GREAT LAND COLLEGE

SCHOOL OF GRADUATE STUDIES

MASTERS OF BUSINESS ADMINISTRATION PROGRAM

FATORS AFFECTING PERFORMANCE OF MICRO AND SMALL ENTERPRISES IN

BAKKO TOWN WEST SHOWA ZONE

A RESEARCH PROPOSAL SUBMITTED TO SCHOOL OF GRADUATE STUDIES,

DEPARTMENT OF MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENT
FOR THE MASTERS OF BUSINESS ADMINISTRATION PROGRAM

BY: FIRII MIJANA

ADVISOR: ABABE SH. (PhD CANDIDATE)

JAN, 2021

BAKKO, ETHIOPIA
Table of Contents Page

ABBREVIATION AND ACRONYMS .............................................................................................................. iii

CHAPTER ONE...................................................................................................................................................1
INTRODUCTION ....................................................................................................................................................1
1.1. Background of the Study ...........................................................................................................................1
1.2. Statement of the Problem .........................................................................................................................3
1.3 Objectives of the study ...............................................................................................................................5
1.3.1. General objective ................................................................................................................................5
1.3.2. Specific objectives ..............................................................................................................................5
1.4 Research Questions ....................................................................................................................................6
1.5. Significance of the study ...........................................................................................................................6
1.6. Scope of the Study .....................................................................................................................................6
CHAPTER TWO ..................................................................................................................................................7
2. REVIEW OF RELATED LITERATURE.......................................................................................................7
2.1 Micro and Small Enterprises (MSEs) .........................................................................................................7
2.2. Livelihoods ................................................................................................................................................9
2.3. Performance of MSEs............................................................................................................................. 10
2.3.2. Generates income and employment opportunity ............................................................................. 12
2.3.3. Innovation and entrepreneurship ....................................................................................................... 13
2.3.4. Capital accumulation or financing ....................................................................................................... 13
2.3.5 Rural or regional development............................................................................................................. 14
2.4. Factors Affecting the Development of MSEs in Ethiopia ...................................................................... 14
2.4.1 Internal Factor ...................................................................................................................................... 14
2.4.2. External Factor .................................................................................................................................... 15
2.4.2.1 Access to Financial Services: ........................................................................................................ 15
2.4.2.2 Limited Access to Business Development Services ...................................................................... 15
2.4.2.3 Limited Market .............................................................................................................................. 16

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 2.4.2.4 Poor Supply of Economic Infrastructure and Public Services....................................................... 16
2.4.2.5 Complex and Burdensome Government Regulations.................................................................... 17
2.4.2.6 Policy Environment ....................................................................................................................... 17
2. 5. Previous Studies on the Ethiopian MSE Sector .................................................................................... 18
2. 6. Conceptual Framework ......................................................................................................................... 20
CHAPTER THREE ........................................................................................................................................... 21
3. RESEARCH METHODOLOGY .................................................................................................................. 21
3.1 study Area................................................................................................................................................ 21
3.2. Research design ...................................................................................................................................... 22
3.3. Sampling techniques and Sample Size ................................................................................................... 22
Table 3.1 Sampling Frame ............................................................................................................................ 23
3.4. Data sources ........................................................................................................................................... 23
3.5. Methods of data collection ..................................................................................................................... 24
3.6 Method of Data Analysis ......................................................................................................................... 24
3.7 Model specification ................................................................................................................................. 24
CHAPTER FOUR .................................................................................................................................................. 26
4. Budget and Time breakdown of research ..................................................................................................... 26
4.1 Budget breakdown of research ............................................................................................................... 26
4.2 Time breakdown of research................................................................................................................... 27
REFERENCES .................................................................................................................................................. 28

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ABBREVIATION AND ACRONYMS

AACMSEDA Addis Ababa City Micro and Small Enterprises Development Agency

BDS Business Development Service

CSA Central Statistical Agency

EPRDF Ethiopian People Revolutionary Democratic Front

FDRE Federal Democratic Republic of Ethiopia

FGD Focus Group Discussion

FMSEDA Federal Micro and Small Enterprises Development Agency

FRMSEDA Federal and Regional Micro and Small Enterprises Development Agencies

FRMSES Federal and Regional Micro and Small Enterprises Strategy

GDP Gross Domestic Product

GEMINI Growth and Equity through Microenterprise Investments and Institutions

GTP Growth and Transformation Plan

HASIDA Handicraft and Small Scale Industries Development Agency

IFPRI International Food Policy Research Institute

ILO International Labor Organization

LDCs Least Developing Countries

MEs Micro Enterprises

MoFED Ministry of Finance and Economic Development

MOTI Ministry of Trade and Industry

MSE s Micro and Small Enterprises

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MSEDO Micro and Small Enterprises Development Office

MTI Ministry of Trade and Industry

MUDC Ministry of Urban Development and Construction

MWUD Ministry of Works and Urban Development

NGOs Nongovernmental Organizations

OCSSC Oromia Credit and Saving Share Company

PASDEP Plan for Accelerated and Sustainable Development to End Poverty

PRS Poverty Reduction Strategies

SEDP Small Enterprise Development Programme

SEs Small Enterprises

SMEs Small and Medium Enterprises

TDB Inter American Development Bank.

