Nauman Kabir is from that rare breed of business people who staunchly believe that the financially excluded and politically marginalised small- to medium-sized enterprises (SME) sector would not only drive growth but also create jobs enough to absorb the three million young men and women entering the market every year. But like others, he also believes that the sector needs handholding from the government if its potential is to be unleashed.

“There are things that cannot be done without strong government support and I am not asking for subsidies for the SMEs,” says Nauman, who was recently elected as president of the Lahore Chamber of Commerce & Industry (LCCI) from a business platform that mainly represents small and medium-size entrepreneurs from the city.

For example, he points out in an interview with this correspondent, that the SMEs are only a fraction of the total bank credit to the private sector. “The credit to the SME sector accounts for merely six per cent of GDP; the rest of banking credit is taken by the cash-rich large scale industry like textiles, cement, sugar and so on or the government itself for financing its budget,” he argues.

“Now the problem is there are numerous sectors where big businesses wouldn’t invest for various reasons and smaller one doesn’t have the cash to invest. Therefore, we need the government to take action and give SMEs greater access to finance.”

According to him, the cost of documentation required by SMEs to apply for a small bank loan is prohibitive. “Then they are required to produce collateral, which in the majority of the cases they don’t have, to obtain loans. At the end of the day, the smaller manufacturers prefer to borrow from their friends and family when in need of cash rather than going to the banks. But that is not enough to grow bigger. Recently, the State Bank of Pakistan has taken some actions to make collateral-free loans available to SMEs. But are the banks ready to do so? I don’t think so,” the LCCI president says.

‘There are things that cannot be done without strong government support and I am not asking for subsidies’, says Nauman

He didn’t agree with a suggestion that the small and medium-sized businesses don’t want to be documented. “This has been assumed by policymakers without any solid reasons and for their own convenience. The fact is that it is in the interest of SMEs to get documented if they want to grow bigger and who doesn’t? However, the government can make it more attractive for the smaller businesses to get documented by creating a separate regulatory and tax regime for them. How can you treat a company with annual revenues of Rs50m and the one that actually pays Rs50m in taxes?”

He is also of the view that it is the job of the government to create modern industrial infrastructure with ‘plug and play’ facilities to allow investors, especially the small to medium-sized entrepreneurs, opportunity to invest.

“This is the true Chinese development model that has helped them become the world’s economic powerhouse in such a short time. It allows entrepreneurs with limited resources to invest directly in production and jobs. Besides, it also helps take care of skyrocketing prices of land for the establishment of a factory.”

Nauman feels policy inconsistencies are the biggest impediment hampering investment and industrialisation in the country. “If you look at our history you’ll find that the industry flourished and thrived when governments gave long-term investment policies. When you have a feeling that a policy or incentives given by a government will be withdrawn or tampered with after a short time or a change in the government people would prefer to put their money in more stable but less productive sectors like real estate. This has happened in Pakistan with resident and nonresident Pakistanis investing in real estate instead of the manufacturing industry or agriculture. This is unfortunate for people and country both.”

He is of the view that politicians from across the political divide should sit together and agree on a charter of economy. “This is as important as the charter of democracy if the country is to break out of its ‘boom and bust’ cycles and industrialise. You need to assure investors that their investments will be safe and the policies wouldn’t be changed after a change in government.”

Mr Kabir thinks that another reason for the lower level of industrialisation in Pakistan is our failure to develop our agriculture. “We are an agro-based country and we got a boom in the industry because of cotton; even today major chunk of our manufactured exports consists of agro-based products like textiles and leather. It is a matter of concern that we are importing agro-products despite being an agrarian country. This is also one of the major reasons for the below the mark performance of our economy in the recent decades.”

Current economic policies**

Mr Kabir doesn’t consider all the economic policies of the present government as business-friendly or pro-investment. “Not at all. We don’t see a long or short term economic plan given by this government. We are working on an ad hoc basis,” he replied to a question on what he thinks of the government’s claims of fixing the economy to encourage investment.

“Take the example of declining foreign direct investment (FDI). Macroeconomic instability is a major factor foreign investors aren’t investing in Pakistan. In any country, unless there is macro-level stability, there are constant challenges to investors. Our embassies are also not working to attract FDI. I have written to all my ambassadors asking them to tell us what we at LCCI can do to attract FDI or how can we assist them in diversifying our export markets. Not a single response has been received from them yet. So this is the level of interest and the state of our economic diplomacy.”

He believes that the policies pursued to stabilise the country’s external account had miserably failed because the economic stabilisation measures were not followed up with policies to encourage export promotion and import substitution.

“Also luxury imports were never discouraged despite the fact we do not have dollars to spend on such products. Why do we need cars? Why don’t we develop an effective public transport system? Unless we reduce our reliance on imports to save dollars and boost exports to earn dollars our current account problems will continue to bring us down every few years.”

Regional economic integration

Moreover, he adds, Pakistan is a regionally integrated economy.” We need to make peace with our neighbours including India and Iran. Regional cooperation is the only way to move forward towards global integration. This is a lesson taught by regional trade agreements made by European, American and South-East Asian nations. If Europe can come together after fighting two great wars, why can’t we do it in South Asia? The people who made the Regional Cooperation for Development (RCD) policy had realised this in the 1960s. But we abandoned that. If we had RCD we could reach Europe via land route today and have better trade relations. Our economic future is in being part of strong regional blocs.”

Published in Dawn, The Business and Finance Weekly, November 8th, 2021