Bolstering Entrepreneurship

SMEs are Source of Low Cost Employment Generation

Entrepreneurship is a dynamic process of creating incremental wealth

By

“Identifying & fulfilling human needs through a well managed process resulting in financial  benefits for the entrepreneurs and better  quality of life for the recipients”

In a country like ours where there is immense pressure of population on the economy, high rate of unemployment (6%) is a natural consequence.Advocating entrepreneurship through supporting small business establishment by engaging a potential mass of 95 million (+) youth into entrepreneurial activities may be the only solution for the Government to overcome economic pressures.Facilitating and supporting this new breed of entrepreneurs running small businesses will create job opportunities all across Pakistan.

Small & medium enterprises are the back-bone of any economy of the world and constitute majority of businesses in any country. They are also a source of low cost employment creation. The role of SMEs in the economy of developed/developing countries like Japan, Korea and Turkey has been amazing. One of the reason for this may be the priority and resources assigned by respective countries towards nurturing entrepreneurship. Interestingly, Japan spends around US $ 78 per capita, Korea US$ 70 and Turkey US $ 0.53 per capitafor the development of SMEs in their countries. In Pakistan 99% of the enterprises are SMEs and their contribution in non-agriculture labor force employment is around 78%, export 44% and contribution to GDP is around 40%. However, spending for SME development in Pakistan has been only US $ 0.01 per capita; when analyzed with respect to the resources provided by the government to the apex SME development organization of the aforementioned countries.(Source: Independent Organizational Evaluation of SMEDA – World Bank, 2010)

Role of PMYBL in Promoting Small Businesses

Realizing the situation and potential of the SME sector,the Federal Govt. launched “Prime Minister’s Youth Business Loan (PMYBL)” scheme which provides not only the necessary funds required to set up small businesses, but also provides business development services to ensure sustainability of new businesses supported by the PMYBL through federal agencies like SMEDA. Details of PMYBL are available atwww.youth.pmo.gov.pkSMEDA on the directions of the Prime Minister’s Office has prepared 85 business pre- feasibilities, both in English and Urdu languages for providing support to potential applicants. These pre-feasibilities give critical information/insight of a business necessary to take the decision to start in that particular line. The information includes total investment required to set up the business, HR requirement, technical information, internal rate of return and pay back period etc. Besides this,support for potential entrepreneurs, important training videos on marketing, developing business plans and financial calculators have also been prepared and uploaded on SMEDA’s website, which are available, free of cost. So far around 15 million downloads of various information resources and tools have been made from SMEDA Website.Countrywide helpdesks have also been established by SMEDA for providing handholding support to the beneficiaries of PMYBL. So far around 6,500 beneficiaries have availed a total credit of Rs. 5.8 billion. 

Potential of Rural Economy in Promoting Regional Entrepreneurship Through Small Businesses

Economy of our country is agro based, as the major contributing sector i.e. textile is primarily dependent on agriculture/cotton. According to the Census of Economic Establishment 2005, out of total 3.2 million economic establishments operating in Pakistan, around 1.4 million economic establishments are located in rural areas as compared with 1.8 million urban establishments. The life of 70% of our rural population directly or indirectly depends upon 44% of economic establishments operating in rural areas. Rural entrepreneurship development, therefore is a very important aspect to focus upon by policy makers,which has not been given due attention.Particularly in the wake of immense pressure on our urban centers due to migration from rural areas mainly in search of employment/income generation, prioritization and development support in promoting regional entrepreneurship can mitigate a number of issues, in addition to unemployment.Agro based industry, dairy & livestock and horticulture are among the main sectors which have great potential to attract young breed of potential entrepreneurs, if necessary support is provided to start small enterprises in their own regions/areas rather than migrating to urban areas. Businesses having rural potentials based upon their indigenous strength must be prioritized and supported. 35% post harvest losses in horticulture sector are reported mainly due to lack of processing facilities.Small scale agro processing facilities like fruit & vegetable de-hydration, dairy farming, honey beekeeping, quail farming and sheep and goat farming are among the potential businesses which may be focused by our rural youth. 

Here too, PMYBL may be utilized as an effective tool to promote regional entrepreneurship by supporting establishment of small businesses in rural areas. SMEDA has prepared pre-feasibilities especially focusing on regional rural potential like dairy farming, animal feed, sheep and goat farming, meat shop, veterinary clinic off-season vegetables and others. Govt. may also seek donor assistance to provide support in this area by bringing international best practices to promote rural economies and providing marketing support to link rural businesses to potential markets. 

Role of Academia in Entrepreneurship Development

Unfortunately our Higher Education Institutions (HEIs) have not been able to produce a breed of young entrepreneurs due to the simple reason that our HEIs largely offer supply driven programs without any effective/structured liaison with the industry to offer need based programs that can help pass outs to the acquire skill set that matches the requirement of the industry and also helpsthis youth cohort to become self employed. Establishing business incubation centers by HEIs to help young students to incubate their business ideas before they enter into the business world are rare. HEC may study the concept of business startups support provided by KOSGEB (Turkish SME Development Agency) through establishing business incubation centers in universities and also consider introducing entrepreneurship development courses at undergraduate level programs. These courses should be conducted by successful entrepreneurs, which will further motivate the young breed of future entrepreneurs. 

Similarly, our Skills Development Institutions (SDIs) though impart skills on different vocational trades, but majority of these trades again are not demand driven. Pass outs of SDIshave the advantage of acquired technical skills over the general education andare better placed to start businesses. However, during their stay at SDIs they are not imparted business know-how skills, such as how to start and manage small businesses, which leaves a gaping hole in pushing them towards self-employment. Entrepreneurship development modules both in Urdu and English languages may be prepared and introduced for pass outs of SDIs, so as to enable them to build upon their technical skills – becoming entrepreneurs. 

SMEDA offers a limited number of programs for final year students of HEIs every year on the theme of “Entrepreneurship as a Career Option” in which, besidesinteractive discussion on the advantages of becoming entrepreneurs rather than seeking jobs, successful entrepreneurs are, preferably from the same institutions, invited to deliver speeches on the issues they faced during their business cycle and how they were able to overcome those issues and became successful businessmen.

Access to formal bank finance seems to figure in as the most important issue hampering the growth of new business startups and business expansion. Most small businesses operate through self-financing or retained earnings and do not make use of loans for expanding their operations. Our youth are no different – facing issues in accessing finance. The profile of credit disbursed to the private sector in Pakistan supports research findings that SME financing is still a small share of the total credit off-take by the private sector. Following an extended period of low growth, and recording a net contraction of 0.6 percent in FY13, credit to the private sector registered a healthy growth of 11.4 percent during FY14. However credit extended to the SME sector still remains low, i.e. 5.86% of the total credit off take to the private sector.

The rationale of government assistance to small businesses is for rectifying the disadvantages due to their size caused by economic and social constraints. The purpose is to leverage independent efforts of entrepreneurs to improve productivity, efficiency and trading conditions through targeted assistance. Our youth is our future. Investment by the government towards supporting entrepreneurship initiatives can yield phenomenal benefits for our country, Pakistan.