Small businesses have the potential to grow the economy, but there are risks that affect investors. Fusion’s communications director CRAIG BROWN talks about those issues.
PAPUA New Guinea’s resource boom has increased the desire of investors to put capital back into the country’s economy. But “Where?” is the question?
The PNG Government has identified the small-to-medium enterprise (SME) sector as key to the growth of the PNG economy, but there are risks that investors are sensitive to – many SMEs lack important components such as equipment, or the skills to overcome the range of difficulties they face.
Investors can be reticent about funding innovation that is not backed by experience.
This lack of access to funding means SMEs can wither, and innovation is lost.
It’s not as though there are no investors – it’s just that the parties involved don’t know how to find each other and, if they do, they don’t seem to speak the same language.
There is a gulf between the desire to invest and the risks of investing.
There are those in PNG who believe that the gulf can be bridged.
Jagdeep Dahiya, financial inclusion specialist for the United Nations in PNG, is upbeat about the impact that investing in SMEs can have on PNG.
“SMEs can be a game changer,” he says.
“Local entrepreneurs can do things quickly that big multinationals can take years to achieve.
“Basic economic inequalities can reduce because of SMEs – they boost employment and bring better education, better healthcare facilities and better opportunities.”
Peter Aitsi, chief executive officer of Credit Corporation PNG Ltd, agrees that investment in SMEs is crucial.
“It’s critically important for PNG to broaden the economic base,” he says.
“PNG’s economy is resource dependent. We must invest in the SME sector – action must be taken to stimulate it.
“It’s important because they’ll contribute to the economy in a significant way, including the rural provinces.”
Dahiya says that PNG has changed in the last decade and shows potential for both SMEs and potential investors.
With PNG’s ideal size, in terms of geography and population, its natural resources and a range of government policies that focus on growing SMEs, Dahiya and Aitsi are not alone in sensing the opportunity.
Dahiya summarises the present investment landscape in PNG brightly: “We used to call PNG the ‘land of the unexpected’.
“Now we call it ‘the land of opportunity’.”
There are significant barriers to investors funding SMEs.
Many good ideas and innovative entrepreneurs are unable to access funding, or the support needed to contribute to PNG’s economy.
Bessi Graham, co-founder of Fusion and Benefit Capital, explains that Fusion has been set up and designed to assist SMEs in PNG so that they have a pathway to sustainability.
Fusion has identified that many SMEs have trouble accessing funding and capacity building.
“That’s why Fusion is here,” explains Graham.
“The challenges and barriers that SMEs are facing in PNG are very real.
“But together with a collective approach, they can be overcome.
“There is no barrier that can’t be solved through a collective approach.”
These “real barriers” include investor reluctance, according to Kina Bank’s Nathan Wingti, general manager of treasury and financial markets.
“The credit risk is high, but the returns justify the risk,” he says, suggesting that a group like Fusion can help bridge the gap between SMEs and investors by contributing “the ability to identify good SMEs to invest in”.
Wingti is quick to reply when asked what is needed to fulfil the potential for both SMEs and investors: “Programmes that bring SMEs together with potential investors.”
This is the role Bessi Graham sees Fusion playing – building an enduring and sustainable bridge between investors and SMEs, and helping those investors have access to a pipeline of trained, well-governed and sustainable SMEs to invest in.
Wingti’s dream for PNG is simple. “I’d like to see a PNG where everyone participates in the country and its prosperity.
“I’d like to see the broader population experience the good things happening in PNG.”
Given that a large portion of PNG’s population is in the informal sector, Wingti knows that SMEs and SME investors will play an important part in transitioning Papua New Guineans out from the informal sector into SMEs.
Fusion aims to increase the capacity of SMEs, support them in their governance and compliance requirements, and help them become more attractive to investors.
This last part of the equation is crucial.
Investors are traditionally reluctant to invest in entrepreneurial SMEs for various reasons, such as the lack of confidence in returns, perceived risk, or SMEs being led by people with limited business experience.
Often, investors who are interested in the SME sector just don’t know where to find appropriate SMEs in which to invest.
Fusion will help investors by doing the research into and capacity building of SMEs that would make reliable and attractive investments.
Fusion, Graham states, will “build a local team with local support to walk the long journey with SMEs in PNG”.
That “long journey” will include walking alongside investors and easing their concerns by showing that there are pathways to financial return and social development by investing in PNG’s burgeoning SME sector.
Fusion will also find innovative SMEs and connect them with investors who are keen to engage in the sector.
Wingti knows this is a positive step.
“Generally, the returns are still good in the SME sector.”
However, it is not just about financial returns. “The non-financial benefits are that the more you connect people into business, the more social concerns can be met.”
A healthy SME sector means a healthy PNG.
There are moments in a nation’s history where opportunity presents itself.
PNG continues to experience a resource boom, and there is capital to invest in the SME sector that is crucial to lifting people out of poverty. Wingti reflects on this and adds a comment on PNG: “We are always positive.
“We think anything is possible. We are an industrious people.”
Positivity, possibility and industry. It’s an attractive combination for investors as they consider the SME sector, and a compelling reason for investors, Fusion, and SMEs to work together.
- Fusion is an Australian consultancy firm helping local SMEs in areas like governance and compliance