TVET Technical and Vocational Education and Training

UNCTAD United Nations Conference on Trade and Development

UNDP United nation development program

UNHCR United Nations High Commission for Refugees

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 CHAPTER ONE

INTRODUCTION
1.1. Background of the Study
Micro and small enterprises are the major feature of the economic landscape in all developing
countries today. The contribution of these enterprises to the creation of jobs and to alleviation of
poverty will be recognized by many developing governments. They have been given prominence in
many development plans as well as in the strategies of many donors, Beck and Levine,( 2003; 102-
104).

In the developing countries, the contribution of MSEs to employment opportunities and

income have been increasing over time ,which is an encouraging sign for people who find
opportunities to participate in ways that empower and nourish themselves, particularly
including those that are to be advantageous . On the other hand , this increase in the number of
people engaged in MSEs is a sign of failure of the economy to provide productive jobs in
the formal sector (by assuming MSEs are informal). Due to this market failure, peoples are forced
to join MSE sector that provides them minimum and subsistence support, Leidholm,( 2001). For
the past three decades a large number of developing and international organizations realized the
importance of developing micro, small and medium sized enterprises as a way of achieving several
goals. Such as providing work opportunities, adding to the GDP, creating needed input for larger
enterprise and contributing to the export sector, ILO (2018).

In order to realize the characteristics of MSE, their possibilities and constraints, studies were
conducted all over the world. Some of the studies explore the economic motivation, capabilities,
sources of finance, dynamic and links with other firms and within the market, while other studies
concerned in employment creation, entrepreneur –worker relationships , dispute settlement
mechanism and trade union affiliates ,Alia and Magued (2000).

In the majority of fast developing countries , MSE by virtue of their size, location, capital
investment and their potential to generate greater employment have proved to have crucial
effect for rapid economic growth ILO(2008). Furthermore the sector also doesn‟t require high level
training, much capital, and sophisticated technology. Habtamu (2013). More importantly, MSE
creates job opportunities for a substantial segment of the population. However, most MSE face

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critical constraints at the start up and operation level, World Bank (2004). Among some of the
constraints , included are lack of access to finance , lack of access to premise or land, lack of
infrastructure, lack of entrepreneurial and managerial skills, lack of information on business
opportunities, social and cultural facts and excessive corruption, HLCLEP ( 2006).

In an attempt to accelerate growth rate in developing countries, particularly in Africa, many

development partners and donors have made the promotion and development of MSE a major
concern. This shows that MSEs are seen as essential facilitators for economic growth, job creation,
industrial development and poverty alleviation in developing countries. It is generally recognized
that Micro and Small Enterprises have vital contribution to the economic development and creation
of wider employment opportunity in developing countries with large number of unemployed people,
ILO (2008). As Habtamu (2013) noted micro and small enterprises do serve as a means of bringing
economic transition by using the skill and the talent of people without requiring high-level training,
much capital and sophisticated technology. This makes the sector more preferable to business entry,
unemployment reduction, income generation and poverty alleviation.

Ethiopia is one of the poorest countries in the world. This poverty affects both urban and rural parts
of the country. In order to reduce poverty level, the government initiates new urban development
policy that had implemented all over the regional state, MUDC (2013). Among the policies, the
expansion of micro and small enterprises (MSEs) was one of that would create job opportunities for
the low-income group of the society, MoFED (2003).

According to the Ministry of Urban Development and Construction, MUDC( 2013), the licensing
and supervision of micro financing institution proclamation No 40(1996) was enacted in 1996, the
Federal and Regional Micro and Small Enterprises strategy (FRMSES) was formulated in 1997: and
the Federal and Regional Micro and Small Enterprises Development Agencies (FRMSEDA) was
established by regulation No 33(1998).

All these institutional platforms are created in order to promote the growth and development of
MSEs, which intern are expected to contribute their parts in national growth and transformation.
United Nation Development Programme, UNDP (2012) has indicated that the development of MSEs
is the key component of Ethiopia‟s industrial policy direction that will contribute to the industrial
development and economic transformation of the country .Based on these effects the Government
has tried to promote the development of the sector through practicable laws and regulations,
facilitation of startup and working capitals, managerial and technical assistance, working premises,
infrastructure and market-enterprises linkages, Adil Yassin (2017).

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As a result, many MSEs have played their roles to employment creation ,poverty alleviation
,creation of entrepreneurship and national economic development, MoFED (2010).During the first
phase Micro and Small Enterprises development strategy (1997-2002) more than 1.5 million people
were employed . In addition, according to the Federal MSEA yearly statistical bulletin (2005) about
2,681,367 people were employed in MSEs ,which is more than 48 percent improvement from the
expected plan of the GTP (1,800,000).Besides ,the strategic direction of GTP has taken MSEs as a
key for industrial development and envisaged structural transformation of the national economy
.The annual report of the Federal MSEA(2005) shows that in the years ranging from 2003-2005
about 1775 small enterprises are promoted to medium level.

