SMEs are termed as an engine of economic growth in both developed and developing countries. These enterprises provide low cost employment since their unit labour cost is lower than in large-sized units. SMEs assist in regional and local development and accelerate rural industrialization by creating a link with the more organized urban sector. Such units achieve fair and equitable distribution of wealth by regional dispersion of economic activities and contribute significantly to export revenues. SMEs are known to have a positive effect on the trade balance since they generally use indigenous raw materials. Such enterprises also assist in fostering a self-help and entrepreneurial culture by bringing together skills and capital through various lending and skill enhancement schemes. They have the resilience to withstand economic upheavals and maintain a reasonable growth rate since being indigenous is the key to sustainability and self-sufficiency.
The Pakistani economy has amazing potential for development but, unfortunately, it has not succeeded in deriving benefits in this regard despite a series of efforts launched by various policy-makers at different times. Many large industrial units have failed due to economic slumps, institutional malpractices, political motives and damaging activities of labour unions. This has also discouraged the formal lending institutions to support these large units having sick portfolios. The consequent insufficient and low quality production has, therefore failed to meet the demands of local and international markets leading to a deficit in balance of payments, further contributing to the unemployment rate.
It is true that SMEs cannot match the output of larger manufacturing units but this can be offset through specialization achieved by the small and medium sized manufacturing units. Countries like Taiwan, Japan and Korea have provided a success model through their small and medium manufacturing enterprises. Those who believe that only large firms are responsible for economic growth need to bear in mind that it is the small vendors and suppliers who contribute heavily to the production of large units. Pakistan’s indigenous automobile sector is a good example. The progress and prosperity that is driven by SMEs at the lower level benefits all tiers of industry
It was about 12 years back that the Government of Pakistan established the Small and Medium Enterprises Development Authority (SMEDA) with a view to developing industry at the lower level. As defined by the State Bank of Pakistan, a small or medium enterprise is an entity which does not employ more than 250 persons (if it is a manufacturing concern) and 50 (if it is a trading/service concern). It is clear, however, that despite all the benefits offered by SMEs, this important sector is being neglected in Pakistan, creating a major gap in the economy.
SMEDA has also had in place an Industry Support Programme since 2004 with the objective of transferring technical expertise to industry through involvement of international experts. Collaborations have been established with various international organizations like Japan International Cooperation Agency (JICA), German International Cooperation (GIZ), United Nations Industrial Development Organization (UNIDO) and World Bank for its various initiatives. But it is obvious that the fruits of such facilitation are not visible. It is high time that, in the face of a weakening economy, policymakers formulated achievable strategies in this regard. This can be done by building and developing SMEs so that the manufacturing base can be reinforced and more employment opportunities created.