SME policy

The long awaited first-ever small and medium enterprises (SME) policy was finally launched by the government on 15th August, 2007. Speaking at a press conference, the Minister for Industries Production and Special Initiatives, Jahangir Khan Tareen, flanked by the Governor of State Bank and the Secretary for Industries, revealed its salient features, emphasising that the new policy aims to create globally competitive SMEs with a hassle-free business environment and to ensure provision of modern infrastructure and institutional support structure for access to resources and services.
The policy would be implemented in a period of eight years (2007-15) with an initial resource allocation of Rs 13.1 billion and it was expected to help develop SMEs through public-private partnership and create maximum job opportunities for poverty reduction, besides propelling country's exports.
An amount of Rs 7.7 billion was earmarked for access to finances, followed by Rs 5 billion as access to other resources and services - human resource development, technology market and industry information.
The implementation initiatives include establishment of a credit guarantee agency for SMEs with a fund of Rs 3 billion, an SME subcontracting exchange at a cost of Rs 26 million, an SME development institute by spending Rs 116 million, an SME export house costing Rs 157 million, and creation of an SME promotion council with a fund of Rs 144 million.
In order to ensure proper implementation of the policy, a permanent mechanism of monitoring has also been envisaged in the form of national committee on SMEs, along with four provincial committees on SMEs. The government would take measures for promoting women entrepreneurship, cluster development and also focus on neglected and untapped sectors of the economy.
Credit information centres would also be established across the country along with a data development bank to facilitate the SME sector. Besides, a workshop in every city of the country would be organised to inform people about the importance of SME for their own benefit and the betterment of the country.
The State Bank Governor told the press conference that there was no limit on private sector credit as opposed to the target oriented credits to the SME sector in the 1970s.
A consultative committee, including the presidents of the banks, had now been constituted to facilitate the SME sector. Jahangir Tareen hoped that the new SME policy would decrease the density of regulations, thereby reducing the cost of doing business.
The main thrust of new SME policy, in our view, is in the right direction to a large extent, and reflects the increasing emphasis of the present government to develop the country through this route. There is absolutely no doubt that a robust and sustained development of SME sector could play a central role in utilising indigenous resources of the country for fostering economic development, creating more opportunities for absorbing the growing workforce and reducing poverty.
The role of a proper SME policy is all the more important in a country like Pakistan where there is abundance of labour and shortage of capital, and above all, indications of a mounting tension between the rich and the poor because of widening income disparities.
However, certain inherent weaknesses of the SMEs continue to be obstacles in the way of their proper growth in the country. As opposed to larger firms, they cannot influence government policy in their favour and usually have to bear disproportional costs of regulations.
They also cannot afford costly support services and lack the ability to access and analyse information on a timely basis. The government had already established SMEDA and SME bank to cater for the needs of SMEs, and the new policy is likely to enhance their role in economic development of the country and reduce unemployment which is a source of many evils in the society.
While the new policy is designed to create an enabling environment for rapid growth of the SMEs, it does not mean that the desired goals of such a strategy would be achieved automatically. For this to happen, the government has to provide the necessary infrastructure and other facilities and remove the constraints presently faced by all kinds of industries including the large-scale enterprises.
For instance, critical power shortages and lack of civic facilities almost all over the country often disrupt production processes and increase costs which the industries can ill-afford in a fiercely competitive international market. Representatives of industrial associations in Karachi, for example, have estimated that 50-60 percent of the city's 2500 industrial units have installed standby diesel generators which have increased the cost of power by about 30 percent.
Added to this is the loss associated with daily traffic jams caused by digging of roads everywhere and the very poor law and order situation in the city. The situation in other cities is also not very different.
Though corruption and harassment is endemic in the whole system, the SMEs are more prone to victimisation due to their lack of clout and connections in right quarters. Some of the private sector representatives have also been showing concern over the definition of SMEs, labour laws and the procedure adopted by the Federal and provincial governments for collecting labour levies from SMEs.
We believe that the budding entrepreneurs in the SME sector can be a great source of strength for the economy and easily fend for themselves and flourish provided the government could remove the hurdles and bottlenecks created over many years of neglect and inaction and force the bureaucracy to be helpful rather than a hindrance in the running of business. Otherwise, the present policy of the government, like many initiatives of the past, would prove to be long on promises but short on performance.