SME sector needs K1bil yearly

The National Business
A major constraint to the growth and development of locally-owned small-to-medium enterprises is inadequate credit. The Stret Pasin Stoa programme offered credit, entrepreneurship training and business management skills to the SME sector to support new business start-up and growth of existing enterprises in the 1970s, 1980s, and 1990s, according to the National Research Institute.
Pictured is an SME set up at Ela Beach, Port Moresby. – Media Development Initiative PNGfilepic/ Nationalfilepic

A BUDGET of about K1 billion kina budget for the small-to-medium enterprises (SMEs) will help the sector, according to PNG Micro Small Medium Enterprise (MSME) council president Des Yaninen. But Yaninen said the challenge was that the annual budget was always tight. His comment came during the release of the National Research Institute’s discussion paper May 2021: Innovation in the informal economy: Lessons from case studies in selected areas of three provinces in PNG.
The paper calls for the revival of the Stret Pasin Stoa scheme. “To implement initiatives of the SME sector, you need K1 billion a year,” Yaninen said. “The challenge is that when you get to budget time, it is September, October or November (and) people are fighting over a slice of the cake. “If you give this much budget to this department, another department is going to miss out.  “There is always an opportunity cost of something. “So that is where when we keep making a case for SME funding year after year (because) they are going to say (that) you are going to take away money from law and order, education and health. “That is the reason SMEs cannot be funded or receive the level of funding they need.” Yaninen however thanked the Government for allocating K200 million to SMEs. “It shows that the Government is committed,” he said.  “The only problem is the rollout (through) Bank South Pacific (K100 million) and NDB (K80 million).” He said the K80mil was still with NDB. “Nothing has gone out,” he said. “What is going on? “And then there is another K200 million on the budget for 2021 (which) going to be released. But how can it be released when we do not know where the money has gone to?  “Where is the accountability for that?”  Yaninen said the council would look at some of the recommendations in the discussion paper such as the buying groups. “A really good recommendation,” he continued. “That is a low-hanging-fruit set, something that the MSME council will look at.
“We have members around country in different industries but we can specifically talk about all the MSMEs running retail shops and operations to form a buying group to access wholesale prices to pass on a better price to people. “When talking about importing, there is the foreign exchange issue as well.  “People know that it will take at least a month to have the foreign currency required to import things. “(Forex) is also linked to foreign direct investment, when we have foreign investments such as Papua LNG bringing in the foreign currency we need to run our business.”  He pointed out that reserving businesses for locals does not mean chasing foreign businesses away. “We do not hate foreign businesses,” he said. “That is a common misconception – that SMEs are anti-foreign business. We just want certain business within a certain threshold to be reserved for us.” The Investment Promotion Authority Act of 1992 contains a reserved activity list which was removed in 2000. “That’s when we lost the protection for local businesses,” Yaninen said. “All we need is for that to be in place and all the SMEs under a certain threshold. If you protect them, we will grow the sector.” The Stret Pasin Stoa scheme was operated by the PNG Development Bank (later the NDB) in the mid-1970s to early 1990s. Report authors Thomson Honga and Dr Francis Odhuno said those interviewed agreed that the scheme had contributed to the growth and expansion of businesses, improved incomes for individual recipients, and improved living standards for families. The programme was implemented by the National Development Bank to achieve its objective of providing to locals to participate in (retail) businesses. Honga said scheme recipients revealed that it worked very well during the pre-ownership period because the operations were carefully managed, monitored, and audited.
But some faced challenges when the management and ownership were left to the loan recipients. “During this period, many of the Stret Pasin Stoa enterprises ceased to operate,” Honga said. He said the collapse of indigenous-owned stret pasin stoa retail outlets was the stiff price competition posed by foreign-owned businesses. The demise of the indigenous-owned retail stores may also be attributed to mismanagement and lack of post-programme incentives and support to continue operation. “The scheme not only contributed to a growth in sales, profits and assets but also improved incomes for recipients and the living conditions of their families,” Honga said.
“It should be revived to support nationals in the SME sector. “An improved version of the scheme should include other streams of SME businesses such as agriculture, tourism, fisheries, manufacturing, and cottage industry.” Honga said the downside of the scheme was that there were no post-loan incentive programmes to support recipients in growing the business they owned and managed. Some of the challenges include:

  • A LACK of shops in cities and towns to buy and the placement of nationals hindered the rotation (credit recycle) of the programme;
  • AN influx of Asians entering the retail industry gave a stiff competition to local operators;
  • SUCCESSFUL operators leasing or selling their businesses to foreigners, defeating the intended purpose of the scheme; and,
  • A lack of funding to continue the scheme and lack of government support to protect indigenous entrepreneurs.

Recommendations
Honga said those interviewed recommended that the stret pasin stoa programme be revived given its potential to positively impact low-income families and to help small businesses access finance and credit.  “Although the programme worked very well in the 1970s to 1990s, most of the respondents indicated that the business environment, market conditions, and development status of Papua New Guinea have changed significantly,” he said.  “Therefore, the same model may not be effective today and some key features may not be relevant to the current credit market.
“We recommend a new version of the scheme that includes key features of the old scheme but also takes into account current market conditions.” Recommendations to ensure that the programme is sustainable include:

  • BANNING foreigners from expanding into businesses reserved for locals;
  • INCREASING the annual government budget allocation from K200 million to more than K1 billion, opening up the credit market and relaxing the application process to encourage borrowing by locals;
  • INTRODUCING incentives such as tax credit, freight subsidies and grants;
  • DEVELOPING a new model of the scheme but using key features from the old scheme;
  • EXPANDING the scope of the scheme to include other SMEs in agriculture, tourism and cottage with 100 percent credits and no collateral and equity.
  • EXPANDING the scheme to business centers in other provinces; and,
  • LEGISLATING the SME policy and making the stret pasin stoa programme mandatory.