SME Cluster and Network Development Programme (CND) in Pakistan initiated in 2001 as a component of the Integrated Programme for Pakistan. A small pilot project launched to create awareness within Pakistan of the relevance and benefits of the UNIDO SME CND methodology for the development of the country’s industrial SMEs. Limited to five clusters, and with very limited financial resources from UNIDO and substantial in-kind support from various national bodies in the public and private sectors, this project succeeded in popularising the UNIDO approach throughout the development community in Pakistan, leading to the signing of a follow-up project for the implementation of specific sub-projects in the five pilot clusters under a self-financed trust fund agreement with the Trade Development Authority of Pakistan (TDAP - formerly EPB) and with some co-funding from UNIDO. In the meantime, several other agencies adopted this approach and are now promoting some 20 additional clusters with UNIDO’s methodological support, with the number expected to rise significantly in the coming years. In order to provide a stable and sustainable basis for UNIDO to continue to offer this methodological support, this project proposes to establish a UNIDO-funded focal point of experts and support staff in Pakistan that will become the core group to coordinate and promote best practices in CND, and to scale up CND activities to ensure that the end result will be a very high impact on industrial SMEs in the country. In addition, because of the unique approach adopted in Pakistan, involving high impact with limited funding, the project will document the Pakistani experience and best practices, and prepare materials disseminating information about the approach. These will be used to refine and adopt the UNIDO approach to CND in subsequent projects in other countries.
We know that Small and medium-sized enterprises (SMEs) play a crucial role in the social and economic development of Pakistan, where they produce a wide range of goods, provide employment for a large number of skilled and semi-skilled workers in both urban and rural areas, account for a substantial proportion of manufacturing output, and make a major contribution to the country’s balance of payments. In overall terms, SMEs account for about 30% of Pakistan’s GDP, 15% of investment, and 80% of employment. They also play a prominent role as existing or potential producers of export goods. SMEs may thus be justifiably characterized as the principal building blocks of the Pakistani economy, providing the country with many opportunities for increased employment (including female employment) and poverty eradication on the one hand, and enhanced productivity, competitiveness and international market penetration on the other.
Despite its importance as an engine of growth in the Pakistani economy, the SME sector continues to suffer from a variety of weaknesses. These lingering weaknesses have been widely recognized by the government and other developmental partners in Pakistan, who have attempted to overcome them through a number of measures introduced in recent years. To address the policy-level constraints, the Government of Pakistan introduced a new economic policy on 15 December 1999, which places high priority of the promotion of SMEs. At the institutional level, a number of specialized agencies have been established to support the growth and development of SMEs. These are listed in A.3 below.
Due in great part to earlier UNIDO efforts, a variety of government agencies and private sector institutions in Pakistan have adopted the Cluster and Network Development (CND) approach as a major tool for the promotion of SMEs. Such CND programmes now constitute a very important part of the government’s SME promotion strategy, with even greater emphasis expected to be placed on this approach in the future.
Several major ministries have the primary public responsibility for regulation and promotion of the SME sector, especially the Ministry of Industries, the Ministry of Commerce, and Ministry of Science and Technology. However, as they address a broad constituency, the bodies that are most directly responsible for SME development and promotion are:
The Small and Medium Enterprise Development Authority (SMEDA), which was set up in 1998 as the apex body for the promotion of SMEs in Pakistan, and is associated with the Ministry of Industries and Production.
The SME Bank, which emerged from the restructuring and amalgamation of the earlier Regional Development Finance Corporation and Small Business Finance Corporation in January 2002, and which is mandated to support and develop the SME sector by providing the necessary financial and technical support on a sustainable basis.
A number of small industry development corporations operated by the various provincial governments, such as the Punjab Small Industries Corporation (PSIC), the Sindh Small Industries Corporation (SSIC), the NWFP Small Industries Development Board, the Mineral and Industrial Development Corporation Azad Kashmir, and the Directorate of Small Industries Balochistan.
The Export Promotion Bureau (EPB) – now TDAP, which is associated with the Ministry of Commerce and acts as a facilitator to help SMEs gain access to foreign markets.
The Ministry of Science and Technology, which provides significant support services within its field of competence to SMEs.
The National Productivity Organization, which comes under the aegis of the Ministry of Industry and Production, and is affiliated to the Asian productivity Organization. It imparts productivity tools for SMEs in Pakistan as well as organizing training workshops on various topics related to SMEs.
