Man-made constraints to business are the real obstacles to business development in Papua New Guinea, according to Dr Charles Yala, the Director of the National Research Institute. In an address to the Australia-PNG Alumni Conference, Dr Yala said the country’s leaders need to ‘think outside the box’ and harness ‘our natural beauty and landscape’.
PNG is a land of many contradictions.
Dr Charles Yala. Credit: NRI
For instance, the exploitation of PNG’s abundant natural resources, namely minerals, oil and gas, have not transformed the nation as we have wanted.
I have described this paradox in some of my earlier writings as: ‘the petro-oil-gas dollars disappearing into thin air, leaving behind an impoverished nation.’
The entry point into PNG for foreign investors is often prohibitive right from the start.
It begins with high cost and infrequent flights into PNG and there are exorbitant costs for hotel accommodation, transportation, food, and basic communication.
‘The system of government facilitating businesses is largely broken. It is a final nail in the coffin for many start-up foreign and national businesses.’
A small room with poor electricity, no internet and unreliable water in a run-down guest house in a provincial capital town in PNG is often more expensive than a five-star hotel room in Bangkok, Jakarta, or Manila.
PNG’s natural constraints include challenging terrain and topography, fast flowing rivers, swampy and meandering tributary systems, isolated islands, and the cultural diversity of scattered communities.
We can harness each of them to create new businesses. The physical terrain can be better managed through advancements in engineering.
Investment restraints
Investment is further constrained by access to land with secure titles and tenure, and reliable utilities such as water, sewerage, and electricity.
Unreliable roads. Coffee producers struggle to get their product to market. Credit: Michael Earley-Daure via Facebook
There is also the burden of an unreliable and fragmented transport network, whether road, sea or air.
Finally, the system of government facilitating businesses is largely broken. It is a final nail in the coffin for many start-up foreign and national businesses.
From an economic point of view, it becomes clear that these costs result in a bias in favour of large scale businesses which can afford to absorb them during start-up.
The implication is clear. You have to be a large enough business with the scale to overcome the costs imposed on business by the man-made problems of investing in PNG.
Bias to large-scale projects
As many of you would be aware, land reform has long been my passion, and it clearly remains a major impediment to private enterprise.
The (recent) PNG-Korea Policy Dialogue provided cases of Korean businesses struggling to establish a presence in the PNG investments sector.
One investor, we learned, pulled out of PNG because of issues relating to land. Another investment continues to be delayed by inaction by a provincial government. The effects on employment for the citizens of PNG are obvious.
‘The man-made constraints, which are largely reflected in the broken systems and processes of government, are in my mind the real barriers to PNG private sector development.’
This is why the business sector in PNG is biased towards large scale resources and associated services. The rest of the sectors: tourism, agriculture (food in particular) and property (residential, industrial and commercial) struggle.
Constraints
The man-made constraints are in my mind the real barriers to PNG’s private sector development and overall economic growth and development in PNG.
Unless and until we appreciate this, our resources dollars: mineral, petro-gas, fisheries and forestry, will disappear into thin air leaving behind an impoverished nation with a struggling and under-developed private sector.
I have three observations:
- We need to address the man-made barriers, which are largely reflected in the broken system of government, to facilitate private sector investment, both for indigenous and foreign-owned enterprises. The entry level for businesses remains prohibitive.
- Businesses that operate successfully in PNG are those which are led by committed individuals, shareholders and venture investors. Such people include: Peter Botten from Oil Search, Robin Fleming from BSP, Sir Kostas Constantinou from the Airways and Lamana Group (who brought Athens into Port Moresby), and Jacob Luke from Mapai Transport, who has built a multi-million kina trucking and logistics business.
- Take time to think outside of the box. I suggest the creation of growth centres across PNG, with each growth centre linked to a network of transport infrastructure within the country and with Asia (the fastest growing economic region of the world) to the West and North, and Australia and New Zealand to the South.
PNG is a land of opportunities. The challenges of doing business are daunting. But if we look deep into the challenges, our geographical and cultural diversity are actually opportunities for business growth and development. It is time to review, draw from our past, and explore options by thinking outside of the box.
This is an edited version of Dr Yala’s speech. The full transcript can be downloaded from here
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I would also like to add on one aspect of business development in the country, the SME sector. The SME policy was recently launched encouraging citizens to engage in small business ventures to contribute to the economic growth as well as enhancing their livelihood. The real challenge is the absence of readily available markets to sell produce or products produced by the SME sector including adequate and appropriate infrastructure including transport infrastructure. The relevant authorities including the government should consider setting up markets for various produce/products to support the SME sector.