In order to speed up ad sustain economic growth rate with emphasis on inclusive strategy rhetoric statements by successive governments for revamping Small scale and medium size industrial sector remained insignificant until now.
Despite deployment of 60% of labour force in SME sector, its contribution to county’s GDP hardly exceeds fifteen percent.
Globally also SMEs account for almost 85% of privately owned businesses and bulk of employment, but experience has shown that neglect of this sector by any country is bound to keep that country below its potential growth level.
The SME sector covers all types of businesses, but it is the common profile of service and manufacturing business concerns. Reason being the large scale manufacture sector is unable to cater to all demands of goods and services and depends largely on subcontracting arrangements with smaller business units.
Ensued trend of trade liberalisation in nineties and afterward being favoured move on the part of developed countries has increased the competition for SME sector in all the developing countries, particularly in Asian countries, and is bound to further widen the gap between rich and poor nations. Thus it is imperative for economic survival of Asian countries that they review their National economic policies on continuous basis. They must boost up their economic competitiveness, for which strength of indigenous SME sector is one of the most forceful parameters.
China is rapidly emerging as a powerful nation. The SME sector with ful backing of government has been the main contributing factor for excellent performance of economy and now China poses as economic giant for all super powers on the globe and its growth strategy towards SME sector is being replicated by all the developing nations.
In Pakistan large scale sector continues to assume the major role in economic development, whereas these small and medium size industrial entities have contributed towards making fair distribution of National income and creating employment opportunities by forging links between more organised sector in urban with rural sector. In a way this ensures employment of rural population in industrial sector.
Further the growth of country’s exports of value added goods, achieved in recent years is indebted to low cost and labour intensive products manufactured by SMEs. Direct and indirect contribution of of SMEs to total exports is almost 50 percent.
Since Pakistan’s economic growth has been almost stagnant at two to three percent for the last three years, all out efforts are needed to promote the SME sector. It is the hard reality that large scale manufacturing sector has totally failed to pass on benefits of industrial growth to the common man.
Pakistan’s SME sector is faced with innumerable problems relating to basic infrastructure, finance, marketing, non existence of business friendly economic policies of regulatory and legislative authorities and lack of information and advisory services etc.
Establishment of SMEDA and SME bank in the past (in 1998) have been good initiatives from side of the then government helping identifying viable business project to be undertaken and availing required finance. But still research findings of SMEDA are not within the reach of all those who want to venture into setting up small industrial units. The dissemination of information regarding latest technology remains inadequate for SME sector. Similarly the problem of lack of sound collaterals and guidance to prepare a bankable business plan has not been taken up by SME bank. Clean lending facility by commercial banks and leasing companies was raised to Rs10 Million for small industrial and commercial units having sale turn over Rs.600million and workers not exceeding 250. Initiative by Islamic banks operating in the country for launching ‘ASSAN’ financing scheme for SME sector is yet another promotional incentive for this sector.
Hiccup regarding Collateral based financing can be resolved by undertaking group guarantee system to facilitate borrowing by small industrial units from banking sector. The group guarantee can be arranged by forming a mutual guarantee association of 25 to 40 SMEs. They through mutual capital contribution can set up a mutual guarantee fund to provide cover to financing bank for individual borrowings of member SMEs. Another way of resolving collateral issue is the establishment of loan guarantee fund by the government exclusively or in partnership with private investors. In order to finance viable SMEs standby letter of credit can be established in favour of financing bank on strength of loan guarantee fund for each loan provided. For that’s reasonable fee can be charged on monthly or quarterly basis. This however will be over and above the mark up or any other charge imposed on loan account.
For sustainability, it is essential that SMEs’ sub contractual arrangements with large industries is further promoted as at present very few SMEs entities have contractual arrangements. This will enable SMEs to make use of equipment and ware houses of large scale enterprises and save their funds for fixed assets investment and reducing overheads. In this regard SMEDA can play an important role y disseminating findings of their research studies down the line in industrial sector.
The provision of efficient infrastructure is also essential for sustainability of this sector. It is specially uninterrupted supply of utilities and skilled labour which is to be ensured.
To enable Pakistan to get integrated into global economy, it is necessary that our SME sector which shares exports to the extent of about 50% must have all out focus on value addition and quality control of the exportable items. In this regard as reported in press Pakistan in collaboration with Alibaba-a technical giant of China in areas of manufacturers,suppliers,exporters, importer, buyers and whole sellers is going to provide AI solutions to SME sector in particular in partnership wit SMEDA.
Alibaba com delegation held detailed discussion with Pakistani authorities on all possible area of cooperation aimed at strengthening the country’s digital economy, accelerating industrial development particularly promotion of SME sector for expanding exports of goods and services globally. This proposed digital cooperation in area of SMEs is titled as ‘DigSME Pakistan’ and is being developed in partnership with Small and medium development authority. AI powered solutions developed by Alibaba.com are meant for improving operational efficiency of SMEs and to enable them to capture more global market opportunities more effectively. The said platform has introduced a trade assurance programme,which provides transactional safeguards by guaranteeing payments and deliveries in line with agreed contract.
From Alibaba’s platform structured training programs for the workers have been arranged in collaboration with 20 indigenous enterprises for enhancing SMEs digital selling capabilities,improving product adaptation for different international markets and also applying all global e-commerce best practices into local business operations.
In a recent meeting finance minister vehemently implored banking sector to come up for extending all financial support to SME sector for achieving sustainable growth rate through preferential financing for exporters, agriculture, manufacturing, construction and IT sectors. Through above said initiatives Pakistan will be strongly integrated into global economy and SME sector which shares 50% of country’s exports will have all out focus on value addition and quality control of exportable items.