The network of Chambers of Commerce and Industry, which operate at both the local level throughout Pakistan and the national level through the Federation of Pakistan Chambers of Commerce and Industry (FPCCI). They play a pivotal role in conducting trade negotiations and creating linkages and between enterprises in Pakistan and foreign countries through their association with counterpart institutions in these counties.
UNIDO Technical Assistance
UNIDO has been providing technical assistance in CND as a subcomponent of the Pakistan Integrated Programme since its inception. The objective of this assistance has been to build the capacity of Pakistani institutions, in the public and private sectors, to promote CND in the country. This involved the operation of pilot CND activities in five selected clusters, the training of Pakistanis to serve as cluster development agents (CDAs), and the dissemination of information about the results of the programme, and about CND promotion generally, to increase awareness of CND as a tool for SME promotion among both public and private agencies in the country.
The initial activities were undertaken as part of project US/PAK/01/099, which began in mid-2001, and covered the following five pilot clusters:
- Electric fans in Gujrat;
- Cutlery in Wazirabad;
- Ready-made garments in Lahore;
- Leather and leather products in Korangi, Karachi; and
- Gems and jewellery in Saddar, Karachi.
All of these clusters were selected by the Pakistani counterparts for their potential to increase significantly their export revenues, in some cases from an already high base. This project had a modest budget of $235,000 but was able to attract both interest and parallel funding from Pakistani firms and institutions.
Particularly important breakthroughs have been achieved in terms of awareness creation among a wide range of public- and private-sector counterparts in Pakistan, who until the initiation of the UNIDO project had almost no appreciation of the CND concept. The combination of substantive and advisory activities undertaken in the context of the UNIDO project made a major contribution in helping both policy-makers and private entrepreneurs to gain an understanding of the potential benefits of cluster-based SME development in Pakistan. This resulted in the adoption of the SME CND programme as a principal element of the Government of Pakistan’s official trade policy in 2003, and in 2005 the National Institute of Public Administration (NIPA) in Pakistan introduced SME cluster development as an integral component of its 14-week Advanced Course in Public Sector Management for senior civil servants of the country’s federal and provincial governments, which is mandatory for their promotion from Grade 19 to Grade 20.
An important result of this success in awareness creation about the potential benefits of the cluster development approach for Pakistan’s SME sector has been the extensive support given to the UNIDO programme by national institutions both in cash and in kind. Based on an informal agreement reached in 2001 between the then UNIDO Representative in Pakistan and the then CEO of SMEDA, the UNIDO project team have been hosted by SMEDA at the agency’s headquarters in Lahore since that time. In this connection, they have received all the necessary facilities for a period of more than four years, including office space, furniture and equipment (including internet-capable computer workstations), stationery and free access to internet, fax and telephone connections. This represents a significant and highly valued contribution in kind by SMEDA for the programme, in the absence of which it would not have achieved the successes that it has, but which SMEDA will have to discontinue after April 2006 due to other pressures on its resources. Similarly, in 2004 the EPB (now TDAP) decided to make available US$ 211,000 under a self-financed trust fund agreement, plus a variety of additional in-kind contributions, to finance a project for the implementation of important follow-up activities in the five pilot clusters. This commitment was the first of its kind ever entered into by an official Pakistani entity to provide national funds to a multilateral development agency to finance its activities in Pakistan. In recognition of the unprecedented nature of this agreement, the release of the first tranche of this payment (US$ 70,000) in February 2005 was accompanied by the release of US$ 50,000 in UNIDO counterpart funds.
Another impact of the UNIDO activities in the five pilot clusters has been the emergence and continuing growth of interest among various institutions in Pakistan to expand the cluster development programme beyond these five clusters with UNIDO’s continued technical support. A ripple effect has thus been created and is spreading rapidly, as underlined by the following developments:
- Within the framework of the national Trade Policy, the TDAP prepared several additional clusters for inclusion into the programme, including
- The sports goods cluster in Sialkot;
- The surgical instruments cluster in Sialkot;
- The automotive components cluster in Karachi;
- The knitwear cluster in Karachi;
- The knitwear cluster in Lahore;
- The electrical appliances cluster in Karachi; and
- The electrical appliances cluster in Lahore.
