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SMEDA's new strategy

All laws, regulations and rules will be reviewed

Feb 26 - Mar 04, 2001

The Small and Medium Enterprises Authority (SMEDA) is planning to take two major initiatives which will have far reaching effect on the industrial development in the country specially the small and medium scale industry.

The SMEDA has asked the government to carry out a census of small and medium size business establishments in the country through the Federal Bureau of Statistics. According to the criterion worked out by SMEDA, all those business enterprises having 10 to 40 employees and having productive assets (excluding land and building) worth Rs 2 to Rs 20 million are small business establishments. Those having more than 40 employees upto 99 with productive assets worth over Rs 40 million have been classified as medium size business establishments.

Another major initiative being taken by the SMEDA next month is to launch a regulatory mapping exercise in coordination with two experts from the International Labour Organization (ILO) to review the entire set of laws, rules, regulations and SROs at the federal, provincial and local levels that govern business operations. According to a source "these laws and regulations, may be in hundreds or even more, may date back more than 60 and 70 years, and these either need to be updated or scrapped altogether". Many of these laws and rules are unrealistic, outdated and obsolete, but under these laws and rules, the government agencies functioning at various levels enjoy immense powers and small and medium business enterprises are literally hostage in the hands of government functionaries.

One reason why the small and medium business establishments prefer to operate in the informal sector is their unending harassment at the hands of the government functionaries, such as labour inspectors, excise officials, municipal functionaries and a host of others.

"All laws, regulations and rules that govern fiscal and taxations, labour management, credit policies, utilities, registration provisions and maintenance of the premises will be reviewed", he disclosed. The idea of the exercise is to remove the anomalies created by the uniformity of these laws and regulation under which the government agencies treat big and small business establishments.

Small industries remained totally neglected during the last decade despite official acknowledgment of the importance of this sector in the economic growth of the country. Although the provincial small industries corporations remained starved of resources, the deposed government of Nawaz Sharif established Small and Medium Enterprises Development Authority in late 1998 with great fanfare and pledged to provide Rs. 250 billion for Small and Medium Enterprises (SMEs) in three years. But there had practically been no investment in the small and cottage industries since the establishment of SMEDA. In the medium enterprise sector, the authority did chalk out an excellent scheme for the fisheries sector only. Its national transport scheme fizzled out and it failed to present viable schemes for the dairy, gems and jewellery and marble sectors.

The present government has, however, reactivated SMEDA as a policy to focus on small and medium scale enterprises in the private sector. The authority is making a two pronged approach to achieve its objectives. It is acting as a lobbyist for the hitherto neglected small and medium size business and also helping the government by trying to bring these establishments within the documented economy sector.

The present government's emphasis on development of small and 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 told newsmen in Islamabad recently 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 March 2001, he said. Giving details of the scheme, 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.

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 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 60 to a dollar will be enormous burden for sponsors to bear.

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 categorised 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.