Development in Emerging AsiaIntegration to the Global Value Chain

Asia-Pacific Finance and Development Institute (AFDI),

Shanghai, PRC
2-3 November 2016
Presented by
Mr. Arif Ibrahim
Senior Joint Secretary
Ministry of Industries & Production (MoI&P)
Government of Pakistan
The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian
Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does
not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used
may not necessarily be consistent with ADB official terms.

Scheme of Presentation
Overview of SME Sector in Pakistan
Challenges/Problems and Strategies
Conclusion & Recommendation

Overview of SME Sector in

Pakistan

Country at Glance (2015-16)

Population

195.40 Million

GDP

$283.678 Billion

Per Capita Income US$ 1,560.70

Exports

US$ 20.803 Billion

Imports

US$ 44.233 Billion

FDI
US$ 1,281.1 Million
Contribution by Sector (2015-16 P)
Ind.(21.02%), Agri. (19.82%) & Ser. (59.16%)
Source: Pakistan Economic Survey 2015-16
Ministry of Commerce (MoC)
Board of Investment (BoI), State Bank of Pakistan

Geographic Situation

SME Sector in Pakistan

3.2 Million SMEs
Contribution to GDP 40 %

Khyber
Pakhtunkhwa

14.21%

Share in Exports over 40 %

Share in Non-Farm
Employment over 78 %

Punjab
65.26%

Balochistan
2.18%

Sindh
17.83%

Source: Census of Economic Establishments 2005

Establishments vis--vis Employment Size

Employment Size

(200 and above)

(100-199)

(51-99)

0.0017%

0.0011%

0.035%
99.95%

(1-50)

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Percentage of Firms

Source: Census of Economic Establishment 2015-16

Pakistan Major Exports

Carpets, Carpeting Rugs &
Mats
Jewellery
Footware
0.47%
0.03%
1%
Wheat
0.001%

Engineering Goods
1%
Sugar
1%

All other items

16%

Meat & Meat Preparation

1%
Leather Excl. Reptile Leather
(Tanned)
2%

Textiles (including Cotton &

other Category)
54%

Sports Goods excl. Toys

2%
Medical & Surgical
Instruments
2%
Cement & Cement Products
2%

Rice
9%

Fish & Fish Preparations

2%
Fruits
2%

Leather Manufactures
3%
Chemicals & Pharmaceuticals
4%

Source: Pakistan Economic Survey 2015-16

Export Performance (2011-15)

Annual Growth in Value Between 2011-2015 (%)
Korea; -1

Countries

Turkey; 2
Malaysia; -2
Bangladesh; 8
China; 5
India; -2
Pakistan; -3
World; -2
-4

-2

Source: www.trademap.org

% growth

Export Comparison
World

Pakistan

World: 2014: 17.7 Trillion Pakistan: 2014: 24.7 Billion

US $
US $
Textiles &
Clothing
5%

Agriculture
10%

Agriculture
21%

Fuels and
mining
products
21%

Manufactur
es
64%

Fuels and
mining
products
4%

Growth
2011-15
-2 %

Textiles &
Clothing
57%

Manufactures
18%

Growth
2011-15
-3 %

Source: WTO Database (http://stat.wto.org/StatisticalProgram/WSDBStatProgramHome.aspx?Language=E)

Challenges/Problems &
Strategies

Issues & Challenges of SME Sector

Policy & Regulations
Access to Finance
Business Development Services
Human Resource
Technology
Marketing & Market Access

Infrastructure Development
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Policy & Regulations

Ease of Doing Business Pakistan ranks 138 out
of 189 countries
Taxation Policy not geared towards reducing cost
of doing business in SME dominant sectors
Tariffs
Electricity Tariff
(Cents / Unit)
Gas Tariff
(US$/MMBTU)
Minimum Wage
(US$/month)

Pakistan
11

India
9

China
8.5

Bangladesh
7.3

6.7

4.2

3.5

3.10

134

69

148-282

50

Source: Leather & Textile Industry; China-briefing.com

Cont

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Policy & Regulations

Huge pending claims of sales tax, duty drawbacks,
income tax and deferred sales tax
Value addition hampered by import duties &
sales tax on raw material
Partial implementation of SME Policy 2007
Resource Constraint
Lack of Ownership
Cont

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Access to Finance
Demand Side Issues (SMEs)
1. Lack of collateral Property
Rights Issue
2. Inadequate accounting
systems & lack of certified
financial data
3. Lack of financial literacy
4. Lack of credit history
5. Difficulties in managing loan
documentation
(volume/language)

Supply Side Issues (FIs)

SMEs perceived as high risk
Lack of appropriate
structure and skills for:

1.
2.

