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A thesis proposal submitted to business administration masters program On
June, 2010 Addis Ababa
Habtamu Denbel Id No. 540811356
Under supervision of Prof. C. Rao
LIST OF CONTENTS
CONTENT PAGE CHAPTER ONE.......................................................................1 INTRODUCTION ....................................................................1
1.1 BACKGROUND ...........................................................................................................................................1 1.2 PROBLEM STATEMENT ................................................................................................................................4 1.3 OBJECTIVES ..............................................................................................................................................4 1.3.1 General Objective .........................................................................................................................4 1.3.2 Specific Objectives .......................................................................................................................5 1.4 RESEARCH QUESTIONS ...............................................................................................................................5 1.5 SIGNIFICANCE OF THE STUDY ......................................................................................................................5 1.6 SCOPE OF THE STUDY ................................................................................................................................6 1.7 DESCRIPTION OF STUDY AREA ....................................................................................................................6
List of Acronyms/Abbreviations
AGOWA: BDS: CSA: DDMFI: DDMSEs: FDRE: African Growth Opportunity Act Business Development Services Central Statistics Authority Dire Dawa Micro Finance Institution Dire Dawa Micro and Small Enterprises Development Agency Federal Democratic Republic of Ethiopia
FeMSEDA: Federal Micro and Small Enterprises Development Agency ILO: MoTI: MSEs: International Labor Organization Ministry of Trade and Industry Micro and Small Enterprises
CHAPTER ONE Introduction
The world is rapidly becoming urban; in 2001, half of its population (three out of six billion) is living in urban areas, by 2025; this proportion will have increased to two- thirds. The current urbanization rate is particularly high in the poorest countries. In sub Saharan- Africa, for instances, the urban population is growing at 6% per year, and will double in the next 12 years (Mike Albu, 2001). This urban growth in the world prevailed by rapidly growing number of poverty, combined with slow economic growth in the formal sector have faced a large portion of population to enter self-employment (World Bank, 1998). According to, ILO (2002) informal enterprises represent nearly half or more of the total non-agricultural employment in all regions of the developing world. It ranges from 48% in North Africa, to 51%in Latin America, 65%in Asia and 72%in sub-Saharan Africa (Mulu Gebreeyesus, 2007). As a result, today the governments of both industrialized and developing countries give a great deal of attention to assist MSEs, which are a crucial for stimulating economic development. Thus, the industrial policies of developing countries are revise to encourage and promote small-scale enterprises (Abraham, 1997). In Ethiopia 38.79 percent of the population is below poverty line. A survey conducted by the central statistics authority (2005) indicates that unemployment rate for the country is 20.6 while that of the rural area is only 2.67.Inaddition, Ethiopian urban centers are characterized by a poorly developed economic base, a high level of unemployment
1997). the survey in small scale manufacturing industries showed that the small manufacturing industries are mainly engaged in the manufacture of food. 47% in manufacturing.731 informal sector activity operators and small scale manufacturing industries respectively. and 2. Hotel and Restaurant activities. the tighter control system markedly minimized contraband trade and most of the people involved in this illegal activity turned to be unemployed. Regarding the diversity of the informal sector activity (Micro enterprise). Nowadays. showed that there are 584. the unemployment condition worsened deepening poverty . mining and quarrying. 1997). About 6% in community and personal services and the rest 5% are involved in Agriculture. 898 labor force. material. by the central statistical Authority (CSA). 913.and a worrisome incidence of poverty’s a result of weak economic growth. These subsectors constitute more than 85% of the surveyed small scale manufacturing industries (FeMSEDA.2006). fabricated metal. weak environmental linkages.e. Based on the nation wide sample survey conducted in 48 major towns. lack of access to credit and inadequate strategic and participatory planning(MWUD. The situation in Dire Dawa city. and wearing apparels. construction and transport activities. forestry and fishing. 42% in Trade. On the other hand. The survey revealed that micro enterprise on an average engages one person. The defective education policy of the former regime produced vast school leaver unemployed. hunting. short comings in human. in may 1997. furniture. that absorb 739. and the average annual operating surplus is about birr 1300(FeMSEDA. the survey indicated that a large number of informal sector operators are concentrated in a limited area of activities i.
capacity building. technology transfer. which is higher than the national urban un employment rate of 22. commercial sex workers. the provisional administration of Dire Dawa introduced a wide range of fundamental reform programs.children. access to finance. According to IDP (2006). the success of Dire Dawa Micro and Small Enterprise is encountered by different challenges. cooperative formation.899 unemployed persons of age ten years and over in Dire Dawa city of which 21. beggars. This study intends to assess the challenges and prospects of Dire Dawa MSEs and to examine whether programs are working effectively or not.232 are females with unemployment rate of 46. lack of clear defined linkage with kebeles MSEs.9%. and addicts.condition in the city which is manifested by increased number of marginalized groups like street.6% and 8. construction dressed stone pavement roads.there where 29. development and promotion of MSEs was taken as the main strategy to reduce unemployment rate in the urban area. In this program. However. To turn this situation. Some are like weak coordination among stakeholders (micro finance. housing project). provision of input for MSEs. business development service. research and development. provision of working and selling premises. juvenile delinquents (economy study team). lack of land for urban agriculture. These programs include training.667 are males with unemployment rate for Dire Dawa reaches 33.5% . . According to CSA(2004). As part of this reform the regional integrated development programs was prepared in 2005/6 for five years period (2005/6-2010/11). nine important projects have been prepared.
to the legal and regulatory environment. among others. business skill and training. These are problem of working and selling premises.1. existing situation and assistance programs of MSEs. infrastructure. structures and institutional in nature. technology and technical constraints and inadequate infrastructure were the leading problems facing the MSEs sector. 1. 1997). and lack of working premises were the major bottlenecks for small scale manufacturing industries to commence their activities. . Similarly. the acquisition of skills and managerial access to quality expertise. financial constraint. even in effectively functioning market economics. 2001). finance. small business face a wider range of constraints and problems and they are unable to address the problems they face on their own. lack of smooth supply of raw materials. In Ethiopia’s situation. This study will focus on challenges and prospects of MSEs in the city (IDP.3. business promises (at affordable rent). To start with. since these have not been any organized policy and support systems that cater for the sector.2 Problem Statement In most developing countries. and in some cases business discriminately regulatory practices (Mike Albu. The constraints relate. access to appropriate technology. MSEs have been confronted by various problems which are of policy.3 Objectives 1.1 General Objective The study intends to identify and analyze challenges and prospects of micro and small enterprises in Dire Dawa city With regard to. access to markets. (FeMSEDA. the MSEs of Dire Dawa City also facing a number of challenges. 2006). business information.
