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Foreign assistance for SMEDA

It is a welcome development

Dec 18  24, 2000

The present government's emphasis on development of small & medium scale enterprises in the private sector is being duly appreciated by the donor countries. Japan, European Union, Italian government and Asian Development Bank have shown keen interest in the various projects identified by Small and Medium Enterprises Development Authority (SMEDA) of Pakistan.

The Minister for Industries and Production Abdul Razzak Dawood disclosed that the government in cooperation with the Asian Development Bank (ADB) has initiated two new credit facility and guarantee schemes worth around $250 million for the promotion of exports and small and medium enterprises (SMEs) in the country.

The two new schemes namely Export Credit Facility Scheme worth $150 million and Export Credit Guarantee Scheme worth $80 to $100 million will be operational by January 2001, he said. Giving details of the schemes, the minister said the export credit guarantee scheme will help resolve the problems of SMEs in securing credits from banks by providing collateral to the banks concerned on nominal charges. He said the SMEs which are often unable to secure credits from banks due to collateral or security problems will now be able to get credit from banks through the credit guarantee scheme.

The minister was talking to the newsmen after presiding over a seminar on "policy measures for small and medium enterprises" which was organised by Japanese Small and Medium Enterprises Corporation. The holding of this seminar was itself a manifestation of keen interest of Japan in this sector of development. The Minister said the Small and Medium Enterprises Development Authority (SMEDA), has completed its studies in different areas like textile, fisheries, fruits and vegetable, leather, marble, tanneries etc. SMEDA will now open its front offices to guide the SMEs. The front offices of SMEDA, besides offering guidance and assistance to SMEs for their business initiatives, will also help resolve their problems in securing credit from banks mainly the Small Business Finance Corporation (CBFC).

Also speaking at this seminar, Japanese Ambassador to Pakistan, Sadaaki Numata, stated that as a follow-up of a meeting between Chief Executive General Pervez Musharraf and Japan's Prime Minister Yashiro Mori in Pakistan recently, relevant Japanese institutions would be extending support to Small and Medium Enterprises Development Authority to achieve its targets. The Japanese assistance, he added, would be in terms of both financial facilities and technical collaboration. One such area in his view was automobile parts manufacturing, to begin with, and the scope of such cooperation could be extended gradually.

At the other seminar on the "development of small and medium industries in Pakistan" sponsored by the foreign firm ''Hewlett Packard' in Lahore, Iqbal Mustafa, chief executive officer at SMEDA, reportedly disclosed that his institution had signed a Memorandum of Understanding with the Italian government which would provide financial facilities of $10 to 20 million to be disbursed through Small Business Finance Corporation (SBFC) to small and medium manufacturing projects with the approval of SMEDA. This collaboration with Italy would be marked by the establishment of an Italian Enterprise Development Centre which would be converted into an International Development Centre at a later date.

Active interest of the developed countries and international financial institutions in the promotion of small and medium size industrial enterprises, is a welcome development. It may be pointed out here that the prospects of a significant spurt in fixed capital investment in large scale industries in Pakistan appear to have dimmed. One reason for it is the sharp rise in rupee cost of such projects due to the fact that the exchange rate of Pak rupee at its present level has fallen to an extent that local capital mobilisation would be an uphill task for the sponsors to accomplish. Large scale projects under these circumstances can be promoted only through foreign private investment. It may be recalled here that almost the entire existing base of large scale industries in Pakistan was created and established between 1960s and 1980s when the exchange rate of Pak rupee ranged from Rs.5 to about Rs.20 a dollar. The cost of imported plant and machinery at this juncture when the exchange rate is Rs.58 to a dollar will be enormous burden for sponsors to bear.

Seen in this context, the process of industrialization in the country would have to be preferably concentrated in small and medium size industries for reasons of manageable cost which may be feasibly mobilised by private sponsors with debt capital from banks and DFIs. Further, the prospects of fairly liberal availability of loan financing from the governments of developed countries appear to be quite encouraging. In this context, the need to strengthen the role of SMEDA and similar institutions designed to promote small and medium industries, can hardly be overlooked.

According to available official statistics, while large scale industry has a share of only 20 per cent in the total employment scenario of the country, the small scale industries are providing employment to 80 per cent of the existing workforce. On the export front, the contribution of small scale industry, particularly in the textile sector, is as high as 60 per cent (the entire power loom sector and textile ancillary industries such as hosiery, towels, bed-wear, ready made garments etc. are categorized as small and medium manufacturing enterprises). The growth in value addition in small and medium industries has been well maintained at 8 per cent over the last several years but the growth in large scale industry had fallen off to about 3 per cent and was even showing a negative growth in recent years. Thus the development potential in small and medium scale industries continues to be perceptibly high, which deserves suitable policy stimulus from the government.