The stage is being set for greater growth of the small and medium enterprises (SMEs) in Pakistan as plans in this direction are now being transformed into actions. The industrialized countries and international donor agencies are supporting our programmes through transfer of technology and provision of funds.
Japan is presently providing $7.3 million aid for enhancing the competitiveness of the SMEs, including development of plastic processing technologies. Similarly, the Asian Development Bank (ADB) has launched an $170 million institutional support programme, out of which $12 million is earmarked for the development of common facility centres.
The first 'common facility centre' is being established at Gujranwala for light engineering sub-sector, to be completed by end 2004. The United Nations Development Programme-Small Grants Programme- has initiated plans to help the SMEs in promoting environment-friendly projects, products and processes and to introduce concepts of occupational health and safety measures.
Likewise, the UN Industrial Development Organization (UNIDO) is helping to overcome the difficulties in supply of support services for the development of entrepreneurship and enhancing the efficiency, competitiveness and sustainability of the sector.
To achieve these objectives, the UNIDO has recently launched a 'cluster development programme'. Moreover, the UNIDO is collaborating with SMEDA and the Commission on Science and Technology for Sustainable Development in the South (COMSATS) for strengthening the capacity building of the SMEs, associating all national support institutions, through their programme, the 'Industrial Information Network'..
The implementation of the programme will result in establishing a formal e-commerce platform for the enterprises too. Similarly, the Asian Productivity Organization (APO), in collaboration with the United Nations Volunteer Programme, is already extending training to the garment cluster in Lahore, under the first phase of the SME cluster training programme.
The APO experts' services will be provided subsequently to the fan cluster in Gujrat, the cutlery cluster in Wazirabad and the sports goods cluster in Sialkot, to facilitate productivity enhancement and wastage reduction.
In recent years, the concept of promoting SMEs has gained immense popularity the world over. The SMEs on one hand, provide materialization of the entrepreneurial efforts of the individual or a small group at a low capital cost, and on the other, help in achieving the overall economic activity throughout the system. Their contribution, especially in employment generation, development of rural areas and increasing national exports, has been of great value.
The social and economic impact of this sector has been demonstrated so strongly in the newly industrialized countries like Taiwan, Hong Kong, Singapore and India, that the other economically emerging nations in Asia are compelled to follow suite. Pakistan is indeed no exception.
The SMEs essentially constitute the core of the private sector, and play an important role in the overall economic growth through the creation of backward and forward linkages among trade, industry and agricultural sector. The total numbers of SMEs in Pakistan are estimated to be around 3.8million and constitute 90 percent of businesses.
Out of these, there are about 500,000 units related to the manufacturing sector. The SMEs in this category, also known as 'medium and small industries' (MSI), are divided in subgroups of textiles, leather, wooden furniture, light engineering, construction material, gems and jewellry, footwear, rice and wheat milling, metallic and non-metallic products, and sports goods.
Textile and related industrial sub-sector cover cotton-ginning, cotton-spinning, semi-finished and finished garments, bed wear, bed linen and table linen, towel and terry products, curtain and furnishing, blanket, canvas and carpet.
Light engineering includes manufacturing of bicycles, electric fans, cutlery and surgical instruments, foundries, steel fabrication and automobile and general workshops, whereas construction materials group covers ceramic, marble and granite. SMEs in the leather industry include units for production of finished leather, leather garments, gloves and other goods.
Other SMEs are operating in the areas of food items like dairy, meat and poultry, bakery products, agriculture produces such as vegetables, fruits and horticulture, fisheries, cold storage, pottery, tobacco and cigarettes, information technology and others. These enterprises provide about 80 percent of industrial employment, contribute 40 percent to GDP and indirectly constitute 30 percent of the total export earnings.
Individually, most of these SMEs are unable to respond to market demands, basically for not having exploited effectively the opportunities that require large production lines, homogeneous inputs and consistent quality standards.
In fact, the growth and development of the SMEs is constrained by a number of factors such as: (a) low entrepreneurial, managerial and technical skills; (b) deficient finances, initial as well as working capital; (c) restricted marketing environments; (d) inadequate or improper quality control; (e) poor physical infrastructure; (f) lack of new product development; (g) inadequacies of material management, primarily due to imported materials and unreliable local supply sources, and (h) absence of planning, training and corporate strategies.