5 Significance of the Study The role of micro and small enterprises in employment and income generation is increasingly recognized and has become a major playing field for policy makers by enhancing growth and alleviating poverty. To assess the program of MSEs. working premises. MSEs engage in manufacturing. To forward possible interventions for policy on MSEs 1. However. This study identifies the general problems and .2 Specific Objectives The study would also try: To examine the existing situation of MSEs (in credit service. working premises. technology/ technical supports and inadequate infrastructure ) To examine the potential challenges which affect the formation growth and expansion of MSEs. technology/ technical support and adequate infrastructure? What challenges do MSE operators face in growing their business? How is the MSEs assistance program performing? How should an enabling business environment for stimulating the MSEs sector be created? 1. MSEs face so many problems on their day-to-day activities.4 Research Questions Are the majority of MSEs have provided credit service. services and urban agriculture have the greatest advantage in contribution of decreasing rate of unemployment.1. Specifically.3.
and 07 of Dire Dawa city. out of this urban account for 2. 802 ha. prospects and assessing programs of MSEs sustainability. The total area of the region is about 128. and car. . and west. and the valuable suggestions after the findings is useful in adjusting the necessary enabling environment.6 Scope of the Study The scope of this study is limited mainly to manufacturing. which connect the capital Addis Ababa to the Djibouti port. and is about 525 km road distance to the east Addis Ababa and 311 KMs to the west of Djibouti port. Main issues will be covered in areas of challenges. and Shinile zone of Somalia regional state in the north. train.7 Description of Study Area DireDawa is the second largest city next to Addis Ababa in Ethiopia. 04. It was one of the fast growing cities in Ethiopia owing to its strategic location on the train way line. 684 ha (2%) and the balance 98% is forward population. Location: Dire Dawa administration council is located between 90 27 N and 90 49 N latitude and 420 19’ E longitude. 1. institutional and opportunities which favor the development and improvement of MSEs. Dire Dawa city is accessible by airplane. East Hararge administrative zone of Oromia regional state borders it in the south and southeast. east.some of specific challenges that the enterprise faces would be fertile grounds by having a better insight to those challenges of MSEs. This has been sensible in the early 60’s when small and medium scale industries start flourishing and real to urban migration increases the urban population. 1. It is a primary trading center. service and urban agriculture of MSEs in three kebeles 02. The findings under those selected kebeles also be useful for officials works in the sectors of MSEs.
92% of the population are considered urban in habitants.D include the Oromo (46. 2. the 2007 census conducted by the central statistical agency of Ethiopia. .8% protestant.0.693 household in D. 827 of whom 171. Population: Based on. The major ethnic groups in D. 930 were men and 170. administrative council and kebele level. there were 75. Dire Dawa has a total population of 342. with an estimated area of 1. Hareri (1.Climate: the region is predominantly low land and has a mean monthly temperature of 24.54%). Administration: Dire Dawa is a chartered city and has two tires of government structure.854 or 67. According to CSA (1997) report on small scale manufacturing industrial puts Dire Dawa the third major town. 897 women.20 square kilometers. There are 9 urban and 25 rural kebeles.5 persons per household.3% followers of other regions.09%).6% orthodox Christian .08%) Amhara (20. next to Addis Abeba and Mekele. Gurage (4. Somali (24.213.D administration council with an average of 4.97% of the population consists of all other ethane groups.8c. and 0.4% catholic.the remaining 3.08).D Dawns are musilim.25.9% of D.70.24%).The average elevation is about 15002000 meter above see level and the average annual rain fall is about 623mm. 232. Economy: Dire Dawa is industrial and commercial town due to its nearest location to Djibouti and relatively economic development.
This definition clearly identifies specific target groups for any preferential treatment of the various actors in the MSEs. which the small enterprises employs 10-49 workers. How ever. some developing countries are presents here and define this fact.Chapter Two 1.and small enterprises employs 5-50 workers or with sales turn over between RM 250. . Many developing countries apply based on specific parameters. etc.1 Definitions and concepts The definition of MSEs various from country to country and even can vary with one country. China: has defined the micro enterprises have 1-5 employees and small enterprises 8-100 employees.000 . which include factors such as the number of employees. Egypt: the recent micro and small establishments law (2005) has defined the micro enterprises as the ones that employ less than 10 workers. Literature Review 2. asset. capital.000 and less than RM 10 million. sales turnover. Malaysia: are defined the micro enterprises as the ones that employ less than 5 workers or those enterprises with sales turn over less than RM 250. Recognizing that. there are no standard definitions of MSEs.
