Public procurement for SME growth.

Byline: Syed M. Hasan

THE ensuing uncertainty coupled with the initial soft advisories and later strict restrictions following the Covid-19 outbreak has brought the economic system to a virtual halt. The adverse impact on the goods market has quickly spread to the labour market and some credible studies project the unemployment figures to rise by at least 4 million in the next few months.

One important segment of the economy that is going to receive a significant blow comprises of small and medium enterprises (SMEs). Although it is standard at the policy level to club both the small and medium enterprises, there exists significant heterogeneity in the sector. Within the SME sector the 'small' enterprises, due to their higher vulnerability to shocks, are expected to get the hardest hit of the economic meltdown.

Amongst the various official definitions in vogue, the State Bank's umbrella definition using the employment criterion classifies an entity as SMEs if it engages up to 250 employees, where 'small' firms are the ones whose employment number ranges between 1 and 50. However, to understand the true employment impact against any firm's closure or downsizing, seasonal, contractual and part-time employees also need to be considered.

Data from the last economic census published in 2005 by the Pakistan Bureau of Statistics shows that except for the mining and quarrying sector, around 90 per cent of businesses in all other industries employ up to 5 people (microenterprises) and around 98pc of all enterprises in the country fall in the 'small' category. Also, according to statistics shared on the website of Small and Medium Enterprises Development Authority, SMEs contribute 40pc to national GDP and constitute about 80pc of non-farm employment.

Keeping in consideration their significance and potential vulnerability, the government has announced several relief measures. While it can be argued that this type of direct income support can help the sector to withstand the shock in short term and keep the workers afloat, it does not in any way guarantee that businesses will be able to capture their market shares once normalcy returns.

One potential avenue that can provide some hand-holding for the SMEs in the medium- to long-run is to open up business opportunities for them through a public procurement process. This refers to the acquisition or the purchase of goods or services by a public sector organisation using funds or resources from the public...