However, there are inherent problems which affect long term survival and business performance of
micro and small enterprises due to lack of financial resource, managerial problem, poor location and
infrastructure, low demand of products or services, corruption and shortage of raw materials ,
Akabueze ( 2012).

In this regard ,MUDC (2013) found out that through their extent varied across regional and cities in
Ethiopia ,irregular supply of raw materials ,lack of working premises ,insufficient startup and
working capital ,lack of access to market and access to land are the major obstacles of the
enterprises.

Micro and Small Enterprises sector is characterized by highly diversified activities which can create
job opportunities for substantial segments of the populations, Zemenu and Mohammed (2014). This
indicates that the sector is expected to take a quick remedy for unemployment problem .To curb
unemployment and facilitate the environment for new job seekers and self-employment a direct
intervention and support of the government is crucial, MUDC ( 2013).

1.2. Statement of the Problem

MSES have received much attention in the recent developments literature and ongoing development
strategies in many developed and developing countries, Liendholm (2001) .One of the main reasons
in favor of MSE is its ability to create employment opportunities which adopt labor intensive
techniques of production. Furthermore, MSES have employment stabilizing behavior, Alia and
Magued (2000).

The sector generates about 6.2 % of the aggregate employment in USA, 22.3 % in China, about 80 % in
India, 67 % in Japan and about 70 % in European countries, Carter and Jones Evans, cited in Tegegne and
Meheret (2010). It has also been observed that all through the 1950s and 1960s the successful Asian

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economies have very much benefited from the growth of the MSE sector, Tegegne and Mehere, (2010).
MSE have become important urban economic activities particularly in providing Urban employment in sub
Saharan Africa (SSA). In similar fashion, in cities and town of Ethiopia, MSEs and the informal sector are
the predominant income generating activities and thus they have a significant contribution to local economic
development and used as the basic means of survival, Gebregiziabher and Demeke (2004). Following the
publication of the Micro and Small Enterprises Development Document, the Federal government of
Ethiopia set up the Federal Micro and Small Enterprises Agency , Desta (2010 ;85-86). The regional states
have also developed micro and small enterprises promotion strategies based on their context and tandem
with the FeMSEDS, to facilitates the implementation of these strategy ,Gebrehiwot and Wolday, (2004; 21-
23).

The government of the Federal Democratic Republic of Ethiopia has employed the promotion and
development of MSEs as a tool and strategy that can have a profound effect on reducing urban poverty,
creating employment and bringing about overall growth in the business sector, Tegegne and Meheret (2010).
According to the Ministry of Finance and Economic Development (MoFED), it is shown that there is a plan
to reduce urban unemployment via promoting MSEs and creation of 1.5 million new job opportunities,
MoFED (2006).

The same issue of considering MSEs as a way of reducing urban poverty is also given equal emphasis in
the national urban development policy, which is composed of two packages namely the Urban Good
Governance Package and the Urban Development Package MUDC (2013). One of the major elements
consisting of the MSE development program, with the objectives of reducing urban poverty and
unemployment by supporting MSEs; achieving fast growth through the creation of linkages between
MSEs with medium and large enterprises, intensifying the development of MSEs and creating a base for
further industrial growth; and promoting the economic linkages between rural and urban areas, MWUD
(2007).On the way, the development of micro and small businesses has been also considered as a path and
vehicle to reduce poverty and create jobs for the increasing number of graduates from technical and
vocational training institutions. Accordingly, the government has allocated and spent huge amount of
resource for the expansion of the MSE throughout the country, Tegegn and Meheret (2010).

Especially after the launching of the MSE development program and strategy in Ethiopia, establishing and
being engaged in MSEs has become one of the livelihood activities pursued by many urban poor. To help
these enterprises to be valuable, the government of Ethiopia has taken various measures to make the overall
environment suitable to these enterprises, AACMSEDA: (2011). Although the government has allocated
huge amount of resources and claims that it has achieved a remarkable success in the MSE sector, studies

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will be made to investigate the impact of the sector to poverty reduction, job creation and business
development were extremely rare, Tegegne and Meheret (2010).

Studies were conducted in big cities and urban centers specifically with a purpose of identifying the
problems that MSEs encounter. For instance, survey done by Gebreyesus(2007) on six major cities
of Ethiopia (Addis Ababa, Hawassa, Bahirdar, Mekele , and Nazreth ) covering 974 randomly
selected MSE, the study finds that the major determinants of Ethiopian MSE not to succeed or
expand are access to finance, human capital, formality /informality, location, gender, age and size
of the firm. From these factors firm age, firm size, human capital (high school complete and some
college), access to finance (trade credit and informal credit), types of sectors (manufacturing and
trade) and gender (male headed business) are found to significantly determine the growth or
expansion of MSE of Ethiopia.

A lot of research has been carried out locally and internationally reviewing small and micro
enterprises. Most of these research concentrate on businesses in the cities and urban centers. They
also concentrate on their study areas based on their own objectives. There is scarcity of literature
touching on the micro and small enterprises in rural area and small towns.

