How SMEs can beef up PNG's Economic Growth
By Willie Mell
INTRODUCTION
PNG is among the very few lucky countries on the planet, abundantly blessed with all the natural resources! It is referred to as "an island of gold, floating in a sea of oil, surrounded by gas". We have all the natural resources on the land and in the sea that other countries wish to have.
Better still, and geographically, we are located on a very prime spot in the Asia Pacific region to facilitate trade and commerce to our neighbours - we can provide an ideal trade route to our advantage!
But despite our obvious economic potentials and being a sleeping economic giant, we are rated as one of the poorest countries in the world by living standards!
Why are we being so rich in natural resources yet rated so poor? What can we do to improve our conditions, and reach our full economic potential? And, is it possible to reach our full potential?
Let's study some basic economics and see if these important questions can be put to perspective and hence solvable. And why Small to Medium Enterprises (SMEs) can play a pivotal role in reaching our full economic potential.
GROWTH DOMESTIC PRODUCT (GDP)
GDP is a monetary measure of the market value of all the final goods and services produced in a year. In other words, it is the total income earned from all the goods and services produced in a year.
PNG's GDP last year was $30.855 billion (PPP 2018 est: source: Wikipedia). This is not the total revenue to PNG government, but the total Kina value our economy generated from all the goods and services it has produced and sold, both onshore and offshore.
Goods and services are outputs from all the economic (or commercial) activities within a country.
And, the terms don't mean the same. Goods are products produced by agriculture and manufacturing industries and other similar industries that produce tangible products. Services on the other hand, are intangible and produced by service industries such as tourism and hospitality, banks, aviation, etc.
Goods and services are produced using economic resources, or economists sometimes refer them to as factors of production.
FACTORS OF PRODUCTION
Factors of production are economic resources that people use in order to produce goods and services to make a profit.
There are 4 Factors of Production. They are Land, Labour, Capital, and Entrepreneurship (Management skills). The total monetary value of all that is produced in a year using these factors is GDP.
Land resource includes oil and gas, mineral resources, fish, timber, agriculture products, water, farm animals, real estate and other such resources that are found on and under the land, and in the sea. The land itself is a very important resource too.
Labour resource is the human resource or manpower involved in producing goods and services.
Capital resources are tools employed in producing goods and services. They include machinery and computers, farming tools, automobiles, etc. Sometimes they are called assets.
Entrepreneurship is skills used in utilizing all the other 3 factors of production to produce goods and services. It is better known as management skills. Entrepreneur is someone who is engaged in the production of goods and services, example, a business owner (management).
Theoretically, an economy grows (economic growth is achieved) when all the 4 factors of production are fully utilised to produce goods and services in a given year.
ECONOMIC GROWTH
Economic Growth is simply an increase (or decrease) in the GDP by measuring the current GDP to the previous year's GDP. For instance, if PNG's GDP for 2018 is greater than 2017, the difference is a positive growth, and the opposite is also true.
When there is a decline in the economic growth, it means that the 4 factors of production were not fully utilised.
The GDP per capita is calculated by dividing GDP and total country's population. GDP per capita measures the country's standards of living.
PNG's CURRENT SCENARIO
The GDP measurements and per capita calculations have not been well represented to reflect the realities in the utilization of the 4 factors of production.
Our labour resource is underutilized because of the increased unemployment either in formal, informal, and SME sectors. The uptake in formal employment is reaching bottleneck due to influx of foreigners taking up many positions, and growing number of college graduates.
Our land resource use is in disarray with imbalanced government policies, lack of commitment and coordination. More, but rather, ad hoc use and focus on extractive (oil, gas and mineral) industry leave other land resources suffer the "Dutch disease " effect.
Agriculture is long forgotten, and fish and timber are plundered heavily by foreigners in the guise of international trade ties for so-called economic growth! 85% of the rural population depends heavily on the rural economy and there are no smart workable policy drivers to drive it.
With the imbalance and ad hoc use of the factors of production, simply, how can we expect growth in our annual GDP? Even if there is a growth, it is a biased growth and not well represented across all the sectors.
Imagine if oil and gas supplies had significantly dropped in other major producing countries resulting in a huge price hike in PNG. PNG oil and gas companies would make huge revenue in export earnings. And imagine if that revenue accounted for 90% of the total GDP. Would this GDP be a representative one? Should we calculate GDP per capita based on this? It definitely wouldn't be a good measure because this 90% is not a composition of revenue from all the economic entities in all the sectors in so far as optimum use of the 4 factors of production is concerned!
