KARACHI: In times of economic downturn, the small and medium enterprises (SMEs) play key role by absorbing labour and maintaining productivity.

The large-scale manufacturing, which depends on banks for working capital, confronts problems such as lay-offs, cut in production in times of distress. The SMEs, however, are diversified and sprung from grassroots, carry split risk and because of this they are better placed to ward off such crisis.

On being less dependent on funds from banking sector, the SMEs also have lesser burden of overhead costs, which put them at an advantageous position even in any financial crisis or shrinking demand.

Against this, the large-scale manufacturing burdened with overheads and huge financial costs could not face any adverse situation, which might be in the shape of lesser liquidity or a drop in demand of its products. It immediately becomes victim of its own weight and has to opt for corrective measures, which could go to the extent of a bankruptcy.

All the developed countries achieved progress through the robust growth in SMEs and even today their large-scale manufacturing is fully dependent on vendor industry, which works as a stepping stone for world’s renowned brands.

In Pakistan, the role of SMEs is no different with an estimated strength of 3.2 million in numbers they are contributing up to 40 per cent in export trade and GDP.

However, there is a greater need for promoting SMEs in agro-based sector where a large potential remains untapped.It is quite interesting that SMEs operate efficiently in both the formal as well as informal sector without putting a burden on banking system, because they mostly operate on self-financing. When it comes to ‘small’ it is the only hope for the poor of the world to step out of poverty through their own resourcefulness.

Therefore, microfinance has now become a crucial poverty alleviation strategy and there are over 7,000 microfinance institutions worldwide, reaching around 16 million people.

Unlike large-scale manufacturing, the default rate in SMEs is negligible because their repayment rate worldwide is well over 90 per cent.

The Union of Small and Medium Enterprises (Unisame) president Zulfikar Thaver said that the success of SMEs depended on ‘simple living and high thinking.’ He said Pakistan needs to tap on agro-based industries to promote SMEs and strengthen its economy.

Mr Thaver, who is also a member of national committee on SMEs, strongly believes that once the SME policy, which had been approved by the cabinet, is implemented it will start generating employment and will create exportable surplus of goods and services.

As of today, SMEs in the country are mostly catering to the domestic demand and in some places are also meeting the demand of large-scale manufacturing sector, especially of the automobile industry.

In these difficult days of financial crisis the world over, he said SMEs even today stand on their wicket. There is a flight of capital from large industrial and business establishments of the country, but SMEs, which are deep-rooted, are operating in their normal pattern.

Small and Medium Enterprises Alliance (SMEA) chief Zafar Iqbal said for any economy SMEs are the best hope as they contribute towards progress of the country without putting burden on banking and financial sector. However, those SMEs linked with large manufacturing units may feel the impact because of slowdown resulting from shrinking demand of some industrial products.

Mr Iqbal said if the country has to become self-reliant, it has to promote SMEs in every sector. This will not only help creating import substitution but will also help create indigenous know-how. However, for achieving this goal the government will have to develop human resource and skills.

He further said that all industrialised nations, initially adopted reverse engineering theory for enhancing exports. It is a short cut for promoting technology and increasing exports by reproducing products manufactured by other countries.

Thaver urged the government to implement the SME policy, which envisages creating an SME export house, credit insurance company, and SME venture capital, etc. Instead of setting up these institutions, he said the government is planning to sell the SME Bank.

Every year, the country loses millions of dollars in exports just because we do not have big fishing boats, which could go deep into the sea to catch tuna fish.

There are herbs, synthetic meat and rice milk, which are finding their way into super markets of the West from other countries, then “why can’t we do the same as they do not need much funds and high tech,” he remarked.

Trade Development Authority of Pakistan (TDAP) chief executive officer Syed Mohibullah Shah told Dawn that investment, technology and skills are needed to boost exports of agro-based industries and like cotton each commodity has the potential to earn foreign exchange up to $10 billion.

He said like cotton, which is used to make yarn, thread, fabric, made-ups and garments and are exported with much value addition, the other farm products such as wheat, maize, sugarcane, rice, vegetable, fruits and flowers could earn billions of dollars if put to proper value addition and marketing.

He particularly, mentioned the mineral resources of Balochistan and NWFP and said those very stones, which after finishing and polishing, can be sold at much higher price in the world market, but in the absence of proper investment and technology they are being presently sold for couple of dollars.Mr Shah said that for achieving value addition in agro-based products it was imperative that such institutions like TDAP, Smeda, Pakistan Council of Scientific and Industrial Research (PCSIR), Engineering Development Board (EDB), National Productivity Organisation (NPO), and SME Bank should have close working relations based on result-oriented targets and goals.

Exports cannot be increased without taking care of the supply side hence exportable surplus should be created in existing and new items. Moreover, diversification of exports is also necessary for improving balance of trade.