Private Sector needs in PNG

 

PRIVATE SECTOR STUDY (1996)

(PNG – Australia Development Cooperation Program)

 

Labour Absorption by Private Sector

Between 1990 and 2000, the number of people in PNG who are economically active is expected to increase by 505,000 (29.5%) from 1,715,000 to an estimated 2,200,000.

In the ten year period, of which 5 years has already passed, PNG has to absorb about 505,000 persons net into its economically active population and enable them to find meaningful economic activities sufficient at least to ensure their survival.

Almost all of these additional economically active persons will have to be absorbed in the private sector, mainly in the cash economy. This is the main challenge for the development of the private sector in PNG.

The public and private sector has very limited capacity to absorb additional labour. Only 177,000 of the economically active population were wage employees in the private sector in 1990. Data for the first five years of the decade indicates that there has been little increase up to 1995 in wage employment in the formal economy.

Even if efforts to create new wage employment opportunities were successful, most of the increase in the economically active population will have to be absorbed in self-employment in rural areas.

In PNG, people who are regarded as being in the economically active population have little opportunity to work effectively and earn a meaningful income.

The greatest absorption of labour must occur through self-employment in either cash farming or in other business ventures mainly in the informal economy.

 

A. Labour absorption by Informal Entities

It is not expected that informal entities, broadly the subsistence villages, would (or indeed could) be specifically targeted for labour absorption programs.

This is despite the fact that they are projected to absorb about 10%, or 50,000 of the expected increase in the economically active population between 1990 and 2000, and that they now absorb about 355 of the economically active population. This projected absorption will occur mainly by default, as children of village families remain at home, partly because of the difficulties in obtaining work or access to land elsewhere.

 

B. Labour absorption by Micro Enterprises

Most of the absorption of labour during the decade will need to occur in the micro enterprise segment. No data exists of the number of micro enterprises, but the number is estimated to be in the range between 100,000 to 150,000. Micro enterprise typically “employ” between 5 – 10 persons, often a family group with ad hoc arrangements for additional workers as required.

The micro enterprise segment will absorb the projected increase in the economically active population by the creation of a large number of new micro enterprises each year. To absorb 35,000 persons per year during the decade would require the creation of between 3,500 and 7,000 new micro enterprises each year.

Micro enterprises cannot be serviced in an effective way by government programs. This arises from the nature of micro enterprises, which have limited formal interaction with government agencies. Government institutions and programs to assist enterprise development will be able to address only indirectly the requirements of micro enterprise creation and expansion in the informal economy.

The use of appropriate market mechanisms and the appropriate targeting of government programs through non-government intermediary organizations are the only effective means to assist the micro enterprise segment in the absorption of labour that it must achieve.

 

C. Labour absorption by Small Enterprises

The number of small enterprises is estimated to be about 10,000. The average number of workers employed by small enterprises is likely to be about 10. The total number of the economically active population in this enterprise segment is unlikely to exceed 100,000. The ability of the small enterprise segment to absorb labour is limited by the relatively small number of these enterprises. While some small enterprises have the capability for rapid growth, most remain stable for long periods.

This segment will have to establish the capability to absorb about 100,000 persons in the decade.

 

D. Labour absorption by Medium Enterprises

The number of medium enterprises is estimated to be about 3,000. The average number of workers employed by medium enterprises is likely to be about 30 and the total number of the economically active population in this segment is also likely to be of the order of 100,000. Medium enterprises themselves do not have the capacity to create very large numbers of jobs during the current decade.

 

E. Labour absorption by Large Enterprises

The number of large enterprises in PNG is estimated to be between 500 and 1000. The number of the economically active population in this segment is also likely to be about 100,000. This segment has not absorbed any labour during the first five years of the decade, and could not absorb significant numbers in the remaining five years, even under the most favourable assumptions.

 

Potential for Labour absorption by Industry Sector

Agriculture

Agriculture activities offer the main potential for labour absorption, in both the informal and formal economies, and across all enterprise segments. Agriculture provides the main opportunities to absorb the vast majority of the projected increase in the economically active population.

 

Resources

The resources sector is essentially capital intensive and dominated by large, usually foreign owned enterprises. While contribution of the resources sector to the overall economy of Papua New Guinea is very substantial, the potential for labour absorption in the resources sector itself is quite limited.

 

Manufacturing

The manufacturing sector has limited potential to absorb labour during the next decade. Manufacturing accounts for only a small part of the overall production and employment in the economy. Small-scale manufacturing offers some potential for labour absorption both through the establishment of new enterprises and through the expansion of existing enterprises.

In the short term, the main potential appears to be in the downstream processing and packaging of primary agriculture production.

 

Others

The construction industry offers potential for labour absorption, particularly in the construction and maintenance of infrastructure systems.

The rapid growth of the SERVICES sector, including retail, offers potential for substantial enterprise creation and labour absorption.

The services sector in the rural areas is almost non-existent. Increased provision of services in rural areas would provide increase consumption opportunities, which in turn are required to provide incentive for people to work to increase production and earn cash income.

The services sector in PNG, as in all other countries, has the greatest potential to absorb labour. This will occur in all enterprise segments.

It is estimated that the TOURISM sector employs only about 5,500 people serving both domestic and international tourism. The capabilities of the tourism sector to absorb labour during the current decade are therefore constrained by its small initial size. Tourism, particularly eco-tourism, has the potential to expand significantly once the major constraint of law & order situation is overcome.

 

Main Constraints on the Absorption of Labour

1.  High cost structure.

2.  Access to land.

3.  Access to markets.

4.  Access to business and training.

5.  Access to finance.

6.  Restrictive public regulations and protective policies.

In regards to business advice and training, major innovation is needed to encourage organizations with a capability to play an intermediary role with micro enterprises to assist in this segment.

 

Creation of New Micro and Small Enterprises

Substantial creation of new micro enterprises in the informal economy will occur in both rural and urban areas to absorb the projected increases in the economically active population.

The number of new enterprises that will actually be created will depend on the response of entrepreneurs to market conditions as they exist at the time. It will be difficult, however, to monitor the enterprise creation process, particularly in the case of micro enterprises in the informal economy.

A program is needed to encourage and facilitate micro enterprises to enter the formal economy.

Suitable training programs must have the capability to reach over 10,000 small enterprises mostly in the rural areas.

Better access to finance also will have to be the responsibility of non-bank mutual loan funds, as these financial requirements are not usually within the scope of the commercial banking institutions.

One of the objectives of GRASRUT YUNIVESITI is to implement the final recommendation of the PRIVATE SECTOR STUDY – The creation of new micro and small enterprises and self-employment.