Why is the PNG Government Crowding Out PNG’s Entrepreneurs?

Papua New Guineans complain incessantly about the state of services provided by the country's State Owned Enterprises (SOEs), such as PNG Power, Air Niugini or Telikom. The more informed Papua New Guineans argue for privatization or at the very least better private sector like management to solve the significant problems that have built up for so many years.

However, despite this ever present dissatisfaction from the people, PNG’s SOEs are consistently among the worst performing businesses in the Sovereign State of Papua New Guinea. None of them operate profitably to provide an adequate return on equity to the people of PNG. The PNG Government has proven time and again that it is not capable to run businesses profitably yet we have seen over the last decade a new group of SOEs joining the ranks of the older aforementioned PNG Power, Air Niugini, Telikom etc. New entities such as Kumul Petroleum, Kumul Minerals, Dataco, Kumul Agriculture and Kumul Diwai have been set up to participate in their respective industries however their records so far suggest they will turn out just as bad for PNG as their older sibling SOEs. Indeed the lack of any public records on their audited financial and operating performance for the newer SOEs is in itself a pointed indicator that things are again seriously amiss.

The question must be asked why the PNG Government insists on creating new government owned businesses given it's terrible record of ownership. When the most appropriate route would be to create an environment to allow indigenous Papua New Guineans to participate in the economy of their country, the government has instead chosen to continue down the road of state ownership with all it's inefficiencies and cost to the people of PNG. While the deplorable state of services are well known, what is less discussed amongst Papua New Guineans is the effect the SOEs have on private investment. This is a fundamental concern to PNG because in every economy in world, including 'communist' China, it is the private sector that drives long term economic growth and development, not government or it’s SOEs.

SOEs compete with private businesses and prevent private sector growth. They crowd out private businesses by receiving preferential treatment from the government regulators and legislature, such as subsidies, tax exemptions, swift approvals, and concessionary financing (from state guarantees), which can give them an unfair advantage over private companies. SOEs also drive up prices and reduce competition as they pass on their inefficiencies to customers, which leads to reduced private sector investment and consumer spending. Furthermore, we have seen the politicisation of SOE boards which has resulted in a culture of nepotism permeating the upper management of SOEs and increasingly down to mid-level management.

The Asian Development Bank (ADB) has provided significant funding to assist the recovery of SOEs over the last decade aimed to improve the performance of PNG’s SOEs, reduce their debt, and increase their transparency and accountability. However, the SOEs continue to face the same challenges of poor commercial performance, inefficiency, and non-commercial decision-making. Significant deficiencies in the current legal and governance framework for SOEs and problems with compliance and in some cases alleged corruption, have contributed to SOEs’ poor commercial performance.

According to the ADB, improving the performance of SOEs and developing public-private partnerships (PPPs) in PNG will create opportunities for private sector investment, which in turn will enhance income earning opportunities and support inclusive economic growth. However the framework has been in place for over a decade now, including the introduction of the PPP Act in 2014, with nothing being done as the government pursues a domineering model of ownership of business in an increasing number of industries.

This discussion would not be complete to also make the distinction between landowner companies whose business opportunity is secured through legislation and project agreements and true entrepreneurs who have no such advantage but build their business through their own ingenuity and hard work while operating within the laws all businesses are subject to. While the government may claim that it has encouraged local business through the landowner entities it is the majority of PNG who have no such advantage except for their ingenuity that are being left behind.   

One has to ask whether the Government of PNG has truly demonstrated faith in the entrepreneurial spirit of Papua New Guineans to build and own their own businesses. Where are the policies to encourage and support local businesses grow by tapping into skills, knowledge and the capital markets all while operating in a fair regulatory system? These should be priority items and not afterthoughts.

Papua New Guineans also need to ask themselves whether they want their government to own companies in Petroleum, Mining, Air Travel, Power, Insurance, Seaports, Airports, Agriculture, Banking, Timber, Telecoms and more and more; when their government has such a terrible record at running businesses for what seems like forever.