December 24, 2007	Monday	Zilhaj 13, 1428

The post-9/11 years will be characterised in the country’s economic history as a period of “missed opportunities”. Mr Shaukat Aziz managed a so-called “booming” economy — both as minister and prime minister — that did not get us anywhere in spite of a massive increase in tax revenue and record inflows of foreign exchange in the form of workers remittances, investment, grants and aid.

While Mr Shaukat Aziz focused on improving macroeconomic indicators, banking and stock markets, and encouraged an unbridled consumer spending that made the economy look good, structural weaknesses in the economy deepened and the manufacturing suffered. Barring the drastic reduction in the credit price for a couple of years, the manufacturing was never given an opportunity to grow. The interest rates too, say industrialists, were lowered to encourage consumer financing,

“The interest rates were slashed to encourage consumption and improve banks’ balance sheets. The action was not meant to facilitate the manufacturing. The industry had benefited by default,” says a leading textile exporter. “Shaukat’s period would be remembered for the day-to-day management of the crises that surfaced one after the other both in the manufacturing and commodity sectors, but none was sorted out on a permanent basis,” he adds.

The worst victim of the previous government’s economic policies was the small and medium business in the manufacturing sector.

“We heard the previous government talk a lot about small and medium enterprises (SMEs) but nothing practical was done during the last eight years,” says Ijaz Khokhar, a sportswear exporter.

“The fact of the matter is that our association – the Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA), has lost 200 members in the recent years. These enterprises have either gone out of business or have suffered such enormous losses that it has become difficult for them to pay the annual fee to stay in the association,” he adds.

In January 2004, the government announced a Task Force to formulate the country’s first SME policy, which was finalised after three years. This delay occurred despite the fact that the Task Force which worked on the SME policy did not generate any new data or information. Whatever data or information about the small or medium sectors upon which the Task Force based its recommendations, was already available.

Nevertheless, the Task Force took its time and gave its recommendations in the form of a policy in January 2007. It took yet another seven months for the then prime minister to stamp his approval before the new policy could be announced and its implementation begun.

A cursory reading of the SME Policy shows that it covers measures for the promotion of entrepreneurship culture and support for the growth of the existing enterprises. “The SME Policy realises the different approaches required for supporting small enterprises as opposed to medium enterprises. Which means that separate policy measures are proposed for small and for medium units,” says a member of the Task Force, which formulated the document. “Women, marginalised groups, rural based and agro processing enterprises will receive special attention while devising specific support mechanisms,” says he.

Officials say the development of the SMEs is critical for encouraging private sector led growth for reducing poverty, generating new jobs and to trigger economic growth.

According to the Federal Bureau of Statistics (FBS), there are about 3.2 million economic establishments. Out of these small and medium size enterprises, with employment base up to 99, constitute about 90 per cent of all private enterprises employing approximately 78 per cent of non-agriculture labour force. The SMEs contribute over 30 per cent to GDP, 25 per cent in export earnings besides sharing 35 per cent in manufacturing value addition. The implementation of the SME Policy is expected to increase the share of small manufacturing enterprises from 5.5 per cent to seven per cent provided the threshold and density of the regulations is decreased to reduce their cost of doing business.

Small & Medium Enterprises Development Authority (Smeda) officials claim that a lot has already been done to implement the policy. “The parliament in its last session held on November 15 approved the SME Act to provide a legal framework for the policy recommendations,” says a Smeda official. He describes the passage of the law as a landmark, which will help implement and support the recommendations in the SME Policy.

“Business Support Fund and Competitiveness Support Fund has already been established under the implementation plan of the SME Policy,” he says. But, he says, the SME Credit Guarantee Fund, the SME Credit Insurance Fund and the SME Subcontracting Exchange could not be set up because the government was dissolved on completion of its term,” he says. These proposals, he adds, will now be taken by the next government.

But the officials admit that the major issues that have so far held back the growth of the SMEs, particularly the small sector, still remain in place, stopping these units from becoming economically viable and internationally competitive.

The problems facing the small sector range from their lack of access to reasonably priced formal banking credit to finance their operations and upgrade their technology to unfriendly tax and inspection regime. Their inability to afford testing and inspection services and processes owing to their small size and limited production capacities further complicates the situation for them and retards their growth.

“Nothing has so far been done to remove these snags that are actually preventing us from growing big and establishing linkages with and expanding in the international markets,” says a small manufacturer.

“The focus of the government remains on cosmetic aspects. If the successive governments were 10 per cent as sincere as they claimed to be, those would have simplified tax and inspection regime and given us access to cheaper credit,” he says. “That is all we want. And that can be done with or without a policy. What you need is the will to do it,” he maintains. Is somebody listening to him?