The vital question is not "What SMEs have produced?" But, what they are capable to produce?


Department Of Commerce University of Karachi

Sep 19 - 25, 2005


This is the second article selected for the Inter-University Articles Contest by PAGE.

Pakistan has emerged as the second rapidly growing economy in Asia after China in 2004-05, as claimed by the government and well accepted by international raters and financial institutions. According to Economic Survey 2004-05 this increase in real GDP is the courtesy of robust performance of large-scale manufacturing and the services sector. Even though the large-scale manufacturing registered 15.4% growth but the Small and Medium Enterprises (SMEs) is the core issue in the country's progress and specially the prosperity of masses that are surviving with low scale income due to which Pakistan ranks 135th out of 174 countries on Human Development Index.

When we think about SMEs, we consider these as one person manufacturing enterprise but according to SMEDA, Small Enterprises should possess ten to thirty five employees with two to twenty million rupees capital intact in equity. Medium Enterprises should possess thirty six to ninety nine employees with twenty to forty million capital intact in equity. Here we have to see the role SMEs in the progress and well being of masses in Pakistan.

The assessment of the role of SMEs in Pakistan is of vital importance. Some times we have shinny figures and data regarding economy like GDP growth or per-capita income, but these are misleading because the earners of these massive growths are not the masses but the capitalists in the country. SMEs produce income for masses located in countryside and the capitalist associated with this activity is generally small or medium as the name suggests.

In Pakistan SME sector is not only the minor sharer till yet, reality is that Pakistan's whole economy is highly dependable on the pace and productivity of SMEs. Out of Pakistan's 3.2 million enterprises 95% are those who possess 99 employees in private industrial sector and employ about 78% of non-agriculture labor force. SMEs contribute 25% export of manufacturing goods and 30% of GDP is the out come of business efforts of SMEs.

The vital question is not "What SMEs have produced?" But, what they are capable to produce? The simple answer is if they produce on their full potential Pakistan would be a way ahead on economic racetrack of the world. They can produce billions of dollars worth items, that is why SMEDA is quite right in stating its mission as "Turning Potential into Profits".

Turning potential into profits gives us a more true and fair picture of the role of SMEs in Pakistan. Now we will see what potential we have and the threats associated with it and how we turn potential into profit by overcoming existing threats.

Firstly talked about is what the main potential we have to boost the progress and efficiency of SMEs. The real potential for SME growth in the country is the deprived people of the country who are quite keen to raise their standard of living. It simply means the future of SMEs is associated with the temptations of highly talented but deprived masses of Pakistan and their will to turn their dark days into glittering ones. But the real problem associated with their will & dreams is the finance and technical assistance. The financing concern have two issues: first is the availability of finance and second is the rate plus terms on which the finance is available.

Financing SMEs in heavy liquidity period for banks is not a burden but an opportunity because banks can utilize their liquidity by advancing finances to the SMEs. By advancing to SMEs they can earn two advantages. First, when they advance to many small and medium enterprises as compared to the large ones, their amount will be distributed to a number of clients that will increase the probability of recovery. Secondly, the contribution in national economic growth via utilizing their liquidity that is in excess due to great activity in economy in period after 1999 that will further expand the activity in banking sector.

Exploring a specific niche product is another way to boost SMEs sector. Niche is a unique product that we can produce at low cost with an absolute advantage. In Pakistan we are producing Niche from Wazirabad by producing surgical instruments and Sialkoat is there for sports good. SMEDA and other concerns like EPB have to come up to explore some more niche that is for sure available in this country of highly skillful workforce. In this capacity Prime Minister Program of One Village One Product is of high importance. Even we could not achieve economy of scale through this niche but the available glittering demand in international market can off set the cost burden and causes the inflow of foreign exchange.

The movement of masses from rural to urban areas is another hot slot of the time. While developing a well integrated SME sector in the country, it is a clear cut advantage that we can stop this mobilization that certainly hinder the urban problem and cut the urban development overheads and cost of maintaining masses of the big cities like Karachi. Even it will be a factual probability that through SMEs we can convert our villages into new towns and sources of revenues and progress.

Stock markets in the country are in deprivation of less numbers of listed companies; I think it is for the sake of well being of stock markets and SMEs that SMEs should be authorized to get listed in the shape of ventures of 3 to 5 SMEs on stocks on relatively smaller amount of capital that is how the SMEs could muster the very capital and while becoming a part of corporate culture can acquire the expertise of good management. In early stages the board of SME companies (as they would not be able to pay handsome amount to experts) should consists of experts of Federal, Provincial governments and specialized financial institutions and the small and medium entrepreneurs. Small and medium entrepreneurs should possess the majority share and the share of these other stakeholders restrict to support and nominal profitability that can be enhanced through more profitability of these concerns.

SMEs will be the main source of poverty reduction in Pakistan that will create the value and innovation for country in the days to come. The thing that really needs serious attention is to remove the unnecessary bureaucratic procedures. It is essential to make it possible that the opportunities for small entrepreneurs should not be wasted through excess processing of finance applications or other official terms. Assistance for SMEs is not enough; the government and specialized financial and technical institutions should stand as the partners of the small and medium entrepreneurs, this is the only way the financial institutions can recover their funds with yield, government could achieve its goal of poverty reduction and economic progress and above all the value creation process will continuously be tracked for poor masses of Pakistan so that they will not be poor any more.