Therefore, the proposed study will build on the local literature on assessment and factors that affect
performance of micro and small enterprises. The impact of access to business information, access to
finance and availability of managerial experience are yet to be researched as a single intervention in
a rural setting. This study will concentrate mainly on the assessment of the performance of MSE
operators in Bakko town west showa zone Oromia region.

1.3 Objectives of the study

The objectives of the study is to explain under its general and specific details as follows

1.3.1. General objective

The general objective of the study will be intended to assess factors that affect the performance of
Micro and Small Enterprise in Bako town.

1.3.2. Specific objectives

The specific objectives of the study will be focused to;

 To investigate the effect of access of market on Micro and Small Enterprises performance.
 To examine the effect of access of finance on MSEs of performance.
 To describe the effect of managerial skill on MSE of performance.

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  To explain the effect of access of infrastructure on MSE of performance.

1.4 Research Questions

The researcher will tries to address the following pertinent questions:

 What is access of market on Micro and Small Enterprises performance?

 What is access of finance on Micro and Small Enterprises performance?
 What is the significant effect of managerial skill on Micro and Small Enterprises
performance?
 What is the effect of access of infrastructure on Micro and Small Enterprises?

1.5. Significance of the study

This study is expected to be significant for the following reason.

 Government and other parties involved in the promotion of the development of SMEs may
use the finding of the study as additional information to address the problems uncovered in
the development of SMEs.
 Researchers, consultants, and government agencies may use the finding as a base for further
study in the area at an advanced level.
 Both graduate and undergraduate students can use the finding relevant for their academic
work.
 It may add up important additions to the existing knowledge and literature in the area.

1.6. Scope of the Study

The scopes of the study will be limited to only all employees‟ micro and small enterprises in Bakko
town that will be manageable size because of time and resource factors. The study will be targeted
those MSE operators working in five sectors in Bakko town (Urban farming, Construction, Wood
and Metal work, Services and Trade). Therefore, care will be taken not to generalize the finding of
this study to MSE operating in other sectors and localities of west showa zone. In addition, it will try
to identify the factors which will affect the performance of micro and small-scale enterprise in this
town.

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 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1 Micro and Small Enterprises (MSEs)
The MSEs sector everywhere is characterized by highly diversified activities which can create livelihood
opportunities for a substantial segment of the population. This implies that the sector is a quick remedy for
unemployment and poverty problem. The realization of a modest standard of living through curbing
unemployment and facilitating the environment for new job seekers and self-employment requires a direct
intervention and support of the government and other concerned stakeholders Adil Yassin (2007). Hence, in
order to channel all necessary support and facilities to this diversified sector, a definition is needed to
categorize the sector accordingly.

However, coming up with a universally applicable definition of MSEs is found to be difficult Storey (1995)
cited in Kayanulaand Quartey (2000). This is so because the criteria and ways of categorizing enterprises as
small, micro and medium varies from country to country and from organization to organization, Emma et
al(2009), Gebrehiwot and Wolday (2006). The absence of such uniform definition of MSEs has created a
difficulty. In line with this, for instance, Tegegne and Meheret (2010) argued that the absence of a single or
globally applicable definition has made the task of counting the number of MSEs and assessing their impact
extremely difficult across countries, though the rationale for most governments to make such definition and
categorization is mainly for functional and promotional purposes to achieve the desired levels of
development of the sector, the High Level Commission on Legal Empowerment of the Poor (HLCLEP;
2006).

After indicating that volume of capital, size of employment ,market share ,growth performance and annual
and monthly turnover are some of the common criteria used widely, Tegegne et al (2010) reported that, in
addition to these criteria ,enterprises can be categorized on the basis of past growth performance as new
starts ,no growth firms, small growth firm and graduates.

The other categorization distinguishes enterprises as livelihood (survival) enterprises and growth oriented
enterprises. The typical characteristics and points of demarcation between these two sorts of
enterprises is that; The livelihood (survival) enterprises are the ones in which the entrepreneur is pushed to.
These are activities undertaken to support family income and they could be seasonal or part-time. They
require no skill or no skill and the entry barrier is minimal. As a result, they involve highly overcrowded

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activities. Earnings from these enterprises and activities are used to support survival and the enterprises
have potential for making short term impact on poverty. The growth-oriented enterprises and activities
require skills restricting entry .Entrepreneurs are attracted to them by consideration of profits and out of
choice. Surplus is re-invested and they form the basis for growth and sustainable development, Harvie
(2003) cited in Tegegne and Meheret: (2010).

Apart from the above typology, different countries use different points of criteria to distinguish these
business enterprises from other economic entities within their national boundary. The following few
paragraphs try to present some of the applicable definitions of MSEs and characteristics used by numerous
governments and organizations.