000 and excluding high technology establishment.Malawi: in Malawi MSEs defined based on number of employees and sales turn over. 5-20 Informal sector In advance industrialized countries. which have the first three features of micro enterprises employing 6-49 employees. and employing 5 or less employees Small enterprise:. Medium Enterprise: .are those business enterprises with a paid up capital of not exceeding birr 20. Those business activities have a large share of the market are managed by managers and employing 50up to 99 employees. How ever. all enterprises in including micro enterprises must have by law a legal entity.000and small enterprise has employees or with sales turn over between 120. this is not the case with many developing countries. consultancy firms and other high technology establishment. are managed by the owner.001 to 4 million. (FEMSEDA.000 and not exceeding birr 50. Defined as micro enterprises has 1-4 employees or with sales turn over up to 120.Those business enterprises with a paid up capital of above birr 500.are those business enterprises with a paid up capital of above birr 20.000 and including high technology consultancy firms and other high technology establishment. Those business activities are independently owned and operated have a small share of the market.000 and excluding high technology. . 1997). And also the central statistics authority (CSA) uses number of employment is as follows: Micro enterprises: . Practically all micro enterprises and some small-scale enterprises can operate in the economy. Given by the Ministry of Trade and Industry (1997) defines MSEs enterprises according to the paid up capital. Those business activities. In case of Ethiopia. there is lack of uniform definition at the national level to have a common understanding of the MSEs.
it is more useful to identify the informal sector on the bases of size of establishment.although they do not have legal entity. measured by number of employees. The 1992 International labor office (ILO) study on Kenya used the term “informal sector” to describe a set of activities. and unpaid family workers . paid workers. unregistered and operating on a very small scale and with a low level of organization very low level productivity and income. to credit institutions. The owner the overall level of employment per establishment is on average about 1. and techniques with high intensity of work force. enterprise is characterized by the facility of access to activities. to modern technology.7 workers including the owner (World Bank. or individual activity operated by the owner with few or no employees. The family ownership of enterprises. the concept of informal sector in Ethiopia based on the Central Statistical Authority conducted a nation wide urban informal sector survey in January 2003. There are three types of workers in the informal sector: working owners. According to the ILO. which had been neglected in previous economic analysis and policies. A working definition of the informal sector is adopted to cover micro (Zero to nine employees) and small enterprises (10-40employees) to serve as a criterion to determine the beneficiaries. fewer than five workers in addition to the owner. 2001). 1994). qualifications acquired through apprenticeship out side of the education system and markets beyond any regulation.most enterprises employ. the urbanization of local resources. the restricted scale of operations. Hence. Moreover. It defined the sector as home based. to formal training and to many public services and . They are known as the informal sector (Hepi T. have little or no access to organized markets.
MSEs are mange by their own owners and are family business and therefore their success depends on the entrepreneurial and managerial capabilities of the owners. dissemination and application of innovative ideas.2 FEATURES OF MSEs MSES are to be finding in every economy. the households operators at least one member must be engaged in productive activity and number of persons engaged (if any)including the operator must be less than 10. In addition. there is a very large number of MSEs. Entrepreneurial behavior is a key accelerating the generation. education motivation in exploring opportunities. . Entrepreneurship is regard as a strategic assets owning to its non-constable nature Arzeni 1999 in Yu. 2001. Like wise. access to technology and capital. 2. labor legislation and protective measures at the work place . beyond social protection.amenities.in addition. and at the bottom. 2001). in every economy there are only few large enterprises followed by a large number MSEs. And generally they are weak in terms of mentality. According the industrial pyramid. many MSEs go easily bankrupt but instead a large number of new MSEs springs up (Lepi T. This basic industrial scale structure remains even if an economically backward country develops in to an economically advanced country. The dynamic of small manufacturing firms in Hong Kong were principally attributed to adoptive entrepreneurship. according to Tarmidi (1999). Only there is more dynamism in terms of entries and exists among the group of MSEs. in advanced industrialized as well as in developing countries.
Since. and land (Lall and Taye. Chief among these are the regulatory environment. However. The term business environment encompasses a wide range of policies affecting the economic setting of firms. a firm relies on other firms that specialize in the manufacturing of certain components on sub process and concentrates on its own sub component and process serving its own requirements and that of others as well. .3 History of MSE Before the British Industrial Revolution of the eighteen and early nineteenth centuries. Inter firm sub contracting is the basis of sectored specialization. and access to primary inputs such as. manufacturing industries took place either in workers’ cottage or in small workshops. This implies that since owner’s entrepreneur leads most micro enterprises their experience and socio economic backgrounds limit the capabilities of these firms. Most entrepreneurs of small firms often gain their industry experience from their previous employment and start their own firm’s vir-spin off (Yu. finance. provision of infrastructure. labor. there is no consensus over what a sound investment climate for small enterprise growth look like. Some of these recent views include flexible specialization. The issue of whether the same or different investment climate is need for large and small enterprise still debated among experts and policy makers. the nineteenth century more elaborated theories had been use to explain the success of MSEs.Entrepreneurial vision is the key to determine the future of the firms. 2001). and even during its initial phase. The industry based on the manufacturing of custom-made products by use of multi purpose technology and flexible production methods operated by skilled workers. 2. 2005). In flexible specialization.
following the European model. Russia etc used large factories to industrialize their countries.The potential for raising industrial productivity by increasing labor division and linking the process with market availability can achieved through the production process. After colonies independence. A partial exception large factory approach was Japan. a growing share of employment is still in the small enterprise. which began to modernize the Meiji Restoration of 1868 but continued for several decades to rely heavily on small scale industries with traditional bases. As to Snodgrass and Biggs (1996). the employment crisis of the 1970s forced an ideal blue print for the promotion of small-scale enterprises and industries. Most Latin America and some Africa countries identified industrialization for aspiration of economic development (Snodgross & Biggs. 1996) However. France. • The growing understanding of government policies that changed from large-scale and capital intensive industries to policies that are more neutral might induce more efficient use of scarce capital and improved the distribution of income through smallscale enterprises. Such programmes become standard components of every national development plan. the USA. Germany. which is broken down in to smaller component parts and system (Hallberg 2000) But later on the born of steam power and power loom became dominate the role of small scale manufactories and followed by Great Britain. • The promotion of industries seen as part of the rural-led or agricultural-led development strategy that increasingly . major causes for such promotions were: • Though large amount of capital resources are allocated to largescale industries.
