PROBLEMS OF SMALL & MEDIUM INDUSTRIES IN PAKISTAN
PROF. SAEED AHMAD SIDDIQUI
Mar 5 - 11, 2012
'Cottage', 'Small', and 'Medium' industries occupy strategic position in the economy of Pakistan. They provide not only employment but are also the source of distribution of real assets. The small and medium industries play the role of supplementary and byproduct industries for the large and heavy industries. These industries fulfill the objective of equitable distribution of wealth in the economy. They reduce the proportion of dependent population because children and women are accommodated in them for the light jobs. Small and medium industries are capital light, labor intensive, source of decentralization, skill light, quick result oriented, industrial nurseries, market provider, preserver of handicrafts, accommodator of displaced labor, remedy to disguised unemployment, supporter to the large industries, reducer in pressure on land and import light.
Despite so strategic in value, small and medium scale industries in Pakistan have been facing various problems for their growth and development. The economic downturn has hit the small and medium industries very hard as compared to the corporate sector that has the support of financial institutions to a certain extent. Just as the banking sector accommodates corporate sector more than the industrial sector, so the government also focuses corporate sector in financial matters more than the industrial sector.
On the other hand, small industries and business depend on corporate sector to a greater extent. Small and medium industries have no shock observers to bear the impact received through high cost of production. Here, we highlight some common problems that are faced by the small and medium industries in Pakistan.
1. INCREASING COST OF PRODUCTION: Persistent increase in industrial cost of production has become the common trend due to which small and medium industries are unable to compete in international markets. Because of rising prices of industrial inputs like gas, electricity etc., the cost of production goes enormously high but the producers of small and medium industries cannot sell on high prices. On the other hand, imported or smuggled goods are made available comparatively at very low prices. The glaring example of Chinese products, which are available very cheap throughout the country, can be cited.
Today, goods from china are highly damaging to the local industry and especially for the small industries. The cost of production in Pakistan is very high and it is not a secret and the policy makers are fully aware of this fact but they show no concern. The government should divert the attention of policymakers to take solid, strategic, and practical measures to control the cost.
2. ENERGY CRISIS: Load shading of electricity and gas cut during winter is a basic and grave problem in Pakistan. Small and medium industries have especially been hard hit from the energy crisis because they, like the corporate sector, have no power generation houses of their own. The energy crisis is leading to the dramatic rise in rate of unemployment. In most of the sectors, the laborers, working on daily basis, are deprived of their livelihood due to persistent electricity breakdown. Today's gravest problem is the energy crisis, which is affecting the small and medium industries as well as traders badly.
For saving overall industrial sector and especially small and medium industries that are biggest source of goods and services, the State Bank of Pakistan (SBP) should coordinate with the government and discuss the problem of energy so that the energy production may be enhanced and the effective measure may be taken to use alternate sources of energy.
SBP should revise its finance classification criteria. The industries that are stuck up in crisis and vicious circle of downturn should be given financial reliefs. Small and medium industries regulations should also be liberalized. The combined consultation of the members from trade and industrial sector may drag the industrial sector out from the critical situation.
3. LAW & ORDER SITUATION: Disturbed law and order situation is also a problem for small and medium cottage industries. Industrial activities cannot take place smoothly under fearful and terrorized environment. Serious reformative measures are needed in this regard. Industrial peace has been the victim of unlawful activities. The trade unions continue to give strike call every now and then. Demands and agitations of laborers continue to disturb industrial peace. Majority of industrial workers work on daily basis and so the industrial unrest makes them unemployed. As a result of strikes, lockouts, demonstrations, and agitations industrial outputs are decreasing and thereby putting up inflationary pressures.
4. TEXTILE CRISIS: Textile weaving sector has also been facing various problems since last few years. Global recession and slowdown has also affected the textile sector of Pakistan. Pakistani textile sector is heavily export oriented and textile exporters have to bear heavy losses in international textile markets. As a result of this, manufacturers and traders who provide goods and services to exporters are also facing heavy losses. The providers who supply goods and services directly to the exporters belong to small or medium scale industries depend on the mercy of export houses. Power loom sector can best be quoted here which suffered losses from the direct exporters who have the status of corporation. According to business tradition, the suppliers of gray cloth, violating the necessary laws, supply gray cloth to the exporter but they don't have any written proof of this unlawful activity. They run their business through 'kachchi parchi' therefore, no security or guarantee is rendered for the amount receivable. The SBP, therefore, should compel the buyers to keep the record of such buying and selling in black and white.
Textile weaving sector is impacted negatively by various factors. In the past, the small textile units complied with their orders at fairly high cost quoted. But, today they are unable to keep product continue even at the higher price than the expected cost due to ever mounting price of energy.
5. LABOR PROBLEM: In addition to the problems cited above, labor crisis is also a big problem. For instance, the factory which used to run 24 hours now hardly run 12 hours only curtailing the production 50 per cent. On the other hand, the rates and schedule of permanent and temporary workers remain the same. If the factory remains closed due to power load shading, daily wagers are deprived of income for survival.
6. ABRUPTLY CHANGING MONETARY POLICIES: Pakistan is a strange country where policies are changed in weeks and days. Credit expansion was the objective of monetary policy in the past due to which all types of loans were extended on very nominal rates. Extremely liberal credit policy was adopted while the purpose of financing, at bank's level, was not monitored seriously. Moreover, SBP also remained highly lenient in this regard.
Past observation reveals that vertical shift took place in monetary policy and the KIBOR rates increased many fold. The loans acquired on very low rates were invested heavily in real estate sector. Such misdirected loans have soured or are on the verge of becoming bad debts because real estate sector has become the victim of slowdown while the rates of banks are high. The SBP should find out solution of this problem by coordinating with the commercial banks and setting up cooperation with members from trade and industry.