WHAT CAN PNG DO?
One of the key questions was: Why are we being so rich in natural resources yet rated so poor? This is so because we do not properly manage these key factors of production to improve our living standards.
One way to reach our full economic potential is through empowerment and active participation in Small to Medium Enterprises (SMEs) by ALL the able PNGeans.
The chief among the 4 factors of production is the HUMAN RESOURCE (both Labour and Entrepreneurship). If everyone is engaged in the production process, more goods and services will be produced to achieve increased GDP. Increased GDP means positive economic growth, not only at the aggregate level but a clear reflection of able PNGeans fully engaged in the economic activities at the micro level.
Recent (2016 - 2018) SME statistics from other emerging and well developed economies can help us better understand why SME is a key sector comparing with our own results.
Singapore: SME contributes 50% of its GDP, makes up 99% of all the business enterprises, employs 65% of the total workers.
Australia: SME contributes 57% of its GDP, makes up 98% of all the business enterprises, employs 67% of the total workers.
Indonesia: SME contributes 60% of its GDP, makes up 99% of all the business enterprises, employs 89% of the total workers.
Malaysia: SME contributes 37% of its GDP, makes up 98.5% of all the business enterprises, employs 65% of the total workers.
New Zealand: SME contributes 28% of its GDP, makes up 97% of all the business enterprises, employs 30% of the total workers.
Papua New Guinea: SME contributes 6% of its GDP, makes up 10%(?) of all the business enterprises, employs (no reliable data)% of the total workers.
PNG's is a worse case with very low GDP compared to others! If we had studied all the countries' SME contributions the results would be similar. It is now obvious that SMEs are back bones for economic growths in emerging and developed economies.
The other technical weakness is, PNG doesn't have credible SME data to use as a benchmark to develop realistic SME policies.
HOW TO GROW PNG SMEs
PNG's “ Vision 2050” can be achieved if we give “urgent" attention to developing a holistic and vibrant SME sector!
The very critical enabler of SMEs is human resource – a very key factor of production.
The strategy is to start involving all the active PNGeans to participate in all the SME opportunities, whether they are educated or not, and as long as they are above legal age! They have natural talents, skills, knowledge, wisdoms, dreams and passions, and their physical energies to build PNG!
Remember, it takes the whole ant colony to build gigantic and sophisticated ant mounds. Some of their structures are larger and taller than human beings!
Key areas needed to be addressed to achieve best outcomes in SMEs are:
1. Resource Ownership: Land owners must be partners in all the development projects, be it oil and gas, mining, plantations, fisheries, logging, road constructions, bridge constructions, rural electrification, water supply projects, building constructions, or any project in PNG. They will participate through registered land owner companies. Only them can be subcontracted by developers as long as a particular project is within their area.
2. Empower rural economy: Each community, clan and tribe must register co-operative societies to participate in farming, rural tourism & hospitality, janitorial and general infrastructure maintenance, etc. With cooperatives, they can also source fundings through bank loans, and from relevant government departments.
3. Land registration: Each family, clan or tribe can register its land and has a title with market value for it. They can later sell them to developers or form partnerships with developers.
4. Corporations and government equity contributions: All the current and future big companies must remit a specified percentage of their annual profit as equities for SME participators, held in selected financial institutions. Government is to do the same in its annual budgets. These equities are for those who are unable to afford seed capital but have practical business proposals. There must be a new legislation to regulate it.
5. Empower every sporting activity: We have some of the best sporting talents and still coming up but “nogat luksave" from our government. Sporting is not only rugby! The government needs to grow this sector so that those who have great talents can reach their potential! Remember, some of the sporting stars earn much higher than CEOs of big companies!
6. Empower creative arts & music: This is in fact a lucrative industry but sadly PNG has no specific policies to grow this, even nothing explicitly stated in our colourful “Vision 2050”. PNG government needs to really grow this industry! The tycoons in some developed countries, such as the US are singers, actors/actresses, comedians, and other such celebrities, whose educational backgrounds are irrelevant!
7. Take back PNGeans’ reserved businesses: Reclaim all the SMEs owned and operated by foreigners, especially those in the retail sectors including food marts! Reroute all of these to PNGeans. For goodness sake, why are we allowing them!
8. Reduce Income Tax on all PNGean wage earners: greatly reduce income taxes on all the wage earners. In this way, PNGeans will save enough to run their own businesses. No one in formal employment has ever been declared a millionaire in PNG!
9. Reduce interest rate for SME loans: By law, interest rates on all the SME related loans must be reduced by all the financial institutions. This will induce more SME activities.
