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.

In the development of industry and economy of any country, Small and Medium industries (SMEs) serve as the backbone provides jobs to the masses. At present, there are more than 38 million small and medium enterprises in Pakistan wherein (0.8) million 8 lakhs are industrial units, 1.2 million (12 lakh) service sector, 1.8 million (18 lakh) commercial and retail shops.

 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.

There are a number of limitations that SMEs face from time to time. Pakistan is a country where changing governments bring substantial economic variations. The result of these differing policies translates into inadequate progress in a field or industry. The SME sector in the country has remained largely unregulated with low financial inclusion ratios in the industry. This has given rise to a variety of problems especially when it comes to accessing financial services.

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.

                                                         Khalid Bhatti 


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