New law on the informal economy could be a game changer for PNG (Part one)

New law on the informal economy could be a game changer for PNG (Part one)

On October 19, 2015 the Constitutional Law Reform Commission launched the draft report on the Review of the Informal Sector Development & Control Act 2004 at the University of Papua New Guinea. The report contains a set of recommendations and the proposed bill that would be presented to the government for its consideration and endorsement sometime around November. If passed the bill may well be the game changer to transform PNG’s socio-economic landscape. Particularly if the informal economy is seen as a wealth distributive mechanism, it could allow money generated in big impact projects such as the PNG LNG, to be transferred to the majority of the population who are its beneficiaries.

Furthermore, if provided with the right environment, it could unleash entrepreneurialism and innovation that is abundant among many Papua New Guineans but lethargic due to lack of support. One should only take a bus ride to the infamous Gordon Market or travel up into the Kakaruk (chicken) Market in Goroka or elsewhere to witness the vibe of energy and salesmanship at play. This is what the law aims to nurture but in compliance with appropriate minimum standards to protect consumer welfare and generally minimize its negativity.

Yet the challenge will once again fall on the shoulders of the government to ensure that the intention of the law is realized. Already the government is urged in the report to step up and provide leadership in administering the law as well as providing essential public goods and services to encourage the development of the informal economy in PNG. So far the government has failed miserably in this area although it has introduced a policy and a law to address issues affecting the informal economy. This reinforces the sad reality that implementation and enforcement have always been a challenge for the PNG Government. Most Local Level Governments are struggling to function effectively in most areas of the country due to lack of support both in terms of resources and limited understanding of their functions and responsibilities. The report alluded to the fact that most LLGs that were consulted had no idea about the existence of the law although it is a national law.

By allowing provinces to have the freedom to make necessary amendments to the modal law to suit their unique situation, it is hoped that they will effectively control negative aspects and promote the positive side of their informal economy.

At the national agency level the report found that no oversight was provided making way for administering authorities to make laws without alignment to the Informal Sector Development & Control Act 2004. In most cases administering authorities simply turned a blind eye on the law. For instance, in 2012 the courts making reference to the Informal Sector Development & Control Act 2004 restrained the Lae City Council from implementing its decision to close down informal markets in the city. In the case of National Capital District Commission (NCDC), buai producers and political leaders in Central Province issued threats challenging the legality of the buai ban law although this has not come to pass. If the ban was contested in the courts with reference made to the Informal Sector Development & Control Act 2004, the outcome could have changed the dynamics of the informal economy in PNG.

This is where the Constitutional Law Reform Commission’s (CLRC) foresight in introducing a ‘modal law’ is important as it bypasses the difficulties that could have eventuated if a national law superimposes itself with no regard to the administrative set up of certain provinces like NCDC. By allowing provinces to have the freedom to make necessary amendments to the modal law to suit their unique situation, it is hoped that they will effectively control negative aspects and promote the positive side of their informal economy. By having the Department of Community Development & Religion as the lead agency providing oversight on the law, it is envisaged that the amendments will be made with due respect to the spirit/intention of the national law as well as in alignment with the national informal economy policy.

The department to its credit has already embarked on a restructure (with no progress as yet) that will see a new section dedicated to coordinating the implementation of the policy and the law. Yet questions are being asked if this arrangement will yield any tangible results. The department itself is still reeling from the leadership tussle which transpired two years ago which has seen the department fragmented into factions as staff took sides. The aftermath of this battle can still be seen today with most of its offices half empty and manned by only few dedicated officers. In this environment there is no guarantee that the law will hit the ground running once it is passed by the government. This is where the department with the aid of CLRC should explore options that will lead to the effective implementation and administration of the policy and the law. One option would be for the department to quickly work towards establishing a stand alone mechanism, like an office within its structure. Such a set up, apart from speeding things up, would allow the department to effectively reach out (going beyond its traditional role as a social welfare department) to other stakeholders whose mandate or policies are related to aspects of the informal economy policy and Act.

On the other hand the informal economy participants for their part, misunderstood the law the first time it was passed by parliament, subsequently giving rise to the proliferation of diverse sets of informal economic activities, some of which posed serious health and safety risks. This meant that balance needed to be found in the law to ensure that the growth of the informal economy is controlled to minimize its harmful effects. The informal sector law in its current form in fact advocates for this. This is contrary to the views that it ‘gave fire’ to the widespread chaos that is unfortunately the hallmark of PNG’s informal economy. The draft report to the credit of the CLRC, has reinforced this idea with penalties raised depending on the severity of the offence, which is determined by taking into consideration an informal economic business activity’s impact on the environment, hygiene, health, safety and the nature of the items sold such as whether it is addictive and other factors. Furthermore, it has inserted a provision to deal with betelnut-related issues which now imposes a much tougher penalty for irresponsible chewers.

(To be continued next week…)

Caption: Fresh produce at the local food markets in Port Moresby, PNG – John Conroy

This article was written by
Busa Jeremiah Wenogo

Busa Jeremiah Wenogo is from Papua New Guinea and is an economist and national award winning freelance writer. He works with the PNG’s Consultative Implementation & Monitoring Council (CIMC) specializing in the area of PNG’s informal economy. He is the creator and administrator of the Facebook page Black Economy - The truth about the other side of PNG and the blogsite PNG Informal Economist.