To sum up. a response to the growing concern of rising unemployment. This promotion also. economy climate in late 1970s and 1980s results the importance of MSEs.2003). the conventional development strategy that was favors of large scale industries was criticized due to failure of achievement of equitable growth and efficiency in production.which might be ameliorated by a class of enterprises unable to employ. Taking the example of sub Saharan Africa in which the work force is abundant and largely engaged in the agriculture and related activates.starting from the industrial revolution up to the scale were considered as the driving force of growth and development(Act. that would absorb workers whom the government and large private enterprises were . administration. According to Tegegne and Helm Sing (2005). The history of small enterprises has been one the most controversial stories in economic development in the world. The emergence of computer based technology in production. More over. small businesses were believed to impede economic growth by attracting scarce resources from their larger counter parts(Act and Audretch. All these issues were seen in the 1970s” employment crisis” . this change in the world. The role of small enterprises in the economy has frequently been undermined and even misinterpreted. In the past.advocated for its applicability in low-income agriculture countries as an alternative to the more traditional approach emphasizing industrialization and urbanization.1993). favoring the participation of female labor force. and information has. the lobar absorption of agriculture was very low and it did not attract the growing number of educated first time job seekers. the emphasis is naturally given to MSEs in the urban areas mainly focusing on creation of employment opportunity to majority of labors absorption. • The promotion of small-scale industries seen as.
In the context of economic liberalization. And with a high proportion of small industrial enterprise have proved to have more equitable income distribution. and the economy transferred from command economy to free economy. Meed. the government of Ethiopia has implemented structural adjustment program in 1992 and also. 2002). in order to address the social cost of adjustment program the government has been introduced a safety net program as a component structural adjustment program. To reverse the economic decline and worsening poverty situation in the country with the ultimate goal putting the economy on the long term growth path. there by contributing to increasing employment opportunities and income generation. .how ever. The transitional government of Ethiopia and later the federal democratic republic of Ethiopia. the link between small enterprise and poverty alleviation takes particular significance.4 The Role of MSEs In the developing country context. 2. reduced the role of economies of scale in many sectors. (1998). Acts and Audretch (1993) have shown a shift towards an increased role for small enterprises. after the downfall of the Derg has declared free market economy to be its policy. small enterprises are often viewed as the best way to overcome poverty and inequality in developing countries (Raynaold & Forstater. a number of reasons emerge to support this view such as small enterprises tend to be more labor intensive. deregulation and thus global economic integration. in Rogersm (2001) states that make a critical contribution to assisting large numbers of people to survive at times when there is no better option. Moreover.
job creation & social progress. The MSEs sector is also described as the natural home of entrepreneurship. active completion. While we can not deny the importance of large industrial and other enterprise for the growth of Ethiopia economy. there is ample evidence to suggest that the labor absorption capacity of the small business enterprise is high. and enhance productivity and technical change and through the combination of all of these measures to stimulate economic development. exploit niche markets. 2004). In all successful economies. the average capital cost per job created is usually lower than in big business.According to the survey of statistical abstract (1995) cited by Ministry of Trade and Industry (1997) in successful developing countries. The MSEs is also known as instrument in bringing about economic transition by effectively using the skill and talent of the people without requesting high level training. and growth. survival or closure. MSEs as seen as an essential spring board for growth. The small business enterprise is also seen as an important force to generate employment and more equitable income distribution. MSEs by virtue of their size. These studies of small firm . and its role in technical & other innovation activities is vital for many of the challenges facing Ethiopia (FEMSEDA. location.5 Empirical Literature Studies has recently been conducted in a number of countries that provide a framework for better understanding of patterns of enterprise births. It has the potential to provide ideal environment for enabling entrepreneurs to optimally exercise their talent and to attain in their personal and professional goals. 2. capital investment & their capacity of generate an greater employment have proved their powerful the propellant effect for rapid economic growth. much capital and sophisticated technology.
experiences of the entrepreneur and the level of regulations are all inversely related to new start rates for low returns activities. 1999). For high return activities. a recent study focusing on MSEs in Zimbabwe indicates that determinants of new starts differ between high & low return activities. These surprisingly high figures are substantially above 10% rates typically high figures are substantially above 10% rates typically reported for small enterprises in industrial countries. initial capital requirements. The result of those studies revealed that the annual rate at which new enterprise all started in the served countries average over 20% ranging from just below 200% in Kenya. 1989). They also noted that most empirical studies have indicated that mortality rates are inversely related to firm size. because they provide insights into the feasible and desirable patterns of growth in out put and employment (Hiedholm and Paiker. as pointed out by Mead and Lielholm (1998). the lower level of aggregate economy the higher rate new starts. As indicted in many literatures. However. Lielhom and parker(1989) indicates that excess demand for the goods of a small firms and excess supply of labor. through limited in number makes clear that new small enterprises are being established as a substantial rate. Somewhat. empirical evidence on new business starts in developing countries. which means closure rates decline as on move to large size categories of firms. more empirical evidence exists on the closure rate of small firms in developing countries (Liedholm and Mead. Nevertheless. to over 30% in Botswana. the rate new starts is reflect (inversely) only to the aggregate level economic activity for these firms. one of the relationships found most consistently in empirical studies of firm’s dynamics is .dynamics are important. capital or other inputs to be responsible in stimulating firm starts in Africa. relatively little is known about the factors driving the MSEs new start rate.
