The gap is growing

The business gap is growing and islanders are falling further behind in the race to establish growth enterprises.

The growing imbalance between indigenous and “foreign” businesses is well recognised by governments and by the private sector.

Recognising the problem is one thing. Solving it is quite another, as a recent workshop held by the Pacific Islands Development Program of the East-West Centre discovered.

More than fifty representatives from government and business in 20 nations gathered in Apia to debate ways of encouraging more indigenous enterprise.

The report from the workshop notes: “Well-established, non-indigenous businesses, with their depth of experience, network of business contacts, access to capital and lines of credit, market domination and control of prime business locations continue to dominate many areas of business in the Pacific.”

And as these “non-indigenous businesses” seek to secure and expand their markets and spheres of interest, the poor “local” entrepreneur is increasingly left out.

Sadly, however, several of the remedies suggested by the workshoppers have been tried and failed.

Nevertheless, they did demonstrate that a will to act exists. All that’s lacking, it seems, are sufficiently-motivated and funded indigenous businessmen.

Among the recommendations to come from the Apia meeting were several covering government involvement at national planning level, government incentive schemes, sell-offs of government ventures, the inevitable “closer co-ordination among existing agencies” and a regional exchange scheme between support organisations at both government and non-government levels.

It also sought “the establishment of agencies at a national level focussed on ‘small business’ ... The urgency of this matter requires prompt action.”

But in business, it’s money that talks loudest.

And the Apia group recognised, as many others have done, that indigenous businessmen more often than not lack the capital to establish efficiently, let alone expand.

When equity is short, the temptation is to seek loan finance, thus lumbering a fledgling concern with heavy debt servicing requirements that make long term survival problematic.

As the workshop’s finance committee noted, “The need for a desirable debt/equity ratio is crucial.”

It continues: “In the Pacific the principal source of cash equity comes from personal savings.

“But, unfortunately, the indigenous peoples have limited savings and therefore limited access to investment funds.

Measures to encourage either compulsory or voluntary savings need to be introduced if indigenous entrepreneurs are to maintain adequate equity contributions.”

The region’s banks have been accused in the past of being unwilling to lend to indigenous enterprises with some justification.

But the banks’ policies are based on their experiences, which have not always been happy.

Short of taking a piece of four-by-two to the lending agencies, Sir Julius Chan-style (the PNG finance minister threatened the country’s banks in precisely those terms over their perceived failure to reduce interest rates), there seems little chance of the circle being broken.

The workshop, however, called for further studies to examine the extent of savings by indigenous people and recommend ways to encourage saving as well as a study of the extent of national ownership of Pacific businesses.

It also recommends: • That Fiji’s decision to establish a national holding investment company using Fijian “communal strengths” be adopted by other countries. • That development banks should be used to acquire controlling interests in non-indigenous companies to be eventually on-sold to indigenous interests. • That governments consider introducing a stock exchange or similar institution to raise private capital for commercial projects. • That development financiers set up special loan schemes for indigenous entrepreneurs. • That such institutions improve their appraisal proce dures through market surveys and improved screening of applicants to minimise the risk of failure. • That studies be undertaken to establish the involve ment (or lack of it) by commercial banks in promoting indigenous entrepreneurs. • That commercial banks should be required to provide special assistance to indigenous entrepreneurs.