Job creation requires investment


As the population of PNG increases, more people need jobs to support their living. Institute of National Affairs executive director Paul Barker discusses how to address unemployment.

With somewhere over 8,000,000 people in Papua New Guinea, there are only a handful (some half million) having formal sector jobs.
The cost of living is high, especially in urban areas, so many even with jobs are struggling, especially when they have many official and unofficial dependents.
Most people of working age (aged 15-64 – roughly 2.5 million) are in the informal sector, including subsistence agriculture, cash cropping and urban trading, etc.
Some informal sector work pays better than formal work, especially when one is using one’s own land and means of production, and can keep costs down, perhaps increasing output or quality of a crop or product.
We have some 30,000 new grade 12 school leavers a year, and thousands from grade 10, 8 and other grades, and those never attending school, either entering the “workforce” or going on to colleges, but then entering the workforce with extra qualifications, one, two or three years later.
The demand for work or income-earning opportunities is very large and growing, and, of course, people want meaningful and decently-paying work.

What does creating employment require?
Clearly, it requires investment by someone, whether it’s a big company like New Britain Palm Oil or Steamships, or a small SME, or a smallholder planting up clonal cocoa on his/her own land, or a small new start-up, taking a risk with a new idea, often without much certainty whether they’ll make any money and develop their new venture or not.
It’s clear that major investment and job creation are needed in PNG now, especially as formal sector jobs in PNG have been static, or even declining since 2014, according to a Bank of PNG jobs survey.
Yet the population goes on growing each year by about 270,000 people (that’s live births, less people that die).

Who’s going to invest in business and generating jobs?
Clearly, in the informal economy, which is where many choose to be working their land, but many others have no choice to subsist or make a living, so they choose or are forced to invest their time and effort, and maybe land, if they have some, trying to make ends meet, or in some cases doing quite well.
In both the formal and informal sector, no-one invests unless they feel that they’ll make an adequate return on their investment (including effort and capital).
If they can do better elsewhere, then generally they will.
The trouble is that with the high costs of doing business in PNG, because of the poor transport network and high costs of (unreliable) power, internet, transport services etc, it’s difficult to compete with other producers in the region, and therefore cover one’s costs, or gain a reasonable return on capital.
There’s also a severe lack of financial capital available within PNG, especially as most PNG entrepreneurs have little security (including land title etc) they can offer banks or other lenders, and of course many businesses are start-ups with little past track record of performance to impress financiers.
PNG needs a combination of local and foreign direct investment (FDI) to be able to generate economic activity and create needed jobs, and not just in mining and petroleum, where clearly considerable capital is required and generally corporate technical know-how, but which do not generate too much in the way of work. The jobs are needed in the other sectors too.
Yet, we seem to be introducing laws and policies which are going to frighten off just the foreign investment that PNG needs.
To generate the investment and jobs requires reducing PNG’s excessive costs of production, including high risks (vehicles having short lives on bad roads, needing an army of security guards, back up gensets etc). It also requires investment stability, so that one doesn’t chop and change policies and jeopardise existing investments, or restrict foreign exchange, preventing businesses from buying needed parts and other imported inputs, trading or remitting dividends sometimes back.
As one long-term international investor in PNG observed a couple of years back, “every country is crying out for foreign direct investment, except perhaps North Korea, and that’s probably not the path PNG wants to travel!”
It’s true that the existing reserve list is not being effectively applied, the list which comprises largely “cottage industries”, crafts, artefacts, kaibars and smallholder production or trading, trade stores in cities and rural areas and roadside buying and trading, including agricultural produce, including coffee, is being increasingly abused by foreign operators, who may own or just operate or control (be the real beneficial owner) of the business, which by law is meant to be PNG-owned and operated.
No-one is really enforcing these existing rules, including labour, or tax requirements for small or even larger enterprises in the districts, or even in cities in some cases.
So, one might ask, why greatly expand the list of businesses now that must be locally-owned?
The new Foreign Investment Regulatory Authority (FIRA), which has been tabled out of the blue last week in Parliament (seemingly replacing most of the functions of the current Investment Promotion Authority) seems to risk frightening off many new, but also current foreign investors, just when they’re so needed to generate broader-based economic activity and create much needed jobs.
We see law-and-order problems spreading to formerly peaceful places like Milne Bay, partly because of the lack of work and income-earning opportunities.
It’s true that some overseas micro-small investors and workers may have displaced Papua New Guineans in some jobs around the country, and this needs to be firmly addressed, and even some bigger companies (such as in forestry and fisheries, have given jobs to foreigners, which should have been provided to Papua New Guineans, where they have the required technical skills, or by training locals, where they don’t have those specific skills now.
But far more jobs are generated by foreign investment than are forfeited, so it’s one must avoid throwing the baby out with bathwater (or jeopardising needed investment and job creation, to address another issue).
PNG SMEs are largely not being created because of the presence of foreign investment, but because of the poor investment conditions (high costs, including of crime and other risks, weak institutions, corruption, lack of security for lenders and deficient credit mechanisms and skills levels etc).
Imposing widespread investment restraints on foreign business won’t generate local business.
Yes, some may change hands, some may change hands for fire sales, allowing local buyers (sometimes politicians etc) to pick them up cheap, especially if they chop and change the reserve list, as the new legislation indicates that the minister can do.
This might just replace a small number of foreign owned, or majority-owned businesses by PNG-owned businesses, but it won’t increase the number of businesses and jobs out there, which is what PNG needs right now.
The businesses to be locally-owned on the new reserve list, which the proposed new authority (or business demotion authority, or localisation authority) is meant to apply cover agriculture, transport, anything below K10 million etc…really pretty well everything outside the mining and petroleum sector.
It was tabled in Parliament last week without any prior consultation, even without the existing Government institutions being aware, let alone the private sector stakeholders.
As it stands, it really looks like a recipe for creating uncertainty, fuelling potential corruption and making some individuals wealthy from fire-sales or extortion, but particularly it’s sending the message out that PNG closed for business, please invest elsewhere! … which is ironic, just after the Apec Summit seemed to be, at least in part, about suggesting that PNG is open for business and investment!
Not only that, it seems to be suggesting that, not only do we have a problem with new investment, but that we’d don’t mind losing the large and small foreign investors, who’ve been at the heart of some of PNG’s economic activity and job creation over many years.

