Role of SME in Pakistan

Pakistan has emerged as the second rapidly growing economy in Asia after China in 2004 –
2005, as claimed by government and well accepted by international raters and financial
institutions. According to Economic Survey 2004-05 this increase in real GDP is the courtesy of
robust performance of large scale manufacturing and services sector. Even though the large
scale manufacturing registered 15.4% growth but small and medium enterprises (SMEs) is the
core issue in the country’s progress and especially for the prosperity of masses that are
surviving with low scale income due to which Pakistan ranks 135th out of 174 countries on
Human Development Index.

When we think about SMEs, we consider it as one person manufacturing enterprise but
according to SMEDA Small Enterprises should possess ten to thirty five employees with two
to twenty million rupees capital intact in equity. Medium Enterprises should possess thirty six
to ninety nine employees with twenty to forty million capital intact in equity. Here we have
to see the role SMEs have in the progress and wellbeing of masses in Pakistan.

The assessment of the role of SMEs in Pakistan is of vital importance. Sometimes we have
shinny figures and data regarding economy like GDP growth or per capita income but these
can be misleading because the earners of these massive growth are not masses but the
capitalists in the country. SME produces the income stream for masses located in the
countryside and the capitalists associated with this activity that is generally medium or small
as the name suggests.

In Pakistan SME sector is not only the minor sharer till yet, reality is that Pakistan’s whole
economy is highly dependable on the pace and productivity of SMEs. Out of Pakistan’s 3.2
million enterprises 95% are those who possess 99 employees in private industrial sector and
employ about 78% of non-agriculture labor force. SME contributes 25% export of
manufacturing goods and 30% of GDP is the outcome of business efforts of SMEs.

The vital question is not “what SMEs have produced?” But, what they are capable to
produce? The simple answer is if they produce on their full potential and capacity Pakistan
would be way ahead on economic racetrack of the world. They can produce billions of dollars’
worth items that is why SMEDA is quite right in stating its mission as “Turning potential into
profits”. Turning potential into profits gives us a truer and fair picture of the role of SMEs in
Pakistan. Now we will see what potential we have and the threats associated with it and how
we can turn potential into profits by overcoming existing threats.

Firstly we have to talk about the main potential we have to boost the progress and efficiency
of SMEs. The real potential of SME growth in the country is the deprived people of this
country who are quite keen to raise their standard of living. It simply means the future of
SMEs is associated with the temptations of highly talented but deprived masses of Pakistan
and their will to turn their dark days in to glittering ones. But the real problem associated
with their will and dreams is finance and technical assistance. Financing concerns have two
issues; first is availability of finance and second is the rate plus the terms on which the
finance is available.

Financing SMEs in heavy liquidity period for banks is not a burden but an opportunity
because bank can utilize their liquidity by advancing finances to SMEs. By advancing to SMEs
they can have two advantages. First when they advance to many small and medium
enterprises as compare to large ones, their lending amount will be distributed to a number of
clients that will increase the probability of recovery. Secondly, the contribution in national
economic growth via utilizing their liquidity that is excess due to great activity in economy in
the period after 1999 and especially after 2001 that will further expand the activity in banking
sector in near future.

Exploring a specific niche product is another way to boost SMEs sector. Niche is a unique
product that we can produce at low cost with an absolute advantage. In Pakistan we are
producing Niche from Wazirabad by producing the international quality surgical instruments
and Saialkot is there for sport goods. SMEDA and other concerns like EPB have to come up to
explore more niches that are sure available in this country of highly skillful workforce. In this
regard Prime Minister’s program of ONE VILLAGE ONE PRODUCT is of high importance. Even
we could not achieve economy of scale through this niche but available glittering demand in
international market can offset the cost burden and causes the inflow of foreign exchange.

The movement of masses from rural to urban areas is another hot slot of the time. While
developing a well-integrated SME sector in the country, it is the clear cut advantage that we
can stop this mobilization that certainly is creating the urban problems and increasing the
urban development overheads and cost of maintaining big cities like Karachi. Even it will be a
factual probability that through SMEs we can convert our villages into new towns and sources
of revenue and progress.

Stock markets in the country are in deprivation of number of newly listed companies; I think
it is for the sake of wellbeing of stock markets and SMEs that SMEs should be authorized to
get listed in shape of a venture of 3 to 5 SMEs on stocks on relatively smaller amount of
capital that is how the SMEs could muster the very capital and while becoming a part of
corporate culture that can give way for them to have good management. In early stages the
board of SME companies (as they would not be able to pay handsome amount to experts)
should consist of experts of Federal, Provincial governments and specialized financial
institutions and the small and medium enterprises. Small and medium entrepreneurs should
possess the majority shares and the shares of these stakeholders have to be to the extent of
their support and inline to compensate nominal through the profitability of the companies.
SMEs will be the main source of poverty reduction in Pakistan that will create the value and
innovation for the country in the days to come. The thing that really needs serious attention
is to remove the unnecessary bureaucratic procedures. It is essential to make it possible that
the opportunities for small entrepreneurs should not be wasted through excess processing of
finance applications or other official terms. Assistance to SMEs is not enough; the
government and specialized financial and technical institutions should stand as partners of
small and medium entrepreneurs, this is the only way that the financial institution can
recover their funds with yield. Government could achieve its goal for poverty reduction,
economic progress and above all the value creation process by promoting the culture of
SMEs. This is the only way that can make sure the poor masses of Pakistan shall not live poor
anymore.