In their extensive study carried out to assess the policy environment for promoting Micro and Small
Enterprises in Ghana and Malawi, Kayanula and Quartey (2000) shown that in Malawi, the official
definition of enterprise sizes is based on three criteria namely the level of capital investment, number of
employees and turnover. An enterprise is defined as small scale if it satisfies any two of the following three
criteria, that is, it has a capital investment of USD 2,000 –USD 55,000, employing 5 - 20 people and with a
turnover of up to USD 110,000. The same authors narrated that some of the key characteristics of small
enterprises are mobilizing funds which otherwise would have been idle; being a seed-bed for indigenous
entrepreneurship; their labor intensiveness; employing more labor per unit of capital than large enterprises;
promoting indigenous technological know-how; using mainly local resources, thus have less foreign
exchange requirements; catering for the needs of the poor and; adapting easily to customer requirements
(flexible specialization).

On the other hand, the above stated research indicated that SMEs in Ghana and Malawi can be broadly
categorized into urban and rural enterprises, where the former can be further divided into `organized‟ and
`unorganized‟ enterprises. The organized ones tend to have paid employees with a registered office whereas
the unorganized category is mainly made up of artisans who work in open spaces, temporary wooden
structures, or at home and employ little or in some cases no salaried workers. They rely mostly on family
members or apprentices. Rural enterprises are largely made up of family groups, individual artisans, women
engaged in food production from local crops.

In Kenya, by referring the1999 MSE National Baseline Survey, Ronge et al (2002) defined MSEs as
those non-primary enterprises (excluding agricultural production, animal husbandry, fishing, hunting,
gathering and forestry), whether in the formal or informal sector which employ 1-50 people. More
specifically, according to them, micro-enterprises are those that employ 10 or fewer workers and small-
scale enterprises are those that employ 11-50 workers, Mulugeta (2011; 15).

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The same study argued that the above definitions are based on one of the three criteria mainly used in
literature to define MSEs-number of employees. The second criterion relies solely on the degree of legal
formality and is mainly used to distinguish between the formal and informal sectors. According to this
criterion, MSEs are those enterprises that are not registered and do not comply with the legal obligations
concerning safety, taxes and labor laws. The last criterion defines MSEs by their limited amounts of capital
and skills per worker. The above-indicated writers emphasized highlighted that the degree of informality
and size of employment have perhaps been the two most readily accepted criteria on which classification of
MSEs is based; and lastly they claimed that the term MSE incorporates firms in both the formal and
informal sectors.

In the case of Ethiopia, there is lack of uniform definition at the national level to have a common
understanding of the MSE sector. Regulation No 2011/2011 Federal MSEDA, (2011) uses capital
investment; the Central Statistical Agency (CSA) uses employment and favors capital intensive
technologies as a yardstick. The definition used by MTI, which uses capital investment as a yardstick, has
been developed for formulating micro and small enterprise development strategy in 1997. According to the
MTI, Micro enterprises are those businesses enterprises, in the formal and informal sector, with a paid up
capital not exceeding Birr 20,000 and excluding high tech consultancy firms and other high tech
establishments. Small enterprise are those business enterprises with a paid up capital of above Birr
20,000 and not exceeding Birr 500,000 and excluding high tech consultancy firms and other high
tech establishments. According to the improved definition given to micro and small enterprises by
the Federal Micro and Small Enterprises Development Agency (2011), Micro enterprises are those
businesses that operates with 5 people including the owner and/or the total paid up capital of not
exceeding Birr 50,000 for service sector and less than birr 100,000 for industrial sector. Small
Enterprises are defined as those business operates with 6-30 person and/or with a paid up capital of
total asset Birr 50,001-500,000 for service sector and less than1.5 million for industrial sector,(
Regulation No 2011/2011 Federal MSEDA 2011).

2.2. Livelihoods

The different meanings of livelihoods given by various writers are not mutually exclusive, as all address
and emphasize capital assets and income earning activities. For instance, Rigg (2007) wrote that a
„livelihood is the way that a household or an individual gets by. Similarly, a livelihood is, therefore, about
money, food, labor, employment and assets. Likewise, the International Food Policy Research Institute
(IFPRI, 2002) underscored that livelihoods are composed of human capabilities, assets, and means of
income and living. Similarly, Livelihood refers to the group of activities that a household or an individual

9
regularly carries out and the entitlements it claims in order to support and prolong a given standard of
living, Dessalegn and Aklilu (2002) cited in Meron (2005).

In few words, a livelihood comprises the capabilities, assets (encompassing both material and social
resources) and activities required for a means of living. Equally to livelihoods, its „sustainability‟ has been
also conceptualized by numerous scholars, all stressing the need for prudent resource utilization while
ensuring intra-generational and intergenerational equity. In connection with this, while elaborating
sustainable development, Chambers and Conway (1992) explained that A livelihood is sustainable when it
can cope with and recover from stress and shocks, maintain or enhance its capabilities and assets, and
provide sustainable livelihood opportunities for the next generation; and which contributes net benefits to
other livelihoods at the local and global levels and in short and long term‟ as well. Not unlikely, IFPRI
(2002) holds a view that livelihoods are considered sustainable if they can recover from stress and shocks
while not destroying the natural resource. The idea of SL is embedded in almost all policies and
programmes designed to alleviate poverty.

