The National SME (small and medium enterprises) Policy of 2019 spells out a number of measures that the federal and provincial governments can take to transform this sector into a powerful driver of the economy. But so far, nothing has happened to suggest that the policy is being implemented.

Agriculture has remained under the provinces’ exclusive domain for a decade. But no province, with the exception of Punjab, has so far made significant progress. It is not only the incompetence of provincial authorities that undermines the growth of agriculture though. Sometimes, the lack of federal support, delayed or insufficient release of funds from the federal pool, injudicious inter-provincial sharing of water and inconsistent federal policies on agricultural subsidies also make agricultural development difficult.

The provincial governments can address politically sensitive issues of joblessness and falling income levels more efficiently if they modernise agriculture and promote agro-based SMEs.

For the promotion of agro-based SMEs, each province needs to develop its own database of SMEs under broad categories of agro-based, industrial and service-based entities. Currently, all 3.8 million SMEs are broadly categorised as those involved in manufacturing, trading and services sectors. Many of them are directly

The absence of a separate class of agro-based SMEs makes it difficult for the provincial governments and banks to offer tailor-made support that they need

linked to the agriculture sector. These include ones operating in cotton ginning, rice milling, seed development, meat production and processing, poultry and fish farming segments.

Once the provincial governments identify such SMEs and start a meaningful interaction with them, they will learn what can be done to promote agro-based SMEs. The SMEs falling in this category will find it encouraging to enjoy different sets of provincial incentives — and will hopefully be willing to comply with province-specific rules — if their operations are inter-provincial. Those with intra-provincial operations can, meanwhile, focus on their present territories.

With the impending entry of China in Pakistan’s agriculture sector under the second phase of the China-Pakistan Economic Corridor (CPEC), agriculturists are getting nervous. They don’t know how the agreements signed between China and Pakistan will influence provincial agriculture and SMEs operating in this sector.

The SME sector consisted of 3.8m units before the Covid-19 pandemic. But the number might have shrunk now. According to a survey conducted by the Small and Medium Enterprises Development Authority (Smeda) in April, “34pc enterprises were expecting that they would not be able to carry on with their current business” during Covid-19 lockdowns. Hopefully, a number of such SMEs — with the financial support coming to them via banks’ concessional finance schemes — would switch over to new lines of businesses or even find it feasible to continue in the present line.

The current situation offers the provinces an opportunity to expand their respective base of agro-based SMEs. The provincial authorities, SME representatives and banks can draw a plan under the guidance of the central bank and Smeda on how new SMEs could be established, and the existing troubled ones operating in other lines of businesses could be facilitated to diversify into agro-based production and trading.

A simultaneous policy focus on agriculture and SMEs can stimulate faster growth in both sectors if their development strategies are designed to help them support each other. And, these strategies are implemented simultaneously.

The SME Development Policy of 2019 could be suitably amended to pave the way for this purpose. This can be helpful in handling food security issues without compromising on food export growth and increase the share of both agriculture and small-scale industries (of which agro-based SMEs would be a part) in GDP. Prior to the Covid-19 pandemic, 0.8m SMEs were industrial units, 1.2m operated in the services sector and 1.8m were identified as commercial and retail business establishments.

Currently, SMEs catering exclusively to agriculture fall in all the three categories. Before designing an exclusive strategy for the promotion of agro-based SMEs, all the stakeholders will have to agree on what separates such SMEs from industrial and commercial SMEs. Once this is done, the application of that definition on existing SMEs should determine which ones could be treated as agro-based and what exclusive treatment they deserve to unleash their true potential.

The absence of a separate class of agro-based SMEs makes it difficult for the provincial governments and banks to offer to the SME sector the tailor-made support they need to play in the promotion of agriculture. This problem will only exacerbate with the entry of Chinese companies in our agriculture and SME sectors in the near future. China has a separate class of agricultural SMEs and those entities have contributed much to the progress of Chinese agriculture. Over the years, Chinese agricultural SMEs have become efficient and outward-looking and, in March this year, the Henan province of China qualified for $300m World Bank financing for green agriculture investment for the agro-based SME sector.

If the provinces start treating agro-based SMEs exclusively, it could help them address specific issues of the sub-sectors of agriculture i.e. major and minor crops, livestock, poultry, fishing and forestry. A general policy for the promotion of SMEs — developed with no or nominal input from the provinces — cannot help small fishing SMEs of Balochistan to get rid of illegal fishing along the Balochistan coast that hurts them financially.

Similarly, such a policy cannot be of much help to SMEs in Khyber Pakhtunkhwa that are involved in the cross-border trading of dry fruits with Afghanistan — or, for that matter, make things better for Sindh-based small ginning factories or rice mills that remain neglected. The provincial government treats them as an integral part of the all-powerful Pakistan Cotton Ginners Association and Rice Exporters Association of Pakistan, not as attention-starved SMEs. —MA

Published in Dawn, The Business and Finance Weekly, September 21st, 2020