Prime Minister Shehbaz Sharif has envisioned a future where Pakistan’s industrial growth is deeply rooted in the development of Small and Medium Enterprises (SMEs), especially through the revitalization of cottage industries. His vision, shared during a high-level meeting, highlights the need for structural and regulatory reforms to unlock the true potential of SMEs. This will shape the country’s economic future, creating a thriving and inclusive ecosystem for business and innovation.
Small and Medium Enterprises are the backbone of economies around the world, and Pakistan is no different. With over 90 percent of businesses falling into the SME category, they play a crucial role in driving economic growth, creating jobs, and encouraging innovation. However, despite their significant contribution to Pakistan’s GDP and employment, SMEs continue to face challenges such as limited access to financing, complex regulatory environments, and the need for modern technological tools.
Prime Minister Sharif has clearly emphasized that the industrial growth of Pakistan cannot progress unless the potential of SMEs, particularly cottage industries, is fully realized. These enterprises, often located in rural areas, are vital to regional development, boosting exports, and creating much-needed employment. They are labour-intensive and require support to scale and formalise their operations in a way that allows them to thrive in the modern economy.
A significant initiative outlined by the Prime Minister is the formal registration of SMEs and cottage industries. Currently, many businesses in Pakistan operate informally, which restricts their access to finance, legal protection, and formal markets. The Prime Minister has urged authorities to accelerate the registration process, as this will provide SMEs with the necessary tools to grow, innovate, and expand their market reach. In turn, this will help improve their access to financial resources, legal protection and government incentives.
SMEDA, the Small and Medium Enterprises Development Authority, has been entrusted with the task of simplifying the registration process and creating a clear plan for formalizing SMEs. This will not only bring transparency but also help broaden the tax base and stabilize the economy. Along with these efforts, it is essential that SMEDA focuses on the capacity building of its own employees to ensure they can effectively support SMEs. This could include introducing experts from the private sector, particularly in areas like textile, technology, and manufacturing, to ensure that training and advisory services provided to SMEs are relevant and of the highest quality.
As the government pushes for the formalization of SMEs, it also has a specific focus on rural enterprises, particularly those involved in agriculture. By assisting rural SMEs in engaging in value-added agricultural processing, the government hopes to transform raw agricultural products into high-value goods. This will not only improve the profitability of these businesses but also enhance their global competitiveness.
Further support for rural SMEs could include offering tax rebates tied to export performance, as well as incentivizing the adoption of solar energy solutions. Many rural SMEs face energy challenges, and by promoting the use of solar energy, they can reduce costs, improve efficiency, and become more sustainable.
The Prime Minister’s efforts also include a strong focus on empowering women entrepreneurs. Initiatives like the development of an AI-powered platform for female entrepreneurs are being introduced to assist women with business registration, tax compliance, and skills development. This platform will provide the necessary resources and guidance for women to start and grow their businesses, which is critical in creating a more inclusive and diverse industrial landscape in Pakistan.
In the digital age, technology and innovation play a pivotal role in enabling SMEs to compete on the global stage. Recognizing this, the government has focused on integrating modern technological tools into the SME ecosystem. SMEDA will work to transfer knowledge and offer training that helps SMEs embrace digital tools for business management and e-commerce solutions. By supporting female talent through digital skills training and incentivizing the employment of women in SMEs, the government aims to create an empowered and digitally skilled workforce.
The push for export subcontracting is another significant initiative. This allows SMEs to connect with larger firms and global markets, providing them with access to international supply chains. This collaboration will increase productivity and help SMEs meet global trade regulations, like the European Union’s Carbon Border Adjustment Mechanism (CBAM). By facilitating these connections, SMEDA aims to boost the profitability and productivity of SMEs, enabling them to compete in the international market.
A key factor in creating a thriving SME ecosystem is improving Pakistan’s ranking in the Ease of Doing Business index. This indicator reflects how easy and efficient it is to start and run a business in a country. While Pakistan has made progress in this area, it still ranks relatively low globally.
As of the most recent report, Pakistan stands at 108th position, which suggests that there is a lot of work to be done in simplifying business regulations, improving access to finance, and enhancing the infrastructure to support SMEs. For Pakistan to successfully achieve the government’s vision, it must continue to make regulatory processes simpler, improve access to financial resources, and foster an environment that supports business growth
The D8 Summit, which includes Pakistan and seven other developing countries, offers another unique opportunity to enhance industrial and trade relations. The summit focuses on economic cooperation, trade, and sustainable development. By actively participating in the D8 framework, Pakistan can leverage partnerships with these countries to boost SME participation in international trade, tap into new markets, and foster innovation. This collaboration can help create cross-border business opportunities that will drive growth, create jobs, and strengthen Pakistan’s industrial sector.
Prime Minister Sharif’s directives to empower and formalize Pakistan’s SME and cottage industry ecosystem reflect a clear and bold vision for the future of the country’s industrial sector. By simplifying registration processes, providing financial support, encouraging women’s participation, and advocating for the adoption of modern technologies, the government aims to create a thriving SME ecosystem that drives innovation, employment, and economic growth.
Supporting SMEs, especially rural and cottage industries, is key to stimulating industrial growth and transforming Pakistan’s economy into a more inclusive and sustainable one. To achieve this vision, SMEDA must continue to upgrade its practices, integrate modern tools like AI, and focus on the training and development of its employees.
Establishing business forums where high-performing SMEs can exchange ideas and appointing ambassadors in rural areas will enhance SMEDA’s presence. Expanding its outreach to regions like Azad Kashmir, Gilgit-Baltistan, and other relevant areas will strengthen SMEDA’s role in shaping Pakistan’s industrial future. Only then will SMEDA be fully equipped to fulfil the government’s vision for a prosperous industrial sector.
Copyright Business Recorder, 2025
The writer is an expert on institutional development, finance and governance