Said in other words, SL can act either as development objective when it is assumed that the goal of SLs is to
enhance the sustainability of people‟s livelihoods, with a particular focus on the livelihoods of poor men,
women and households; or as a precondition to development, where a sustained livelihoods serves to
improve and consolidate poor people‟s access to and control over assets, thereby improving their
livelihoods, and helping to make them less vulnerable to shocks and stresses (such as illness, joblessness
and natural catastrophes) which could otherwise end up in downward cycle of indebtedness and
impoverishment, Farringtonetal (2000).

2.3. Performance of MSEs

According to Martin (2010:67) performance is defined simply in terms of output terms such as
quantified objectives or profitability. Performance has been the subject of extensive and increasing
empirical and conceptual investigation in the small business literature (Bidzakin K.J., 2009:31). The
issues that remain unresolved are the goals against which performance should be assessed and from
whose perspective the goals should be established (Etzioni, n.d:128).

Rami Alasadi and Ahmed Abdelrahim (2007:6-13) on their study defined performance as follows.
The most commonly adopted definition of success or good performance is financial growth with
adequate profits. Other definitions of success or good performance are equally applicable. For
example, some entrepreneurs regard success or good performance as the job satisfaction they derive

10
from achieving desired goals. However, financial growth due to increasing profits has been widely
adopted by most researchers and practitioners in business performance models.

In other words, by generating larger volumes of employment as well as higher levels of income, the SMEs
will not only have contributed towards poverty reduction, but they will also have enhanced the welfare and
standard of living of the many in the society, Mukras (2003).

As shown above, central to the problem of poverty is the availability of work. Work, secured either as
owner or employee in MSEs, allows people to produce for themselves (i.e. food) and earn the money
needed to buy goods and services. It is also from work that wealth is created which, through taxation,
allows governments to fund pro-poor services such as health care, clean water and education, Vandenberg
(2006).

Current international thinking is also in tune with a view that acknowledges SMEs as a tool to fight poverty
in the long run. The United Nations Industrial Development Organization‟s (UNIDO) approach to this is
worth mentioning here: Poverty reduction is simply not going to happen by government fiat but only
through private sector dynamism”.

The evidence directly linking SMEs and poverty reduction is considerably less robust than that linking
them to economic vitality, even in the most developed economies. There are suggestions of greater
employment opportunities for poor, low skilled workers, increased skills development, and broader social
impacts. The movement to support MSE development internationally reflects a return to promoting poverty
reduction by investing in private sector-driven strategies by all of the major multilateral agencies. Poverty
Reduction Strategies (PRSs) currently being formulated in many developing countries places a more
pronounced emphasis on the contribution that the private sector will have to make – compared to the over-
reliance on the social agenda that characterized earlier PRSs Tegegne and Meheret (:2010).

In conformity with the above view advanced by UNIDO and as an organization concerned to the
condition of labor, the ILO‟s approach to poverty reduction through small enterprise development is based
on the promotion of the four elements of decent work, namely, productive, remunerative employment;
rights at work; social dialogue; and social security. This strategy focuses on the needs of poor people who
are part of the micro and small enterprise economy, as owner/operators and workers, as their dependants, as
the unemployed who may benefit from job creation, and as customers ILO (2016).

While further consolidating the above-shown approach, Vandenberg (2006) suggested that the ILO‟s
existing strategy for poverty reduction through small enterprises must emphasize the fact that Small
enterprises make a positive contribution to poverty reduction when they provide employment, adequate

11
levels of job quality, and low-cost goods and services used by the poor; entrepreneurship, combined with
productivity increase, is a key ingredient for poverty reduction through small enterprise development; and
vibrant enterprises, competitive markets and a fair globalization can make a significant impact on poverty
reduction.

Nevertheless, there are two polarized thoughts, according to Agyapong (2010), in relation to the role and
contribution of MSE to economic growth and poverty reduction: the Anti-MSEs and Pro-MSEs. At the
very onset, the Anti-MSEs are skeptical about the efficacy of MSEs in promoting growth and reducing
poverty. They argue that MSEs may not exploit economies of scale; their productivity is minimal as they
rarely undertake the fixed costs associated with research and development. The Anti MSEs strongly
oppose such an argument that small businesses are more labor intensive and are better at creating jobs than
large firms.

Furthermore, they hold a view that the net job creation of MSEs is not necessarily significant and frequently
lower than for larger enterprises as the majority level of job creation is accounted by large enterprises.
Those employed in larger enterprises, unlike those engaged and absorbed in MSEs, are offered better jobs
in terms of wages, benefits, working conditions, opportunities for skill enhancement, and job security To
sum up, proponents of this thought strongly question the role played by MSEs to minimize the incidence of
high level poverty in most developing economies through employment creation, income generation and
multiplier effects on other sectors of the economy. On the other extreme, the Pro-MSEs, whose stand and
arguments are also shared by national governments of the global south, donor countries and development
agencies, are of a view that MSEs facilitate economic growth and help to reduce the high poverty level
widely experienced by the majority of the countries of the developing world. The Pro-MSEs have argued
that MSEs speed up competition and enhance entrepreneurship and thus have economy wide benefits in
efficiency, innovation and productivity growth. Thus direct government support of MSEs can help
countries reap social benefits. Second, MSMEs are generally more productive than large firms but are
impeded in their development by failures of financial markets and other institutions for capital and other
non financial assistances. Thus, pending financial and institutional improvements, direct government
support of MSEs can boost economic growth and development. Finally, the growth of MSEs boosts
employment more than the growth of large firms because MSEs are more labor intensive. So subsidizing
MSEs may help reduce poverty.

