SMEs for growth

For a sector that contributes about 40 percent to the countrys GDP, 30-45 percent to exports (depending upon different estimates) and about 40 percent of total workforce, the Small and Medium Enterprises (SME) sector receives a very stepchild like treatment by the government, media and the society alike.
Many of our readers would be surprised to know that in 60 years plus of this countrys existence, policymakers and other stakeholders alike haven even settled on one single definition of SMEs.
For instance, according to the governments SME Policy 2007, an SME is one which has up to 250 employees and annual sales up to Rs250 million. The central bank, however, has different definitions for small and medium each: for small, the employment size is up to 20, for medium sized trading firms its 50 and medium sized manufacturing firm its 250. The annual sales turnover criteria under central banks definition is Rs75 million for the S firms and between Rs75-Rs400 million for the M firms.
Confused already? Well fret not, for we are not going to share the four other definitions by Pakistan Bureau of Statistics, Punjab Small Industries Department, Punjab Industries Department and Sindh Industries Department.
From governance and development policy perceptive, there is another major issue: lack of data. The last SMEDA Survey was conducted way back in 2001. Thats 14 years ago. Also, the census of manufacturing industries was last done in 2006. If there is any recent dataset available, then its World Banks Enterprise survey of 2013.
That survey tells us a few interesting nuggets: (a) 53 percent of SMEs in Pakistan are involved in wholesale, retail trade and hotels/restaurants; (b) 80 percent of them are sole proprietorships as against partnership, limited partnerships, private or public limited liability firms. The same survey also tells that electricity, corruption, and taxation and the top three issues that firms rank as main obstacles to growth.
Now what does that tell you? If you are the man in charge to bring growth in this country, say you are Finance Minister Ishaq Dar, then all of the issues if you can just resolve electricity, corruption, and taxation woes for firms involved in wholesale, retail trade and hotels/restaurants, and for firms whose ownerships structure is sole proprietorship, then you would have achieved quite a lot of growth.
Then again, SME sector is the stepchild of successive governments, and PML-Ns treatment cannot be expected to be any different. And to be honest why should it be, because SMEs too enjoy lot of rents from the economy, simply by staying away from the tax net.
If person A has a firm with Rs250 million annual turnover, and if he can keep half of it off books, and half on official books, then he doesn really have any incentive to grow because he is already getting a great ROI. All he has to do is to set up another firm say up to Rs400 million annual turnover, keep half of that off books as well, and enjoy a great deal of ROI. Why should he become efficient, innovative, and competitive when he is already getting great ROIs?
Anyway, going back to the stepchild thesis, it is disheartening to see that the media hardly ever picks up the SME stories; and we are not just talking about highlighting SME issues but also their successes, growth opportunities, new business ideas and so forth.
Likewise, even the young graduates don care much about SMEs. Most young graduates who come out of business schools want to join a handful of multinational FMCGs, knowing full well that these MNCs are mostly working like post offices in Pakistan with most of product design, marketing, branding being done regionally.
Young graduates don seem to have the courage, or the patience to stick with family owned SME concerns, prove their mettle, help grow the firm and grow along with it. Changing that mindset needs a separate development programming on its own.