Will entrepreneurship boost employment in Papua New Guinea?

Small and medium-sized enterprises (SMEs) in Papua New Guinea currently generate 0.8% of exports and account for 6% of GDP. However, policymakers see substantial opportunities in providing these smaller companies with enhanced institutional and financial support. Indeed, the government estimates that SMEs have the potential to generate more than half of formal sector employment and contribute 50% of the country’s GDP by 2030.

Government Planning

Nurturing the growth of SMEs forms a central part of government policy for the coming decade. The first objective of the SME Master Plan 2016-30 is to increase the number of SMEs that operate in the country from 49,500 in 2016 to 500,000 by 2030.

In October 2019 Prime Minister James Marape stated that the government would commit PGK200m ($59m) per year until 2030 towards micro-, small and medium-sized enterprises (MSMEs) financing in collaboration with the state-owned National Development Bank. The government also pledged to provide tax incentives for SMEs, commodity price support for cash crops and incubation centres, in addition to liberalising the public sector and establishing special economic zones.

Institutional Ecosystem

In 2014 the government established the SME Corporation (SMEC) as a statutory authority under the Department of Trade and Industry. The SMEC also forms the centrepiece of the APEC SME working group in PNG, and its central mission is to promote the development of SMEs in the economy. While the organisation’s SME growth and development division is specifically tasked with providing financial assistance to SMEs, it is supplemented by a number of NGOs that aim to improve the access of SMEs to finance through capacity building. For example, the local non-profit Fusion Foundation provides support to entrepreneurs through the entire investment process and has emphasised that access to soft skills training rather than a lack of liquidity is the primary barrier that SMEs face as they expand.

In a bid to improve transparency and accountability around loans and financing, the government has implemented the National SME Product Loan Guide as part of the National Financial Inclusion Strategy 2016-20. The guide, a joint initiative between the country’s central bank – the Bank of PNG (BPNG) – and the Centre for Excellence in Financial Inclusion, was launched in June 2020. The funding guide will provide SMEs with detailed information to enable them to make decisions regarding loans and financing. The government had identified three key deficiencies that will be addressed by this policy: the lack of access to banking information; lack of understanding of the role that financial institutions play within the system; and a lack of financial literacy and management among business owners. The new booklet will be updated on an annual basis in partnership with the National Development Fund.

Covid-19

As with many markets, SMEs in PNG are among the most vulnerable to external shocks such as the Covid-19 pandemic, as they do not have sufficient capital levels to cushion the blow. Their case is particularly acute as many rely on support from the government, which is also facing fiscal challenges. In terms of immediate financial assistance, PNG has looked to provide support for those in financial difficulty. In April 2020 BPNG promised PGK5m ($1.5m) to support households and MSMEs, delegating powers and PGK500,000 ($147,500) to each provincial government to invest in training activities for vulnerable firms. The programme will be partially funded by the issuance of a PGK2.5bn ($737.4m) Covid-19 bond. In addition, the Treasury announced in May 2020 that it would make PGK600m ($177m) in credit available to SMEs to provide them with capital during the pandemic.