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Abstract: Small and medium enterprises are the exchange earnings, as it intensively uses the
backbone of Pakistan’s economy. They are an relatively abundant factor of production by relying on
efficient user of the scarce resources and has better domestic inputs, it also economizes foreign
linkages with other sectors of domestic economy. exchange. The SMEs are an efficient user of the scare
However few researcher studies examined their factor capital and has better linkages with other
development, challenges and future prospects. sector of domestic economy (Saeed, 2007).
Therefore the aim of this paper is to examine and
This inherent characteristics of SMEs makes it
analyse the structure, growth, impact and problems in
imperative that there should be a mechanism through
financing SME issues affecting SME sector and
which it may get support in different functions of
suggest a strategic framework for enhancing the
business including technical upgradation, marketing,
competitiveness of Pakistan SME in regional and
financial and human resource training and
global market. The major conclusion drawn from this
development. The small and medium enterprises
paper were the SME sector in Pakistan is facing
development authority SMEDA is the flagship
many problems and challenges both domestic and
organization of Pakistan which is providing the
better prospects in marketing their products at
necessary services to help SMEs overcome the
international market. This paper recommend some
weaknesses that are endogenous in nature (Anka,
measures as a positive step towards addressing the
2009).
above problems and challenges so as to guarantee a
sound future for SME in Pakistan. SMEDA, envisions to become a model of public
private partnership for better facilitation of the small
Keywords: Growth, migrant worker, Small Medium
and medium enterprises in Pakistan.
Enterprises, public private partnership,
The government recognizes that SME led private
I. INTRODUCTION
sector development needs further strengthening of the
I
n the economic development of a country the regulatory environment adjustment in prudential
importance of small and medium enterprises policies and provision of support services for
SME cannot be overemphasized. The SME enterprise establishment development of quality
constitute nearly 90% of all enterprises in the formal improvement and export marketing in the short to
sector. The promotion of small scale industry can medium term (Saleh, 2006).
help in achieving many objectives and in particular it
The importance of cottage industry and small
can help in reducing the problem of wide spread
industries has long been recognized but from
unemployment in Pakistan (Zaidi, 2005).
practical point of view very little headway has been
This problem is expected to aggravate with the made. In view of the above therefore this paper shall
inflow of returning migrant workers from the middle examine government policies of SMEs, structure and
east. Small industry uses relatively more labour growth and impact of SMEs in Pakistan enhancing
intensive techniques and important source of foreign the competitiveness of Pakistan SMEs in regional and
global market.
44 Jamali,S. K..,Anka L. M.., Khoharo, A.A. / OIDA International Journal of Sustainable Development 02: 01 (2010) 43-50
II. GOVERNMENT POLICIES ON SME SECTOR One of the more interesting findings of the work on
small scale sector has been its close links with the
In the fifth year plan it was stated that the small
large scale manufacturing sector. Khalid Aftab and
industries sector has considerable potential for
Eric Rahim believes that one of the reasons for the
growth but it suffers from a number of problems
success of Punjab firms was the overall environment
relating to organization financing, technology and
of economic expansion along with small firms
marketing. To facilitate the development of this
proximity to large enterprises. For the individual
sector, there is a need to have a closer look at the
small producer the external economies generated by
constraints under which this sector operates and to
the large were as important as those it obtained
remove the hurdles which inhibit its healthy growth.
through the evolution of vertical specialization within
Fiscal and commercial policies will be given due
the small scale sector.
consideration to these factors during the plan period.
The major task of the development of these industries Furthermore the above research scholars argue that
was to be carried out through the small industries government policy in Pakistan did not assign any
corporations. In this connection the following special important developmental role to small scale
incentives will be provided to small scale industries. enterprises in the past. It was never thought that small
scale producers were capable of exhibiting any
- A combination of fiscal incentives to ease initial
dynamism. According to them government policies
cash flow problems.
give more importance to large scale sector and it
- Preferential access to credit through stronger
received special privileges.
specialized institutions.
- Assistance in training for the required skills. The single most important constraint faced by the
- Organization of advisory marketing boards. small scale sector has been the availability of credit.
- Encouragement for integration with the large scale All surveys consistently came up with this finding.
sector through sub contracting and Khalid Nadvi in his survey of 328 small scale
- Provision of adequate infrastructure and measures enterprises found that only two of them had been able
to make it accessible to the small scale investors. to obtain credit from the formal banking sector and
both of the loans were of very small amounts.
In addition to the above the government had set out
the following principles for the development of small Alongside the daunting procedures respondents stated
industries: that the banking bureaucracy was actively unhelpful
- Adopt small industries to changing technological, and discouraging to small scale informal sector. The
economic and social conditions. small scale and informal sectors therefore have to
- Stimulate production of implements and equipment find credit for working and fixed capital from other
required for agriculture. sources.
- Encourage the processing of indigenous raw
There is no denying the fact that the small scale
materials.
sector plays and is going to play an increasingly
- Create additional employment opportunities.
important role in Pakistan economy. Rashid Amjad
- Modernize such existing units that have sound
for example argues that as much as 25 percent of
economic prospects.