3.
4.
5.

Credit evaluation
Innovative product design
Marketing tools for
specific financial products

Absence of proactive
approach for identifying
SME credit needs
High transaction costs
Limited risk mitigation
mechanisms

15

Business Development
HR and Management Skills
Skills; supply- demand mismatch
Limited entrepreneurship focus
Technology
Operate at low end technology
Absence of applied R&D
Lack of compliance to international standards & certifications
Market Access
Inadequate information on potential markets
Inadequate integration into global supply chains

Infrastructure Development
Limited common facility centers (CFCs)
Lack of sector specific training institutes
Industrial estates / export processing zones

16

SME Policy Framework

Approved by Federal Cabinet in 2007

SME Policy Framework

Approved by Cabinet in 2007

Policy Statement
To create globally competitive SMEs by
creating a hassle free business environment,
ensuring provision of modern infrastructure &
institutional support structures for access to
resources & services.
The Government shall take measures for
promotion of women entrepreneurship,
cluster development and also focus on
neglected/untapped sectors of the economy.
Strengthening Industry-Academia linkages
shall also be a key feature of the Policy

SME Policy 2007

Recommendations:

Business Environment
Access to Finance & Related Services
Access to Resources & Services
SME Definition, Feedback, Evaluation &
Monitoring Mechanism

Enterprise
Category
Small & Medium
Enterprise (SME)

SME Definition

Employment
Size
Up to 250

Paid Up Capital

Annual Sales

Up to Rs. 25
Million

Up to Rs. 250
Million

Gaps in SME Policy 2007

Implementation

Implementation dependant on various

organizations low priority
SME Act draft developed; not codified into
law
Partial implementation of Action Plan
Resource constraints
Proposed institutional infrastructure not
created
Assessment of existing regulations &
corresponding regulatory reforms not
undertaken

Challenges in Integrating SMEs into Global

Value Chain
FIN.

POLICY

1
Gap

R&D

INFR.

HRD

TECH.

3
Global
Value Chain

Domestic Value
Chain

MRK.

STD.
&
CERT.

Enhanced Value
Greater
Integration in Global Supply Chains
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Ministry of Industries & Production

New Draft SME Policy

Vision

Goal

Strategy

Institutional
Support

Growth of globally competitive SME sector,

through a conducive environment and
support services, serving as an engine of sustainable growth
for national economy

Increased
Exports

Value Addition New Enterprises &

In GDP
Increasing Scale

Policy
Implementation

Sector Development

Access to Finance

E-Enablement

Partnerships

Effective
Coordination

New Jobs

Entrepreneurial
Ecosystem Dev.
Business Dev.
Services

Monitoring &
Evaluation
22

New Draft SME Policy

Steering Committee being notified by MoIP

to formulate New SME Policy to:
Propose regulatory changes centered around the
principle of think small first
Establish & Promote:
Credit guarantee fund
Venture capital & Equity funds
Angel Investors

Build capacity of SMEs to access Capital markets /

enlist on Pakistan Stock Exchange
Cont

New Draft SME Policy

Support for enhancing access to business development
services
Establish and strengthen infrastructure:
Training facilities
Common facility centers
Certifications, standardization and technology up-gradation
institutions

Prioritize support for high growth SME sectors for

integration into Global Value Chains
Propose effective coordination mechanism
Provision of Resources by Government of Pakistan for
Implementation

Conclusion & Recommendations

i.
ii.
iii.
iv.
v.
vi.

Conclusion & Recommendations

Enhance Production and Workers Efficiency
Ensure compliance to International Standards
and certifications to target high end markets
Focus on Product and Market Diversification
Rationalization of Taxes and incentives vis-a vis
regional countries and competitors
Benchmarking and Capacity building of
institutions responsible for SMEs development
Sectoral Export Development Plans addressing
the sectoral needs (Marketing, Technology,
Finance, HRD and Policy interventions)
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Conclusion & Recommendations

Development of New Draft SME Policy
Implementation of Sector Specific
Interventions / Recommendations
Development of Clusters along China Pak
Economic Corridor

Thank You

State Bank of Pakistan

Enterprise
SE*
ME*

Employment Size
Up to 50
51-250 (Manu. & Service
MEs)
51- 100 (Trading MEs)

Annual Sales Turnover

Up to Rs. 150 million
Above Rs. 150 million and
up to Rs 800 million

* Business entity that meets both parameters

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