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SMEs Sector in Pakistan

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Economic Significance of SMEs

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In the industrial development of a country the importance of the SME sector cannot be overemphasized. SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%, approximately. However, unlike large enterprises in the formal sector, a small and medium enterprise is constrained by financial and other resources. This inherent characteristic of an SME makes it imperative that there should be a mechanism through which it may get support in different functions of business including technical upgradation, marketing, financial and human resource training & development.

Economic Contribution

SMEs’ share in the industrial employment is estimated to be 78%, in value addition approximately 28% and in export earnings at 25%. Further, SMEs, being 3.2 million according to a recent estimate, form 98% of the total economic establishments in the country.

Contribution in Employment Generation:

SMEs normally tend to be labor-intensive, and thus create employment with relatively low level of investment per job created. At present, unemployment is a significant problem in Pakistan and a majority of new entrants have low marketable skills. They find few opportunities in the public sector, thus a sizeable number of these persons end up in the SME sector, and especially in the informal sector. Given this situation and the fact that Pakistan is characterized by low rate of capital formation, SMEs are the best option to address this problem.

Effective Utilization of Local Resources

SMEs tend to be more effective in utilization of local resources using simple and affordable technology. Further, development of SMEs facilitates distribution of economic activities within the economy and thus fosters equitable income distribution. SMEs technologies are easier to acquire, transfer and adopt. Also, SMEs are better positioned to satisfy limited demands brought about by small and localized markets due to their lower overheads and fixed costs.

Entrepreneurship Development

SMEs serve as a training ground for entrepreneurship and managerial development and enable motivated individuals to find new avenues for investment and expanding their operations