Insufficient backward/ forward linkages. cited in Botswana full report (2001) Describes as. it is indicated in study works conducted on MSEs in Africa that vast majority of new firms being created are one-person establishments. lack of an entrepreneurial tradition. which heads to lower productivity and poorer product quality. For instance. through lack of capital and perhaps ignorance of new technologies. use of obsolete equipment. Paul Lehlohonolo (sep. Institution lack of premises. and Technology/Technical and ICTS constraints.between firm closure and the age of the firm. Problems that are more specific or pronounced in a developing constraints Information . Virtually. most disappearances occur during the early years of a firm’s existence. Moreover. 2004). lack of financial records and collateral to secure finance and poor access to markets for their out put. the most common problems of MSEs are lack of managerial skills. Indeed. competitive pressures constraints of market demand. MSEs face a wide range of challenges and they are often unable to address the problems they face on their own even ineffectively functioning market economics. all the empirical studies indicates that there is a strong inverse relationship between the age of the firm and the failure rate.6 Challenge Facing MSEs In most developing countries. Empirical evidence on new business starts in developing countries makes clear that new MSEs are being established at a substantial rate. 2. financial constraints. constraints. Liedholm and Mead (1999) hold that empirical relationships between new start rate of MSEs firms and other variables have not been systematical examined in any developing country. Human capital constraints.
about 50% replied that their first major difficulty when starting their operation was the lack of sufficient initial capital. the major obstacles experienced by small-scale manufacturing industries were the irregular and erratic supply of raw materials and a shortage of suitable working premises.sized enterprises and recommends broad policy orientations conducive to their growth. when experienced by informal sector operators. and limited access to raw materials (Rogerson. An appropriate policy environment can be considers a crucial ingredient of strategies to create more and better jobs through small enterprise development. lack of working capital and effective marketing. . The lack of working premises was also found to present difficulties for the informal sector operators who. which face small manufacturing industries. Where as the same set of problems.6. were often impeded from the start. faced with insufficient capital. the ILO recognizes the role of small and medium. It suggested that the problems of raw material shortages. For instance.country context include. result in the failure of this business to expand. 2001). According to their responses. According to the CSA report (1994-1995). this problem becomes more critical when they intended to expand their businesses. the results of the survey on “Urban informal sector activities” showed that out of the 584. have the effect of preventing their expansion almost from the beginning of their operations. 2.1 Lack of clear and pragmatic national policy In June 2000. 913 informal sector activity operator. lack of demand and product diversification inadequate infrastructure.
According to Gebrehiwot and Wolday (2001). most and a interventionist impractical. particularly in the micro and small enterprises. the predictability of judiciary. that most are in vigor are in in theory. discretionary bureaucracy and corruption (Abraham. regarding MSEs appropriate policies government’s have tendency over regulation and limit the growth of private sector enterprises and they are over bureaucratized and unfriendly to support small enterprises. the information at the grass root level indicates that there is a divergence between policies and directives issued and their implementation on the ground. Small scale enterprises in developing countries reported significantly more problems than did large firms in almost all dimensions of the institutional frameworks access to information about policy changes.Some authors insist on the need for policies to privilege small enterprises so as to enable them to compete with larger enterprises and explore their employment creation potential. inefficient financials market in terms of facilitating financial resources to entrepreneurs are the major obstacles in doing business. 2. 1997). despite the strategies such as the above mentioned and other rules & For regulations policies examples. Most MSEs are highly risky ventures involving excessive administrative costs and lack the experience in .6. there have been serious attempts by the government to liberalize and improve the policy and regulatory environments of the MSEs. Generally.2 Lack of access to capital and credit Lack of adequate investment capital. However. the dominant opinion is that there are o generally valid reasons for economic policies to favor any specific size class of enterprises. lack of sufficient loan.
storage and access to markets.3 Lack of premises and land For micro and enterprises lack of premises in unquestionably a serious problem most micro operators do not get access to suitable locations where they can get enough space for their machinery and equipments. which is higher than the lending rate of formal banks. The issue . inhabits the effectiveness in addressing the needs of micro enterprises. The standard of loans appraisal. Since most banking. the creation of new enterprises and the growth and survival of existing ones will be impeding. The difficulty of access to capital is certainly one of the major problems that affect the quantity and quality of investments made by these enterprises.dealing with financial institutions and do not have a track record of credit worthiness with banks. In addition. agreed on high interest rate and consensus of short repayment period (Assefa. Most MSEs do not have access to micro finance institutions & most banks are reluctant to avail credit facility to small enterprises unless they have acceptable collateral.6. are the major obstacles that small. the long delay the banks takes to sanction loans unfavorable disposition towards small loans and the limited collateral requirement. 2. 1997). which is over 100% of the loan amount. The issue of acquisition and transaction cost has become very prohibitive to the emergence of new enterprises and to the growth and survival of existing ones. institutions are reluctant to provide small enterprises with loan and credit. Because of absence in financing.scale enterprises all facing at present. Access to finance is a major bottleneck for the rapid growth & financial needs of small-scale enterprises. most MSEs is unable to secure collateral requirements. the interest rate by most micro finance institutes.
1997). large public enterprisers and the few foreign affiliates do not outsource some of their operations to local MSEs. the design & quality of products of MSEs are below standard.6.6. In addition. Marketing their products effectively as well as accessing and acquiring information on business opportunities are the major bottlenecks that small and micro entrepreneurs face all over the country. 1.of land provision and the land system has greatly constrained the chance of MSEs which aspire to start up business. growth and development of micro and small enterprises. As a result. weak infrastructural facilitates renders small business to uncompetitive (Assefa. In other words. lack of marketing skills.5 Lack of coordination The other factor that hinders growth and expansion of micro and small enterprises is the effectiveness with which they interact with large or similar firms.4 Lack of sufficient marketing and promotion support Lack of market information as well as lack of markets has also been the major impediments to the development MSEs in Ethiopia owing to lack of market research and information many of small scale industries often concentrate in the production of similar commodities. There are lack of sufficient institutional facilities that nurture the promotion. which puts them in the intense competition with one another. formal and informal linkages or business cooperation through networking are not common. The legal and institutional mechanisms to enforce contractual obligations and government policy to design appropriate incentive mechanism to encourage the expansion of . 2.