10. Create an SME Bank: The National Development Bank (NDB) must be renamed as the National SME Bank with Vision/Mission redefined and overhauled to purely drive SMEs. All the equity contributions from both the government and big companies (point #4) are to be remitted to this bank to manage and aid borrowers. This bank will not operate to make profit but a mere vehicle for SMEs in PNG.
11. Greatly reduce internet price: Reduce internet price to encourage SME activities. This in a blockage to local SMEs! Information, Communications & Technology (ICT) is now the life line for any business entity in this era!
13. Increase policing: To achieve all of the above, safety is paramount. Police presence must be dominant everywhere in PNG. For fear of safety SMEs especially in rural areas won’t be effective!
14. SME legislation: For SMEs to function effectively and efficiently, and for compliance, there must be laws to guide, protect, and promote active participation.
15. SME Ministry: There must be a seperate ministry created to empower and grow this key sector.
CONCLUSION
There will only be an increased growth in GDP which is well represented, if all the 4 factors production are fully utilised to their maximum capacity guarded by SME legislation. The key factor of production is manpower and must be fully recognized and empowered.
If we want improved living standards, more PNGean millionaires, increased tax revenues, and a well developed economy in the Pacific, SME is the way to go. There is no rocket science involved in growing our economy to reach our full potential.
................................................
REFERENCES
1. https://www.gov.sg/news/content/smes-have-you-heard-the-good-news
2http://fedexbusinessinsights.com/en/sme/how-small-businesses-in-australia-are-going-offshore-and-further-afield/
3. http://www.smeinfo.com.my/profile-of-smes4. https://fijisun.com.fj/2018/09/04/60-per-cent-of-workforce-in-sme-sector/
4. http://www.devpolicy.org/png-sme-policy-right-aim-dubious-means-20160718/
5. https://www.businessadvantagepng.com/expanding-sme-sector-critical-to-papua-new-guineas-future-says-md-of-sme-corporation/
6. https://www.dci.gov.pg/images/article/png-sme-policy_2016.pdf6.
7. Papua New Guinea Vision 2050
8. PNG Development Strategic Plan 2010-2030
9. PNG SME Policy 2016 [Ministry of Trade, Commerce & Industry]
10. 2018 Survey of Entrepreneurs and MSMEs in Indonesia: "
INTRODUCTION
PNG is among the very few lucky countries on the planet, abundantly blessed with all the natural resources! It is referred to as "an island of gold, floating in a sea of oil, surrounded by gas". We have all the natural resources on the land and in the sea that other countries wish to have.
Better still, and geographically, we are located on a very prime spot in the Asia Pacific region to facilitate trade and commerce to our neighbours - we can provide an ideal trade route to our advantage!
But despite our obvious economic potentials and being a sleeping economic giant, we are rated as one of the poorest countries in the world by living standards!
Why are we being so rich in natural resources yet rated so poor? What can we do to improve our conditions, and reach our full economic potential? And, is it possible to reach our full potential?
Let's study some basic economics and see if these important questions can be put to perspective and hence solvable. And why Small to Medium Enterprises (SMEs) can play a pivotal role in reaching our full economic potential.
GROWTH DOMESTIC PRODUCT (GDP)
GDP is a monetary measure of the market value of all the final goods and services produced in a year. In other words, it is the total income earned from all the goods and services produced in a year.
PNG's GDP last year was $30.855 billion (PPP 2018 est: source: Wikipedia). This is not the total revenue to PNG government, but the total Kina value our economy generated from all the goods and services it has produced and sold, both onshore and offshore.
Goods and services are outputs from all the economic (or commercial) activities within a country.
And, the terms don't mean the same. Goods are products produced by agriculture and manufacturing industries and other similar industries that produce tangible products. Services on the other hand, are intangible and produced by service industries such as tourism and hospitality, banks, aviation, etc.
Goods and services are produced using economic resources, or economists sometimes refer them to as factors of production.
FACTORS OF PRODUCTION
Factors of production are economic resources that people use in order to produce goods and services to make a profit.
There are 4 Factors of Production. They are Land, Labour, Capital, and Entrepreneurship (Management skills). The total monetary value of all that is produced in a year using these factors is GDP.
Land resource includes oil and gas, mineral resources, fish, timber, agriculture products, water, farm animals, real estate and other such resources that are found on and under the land, and in the sea. The land itself is a very important resource too.
Labour resource is the human resource or manpower involved in producing goods and services.
Capital resources are tools employed in producing goods and services. They include machinery and computers, farming tools, automobiles, etc. Sometimes they are called assets.
