Import substitution through informal economy is important to achieving a self-reliant Papua New Guinea By Busa Jeremiah Wenogo When one talks about import substitution essentially it means that we are concern about localization. Import substitution in its simplest definition entails replacing imports with local substitutes. At the moment there is not much taking place interms of import substitution in PNG given that our manufacturing sector is not advance with less diversification. This is crippled by the fact that we do not have the appropriate technology to produce these imports domestically. Perhaps what is more baffling is the lack of attention given to the agriculture sector by the government although it is clearly PNG’s biggest sector in terms of inputs and outputs.Over the years the government in good faith has set-up commodity boards to address specific commodity related issues yet it still gives less attention to its plight year in year out.While it attempts to deal with issues relating to yield and quality management by exploring new innovative agriculture techniques, it does not realize that basic agriculture extension training is just as important for farmers to improve their level of productivity. Furthermore, it needs to ensure that agriculture farmers are provided the market, information and knowledge to innovate and exploit profits. As a result Papua New Guinean entrepreneurs are relying more heavily on imported finish products to satisfy a whole new generation of Papua New Guineans whose consumption pattern is largely composed of imported food and household items like rice, tin fish and noodles. Therefore, at present in PNG the local market is flooded with cheap imports mainly from China that does not last long and poses risks to consumer welfare. In addition, domestic products that we have a comparative advantage in producing such as artisan and bilum wares are already under threat from foreign competition. Even in some shops there are cases where bilum ware and artifacts are sold posing further competition to our local weavers and crafts men and women. For these sorts of products it is important the government regulate to ensure that local producers receive a fair return. Often times our people miss out when foreigners pay a more modest amount and yet sell them at much higher price. The government should introduce licenses to those foreigners who are deliberately exporting or marketing these products locally and internationally. The government should also set-up a clearing house where it is able to facilitate the selling of local artisan and bilum wares to international markets at international competitive price. The informal economy in PNG is vulnerable to foreign competition that can easily exploit it for its gain. What is more frightening is the reality that most of these activities are small and operated in an independent and fragmented market and yet supports the needs of the majority of our population directly and indirectly. This means that if ever foreign competition decides to establish its roots in the informal economy, localization and import substitution will never get to see the light of day. Even worse unemployment and underemployment could significantly spike. This is the reason why the informal economy needs to be protected and supported although it has over the years been blamed for filth, dirt and consumer related issues. Nevertheless, if the government is serious about the informal economy it will do everything in its power to ensure that it minimizes the negativity associated with the conduct of some informal economic activities. Lack of government intervention has led to calls from both the public and the government for informal economy to focus more on value adding activities such as agriculture and horticulture. However, it is a shallow argument to say that urban informal economy participants are lazy when their activities revolves around selling cheap imported products like batteries, clothes and other household items. These sorts of argument do not look at the root cause of the problem and instead tries to unfairly blame the unfortunate vendors who in the haste of making a living, are selling products that have quite a considerable slice of the domestic market. If the government is serious about converting informal economy into a super mall that generates local driven value added products, it should address cheap imported goods from overseas. If it decides to ignore this then bulk of the money being generated through agriculture and horticulture related activities will unfortunately precipitate through the purchase of cheap imports which are themselves non value added products. The other important reason why informal economy needs to be supported is the fact that SMEs play an important role in achieving import substitution. SMEs like informal economy have an important role to play as it is seen as the frontline when it comes to the issue of localization versus foreign competition. Being an SME means having access to certain privileges and also opportunities such as protection from the government, access to credit and other incentives. This is why informal economy needs to be protected and supported as if it becomes inactive due to foreign competition, SME sector will not grow at all. Informal economy provides the training environment where budding entrepreneurs can trial and error their ideas and products. Through this process they are able to fine tune their products and skills and then if ready graduate into the SME sector. The other aspect of import substitution should focus on foreign direct investment where the government encourages localization of the local economy with limited foreign direct investment in the economy. Foreign direct investment is good but it should be focused on areas that require large capital investment interms of the level of technology and funds. At the moment it seems clear that the extractive industry is appropriately being dominated by foreign direct investment. However, the government will need to revise the incentives it is putting forward to attract these investments by understanding its comparative advantage and the prevailing market situation. For instance, during period of commodity boom given rise to by an increase in demand or a reduction in supply from the larger producers, the government should ensure that the terms of new investments should be done on a level plain field. When it comes to negotiating the terms of agreement in large projects such as those of the LNG magnitude, the government should know that the supply of resources like gas, are finite. That means that government should also manage the levels and stock of these natural resources so that it is sustainable. The government should be prepared to allow downstream processing with a focus on increasing the content of the local suppliers all the way down to the informal economy. At the informal economy level the government should be focusing on protecting and nurturing the skills of the local micro-entrepreneurs while at the SME level, it should equip nationally owned businesses with all the tools needed to compete in a competitive, fair and open environment. In essence import substitution should not only focus on strengthening the SME Sector but should also entail protecting and growing the informal economy. Author’s information: The author is an Economist & a Senior Project Officer with the Consultative Implementation & Monitoring Council specializing on issues concerning informal economy in PNG.
Posted on: Mon, 29 Sep 2014 00:01:38 +0000
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