There are 4 comments for this article
  1. Paul Holden at 10:30 am

    I find this somewhat bemusing. By definition, the informal economy is chaotic and outside the formal business framework. To my mind, bring informals into the formal economy by ensuring that there are benefits to formality in the form of access to legal contracts and to finance is a far superior policy direction to trying to enforce a law on informality, which is almost a contradiction in terms. What is needed is a very simple corporate form, or business names act, which will allow budding entrepreneurs to enter the formal sector

    • Busa Jeremiah Wenogo
      Busa Jeremiah Wenogo at 10:08 am

      From the outside the law was passed by the government in 2004 mainly to protect informal vendors who were constantly harassed by the city rangers in Port Moresby and other urban centres throughout PNG. Furthermore, the period leading up to 2004 was a period of rebuilding were PNG’s Economy was slowly emerging out from the economic disaster attributed to the PNG Civil war with Bougainville, the Asian Financial crisis and the IMF structural reforms that the government undertook. This was a period marked by massive unemployment rate, high inflation, doubling of PNG’s population, stagnation in minimum wage levels and rapid rural to urban migration. All these factors one or the other forced people to sought other alternative income generating activities in the informal economy. However, they had to do this in a hostile environment where the government saw and even today sees informal economy as “backward, unproductive, filth and crime ridden” sector of the economy that should be stamped out at all costs. The government particularly through the Ministry of Community Development sensed the volatility of the situation and quickly introduced the INFORMAL SECTOR DEVELOPMENT & CONTROL ACT 2004. Subsequently, most people (general public and government alike) saw that the law encouraged the growth of “illegal and uncontrolled” activities. Yet the true essence of the law was about finding a balance between “developing” the positive aspect of the informal economy and minimising its negativity. In other words the law suffered from lack of awareness and general misunderstandings.

      Generally including PNG informal economy is often disorganised and outside the formal sector however, in PNG’s case the need for the law and a policy on informal economy was crucial to nurture its growth. This is in light of the fact that in PNG it is estimated that roughly 80-85% of its total population are engaged in the informal economy. However, the government does not recognise the contribution of the sector to PNG’s socio-economic landscape. There is also the reality that the “gap between the rich and the power” in PNG is significantly widening amidst a rising middle income class that in real terms are struggling to keep up with the high cost structure of the PNG’s Economy. With this law it is hoped that it will arouse government’s interest in the sector and subsequently, get them to provide appropriate policy responses to encourage its growth. The growth of the informal economy is crucial to its endeavour to stimulate PNG’s SME sector.

      The law does not aim to “superimpose” this idea that all informal economic activities should be “formalise” instead it aims to protect the informal economy vendors engaged in certain activities but also giving relevant authorities the opportunity to control certain aspects of informal economy that may pose health and safety risk to the general population. Inaddition, there are other areas of the informal economy like “informal squatter settlements” and “financial inclusion” that are not captured in the law simply because the nature of their problems requires a separate policy response from the government. What the law does endeavour to capture are all those “common sets of activities (goods and services) that are typically on offer or prevalent in the contemporary PNG Economy. The narrow focus of the law is also a reflection that the informal economy in PNG lacks diversification and is often described as a sector dominated by the sale of “betelnut and cigarette”. Therefore, one intention of the law and the policy will be to diversify the informal economy and create economies of scale where areas like the agriculture sector grow.

      The reality (in PNG and the world over) is that there will always be a segment of the population engaged in the informal economy that will want to remain informal. Vice versa there will be a certain percentage of fomalised businesses that will opt to go informal for various reasons.

  2. Vincent Pyati at 8:15 am

    Why is Department of Community Development and Religion mandated to implement this Law? Informal Sector is mostly happen in urban areas so it should be Office of Urbanization.

    • Busa Jeremiah Wenogo
      Busa Jeremiah Wenogo at 2:17 pm

      Vincent good suggestion however NEC’s decision to nominate the Department of Community Development (DFCD) as the lead implementing agency could be be based on the fact informal economy is both a social and economic phenomena and as such it needs to be dealt with at a broader scale. Apart from the rural-urban migration its emergence is influenced by such as factors as the rising cost of living, population boom, fluctuation in Minimum wage and high rate of school drop outs just to name a few. Inadditon it was Dame Carol Kidu who was the proponent of the law when she was the Minister as the law was put under Ministry which composed of the Office of Urbanisation (OoU) (although OoU could easily fall under the Ministry of Lands & Physical Planning, Housing, PM Department depending on the priority of the government) .

      In the proposed revised law on the Informal Economy we have opted to maintain DFCD’s role both as a implementer of the policy and overseer of the law to ensure the amendments/enactment by the provincial governments and the LLGs are done with due respect to the policy and the intention of the law. There is now suggestion that the Department should look at setting up a “stand alone” mechanism to better coordinate the implementation of the policy and the administration of the Act. In the meantime the Office of Urbanisation has a bigger role to play and their involvement in nurturing the growth of the informal economy is critical. The challenge would be for DFCD to reach out to OoU and other stakeholders to bring informal economy to a level where it is viewed with less hostility. So far the National Urbanisation Policy has done an excellent job in highlighting the importance of the informal economy particularly its recognition that informal economy and urbanisation are linked together. SO much so that in addressing urbanisation adequate attention must be given to the informal economy or vice versa.