Prime Minister Shehbaz Sharif’s remarks at the D-8 summit in Cairo, where he described youth and small and medium enterprises (SMEs) as “key drivers of economic development,” were, in essence, a statement of the obvious. In a world increasingly driven by innovation and entrepreneurship, investing in youth and SMEs is indeed vital to building robust, inclusive economies that can thrive amidst global challenges.
However, the prime minister’s assertion that “investing in both [youth and SMEs] can build inclusive and robust economies” rings hollow when viewed through the lens of Pakistan’s current economic climate. While it is true that Pakistan’s youth—60% of the population is under 30—represent a huge potential resource, the country’s SME sector, often cited as an engine of growth, remains mired in a web of challenges, with limited government support being the chief obstacle.
Pakistan’s SME sector, which is crucial for job creation and fostering innovation, has long struggled to access the financing it desperately needs. Despite being recognized as key to economic development, SMEs often face a significant barrier in securing credit. Banks are hesitant to lend to SMEs due to concerns over perceived risks, lack of collateral, and the often informal nature of their operations. Consequently, the little credit that SMEs can access is typically offered at prohibitively high interest rates. This leaves small businesses in a bind, unable to expand or even sustain operations due to financial constraints.
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Furthermore, SMEs grapple with an overly bureaucratic environment. Lengthy and complex procedures for business registration, compliance, and licensing add to the sector’s burden, discouraging potential entrepreneurs and stifling the growth of existing businesses. The tax structure itself is convoluted, with frequent changes to regulations making it difficult for businesses to plan or adjust accordingly. This lack of regulatory clarity, combined with the constant shifts in the official landscape, creates a volatile environment for SMEs to operate within.
The infrastructure deficit is another major hurdle. Pakistan’s unreliable power supply and high energy costs often disrupt business operations, adding to the operational inefficiencies already present in supply chains. Furthermore, the lack of an efficient logistics network exacerbates the problem, driving up costs and reducing competitiveness, both locally and internationally.
Given these significant challenges, it is not surprising that SMEs continue to struggle, despite being touted as key economic drivers. However, the prime minister’s renewed focus on SMEs, much like previous leaders, presents an opportunity for the sector to finally receive the attention it deserves. Now that the spotlight is on them, the government must move beyond political rhetoric and deliver real, actionable policy support.
The government must begin by addressing the sector’s most pressing need: access to credit. SME-friendly banking policies, such as relaxed collateral requirements and lower interest rates, would be a significant first step in ensuring that small businesses can access the financing necessary for growth. Alongside this, simplifying the regulatory framework and offering tax incentives tailored to SMEs would go a long way in fostering a business-friendly environment.
Another area that requires urgent attention is skill development. A major barrier to the productivity of SMEs in Pakistan is the shortage of skilled labor. While the government has often discussed this gap, tangible steps to address it have been few and far between. Establishing polytechnic institutes and vocational training centers that provide technical and practical skills would directly benefit the SME sector by supplying a skilled workforce ready to meet the demands of modern industries.
In addition, Pakistan must embrace the digital age. Promoting digital transformation and the adoption of e-commerce would open up new avenues for SMEs, allowing them to reach global markets and streamline operations. In today’s world, digital literacy and e-commerce are essential tools for survival, and the government must make this transition a priority for small businesses.
It is disheartening that the SME sector has had to wait for official support for so long. The government’s reluctance to act swiftly is not just frustrating—it is counterproductive. In an economy facing multiple challenges, SMEs represent a valuable and largely untapped resource. Ignoring the sector any longer would be both short-sighted and detrimental to Pakistan’s economic future. With the right policies and support, SMEs can help drive economic growth, create jobs, and pave the way for a more prosperous Pakistan. The time for action is now.