2. extension. finance and administration.7 Opportunities for MSEs The problems faced by small enterprises and their role in the economy governments donor agencies non-governmental organization (NGOs) and the private sector have involved themselves with small enterprises support and development in various capacities over the years.business linkages/sub contracting managements is at its infant stage (Assefa. The services designed to support and develop small enterprises can be broadly focuses in to financial service and business development services (Rutherford et al. consultancy and counseling. quality control. technology development and diffusion. marketing and information services. . BDS include labor and management training. due to the unfamiliarity of workers with rapid changing technology. and mechanisms to improve business linkages through sub contracting. and business cluster. Most micro and small enterprises in developing countries face a general lack of knowledge.6 Lack of adequate business development service Business development services (BDS) include a wide variety of nonfinancial service. According to Hall Berge (2000). franchising. entrepreneurial and managerial capacity. lack of coordination of production process. 1997). and marketing experience. 2. 2002). which in turn leads to problems in production. and those with technical knowledge.6. and inability to trouble shoot failures on machinery and/or equipments is a critical problem that micro and small enterprises are facing since they can not afford to employ specialist in the fields of planning. This kind of service can enhance the managerial and entrepreneurial ability of MSEs. lack of skilled labor.
support for MSEs has to include skill upgrading programs for MSEs operators and strengthening the use of appropriate modern technologies that boost their capacity to create long-term jobs (FeMSEDA. Cognizant of the potential in employment of creation and generation of income to the poor. Government could encourage micro and small enterprises in particular handicrafts and cottage industries create preferential access to markets with some developing countries. In addition micro and small enterprise activities have absorbed a large number of an employed people. The Federal government of Ethiopia focused on the expansion of MSEs in urban development. Preferences given to. given to export tax and quota free to the US market. Increasing attraction of Ethiopia residing abroad to be involved in MSEs. The changing foreign policy of the country. 1997). and the roles in promoting and facilitating export trade. retailers and consumers. They can play a role in market assessment and promotion activities acting as agents. trade is getting due attention no less than political issues. With their . governments are advocating the importance of these enterprises and using the as a strategy for enhancing development and growth. distributions/importers. Ethiopia from bilateral agreement with Canada and Japan.In Ethiopia also micro enterprises are generally considered to be the domain of poor urban dwellers. Therefore. Include the following: The African growth and opportunity Act (AGOA). because such enterprises will play the key role in urban poverty reduction and bringing accelerated and sustainable development. Every thing but armament (EBA) scheme that European Union offer. Now a days.
the federal government of Ethiopia developed a strategy for the development and promotion of MSEs. a different strategy has developed.regard. growth and progress of their enterprises.8 Government polices and MSEs The importance of MSEs as a vehicle to address the challenges of unemployment economic growth and equity was not properly acknowledged in Ethiopia. Given such an enabling environment. Recently the government began to pay due attention to the promotion and development of MSEs. the development of the micro and small enterprise sector is becoming a subject of national importance. These are as follows: In November 1997. 2. Moreover. the governments focus to strengthen commercial attaches is highly desirable. In recognition of the socio economic role of the sector and its potential contribution to the country’s economic development. the national MSEs strategy has the following specific objectives:- - Facilitate economic growth and bring about equitable development Create long term jobs Strengthen cooperation between MSEs Provide the basis for medium and large scale Enterprises Promote export Balance preferential treatment between MSEs and bigger enterprises . it is expect that hundreds and thousands of MSEs will themselves be responsible for the operation. The primarily objective of the strategy is to create enabling environment for MSEs. In addition to this basic objective.
Industrial Development strategy: the strategy stresses the importance of encouraging graduates of the education system to create their own business. So the sector is conducive to create developmental investors. One of the policies. In addition. trade. include with regard to creating an enabling legal framework and stream ling regulatory conditions that hinder the coming up of new and expansion of existing MSEs. Regional MSE development agencies. Regional Bureau Federal MSE development agency. or the designated organs. infrastructure and institutional strengthening of the private sector associations and chambers. provision of incentives. the policy outlines the need to shift the urban governance from the administrative attitude to one of urban entrepreneurialism.The national MSE strategy outlined the various supports. promotion of partnerships. access to market. access to information and advice. Urban Development strategy. training. Where by private enterprises and the communities are recognized as key partner of local development. Their participation should also cover areas like modern agriculture. that strategy proposed from this perspective is to support MSEs and establish centers for the development of entrepreneurship through: the enabling the regional MSEs and industry bureau to provide services: Advisory service in terms of product following . to facilitating access to finance. The strategy further emphasized that the participation of MSEs should not be restricted only to industry sector. service etc (IDP. NGOs and business associations. Those who will be successful can gradually develop to be the owners of middle and large companies. 2006). The strategy further made it clear that major organs to be involved in the implementation of the strategy are Ministry of Trade and Industry. access to appropriate technology.
2006). The Dire Dawa context: industry Bureau is establish provisional administration trade and the Dire Dawa micro and small Development Agency. Research methodology . tailoring and weaving. The Agency prepared business plan for five sectors including: construction. skill and experience. food and food related items. MSEs particularly in Dire Dawa face various problems to start up new ones and to operate the existing once. preparing project profile.2006).encourage proactive import substitution.marketing . coordination among concerned institutions and information. established and MSEs forum.accessing new markets. finance. The forum constitutes representatives of various government organizations and its main objective is to discuss on the overall problems of MSEs in Dire Dawa. working and selling place. and fruit and vegetables trade. The major problems are lack of marketing. However. attitudinal and infrastructure facilities. to analyze specific problems of each enterprise and propose rectifying measures (IDP.encouraging out sourcing and public procurement . Chapter three 3. In addition. modern management. and “buy local “campaigns and strategies etc(IDP. sales and after sales service . The above strategy shows that Federal and Regional government are fully committed to support the MSEs and will create and strengthen supportive facilities and allocate the scarce public resources to be channeled in the most effective way to bring about rapid developmental change and growth. woodwork and metalwork.