- In August 2004 the provincial government of Punjab, operating through PSIC and in collaboration with SMEDA, adopted the UNIDO SME cluster development approach to promote the development of the following seven clusters:
- The ceramics and pottery cluster in Gujrat;
- The domestic electrical appliances cluster in Gujrat/Gujranwala;
- The leather and leather products cluster in Sialkot;
- The woodworking cluster in Chiniot;
- The cotton ginning cluster in Rahim Yar Khan;
- The handloom weaving cluster in Multan; and
- The textile machinery spare parts and components cluster in Faisalabad.
- In August 2005 the provincial government of Azad Jammu and Kashmir invited UNIDO to prepare a project concept to promote the development of a number of artisanal clusters in the province, which it planned to submit to a donor conference it was planning to hold. While this proposal was unfortunately overtaken by events, subsequent discussions held by UNIDO representatives with government officials and the donor community suggest that an adapted version of such a programme would be a very appropriate vehicle for promoting sustainable livelihoods in the regions devastated by the earthquake of October 2005.
- In December 2005, the recently-established Ministry of Textile Industries prepared a draft proposal to support the development of six textile clusters comprising:
- The handloom weaving cluster in Multan (also supported under the PSIC/SMEDA project mentioned above);
- The home furnishings cluster in Multan;
- The polyester cluster in Gujranwala;
- The handloom weaving cluster in Hyderabad;
- The weaving cluster in Hyderabad; and
- The textile cluster in Dadu.
In all of these cases, the Pakistani counterparts have expressed their willingness to contribute the bulk of the funding of the projects in order to overcome the constraints arising from the paucity of donor funding.
While the main activities undertaken by UNIDO so far have been devoted to the five pilot clusters, other capacity building activities were also undertaken, which allowed for a broader coverage of UNIDO’s support activities for the CND initiatives taken by various agencies in Pakistan. The resources provided under this project were thus utilized, inter alia, to establish a sustainable national capacity for the training of cluster development agents (CDAs) through a training-of-trainers programme developed in conjunction with NIPA and the experts of the UNIDO’s cluster development programme in India in May-June 2005. This was followed a short time later by the holding of the first national CDA training programme in Pakistan, which was open to the CDAs of all CND initiatives being undertaken at that time by the various development agencies in Pakistan. As a result, it was possible to impart the UNIDO methodology to these initiatives as well, and since the preparation of a diagnostic study and the formulation of an action plan for each cluster constitutes an integral part of the CDA training programme, it was possible to provide these fundamental building blocks for all of these cluster development initiatives.
Another training programme initiated for 20 CDAs representing six national and private sector bodies including SMEDA Sindh and ANAN (Aik Hunar Aik Nagar) under this programme in the first quarter of 2007. Training on UNIDO CND methodology to the national programme of “One Village, One Product” called AHAN was imparted to help AHAN team in effective implementation of their programme. Review meeting of the CDAs is expected in the mid-May 2008
CND also supported Trade Related Technical Assistance Programme of UNIDO (TRTA) on “Compliance Issues Affecting Enterprise Clusters in Punjab” to address the developmental challenges faced by the SME Clusters through the adoption of holistic approach.
This project is also supporting Engineering Developing Board (EDB), Pakistan Council of Scientific and Industrial Research (PCSIR), Business Support Fund (BSF), Competitive Support Fund (CSF) and Technology Up-gradation and Skill Development Company (TUSDEC) in materializing their goals through matchmaking with the cluster actors.
In summary, UNIDO has been providing support to Pakistan capacity-building activities since 2001, and has had modest funding so far of less than $550,000. However, because of the success of the project, cooperating firms and institutions have contributed significant parallel funding and this has resulted in an impact that is considerably greater than the relatively small volume of UNIDO funding would suggest. UNIDO support for the initial five clusters, plus its training, information dissemination, and other capacity building activities, have led to the uptake and application of this methodology by a wide range of Pakistan institutions, public and private.
As an outcome of UNIDO Cluster and Network Development Activities in Pakistan, the following agencies have initiated cluster development activities in 50 clusters in Pakistan keeping in view of their mandates and mission statements:
UNIDO, TDAP & SMEDA: 5 Clusters
TDAP: 7 Clusters
SMEDA Punjab: 5 Clusters
SMEDA Sindh: 5 Clusters
AHAN: 4 Clusters
PSIC: 8 Clusters
Min of Textile: 9 Clusters
TRTA: 4 Clusters
SSIC: 1 Cluster
NGO Tharparkar (TRDP): 1 Cluster
CSR Sialkot: 1 Cluster
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