Entrepreneurship is skills used in utilizing all the other 3 factors of production to produce goods and services. It is better known as management skills. Entrepreneur is someone who is engaged in the production of goods and services, example, a business owner (management).
Theoretically, an economy grows (economic growth is achieved) when all the 4 factors of production are fully utilised to produce goods and services in a given year.
ECONOMIC GROWTH
Economic Growth is simply an increase (or decrease) in the GDP by measuring the current GDP to the previous year's GDP. For instance, if PNG's GDP for 2018 is greater than 2017, the difference is a positive growth, and the opposite is also true.
When there is a decline in the economic growth, it means that the 4 factors of production were not fully utilised.
The GDP per capita is calculated by dividing GDP and total country's population. GDP per capita measures the country's standards of living.
PNG's CURRENT SCENARIO
The GDP measurements and per capita calculations have not been well represented to reflect the realities in the utilization of the 4 factors of production.
Our labour resource is underutilized because of the increased unemployment either in formal, informal, and SME sectors. The uptake in formal employment is reaching bottleneck due to influx of foreigners taking up many positions, and growing number of college graduates.
Our land resource use is in disarray with imbalanced government policies, lack of commitment and coordination. More, but rather, ad hoc use and focus on extractive (oil, gas and mineral) industry leave other land resources suffer the "Dutch disease " effect.
Agriculture is long forgotten, and fish and timber are plundered heavily by foreigners in the guise of international trade ties for so-called economic growth! 85% of the rural population depends heavily on the rural economy and there are no smart workable policy drivers to drive it.
With the imbalance and ad hoc use of the factors of production, simply, how can we expect growth in our annual GDP? Even if there is a growth, it is a biased growth and not well represented across all the sectors.
Imagine if oil and gas supplies had significantly dropped in other major producing countries resulting in a huge price hike in PNG. PNG oil and gas companies would make huge revenue in export earnings. And imagine if that revenue accounted for 90% of the total GDP. Would this GDP be a representative one? Should we calculate GDP per capita based on this? It definitely wouldn't be a good measure because this 90% is not a composition of revenue from all the economic entities in all the sectors in so far as optimum use of the 4 factors of production is concerned!
WHAT CAN PNG DO?
One of the key questions was: Why are we being so rich in natural resources yet rated so poor? This is so because we do not properly manage these key factors of production to improve our living standards.
One way to reach our full economic potential is through empowerment and active participation in Small to Medium Enterprises (SMEs) by ALL the able PNGeans.
The chief among the 4 factors of production is the HUMAN RESOURCE (both Labour and Entrepreneurship). If everyone is engaged in the production process, more goods and services will be produced to achieve increased GDP. Increased GDP means positive economic growth, not only at the aggregate level but a clear reflection of able PNGeans fully engaged in the economic activities at the micro level.
Recent (2016 - 2018) SME statistics from other emerging and well developed economies can help us better understand why SME is a key sector comparing with our own results.
Singapore: SME contributes 50% of its GDP, makes up 99% of all the business enterprises, employs 65% of the total workers.
Australia: SME contributes 57% of its GDP, makes up 98% of all the business enterprises, employs 67% of the total workers.
Indonesia: SME contributes 60% of its GDP, makes up 99% of all the business enterprises, employs 89% of the total workers.
Malaysia: SME contributes 37% of its GDP, makes up 98.5% of all the business enterprises, employs 65% of the total workers.
New Zealand: SME contributes 28% of its GDP, makes up 97% of all the business enterprises, employs 30% of the total workers.
Papua New Guinea: SME contributes 6% of its GDP, makes up 10%(?) of all the business enterprises, employs (no reliable data)% of the total workers.
PNG's is a worse case with very low GDP compared to others! If we had studied all the countries' SME contributions the results would be similar. It is now obvious that SMEs are back bones for economic growths in emerging and developed economies.
The other technical weakness is, PNG doesn't have credible SME data to use as a benchmark to develop realistic SME policies.
HOW TO GROW PNG SMEs
PNG's “ Vision 2050” can be achieved if we give “urgent" attention to developing a holistic and vibrant SME sector!
The very critical enabler of SMEs is human resource – a very key factor of production.
The strategy is to start involving all the active PNGeans to participate in all the SME opportunities, whether they are educated or not, and as long as they are above legal age! They have natural talents, skills, knowledge, wisdoms, dreams and passions, and their physical energies to build PNG!
Remember, it takes the whole ant colony to build gigantic and sophisticated ant mounds. Some of their structures are larger and taller than human beings!
