Small and medium enterprises (SMEs) across the globe play a significant role in economic and social development of a country through entrepreneurship and employment generation.
Pakistan is no exception, where SMEs comprise nearly 90% of all enterprises and employ around 80% of the non-agricultural labour force. The share of SMEs in annual gross domestic product (GDP) is approximately 40% and they contribute almost 25% to total export earnings.
Moreover, small and medium-sized firms and businesses are more evenly spread across the country, thus, ensuring a more inclusive and equitable source of income generation.
The growth of SMEs is, therefore, a necessary condition for Pakistan to achieve above 6% growth target and to be able to create 1.3 million jobs annually to accommodate youth of the country, as outlined in the recent Human Development Report. Even with a significantly high contribution from the sector, most of the SMEs in Pakistan are structurally locked in a low productivity trap, largely dependent on labour-intensive factors of production with minimal use of innovation and in desperate need of technology upgrading to steer competitiveness.
SMEs in Pakistan have seen a stifled performance, the main factors hampering these enterprises include limited access to institutional finance, weak organisational structures, disincentive to grow, inadequate and expensive access to utilities, variable and unreliable quality of raw material available locally, little or no investment in technology and human resources development.
Provincial and federal governments have taken several initiatives to improve support drivers and legal framework for the sector. These broadly include provision of business development services, cluster development programmes and creation of credit bureaus to facilitate small firms in acquiring funds while reducing credit default risks for banks.
However, despite such measures, the SME sector in Pakistan is still performing much below its actual potential.
Notwithstanding the challenges faced by the sector, some exceptional industries have demonstrated resilience and registered exceptional growth. These include the sports goods industry, surgical instruments sector and hospitality industry.
The fact that Pakistan continues to be the official football supplier for the FIFA World Cup and is the production hub of quality surgical instruments supports this claim.
Performing enterprises in these sectors have been able to produce better quality products through a relatively more efficient use of inputs, better use of technology, employment of skilled labour and effective marketing. Business approaches and strategies adopted by such firms in a corrosive environment with potential for future growth can serve as blueprints for similar enterprises.
In 2002, there were 2.95 million industrial establishments and 589,241 manufacturing establishments in Pakistan. In contrast, in 1988 there were 2.02 million industrial establishments and 290,073 manufacturing establishments.
A comparison indicates that industrial establishments with less than 100 employees increased 55% over the period. Census data for 2017 is still not out, but a similar growth trend is expected, making the sector a key provider of youth employment.
Article Source: The Express Tribune