DOES there exist a big scope for achieving the objectives of creating new jobs and at the same time managing credible industrial surplus to increase the country’s stagnated exports, specially through the small and medium enterprises (SMEs)?.

The setting up of the SMEs, that helped China, Korea, Taiwan etc. to substantially increase their exports and provide significant employments in recent times, is no doubt a great success story.

And that is why their foreign exchange reserves are surprisingly very high today. Taiwan alone has built up its reserves of $123 billion and all credit goes to its leadership for firstly encouraging the SMEs and then exploring foreign markets for their industrial surplus.

In Pakistan, there had been a lot of emphasis on cottage industry and small and medium enterprises. However, the situation on the ground suggests that successive governments failed to help establish significant number of SMEs and one of the reasons was their inability to ensure one-window operation for providing gas, water, electricity, telephone etc. The other factor was the reluctance of commercial banks to offer loans to small investors although non-performing have reached have reached to an incredible level of Rs300 billion.

Now the government is once again trying to help set up SMEs for which it has created the Small and Medium Enterprise Bank to advance loans to small investors - ranging from Rs50,000 to Rs500,000. Besides, the Kushhali Bank was established for which the government initially provided about Rs2 billions working capital.

The issue of mark-up is an important factor in extending loans. There used to be a 6 per cent interest rate for offering micro-credit and later the government raised it to 10 per cent for small and medium industries which eventually went up to 15 per cent and was considered logical to make sure that these loans have been returned in time.

But small investors are seeking reduction in interest rate as both the SME Bank and the Khushhali Bank roughly charge 15 per cent interest rate. The argument from the government side is that a competitive interest rate is necessary and that it should not be lowered so that large-scale industries do not get attracted to have such loans at the cost of small investors.

One of the important tasks of the government, experts say, should be to ensure extending small loans to new investors and for this purpose they should be provided advisory services so that they could have proper feasibilities of their projects and some training.

Generally, representatives of various chambers of commerce and industries, specially those from Sialkot and Gujaranwala, are asking the government not to seek collateral to extend small loans.

They say that banks should keep with them the entire premises of investors till the time their loans are returned but they should not seek collateral. However, the officials of the Small Industrial Corporations of Punjab and Sindh maintain that without collateral they cannot extend any loans. They also say that their loans are offered on concessional terms compared to other banks, including the SME Bank and the Kushhali Bank, therefore they can not remove the condition of not seeking collaterals. Both the corporations are engaged in providing micro-credit to small investors.

While the government is putting lot of emphasis on the SMEs, it should withdraw the undue concessions for large-scale industries which are, in fact, hurting the interest of small investors. The officials of the Central Board of Revenue (CBR) do admit that there exist as many as 60 statutory regulation orders (SROs) that give concessions to various big industries despite the fact that the government had been under tremendous pressure from the World Bank and the International Monetary Fund (IMF) to do away with them.

These concessions, nonetheless, will have to go by 2005 when the World Trade Organisation’s new regime will be applicable removing all kinds of concessions and subsidies and ensuring level playing fields, specially for foreign investors.

There are export processing zones but there is a need to have industrial zones where an investor should enjoy facilities of infrastructure like water, electricity etc. However it is argued that this job should be undertaken by the private sector itself rather than banking on the government which is starved of funds.

There was a proposal during the Nawaz Sharif government to set up eight industrial zones along the Islamabad - Lahore motorway, but the plan was shelved when he was removed. While the government intends to help establish more and more SMEs, it should at the same time make sure that already set up industries specially that became sick in the past, are revived.

This is an area where there has not been much success despite the fact that the government had established the Corporate and Industrial Reconstruction Corporation (CIRC). The Privatization Commission had been involved in the rehabilitation of sick units but one does not see results on the ground as majority of them still need to be rehabilitated.

In some cases, there are exports that new entrepreneurs have expressed their willingness to buy certain sick units, but they were not encouraged due to one reason or the other.

The CIRC had been established with a view to taking the liabilities of sick units and then sell them after getting them rehabilitated. The international donor community appears ready to offer additional help to get these sick units rehabilitated.

The September 11 events if brought losses specially in the shape of reduced exports, they also created an incredible goodwill for Pakistan. Major bilateral creditors and multilateral agencies are today providing all possible financial support.

And now is the time when the government should seek additional soft loans for encouraging SMEs in Pakistan and at the same time ensure that loans are not given on political or other extra-economic considerations so that the country could see the setting of SMEs in order to reduce unemployment and increase exports.

But this cannot be achieved unless the government asks the concerned organisations including Board of Investment (BoI) to help the new investors for getting heir new industries established without much hassle. The experience of the past shows that local investors had been winding up their businesses due to harsh conditions and in the absence of having required infrastructure facilities. Foreign investors were also forced to pak up some time due to inconsistent policies and at other time due to worsening law and order situation.