Why SMEs vital for economy


In Papua New Guinea, like anywhere else in the world, there is an explosion of need and challenges and yet there are shrinking pools of the funding that allow us to address those needs.
No matter how vast the resources that we have at our disposal, no one government, sector, organizsation or approach can achieve complex multi-dimensional outcomes on their own.
Government, philanthropic or donor aid dollars cannot cover the costs of dealing with overwhelming challenges that we face. So unless we build approaches, solutions and businesses that can address these social and environmental problems in ways that are also financially sustainable and enabling it to access different buckets of money that have different rules of engagement then we are bound to fail.
What we have been hearing in this week’s Speakers Investment Summit in Port Moresby is for us to shift gears and change our mindset. We can no longer obsess over what we lack, instead it is time for us to search for opportunities because a business should address an opportunity or a gap in the market.
It should do that in a way that delivers value to a customer and captures that value back into the business itself through revenues and – ultimately – profit.
If we are to get investors involved then we need to find ways to create the environment and the mechanisms or the structuring of deals to allow investors who are taking risks in those businesses to also extract value from it.
Small and Medium-sized Enterprises, or SMEs, and investors, challengers and solutions – these things do not magically connect themselves, that is our job. So what is the role of SMEs in creating this change on the entrenched social and environmental challenges that we face. In frontier and emerging economy markets the SME sector contributes significantly into both employment and gross domestic product.
The World Bank reported that all SMEs contributed up to 60 per cent of the total employment and up to 40 per cent of GDP in emerging economies while creating four out of every five new jobs.
From 104 developing countries over a two-year time period we find that smaller enterprises, with fewer than 100 employees, created the majority of new jobs in low-income countries at a striking 78 per cent.
And it is worth noting that this analysis did not include the informal businesses, which account for an even share of GDP in lower income countries. When we shift to include the informal economy we see that in comparative terms, in lower income countries the smaller enterprises account for comparatively more employment than their rich counterparts, with more than 50 per cent of jobs in lower income economies coming from such businesses.
These are the very people who are the mini engines in our economy and both desperately need our support and are also powerfully positioned to provide us with incredible benefit, both socially and economically.
When we look at job creation in more detail the evidence is even stronger, because among countries that experience overall job creation, less than five per cent came from enterprises that had more than a 100 employees.
We must move our focus to developing SMEs and the private sector beyond Port Moresby and to the districts. As we pull together a case for SMEs we must not lose sight of this – a push for developing the SME sector cannot be limited to Port Moresby or big centres. We should also have our eyes firmly on the mini engines of our economy as the results will come from them.
We have had the pleasure of working with the Australian government across the Pacific for many years in building the capacity of local SMEs and to help connect them to investment. The Australian government sees incredible opportunity and talent here in PNG “and has brought us here to work on some innovative pilot projects with local entrepreneurs”, says Benefit Capital executive director Bessi Graham.
“Unlike the rest of the Pacific, PNG has the scale, talent pool, and the internal investment capital that we see is right for creating the necessary landscape for SMEs. It is for this reason that we are working with a broad range of local partners here to establish an SME fund called the Fusion Impact Fund.
“We are working with a broad group of stakeholders in PNG with a desire to keep the fund as open and as inclusive as possible. We see this type of fund as needing to have strong local ownership and leadership so that it can grow, change and respond to the local market over many decades to come as we build the SME sector across PNG.”
At this point the people and organisations most involved include:

  • David Toua, 2018 chairman, Apec Business Advisory Council (Abac);
  • Lady Aivu Tauvasa, chairwoman of Nambawan Savings and Loan Society;
  • Caleb Jarvis, Trade and Investment Commissioner, Pacific Trade Invest Australia;
  • Kina Bank chief executive Greg Pawson and executive general manager wealth Deepak Gupta;
  • Peter Aitsi, chief executive, Credit Corporation;
  • Ernie Gangloff, Gangloff Consulting and board member of BSP Bank, and New Britain Palm Oil Ltd (NBPOL)
  • Ian Clarke and the team at Dentons;
  • Isikeli Taureka, Newcrest Mining ; and,
  • Douveri Henao, Business Council of PNG

