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Can Government of Pakistan Lay a Pivotal Role in this Sector?
In the recent past SMEDA stands out as a significant step towards Govt of Pakistan commitment to SME development. Created as an autonomous institution with private sector led governance structure, SMEDA promises to become an important institution spearheading Government’s SME development efforts. However, in absence of a coherent SME development policy framework it is unrealistic to expect a single organization such as SMEDA, to be able to implement aggressive SME development initiatives because:
- Issues to be addressed for SME development fall within the purview of a large number of Ministries and Departments at the Federal, Provincial and Local government levels. SMEDA has no institutional jurisdiction or linkage with such institutions; and
- SMEDA has limited budget and manpower, posing restrictions on its
capacity to launch capital intensive initiatives and extend its outreach Thus to
provide a coherent policy mechanism, there is a need to develop a
comprehensive SME Policy for Pakistan that defines the role of concerned public sector institutions. Such a Policy framework will provide the required direction and focus for achieving SME led economic growth resulting in job creation and reduction in poverty. Private sector growth in SME sector (as opposed to the large scale manufacturing) will result in lesser investments per job created, wider geographic and social spread of investments and better income distribution.
SME Policy & Their Objectives
The objective of SME Policy is to provide a short and a medium to long- term policy framework with an implementation mechanism for achieving higher economic growth based on SME led private sector development.
The SME Policy suggests concurrent and specific policy measures in all possible areas of SME development:
- Business environment
- Access to finance
- Human resource development
- Support for technology up gradation and marketing
A single SME definition is recommended to be applicable to all institutions countrywide to allow uniformity in designing support systems and incentives and also to monitor progress.
The SME Policy also contains an implementation and adjustment mechanism that identifies the following:
- Implementation and monitoring mechanism
- Capacity building requirements of the public institutions
- Resource allocation and potential sources of funding
- Linkages with other initiatives and public sector reform processes (Social Sector Reforms)
- Self contained framework for ongoing feedback and adjustment
- Role of various public and private sector players at Federal, Provincial and Local levels
- The Policy finds it appropriate to highlight the key principles on which i t is being based. They are:
- The recommendations proposed in the SME Policy may be implemented / supported through an SME Act 2006
- The SME Policy covers measures for promotion of ‘Entrepreneurship Culture’ and support for growth of existing enterprises
- The SME Policy realizes the different approaches required for supporting
- Small Enterprises as opposed to Medium Enterprises. Thus, wherever required, separate policy measures are proposed for small and for medium enterprise growth
- Women and other marginalized groups are proposed to receive special focus within the SME Policy.
- Rural based and agro processing enterprises are proposed to receive special attention while devising specific support mechanisms
- SME development offers most viable option for private sector led growth that reduces poverty and creates a large number of jobs all across Pakistan.
- SME development must be at the center stage of all economic growth policies of Pakistan
- SME development in Pakistan will require decisive and concurrent measures in a number of policy areas such as business regulations, fiscal, trade rules, labor, incentives and support (Human Resource Development, Technology, Marketing, etc.) leading to an ‘SME Space’ in these domains.
- Sues face inherent disadvantages (because of their size) vis-à-vis large firms, which need to be offset by government support mechanisms and incentives
- Effective implementation of the Policy framework will require ownership, commitment and monitoring at highest level of the Government
- SME development requires provision of level playing field for smaller firms’ vis-à-vis large enterprises.
- Private sector will be encouraged to play a key role in implementation of the SME Policy including mobilization of capital and operational responsibility for implementing policy measures suggested in this document.
- Financial support to enterprises will be, wherever possible, at a collective level, and will essentially require resource commitment on behalf of the beneficiaries.
- Pakistan does not have a single definition of Small and Medium Enterprises. Various Government agencies, e.g., State Bank of Pakistan (SBP), Federal Bureau of Statistics (FBS), Provincial Labor Depts., etc. use their own definition. Absence of a single SME definition makes it difficult to identify target firms, align development programs, collect data and monitor progress.
Business Environment
The fiscal, labor and enterprise regulations of the Federal and Provincial
Governments in Pakistan do not provide for a focus on SMEs that is in line with
their specific needs. Generally the fiscal regulations divide enterprises by income
levels and labor related regulations realize only two forms of enterprises, small and
large, thus, not providing laws and implementation mechanisms that are sensitive to
SME needs. Largely, the support and grievance redressal regime of the Government
does not differentiate between enterprises on the basis of their size thus making i t
difficult for SMEs to access public support programs and attention of public
authorities when competing for i t with the large firms. This dilutes the ability of
SMEs to effectively compete with large firms.
Access to Finance & Related Services
Now banks provide for only 7-8% of the total funding requirement of SMEs. Also,
as per a study by researches on ‘Barriers to SME Growth in Pakistan: an Analysis
of Constraints ’, access to finance, was identified by SMEs, as the single most
important impediment to growth. This problem increases in magnitude with
reduction in size and experience of the firm. With the promulgation of the Prudential
Regulations for SME Financing by SBP, the basic regulatory framework for
promoting SMEs’ access to formal financing has been provided. However, increased
SME access to financing will require interventions in all three areas of SME
financing, i.e., demand side (SMEs), supply side (Banks) and intermediaries and
regulators (SBP, SMEDA, etc)
Supporting Human Resource Development Technology Up- gradation & Marketing
- Need Assessment Survey to identify major SME needs in HRD, technology up gradation and marketing.
- Establishment of Institutes of Small and Medium Enterprise &
- Entrepreneurship Development in select business schools.
- Capacity building and up-gradation (curriculum redesign, provision of equipment, teachers training, SME liaison, etc.) of selected sector specific technical training institutes serving in major SME clusters and establishment of such institutes where none exist.
- Encouraging use of the technical t raining infrastructure by the private sector BDSPs serving SME sector and incentives for investment in setting up SME training facilities Induction of genuine SME representatives in private sector boards of the technical training institutes.
Entrepreneurship Development
Pakistan is a society of ‘employees’. The education and social system does not
encourage entrepreneurship as a preferred career option amongst the youth.
Entrepreneurship is usually undertaken by those belonging to the existing business
families. As a result the economy witnesses a small number of new enterprises being
created and that too in traditional areas of business overcrowding the supply/product
base and their markets. On the other hand, there are no limitations in the
entrepreneurial capabilities in the populace. If, this entrepreneurial potential can be
unleashed, by providing level playing field, information, awareness and support in establishing enterprises, Pakistan can witness fast paced growth in establishment of
new enterprises creating new employment opportunities, improving distribution of
wealth and exploiting the opportunities offered by international markets in the
liberalized WTO regime. The past Government programs to encourage
entrepreneurship were limited and not too comprehensively designed and thus
achieved little in promoting entrepreneurship amongst the educated Pakistani youth.
There is a need for Govt. to actively promote entrepreneurship through changes in
education curricula, by creating awareness amongst youth and by providing effective
support to those who wish to establish new enterprises.
SME Policy Ownership and Implementation
A large number of Government Ministries and organizations (in addition to the private sector) will have to play their role in removing impediments and providing support for SME growth. Therefore, it is imperative that the SME Policy is approved by the Prime Minister and endorsed by all Provincial Governments. Such support coupled with clear definition of responsibilities of various Government institutions will provide the required policy vehicle for promoting SME led economic growth in Pakistan.
SME Policy Investment & Expected Impact
The SME Policy also presents the estimates of public and private sector investments for implementation of the policy recommendations and envisages benefits in terms of enterprise growth, job creation and poverty reduction.
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