By Phil Fitzpatrick*

One of the most important policy documents to come out of the Haus Tambaran in years is Community Development Minister Carol Kidu’s policy on the informal economy (see pdf attachment below).

Just what is the informal economy and who runs it?

Among others, it’s the people who sell buai and mustard on the streets of Port Moresby.  It’s also the people who run stalls out on the Magi Highway selling the day’s surplus catch of fish along with vegetables and fruit.

It's the people who cook food and sell it by the road or in the markets, those who sell fresh meat, the people who drive the PMVs and the people who run village tradestores.

It is also the 2 kina meris, the makers of home brew and the guys who make and sell guns.

It's the people who get cleared off Moreby’s streets whenever a foreign dignitary visits.

In Morobe and Central, where PNG’s biggest cities are located, some 35–40% of families sell food.  In Eastern and Southern Highlands the figure is up around the 65% mark.

In Morobe and Central half of all families are involved in buai sales – PNG-wide the figure is over 30%.

The informal economy is a major industry and generates billions of kina every year.

People, especially those low-to-middle income earners in the cities, rely on the informal economy for their food, transport, and entertainment because wages never stretch far enough.

With the resources boom, and the inflation that is coming with it, the informal economy will be more important than ever.

The formal economy needs its informal counterpart and can’t survive without it.

The informal economy spreads wealth around.  And the people involved will be just as much beneficiaries of developments like the LNG Project as those who get the wage paying jobs, because these people will sell things to the workers.

In Port Moresby about K2 million per day is spent in the informal economy, about K750 million a year.

Because it supplies a large share of the food and other things consumed by low-to-middle income earners, it has reduced imports and improved the balance of payments in PNG.  It also helps to keep inflation in check.  The list of benefits goes on and on.

The informal economy is a good thing.  It is never going to go away and needs to be encouraged.  It is not something to be ashamed about or hidden from view just because it looks untidy and doesn’t fit into western idea of how an economy should work.

With the right reforms and regulations the informal economy has a great future.  With the availability of low cost loans people could take their cottage industries and grow them to eventually become part of the formal economy.  The banks need to recognise this.

How do we know all this?  Because it’s set out in the policy developed by Dame Kidu and released in February this year.

The policy is one of the most clear-headed, readable documents I’ve ever seen.  Dame Carol and her department could teach AusAID a thing or two in that respect.

*Spotted on the PNG Attitude blog