Says Graham: “We have also been liaising with the SME Corporation (Smec) and the Department of Commerce and Industry to see how we can complement their work and help deliver on the Government’s SME policy.
“We have had broad consultations with super funds and other institutional investors who are interested in finding ways to open up and de-risk the opportunities to invest in the SME market. We look forward to providing them with this opportunity through Fusion Impact Fund.
“We are continuing to expand the core group involved and will be launching a diverse working group over the next month which will feature SME representatives, local private sector leaders, institutional investors, advisers and senior PNG leaders. This group will guide and shape the establishment of the Fund.
“With the support of the Australian Government my colleagues and I are working directly with the following entrepreneurs and SMEs – Refer Tech, Coinsure, ICT Cluster, Masalai Communications and KumulSoft
“This initial group has a technology angle but address a range of different issues including some incredible work being done by Refer Tech around a pilot project for TB patients at the Kaugere Health Clinic with Dr Patrick Koliwan and David Valentine.
“In our work in the Pacific, more broadly, there has been a strong agricultural focus and we anticipate this will be similar in PNG. There will be no particular sector focus for the fund but rather a broad focus on the SME sector as a whole.
“We have also been meeting with and exploring how we might be able to work with the following groups along with many individual entrepreneurs who we see as promising pipeline for the Fusion Impact Fund: Women’s Business Resource Centre, Tropic Fronds Oils Ltd, Ian Sexton and Theresa Arek, AMRUQA, Brad Jackson, i2i, Graham Piniau, Rabaul VCO, Rob Ori and Karina Makori, Queen Emma Chocolate Company and Paradise Spices and David Becko Vaso and Romias Mills Waki, Superior Enterprises Ltd’ Mike Martin, Hanamoa Estate.”
“In 2016 the O’Neill government launched the SME policy in order to support the growth and development of SMEs in PNG. The policy aims to reach a number of objectives by 2030 and Fusion Impact Fund can assist in this development of the ecosystem for SMEs.
“For any of these outcomes to be realised it will require an investment environment that features components such as stability, consistency, and predictability of the operating environment and these things will allow the necessary confidence for investors to engage.
“Our vision is for Fusion to help the SME market flourish and we can do this by providing the pre and post-support needed to transition SMEs from standard incubation and capacity building programmes that are already operating in PNG like Kumul Game Changers, The Women Business Resource Centre and the ICT Cluster and helping those entrepreneurs and SMEs successfully access capital and investment.”
The addition of Fusion into the market will not only strengthen the outcomes delivered by other programmes but give a natural next step for SMEs and entrepreneurs to move through, connecting them to capital, says Graham.
“We have heard clearly from institutional investors here in PNG that they do not have the capacity or the mandate to effectively provide the necessary active management of a portfolio of SME investments and so one of the tusks that we will look to fill is to give the assurance the these investors require to invest in this market,” she says.
“The Fusion Impact Fund we aim to have two windows of different types of capital for SMEs. The first being the very early stage, like venture capital funding. This will be for smaller amounts of money but can take bigger risks. It will allow SMEs to test out, fail and allow them to build the models that they need to.
“The second window will be a larger pool of capital which is around growth and scale. That is where we invest larger amounts of money in things that are proven and tested. Fusion Impact fund will focus on leveraging PNG’s financial and human capital and help us grow the SME market in PNG. The fund will be designed to appeal to investors and SMEs through active management, remediation and exit.”
Another approach to help SMEs is through Impact Investment, says Graham.
“It is an attempt to combine intention and measurability. It asks us to be responsible by consciously choosing where we put our money to work and to hold our selves accountable through measurement to find out whether the things we have invested in are actually achieving the social and environmental returns that they were aiming for as well as the financial returns,” she says.
In this way, impact investment is more than about money; it is an approach that brings together the worlds of doing good and making money and do that in a way that it is a win-win for people and the planet.
“When we build businesses and invest in this way we suddenly open up money that was initially unavailable to social and environmental problems,” says Graham.
“Impact investment enables us to swim in a much bigger pool of capital but it is not about free money; it is about all of us being accountable for delivering what we promised and together achieving the changes that we want to see in society.
“In all our attempt to support the SME market we need to recognise that we are building an ecosystem and it is important for all of us to play our part. This will take decades of commitment but it will change the face of PNG.”