Pakistan counts 7.14 million business establishments in its Economic Census, and only 9.8 per cent of them sit in manufacturing. Wholesale and retail trade accounts for 45.1pc, nearly five times as many. Twenty-seven years of measuring small and medium enterprises (SME) policy success by headcount and GDP share, never by whether small firms are actually financed for production, has led the government to finance consumption.
Trade and consumption-facing services recycle domestic demand; they do not build export earnings, productivity growth, or foreign exchange. An SME policy that channels financing toward that segment by default, because it is sector-blind, not because it is deliberate, is financing consumption growth and calling it SME development.
This is in a scenario where consumption as a percentage of GDP has consistently exceeded 97 per cent, while investment as a percentage of GDP has lagged at an average of 12pc over the last five decades. There does not exist a single example of a middle-income economy that graduated to middle-income status solely on the basis of consumption, without producing or exporting much.
The value chain that actually sustains growth runs the other way, from export-oriented large-scale manufacturers, down through the SME suppliers, component makers, and processors that feed them. That value chain is where Pakistan’s SME financing is not going, and the numbers say so on their own.
