Increasing economic cooperation with China under the China Pakistan Economic Corridor could help boost growth of small and medium enterprises through joint ventures between businessmen of the two countries, and modernise existing SMEs through a transfer of technology.

Small and Medium Enterprise Development Authority (Smeda) officials believe that the development of the proposed industrial zones along the trade route will offer massive opportunities for investment. Both domestic and Chinese businessmen involved in joint small to medium sized ancillary businesses are expected to emerge after the completion of the corridor project.

A Chinese business delegation recently toured Lahore and met with Smeda officials for exploring the potential for joint ventures in SME-dominant sectors in Pakistan. The delegation comprised of entrepreneurs dealing in international logistics, building materials, high-end clothing production, supply-chain process, furniture, steel structure and the export-import business.

“Without developing the SME sector we cannot have equitable and inclusive economic growth. It is time that we took advantage of the opportunity being offered by CPEC for the development and modernisation of this sector”

“There is a wide scope for joint ventures between Pakistani and Chinese SMEs, especially in the fields of logistics, trucking, warehousing, fisheries, horticulture, minerals, food processing, construction, dairy and livestock, ICT and allied service, light engineering, apparel, and cold storage and supply chain business, etc.

“The corridor offers enormous opportunities for industry-led economic growth in Pakistan if we are able to take advantage of the emerging opportunities,” a senior Smeda official said.

“The cooperation between the two nations will also ensure a transfer of technology that shall help the country’s small to medium entrepreneurs modernise their existing technology to what is required for value addition.”

A manufacturer of surgical instruments from Sialkot believed that China could support the production-based structural transformation of Pakistan’s small and medium industry. “We must try and seek modern technology for the value addition of our products through joint ventures and technical cooperation with our Chinese counterparts.”

Smeda officials argue that Islamabad must develop an effective strategy to attract Chinese investment in joint ventures in the manufacturing industry, especially in the SME sector. “The focus of the strategy should be on creating partnerships and enhancing cooperation in order to develop joint ventures, rather than on competition between the entrepreneurs of the two countries,” the official insisted.

By establishing enterprises, contracting projects and technology transfer, China can support Pakistan in developing its comparatively advantageous industries in the mining, agriculture and manufacturing sectors, he further said.

Smeda has already prepared a long list of potential industrial cooperation projects in the SME sector for the government to formulate a policy on in order to attract Chinese investment. These projects can be initiated at the early harvest stage of the CPEC as “Pakistan’s regional endowments and existing clusters offer immense potential opportunities for Chinese businessmen.”

Government agencies estimate that SMEs constitute around 90pc of the 3.2m private enterprises in the industrial, services and trade sectors in the country, and employ around 70pc of the non-agriculture labour force. These enterprises also contribute over 30pc to GDP and 25pc to the country’s total export earnings. Their share in value-added manufacturing is estimated at 35pc.

In view of the critical importance of SMEs in low-cost job creation and poverty reduction, successive governments have tried in the past to focus on their development, but the sector remains uncompetitive in world markets owing to structural weakness, obsolete technology, lack of access to credit and marketing and management skills, unfriendly business and regulatory environment, and other factors, despite various initiatives both at the federal and provincial levels.

Smeda had formulated the first SME development policy in 2007 to address the issues facing small to medium sized enterprises to enable them to maximise their potential; but its implementation remained weak.

“A large number of our small and medium sized entrepreneurs involved in the manufacturing and production of surgical instruments, sports goods, leather products and apparel, textiles, etc, have long been a part of the global supply chain. But they have neither been able to go into value addition and grow big, nor develop their own brands because of a lack of government support.

Consequently, they continue to work for global brands and their products fetch a very low price in the international market compared with the same products exported by India and other regional countries,” a Surgical instruments manufacturer contended.

A recent conference on SMEs in Karachi called upon the government for preferential treatment and incentives to aid faster development in the SME sector. “Tariff protection, professional training and a technological support-base should be provided to raise the competitiveness of SMEs. Low value-addition and an undocumented economy are also big challenges,” it said in its recommendations for the development of the sector.

“Without developing the SME sector we cannot have equitable and inclusive economic growth. It is time that we took advantage of the opportunity being offered by CPEC for the development and modernisation of this sector,” the Smeda official concluded.

Published in Dawn, Business & Finance weekly, October 3rd, 2016