Call to rename informal sector not new By Busa Jeremiah Wenogo The recent call by the member for Lae Open Hon Loujaya Kouza to rename informal sector is not a new call. The Consultative Implementation and Monitoring Council through its Informal Economy Sectoral Committee has been for a number of years calling for the renaming of informal sector. However, the reasons calling for the name change seems to differ in terms of its intention. While Ms. Kouza wants the name change to elevate the status of the informal economy into the SME Sector, the Informal Economy Sectoral Committee on the other hand,recognizes that the term “informal sector” does not do justice to its size interms of the number of people that are engaged in it and the total output that it produces. Furthermore, the term itself has provoked negative views from both the public and the government and therefore, it has been one of the reasons why informal sector has not been given its due consideration by the government. Therefore, it is hoped that by changing the name to “informal economy” it will change the government and the public’s views about informal sector from negative to positive. While the Honourable Member is calling for informal sector to be recognized as part of the “SME cottage industry” and the Informal Economy Sectoral Committee wants informal sector name to change to “informal economy, the end goal for both standpoints is to establish an economy that is led by Papua New Guineans. However, there is a need for Ms. Kouza to also give ample recognition to the importance of the informal economy in laying the platform to stimulate the cottage industry within the SME Sector. Logically speaking, there cannot be an SME Sector let alone a cottage industry if there is no informal economy. Informal economy being the base provides the elementary entrepreneurial skills and training to better equip an entrepreneur if he or she decides to take the next step. The Member stated that the “floor plan” of the Lae’s economy is the SME Cottage industry. If that is the case then the post is the informal economy. It is a known fact that majority of the population in PNG are based in the informal economy. Even the recent 2014 ADB Report on PNG recognizes this fact and has therefore, called upon the government to protect the informal sector workers. This is supported by the National Informal Economy Policy which recognizes that the informal sector makes up a larger part of the PNG’s socio-economic system. Nevertheless, the concerns of both parties seemed to be similar in the sense that both are calling for the name change to remove the negative perception that is attached with the name “informal sector” in PNG. It is generally accepted that in PNG when one talks about informal sector, one quickly thinks of betelnut and cigarettes selling which is totally misleading. Informal economy businesses are quite different from SMEs. They need a completely different set of policy measures to prosper. They should not be treated as if they were just smaller versions (or a ‘little brother’) of small businesses within the SME Sector. They are different in terms of their ‘culture’, structure and operational methods. Governments should administer microenterprises quite separately from small businesses. For instance, there are those within the rural economy that are engaged in production in the “pre-market” stage. They may produce surpluses but it is primarily for their own consumption. For them the level of monetization is almost non –existence as they live in a subsistence economy. Trading of food is primarily facilitated through a barter system given poor infrastructure or the absence of it which isolates their participation in the broader economy. In PNG this group of people are on the decline given the increase monetization of PNG’s economy. Nevertheless, there are those that still undertake barter trade complemented by trade using “modern money”. Secondly, there are those that produce and also engaged in some level of commercialization but with no real commitment to cash-cropping (for example selling the occasional bucket of coffee “cherry’ at the height of the flush). These are people that need to be brought into the informal economy by understanding the constraints (infrastructural, financial, informational, and societal) together with corrective action to address these them.. Thirdly there are a group of people that aim to produce a marketable surplus on a semi-commercial basis but are limited by inadequate capital and limited technical assistance. They have real commitment to commercialise their activities but have over the years suffered from the break down in law and order and important government services such as the agriculture extension. These group are genuinely looking for an opportunity to link up with the rural informal economy. If properly assisted they can enter the informal economy as commercial smallholders In urban economy, informal economic activities are forced upon many households as a result of lack of job opportunities within the formal sector or inadequate income to sustain their living. This group of people have multiple sources of income (both formal and informal) generated through both legal and illegal activities. They are usually comprised of long time city dwellers and migrants who live in settlements occupying traditional and government own land. They are usually constrained in their attempts to diversify and increase their income by financial, informational and regulatory barriers. Policy must aim to remove such obstacles. Being unregulated without any formal system in place the informal economy operates under its own rules based on social contracts established among its participants. While it is a welcoming call concerning the informal economy, it is also surprising to note that the member who is the former Minister for Community