Maru on track in promoting SMEs

Editorial, Normal

The National, Friday December 18th, 2015

 IN light of the recent Asian Development Bank report on small to medium enterprises in the country, we hope that Richard Maru does not relent or lose sight of the vision with which he hit the ground running.

For a first time Yangoru-Saussia MP Maru was handed the crucial Trade, Commerce and Industry Ministry at a critical time in 2012.

The economy was buoyant and there was a general sense of optimism.

PNG was heading into a period of plenty.

What better reason than to empower the country’s small businessmen and women.

Maru set out with a dream to transform the Small Medium Enterprise (SME) sector.

Arguably, no other politician before the former National Development Bank had voiced such passion, with a somewhat discriminatory tone, about Papua New Guineans starting, acquiring and succeeding with SMEs.

The minister initiated the first SME forum in Madang, which penned a forward looking and ambitious communiqué to further the development of the sector and place ownership firmly in indigenous hands.

The ADB report on the PNG financial sector states that many small and medium enterprises fail in the first five years of operation and that could be addressed through accessibility to financing.

The bank’s Pacific Private Sector Development lead economist Paul Holden said recently that SMEs were crucial for generating jobs and promoting geographically balanced growth in the economy. “About 80-90 per cent of SMEs fail in the first five years of operation, one way to promoting private sector development is if finance is available to support growth.”

His next observation is merely an echo of what many Papua New Guinean SME operators or those planning a business with assistance from banks have stated on many occasions.

“Commercial banks in the Pacific region, including Papua New Guinea, often are reluctant to lend. Without that business cannot flourish.”

The reason being that the business environment in the Pacific region is quite risky, which means lending money is risky. What the ADB report may or may not have answered is why.

What are the particular reasons that make lending to an existing or new business in this country a risky proposition if profits can be made at lesser risk elsewhere?

In PNG there are a number of obstacles in successful profitable SMEs.

The list is long but among them are high real estate costs (land and buildings), high or unreliable utility services, security concerns and cumbersome regulatory or legislative systems and procedures.

Add to that the general reluctance by banks to lend and we complete an unbroken cycle of struggling and failing SMEs in the country.

The O’Neill Government’s vision for development relies on the private sector as the engine for accelerated growth, the ADB report points out. However, translating that vision into policy reforms was proving difficult.

One of the key recommendations ADB put forward for PNG was to reform the financial and banking sector.

Maru has the backing of his colleague ministers, some key big businesses, overseas partners and a very receptive population to reform the financial sector to be more SME-friendly, as recommended by the ADB.

As a major and prudent lender to PNG, the bank should know how and where to invest in resources and policy to trigger economic growth in the SME sector, hence its recommendations.

It is interesting to note that while the same major commercial banks operating in the Pacific region are reluctant to lend to small and medium businesses, they continue to make not so modest profit yearly from their existing well-established large business clients and personal banking.

More of that money needs to trickle down into the SME sector.

For that to happen in this country, the banking and finance sector will have to be reformed as a first step.

The Government will then have to address in a practical way the long-standing risk factors facing the banks and other financial lending institutions.

Perhaps only then can they be convinced that the Government and our people are hungry enough for success in the SME sector.

Indeed, Minister Maru is on the right track but needs to translate policy initiatives into actions that result in beneficial gain for our small businessmen and women.