Rising costs threaten Karachi SMEs: industry leaders

KARACHI: Small and medium enterprises (SMEs) are facing a severe crisis as the recent budget’s multiple tax increases and escalating utility costs have significantly inflated production expenses. This dire situation is now endangering the livelihoods of numerous businesses, potentially leading to closures, layoffs, and a downturn in exports.

This was stated by the President of the Federal B Area Association of Trade and Industry (FBATI) Syed Raza Hussain. “We are struggling to keep our doors open. The cost of electricity alone has increased manifold since last year. If the situation does not improve, we may have no choice but to shut down our operations,” he remarked.

The combined impact of high utility costs and heavy taxation is proving detrimental to the SME sector. Many businesses are on the brink of closure, unable to sustain operations under the financial strain, Hussain said, adding that the downturn in SME activity is expected to negatively affect Pakistan’s exports. As these businesses scale back or shut down, export volumes are likely to decline, exacerbating the country’s trade deficit.

According to Hussain, a pressing concern for SMEs is the escalating cost of utilities, including electricity prices, which have surged significantly over the past year. This is driven by a combination of increased global fuel prices and inefficiencies within the national grid. The president of the FBATI said that water and gas prices have also seen substantial hikes, further strainingthe operational budgets of small businesses. Despite proposals from the central bank, Hussain lamented the absence of a government-backed financing scheme for SMEs in the budget. “SMEs are vital to Pakistan’s economy, employing 80 per cent of the non-agricultural workforce, contributing 40 per cent to GDP, and accounting for over 25 per cent of total export earnings,” he emphasized.

Adding to their woes, the Sindh government issued a notification for subsoil extraction without taking the town association of the city (Karachi) on board, making the situation more challenging for industries to continue their production.

Small and medium enterprises contribute significantly to the country's exports, particularly textiles, leather goods, and handicrafts, Hussain added, and appealed to the incumbent government to create an enabling environment through an affordable tax regime and an SME financing scheme that can enable SMEs to thrive and contribute to sustainable economic growth.