DEFINING SME IS CRITICAL TO A FAIR & EQUITABLE RESOURCE ALLOCATION FOR SME GROWTH By Busa Jeremiah Wenogo Having a clear idea of what an SME is in PNG context, can enable the government to come up with appropriate intervention(s) that is needed to nurture and grow the SMEs in the country. For instance, financing arrangement or credit facility or training facilities for that matter, being set-up may have requirements that may not suit some levels of activities within the SME, who may have their own distinct needs based on their resource and capacity constraints. This is critical as policies created by the government with an intention to help grow these businesses, may end up creating an uneven playing field where only few benefit, while the rest maintain their “status quo” so to speak. PNG is well known for developing some of the grandiose of ideas that have miserably failed. The massive abuse of funds allocated for the agriculture sector under the National Agriculture Development Program (NADP) and the RESI Funds under the Department of Education are classic examples. The people of this country, particularly the masses who have been cheated and made to eat from their own foolishness, cannot afford to go on pretending that life is full of roses and sunshine. The SME agenda needs to make an impression to today’s generation and the generations that are yet to come that not all is lost. With the current approach undertaken by the government in the absence of a specific SME definition, there is a high possibility of a “pushing/squeezing out effect” depends on how one views the scenario, taking place when it comes to allocation of resources. This is all the more likely if the government plans to introduce incentives and policies that are too broad and does not cater for the diverse range of constraints and needs of each sub-sectors within the SME sector. For instance, funds earmarked to provide credit to SME will need to be distributed evenly among different categories of businesses otherwise, the well established SMEs with their vast experience may end up absorbing most of the funds and subsequently, “push/squeeze out” the emerging and smaller SMEs. There is also the danger of “paper SMEs” popping up here and there that may also push out the genuine SME if proper screening processes are not in place. This is where the SME “ghost” need to have a “human face” to determine where the bulk of the entrepreneurs are and why they are not able to climb up the ladder in their business. In this way atleast resource allocated for SME development can be allocated in a fair, equitable and effective manner with tangible outcomes. In defining SME in PNG context, there is now an urgent task to undertake a baseline survey on SME. If an SME baseline Survey has already been undertaken the report of that survey needs to be made public. This initiative has to be complemented by a“national audit” to be undertaken within the PNG informal economy to take stock of the extent and diversity of activities. A clear definition will provide a clear structure within the SME that will enable government intervention to be fair and equitable. Failure to do so will divert those resources (capital) provided by the government into the hands of few well functioning or paper SMEs at the expense of majority of SMEs (emerging and start-ups). If that becomes the case then the government may not get to see its 500,000 SMEs come to fruition. Thankfully, the job of defining what an SME is in PNG context has been to a fair degree made easier with the development of the National Informal Economy Policy 2011-2015. The National Informal Economy Policy 2011-2015, has already clearly articulated what informal economy is by identifying four key features that differentiate it from the formal sector (SME included). The policy defines informal economy as those people who “get by” earning money without having jobs, where individuals don’t pay and collect tax although a lot of them do contribute indirectly through GST, their total out is not counted in the GDP calculation and they are not counted in the workforce and subsequently, do not enjoy the similar privileges and rights afforded to formal sector employees. These key features or attributes may look broad and simple, yet, they provide policy and decision makers a “starting point” in defining SME in PNG. In this regard, itis also important to bear in mind that the SME sector itself, is also quite complex and involves a careful approach in clearly differentiating the various components that it is composed of. It is now a case of SME building on from where the informal economy policy has left off. The government can start off by developing an SME Policy and a set of plans to map out its implementation within an identified time frame. The absence of a policy document will mean that SME development in this country will have no direction and may end up back where it was or even beyond. If the government can provide a clear framework to link the informal economy with the SME, I believe it can build that “bridge” or “pathway” that is crucial in graduating a lot of the informal economy participants into the SME. Thus through this approach, atleast, it can be able to realistically contribute towards reaching the government ambitious goals of creating 500,000 SMEs and 2 million jobs in the PNG’s formal sector, by 2025. Whether these are realistic goals given PNG’s challenges and resource constraints remains to be seen. The government must also realize and accept the fact that not all informal economy participants will want to graduate into the SME sector. Even after much work has been put into ensuring that a “conducive environment” that is just right for graduation to take place is created, there will still be a fraction of that total number that will still remain informal. The reality is that economic growth (no matter how phenomenal) and government reforms can never fully accommodate the “pool of labourforce” that will be available on the market at any one time. Such situations usually force governments to introduce “Social Protection” policies in the form of employment benefits, as a means of providing some form of income to sustain the livelihoods of the people. Formal sector employment and growth must not be viewed as the ultimate panacea or final product but rather a process that is ongoing and can be supported by a vibrant and to a certain degree, well functioning informal economy. In saying that, formal sector growth can progressively overtime reduce the gap between those who are in the informal and the formal sector. This requires the government to be strategic in its approach, proactive and not to shy away from the “real” problem. It needs to maintain a balance in allowing people to fully utilize their aptitude in the best of their ability and ensure that appropriate mechanisms are in place for them to move up to SME as when they feel like it. The rise of SME sector will depend on how best the informal economy is nurtured by the government. The fact that the government has put a “spot light” on the SME sector means that the informal economy cannot be ignored anymore. No matter how messy, ugly or backward it may look, if the government of PNG is serious about SME and using it as a tool to alleviate most of our people from the clutches of poverty, it might as well get its hands dirty. Otherwise, what will come out of all of these will be the same old story where only few got on the boat while the rest had their pass invalidated.
Posted on: Mon, 19 Aug 2013 05:41:17 +0000
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