Pakistan- Small and Medium Enterprises hit hard by COVID-19 pandemic
SMEs contribute 40% to GDP and has 35% share in exports earnings
The COVID
-19 pandemic has hit the businesses globally. But small businesses suffered the
most as the result of lockdowns and restrictions imposed to control the spread
of coronavirus infections. The small businesses and enterprises are looking
towards the governments to provide much needed support and assistance for their
survival in difficult times.
SME sector
is also hit hard in Pakistan. SMEs play a
vital role in the development of an economy. The contribution of Pakistani SMEs
is less as compared to other countries, yet their significance cannot be
denied. The SME sector is facing multifarious problems that made it difficult
to contribute to the nation ‘s GDP. Pakistani SME sector is facing critical
issues of financial, human, physical and technological.
There has been gross decline in their sales and profitability in recent months,
which has caused deterioration in business conditions; some SMEs going out of
business and others facing numerous problems. The crisis continues as the
second wave of the Coronavirus pandemic has endangered the sustainability of
these enterprises. Lockdowns are imminent.
SMEs in
Pakistan play a critical role in the economic growth, progression of
technological innovation, sourcing to large industries, cottage industries and
promoting economic renewal and social development. SMEs are one of the main
sources to reduce poverty, expand national economy. It can be the foundation of
employment and social uplifting. Pakistan’s economy, like that of many
developing countries is a direct reflection of its SME sector.
SME sector
represents 25% of exports of manufactured goods and 35% in manufacturing value
added. Almost 53% of all SME activity is in retail trade, wholesale,
restaurants and the hotel sector. As regarded 20% of SME activity is in
industrial establishments and 22 % in service provision.
41% of these industrial units are in urban
areas and 59% are set in rural areas.
Today, SMEs sector in Pakistan is providing
80% employment to the non-agriculture labor and contributes 40% in GDP while
the share of SMEs in Global GDP is 55%. The growth of small and medium sector
is 8% in manufacturing sector, 10% in exports and 10% in service sector which
need to be enhanced.
SMEDA and
SME bank should establish special clusters like Women shawls, motor pumps and
manufacturing of fans so youth can establish small and medium industries and
earn their livelihoods rather than running from pillar to post looking for a
job.
Since the
establishment of SMEs Pakistani Government is neglecting their importance and
not facilitating them to handle crisis. However, there is tremendous potential
in Pakistani SMEs that can be tapped. Therefore, this require a genuine support
of government, private and public officials to facilitate the new definition of
SMEs as its predicted to be immensely productive.
However,
unlike large enterprises in the formal sector, a small and medium enterprise is
constrained by financial and other resources. This inherent characteristic of
an SME makes it imperative that there should be a mechanism through which it
may get support in different functions of business including technical
upgradation, marketing, financial and human resource training &
development.
Small and
Medium Enterprises (SMEs) play a major role in driving the economy of a
country. Their role in terms of contribution to exports, production, and
employment is quite substantial too. How extensive their part in economic
development is can vary from one country to another. Pakistan, being a
developing country, owes a significant chunk of its GDP to SMEs.
These
include manufacturing units, service providers, and startups operating on
various levels. The part that they play in the economy is elaborate but the
attention paid to them is negligible in comparison.
The sector’s
low access to credit due to unavailability of tailored financing solutions from
banks, requirement for adequate collateral, and lack of documentation and poor
cash flow management on the SME are the major issues faced by SME sector.
Without
relevant information, credit risk assessment can’t be performed effectively
which leads to banks ultimately refusing to finance them.
This leads
to a number of barriers being placed which include high lending rates,
collateral guarantees, and complicated procedures for acquiring loans and other
services from leading banks.
The long
list of businesses includes textiles, leather, plastic, sports goods,
handicraft, IT, construction, materials, consumer goods, horticulture,
fisheries, gems, healthcare, agricultural produce, and energy.
The SMEs are
vulnerable to financial strains, increased cost of production, supply chain
disruption, and drastic decrease in demand, due to limited financial resources
and weaker access to financing and management.
It is ironical
that the SME Policy, which was formulated almost a year back, has not yet been
announced. Also, the Small and Medium Enterprises Development Authority
(SMEDA), currently almost dormant, should be made an effective and proactive
organisation. Sadly, the S.M.E. Bank Limited, on privatisation list, is
non-operational since long.
Access to the finance to the SMEs be improved. The various financing schemes
introduced by the SBP are not duly and effectively publicised by the commercial
banks and other financing institutions. There are reports that the commercial
banks even discourage the SMEs, existing or upcoming, particularly in rural
areas, to avail financing schemes. To ensure increased flow of credits there
has to be some kind of monitoring mechanism by the SBP to achieve its set
target for each bank of providing loan to 1,000 account holders in every city,
say, on a quarterly basis.
The government should provide SMEs facilitation and incentives for modernisation of plant
machinery, advanced technology, innovations, enhanced productivity, and
training of manpower in marketing and management, and internationalisation of
business. The government needs to develop the requisite infrastructure, and
create enabling business environments, with special focus on simplification of
tax system.
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