The Birth of SMEDA

In the previous column I related the significance of Small and Medium Enterprises (SMEs) in every economy, and the cognisance of it that came quite late to Pakistan Government in 1998, to be exact. It was fall of 1998, the year Pakistan had conducted the nuclear tests and taken on the wrath of sanctions, which had begun to cut deep into already fragile economy. Mian Sahib, resplendent in his ‘overwhelming majority’ had removed all obstacles from his path to a monarchical status had exploded the bomb to flex his muscles on the global scene for posterity to remember his bravado. Opposition had been tamed, the sceptre of 58 – 2 (b) had been sheathed for ever (so he thought) and even the military establishment had been politically de-fanged. Yet there was one frontier which remained unconquered: Ironically that was his so called forte, the economy. He had somehow imagined that his business acumen would emanate from Ittefaq Foundries and turn everything in Pakistan to gold. That was not happening. His yellow cabs and the Motorway was not turning Pakistan into Korea and that perplexed him greatly. As Dr. Yaqoob, Mueen Afzal and Ishaq Dar were sitting in Washington rattling the begging bowl in front of the donors, Mian Sahib was getting desperate to get a magic wand for spreading prosperity to his riaya (masses).

Amongst his friends there was a genuinely dynamic business entrepreneur, K.B, who had resigned as chairman Export Promotion Bureau in utter exasperation with the bureaucracy and red tape. He had a fire in his belly to revive the economy, having built an empire himself in textiles through his own innovation and initiative. K.B had learned much from LUMS faculty in entrepreneurship, so he put together a team of two LUMS Professors and drawing upon LUMS academic knowledge of SMEs in global perspective, and they chalked out a plan to set up a dedicated government agency for uplift of the SMEs in the country. The idea clicked with Mian Sahib and he bought it hook line and sinker. Hurriedly, Small and Medium Enterprise Authority (SMEDA) was cobbled together, away from the legislative or bureaucratic anvil where it would have been beaten out of shape right at the start. In October 1998, SMEDA was launched in Islamabad at the Convention Centre with great fanfare. Deferring a legislative cover for later, Gazette notifications were issued and funds released.

Being dynamic private sector men, K.B and the LUMS Professors put together SMEDA within couple of months on ground and started operations in January 1999. Normally, it would have taken Ministries to record minutes of the first presentation to Mian Sahib but since political will was there to support K.B. a new Guinness Book of records entry was made – a new federal agency conceived, approved, created and given physical form in three months flat. Some of the best management minds were hired to man SMEDA. It was an innovative concept to jump start the economy through SMEs. For that, SMEDA was placed under the Prime Minister’s Cabinet Division, instead of in any other Ministry. The first draft of the Ordinance envisage unbridled powers, something on the lines of SBA of U.S which has a direct reporting line to the President, shortcutting the bureaucracy and its immense resources and powers are dedicated to welfare of the SMEs in the U.S. SBA’s powers extend to judicial domains and its directives are binding upon State Governments and even the Federal Reserve Bank.

Having made a lightening start out of the blocks SMEDA spun into action and came up with at least three major sector strategies within the first four months – the Fisheries development plan for Karachi Fish Harbour, the Urban Transport Scheme and a Dairy Development Plan for Punjab, apart from sectoral reports on Leather, Marble and Granite mining/processing and gems and jewellery. The idea was to take up sectors where SMEs exist and after evaluating the whole value chain from raw materials to potential markets (local and global), start filling in the weak links. There were five components to the value chain analysis: Markets, production technology, human resources, credit and regulatory environment, in that order. Sectors were prioritised on existence of SMEs, economic viability, employment potential and export possibilities. K.B and his team was well on its way to economic revival by playing federal trouble shooters in economic sectors, picking up one by one and setting it on its way to growth.

In each case, regulatory reform by the concerned authorities was a key to breaking the inertia. Federal Government support came forth in Fisheries and Urban Transport and the plans began to translate into action on the ground. For dairy, mining and other sectors provincial government ownership was required that did not follow since SMEDA was a federal government agency and the endemic territorial conflicts between the two levels of government became an impediment.

Two serious problems arose before SMEDA’s honeymoon was over. The bureaucracy felt extremely threatened by the independence and dynamism of SMEDA, which was trying to cut across territorial jurisdictions of ministries and stepping on the toes of civil servants. On top of that, more serious, Mian Sahib did not really grasp what SMEDA was all about except that it would somehow create a political hype to put wind in his sails. Diplomacy and tact were not the qualities that K.B is remembered by. In his exuberance he went about his business like a bull in a china shop. Wearing his disdain for bureaucracy on the sleeve he began to invite considerable acrimony from different quarters. In his eagerness to open up formal credit to SMEs, he tried to bulldoze the banks assuming that the Ordinance yet to be passed would provide him such a right. State Bank stepped in and threw the book at him – article 46-B of State Bank Act that prohibits anyone including Finance Ministry to give any directives to Banks. World Bank that had worked hard to provide and protect State Bank’s autonomy read wrong signals emerging out of SMEDA and responded by giving a warning shot that “a firewall needs to be put between SMEDA and Financial Institutions.”

I was a member of the State Bank’s Central Board at the time and helping K.B with SMEDA’s agriculture sector simultaneously. I had to step in quickly and broker a truce with the State Bank and the World Bank. To cut a long story short, SMEDA’s high speed train became unstable on rickety old tracks of the existing governance system. Mian Sahib’s ears were poisoned and his ardour for SMEDA was cooling off as he slowly detached himself from K.B while the bureaucracy kept flinging all kinds of spanners in the works. SMEDA’s ordinance was stalled interminably, regulatory support was not forthcoming as responsively and finally the National Urban Transport Policy pitched Mian Sabib against his maverick brother in Punjab over territorial jurisdiction.

SMEDA’s high performance engine had begun to sputter. Like what happened to Mohammad Tuqhlaq in medieval India, K.B’s futuristic ideas were gathering hostile forces against him. A resolute man that he is, and clean, he went ahead not paying heed to the brewing storms around him and SMEDA. Finally, in October 1999, exactly a year later, a bolt out of the blue hit him. General Musharraf stepped in to send Mian Sahib packing. K.B’s closeness to Mian Sahib cost him dearly, quite unjustly, since he had never broken bread with Mian Sahib on a political plate. He was just there in earnest to help the country and the economy. K.B was removed from SMEDA in a knee-jerk reaction by the new regime, quite to the glee of the beleaguered bureaucracy, and perhaps on its advice too. A big question mark hung over SMEDA from October till December 1999 as the new leaders took their time deciding the fate of SMEDA, which everyone assumed would end up under the guillotine. However, that did not happen and SMEDA had a rebirth in January 2000 under the new regime.

We will pick up the story from there next week.

Iqbal Mustafa
29 November 2003

1340 words