SMEs Astonishing Contribution towards Pakistan’sEconomic Growth

By: Bibi Pari Gul and Alina Izat -SZABIST University Islamabad

In Pakistan, Small and Medium Enterprises plays important role in shaping national growth strategies, employmentgeneration and social cohesion by improving standard of living of vulnerable segments of economy.

SMEs accounts 3.3 million businessenterprises in Pakistan and have 35 per cent share and it has the potential to contribute considerably more than their current share ofabout $86 billion towards GDP.

According to 2018 report, SMEs are contributing 30 per cent to GDP, 25 per cent to exports and 78 per cent to industrialemployment that showed their important role in the economic development of the Pakistan.

SMEs contribute towards development in multiple ways; creating employment for an expanding labor force, providing flexibility and innovation in the economy, enhancing exports and contributing to increased value addition in GDP. As it employed nearly 78% of the non-agriculture labor force,25% of exports of manufactured goods besides sharing 35% in manufacturing value added.

Small and Medium Enterprise Development Authority (SMEDA) define small enterprise as company containing 10-35 Employees or Productive assets of Rs 2-20 million and medium enterprise as company containing 36-99 Employees or Productive assets of Rs. 20-40 million.

Recently, State Bank of Pakistan (SBP) has urged all the banks to provide their input to devise an action plan for thepolicy of promotions of SMEs. After SBPinvolvement, strong institutions are a pre-requisite for an efficient SMEs sector which also encompasses a strong network of industries which could provide the necessary support to the SME’s making it easy for them to achieve financial ease and competitiveness.

A strong SMEs sector will also make the indigenization process smooth which would eliminate the need of expensive imports in the long run and boost the economy. Moreover, SBP has also set a goal of augmenting the financial inclusion of SMEs to enable the sector witness considerable growth and development.

In 2005, Pakistan signed an agreement with USAID, Pakistan Initiative for Strategic Development (PISDAC) to develop strategy for a few priority sectors in Pakistan. SMEDA being the official counterpart on behalf of Government of Pakistan facilitated the process and the strategy level process was primarily led through private sector engagement in the form of Strategy working Group (SWOG).

The sector development process resulted in creation of five sector development companies; Pakistan Stone Development Company (PASDEC), Furniture Development Company, Pakistan Gems and Jewelry Development Company (PGJDC), Pakistan Dairy Development Company (PDDC), Pakistan Hunting & Sporting Arms Development Company.

Despite the improvement of legislation and general operational environment for business activity in Pakistan, the SME sector still faces difficulties in a number of areas, like access to finance, low level technology, unskilled labor, low level technology, lack of automation of the system, market constraints, etc. which negatively influence their competitiveness

For creation of conducive and SME-oriented regulatory, there is need for development of new policies and regulatory frameworks that directly promote SME sector growth andcompetitiveness. Pakistan government should focus on developing polices and removing constraints for SMEs so this sector could be able to provide better result and boost the economic growth of Pakistan.