PAGE Blog Business Weekly Magazine
Pakistan is facing lot of problems, like unemployment and slow growth in agriculture sector, etc. At this critical time we have to look seriously at different sectors of the economy that have the viability to provide employment to the million of unemployed. The higher employment growth possibility lies in the modern high technology industries but it is also present in the labor-intensive industries of the traditional small enterprise sector and in the services that support it.
There is an urgent need to promote Small and medium enterprises SMEs in the country. In the past successive governments in the country failed to invest a reasonable amount in SMEs and human resources development.
Small and medium enterprises are now considered as a major tool of economic prosperity for the vast majority of people, specifically in case of developing and underdeveloped countries alike. They speed up economic activity; develop exports and create million of job opportunities in every sphere of life.
Recognizing the significance of SMEs, the USA and European countries have formulated diverse policies and institutions to extend vast help to small businesses. The developing countries like China, Taiwan, India and Philippines have already taken various measures to accelerate the strength of the participatory development model by multiplying SMEs all across their boundaries.
Taiwan has already accomplished the position of an industrialized advanced country, while China is attaining the position of recently industrialized country. Taiwan has to its economic advantage 97.8 percent SMEs. Taiwanese SMEs contribute 85 percent to the country’s GDP by absorbing about 85 percent of non-agricultural labor force. SMEs has accelerated economic and social growth making Taiwan the one of the largest per capita ($16,400) earner in Asia and holder of one of the largest foreign exchange reserves in the world. Taiwan rapid economic development is due to the strategic development of SMEs. Here it may be particularly mentioned of its vast development in the early 1960s and 1970s. The government of Taiwan must be credited to its large support to the small enterprises for their growth and development.
China, represent the largest number of small and medium enterprises in the world. According to the statistics released by the State Administration for Industry and Commerce in 2012, there were 25.057 million registered small businesses in China. The country tops the world by having 99.6 percent SMEs of the total enterprises and 75 percent share in GDP by engaging 80 percent of non-agricultural labor force. With $3,774 per capita income, China became the second largest economy of the world in 2010 by exceeding Japan.
China’s economic growth started in the late 1970s, by producing cheap goods and services and later moving up into modern technology and investment in large industries like steel and plastics. The spread of modest technology intensive new enterprises in China was the result of the government’s different policies and programs to promote research and invention in the SME sector.
Pakistan’s SME sector constitutes 90 percent of the total enterprises with 40 percent contribution to GDP engaging 80 percent of non-agricultural labor force. Pakistan falls in the list of low-income group countries by $1,050 per capita income. Pakistan mainly concentrated on large enterprise from 1950s to 1980s. The Government of Pakistan has been focusing on the promotion of SMEs since late 1990s.
There are more than 3.9 million SMEs in Pakistan majority of which are based in Punjab and Sindh provinces. Karachi has more than 16,000 industrial units in operation out of which majority are SMEs. Karachi’s industries are providing employment to around 1.5 million labor force. Similarly Lahore and Sialkot industries were also providing jobs to millions besides sharing around 35 percent of the foreign exchange earnings of the country.
SMEs in Karachi and Lahore facing many problems like energy crisis and difficulty in access to finance. One reason is the lack of professional management, which can be overcome by entrepreneurship development programs and trainings
Compared with the developing countries in general and China and Taiwan in particular Pakistan performance of SMEs is dismal. The backwardness in this sector has been particularly due to non availability training facilities, sufficient finances, technical assistance and R&D Support.
The support systems to SMEs in Pakistan were commenced by inducting various loan schemes for the unemployed youth and finally setting up Small and Medium Enterprises Development Authority (SMEDA) in 1998 and SME Banks in 2002. On the recommendations of SMEDA and other advisory bodies, various supports were provided to SMEs
Realizing the issue of financial loans to SMEs the State Bank revised Prudential Regulations for Small and Medium Enterprise Financing. A review of Financing for SMEs over the years showed that banks/DFIs focus was mainly on Medium Enterprises; resulting in exclusion of Small Enterprises from the formal sources of credit.
SBP undertook a thorough review of existing Prudential Regulations for SMEs in consultation with relevant stakeholders. The wider objective of the review was to create more focus on Small Enterprises, by defining them separately and formulating more specific and simpler regulations for them.
The revised SME PRs underlines significance of cash flow analysis and other place holders to assess the primary source of repayment and also emphasize on greater use of technology and documentation for disciplined credit control for monitoring of credit quality.
Since Medium Enterprises, as compared to Small Enterprises, are relatively less credit constrained in accessing loans on account of their size and sophistication level, the Regulations governing them have not been changed, with the exception of separate definition for Medium Enterprises, and revising their individual & aggregate borrowing limits upward.
The new government should play an active role in providing a conducive environment for SMEs and micro entrepreneurs. Creating a level-playing field would allow SMEs to compete with their larger counterparts on an equal basis.
The state of business affairs demands to learn from the SMEs models of India, China and Japan in the region. It also demands to establish more technical and vocational training institutes for professional youth for entrepreneurship.
Small and Medium Enterprises Development Authority (SMEDA) has initiated a five-year SME Development Plan that would help create 10 million new jobs, accelerate small and medium enterprises (SMEs) sector’s GDP of 120 billion dollars besides giving a quantum jump of $48 billion to exports. The new five-year plan envisages protection of interests of SMEs through professional monitoring, evaluation and by identifying research parameters.
SMEDA should play its role actively to give boost to the economy. It needs to focus on three areas including agriculture and livestock, food and fruit processing and pharmaceutical sectors that have huge growth potential. The areas need government’s attention to the growth is SME sector. SMEDA should develop projects, which are not heavily dependent on electricity and gas, as improvement in energy situation will take a minimum of two to three years. It is suggested that develop a mechanism to certify Halal products as they have a huge export potential and could be a great source of foreign exchange earning.
Studies should be conducted for setting up solar plants. India has indigenously developed its solar panels and inverters. They are manufacturing their own dry batteries whereas Pakistan is lagging behind in this area despite much need and effective results.