cooperative office and Dire Dawa microfinance. The research design is mainly based on descriptive and statistical Analysis. The list of MSEs operators are obtained from Dire Dawa city administration kebeles.2 Sources of data To get more representative information concerning the challenges and prospects for MSEs.1 Research design This study will use both primary and secondary data. 810 service and 56 in urban agriculture. The sample size does not include street vending. . In the selected areas. and secondary data are collected documents and reports from Dire Dawa Micro Small Enterprises agency and micro finance. The primary data will be collects through questionnaires. personal observation and interviews with MSE operators. paper and books available in the library and journals. repair motor vehicles and forestry. 3 from cooperative office and 2 officials from Dire Dawa micro finance will select using an appropriate sampling technique. service and urban agriculture and respected officials from Dire Dawa MSEs agency. Hence. Those engage mainly in the manufacturing. The sectors are select using convenient sampling techniques and sample size is 10% of for all strata. the study will make use of both primary and secondary data sources. 3. there are 1125 micro and small enterprises operators of these 259 engage in manufacturing industry. 3. internet. the studies takes sample size of 113 operators and 3 officials from Dire Dawa MSEs.3.3 Sampling techniques The studies will conduct in three kebeles of Dire Dawa Administration.
structural interview and different documents from Dire Dawa administration and MSEs agency. service 81 out of 810 and urban agriculture 6 out of 56.1 below indicates the sample size each stratum of sectors.4 Data collection method The necessary data will be collect through questionnaire.6 112.Moreover.1 Stratified sampling for MSEs operators Category of Number Ni 259 810 56 ni =Ni(10%) 25. The reason behind choosing random sampling is for sake of providing an equal chance of inclusion for selected sectors of the sample. 2010 Therefore. That is. Based on that table 3. Table 3.5 Sample Source 26 81 6 113 own operators Manufacturing Service Urban Agriculture Total 1125 computation. it is stratify according to situation of sub sector using systematic sampling. so certain in conveniences and communication barriers will be avoided. Since the study is including respondents with relatively low academic status. the questionnaires are translated to local language to Amharic. the collection of data incorporates both primary and secondary data. both close ended and open-ended question as well as structural interview are use. the respondents selected based on stratified sampling will be manufacturing 26 out of 256. The researcher select data . To successfully collect the necessary information through questionnaires from the MSEs enterprises. In order to include facts and opinion towards the challenges and prospects of MSEs from operators and officials. 3.9 81 5.
References • Andu –Alem Tegene (1997). during the period of data collection. to ensure the quality of the data collects by those data collectors 3. Small–Scale Entrepreneurship Development in Ethiopia. Where as. Enterprise and . In addition to this the data are interpret with the help of excel. and it is present with the help of graph. which is collect from structural interview and questioner from officials. figures. is conduct by researcher. In addition to this. Which are obtain through open and closeended questionnaires. tables and charts.5 Data analysis The study will use both qualitative and quantitative approaches to analyze collecting data. the researcher holds a continuous monitoring and supervisions. Hence the actual data collection from MSEs enterprises is held for four weeks. the types of information.collectors and will give them for one day training concerning techniques before starting their work. interview and observation are analyze using descriptive methods of data analysis that including percentages and ratios. where each data collector at least gather the require information from respondents a day.
Arzenis (1999).Micro links.php+pdf.down load. In proceeding of the International Workshop on Role of Micro and Small Enterprises Development of Ethiopia. Fantahne Meles (2004).htm. Entrepreneurships and small business. and Global value chains. Implication for Economic Growth and Poverty Reduction. Addis Ababa. Burns.eu/Scadplus/eg/en/lub/n26026. Hatten and Timothy (2006). .Trade. p. Federal micro and small Enterprise Development strategy (1997) proceeding of the international work shop on the role of MSEs of Ethiopia.p 19 – 22.europa. Paul (2007).• Andualem Tegegn (2004). A Comparative Analysis of the Development Small Scale Industries in Region 14 with other Regions. Definition of MSM – sized enterprises www. MSEs Development in Ethiopia: Survey Report Research Institutional .Micro and small Enterprises (Handi Crafts: Development Constraints.Central statistic Authority Report on urban Informal sector sample survey. MSEs. Addis Ababa. Addis Ababa • • • • • • • • Dandena Chemeda (2004). • • http://www. (August 2007). http://www. CSA (2003).Entrepreneurship and Job Creation. Small business management: entrepreneurship and beyond.Challenges in the effective development promotion of MSEs in Ethiopia: Some suggested approach.ilo. Addis Ababa • • • Gebrehiwot and wolday (2004).org/public/english/employment/paper.organization/file. Assefa Admassie (1997). Christine Kessides (2005). The Urban Transition in Sub-Saharan Africa. Export Potentials and Opportunities. The Ethio–German Micro and Small Enterprises Development Program.Addis Abeba. Addis Ababa.
Mike Albu (2001) manufacturing micro and small enterprises matter. ”The Dynamic of MSEs in Developing Countries in Zambia” Journal of Small Business Management. February 2006. Training Needs and Approaches for the Informal Sector in Africa.Industrialization and Small Firms: Patterns and Policies. a co publication of the International Center for Economic Growth and the Harvard Institute for International Development . Malawi Government (2005). The Importance of MSEs in Economic Developing APEC Countries. Report on performance Evaluation and Review of Integrated Development Program projects. MSEs potentials and success Determinants in Egypt 2003 – 2004 Mulat Demeke and Wolday Amha (2004).Entrepreneurial Support in South Africa: a case study of a Small Enterprise Support Center in Johannesburg. Addis Ababa. Solomon Wole (1997). California.Sanfrancisco. Ethiopia. and Addis Ababa.T.Dc and Lielholm. Addis Ababa. MWUD April 2006. University of Indonesia. Tarmidi (2001).• • ILO (1996 – 2008). Dire Dawa. • • • • Lall Smeik and Taye Mengiste (2005). Job Creation and entrepreneur development. Business Environment.T (1996).first draft on Growth of micro enterprises: Empirical evidence from Ethiopia • • • • • Paul Lehlohonolo (2004). and Biggs. Clustering and Industry location: World Bank Policy Research Working Paper 3. Industry and Urban Development package.C (1998). FDRE. • • Snodgrass D. The Micro and Small Enterprise Sector in Ethiopia. Lepi. Mulu Gebreeyesus(2007).Ministry of Commerce and Industry on Micro and Small Enterprise Policy Statement. Mead. • .
