SMALL AND MEDIUM ENTERPRISES

  In the manufacturing sector the small and medium enterprises (SME) are also as much important and affected as the large scale industrial sector. Historically, the Government of Pakistan has nit distinguished in between large and small enterprises in industry or trade[1]. Industrial and Commerce policies used to equal for all scales of enterprises. The SME is the more dynamic, exhibiting impressive growth rates in employment, output and contribution to value added[2]. The SME constitutes nearly 90percent of all the enterprises in Pakistan and employs the 80percent of the non-agricultural labor force.

  The small scale enterprises are more efficient in the nation’s economy as they generate the employment for the low income groups. If the government is sincere for the reduction of poverty then government should encourage the SMEs by providing the sound atmosphere for the business of small and medium enterprises.

 The SMEs contribute 30percent of GDP with value addition to the manufacturing industry of around 35percent and generating 25percent of manufacturing sector export earnings ($2.5 billion). It also provides 99percent of non-agricultural jobs. The development of the agro-processing sector (mainly for fruits, vegetables, dairy, livestock) and initiatives for fair marketing, transportation, and handling of agricultural products present a wide range of opportunities for private sector growth in the agro-based rural economy.

 The micro enterprise development initiatives through the provision of credit through banks are expected to sport economic activity mainly in the self-employed segment of the population. Over a period, this sector will transform into formal small and medium enterprises[3]. Due to these facts the government of Pakistan has declared small and medium enterprises sector as one of the four major drivers of the economic growth.

  It provides the entrepreneurial culture and boost up the economy against global economic crises. The SMEs has to face various structural problems like weaknesses in the financial, technological and management systems along with the lack of skills and marketing techniques. To provide assistance in these areas the government has established Small and Medium Enterprises Authority (SMEDA). The main objectives of SMEDA are:

          •     The creation of a conductive and enabling regulatory environment.
          •     Development of Industrial Clusters.
          •    Provision of Business Development services in all areas of business management.

  The SMEs constitutes over 90 percent of businesses in Pakistan, and majority of them operate in the undocumented informal sector. They represent a significant component of Pakistan’s economy in terms of both value addition and employment generation. As they predominantly provide employment to low-income groups, they are also considered as an important vehicle for poverty reduction[4]. SMEDA has also developed strategies for a large number of sectors and facilitates SMEs in the documentation for financial institutions, providing free technical, managerial and marketing advice with the collaboration of Asian Development Bank.

 SMEDA has embraced upon aggressive SME development strategy by focusing on seven different priority sectors. Theses priority sectors are gems and jewelry, dairy and agro-processing, fisheries, furniture, sport goods, light engineering, marble and granite. These sectors have been selected with the purpose of developing sector strategies and proposing regulatory reforms to stimulate growth on the sole criterion of SME presence. The growth of SMEs has mainly been vulnerable by the non-availability of credit in the past. Realizing this constraint the government has opened two specialized non-credit banks namely, the SME Bank and Khushali Bank[5].

 The SME Bank established in 1st January 2002 has the primary objective to provide financial assistance like low interest rate loans and the business supportive activates for SME. The bank launches many schemes, one of them is very famous namely “Hunermand Pakistan” for the promotion of SME sector in Pakistan in various fields.

 Another bank working under the roof of SMEDA is a Khushali Bank. The bank’s main dealings are women development, capacity building services for skill development and the provision of basic infrastructure services as health, education, drinking water, sanitation and communication etc.

  TA sector wise analysis of the SMEs reveals that the most significant areas of activity are depicted in the figure. As evident from the figure that approximately the half of the total SMEs activity is concentrated in five sub-sectors; grain milling, cotton weaving, wood and furniture, metal products and art silk. For the past three decades, the fastest growing export industries have been dominated by the SMEs. Export contribution from SMEs emanates from sub-sectors; cotton weaving and other textiles and surgical equipment[6].

 The SMEs exports, however, have largely tended to dominate low value added sectors that rely on traditional technologies. The SMEs sector also suffers from low productivity. Despite their numerical dominance, SMEs account for a relatively small, albeit increasing proportion of value added among the organized sectors. The fact that this sector employs 80 percent of workers and produces only 30 percent of value added indicates that, on average, the productivity in this sector is low. While some of the units survive due to efficiency in the resource use and linkages, other survives despite being inefficient, merely by evading taxes and circumventing state regulation[7].

 The small and medium enterprises are expanding more rapidly as compared to the large scale sector and provide the employment in urban manufacturing in Pakistan. SMEDA has a dream to become a model of public private partnership for better facilitation of the small and medium enterprises in Pakistan through the creation of a more equitable, transparent and conductive regulatory environment for the businessmen. SMEDA believes in synthesizing home-grown solutions to the problem of SMEs, based on global information and local wisdom achieved through cross-country analysis, experience of indigenous entrepreneurs and constraints of the government.

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1. Economic survey 2004-05
2. Zaidi, Akbar: Issues in Pakistan Economy
3. Economic Survey 2003-04
4. Economic Survey 2001-02
5. Economic Survey 2004-05
6. Economic Survey 2001-02
7. Economic Survey 2001-02

(Muhammad Aamer Shahzad)

 

 

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