KPMG’s Wayne Osterberg argues that it might be time to use Papua New Guinea’s stock market to help drive growth in the country.
There is much energy being devoted to the strategies to improve the economic outlook for PNG. The domestic economy is recovering from a post-boom hangover and the government is grappling with thorny negotiations in full view of both sceptics and optimists.
Meanwhile, the world economy is struggling not to catch the after effects of the coronavirus.
It is a difficult time for policymakers and, perhaps, a consideration of the stock exchange as an engine of growth for PNG is warranted.
How does a stock market drive growth? Primarily by allowing capital to be employed more efficiently into companies, which drives economic activity and economic growth.
Let’s look at how this happens in more detail:
- The fact that the listed companies are regulated, and need to adhere to rules in terms of information to be provided and procedures to be followed, brings a far greater degree of transparency which in turn brings greater confidence to investors.
- It allows for smaller investors to participate in companies as owners and gain exposure to sectors of the economy they may not otherwise be able to.
- An active stock market attracts foreign capital into the country which further improves growth. Foreign portfolio investors are a double-edged sword as they are not always long-term investors, but on balance they bring greater confidence and depth to a market.
What would make a stock market attractive to investors?
- A good regulator. The regulator needs to apply the appropriate oversight of the market with the overarching principles of transparency, integrity and investor protection. These are paramount to ensure that companies seeking to list, and investors seeking to buy, have faith in the market operators and the environment.
- Tax concessions. Taxes are paid to benefit the public good. In the event that a tax concession will stimulate the public good in another way, it could be viewed as fiscally neutral. Consideration could be given, in the PNG context, to a concession on stamp duties for the reorganisation of property holding companies in anticipation of a stock market listing. Such concessions are not uncommon globally.
- Liquidity. This is fundamental and is an argument often raised in relation to the PNGX. It is not liquid. Yes, it could be more liquid, but liquidity cannot be created instantly, particularly in a relatively small market like PNG, with exchange controls. This will be a gradual process.
In conclusion the capital markets provide a significant opportunity to boost growth in PNG. The above considerations provide a fairly simplistic overview of some of the issues in an effort to stimulate debate regarding the sustainable economic growth of Papua New Guinea.
Wayne Osterberg is Director, Advisory Services at KPMG. This article first appeared in the February issue of KPMG’s online magazine Kundu.
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