World bank (1998).3.erf. vol. International Journal of Management Reviews.A frame work for world bank Group support development of MSEs . The Reform Process and the Role of Associations in the Development of Small – Scale Enterprises. Yu Tony (2001).php? id = 347) for Questionnaire for Data Collection Socio economic Background Part-One . and Rural finance in sub-Saharan Africa.Towards Capabilities Perspectives of the Small Firms.• • • Taye Berhanu (1997). Addis Ababa.og/cms/get file. (www.
Enterprises establishment a) Sole proprietorship c) Cooperative b) Partners d) family based . Age of the operator a) <18 3. Female b) 18-30 c) 13-45 d) over 46 b) Married c) Widow d) 2. How did you choose your particular field? a) To get more market potential b) To develop skill /knowledge c) Lack of other alternative e) Other d) Influence by family 4. retail trade) c) Urban agriculture f) Other 2. When has the enterprise established? a) Less than one year ago c) 2-5 years b) 1-2 years d) greater than 5 year 3. Sex of the operator a) Male b. Education level a) 0-3 a) Single divorce b) 4-5 c) 6-11 d) above 11 a) Illiterate b) can read & write d) 5-10 secondary f) Above 12 Degree c) 1-4 elementary e) Diploma 10-12 Part. Marital Status 4.Two 1. Type of business sector a) Manufacturing (wood and metalwork) b) Service (wholesale.1. Family size 5.
What is the contribution of your business in city development? a) Create job opportunity c) Facilitate economic growth (by paying tax) d) other b) Transfer knowledge Part three: Challenges of the enterprises A.000 Birr 3. If you are working in cooperative. What kind of problems do you face when getting credit? .5. Finance Related 1. In your opinion which types of enterprise more advantageous ? 6. How did you get initial capital? a) Borrowing from relative & friends c) From NGOs d) personal saving b) Borrowing from Micro finance b) 501-1500 Birr d) 5001-20. what problems you faced? 8.000 2. How much was your start up capital? a) Less than Birr 500 c) 1501 to 5000 e) Above Birr 20.employed labor (Youth) TVET 9. What employment status you employed in your business? a) Educated labor c) Family member b) Illiterate labor d) un . What is the reason about your choice? 7.
is the amount of loans adequate? a) Yes b) No 5. If yes. If getting from microfinance. If yes. How much do you have in your account? (If you have saving) b) From micro finance B. If No. Do you have saving? a) Yes b) No 8. where do you saving? a) Dire Dawa Microfinance b) Bank c) In the house d) Other 9.a) Lack of collateral b) Problems among cooperatives d) lack of information (get c) Problems of credit service finance) 4. Access to working place & physical infrastructure 1. what type of infrastructure? a) Electricity d) Road b) Water f) Other c) Telephone . how much do you suggest? 6. Is it appropriate your work place for infrastructure? a) Yes b) No 2. What is the source of capital for your saving? a) From business profit c) Other 10.
3. How was the procedure of b) good c) very good 7. If your answer in Q. If yes. inflation . Is any problem to get inputs? a) Not accessible (available) c) Shortage of finance etc) 9. Does your enterprise have enough places for running the business? a) Yes b) No 5. How is your business performance? a) Increase decreases 10. If No. what impact brings on your business? 4. #9 decreases. what is the reason? a) Constraint of market problem c) Poor production quality b) High competition in the market d) other reason b) constant c) fluctuate d) b) High cost d) other (transport. how did you get the working place? a) By Renting b) By city administration (gov’t) d) other c) Family’s resident transferring the work place? a) Bureaucratic 6. If you got from city administration. From where are you finding input for your enterprises? a) Local market b) from rural c) From other city (like Harer & Addis Ababa) d) From producer e) other place 8. quality.
Identify the major problems of your enterprise and rank them 1. what type of skills does you has. What benefit do you get from the training? a) Improve the quality of the production c) Effectively efficient manage the business d) Facilitate my interaction with customer and supplies 5. 4. 7. Which institution gave you training? a) City administration (TVET)MSEs) c) Private sector 4. 3. a) Marketing c) Technical b) Managerial d) Book keeping (accounting) 3.c) Managerial skill and training 1. Do you have enough skill to carry out your business? a) Yes b) No 2. 2. If don’t take the training. b) Increase profit b) NGOs d) other . If yes. What are the possible solutions for the problems? 1. why? a) Not necessary b) No opportunity to get training c) Not got training related with my business 6.
How many operators benefited from the MSEs agency Could you mention in a given table (1998-2000 E. What kind of MSEs activities provided by the Agency? 2. Did you get support? A) Yes B) No 2. Part four: Government Assistance programs A. For Government officials Questions to interview key information from officials in the study area 1.C) Activities engaged Market place Credit Plan Achieve ment Provide service Material Plan Achieve ment Land Plan Achie ve ment Training Plan Achiev e ment Plan Achieve ment Manufacturing Service Urban agriculture Total . which institution supports you? a) City administration c) Community (Edir) b) NGOs d) other 3. For operators 1.2. What type of support did you got? a) Training c) Counseling b) credit d) Land for urban agriculture e) Market place f) Other or two or above from the list B. If yes.
Currently. what are the challenges of the MSEs agency? a) Lack of human resource c) Lack of enough budget d) Lack of coordination among relevant stakeholder e) other or b) Lack of clear rules & regulation 5. How do you found the performance of the enterprise? a) Strongly increasing b) Increasing d) Decreasing c) At constant (no change) e) Strongly decreasing 4. What remedy action do you take to reduce the challenge that hinder the performance of MSEs office a) Request the administration Additional budget b) Better to implement business-processing reengineering (BPR) c) Establish coordination net work system among stakeholders d) Try to improve rules & regulation to hinder the works is e) Other solution .3.