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Role of SMEs and its benefits associated with ongoing business

Published on 29th Sep, Edition 39, 2014

 

In today’s times, small and medium enterprises (SMEs) are seen to be a universal solution to a majority of the problems being faced by the less-developed countries. Unemployment, lack of economic growth, and poverty are some of the problems, which are expected to be solved under this small scale sector. The faith in SME is constantly on the rise as the concept of manufacturing occurring anywhere is on the rise. This is because since production methods are now more flexible, manufacturing can occur anywhere and at any level.

The small and medium enterprises development authority of the country stated last month that SMEs are likely to have an important role in helping the nation achieve its objectives of a long-term and sustainable economic growth. The Director, Mr. Zulfikar Thaver stated while addressing the Pakistan SME Forum that the sector would help in generating employment for the people as well as help in increasing the level of national income.

Currently, the number of SME’s in Pakistan is estimated to be at 3.2 million while the sector contributes 30 percent to the gross domestic product of the country. The sector also has a 30 percent share in the exports of the country with a majority of their concentration in Punjab at 65.4 percent. Balochistan has the smallest share in the sector at 2.3 percent while Sindh and Khyber Pakhtunkhwa stand at 18 percent and 14.3 percent respectively. The sector is also responsible for employing more than 70 percent of the non-agricultural workforce in the nation.

Pakistan can take the example of China and its SME sector. The success of the sector in China has allowed different avenues to open up for the Chinese economy. Speaking at a seminar, the President of the Lahore Chamber of Commerce and Industry (LCCI), Sohail Lashari stated that China and Pakistan were at an advantage with regard to their strategic geographic location. The country’s are home to a large percentage of the world’s population and alongside it are also blessed with an abundance of natural resources.

The industrial output in China is contributed by the SME sector at 60 percent and the sector is also responsible for providing employment to 80 percent of the population. The Chinese government, therefore, has targeted the SME sector in order to achieve an annual average growth rate of 8 percent. The policies adopted by China have certainly allowed it to benefit greatly, which Pakistan can learn from and adopt similar policies to help transform the country as well.

 

He was also of the opinion that there is a strong need for private sector representatives of both countries to establish a link. Not only would this aid Pakistan, but by developing its own SME sector, Pakistan just may be able to find a long term economic solution to help drive economic growth as well as help in the alleviation of poverty by providing jobs to a larger number of people. The sector is known for providing low cost employment opportunities and would help the economy boost its exports and reduce poverty, which is things Pakistan can greatly take advantage of at this point in time.

Provincial ministers of the country namely Sher Ali Khan and Chaudhry Shafiq were of the opinion that efforts being made by the government of Punjab were helping foster the relationship between the two nations and which was pushing it to enter into this era of collaborating together. A number of Chinese companies have also begun to show interest in Pakistan with the aim of investing in the country in several of its sectors. With adequate efforts made by the government of Punjab, such collaboration can prove to be quite fruitful for the economy of the country. By investments coming into various sectors, not only would this enable manufacturing to occur and drive up economic growth, it would also open up avenues of employment for a number of individuals, benefiting particularly those who have been living in poverty. The reduction in poverty in Pakistan would turn out to be one of the better advantages gained through such efforts of both countries.

China is aware of the problems Pakistan faces at present and is willing to extend gestures to help the country come out of its difficulties. The involved parties went as far to discuss execution mechanisms and formed monitoring teams along with stakeholders to work together to help the economy of Pakistan become a sustainable one by 2017.

With the current energy crisis is still dominant in the country, the survival of SMEs in Pakistan and their viability becomes difficult. Apart from this factor, other challenges faced by the sector include difficulties in attaining financing, inflation, a lack of skills and the appropriate labor, outdated technology and no adequate skills pertaining to business practice. Having to deal with such challenges is not an easy task for a sector, which is already small in nature and has a high number of expectations and a number of goals whose achievement is likely to impact the economy of the nation greatly.

SMEs throughout the world have now become a greater source of economic growth for countries including Pakistan. As seen by the figures mentioned above, a significant amount of its contribution is seen in the GDP of the country and a number of benefits associated with the functioning of these enterprises helps give the economy a much needed boost. While challenges associated with their functioning are certainly difficult to manage and possibilities of these to become even more of a challenge are high, the benefits which SMEs bring to the country are still much higher than the effort that has to be put into their functioning. Helping with providing a large percentage of population with employment will not only help drive the economy but will also help reduce those living in poverty and eventually lead to the standard of living in the country to rise, albeit by a small percentage.

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