Wealth should remain at grassroots level for PNG to prosper
Women have huge potential as they are better money managers and run small businesses well.
By Dr Yunxian Wang
Access by small businesses to funding has recently been in the headlines. The PNG National Development Bank (NDB) has reserved K25 million to revive the “Stret Pasin Stoa Scheme” and support Papua New Guineans engage in small business.
In situations when there’s insufficient investment for small-scale manufacturing and business and informal lending is rampant and subject to high interest, the NDB can indeed promote financial freedom for some small holders to start or develop into more established small business, thus breaking the vicious debt cycle.
In PNG, there are widespread informal petty trading activities with daily capital of K200-500, which is the trend also in many other developing countries. With the income earned, women are able to feed an extended family of over 10 people. For example, with the profit made from a bit more daily capital of K700-900, a woman trader in Port Moresby’s Waigani market was able to develop a small PMV business in Goroka. Many more similar stories indicate that women are able to make money from petty trade and manage their micro-business well.
If Papua New Guineans are to benefit from economic development, wealth will have to be generated and remain at the grassroots level. The investment towards the small producers and business holders is essential to boost small and local business. It is optimistic that the local economy can boom if the small traders are able to take up the challenges courageously. At the same time, there are experience and facts worthy of discussion to stimulate mindful considerations in implementation.
The Stret Pasin Stoa scheme was launched in 1975 to provide funds and intensive training courses to potential store managers. It initially supported four such stores and the number of stores receiving support reached 150, according to Dr. Sam Tam, who provided training and mentoring to the recipient stores in 1970s. For unanalyzed reasons, the scheme died out. It would be relevant to find out why the scheme died out and whether the Stret Pasin Stoas concept would be able to sustain itself and grow. The past lessons will be most relevant to the current policy implementation.
One scenario was illustrated (Post Courier, 15 Feb. 2012) to show why many stores vanished. In working together and helping out relatives or wantoks, the stores eventually could not afford to pay the bills and went insolvent, ‘the stock shrinks and enthusiasm shrinks too’. If this is the only thing that a store manager faced, the store would not probably die out. As helpers contributed and got their shares for the labour, it is supposed to be fair and reasonable. In the recent interviews conducted by myself, I have noted that big numbers of small traders who travel from the Central province and other areas to Port Moresby to do market trading, have to stay with their wantoks if they cannot sell their products on the same day. Without such a support from wantoks, they would not be able to travel to Port Moresby to sell their produce and earn some cash income to buy necessities, which eventually would develop into a more stable, though small scale, cash crop production.
Nevertheless, the wantok social network is a sword with dual edges. People would easily cite another scenario, which might be the same story but with a different perspective. Wantoks around a trade store take goods without paying immediately, and they promise to pay back after selling some products in the market. When he/she is able to sell farm products for K100, K40 goes to transportation, K20 goes to food and drink in the town. Then he/she sees the things are much cheaper in the towns, so he/she buys a bilum of cheaper necessities to take home and have a feast in the evening. At last, there is not much left to pay back to the store. The problem seems to be derived from takings goods on credit then the store would be not able to sustain itself. Eventually the owner has to sell the store to make a living, not even be able to pay back the loan. Therefore, the question is whether it is the issue of funding, knowledge or shares taken by the helpers. Seemingly not only these factors matter. The managing director of Nationwide Micro-bank, Tony Westaway, told me that it’s certainly not just a matter of access to credit but a social and cultural issue.
Small store survives on a stringent and diligent operation. It needs at least regular, if not increased, amount of capital to maintain the turnover. The habit of wantoks taking goods without paying is against commercial rule and practice. The experience of Wenzhou small business development in China in 1970s-1980s, which was considered a development model of grassroots business investment, is just a contrast. Accessibility to an official loan by non-state owned enterprises in China remains a huge difficulty – this is not the situation only in PNG.
In China, medium and small enterprises largely have to rely on informal credit, not to mention small holders’ access to official loans from the bank. State regulations are extremely strict with regard to informal credit. And in order to have access to seed funding, small holders quietly borrow small money from their ‘wantoks’ and they bring out whatever they have to support, rather than have a bite on small business. When the small business begins to make profit, they pay back the money with some interest and another small business would undergo the same process.
The ability to hold a basic amount of revolving capital is vital in small business. Without such ability, a store will not be sustainable. In PNG if small business holders are confident about accumulating bits of profits, and the ability of maintaining the basic amount of revolving capital, then the business is likely to be successful.
In personal communication with me, Dr Sam Tam confirmed that local people in PNG have the ability to make money and mentoring support in order to make their stories sustainable. The most important is that people must learn how to use available resources. Nevertheless Dr Tam stresses that if the
indigenous people in developing countries are to achieve economic independence, they need to have a business mindset, business thinking as well as business knowledge.
Nevertheless, we might like to have a non-market centric view of the success of small business development. By engaging in informal trade, many women traders in the market are able to feed over 10 people in the house, provide school lunch and uniforms and bus fares for their children and grandchildren. Is it wonderful already that one person’s hard work could alleviate so many people’s hunger?
In PNG, some stores do not necessarily aim at generating income or long-term financial sustainability, rather their primary objective is to generate prestige and social network or facilitate indigenous exchange to reduce poverty among certain clan members. Market and commercial principles are then inappropriate to apply in measuring the success of small business development. Market principles were secondary to the reproduction of social relations.
However, the social support network and the indigenous exchange system are most needed and effective in emergency or crisis situations, especially in the subsistence or semi-subsistence stage. In such situations, food and shelter are accessible for those in urgent need at a low cost.
PNG has to develop from subsistence to affluent society. Emergency relief type of situations will reduce and should not be normalized in the development of an affluent society. In moving upward from semi-subsistence trading to a more established business, eventually, there is a need for a mindset change and social transformation. Change from within is not easy and needs system support. Tailor-made training, mentoring and service product designs, taking into account the cultural barriers for women’s business advancement, should be a package offered with credit. One example is the pilot bank service product by the Nationwide Micro-Bank on women’s MiCash. It combines a mobile wallet and a bank account in a mobile phone, and protects women from leaking out savings and PIN information. This takes into account the cultural barriers that women faces such as demands from wantoks or their husbands. Women have access to the banking service by a phone call, and eventually women will have control over their own income and financial assets in their business endeavors.
Dr. Yunxian Wang is a Senior Research Fellow of the Economic Policy Research program under the Wealth Creation Pillar, the National Research Institute.