SME Growth in Pakistan: What is Missing? By Dr Zubair Iqbal

The economic growth of developing and emerging economies is invariably entwined with the growth of their small and medium enterprises (SME’s). Countries such as Japan, China, Brazil, India, Malaysia and Sri Lanka, among others, have heavily relied on SME development for economic growth, through adoption of intensive policies and strategic private sector development. Therefore, given the rightly guided policies and stringent implementation, SME sector can become the back bone of Pakistan’s economy.
The numbers tell it all. Though, due to our traditional lack of planning, fatalist attitude and peculiar dislike towards data collection and its analysis – little information is available. However, whatever dated data we can put our hands on, is simply eye opening. Here are some of them. According to some careful estimates, Pakistan’s estimated 3.6 million SME’s accounts for almost 90 percent of all private business entities. It gives employment to about 80% of non-agriculture workforce. The SME contribution to GDP is about 40 percent. SME’s typically account for 4 out of 5 jobs created. Additionally, the SME numbers are being incedingly used as economic indicators by the entities like world Bank, Asian Development Bank and UNDP. Typically, they use the number of SME’s per thousand people in an economy. Pakistan has 20 SME’s as compared with 32 in India.
So what is missing? The political will and management decisions by the people sitting in Islamabad and all the provincial capital. It is particularly appalling to learn that the last SME policy was given some thirteen years ago in 2017 by the government. This indicates the lack of interest in such a vital sector of our economy which can also be detrimental to allay our financial woes.
The present PTI government needs to adopt a pentangular approach in this regard. They have to target the issue from multiple angles to get the desired results. Firstly, the government needs to strategize its preferences to facilitate and help SME’s in various sectors. The world has changed altogether in the last decade after the emergence of 2007 policy. For this a new SME policy is the need of the hour. The policy should envisage the strategic visions, goals and clear objectives to be achieved in the next few years.
Second is the triple helix focus on politico-legal, regulatory and monetary environment. After the promulgation of eighteenth amendment many subjects have been devolved to the respective provincial governments which directly relate with the development of SME’s. The Federal government should take the lead in cutting the political barriers to identify the potential areas of convergence with the provincial governments. The former also needs to hold hands of the latter in strategizing and implementing various initiatives to improve the situation. On regulatory front, it is unnerving to learn that the SME’s in Pakistan have to face of a host of more than 50 taxes and their related regulatory laws and departments. Federal Board of Investment and its respective counterparts can take the lead as the former has already been tasked by the Prime Minister to come up with practical suggestions for ease of doing business in Pakistan. The monetary environment also needs focus. Out of an estimated 3.2 Million SME’s, only 1.8 lacs have access to formal financing through banking sector. This can be changed by State Bank of Pakistan in conjunction with other commercial banks to simplify the interest regime by introducing certain SME indicators in the credit evaluation criteria to give a handicap to the SME’s. It should be a holistic effort and should not be left only with SME Bank and other smaller entities.
It is particularly appalling to learn that the last SME policy was given some thirteen years ago in 2017 by the government. This indicates the lack of interest in such a vital sector of our economy which can also be detrimental to allay our financial woes
Thirdly, there has to be keen impetus on developing of capacity of technical as well a human capital. Many industrialists have been complaining on the poor quality of human resource available in the market. There should be holistic capacity development programs on specialized key disciplines as well as about general areas of business-like management, finance and accounting. Similarly, the production and import of technical infrastructure should be encouraged and facilitated through innovative and futuristic ideas.
Fourthly, a culture of entrepreneurship should be encouraged in Pakistan. This can be done by forging and developing relations with HEC, academia, think tanks and various trade and industry organizations. There has to be wave of techno parks, innovation centers and commercialization. Wholesale general education should be shunned in favor of creative industries and problem solution attitude among the students. Pakistan has already witnessed a sharp growth in IT services in the world and an estimated $ 1 billion annual return was registered last year.
And finally, market constraints should be taken by the horns. Typically, SME’s have less access to information and communication channels; and they face difficulties complying with labor, environmental, social, and international standards therefore, operate in limited markets. There is a cumbersome payment processing system particularly if the payments have to cross borders.
We need a strong and thriving SME sector which is indispensable for a country like Pakistan with high employment ratio, lower levels of capital, youth abundance and partially developed large scale industries. If other nations like India, China and Brazil can do it, why we can’t?
The writer is an Ex Member Planning commission of Pakistan
Source: https://dailytimes.com.pk/481200/sme-growth-in-pakistan-what-is-missing/

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