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 majority of our population are unskilled and semi-skilled. But at the same time you don’t want to unnecessarily stifle competition that is crucial to further its growth. More needs to be done by the government to unlock “capital” in our economy. Informal economy where much of the “capital” is locked-in needs to be nurtured by the government not neglected. This is where the setting up of incubation centres is a wise 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 and competitive both locally and globally. This is where broadly speaking 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 on the categorization of the different levels of SMEs is sure to arouse fear in the minds of many foreign businessmen and women operating businesses in PNG. This is so especially when the Minister has said that within a period of 3 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 (SABL) has prompted the government to explore other strategies to revive the sector. The injection of much needed capital, technical skills and technology in the sector primarily by the private sector has led to increase in quality and yield and at the same time revenue to the landowners in the form of employment, loyalties and dividends, infrastructure development and other services. In light of this the government should give credit where it is due. Competition is not bad it is important for efficiency. Private sector injection of capital and management skills is essential in reforming the agriculture sector to make it more viable so that it can sustain the needs of the nation’s populous as well as contribute revenue to the government coffers. The government in its part has failed miserably in prioritizing agriculture sector; the result is visible with huge chunk of land allocated for agriculture based activities throughout the country left undeveloped and estates and plantations now just a replica of its former self. 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. Afterall 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. Yet developments like the hydroponic project in 9 Mile which is a direct threat to the local organic fresh produce makes you wonder if the government is really serious about growing indigenous business in PNG.  

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. Cooperatives Societies throughout the country are in total disarray and extension services that are meant to be provided by the Department of Primary Industry are no longer visible in most districts of the country. There are important issues that the government will need to address as a pre-requisite to introducing legislation to protect various business activities for Papua New Guineans. From the outset the government will have to help Papua New Guineans to manage “wantok system” so that it does not hinder the growth of indigenous business. The failure of the Stret Pasin Stoa Scheme and other intervention to support indigenous business in the past is a testament of our own failures. This could explain the reason why more Papua New Guinean business owners nowadays prefer to lease out their business to foreigners. In saying that PNG’s social setting is not suited for business/commercial activities. It does not support entrepreneurship in an “individualistic” sense as is the case in most capitalist economies. PNG is largely a communal society where each individual conducts his/her business for the benefit of the larger entity whether that would be the family, tribe or community. This reality means that the government’s urgent task is to continue reforms in the area of land management. Reforms in the ILG Act and Lands Act needs to support this not undermine it by promoting an economic model that will not work for PNG. The government’s role in all of this should be one of being a facilitator. The government should facilitate trade and investment and allow private enterprise (or in the case of PNG; collective enterprise) to operate with minimal interference from the government so that it can utlilise and distribute resources in an efficient manner.    

Faced with this harsh reality what is the guarantee that implementing the reserve lists will be beneficial to all Papua New Guineans and not for the interest of few “powerful” citizens? Furthermore the vacuum left behind by the government inaction in the agriculture sector has forced the private sector to inject money into extension training and create market for the local rural population. In this case reserving businesses for Papua New Guineans may disadvantage the agriculture sector and the majority of Papua New Guinean agriculturalists.

Reserving business activities does not mean that it will lead to a fair and equitable participation by all Papua New Guineans in the management and ownership of businesses. Given that most Papua New Guineans are still in the informal economy (the elementary stage of the business cycle) there is a highly likely possibility that business ownership and management will be in the hands of few individuals leading to the development of “politically” backed conglomerate or monopolies in the market. The government should also consider the fact that not all Papua New Guineans would want to venture into the SME Sector. This means the government should be willing to support the informal economy so long as it is able to meet certain “minimum requirements or standards”. Unattractive taxation regime, cumbersome paperwork and long processes to acquire legal status for operating businesses formally are some of the “put offs” that eventually push businesses into the informal economy. If these are left unaddressed then reserving business space for Papua New Guineans may be counter-productive and meaningless.

The development of “political monopoly” where politicians give away business to their cronies and supporters has been counter-productive to our nation’s development. The process of transferring ownership should be done in a fair and transparent manner using strict rules and guidelines. The absence of such a credible mechanism will only entrench the “free handouts” mentality that is already pervasive in our country. This will lead to a significant drop in quality when industry best practice are not applied in the recruitment of skilled workforce and production as decisions concerning the management of these businesses are made for political convenience or to gain political favours. This will run counter to the goal of increasing the number of SMEs and employment numbers in PNG, the ultimate goal of the SME Policy. The demise of the Papua New Guinea Banking Corporation (PNGBC) and the NASFUND saga are vivid examples of the scale of destructions that can be realized when politics gets in the way of business.  This is where the government if serious about providing Papua New Guineans of all walks of life a fair go should publicly list all these companies on the stock market and invite Papua New Guineans to take up shares in these companies rather than a complete nationalization/localisation of these companies. Companies who are operating in challenging environment like those in the agriculture sector are starved of capital and raising that on the stock market would be a good option. Government being the custodian of the people has not lived up to its expectation when representing the people of this country on company boards. Given that basic services such as schools, aid posts and roads are in a diabolical state in most districts one wonders where the dividends and the profits declared by the government owned businesses have gone to.

Reserving businesses at a time when the government is aiming to introduce the nation’s first “Trade Policy” creates a tricky situation. Moves to forcefully take over businesses from foreigners may provoke retaliation from international trading partners. This requires the government to craft a trading policy that does not jeopardize its existing and future trade agreements.

Perhaps the writing on the wall indicates that the time is not yet right for PNG to embrace the “reserve list”. It may also testify to the fact that 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 our economy into the next century and beyond.  Right now the promotion of the reserve list is set to be “concave” and not inclusive. It’s good to be ambitious but it is also wise to be practical and realistic. In a sense this very much summed up how the government should be addressing the reserve list agenda where sensible reasoning is required above else.