An attempt to revive sick
industries and establish more small and medium enterprises to eliminate unemployment
From Shamim Ahmed
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
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
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.