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SMEDA under direct control of PM

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An attempt to revive sick industries and establish more small and medium enterprises to eliminate unemployment

From Shamim Ahmed Rizvi, Islamabad
August 23 - 29, 1999

Prime Minister's decision to place the small and medium enterprise development authority (SMEDA) under his direct control and supervision has been welcomed in the concerned circles. This decision would make SMEDA an attached department of the Cabinet Division which would provide secretariat services for the day to day working of the Authority.

This latest decision of the Prime Minister is being seen as a conscious move by him to speed up the development efforts in the small and medium enterprise sector which has a vast potential to promote entrepreneurship among the skilled and qualified individuals who generally lack adequate financial resources to establish their own business. By putting the Authority under his direct charge the Prime Minister has saved this highly useful and much needed development programme to revive economic activities in the country from notorious bureaucratic hurdles.

Today, Pakistan is confronted with a serious problem of prolonged industrial recession. A birds eye view of the last three to four years of industrial sector reveals that we are faced with disindustrialization. It is termed disindustrialization due to the fact that not only new industrialization has come to a halt but quite a good number existing industries are closing down their operations for one reason or the other.

According to an estimate, the number of units that have become sick and have shut down their doors, run into thousands. Industrialization is a strong indicator of increased economic activity in any country. So far, providing a strong footing to the fragile economy of our country which is reliable as well, government must do something to take industrial sector out of its recession.

It was in this context that SMEDA was launched under the initiative of the Prime Minister last year with Khwaja Belal Ahmed as its Chairman. Since then the Authority has been found to be perceptibly active in the selection and promotion of viable small and medium enterprises inviting individuals and mall/medium firms to submit their pre-investment studies with regard to specific projects which, if approved by SMEDA, would be recommended to banks and DFIs for loan financing. Meanwhile, the Authority Chairman also focused his attention to the need of improving and streamlining the working of fish harbour in Karachi through active cooperation of the fishermen's society which could avail loan financing with the help of SMEDA for the modernization of fishing facilities. Several other plans aimed at promoting small and medium enterprises are also reported to be in progress in SMEDA.

It is well known fact that the Prime Minister lays special emphasis on devising ways to create gainful employment to the prevailing large-scale unemployed. With this objective in view, the government launched a self-employment scheme designed to provide loans to entrepreneurs of modest means to set up business. It has been noted that quite a number of applicants for loan finance have been approaching the Prime Minister by telephone to apprise him of their personal grievances and difficulties encountered in obtaining loans.

There can be no two opinions that small and medium enterprises, unlike large business ventures can be speedily promoted and implemented. Further, capital mobilization in the case of large enterprises takes a long time to complete which requires lengthy procedures for financial close.

Borrowed capital is an essential requirement to set up a business venture irrespective of its size. However the risk for creditors is much higher in the case of mega projects. These considerations therefore call for preferential efforts for the development of the small/medium sector in the developing countries like Pakistan which do not possess adequate capital resources. It is also a fact that even in the highly developed countries like USA and Japan, the small and medium sector has a large share in the GNP, almost equal to that of the large scale sector.

As mentioned in the beginning there are thousands of industrial units that have closed down their operations and a very big proportion of these sick units is comprised of SME's. SMEDA apart from establishing new SMEs should also work for the rehabilitation of sick SMEs. This revival will prove very advantageous as on the one hand it involves less finance as compared to that of establishing new ones and on the other capital that was used in the setting up of these sick SMEs will not remain stuck and will become a contributing element of the economic circle.

SMEs have to face some chronic problems. They witness a more competitive environment and have far less bargaining strength viz-a-viz large enterprises, the financial system and the government. Then it is difficult for such enterprises to have specialists in every field like finance, technology, production marketing etc. Their response to changes in design, technology and market preferences is generally slow. SMEDA must go for the revival of sick SMEs but with a proper plan. In this regard, the first step of the Authority should be the identification of sick units. Before devising a revival package for any enterprises, it is important to know the nature of sickness i.e. whether the sickness is due to general debility in the relevant industry or whether it is peculiar to that specific enterprise or whether it is a passing phase due to temporary adverse factors or is rooted in more structural defects such as inappropriate technology, over-staffing or inefficient management. So, such studies and projects are essential for properly diagnosing the causes of sickness and for taking required remedial measures. These studies should also be of nature that they can point out the type or class of units eligible for rehabilitation assistance.

For putting the crumbling economy of our country back on track, attention will have to be paid to all concerned areas simultaneously as without doing that the goal will not be achieved.