Because of these reasons, the SMEs have difficulties in attaining economies of scale and, resultantly, are unable to internalize special functions such as training, market intelligence, logistics and technological innovations. Their positive features however are flexibility, adaptability and supportive environment.
Being conscious of the high potential of the SMEs to contribute largely towards stabilizing the economy through poverty reduction and prosperity, Pakistan has strengthened, though slowly but steadily, in the past few years, the policy measures and support facilities to the SMEs.
The government has taken upon itself to formulate and implement a coherent and dynamic SME policy, to restructure institutional arrangements and undertake support programmes through Small and Medium Enterprises Development Authority (SMEDA).
These policy measures are aimed at addressing the issues of impediments being faced and thereby facilitating access of SMEs to the resources of finance, technology information and human resource, enabling them to upgrade their existing capabilities in these areas, and to compete in an emerging globalize production environment.
The SMEDA has regional offices located in the capitals of all the four provinces, whereas another one, in Azad Jammu and Kashmir, is being set up shortly. These offices serve as information hub for the SMEs.
In addition, industrial support centres have been established at growth points such as Gujrat, Gujranwala, Rawalpindi and Sialkot in Punjab, Hyderabad, Sukkur, Larkana and Dadu in Sindh, and Hub in Balochistan. Through these centres, advisory services to the entrepreneurs on business and technological problems are being made available.
A legal section is created at the SMEDA headquarters to facilitate the SMEs on problems related to income tax, sales tax, social security and other issues. Aiming at developing a vibrant entrepreneur culture, SMEDA has initiated establishment of enterprise development centre models in the NWFP with the support of universities and the Higher Education Commission (HEC) in the province.
The first-ever national SME policy is being prepared on a fast track basis, which is likely to be finalized by December 2004. A five-year plan is being launched with focus on the promotion of textile, light engineering and gemstone sub-sectors, adopting cluster approach for the development of the SMEs.
Dedicated credit funds, on reduced mark-up, are being offered through Khushhali Bank, Microfinance Bank and the SME Bank. SMEDA plans to join hands with the banks for jointly removing the bottlenecks encountered by the SMEs in obtaining necessary finances, and to initiate special funding programmes. The commercial banks were hitherto reluctant to extend loans to the SMEs due to issues of security, collateral, high cost of transactions, etc.
In view of this situation, the State Bank of Pakistan has recently directed all the banks to open exclusive branches for the purpose for which SME-related prudential rules and regulations have also been issued. Plans are also underway to allocate industrial plots for establishing SMEs in different provinces. Sindh has reportedly taken lead in this respect by announcing reservation of such plots on the Super Highway in Karachi.
To summarize, SMEDA and other agencies are implementing an elaborate action plan, comprising the following elements: Promotion of networks between complementary SMEs; training of cluster and network workers; promotion of linkages between large and small industrial enterprises, i.e. main and ancillary industries, with a view to upgrading vendors; improvement of national support institutions that enhance productivity, quality and standards besides providing competitive advantages; creation of a mechanism to foster meaningful dialogues between the private and public sectors for policy formation and implementation; facilitating financial services; providing market access and managerial/ production techniques; promotion of added features to products and services, and placing an effective mechanism for technology acquisition and technical cooperation.
Implementation of these measures will, indeed, have a multiplier effect on the growth and expansion of SMEs, resulting in the efficient use of resources, production of quality products at low overall cost, realization of potential for enhanced exports, and provision of additional job opportunities.
The SMEs in this way can help the government in achieving its cherished goals of higher exports and lower unemployment. It is envisaged that the SMEs could generate 3.8 million jobs every year, by merely employing a single person per year, besides encouraging the jobless to run own small business.
Tailpiece: While attending a regional seminar on the SMEs conducted by the Asian Productivity Organization in Surabaya, Indonesia, a few years ago, one of the delegates from India was asked to describe the key to achieving high growth of the SMEs in his country. His reply in light vein: we achieved progress despite the government policies.