Only a few SMEs are exporting

BUSINESS

By MAX ORAKA
A RECENT study conducted by the National Research Institute sheds light on the limited participation of indigenous micro, small, and medium-sized enterprises (MSMEs) in the country’s export activities.
Despite government efforts to promote indigenous-owned businesses in the export sector, only five per cent of surveyed MSMEs reported generating sales revenue from exporting goods or services.
The study titled Barriers to Internationalisation of Indigenous-owned Micro, Small and Medium-size Enterprises in Papua New Guinea emphasises the dominance of foreign-owned multinational businesses in PNG’s export landscape. The concern arises from the potential consequences if these independent businesses decide to relocate their operations elsewhere.
One of the key findings of the study was the difficulties in accessing business finance and the legal structure of business organisations (private or cooperative) are the primary barriers preventing the involvement of PNG MSMEs in global markets.
The authors of the study, Joseph Muniu, Francis Odhuno, and Dianah Ngui, analysed survey data from MSME owners and managers across all 22 provinces in PNG. They pointed out that indigenous MSMEs should adopt a more proactive approach in promoting and selling their goods and services internationally.
However, they concluded that improving access to business finance and enhancing the efficiency of privately held firms and commodity cooperatives were crucial areas in which the Government should focus its attention. Addressing these factors would enable indigenous MSMEs to pursue export opportunities and increase the revenue generated from exporting goods and services.
It is widely recognised that Papua New Guinea has achieved significant success as an exporter of mineral and agricultural products. Nevertheless, the lack of engagement by indigenous MSMEs in exporting activity poses potential risks for the country’s overall export sector.
The Government must prioritise initiatives that facilitate easier access to finance and improve the operational efficiency of local businesses, above all, empowering indigenous-owned MSMEs to participate more actively in the international market.

Background of the study
The Government of Papua New Guinea aims to increase the size and economic contribution of the domestic private sector to consisting of majority indigenous-owned micro, small and medium-size enterprises (MSMEs).
Most of the country’s policy and development planning documents, like the Medium-Term Development Plan (MTDP) III (Department of National Planning and Monitoring (DNPM), 2018), Papua New Guinea (PNG) Vision 2050 (National Strategic Plan Taskforce (NSPT), 2011) and PNG National Trade Policy, 2017-2032 (Department of Trade, Commerce and Industry (DTCI), 2017), for example, contain the PNG Government’s strategic planning and mapping priorities that include how to increase the number of locally-owned MSMEs from 49,900 to 500,000 by 2030.
In line with the target, the objective of the country’s National Trade Policy is to ensure that MSMEs are provided with opportunities to grow, develop, and reap the benefits of trade liberalisation as PNG implements various trade agreements that it is party to (DTCI, 2017). As a policy target, therefore, the PNG Development Strategic Plan 2010-2030 envisages “a significant number” of PNG MSMEs with overseas operations by 2030 (DNPM, 2010b).
But such policies of encouraging PNG MSMEs to focus on export markets are not new or even recent. Every successive government has recognised that MSMEs could play a key role in promoting exports of specialised niche products; more attention has therefore been given to encourage SMEs to go global (DCTI, 2017).
Both the PNG Development Strategic Plan 2010-2030 and Medium-Term Development Plan 2011-2015 had set support strategies, policy and legislative frameworks that would encourage MSMEs to unlock their potential and focus on export markets (DNPM, 2010a).
Encouraging PNG MSMEs to focus on the export market should not only contribute to the improvement in the lives of PNG citizens but also contribute to the country’s development agenda. On a macroeconomic scale, it is also important for the country’s MSMEs to increase their exports to avoid any serious setbacks to the economy that would occur if the independent businesses that currently dominate the export of the country’s traditional commodities decide to shift their operations elsewhere.
In order to work towards these targets, successive PNG Governments have been implementing programmes and strategies aimed at facilitating and strengthening MSME product development for export (DCTI, 2017).
One of the key strategies to encourage internationalisation of MSMEs is to equip the businesses with the required know-how and support to transact goods and services from domestic destinations through to international market destinations on time and on a competitive basis.
Despite these efforts, there has only been a handful of PNG MSMEs engaging in export activities. Why are so few MSMEs in PNG engaging in exporting activity? Are there barriers to entering foreign markets? If yes, are these barriers industry or sector-specific? And are the barriers related to owner/manager education, or their perceived obstacles to going global?
The authors mentioned that currently there were no studies (as not aware of) on what is preventing PNG MSMEs from venturing into international markets. So, answers to these questions should inform the directions to view in the PNG Development Strategic Plan 2010-2030 for developing key strategic areas with respect to MSMEs.
These strategic directions are a “four-fold increase at least” in the number of MSMEs and “a significant number” of PNG SMEs with overseas operations, all by 2030 (DNPM, 2010b). Identifying and removing perceived barriers to engaging in export activities is therefore an important first step if internationalised MSMEs are to drive the PNG economy forward.

