SMEDA needs urgent restructuring

The Small and Medium Enterprise Development Authority (SMEDA) was established in 1998. It was expected to take on the challenge of developing small and medium enterprises in Pakistan. SMEDA's mission statement states that its role is to function as the promoter and facilitator of the SME sector in Pakistan by creating a conducive environment, as well as providing and facilitating service delivery to SMEs for enhancing their capacities and competitiveness. The authority was supposed to provide the necessary services to help SMEs overcome the weaknesses that are endogenous to their very nature. It is an autonomous body working under the umbrella of the Ministry of Industries and Production and contributes towards the growth and development of SMEs in Pakistan through: i The creation of a conducive and enabling regulatory environment; i Development of industrial clusters; and i The provision of business development services to SMEs in all areas of business management. Pakistan depends substantially on agriculture and other rural activities to provide livelihoods for the majority of its population. For the country to meet its goal of reducing poverty by half by 2015, as well as decreasing rapid rural-urban migration, non-farm economic opportunities in rural areas must expand. Pakistan has around 150,000 small businesses and more than three million micro enterprises. The informal economy is largely unregulated and faces crucial resource constraints, particularly finance skills, new technology and knowledge, and management. Access to finance, improved technology, potential new markets, average standards of quality, and product uniformity are especially low. The business environment in the informal sector is characterised as being difficult often and chaotic occasionally. As more than 90 percent of Pakistan's businesses belong to this sector, increasing factor productivity is important. Despite some success, many initiatives have been constrained by a variety of social, institutional, and political factors. In this setting, improving the competitiveness of rural and semi-urban Micro and Small Enterprises (MSEs) requires an innovative approach that works outside conventional institutions and draws on lessons learned and international best practices. To focus its resources and strategies towards supporting SMEs, it is important for a country to set a standard definition for what constitutes an SME. Until recently, Pakistan did not have a single official definition for SMEs. The SME Policy 2005 recommended a single definition for the SMEs, but, as pointed out in the SME Policy 2007, various institutions maintained different definitions. The government agencies, such as the State Bank of Pakistan (SBP), Federal Bureau of Statistics (FBS), Provincial Labour Departments, SMEDA and the SME Bank, all have their own definition for what constitutes an SME, and this makes it difficult to provide proper statistics on it (SMEs) and identify target firms. The government has identified SMEs to be one of the major drivers of growth in Pakistan. They employ about 80 percent of the non-agricultural labour force; they make a contribution to GDP of about 40 percent; they also contribute about Rs140 billion to exports and produce 25 percent of manufactured exports. The Pakistan Economic Survey reports that the foundation of industrialisation could not be established without an efficient network of SMEs. Their promotion will enhance the entrepreneurial culture of Pakistan and will be a major aid in poverty reduction. One of the major benefits that the SME sector has provided is its ability to create jobs, which is a major challenge facing Pakistan. They play a very important role in the country's industrial employment. About 87 percent of SMEs in the manufacturing sector have five or less employees, while 98 percent 10 or less employees. The authority given to SMEDA in policy formulation, so far, has been to provide support in the form of suggestions and input for policy formulation. However, its role at the approval or implementation stage is very limited or none at all. This has rendered it an advisory role, whereby it prepares proposals and passes them on to the relevant government body, only to wait for approvals for their implementation. Furthermore, SMEDA does not have the financial resources to fund the policies that the government may approve or provide effective services to the SMEs. This disconnect between the authority and decision makers leaves a lot to be desired and undermines SMEDA as the apex body for SME development. As SMEDA does not play a role in implementation, it gets an operational budget of Rs150 million (less than $2 million). Certainly, this is insufficient to even fund its services to the SMEs. It has no SME development fund or budget. Therefore, it has to seek approval and funding for each project independently from the government, and that creates delays and affects its efficacy. SMEDA needs to be restructured. Its customers have rated its services as below average. It needs to expand the mediums through which it markets itself. It has a high reliance on word of mouth reference. According to a survey, the primary means of marketing, such as the internet and newspapers, are not being fully utilised by SMEDA. Its website is highly underutilised. Approximately, 52 percent of the respondents did not even know about the website, while 26 percent rarely used it. For the people, who use the website, their satisfaction is below average at 2.78 points. The writer is a retired secretary of the Government of Pakistan. Email:

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