The Other Side of Pakistan: Medium Enterprises on the Rise

After a trip to Pakistan in May, Beyond Profit has created a multi-part series, The Other Side of Pakistan, about a side of the country you may not have heard about before. We look forward to your comments and questions.

Small potatoes. That’s what one might call 99% of enterprise in Pakistan. These “small businesses” comprise most of the enterprise activity in the country. Many of these entrepreneurs prefer to keep it that way. Whether keeping afloat a family business passed down by a relative, or running a small shop or food stall, Pakistan’s entrepreneurs fail to see the potential of growth. But, there is movement in the medium-sized enterprise category, which can make a great impact in a developing economy. In Pakistan, these businesses are employing 100-250 people, and hold assets up to US$300,000. The challenge is to encourage and help them to grow.

Were the government not preoccupied with terrorism and poverty reduction, perhaps they would do more to support this sector. A deft move was to outsource this work to SMEDA, the Small and Medium Enterprise Development Authority, a decade or so ago. The organization, operating out of Lahore, hangs in the balance between government and the private sector.

The key to their success is the intellectual capital they bring to the challenge. Rather than operating with a staff of bureaucratic government employees who usually work 2 year terms and then move on, SMEDA employs a combination of government employees and private sector consultants. These consultants are often highly-educated locals, who have diverse experiences working in the private sector. As a result of their human capital, SMEDA’s standards and efficiency are remarkably different from what you’d find in a typical government department.

SMEDA hasbeen set up by thegovernment to act as a “facilitator” for SME growth. Their work focuses on productivity improvement, business cluster development, and skills training. When they see gaps, they create data, they push for new policy, and they guide entrepreneurs so that they can obtain financing, and they bring small businesses together. In some respects, it’s working. Pakistan is now the 4th largest dairy producer in the world. Gems and jewelry is another growth sector, having seen a 47% increase in exports in the last year. And marble and granite mining is another blossoming space. Other potential growth areas for export include surgical supplies, leather-ware, furniture, sports goods, and cutlery.

The problem is, in order to truly matter to overall GDP, SME exports need to be higher. In order for that to happen, Pakistan needs to get its house in order (and present a better public face to the world). Nevertheless, entrepreneurs try to carry on as if its business as usual. And, as a result, SMEs are growing—at 7.7%, as of 2009.