Data set
The authors used Tebbutt Research (2014) survey data to analyse the barriers to internationalisation of indigenous-owned micro, small and medium-size enterprises in PNG. Tebbutt Research (2014) conducted a representative face-to-face survey of 1,117 formal MSME business owners and managers in all 22 provinces. This dataset is fairly old, but the authors were not aware of any new or more recent dataset with comparable scope and depth that they could exploit. Indeed, the scope and depth of this Tebbutt Research (2014) dataset allowed them to access a vast amount of critical information about MSMEs constraints, performance, and development that, to their knowledge, has not been previously exploited, which they now do.
While Tebbutt Research also surveyed 521 unregistered MSMEs, the raw data for this subsample was not currently available for public use, hence informal MSMEs were not considered in the study.
Instead, the authors focused on formal MSMEs as defined by Tebbutt Research (2014): An MSME is a firm that is formally registered, has between one and 150 paid employees, has maximum borrowing of PGK1.5 million (US$428,000) and an annual turnover of between K100,000 (US$28,500) and K15 million (US$4.28 million).
This implies that both the SMEs and the microenterprises are included in the authors’ analysis.

Current happenings
The recent focus on supporting small and medium enterprises) has generated both optimism and concerns. While the Government claims to be committed to empowering the MSME/SME sector, there are apprehensions about the effectiveness of the current funding initiatives and the limited access to loans.
Initiatives such as tendering, subsidised loans, and the creation of entrepreneurial platforms have facilitated the establishment of more than 50,000 registered SMEs in 2021 alone.
According to PNG SME Corporation it is crucial to spread the SME funds to other commercial and micro banks to ensure a wider population has access to financial support.
Many businesses lack the necessary equity, and diversifying lending opportunities will encourage entrepreneurship and drive economic growth.
According to an article (PM confirms K200m funding) in The National on Jan 22, 2024, the Government budgeted funding of SME is K200 million annually.
In the article, Prime Minister James Marape said they (the Government) were further looking into the SME policy and to not only work with Bank South Pacific (BSP) and National Development Bank (NDB) but also other lenders to best engage SMEs.
“We recognise the important role that SMEs play in contributing to the overall economic growth and job creation.
“We believe that by empowering these local businesses, we are laying the foundation for a robust and resilient economy,” he said.
“So to address these challenges, we are committed to implementing more robust and accelerated programmes to ensure that businesses receive the support to recover from setbacks and continue their contribution to the nation’s economy,” Marape had said.
Kina Bank, a leading commercial bank, has recognised the value of SME development and introduced its own long-term plan to support these enterprises. The bank aims to provide accessible funding to businesses with turnovers up to K5 million annually.
The bank’s chief executive officer (CEO) Greg Pawson said that the significance of the Government’s focus on the SME sector demonstrated readiness to contribute to its growth.
The Prime Minister acknowledged the role of SMEs in PNG’s economy saying plans were set to continue supporting their (SME) expansion.
He said the Government has set ambitious targets to register 500,000 SMEs by 2030 and promote employment, female workforce participation, and increased GDP contribution, and most importantly, contribute to the country’s economy.