Development, Youth and Religion, did not mention the need for linkages to be established between the informal economy and the SME Sector. That is the need to erect the “post” before the “floorplan”. The Department under her former Ministry has been the lead implementing agency responsible for implementing the National Informal Economy Policy. Therefore, one would assume that the Honourable Member has adequate knowledge on issues surrounding the informal economy in PNG and the strategies that are in place to address these issues. It is also interesting to note that during her tenure as the Minister, there has been no mention of linking up the informal economy with the SME Sector in the public domain. Even when the euphoria surrounding the SME was at its peak there was no attempt by her to strategically position her Department to work with the Department of Trade, Commerce & Industry.While her focus to elevate informal economic enterprises into cottage businesses within the SME sector is commendable, it is important for the Member to understand that achieving specialization within an economy is not only driven by resource endowment but is primarily driven by the generation and accumulation of “capital”. Lack of capital will impact on the level of productivity and subsequently on the level of specialization. Therefore, before she advocates on the idea of SMEs in her electorates it is important for her to re-visit the National Informal Economy Policy to understand the definition of informal economy and the strategies that are outlined to grow the sector. It is also important that she needs to note that the conversion from the informal economy into the SME Sector depends on having in place appropriate laws that don’t “force informal sector entrepreneurs into being regulated” but one that “encourages voluntary regulation”. Simply the law must create incentives that will encourage informal sector participants to aspire to be regulated and not one that force them into hiding.It is therefore important that those laws must be driven by its intended beneficiaries and not “borrowed from outside”. Otherwise, we maybe faced with the old Hobbesian problem where “laws that are created not according to the wishes of the people will be very expensive to administer compared to one that is developed to reflect the wishes of the people”. Informal economy is in desperate need for serious government intervention if ever we are going to see them become SMEs as was expressed by Ms. Kouza. Currently, it is greatly neglected and while the government is pushing to stimulate the SME Sector in the country, informal economy being its very foundation is at present unrecognized, neglected, suppressed and under siege. Yes betelnut and cigarettes selling does not represent a true reflection of what informal economy is but these forms of activities does provide us the glimpse of the ingenuity and determination that our people have if they are provided the right opportunity and incentives to prosper in their business. Eventhough we all aspire to see our people engage in other more meaningful and value adding activities such as garment, clothing, fresh produce and so forth, the reality is that there are factors within our “market driven economy” that will influence the types of economic activities our people take up. For instance, while most of us are against the idea of promoting the sale and consumption of betelnut for hygiene and health reasons, it is a known fact that it is the only agricultural crop that is able to generate large revenues for sellers given it has a huge domestic market. In addition, its easy to grow with very little labour or capital input and has quite an advance supply chain linking the producer to the middle men, retailer and eventually the consumer. Its multiplier effect includes the transportation and housing industry where vechicle owners (taxi and PMVs) are hired to transport betelnuts while houses are turned into warehouses to store and trade betelnut bags. Thus, It is really not a case of “collectivization” economic policies versues “individualization economic policies ” but it is essentially about how we are able to create an environment where our informal economy participants can transit into the SME sector. Informal economy in PNG is currently riddled with so many problems that it is more logical and worthwhile for the government to focus its efforts on addressing these problems as a way of stimulating the SME Sector in the country. A PNG Economy that is led by active participation of its indigenous population needs both the Informal Economy and SME to be strong. There are already signs that the informal economy is under threat from foreign exploitation and competition. Smaller trade store/tucker shops are now being taken over by foreigners while small micro-enterprises such as the sale of Meri Blouse are under threat from cheap foreign produced imports from Asia. In addition, stringent banking requirements that are in place to open up bank accounts, lack of or no “savings culture” and poor financial literacy skills are factors that limit our people from expanding and eventually having the competencies and resources to move up the ladder into the SME sector. Challenges like these will pose huge problems to graduate more of our people into the SME Sector and subsequently, increase our people’s participation in the economy. Informal sector needs a name change but not one that will not recognize its important role in PNG’s socio-economic development. Instead informal sector needs a name change to paint a picture of an aspect of the economy that is the heartbeat and lifeline of PNG’s economy. A sleeping giant that if befriended will spin the wheel of economic revolution that will take PNG into the caldron of economic power.
Posted on: Wed, 20 Aug 2014 00:48:30 +0000
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