Tackling the common problems in Saarc nations

Written by Krishan Kalra | Updated: Oct 31 2009, 04:21am hrs
Mr Khan from Lahore, Pakistan had to close his Rs 100 crore business in car batteries because of the easy availability of cheap smuggled batteries from Afghanistan. His government could not do anything to protect his business. Rajan Jaywardene of Sri Lanka had to get credit from the banks at 36% rate of interest on OD Facility when he needed money for his business. He still succeeded in fulfilling export orders. These were the facts which emerged from a two day international conclave on, SMEs of SAARC CountriesLooking Ahead organised by the PHD Chamber along with KAS of Germany. Businessmen from Afghanistan, Bangladesh, Pakistan, Sri Lanka, Bhutan, Nepal, and India were present at the conclave.

This conclave threw open some interesting insights. Though SMEs are the backbone of the economy for all the SAARC countries and constitute a huge percentage of the industry, still enough is not done to promote them and they are facing multitude of problems which are surprisingly similar. Affordability, accessibility and timeliness of short-term and export credit are major constraints. Other hindrances that SMEs face to grow are timely payments, technology upgradation, right manpower, poor quality control, lack of business information, no training programmes and no extra resources on research and development. Apart from this, poor infrastructure facilitiesairports, ports, roads, power, low internet connectivity, inadequate information about rules and regulations governing trade between SAARC countries and time consuming procedures for export and import which increase the transaction cost of business also are some the common obstacles that they face.

SMEs contribute a huge share to their respective GDPs, export and provide highest employment opportunities next only to agriculture and also utilise local resources as well as prevent migration of rural population to urban centres.

SMEs have some inherent advantages too, as they have the advantage of innovation and speed, which can be leveraged to stay ahead. They have the capability to score over large units due to their ability to utilise resources efficiently and make their presence felt in niche markets. They should follow the cluster approach to development as it would help them to derive economies of scale of shared production, common warehousing, testing and research and development facilities. Also they will be able to overcome deficiencies in marketing, research and development, technology, effluent treatment etc. There is need to focus on research and development to become globally competitive for which the unit should take advantage of research institutions and labs to save costs. Also having a larger number of customers rather than few will allow them to overcome problems more easily.

It was unanimously felt that increasing trade between the Saarc countries will help SMEs a lot. This would require that all Saarc countries should support collective self reliance by forging complementarities in mutually beneficial segments within the region. Despite the geographical proximity, trade among Saarc countries stands at less than 5% of the regions total trade with rest of the world, while trade between European Union countries stands at a whopping 66%. Over 90% of requirements of major Saarc countries are met from outside the region. Further reaching out to countries in Saarc region will provide opportunity to trade, knowledge sharing, which is learning from each others problems and derive benefits of agglomeration by adopting a collective approach which could make themselves being heard during negotiating strategies at international forums.

The way forward to increase IntraSaarc trade has to be multi-pronged strategy coupled with the political will. Better connectivity and infrastructure, better trade facilitation, reduced problems at customs, fewer non tariff and para tariff barriers, better and joint marketing facilities will all contribute. Increased awareness of each others potentials and policies, open borders and trade at borders, and easy visa accessibility will help these small units.

Also opening of new silk route which connects Saarc with Central Asia, implementing Saarc common transport policy, developing cross border transport linkages and operationalise Saarc trade and transit agreement along with establishing a Saarc dispute resolution council will greatly help trade grow within the region.

SMEs can also increase trade linkages by lateral and vertical integration with the bigger players as this will ensure no break in their supply chain and also no financial constraints. Joint venture and joint production for vertical specialisation is also another possibility. SMEs should strive to build relationships by using IT in a big way. As the chairman of the SME Task Force,

JS Juneja in his concluding remarks at the technical session observed, research and studies show that the problems of SMEs in the Saarc region are common and there is need for enterprise to enterprise cooperation amongst SMEs of the region not only for sharing technology but also meet the market demand for products and services for mutual benefit. An exchange mechanism should be set up and PHD Chamber could serve as a focal point and facilitator. Government could also work out policies to help SMEs which other countries could follow like government fixing a percentage for procuring supplies from SMEs, push for more funds for priority sector lending and setting up an SME Exchange.

If all the countries can jointly move forward to make Intra-Saarc trade a reality and increase business manifold, this will greatly reduce the overall poverty and also reduce unemployment as this sector has the capacity to employ huge manpower.

The writer is secretary-general of PHD Chamber of Commerce & Industry