Key areas needed to be addressed to achieve best outcomes in SMEs are:
1. Resource Ownership: Land owners must be partners in all the development projects, be it oil and gas, mining, plantations, fisheries, logging, road constructions, bridge constructions, rural electrification, water supply projects, building constructions, or any project in PNG. They will participate through registered land owner companies. Only them can be subcontracted by developers as long as a particular project is within their area.
2. Empower rural economy: Each community, clan and tribe must register co-operative societies to participate in farming, rural tourism & hospitality, janitorial and general infrastructure maintenance, etc. With cooperatives, they can also source fundings through bank loans, and from relevant government departments.
3. Land registration: Each family, clan or tribe can register its land and has a title with market value for it. They can later sell them to developers or form partnerships with developers.
4. Corporations and government equity contributions: All the current and future big companies must remit a specified percentage of their annual profit as equities for SME participators, held in selected financial institutions. Government is to do the same in its annual budgets. These equities are for those who are unable to afford seed capital but have practical business proposals. There must be a new legislation to regulate it.
5. Empower every sporting activity: We have some of the best sporting talents and still coming up but “nogat luksave" from our government. Sporting is not only rugby! The government needs to grow this sector so that those who have great talents can reach their potential! Remember, some of the sporting stars earn much higher than CEOs of big companies!
6. Empower creative arts & music: This is in fact a lucrative industry but sadly PNG has no specific policies to grow this, even nothing explicitly stated in our colourful “Vision 2050”. PNG government needs to really grow this industry! The tycoons in some developed countries, such as the US are singers, actors/actresses, comedians, and other such celebrities, whose educational backgrounds are irrelevant!
7. Take back PNGeans’ reserved businesses: Reclaim all the SMEs owned and operated by foreigners, especially those in the retail sectors including food marts! Reroute all of these to PNGeans. For goodness sake, why are we allowing them!
8. Reduce Income Tax on all PNGean wage earners: greatly reduce income taxes on all the wage earners. In this way, PNGeans will save enough to run their own businesses. No one in formal employment has ever been declared a millionaire in PNG!
9. Reduce interest rate for SME loans: By law, interest rates on all the SME related loans must be reduced by all the financial institutions. This will induce more SME activities.
10. Create an SME Bank: The National Development Bank (NDB) must be renamed as the National SME Bank with Vision/Mission redefined and overhauled to purely drive SMEs. All the equity contributions from both the government and big companies (point #4) are to be remitted to this bank to manage and aid borrowers. This bank will not operate to make profit but a mere vehicle for SMEs in PNG.
11. Greatly reduce internet price: Reduce internet price to encourage SME activities. This in a blockage to local SMEs! Information, Communications & Technology (ICT) is now the life line for any business entity in this era!
13. Increase policing: To achieve all of the above, safety is paramount. Police presence must be dominant everywhere in PNG. For fear of safety SMEs especially in rural areas won’t be effective!
14. SME legislation: For SMEs to function effectively and efficiently, and for compliance, there must be laws to guide, protect, and promote active participation.
15. SME Ministry: There must be a seperate ministry created to empower and grow this key sector.
CONCLUSION
There will only be an increased growth in GDP which is well represented, if all the 4 factors production are fully utilised to their maximum capacity guarded by SME legislation. The key factor of production is manpower and must be fully recognized and empowered.
If we want improved living standards, more PNGean millionaires, increased tax revenues, and a well developed economy in the Pacific, SME is the way to go. There is no rocket science involved in growing our economy to reach our full potential.
................................................
REFERENCES
1. https://www.gov.sg/news/content/smes-have-you-heard-the-good-news
2http://fedexbusinessinsights.com/en/sme/how-small-businesses-in-australia-are-going-offshore-and-further-afield/
3. http://www.smeinfo.com.my/profile-of-smes4. https://fijisun.com.fj/2018/09/04/60-per-cent-of-workforce-in-sme-sector/
4. http://www.devpolicy.org/png-sme-policy-right-aim-dubious-means-20160718/
5. https://www.businessadvantagepng.com/expanding-sme-sector-critical-to-papua-new-guineas-future-says-md-of-sme-corporation/
6. https://www.dci.gov.pg/images/article/png-sme-policy_2016.pdf6.
7. Papua New Guinea Vision 2050
8. PNG Development Strategic Plan 2010-2030
9. PNG SME Policy 2016 [Ministry of Trade, Commerce & Industry]
10. 2018 Survey of Entrepreneurs and MSMEs in Indonesia: "
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