By Jonathan Pryke, Research Fellow and Director of the Aus-PNG Network, Melanesia Program, and Anna Kirk, Research Associate, Melanesia Program.

Although the focus today in Papua New Guinea is very much on events in parliament, the Pacific nation faces stark economic realities, particularly when it comes to formal employment in its economy.

Despite a decade of rapid economic growth, the formal labour market still only provides livelihoods to about 10-15% of the working age population. Compounding this problem is a rapidly growing population and a universal education policy in a country that now graduates approximately 80,000 young people from school a year. Unfortunately, the formal labour force can absorb less than 10,000 per year, mostly in jobs that require post-secondary education. But enrolment numbers in both universities and technical colleges in PNG are only at around 11,000 per year, and graduation rates half that. That leaves a lot left over.

Participants at the Young Entrepreneurs Roundtable. (Photo: Australian High Commission to PNG)

These statistics paint a worrying picture but it is important to remember that Papua New Guinea also has a massive informal economy, particularly in rural areas where 80% of the population live. The informal economy is centred on semi-subsistence agriculture, forestry and fisheries, which generates livelihoods for most of the remaining working-age population. This, combined with the traditional wantok system of welfare (extended kinship networks, where those who are employed in the formal sector help to support kin in the village) explains how the country survives with such low levels of formal employment. These systems, however, can only do so much to improve the welfare of everyday Papua New Guineans. 

Meanwhile, increasing urbanisation and a dearth of informal sector opportunities in cities is contributing to the growth of an underclass of young urban poor. This can add to law and justice challenges in urban areas. More formal sector opportunities are needed for these young people, but the government and the existing private sector cannot be expected to solve the problem on their own.  Support, and new ways of thinking, are welcome. 

The Lowy Institute, under the auspices of the Aus-PNG Network and in partnership with DFAT, the PNG National Development Bank and the UN, brought together a group of young Australian entrepreneurs with roughly 40 aspiring Papua New Guinean entrepreneurs to workshop  opportunities and challenges, and to help build a community of young entrepreneurs in PNG. You can read the outcomes document here.

We also took the opportunity to survey Papua New Guinean entrepreneurs (raw results available here) to gauge why they wanted to become an entrepreneur, and their biggest challenges. When asked to name the top three factors influencing their decision to enter business, the most common responses were 'I wanted to give back to my community', 'I like the flexibility it provides me' and 'I wanted to be my own boss'. Clearly, there is a strong concern for the wider Papua New Guinean community among participants. The factors that most strongly affected their ability to successfully run their businesses were 'building a client base', 'access to finance' and 'securing contracts'. 

There has already been great work done by both the donor community and the government to make starting a business in Papua New Guinea easier. Many of the participants in our workshop came from incubator programs that have been running in PNG for some time.

The first is through PNG's National Development Bank, specifically NDB Investments, which launched Papua New Guinea's first ever youth in business program with the Stret Pasin Young Enterprise Scheme in November 2014. The program aims to decrease the high percentage of youth unemployment by providing the opportunity for keen entrepreneurs to start their own businesses. The two-year scheme offers entrepreneurial training, funding, mentoring and business support services. You can read about the experience of one of the participants, Janine Aringa-Garap, here.

The second is through the Kumul Gamechangers initiative, implemented by the UN Development Programme in partnership with the Kumul Foundation, the Institute of Banking and Business Management, and supported by the Australian Government. The program aims to influence the inclusive development discourse through work with entrepreneurs, impact investors and inclusive businesses. The initiative has lined up a host of services including strategic mentoring, business skills development, access to sector knowledge, media visibility and the opportunity to fund-raise. The program has completed its first competition and is contemplating an expansion into seed funding for the second phase.

While both of these incubator schemes show potential it is too soon to tell how much impact they will have. So why put such faith in them? Why invest into entrepreneurship, an incredibly volatile and risky industry, at all? To answer that question let's head to Nigeria. In 2011 the Nigerian government launched an entrepreneurship program which handed out $US60 million to around 1200 entrepreneurs (about $50,000 each). Of the 24,000 Nigerians who applied, the government selected about 6000 to get training and advice to develop their plan. The plans were scored, and about 1200 were funded.

On the face of it such a scheme seems crazy, but it turns out it might be one of the most effective development programs in history. By partnering with the World Bank the impact of the program could be closely evaluated, and three years on the results are astounding, with hundreds of new profitable companies creating thousands of jobs. 

You can hear more about this story below. It demonstrates just how valuable spurring entrepreneurship can be, and why such initiatives should be supported, and indeed expanded, in Papua New Guinea.