ISLAMABAD: Pakistan has tremendous potential for small and medium enterprises (SMEs) which contribute 30 to 40% to the gross domestic product (GDP), according to the Federal Board of Revenue (FBR).
The SMEs also provide employment opportunities to 60% of the labor force. This sector is one of the largest contributors with $2 billion (25%) to the export sector of Pakistan, WealthPK reported
According to the Small and Medium Enterprises Development Authority (SMEDA), the SMEs growth in the fiscal year 2020-21 was 8.31% and is expected to grow by 9% this year.
Also, the SME’s contribution to the export sector’s growth rate was 4.43% in FY 2020-21 and is expected to grow by 10% in the current year. This sector’s employment growth rate in the last three years was 2.43% and is expected to grow at 5% in 2022.
The SMEs sector is considered the backbone of the economy.
No country has attained economic growth without a well-organized SMEs sector. The SMEs contribute to employment creation, export promotion, and overall business growth. According to the World Trade Organisation (WTO), SMEs account for almost 90% of all business enterprises in developed economies and contribute between 60 to 70% to total employment, and 50 to 60% to GDP. In developing economies, the SMEs make up almost 99% of all businesses, usually employ a higher percentage of the labor force, and account for 60 to 70% of GDP.
The Government of Pakistan is taking some measures to boost the economic contribution of the SMEs sector. Kamyab Jawan program is one of the projects to bring the youth of the country into the business where the government is providing loans to young entrepreneurs at very low-interest rates.
Moreover, SMEDA is one of the key players that is assisting the government in implementing the policies related to SMEs. SMEDA assisted almost 7,000 SMEs from 2019 to 2020.
However, Pakistan is still behind in terms of SMEs’ contribution to GDP as compared to other developing countries like India and China where the contribution of SMEs to GDP is 50 and 70%, respectively. There are some measures that Pakistan should take to increase the economic contribution of SMEs.
Firstly, The Pakistan government should focus more on enhancing this industry’s contribution to economy. There are huge numbers of industries that are not registered and therefore a huge amount of tax is not collected.
Omar Farooq, owner of a small textile industry in Faisalabad, told WealthPK that most small manufacturing firms are located at homes which makes it difficult for the Revenue Board to locate such industries and bring them under the tax net.
He said these industries must be digitalized so that each industry can be registered with the FBR. That will boost the country’s tax-to-GDP ratio and make it easy for the government to subsidize those industries that are in a critical situation and will help in increasing the loan volume.
Secondly, the government should launch different programs to establish new businesses and provide advanced technology to the existing industries. The private sector should be given incentives to finance new businesses.
Lastly, relief must be provided to young entrepreneurs who are starting new businesses. Bringing the young generation of Pakistan into entrepreneurship will play a significant role in emerging SMEs in Pakistan. Government support is crucial for SMEs to enhance their potential at the national and international levels.
INP