So, who risks losing out?
Well, of course, those that would like jobs, which are hard to generate already, for some of the reasons mentioned, including law-and-order problems breaking out even in some of PNG’s hitherto peaceful provinces, destroying their (long) fledgling industries, like tourism.
Other losers will be the Government, in terms of undermining investment and therefore, future revenue from corporate and employee tax, if businesses and jobs are not generated.
Finally, the losers are also the consumers and other businesses, which risk losing the services and some level of competition provided by existing and potential foreign investment.
It’s ironic that the IPA was set up at the end of the 1980s to replace the old National Investment Development Authority (NIDA), to put more effort into promoting investment, rather than just controlling it.
The various authorities are generally not too good at controlling anyway, whether forestry, labour or whatever, but at least better business promotion, together with more effective oversight (including through online registration and inspection, introduction of beneficial ownership registry, coordination with Internal Revenue Commission and other authorities) was clearly the way to go.
But now it seems the clock is to go back, with loss of focus on promotion, but more a case of shuffling the cards, in favour of whoever the local beneficiaries are meant to be.
In many cases, local PNG businesses or landowners sought a partner with a particular skills or capital to develop a business enterprise with them, for example in tourism.
Yes, there are some fine locally-owned and operated small eco-lodges around the country, but not many. Partnering with a capable overseas business has worked well for some small-medium enterprises, which have established an international reputation for themselves and for PNG.
One hardly wants to push the investors, who were invited in, back out, not only because it would be bad for them and all their hard effort in building up the local business, but it would jeopardise the business and the jobs created there, and certainly give a poor reputation for PNG as an business and investment destination, especially if the rules change at a moment’s notice.
Time to think again, what are the priorities for PNG, and the means to achieve those priorities.
Yes, effectively and transparently applying PNG’s existing laws and regulations, whether over land, taxation, labour, investment or the environment should be a priority, but introducing extensive new restrictions against what the country most needs, investment for jobs creation, competition etc, seems to be a serious “own goal”.

One thought on “Job creation requires investment

  • Excellent article. It is not only new investments that will be curtailed but we will start to see many retrenchments of current job holders. Reinvestment is always needed to keep any company vibrant and capable but if your company is on the chopping block to be executed in three years would this company be making any reinvestments. I truly think not. A more likely outcome is disinvestment and reductions in staff to reduce costs. It is an economic play by politicians that more than likely will have tragic outcomes.

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