Developing and Piloting a Business Enabling Environment (BEE) Index for Small and Medium Enterprises (SMEs) in Pakistan

Challenge

Pakistan ranked 110th in global competitiveness, with its SME sector — contributing over 40% to GDP — operating in a deeply unfavorable environment shaped by complex regulatory frameworks, barriers to market entry and exit, weak institutional support, and poor infrastructure. Existing global indices such as the World Bank’s Doing Business and the Global Competitiveness Index were too broad and abstract to capture the ground realities facing Pakistan’s SMEs, particularly the informal sector, regulatory compliance costs, and micro-economic barriers specific to small businesses. There was no Pakistan-specific, SME-focused measure of the business enabling environment to inform government policy or investor decision-making.

Partner

Ipsos

Client

USAID

Approach

Ipsos and Reenergia, under USAID’s Small and Medium Enterprise Activity (SMEA), developed and piloted a Business Enabling Environment Index for Pakistan. The process began with a comprehensive desk review of existing global indices to identify gaps, followed by Round 1 Key Informant Interviews (KIIs) with public and private sector stakeholders to validate and refine indicators. A national SME survey was then conducted using Computer Assisted Personal Interviewing (CAPI) across all four provinces as well as Azad Jammu Kashmir (AJK) and Gilgit Baltistan (GB), covering 921 SMEs through a team of 44 surveyors over four weeks. Initially, 65 indicators were tested and subsequently reduced through factor analysis and stepwise regression to identify the most statistically significant predictors of the BEE. Findings were further validated through Round 2 KIIs and an expert consultative workshop held at the Board of Investment in January 2022.

Outcome

The study produced a Pakistan-specific BEE Index structured around two overall indices. A Business Environment Index (scored 41.9 out of 100) and a Regulatory Cost Index (scored 43.4 out of 100) both indicating a below-average and unconducive operating environment for SMEs. Eight underlying factors were identified, explaining 90% of the variance in the overall BEE, and the original 65-item survey instrument was refined to a shorter, more statistically precise 25-item pilot questionnaire. The index, its factors, and scores were validated by a broad range of industry, government, and development sector stakeholders who confirmed the findings to be close to ground reality. The report recommended that the index be treated as a living document, housed at a relevant government body such as SMEDA, and further expanded through sectoral and geographic disaggregation in subsequent phases.
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