ECONOMY

 

SMEs - THE VEHICLE FOR ECONOMIC GROWTH

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An interview with CEO SMEDA

 

From: Khalid Butt, Lahore
July 25 - 31, 2005
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The first-ever SME policy, with the consensus of the four provinces, will be announced by the government by the end of this month.

Shahab Khawaja, Chief Executive Officer (CEO), Small and Medium Enterprises Development Authority (SMEDA), told PAGE that draft document had been prepared after extensive consultations with all the stakeholders of the four provinces.

A final workshop would soon be conducted in Islamabad for finalizing the detailed recommendations to be submitted to the federal Cabinet for its approval. He said that Federal Minister for Industries and Special Incentive, Jahangir Tareen, would chair the final workshop.

SMEDA chief said that seven priority sectors have been encompassed for the upcoming SME policy, including marble & granite, dairy, gem & jewelry, fisheries and surgical goods.

Shahab regretted that SME sector in Pakistan had not been able to realize its full potential and continued to suffer for a number of weaknesses, hampering their ability to take full advantage of the opening up of economy and the increasingly accessible world markets. He said that areas of constraints were normally identified as labor taxation, trade capacity, and finance and credit availability.

Talking about the document prepared for SME policy he said that a public-private partnership company, Pakistan Dairy had been created to finance the technology up-gradation by providing chillers, milking and fodder cutting machines at subsidized prices.

SMEDA chief said that Rs 2.5 billion company, Public-Private joint venture, would provide ways in developing 11,000 rural entrepreneurs till 2015. He said that the company would provide 50 per cent cost of the value addition instruments like chillers, milking machines and fodder cutters in the shape of grant while rest of the 50 per cent would be provided as an easy loan. He said that loan would be adjusted against the milk supplies from these entrepreneurs.

Shahab said that company was calculating the means and modes of working and those of intending dairy farmers but initially we would be considering only those farmers, who have 10 to 100 cows and buffaloes. He said that the government was also working for developing a standardized cotton-ginning sector, besides a small engineering sector would be developed to improve standard of ginning cotton in the country.

Talking about the new initiatives being floated in the policy, he said that a grant agreement with USAID for $10 million for setting up Enterprise Competitiveness Support Fund had been signed to provide a boost to this sector.

He said that complete cognizance of the issue had been taken in consultation with all the stakeholders, believing that SMEs in Pakistan could not grow without a paradigm policy shift. He said that implementing change was required in the formulation of a policy for SME development. He said that the SME Task Force had been constituted in January 2004 of the Ministry of Industries and Production, which was to define the basic elements of SME policy.

Shahab asserted that four working committees had been setup to carry out technical analyses and deliberate the findings on following core issues of business environment, creating favorable business environment for SME in Pakistan's economy and eliminating unnecessary obstacles enabling the SME Task Force work effectively.

Dispelling impression that the SMEs were producing increase in the non-performing loans (NPLs) of the banks and prone to default, SMEDA chief said the chances of default in small and medium entrepreneurs were less than large enterprises. Citing the examples of the role of SMEs in the development of Thailand and Japan, he said that the latter, the second major developed country of the world, had 52 per cent role of the SME sector.

INTERVIEW

Q: When you took over as CEO, SMEDA was in the process of restructuring and alignment. What strategy had you adopted for its reorganization?

SK: When I took over SMEDA in 2003, I found staff highly demotivated and demoralized. The then Minister for Industries and Production, Liaqat Ali Jatoi, was also not satisfied with the performance of this organization. The board of directors had also been endorsing the communal idea of SMEDA being detracted.

We started by reducing the top management size and injected new core of young qualified professionals in the organization.

Q: Is it right that SMEDA was at the verge of collapse when you took over it?

SK: Absolutely yes. As I said earlier SMEDA staff was completely demoralized. There was the kind of an atmosphere at SMEDA when the staff were apprehending its closure. I got this impression in my fist meeting with the staff. But all of us pledged to ourselves that day to give SMEDA a new vibrant life and resounding.

Q. What do you think as to why you were inducted in SMEDA at such a crucial stage?

S.K: I think the government wanted to experiment a public sector CEO after experiencing two chiefs from private sector. Since I had been coordinating with SMEDA right from the date of its creation as Secretary Livestock, Punjab, to evolve dairy strategy as dairy was on priority list of the sectors identified for SMEDA's intervention and I was selected for the slot among three other candidates.

SME development agenda is at the forefront of present economic policy pursuits. The government has clearly given the manuscript for developing the SME sector as a tool for employment generation and poverty alleviation. SMEDA has been recently repositioned to help realize the goal of making SMEs the vehicle of economic growth.

We are now more focused and committed to reach out for SMEs operating in neglected and deprived areas. Fourteen Regional Business Centers have been established and strategically located all over the country to serve this purpose. SMEDA is more responsive to SMEs' business development needs as well, particularly in the areas of human resource training, access to finance, market and product development, legal services and sector and cluster development.

Q: What do you say of the main constraints the SME sector is facing and what kind of strategy are you working on in this regard?

S.K: The growth of SMEs has mainly been hampered by the non-availability of credit in the past. SMEDA is endeavoring to become a model of public-private partnership for better facilitation of the Small & Medium Enterprises in Pakistan through the creation of a more equitable, transparent, and conducive regulatory environment for the businesspersons. I believe in synthesizing home-grown solutions to the problems of SMEs, based on global information and local wisdom achieved through cross-country analysis, experience of indigenous entrepreneurs and constraints of the government.

A need was felt for sometime to redefine SMEDA's long term role and its scope of activities. This area was completely uncharted in Pakistan, where national benchmarks did not exist, this making SMEDA a unique organizational experiment from the government. The task necessitated translation of knowledge into action through a well designed, effective SMEDA and efficient plan of approaching schemes and taking SMEDA's services to their doorsteps (cluster and chambers etc.). At this stage a fine tuning of SMEDA functions was done.

