A World Bank Group report says that eight in ten businesses in Papua New Guinea suffer substantial losses and security costs as a result of high rates of crime and violence, slowing business expansion and hampering the country’s economic development.
More than 80% of 135 companies surveyed said their business decisions are negatively influenced by the country’s law and order situation, with crime significantly increasing the cost of doing business.
The expense of avoiding criminal damage limits firms’ ability to grow, deters start-ups, and imposes significant long-term social costs on the country.
“Crime in Papua New Guinea constrains businesses and threatens to put the brakes on the economy,” said Carolyn Blacklock, Resident Representative in Papua New Guinea for the International Finance Corporation (IFC), the member of the World Bank Group that focuses on private sector development in emerging markets.
“Local firms not only struggle to be competitive as they seek to manage crime, but they also pass on these costs to consumers via higher prices, less choice, and the absence of new products and services. This is bad not just for business, but the economy as a whole.”
The World Bank Group report, entitled Gates, Hired Guns & Mistrust – Business Unusual: The Cost of Crime and Violence to Businesses, draws on a survey and interviews conducted with the local business community, and is the first study in the country to comprehensively assess the impact of crime and violence on local enterprise.
The report finds that security in particular represents a significant and growing expense for businesses.
84% of the country’s firms pay for security hardware, such as installing specialized gates and security alarms, which is 30% higher than the average in the East Asia and Pacific region. Hiring private security consumes on average five percent of firms’ annual operating costs.
Companies are also suffering direct losses averaging K89,000 per year from stolen property and about K71,000 annually to petty theft by employees. 38.5% of companies reported closing their businesses early each day to avoid becoming victims of crime, resulting in losses of income estimated at an average of K93,000 per year.
“Everybody in PNG is losing money and time to crime,” said Alys Willman, World Bank Social Development Specialist and co-author of the report.
“While the report assesses direct losses from crime and violence, we can never calculate the investment foregone, the expansions to new products and areas that never happened, the number of businesses that never opened their doors, or the jobs that were never created because the costs of security were too high,” Mr Willman said.
“These costs are all passed on to consumers – and everybody suffers.”
Businesses are also worried about broader social costs, the report found. High levels of crime and violence create fear, which constrains the movements of staff and customers and stigmatizes the young, who are often seen to be perpetrators of violence and crime.
Domestic violence, in particular, intrudes into the workplace, contributing to absenteeism and affecting morale and productivity of staff. Official police data, and data from government-led victimization surveys, suggests that crime has stabilized in the country over the last decade, though there are significant disparities across regions.
There is evidence however that violent crime may be increasing as a proportion of overall crime, especially in recognized ‘hotspots’ such as the Western Highlands, Madang, Lae and the National Capital District. In Lae, incidence of violent crime more than doubled in 2010 compared with 2008.
The World Bank report is part of its wider Research and Dialogue Series on the socioeconomic costs and drivers of crime and violence in Papua New Guinea.
Carried out at the request of the PNG government, the report draws on an extensive review of existing data, a survey of 135 businesses conducted by the PNG Institute of National Affairs, in-depth interviews with business owners, and consultations with businesses and employees carried out from 2012 to 2014.
•67% of businesses that took part in the survey said crime was a major constraint on their business, a higher rate than in El Salvador (51%), Venezuela (60%) and Democratic Republic of Congo (63%).
•81% of businesses reported that their decisions to further invest in or expand their operations were affected by the country’s poor law and order situation; only 3% said that their decisions were not affected at all.
•84% of companies said they pay for security in the form of security personnel or hardware. This is significantly higher than the average of 52% for the East Asia and Pacific region.
•More than two-thirds of businesses use private security services, which costs an average of 5% of their annual operating costs. About 30% of firms said that hiring private security accounts for at least 10% of their annual costs.
•Businesses reported losing an average of K89,000 per year to stolen property and K71,000 to petty theft by employees. 38.5% reported closing early to avoid victimization, which cost an average of K93,000 per year in lost earnings.