Small and medium enterprises (SMEs) in Pakistan have been struggling for survival in the last two years due to the high cost of production. Talking to WealthPK, Munir Baloch, Secretary General of SMEs Association, Sindh, said, “The ever-increasing cost of production in the country is the real threat to the SMEs, as frequent upward revisions in the policy rate and continuous fluctuations in rupee against dollar are posing a further threat to this sector.” He observed that the aggressive economic measures, high borrowing rates, inflation, oppressive taxation and unstable currency had been negatively affecting the businesses, many of which had closed down while the remaining were struggling for survival. He noted that the small industries were slowly dying, as the costly raw material and increasing power costs had rendered them uncompetitive. “They lack the economy of scale to divide the cost of production. In the absence of any tangible SME policy, the small industries are fighting on their own to survive.

They lack finance, as the banks are reluctant to give them loans without collateral. Their own resources from the family and friends have dried up. “Most SMEs used to pay their informal financers a fixed amount on a monthly basis but during the past two years they have defaulted on their promises, as they could not meet the cost of production. Those depending on the imported raw materials (most SMEs do) were deprived of that because of the restricted import regime,” he elaborated. SMEs play a significant role in the economic, industrial and social development of a country. Most of the developed countries concede the importance of SMEs in assisting their economies. They play a distinctive role in employment creation and income generation. “Balochistan’s SMEs are constrained by weak skills, limited processing facilities and difficulties in meeting the market requirements,” Masood Hussain, Director of SMEs Wing in the Industries Department, told WealthPK.

He said they were deprived of formal bank credit, relying instead on their own savings or informal moneylenders, thus adding to their vulnerability. He said the overall weak state of education and training in the province seemed to be an overestimate perhaps due to the lack of awareness of what it took to be a skilled worker. Absence of a proper grading system for products means investments in upgrading does not always translate into better prices, he added. Masood said the competitiveness of private enterprises in Balochistan will heavily depend upon improvements in the national-level business climate. In this regard, national initiatives including those by the central bank, federal-government’s support through Smeda or planned national-level SME policy will play a critical role in growth and sustainability of firms in Balochistan, he said.

Credit: Independent News Pakistan