Pakistan export earnings are generated from the small
- Preserve and promote traditional arts and crafts.
scale industrial sector. The dynamic growth of this
III. ISSUES AFFECTING THE SMALL SCALE SECTOR sector has taken place because the state has kept
away from it and let it function largely on its own.
Khalid Nadvi in his comprehensive study of the small
scale informal sector is presented here: The informal IV. STRUCTURE AND GROWTH OF SMEs
sector consisting of small enterprises and household
The potential for further research of small and
units appears to be expanding more rapidly than the
medium enterprises sector is immerse and with its
formal sector and already provides employment to
numerous advantages including the Islamic aspect.
the majority of those engaged in urban manufacturing
The small and medium enterprise sector is believed
in Pakistan. Furthermore, capital intensity is in real
to be a good source of employment generation. The
terms growing more rapidly in the formal sector
government has not only established small and
leading to a net displacement of labour. As a result
medium enterprise banks but also introduce Humdard
labour productivity is greater is inversely related to
Pakistan Scheme for facilitating self employment. By
unit size. He argued that a focus on the informal
2008 these initiatives have been able to provide
small scale sector unit would appear to lead to the
employment to 47,213 persons and financed 6,745
most socially efficient allocation of capital this have
small and medium enterprises as well as the
the greatest potential for generating productive
microfinance has proved to be an effective tool for
employment.
poverty alleviation and job creation.
Jamali,.S.K, ,Anka L.M.,, Khoharo, A.A. / OIDA International Journal of Sustainable Development 02: 01 (2010) 43-50 45
It was discovered by policy makers and entrepreneurs that dominates our lives. The small scale sector is by
that it was net the large scale manufacturing sector far is more dynamic, exhibiting impressive growth
that provide employment to most workers in the rates in employment, output and contribution to value
industrial sector but the small scale or informal sector added.
Table 1: Gross fixed capital formation for private and public sector 1963-2002
Table-2 is self explanatory dealing with growth rates small scale manufacturing has been growing steadily
between large scale manufacturing and small scale and at a greater rate than large scale manufacturing.
manufacturing. It is clear that for the last four years,
Table 3 above presents the annual growth of SME in comparison to large scale is 11.7 i.e. including
slaughtering 4.2.
46 Jamali,S. K..,Anka L. M.., Khoharo, A.A. / OIDA International Journal of Sustainable Development 02: 01 (2010) 43-50
Table 4 shows growth rate of whole scale and retail is 2006-07 their share in the services sector is 32.1 in
6.4 percent in 2008 and against the last years 5.4 2007-2008.
Table 5 highlights that the small and medium employment upto 83% to the workforce of the non
enterprise sector is labour intensive and provide agricultural labour in Pakistan.
Table 6 above shows that more than 65 percent of the Punjab, 18 percent in Sindh, 14 percent in NWFP and
small and medium sized enterprises exist in the 2 percent in Baluchistan.
Jamali,, S.K., ,Anka .L.M., Khoharo, A.A. / OIDA International Journal of Sustainable Development 02: 01 (2010) 43-50 47
Challenge Fig. 1
High 3 4
Low 1 2 Support
Source: Adopted from ECA 2001 Economic Commission Support for Africa Strategic Framework Report 2001
The horizontal axis shows the degree of SME support affecting SME sector and suggest a strategic
and vertical axis shows the severity of the challenge. framework for enhancing the competitiveness of
The above figure differentiate only between low and Pakistan SME in regional and global market.
high challenge most SMEs in Pakistan found
The major conclusion drawn from this paper were the
themselves in quadrant 1 the challenge they
Pakistan SME sector is facing many problems and
confronted was low due to protection from outside
challenges both domestic and international in
competition but the institutional support they receive
achieving economics of scale and better prospects in
was also low. Important liberalization of the 1990s
marketing their products at international market.
pushed them into quadrant 3 which meant sudden
Among the challenges are shortage of financial
high challenge but continuing low support. The most
institutions for SME growth, high interest rates and
quadrant to be targeted is quadrant 4 which represent
collateral requirements, lack of effective coordination
high challenge and high support for Pakistan SMEs.
for financing SMEs and concentration of finance in
This combination will most likely leading to
urban areas. The following recommendation would
successful SMEs for Pakistan.
go along way in addressing various problems and
VIII. SUMMARY CONCLUSION AND challenges confronting the SME sector.
RECOMMENDATIONS
RECOMMENDATIONS
This paper examine and analyse the structure,
1. Foreign markets should be surveyed periodically
growth, impact and problems in financing SMEs in
and small manufacturers should be informed of
Pakistan. The paper further reviewed the issues
the demand for their product.
Jamali,.S.K, ,Anka L.M.,, Khoharo, A.A. / OIDA International Journal of Sustainable Development 02: 01 (2010) 43-50 49
2. Local entreprenuerers should be informed of [6] Anka, L.M., A. Taherani, R.A. Memon and A.
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small scale industry at national level this will help competitiveness of small and medium
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scale industries. Prospects and challenges. Economic and social
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