Business Reserve Listing and why SME definition is critical to its review BY BUSA JEREMIAH WENOGO Under the IPA Act of 1992, a list of business activities within the cottage industry have been reserved by law for Papua New Guineans. It is understood that foreigners are prohibited from undertaking business in these areas. While this approach is commendable, it is also vulnerable to abuse and the result speaks for itself where to date, there is only about 49,000 SMEs in the country. It would be also interesting to discern from this figure how many SMEs are actually owned and operated by indigenous Papua New Guineans as against those “dummy companies”, where foreigners have taken advantage by having Papua New Guineans acting as owners of these business in disguise. On the flip side, there are cases of businesses that are owned by Papua New Guineans but have been rented out to foreigners to operate. In trying to get around this problem, I believe the government is looking at a strategy to include all business activities that are assumed to be SME in nature, into three (3) broad categories. Firstly, there will a category that will be wholly reserved for Papua New Guineans, followed by a category that will allow for a 50-50 venture between Papua New Guineans and foreigners, and the last category is open for competition between Papua New Guineans and foreigners. If this is the case, it looks certain that the reserve list will be accommodated in the first category. Nevertheless, the government will have to come up with some guiding questions when framing the reserve list thereby ensuring that by reserving it, it leads to unleashing that “entrepreneurial spirit” among Papua New Guineans rather than becoming an impediment to innovation and growth. This very much means that Papua New Guineans need to be trained in entrepreneurial skills training to be equipped with the right skills to become successful at what they are into, in terms of business. Consistent monitoring and evaluation to assess these budding entrepreneurs’ progress is important to make sure that they become successful business man and women. Many commentators have thus far come to the conclusion that reserve listing is a protectionist approach and may draw retaliatory measures from the international community, particularly PNG’s major trading partners. They argued that the government should take a holistic approach rather than a piece meal approach bearing in mind its commitment to various trade agreements. Whilst, that may be true, it should be noted that developed countries although economically liberalistic, are also some of the worse culprits when it comes to protectionism. It makes economic sense to do everything possible to protect certain industries that are dear to one’s heart, given its importance to income and job creation. In the same token, there are products and services that Papua New Guineans are naturally good at that may warrant protection. However, both the government and the people of Papua New Guinea must realize that there are some businesses that Papua New Guineans are just not good at managing and nurturing it. In this instance, protection rather than being a stimulator for growth will end up becoming a deterrent. The government must carefully analysis the existing environment to determine the best model to apply. In cases where legitimate foreign business have thrived, the government needs to establish the reasons for its success and if convinced that it is best left to foreign businesses for the sake of employment generation and economic growth, it should make that bold decision to do so. As part of the SME stimulus package the government plans to review the reserve list. I believe the time is right for that to take place as it is well over due. However, the crunch of the reserve list matter and the SME in general, will come down to the issue of definition. A quick glance through the reserve list demonstrates why. Most of the activities maybe said to be predominantly found within the informal economy and may not necessarily be called SMEs. This raises a very important question and that is, should there be only one reserve list covering both the informal economy and SME, or two separate reserve lists each specifically for each of the specific sector. In other words, is the nature of the Business Reserve List sector specific? Or is it necessary for the reserve list to be sector specific? In my own opinion, there is a need to specify to allow for linkages and specialization to take place within the informal economy, the SME sector and at the larger scale. This also provides the government a much clearer idea of what types of intervention is appropriate to suit the needs of each distinct level of business. In addition, it is also important to make sure that foreigners don’t operate their business in an informal way but rather through a transparent and honest way. Foreigners should be only given opportunity to invest in PNG on the presumption that they have the capital and the technology to undertake businesses that Papua New Guineans lack capital and technical skills. Even if one would like to think that all of the activities within the reserve list are part of SME, the dilemma would be to discern at what point an activity falls under SME and should be reserved. Once again this brings to light the importance of having a clear definition of SME. A much clearer definition would assist in developing business profiles and as such make enforcement much easier to carry out. It just cannot be assume that informal economy is part of the SME. These two sectors are very much different in so many aspects. However, there are some activities within the reserve list such as the sale of agricultural produce, that somewhat have a fairly clear cut requirements. Even then it is not clear whether these activities would be undertaken by the top end of the SME, the middle or the bottom end of the scale. Even the requirement itself is not clearly determined whether it fits the bottom, middle or the top bracket of SMEs. Therefore, one suggestion would be for the Reserve Listing to follow the different components within the SME structure given their unique needs and challenges. The government must be clear that the reserve list is a tool to empower Papua New Guineans to become empowered economically, given the lack of active participation by Papua New Guineans in income generating activities within a formal sector. There is no doubt informal economy (agriculture inclusive) has been the mainstay for many Papua New Guineans in terms generating income. At a certain point, the government must try to gradually open up competition and subsequently, reduce the list of activities “to be reserved”. Of course this can only take place when Papua New Guineans backed up by relevant knowledge and skills have amassed a certain level of experience and capital, to able to operate these businesses on their own. To become competitive both domestically and internationally, Papua New Guineans must learn to thrive in their business with and without the support of the government. Incentives provided by the government like loans should have conditions where SMEs should only access certain loans based on their longevity, scale and scope of their business. Otherwise, the incentives themselves may become disincentives when they lead to very little productivity and innovation. One way or the other, the people and government of this country must realize that there is a much bigger stage to plough one’s trade in and inorder to be competitive, the domestic market needs to be used as a training ground
Posted on: Mon, 26 Aug 2013 04:02:09 +0000