LAHORE: The large-scale manufacturing (LSM) sector may be growing but the small and medium enterprises, the main providers of employment in the country, are still struggling to survive in the face of financial and human capital crunch.
The entire economy was struggling before Covid-19 as both LSM and SMEs showed negative growth. Lockdowns at the virus peak meant complete closure of both large and small industries. The LSM sector had the muscle to withstand complete closures for few months but according to a survey by Small and Medium Enterprise Development Authority (SMEDA), 95 percent of the 5.2 million SMES operating in Pakistan experienced reduction in their operations, while 23 percent reported 100 percent loss of export orders. Over 90 percent reported disruptions in supply chain and 48 percent laid off their workers. Only half of them are rehiring. It is because 89 percent of them were facing financial issues in post-pandemic period.
Of the 1920 SMEs surveyed around the country, 41 percent were operating under sole proprietorship, 12 percent were single member companies, 21 percent were partnership concerns, 19 percent were private limited companies, and 3 percent public listed companies. The numbers of employees were 1-5 in 33.9 percent, 6-10 in 19 percent and 11-20 in 19 percent. This means that 1.76 million SMEs employed 1-5 workers and these were the ones that have not been able to resume activities to even pre-covid-19 level when the recession was at its peak.
The smallest of these enterprises disposed of most of their products within the city from where they operated. The number of employees involved, if we take the mean of 2.5 employees per firm, clocks in at 4.4 million employees. These are the low paid employees or sole proprietors that are finding it hard to pull on. Some of these SMEs are operating as the sole proprietor was also one of the workers. The proprietors are making extra efforts by reducing workforce to minimise expenses. If all the 33.9 percent of the enterprises with sole proprietorship employing 1-5 workers are operative then at least 1.76 workers have jobs in hand, while at least half of the remaining 2.64 million workers are jobless (1.32 million). Most of them are daily wagers.
Those smaller SMEs are not operating to their full potential because of lack of resources. This is the reason 95 percent of the SMEs reported reduction in work in the SMEDA survey. It is interesting to note that only 60 percent of the companies stated they would continue their current business, only 7 percent intend to diversify into another business, 18 percent would downsize their business (because of lack of orders or lack of resources). Around 6 percent or 312,000 entrepreneurs said they intend to close down their business while similar percentage was hopeful of expanding it.
The issues faced by the SMEs (they seem same in Covid-19 emergency or otherwise) were topped by financial issues encountered by 89 percent of the enterprises. Marketing issues were faced by 39 percent, selling issue by 60 percent, whereas supply chain disruption impacted 43 percent, transportation 39 percent and labour 37 percent. Surprisingly only 1.6 percent faced water issues, 2.3 percent gas shortage, and 5 percent electricity shortage. The planners should evolve a strategy to address these concerns. More that 80 percent of the SMEs owners urged the government to announce special package to bail them out.
The wish-list of SMEs is very long, ranging from reduction in turnover tax by 50 percent, booting the bill of workers salary for six months, cutting fixed income tax by one-third, reducing custom duties and many more. It would not be possible for the government to accept these demands as booting six months salaries of over 30 million workers employed by SMEs would be much beyond the means of the state. It however should make policies for their financial inclusion. Care should be taken to support those SMEs that are adding value to their products and are not producing outdated or inferior ones.
It is unfortunate that our planners have not been successful in formulating a viable SME policy. The SMEDA as the apex body for the promotion of SMEs had been operating for over two decades but has practically done nothing in this regard. We need vibrant SMEs, capable of supplying components and inputs to the large scale industries. The auto-vending base is strong and supplying quality auto parts to the manufacturers. But we lack SMEs in the textile sector that could produce accessories for the exporting sector like zips and buttons.