The Islamia University of Bahawalpur Pakistan

Topic:

Impact of small business on Pakistan’s Economy

Section:

BBA Morning (M1)

Semester:

1st

Roll No:

FA19M3BA015

Submitted by:

Anisha Maqsood

Submitted to:

Mr.Afaq Ahmed

Submitted Date:

15/11/2019
  Introduction:
Small business plays a vital role in the development of an economy. Pakistan’s small businesses
contribute less to its economy as compared to other countries but their importance cannot be depressed
as they play a distinctive role in the development because it has been a source of employment creation
and income generation. It also contribute in the development of a nation in maintain the standard of life
by increasing the income of people. The small business economy sector is facing different problems that
made it difficult to contribute to the nation’s GDP. Small businesses are one of the main sources to reduce
poverty, expand national economy. It can be the foundation of an employment and social uplifting. Like
that of many developing countries, Pakistan’s economy is a direct reflection of its small businesses
economy. According to economic Census of Pakistan 2005, there are 3.2 million businesses in Pakistan.
Recognize significance contribution of small businesses to economic diversification, employment creation
income generation and poverty alleviation, the government of Pakistan has been putting much effort to
the development of entrepreneurship and small business in general.

 Definitions of Key Term:

 Business:
A business is an organization where people work together for the sake of profit with legal actions.

 Small Business:
An independently owned and operated company that is limited in size and in revenue depending
on the industry.

Example:

1. A local bakery that employs 10 people is an example of small business.

2. A manufacturing facility that employees less than 500 people is an example of small business.

 Economy:
The straight of a country are region in terms of a production and consumption of goods and
services and the supply of money.

 GDP:
Gross domestic production is a monitory measure of the market value of all the final goods and
services produced in a specific time period, often annually.
  Employment:
Employment is the relationship between two parties, usual based on a contract where work is paid
for, where one party, which may be cooperation, for profit, not for profit organization or other entity is the
employer and the other is the employee.

 Income:
Income is money that an individual or business receives in exchange for providing a good or service
or through investing capital.

 Characteristics of Small Business

 Lower Revenue and Profitability.
 Smaller Teams of Employees.
 Small Market Area.
 Sole or Partnership Ownership and Taxes.
 Limited Area of Fewer Locations.

 Pakistan’s Economy:

At the time of Pakistan’s economy, which was having nothing to survive, has
made his way in the line of developing country through many experiments in political and economic
history. Pakistan is rich in every type of resources, but the situation is getting worse with every passing day.
The despite of having vast reserve of coal, gold, gas, and many other valuable minerals. Pakistan is
depending on international aid for its economic and social revival. Pakistan has vast fertile land which led it
to self-sufficiency in food. Pakistan has also a large pool of human resource which can be turned into
productive one by adopting a wise policy. Now the agriculture is sharing almost 21% GDP which was more
than 40% at the time of variation of this state in 1947. The industrial and service sectors gained their share
in GDP up to 20.9% and 57.7% respectively from 8.03% and 39.3% in 1947. But the excessive dependence
on imports and shortage in energy sector has also disturbed our foreign exchange reserves. The continuous
reduction of Pakistani rupee was also result of these economic problems. It is evident from the above
decision that Pakistan’s economy has a lot of problems, so an integrated economic, social and political
frame work is needed to bring Pakistan out these problems. Pakistan’s economic structure is disused
below:
 2.5
4

2
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
5th Qtr
6th Qtr
2.5 3.8

3.9

 Small Businesses in Pakistan Economy:

As Pakistan is facing a lot of problems of economy and employment that’s why youth turn towards
small business ant entrepreneurship. There are many small businesses as content writing, blogging,
Freelancing, Social Media, Photography, Home Based Cooking, Wedding Planners, Travel Agency, Tourism
Agency, Renting, Property Dealer etc.

 Impact of Small Business on Pakistan’s Economy

 Employing Local Workers.
 Adapting to changing Climates.
 Contributing to Local Government with Taxes.
 High worker Productivity.
 Unemployment Reduction.
  Employing Local Workers

Small businesses contribute to local economies by bringing growth and innovation to the
community in which the business is established. Small businesses also help stimulate economic growth by
providing employment opportunities to people who may not be employable by larger corporation.

 Adapting to changing climates

Many small businesses also possess the ability to respond and adapt quickly to changing economic
climates. This is due to the fact that small businesses are often very customer-oriented and
understand the needs of the community.

 Contributing to Local Government with Taxes

When consumers utilize local businesses, they are essentially giving money back to their local
community. A successful local business will generate high levels of income, which means that the
business will pay higher taxes, including local property taxes. The small business impact on local
economy growth also takes the form of sales tax collection.

 High worker productivity

A small firm typically has less-diffused ownership, a less complex organizational structure and the
owner is more likely to be directly involved in management. As a result owners and managers can
more easily observe and ensure the productivity of employees.

 Unemployment Reduction
Small business has a great power to produce jobs for local peoples.
Due to small business many people get jobs and earn money. Small business has growing in a large
number that in a small area many people get jobs. Unemployment rate have been decreasing due
to small business.
 Discussion:

The Despite importance of small business, SMEs suffer from weak performance and high failure
rates. It is states that the failure rate of SMEs is greater in developing states than in developed states. It is
identified by previous studies that within initial five years of their business operations majority of new
SMEs failed. In Pakistan situation is not very different. Therefore, the current position of SMEs in Pakistan is
much more serious and alarming. It is observed that large number of Pakistanis SMEs collapse at very early
stages. There is a lot of threat in Pakistan’s economy Moreover, in Pakistan cost of doing business in high
because of land acquisitions and other restrictions by the local government. This high cost of land results in
shift of interest towards other businesses like real estate in which funds are allocated to expensive land
which is used for business growth. Further, policies of government support the big business while they
neglect small entrepreneurial ventures. In Pakistan initial model of 1960s is still followed which is based on
the assumption of market fall. Market failure fear led the government to introduce such policies which
support the innovation and innovation is the main pillar of entrepreneurship. On the other hand, Khalique
et al. highlighted the importance of knowledge based competencies for higher performance of Pakistani
SMEs. They argued that the pattern of the economies is shifting from production based to knowledge
based particularly in the modern business environment.

 Conclusions:
It is concluded that small businesses are the most driving factor of world’s economy. They
are producing the huge volume of output not only in developed countries but also playing a
significant role in boosting economy of developing countries like Pakistan and India. Pakistan is
facing major challenges in Education, Energy and sector. None of educational institution appeared
in ranking under 100 since long. Beside this it is facing short fall of electricity more than 5000
megawatts. Shortage of electricity is motivating industries to shift in neighboring countries that is
causing Pakistan a low economic growth. Pakistan is still facing a higher early death rate 89 per
1000 birth. According to prosperity report Pakistan is comparatively low socio-economic growth as
neighboring countries have. Study also compared the ease of doing business report and reveals
that starting a business is much difficult in Pakistan than neighboring countries due to various
reason i.e. lack of finance, government policies and lack of interest from people youth about to
start their own business. Although SMEs are providing employment opportunities to more than 3.2
million people and producing huge volume of GDP but it is still much lesser than neighboring
countries.
 References:
Sofia Anwar, Qasir Abbas and Muhammad Ashfaq ( Introduction to the Economy of Pakistan)