Pakistan is losing its competitive advantage. The SME sector, which accounts for roughly a quarter of the country’s exports, is under immense pressure from financing constraints, the challenge of retaining and growing its export share, and rising demands for traceability, digitisation and sustainable and transparent operations.
SME SECTOR
Pakistan is losing its competitive advantage. The SME sector, which accounts for roughly a quarter of the country’s exports, is under immense pressure from financing constraints, the challenge of retaining and growing its export share, and rising demands for traceability, digitisation and sustainable and transparent operations.
Narrowing Pakistan’s trade deficit will require stronger export growth to offset the country’s import burden. Yet Pakistan’s continued reliance on imported energy creates a difficult tension: producing higher-value exports and expanding manufacturing will require more reliable and affordable energy, not less. The way through is to broaden the export base, improve productivity and energy efficiency, and keep finding new avenues for growth.
Across developing economies in South and Southeast Asia, small and medium-sized enterprises are a vital engine of inclusive and sustainable growth. They are major employers, important sources of innovation and a crucial route to export diversification. Nowhere is this opportunity more evident than in Pakistan, which has significant potential to unlock SME-led growth.
SMEs account for roughly 90 per cent of businesses in Pakistan, contribute close to 40 per cent of GDP and employ nearly 80 per cent of the country’s non-agricultural workforce. Yet access to formal finance remains strikingly limited. A 2023 study by the Competition Commission of Pakistan found that SME financing accounted for only around 6-7 per cent of private-sector credit, compared with approximately 18 per cent in India and 25 per cent in Bangladesh.
This gap is not simply a banking problem. Limited access to finance restricts the ability of SMEs to build financial capacity and invest in the capabilities needed to compete globally. One of the most important foundations for that investment is reliable business data. In an era of rapidly advancing AI, SMEs must move beyond simply collecting and storing data and begin putting it to work through business AI to improve decision-making, efficiency and competitiveness.
Banks need visibility before they lend. International buyers need traceability before they place orders. Regulators need measurable evidence before they recognize compliance. Without reliable business data, every stakeholder in the chain is left guessing, and SMEs pay the price through lost financing opportunities and lost contracts.
This is where sustainability enters the picture, not as a compliance checkbox but as a strategy for survival and growth. One of the biggest misconceptions about environmental, social and governance, or ESG, practices is that they begin with reporting. They do not. They begin with trustworthy operational data.
When an SME digitises procurement, inventory, production and workforce management, it creates the continuous data trail needed to measure emissions, energy consumption, supplier compliance and labour practices. Reporting is what follows.
For exporters, this shift is becoming increasingly difficult to ignore. The EU’s Carbon Border Adjustment Mechanism directly affects specified carbon-intensive product categories, while large companies subject to sustainability reporting and supply-chain due-diligence requirements increasingly expect relevant environmental and social information from their suppliers. Although the precise obligations vary by sector, company size and market, international buyers are increasingly looking for evidence, rather than promises, of responsible sourcing and production.
When an SME digitises procurement, inventory, production and workforce management, it creates the continuous data trail needed to measure emissions, energy consumption, supplier compliance and labour practices
We see this pattern emerging across the region. Vietnam’s growth as a manufacturing hub has been supported by investment in infrastructure, technology and increasingly connected supply chains. Bahrain and Kuwait continue to invest in digital government and cloud infrastructure, while Saudi Arabia’s Vision 2030 and the UAE’s transformation agenda demonstrate how technology can support economic diversification alongside sustainability.
Pakistan has the entrepreneurial and technical talent needed to compete globally. What its SMEs require is greater access to finance, stronger enabling policies and affordable technology that allows them to invest in essential business capabilities.
Yet limited access to finance and pressure on working capital can discourage SMEs from investing in high-impact enterprise technologies, even when the long-term benefits for productivity, resilience and market access are substantial.
As a result, many continue to rely on fragmented systems that limit efficiency, transparency and their ability to meet evolving global requirements.
Cloud-based enterprise applications with built-in AI capabilities are increasingly within reach of SMEs, enabling them to manage finance, procurement, inventory, workforce and sustainability data through connected systems. The payoff is a more reliable source of business information that banks, investors and buyers can trust, alongside greater financial visibility, reduced operational waste and faster, better-informed decisions.
Artificial intelligence adds another layer of practical value. It can help SMEs forecast inventory requirements, reduce waste, predict equipment maintenance needs, identify supplier risks and simplify aspects of ESG reporting. These capabilities no longer necessarily require a large in-house IT department. Cloud platforms and implementation partners can reduce upfront infrastructure requirements while supporting stronger cybersecurity and business continuity, provided that appropriate governance, access controls and data-protection measures are in place.
It is also worth remembering that ESG is not only about carbon. In Pakistan, issues such as child labour, workplace safety, fair employment and responsible subcontracting remain important considerations, particularly in complex or informal supply chains. Digital systems can help businesses document workforce records, monitor safety practices and strengthen oversight, protecting workers while building the trust that international buyers increasingly expect.
None of this needs to happen all at once. SMEs can begin by digitising one process, building high-quality data around it and protecting that data. They can then scale progressively, using technology to measure improvement rather than merely claim it.
SMEs must stop viewing business through a short-term lens. Global standards and customer expectations are evolving rapidly. Those that plan only for the next quarter risk losing the next decade. The businesses that invest today in people, technology and sustainability will be the ones still competing internationally tomorrow.
The writer is head of the MEA North Growth Cluster and managing director of SAP Pakistan, leading the company’s strategic growth agenda across key markets in the region.