Realizing this constraint, the government has opened two specialized micro-credit banks - the SMF Bank and Khushali Bank (KB). In addition to this State Bank (SBP) has issued a separate set of SME-friendly Prudential Regulations with a view to encourage banks/DFIs to develop financing techniques and innovative products which cater to financial requirement of SMEs. The micro enterprise development initiatives by the provision of credit through banks are expected to spur economic activity mainly in the self-employed segment of the population. Over a period, this sector will transform into formal SME entity.

 

 

Q: What SMEDA is doing right now for providing business development services to SMEs?

S.K: SMEDA is working as a resource base for providing expertise, information, data and statistics necessary for SMEs related research and decision making, as well as to provide, arrange and facilitate support services necessary for SMEs. SMEDA was also responsible to initiate, take, continue, implement and perform any and all activities for encouraging and facilitating the growth and development of SMEs.

SMEDA has prepared pre-feasibility studies on 85 business ventures so far, and the number is increasing. The purpose of these documents is to provide key information of specific businesses to potential investors. Pre-feasibility studies not just facilitate in project identification but also briefly describe managerial, financial, technical, marketing and regulatory requirements of setting up that business.

Business Plan Development Service: Our business plans provide information and recommendations on key business areas including market size and growth projections, suitable management structure, technology and machinery selection, comprehensive financial analysis with projections and strategic business options. Business plan is exclusive for a client and is custom prepared to meet objectives of specific entrepreneurs. SMEDA charges fee for the service to screen out non serious SMEs.

Training and development training initiatives and programs are based on demands identified by stakeholders. An extensive Training Need Assessment (TNA) exercise is conducted regularly to assess specific training needs of various clusters. In order to keep track of changing industry needs and to improve the quality of contents delivered in these programs, an elaborate feedback and evaluation mechanism process is followed by involving relevant stakeholders.

Awareness workshops on various business related topics are conducted to enhance entrepreneurs' capabilities to handle their day to day business problems and optimize their potential.

Cluster Development Programs: Besides providing consultation to individual clients through helpdesk, outreach also caters to clusters of businesses under Cluster Development Programs. Identifying problems faced by a specific cluster and developing solutions to overcome those problems is a continuous process at SMEDA.

Common Facility Centers (CFCs): Common facility centers are established with an objective to provide at least one critical service to the cluster for improving overall performance of the sector. This service is not ordinarily available to SMEs for reasons including lack of funds, technical constraints and lack of trained HR. By making available CFCs it is expected that the SMEs within the cluster will benefit by increasing their production, improving quality of products and reducing their costs.

Lending Schemes: Financial institutions including commercial banks are assisted in designing and developing sector specific lending schemes with the objective to fulfill financial needs of the entire value chain within a sector.

Technological Up-gradation: Technology transfer and up-gradation is essential for SMEs to compete in the globalize economy. This intervention when adopted by one or two SMEs, due to its quality, cost-effectiveness and other benefits, spreads fast through demonstration effect leading to widespread economic development.

Donor coordination is the first point of contact in SMEDA for donor agencies and international organizations dealing with SME development. The main function of DC&IL is to design and develop SME projects. DC&IL have initiated projects with a number of donor agencies, such as World Bank, PVDB, USAID, ILO, UNIDO, JICA and KOICA.

2 .Industry Support Cell (ISC) was established in May 2004, to develop a counterpart team to JICA Senior Volunteers for providing support to industry and to ensure transfer of knowledge and expertise from Japanese experts to local professionals working in SMEDA

In order to keep track of all SMEs visiting SMEDA's Helpdesks, SMEDA has developed an in-house computer based program Helpdesk Database System. Development & Supervision of Helpdesk Services is an activity, which involves coordination with the regional helpdesks and generating monthly reports. This facilitates identification of the needs of SMEs for future interventions, such as development of new business plans, Pre-feasibilities, Over the Counter (OTC) products and training programs.

SMEDA training programs contribute significantly towards national agenda of human resource development, employment generation and economic growth. More than 22,000 SMEs have benefited from this exercise so far. These programs are fee-based to attract the quality participation and are conducted in collaboration with chambers/ associations /institutes/private and public sector. The objective of these training programs is to help SMEs in developing trained Human Resource that can contribute towards improving quality and productivity to achieve competitive edge in national and international markets.

Q: What are the current sectors SMEDA is working on?

SK: We have been closely working with the private sector for last six months in collaboration with USAID to evolve development strategies for the three potential sectors of SMEs; dairy, gem and jewelry and the marble and granite. Prime Minster had recently approved the development strategy for dairy sector.

"I am confident that the strategy would pave the way for economic revolution curbing poverty in the rural areas of Pakistan. I hope the action plan for marble and granite development will be announced by July this year," said Khawaja.

In its efforts to achieve quantitatively verifiable targets, SMEDA carries out comprehensive analyses of international trends, national policies and macroeconomic factors affecting SMEs in Pakistan for a gradual progress towards the creation of a favorable business environment for its key clients - the SMEs of Pakistan. Concurrently it interacts with the SMEs working in industrial sectors such as Agriculture, Fisheries, Textiles, Handloom Weaving, Transport, Leather, Marble & Granite, Carpets and Light Engineering.

 

 

This interaction takes place at the individual as well as at the level of chambers and associations to provide proactive and responsive financial, technical, management and marketing services to SMEs. For the provision of Business Development Services to SMEs, SMEDA has set up Helpdesks in all four of its regional offices where any SME in need of SMEDA's services can simply walk in and obtain over the counter products such as project briefs, pre-feasibility studies, regulatory procedures and advice on specific problems. End