The National,Monday March 7th, 2016
IN light of the Government’s new Small Medium Enterprise (SME) policy, we hope that Richard Maru will not relent or lose sight of the vision with which he hit the ground running.
Maru, a first-time Member of Parliament, was handed the Trade, Commerce and Industry Ministry at a critical time in 2012. The economy was buoyant and there was a general sense of optimism.
Papua New Guinea 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 (NDB) managing director 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.
A recent ADB report on the PNG financial sector stated that many small and medium enterprises failed 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 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 was merely an echo of what many Papua New Guinean SME operators or those planning a business with assistance from banks had stated previously.
“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 business.
What the ADB report may or may not have answered was 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.
Minister Maru is on the right track but needs to translate the SME policy initiative into actions that result in beneficial gain for our small businessmen and women.
With the issuing of the writs for the 2017 general elections just 13 months away, there will be many in the SME sector who fear a new government may not
fully implement the new policy.