2.3.2. Generates income and employment opportunity

The contribution of MSE to employments growth and sustainable development is widely

acknowledged . Their development can deepen the manufacturing sector and faster

12
competitiveness. It can also help achieve a more equitable distribution of economic growth and
thereby help alleviate some of the problems associated with uneven income distribution
,UNCTAD ( 2005) .

MSE provide income and employment for a significant proportion of workers in rural and
urban areas by producing basic goods and services for rapidly growing populations, Elhaika and
Nkuriziza,( 2006).The role of MSE in employment and income generation is increasingly
recognized and has become a major playing field for policy makers and donors with dual
objective of enhancing growth and alleviating poverty, Gebreeyesus ( 2007) .

In most fast developing counties, MSE because of their size , location, capital investment and
their capacity to generate greater employment proved to have an important effect for rapid
economic growth . The sector is also an instrument in bringing about economic transition by
using the skills and talents of the people without requesting high level training , much capital
and sophisticated technology. (Regulation No 2011/2011 Federal MSEDA,(2011). Micro
enterprises are a large growing and very dynamic element of the economies of developing countries.

Furthermore, MSE generates output, employment and incomes and also strengthens inter-
sectoral linkages leading to more integrated and balanced growth . It also promotes more
broad based participation (especially for the poor and by women ) in productive activities ,
leading to more equitable distribution .

2.3.3. Innovation and entrepreneurship

MSEs are the engine of growth and entrepreneurship in many countries. Since MSE tries to exploit
new market opportunities , this will make MSE to produce different types and quality of
products with response to market needs and hence this in turn bring innovations to the
marketplace. (USAID, 2006).More importantly, MSE is considered as the natural home
of entrepreneurship (Regulation No 2011/2011 Fedeaal MSEDA, (2011).

2.3.4. Capital accumulation or financing

MSEs are an important source of capital creation, asset accumulation and domestic investment. In
addition MSEs are an important source of finance for small entrepreneurs. Specifically, MSEs are a
source of cash for investment to individuals who would not have access to the formal financial
system, USAID ( 2006).

13
2.3.5 Rural or regional development

MSEs provide service outside of regional or capital cities to areas that are marginally less
profitable for larger merchants and hence tend to be ignored, USAID ( 2006). MSEs can
stimulate the local economy by increasing the aggregate demand and allow for greater investment.
Furthermore, MSEs are suitable to areas that are unsuitable for medium and large scale firms,
decentralized development, regional balance growth and small town‟s growth, Gebreegizabher and
Demek (2004).

2.4. Factors Affecting the Development of MSEs in Ethiopia

The significance of the contribution of MSEs to national development goals in general and to the
local economy in particular, is being recognized increasingly in many developing countries.
Therefore, closer attention is being paid to the factors that promote the growth and development of
this sector. This being the fact, different studies indicates that the sector faces a range of legal,
regulatory and other constraints that can limit its role of creating new employment opportunities,
poverty alleviation and fostering economic growth. According to Gebrehiwot and Wolday (2004),
MSEs are faced with problems that may arise from within the enterprise itself and from outside in
which they operate.

2.4.1 Internal Factor

Internal factors are factors that may arise from within the enterprise itself. The internal factors, which
hinder the normal functioning of MSEs, include: limited human capital (the skills, schooling,
technical know-how and motivation of employees), lack of financial record keeping and the
utilization of obsolete technology. Regarding factors pertaining to human capital, studies indicate
that the majority of workers in informal enterprises are of low educated. Most of the operators
acquired the skills through on-the-job training within the informal sector or, as in the case of Africa,
through informal apprenticeship systems; it is rare to see those who obtained their skills through a
formal training institution, Sethuraman (1997). Training in most cases tends to be supply-driven, and
are rarely sensitive to the needs and circumstances of those in this sector and this generally means
their irrelevance.

Sethuraman (1997) emphasis that resources in the form of training or other similar inputs, if
allocated at all for the informal sector, tend to be so meager that they are subject to rationing which
means that many of those needing assistance are disqualified through a process of screening based on
different criteria. (e.g., minimum schooling required for training, collateral for credit, etc).Not having

14
free access to the internal factors has no doubt its consequences on the informal operators‟
performance in the market. For instance in terms of poor location, the majority of informal firms are
home based which may limit their expansion, interaction with other businesses, hence increased
transaction costs and limited access to marketing information. Some informal enterprises operate in
temporary physical structures in open spaces or in public space that are considered illegal or
unauthorized, a situation that limits their access to public services: sanitation, water and electricity.

