Small business is a term used to refer to any investment that households make in establishing a venture, to generate sufficient revenue for themselves. The choice of these ventures most of the time depends on the capability of an entrepreneur in terms of art, craft, skill or talent.
Usually lower and lower-middle classes take such initiatives. Though done on purely economic terms and for financial means, small businesses become a cause for economic emancipation of not only the businessman but of many who work for him in return for wages. Other benefits garnered through such ventures extend even further, to include economic productivity at vendor level, to create healthy competition, to develop craftsmanship, and to drive innovation.
If we look at the figures of contribution that small businesses have made to giant economies, we find that America’s gross national product has 39 per cent of its share coming from small and medium enterprises. China is attaining almost 60 per cent of its GDP growth through small businesses.
On the flip side, even in countries like Bangladesh, SMEs are contributing 25 per cent to the country’s total GDP. Small businesses, being the backbone of economic development have always been the darling of government’s economic policy initiatives. Every successful country has focused largely on developing its small business sector to eventually emerge as an industrialised nation.
The primary reason for this emphasis has been the ability of SMEs to create employment. Government or large scale manufacturers cannot generate jobs to cover the sprawling population of any given country. Small and medium enterprises always take position at this front. In Japan, the company Toyota employs fewer employees than its vendors engaged in small businesses.
Government support
to small businesses
In order to support small industries, governments usually employ two approaches for their sustainability. As part of the first approach, governments alter impediments regulating specific business activity. The objective is to diminish, hold minimal or eliminate barriers to entry or growth. This is achieved by either doing away with the regulatory system, by restructuring it to fit to the characteristics of a firm such as its size or capital or by making the regulatory system efficient across the board by lessening the administrative burden associated with regulations. In the second approach, governments offer public provision of assistance, also known as support programme or sometimes termed as an economic development programme. These approaches are facilitated through institutions dedicated to developing and sustaining small and medium enterprises. In Pakistan, we have Small and Medium Enterprises Development Authority, commonly known by its acronym SMEDA, working at federal level while on the regional level, the Punjab Small Industries Corporation PSIC is working to facilitate small businesses in the province. According to the Economic Survey of Pakistan 2010-11, contribution of SMEs in the GDP has been calculated at 40 per cent. Interestingly, the GDP growth in totality staggered at 2.5 per cent. In order to get a realistic view of the scenario in the SMEs sector and to verify the government’s claim, I chose to visit PSIC personally.
On my visit to Punjab Small Industries Cooperation, I encountered a rather robust team full of ideas and projects to work on, however when my discussion unwrapped with PSIC Managing Director Farhan Aziz Khawaja, I repeatedly found myself in a blind alley. He had no promising figures to support the output of the institution. He was unaware about the marketing abilities of the institution under his command. They had no big success story to narrate as far as growth opportunities or business development is concerned on a national level. Though they have the CNG rikshaw and electrical tandoor programmes to boast about, other than that, every other economic activity, though large and wide in concept and ideology lacked the spark and vitality, due to diminishing priority intervention at government level. “We are working to our capacity for deliverance to small industries, but there is a limit for us to perform, and that limit is defined by funds allocated to us. It seems that development of SMEs has never been on the priority list for any government in Pakistan. If you look at global trends, the world has shifted from an industrial management economy to a knowledge based economy. However, we are still grappling with a knowledge deficit problem. Our human resource is still not equipped to take on the challenges of globalisation. We are surviving on the margins, where lack of skilled labour, trained entrepreneurs and unavailability of marketing personnel has trivialised the small and medium businesses issue. For any improvement to happen on the small and medium business front, we first need to work on human resource development and on creating marketing linkages abroad. Our emphasis should be on building entrepreneurial qualities in a businessman, so that he becomes a learned individual, carrying a sense of documentation and philosophy of economics to market his business. Government should define and develop association with international marketing organisations for the promotion and development of local products, for example in the wood industry we can look at different marketing firms dealing in wood internationally. Through these platforms our products would get conspicuous and find a place for themselves internationally,” said Farhan Aziz Khwaja.
Misplaced priorities
of the government
Punjab Small industry Cooperation was developed in 1972 to assist small business development across Punjab. Its mandate is to provide infrastructural, technical and financial assistance to people seeking small business ventures. Until 1990, it had provided fully funded support to small businesses, with its assistance ranging from land acquisition to the setting up of the entire business environment. However, in 1990, realising that the Pakistani entrepreneur has achieved enough financial maturity, where his relationship with the government could be built on equal financial parity; the government stopped supporting fully financed project schemes. Henceforth, the role of PSIC was restricted to providing infrastructural, technological and market driven credit to its consumers. Under this scheme of things, various credit schemes, industrial estates, Cluster Development Centres, Handicrafts Development Centers (HDC) & handicraft shops have been developed. In spite of all these economic activities, no real gain could be seen emerging for the common man. Talking to Dr. Salman Shah, former Finance Minister of Pakistan, about the reasons for unattainable goals of PICS or SMEDA, he lamented over the situation by saying that, “The benefit of small businesses could be gauged from the fact that a country like Brazil is spending $7 per capita on its intermediary institutions looking after the welfare and development of SMEs. Alternatively, the seriousness of Pakistan’s government about the development of SMEs could be seen from the fact that it is spending one cent per capita on Small and Medium Enterprises Development Authority and Punjab Small industrial Cooperation. Under such a situation, how could we think of developing SMEs? The worrying part is that 99 per cent of our manufacturing sector consists not only of medium but small industries as well; they are in dire need of support. They need technological support to improve and enhance production. They require assistance on the marketing front. They need backing in areas of training and skill development for their workers and managers. They need easy access to financial markets. They need administrative support in different areas to deal with petty financial or managerial issues. And last but not least they need easy access to institutions such as the Punjab Small Industries Cooperation and SMEDA. If we look at Brazil, they have opened up branches of SME institutions even in villages, while in Pakistan the representation of SMEDA is found either in provincial capital or a few other business cities. The same is the case with the Punjab Small Industries Corporation, which has a representation in only 7 regions of Punjab, without any real presence at district level. Using another example from Brazil, it is notable to mention that their SME organisations have inducted 9000 consultants to provide advisory services to small businesses at their door step. SMEDA and PSIC have miniscule facilities for consultancy at their disposal. At times, they do call some consultants from abroad, but the output has never been promising because of paucity of funds. Unless we stretch our resources to the level provides assistance to our SMEs in areas I have just enumerated, no development worth the salt can be expected. Resultantly the engine for our economic growth, SMEs, which are also responsible for generating employment at a larger scale, would remain unproductive and partially disabled.”
SMEs amidst energy crisis
Though government has painted a rosy picture about SMEs, the truth is that they are nothing more than dead moles on the body of Pakistan’s economy. Sans gas, electricity and alternative power generation facilities, industries have been shut down in huge numbers. In this situation, if the government claims to have taken SMEs to a new height, it is either done on paper or in the dream industry that our leaders often talk about in their Utopian mood. To Big Bird Hatchery Managing Director Abdul Basit, the government’s decision to levy tax on all types of machinery is an open contradiction to its desire of developing small and medium industry in Pakistan.
One of the best articles on the barriers to growth in Pakistani SMEs…………
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