Small and Medium Enterprises (SMEs) are internationally playing a pivotal role in the development of national economies. Well over 95% business units comprise of SMEs. In Pakistan, such units having an annual turnover up to Rs 250 million and a maximum regular staff of 250 persons fall within this bracket of SMEs.
Considering their importance, the government of Pakistan set-up SME Bank, SME Leasing, Small and Medium Enterprises Development Authority (Smeda), etc, to help development of SMEs in the country. This is unfortunate that despite all these efforts of the government the SME sector could not properly develop.
There are various bottlenecks in the development of SMEs which are enumerated as under:
Very high input cost Very high bank interest rates ranging from 15-17 percent per annum, load of government taxes, substantially high power tariff, interrupted power supply, devaluation of currency, ever-increasing gasoline prices are the basic factors, which are hampering the development of SMEs in the country. It is obvious that if input cost of the product is high, it would not remain competitive in the local as well as international markets as a result development of SMEs will suffer badly. Just due to this reason a major portion of the very well established knitwear industry has shifted from Pakistan to Bangladesh.
Increase in smuggled goods Markets are flooded with smuggled goods particularly from China, which being cheaper have more demand in the country irrespective of their quality. Consequently, many factories particularly of shoes, tyres, electronic items, cosmetics, toiletries, etc, have either been closed down or fighting for their survival, what to say of their development?
Lack of awareness about capacity building When cost of production is ever increasing or is out of control as mentioned above, the capacity building remains the only option left to control the cost. But unfortunately this concept is not properly promoted. Consequently, the SMEs are not much aware of it. Otherwise, "Cost Accounting" can play an important role in controlling the cost by improving different systems of the company. Similarly, "Energy Audit" is another measure to control the cost by controlling wastage of energy. Training and development, market research, usage of specialised software etc, are other options, which can help in improving the overall performance of SMEs. Despite all these advantages, the concept of capacity building is not popular amongst SMEs.
There are two reasons for it:
i) SMEs are not aware of this concept, therefore, it needs to be promoted properly.
ii) Capacity building is an expensive affair, which SMEs cannot afford, therefore, they neglect it.
Lack of government's interest Though the government of Pakistan has taken a number of steps in the direction of development of SMEs in the country by setting up SME Bank, SME Leasing, Smeda, etc, but the results have not been encouraging. Until and unless the government addresses the basic problems of SMEs, the aforesaid measures taken by them will remain meaning less. If the interest rate remains high, power tariff is all-time high, gasoline prices are ever-increasing, what effective role can SME Bank/Leasing can play in this regard?
Clubbing of small, and medium enterprises together The size, interest and problems of both the sectors, viz. small and medium enterprises, are totally different. Medium enterprises (MEs) are comparatively better organised than SEs. MEs are technically better-equipped as they usually use imported machinery while SEs use crude technology. Sizes of both the sectors are totally different. MEs can afford to seek bank credit due to their available assets but SEs cannot (due to non-availability of assets).
Recommendations
i) For the development of SMEs, production cost must be controlled by reducing bank interest rate, power tariff rate, assuring regular supply of power etc.
ii) If the government cannot help in reducing the production cost, the concept of capacity building be promoted in SMEs which can help in controlling of production cost to a reasonable extent. The government should come forward to subsidise the expense in this regard.
iii) The government should take action against the smuggling of different items in the country, which is ruining the SMEs.
iv) As the size of business and problems of both the sectors viz. SEs and MEs are totally different, these be addressed separately for better results.
(The writer is former Managing Director of a joint venture financial institution and President of a micro finance bank)