Daily Times

Opportunity under China Pakistan Economic Corridor (CPEC) has crossed the door steps to grow our Small and Medium Enterprises. But never forget that “procrastination is the assassin of opportunity. We have to forsake traditional slumber and inertia. It is not hard to know why. Out of 3.2 million business entities of trade, industrial and service sectors of Pakistan, around 90% are SMEs deploying 70% non-agriculture labor. They contribute 30% to GDP, 25% to export earnings and 35% to value-added manufacturing. These facts establish that SMEs are the backbone of Pakistan’s economy. CPEC with its huge investment of over US $ 60 billion presents unprecedented avenues for the growth of SME sector.

Let us strategize a practical plan of measures that would spur the much needed growth of SMEs by exploiting CPEC activities directly and indirectly:

* Entering joint ventures with the Chinese business companies, under CPEC scenario, should be made part of our national policy to develop SME sector.The Chairman Federation of Chamber of Pakistan Commerce and Industry (FPCCI) also urges on the government to evolve a productive strategy for attracting Chinese investment in the joint ventures of SME sector. Local small business of China competes with the global business giants due to advanced technology. Transfer of such technology to SME joint ventures in Pakistan would modernize this key sector of the economy. Joint ventures of SMEs have tremendous scope in cold storage, ICT, supply chain business, apparel, daily, engineering, construction, food processing, horticulture, surgical instruments, fisheries, livestock and logistics etc. China also did the same by having joint ventures with their technology partners from America and Europe.

* All over the world, countries establish Special Economic Zones (SEZs) as tool for industrial development. Chinese embraced enormous success through this approach. Therefore, 37 SEZs are being set up under CPEC all across Pakistan at strategic industrial estates and trade clusters. SMEs operating in the SEZs are going to receive tax incentives and basic amenities to realize their full potential. Through Chinese experience, we can cultivate capacity of our small business entities by imparting manpower training to operate Chinese machines and tools. It has to be ensured that our SMEs are energized by SEZ operations.

* CPEC is principally dedicated to grand projects but SMEs of Pakistan can especially target the spillover effects to be brought by these mega projects. The indigenous investors can get advantage of the ongoing country-wide infrastructure development activity by investing in the industries like steel, cement, mining and contracting. Investment in these businesses would be very profitable, since they provide supplies of raw materials to CPEC projects. So, the SMEs can also focus on such support industries to avail CPEC’s trickle down or spillover effects.

* SMEs in China largely sprouted from Town and Village Enterprises (TVEs) set up in China since 1978. Majority of the TVEs had small or medium size and were involved in agri-product processing, construction, transportation & communication and catering etc. So, our government can emulate Chinese example by bringing about structural changes in the rural economy. This set up can boost small business in exceptional way.

* Inadequate lending to SME sector is a major road-block. Banks are shy in lending to SMEs mainly due to un-documented nature of business. Here, we can cite the considerable success of WHAM Project of Shore Bank International Ltd. under US Aid (1999-2005) whereby select financial institutions were trained to structure financials of small business firms from their kacha khatas. Data structured that way from the daily turnover of small business enabled the banks to extend cash flow based lending that certainly resulted in better repayment of loan. The similar mechanism can be developed with the coordination of government and SBP to cope with the challenge.

*’Made in Pakistan’ brand identity must be popularized globally through CPEC. For this purpose, the government is required to initiate some solid efforts for developing international goodwill of Pakistani products. It is common by renowned foreign companies to purchase Pakistani products and put their own label without giving Pakistani SME manufacturer the deserving credit.

* Another significant element for the desired growth of SMEs is the development of entrepreneurship capability. Establishment of incubation centers at public universities by the Higher Education Commission is a right step. But this initiative must be supported with necessary resources, teaching ofupdated theory & practice and quality mentorship. A value addition to this arrangement could be the working knowledge of Chinese language.

* Ever since its birth in 1998, Small and Medium Enterprises Development Authority (SMEDA) has shown un-impressive performance in developing SMEs in Pakistan. Only cosmetic measures were adopted without any tangible results. But the CPEC activities present a tailor-made role for SMEDA. The authorities at SMEDA should formulate an effective plan to create partnerships and joint ventures of the entrepreneurs of both Pakistan and China. Similarly, SMEDA can facilitate the entry of relevant SMEs in the Special Economic Zones that are being set up country-wide. Such functions are certainly becoming of SMEDA.

Everyone is aware that Toyota and Honda started their journey of success from small factories.They evolved into industrial giant corporations with appropriate government policies. China and India have also developed their economic muscles by giving growth-conducive environment to SMEs. The government of Pakistan and all stake holders should have full advantage of CPEC for development and technological upgradation of the SME sector.So, CPEC offers right time opportunity to enhance productivity of SME sector for realizing the dreams of higher profitability, employment and sustainable growth of Pakistan.

The author is an economic expert and currently serving as Country Manager of JSC Subsidiary Bank NBP Kazakhstan(Foreign Subsidiary of National Bank of Pakistan).

Published in Daily Times, April 16^th 2018.