Small and Medium Enterprises (SMEs) are known as the solution of economic progress, modernisation and the development of employment, employment potential, creation of income and scientific progression in both developed and developing countries, as they provide low cost employment, reduce poverty, contribute in economic growth and improve living standard. Pakistan is no exception to this having SME sector constituting 90 percent of all economic establishments.
According to the Census of Establishments conducted by the Pakistan Bureau of Statistics (PBS) there are about 3.2 million economic establishments in Pakistan. Out of these small and medium size enterprises (with employment base up to 99) constitute about 90% of all private enterprises employing approximately 78% of non-agriculture labor force. SMEs contribute over 30% to GDP, 25% in export earnings besides sharing 35% in manufacturing value addition.
SMEs in Pakistan are owned by the Private Sector and over 60% constitute family enterprises. This has been identified as one of the basic reasons for low-level of SMEs development, below potential production and value addition. SMEs are spread all over Pakistan with a significant concentration in Punjab (65.4%). The share of Balochistan in the country's SME sector happens to be the smallest (2.3%) while those of Sindh and KPK are 18% and 14.3%, respectively. While there is global consensus on the key role of SMEs, all stakeholders believe that lack of access to finance is a major obstacle in the sector's growth. SME sector in Pakistan is primarily a less formally organised sector; more than 96 percent businesses are owned and managed by an individual as a sole proprietary concern. While 2 percent are partnerships, there are hardly any corporate entities in the SME sector, implying that the inclusion of professional people in business management process is yet to be witnessed. SMEs in an ideal situation should serve as the breeding ground for future corporate sector but this really does not seem to be happening in Pakistan.
There are various problems faced by SMEs sector in Pakistan like; Low technology base, lack of access to finance, lack of market information, limited skill development opportunities, regulatory hurdles and low value addition are the major impediments in the SME sector's growth in Pakistan.
In small and developing economies like Pakistan SMEs usually operate on a very small scale, mostly in the informal economy, under poor working conditions and high job insecurity, due to the absence of social protection. On the exports front, our SMEs usually face the problems related to infrastructural weaknesses, innovation, compliances, and labelling, branding and technological backwardness. All these problems make our product uncompetitive in international markets.
Low level of spending on R&D which create problems like lacking in manufacturing of innovative, value added and competitive goods and products. Low level of investment in areas of training, infrastructure development for SMEs, which has caused backwardness in technological advancement. Inadequate supply chain Mechanism, which leads to increase in cost of production and cost of doing business.
The other difficulties include skilled labor, improper knowledge, Government interference, and availability of Raw Material at high cost, license for work etc, which have been identified as major hurdles in the promoting of SMEs. Keeping in line with the Government's stance on development of small and medium enterprises (SMEs), the Federation of Pakistan Chambers of Commerce and Industry (FPCCI); the apex body representing trade and industry of Pakistan has been participating in the development of the SMEs sector in various ways. FPCCI has recommends different policy measures to the Government for enhancement of the role and of share of SMEs in the economy. The FPCCI in collaboration with the Trade Development Authority of Pakistan (TDAP), SMEDA and other SME-driven initiatives assists its members in gaining insights into mainstream business activities with training modules with the aim to develop the export related potential of their businesses. The FPCCI also conducts regular meetings, where experts from different SME finance companies are invited in order to tackle the issues faced by SMEs. In the present era of globalisation, the responsibility of economic development has largely been shifted from Government to Corporate Sector, which has become more active players for promotion of SMEs in Pakistan.
SS-GATE Program
In the light of various studies and reports on the big differences in the development stages of North and South parts of the world, the United Nations Development Program (UNDP) had established a special unit - South- South Co-operation Unit. The South-South Co-operation Unit concluded that countries in South can't reach at the same level of development where countries of North have already arrived. After a detailed study it has been recommended that countries in South should promote and depend on their SME sector, because development of SMEs can directly reduce the poverty, unemployment and inequalities. It was found that countries in South can promote their economies, SMEs and the use of technology by their mutual co-operation as some countries have surplus capital and resources (like China) while the others are facing shortage of resources and capital. Some practical and feasible measures to promote their mutual co-operation have been recommended.
A new institution - South-South Global Assets and Technology Exchange (SS-GATE) was established at Shanghai Stock Exchange. The aim of this venture was to provide a global and sustainable South-South transaction platform that facilitates market-driven and transparent exchange of technology, assets, services and financial resources among private sector, public sector, and civil society for the inclusive growth of countries in the South. If an SME in the member countries requires the project financing or new technology or technology up gradation or equity partnership from the other countries in South. It will submit the details of projects to one of the 'Member' of the 'Participatory Organisation/Work Station (PO/ WS)'. 'Members' are the organisations, which have sufficient capacity and integrity to evaluate and help the SMEs in submitting the projects. Participatory Organisation (FPCCI) is a recognised and participatory work station/ PO for entire Pakistan and no other organisation now can become PO/WS from Pakistan according to Beijing Agreement) will be the sole authority to grant the license to serve as 'Member'. The UNDP guidelines suggested that the local chambers, trade associations and non-profit governmental agencies may be considered as members; however, the granting of membership licenses will be the discretion of the 'Participatory Organisation'. The member can charge reasonable service fee from the client (SMEs).
The name of FPCCI as a Participating Organisation from Pakistan was recommended by the Islamic Chamber of Commerce and Industry on the basis of its capability, integrity and sense of responsibility. It is extremely important for the country; the success in this project may change the entire economy. It will induce the technological advancement, inflow of foreign investment, developing and openness of the economic relations. It will provide an important platform to the FPCCI and enhance its status to lead and co-ordinate with the local chambers and trade associations. Due to its importance, FPCCI has established SSGATE/SMEs desk in FPCCI head officer Karachi and Regional Office Lahore. Thereafter, this desk will be established in Faisalabad, Sialkot, Peshawar, Quetta, Islamabad and other cities.
Beside other services, this desk is serving as working station; participatory office of the SSGATE. The aim of this venture is to provide a global and sustainable South-South transaction platform that facilitates market-driven and transparent exchange of technology, assets, services and financial resources among the Small and Medium Enterprises (SMEs) of developing countries. If a business which belongs to SME' sector requires the project financing or new technology or technology up gradation or equity partnership from the foreign partners/international financial institutions, it may submit the details of its business/ project and the required facilities to the SMEs Desk in FPCCI.
SMEs desk in FPCCI is responsible for collecting and screening proposals submitted by the project owners. After evaluation of the proposal this desk will determine the company's soundness and the completeness of its proposals. After positive recommendation by the FPCCI the SSGATE will finally review the recommended project and it will be transferred to the Shanghai Stock Exchange for listing on the exchange. After listing of the project on the exchange the process of bidding and offering will be started and after successful matching, the deal would be finalised. Both the parties (buyer and seller in case of technology transfer, lender and borrower in case of project financing, and the sponsors and incoming partner in case of equity rising) will pay one percent of the final deal as fee.
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