2.4.2. External Factor

External factors are factors that may arise from external to the enterprise that includes financial
factor, marketing factors, working place factors, and technology and infrastructure problems.

2.4.2.1 Access to Financial Services:

According to Gebrehiwot and Wolday (2006:68-70) lack of access to finance is a major problem to
the growth and development of MSEs. In most of developing countries, the majority of MSEs lack
access to formal financial services. Researches in this area evidenced that the informal firms start
their business with their own savings supplemented by borrowing from friends and relatives. Since
most of the operators are poor they start their business with very little capital. A few meet their
capital requirements through informal credit mechanisms which exist within their community, but
rarely from the formal sector institutions. Credit from formal sources are not only governed by
government regulations but often they also form part of public sector monopoly, and hence
administered by a bureaucracy that is generally unfriendly to the poor, illiterates and semi-literates in
the informal sector. Similar attitudes also prevail in the private sector; the private banks for example
rarely find it profitable to deal with these units, though a few exceptions are emerging Sethuraman,
(1997).

2.4.2.2 Limited Access to Business Development Services

Business Development Services are designed to help micro, small, and medium-sized enterprises
overcome barriers to increased profitability, by improving their productivity and access to high value
markets. In this way, the sector can create and sustain productive, remunerative and good quality
jobs, as well as reduce poverty, and contribute to the development of the local economies. The
service include training, consultancy and advisory services, marketing assistance, information,
technology development and transfer, business linkage promotion, and linkages to finance and
financial services.

15
However; since informal enterprises do not comply with government regulations, the majority of
them have no access to business development services offered or coordinated by governments. Some
of them are unaware that business development services are offered while others are ignorant to its
worth. Ishengoma and Kapple stated that BDS providers do not market their services to small and
informal enterprises appropriately, assuming that these enterprises cannot afford the services. It some
cases the services offered are of low quality or irrelevant to MSEs, Ishengoma and Kappel, (2006b).

2.4.2.3 Limited Market

The majority of informal enterprises target the low income market areas because of low entry
barriers. Enterprises in this market tend to compete for the same customers. The magnitude of this
hindrance is higher for those concentrated in one area as they tend to apply a copycat strategy and
thus produce similar products. This limits their growth potential and stability and is one of the
reasons why informal enterprises experience a relatively high instance of downfall, Paul and Rahel,
(2010; 70).

2.4.2.4 Poor Supply of Economic Infrastructure and Public Services

One of the desires of most participants in the informal sector is to save on costs and this includes
saving on rental; for them higher disposable income now is more important than a better quality
premises. They therefore prefer to operate either from homes or from other rent free locations even if
it means violation of existing regulations, Sethuraman (1997). Since incomes of the operators depend
significantly on where they do their business within the city, they choose to operate closer to inner
city or other locations despite the risks involved in violating the regulations where purchasing power,
and hence demand for their output, is concentrated.

Consequently, the majority of informal enterprises lack a decent location for their businesses. Some
of them are located in places with a limited supply or lack of public services and economic
infrastructure (for example, water and electricity, transport systems, telecommunication systems,
sanitation services). In comparison to residents/ enterprises in middle or high-income communities,
informal firms with access to these services incur a relatively high cost per unit for the service, Yu,(
2002). On account of their small size they cannot afford to invest in private public goods, Reinikka,(
2002) or to buy services from private providers which would be more expensive than sourcing from
government suppliers Ishengoma and Kappel,( 2006b).

A poor economic infrastructure and limited access to public services increases the operating costs of
informal firms, limits their ability to meet quality standards (for example, hygiene standards in

16
restaurants), hinders their participation in linkage relationships and reduces their market and
customer base Collier,( 2002).

2.4.2.5 Complex and Burdensome Government Regulations

There is a widespread perception that informal enterprises are avoiding regulation and taxation and,
therefore, are operating under semi-legal or illegal conditions in the sense that they do not comply
with one or more existing government regulations Sethuraman, (1997). Regulations pertaining to
land use, land transactions, rental, tenure, etc., affect the informal sector in a significant way.
Similarly labor related regulations are also known to affect the informal sector in a number of ways.

There are also regulations which essentially define the framework within which business should be
conducted for instance: those concerning establishment and operation of business such as location,
registration, and licensing, bookkeeping, hours of operation, holidays, and tax obligation. In addition
to these there may be regulations which intervene in the purchase of inputs, use of power, transport
and marketing of outputs. The consequences of not complying with these and other regulations are
many for the informal operators.

It could mean paying a penalty in the form of a lump sum fee which resulted in a reduction in
incomes. In extreme cases it could mean closure of business or confiscation of business property.
The net result is to create uncertainty and discourage business investment. Regarding with non
compliance to government laws and regulation, different school thought has a different perspective.

The standard neo- liberal perspective is that informal entrepreneurs deliberately avoid compliance
with the law and the regulatory environment. The legalist point of view is that informal entrepreneurs
find it impossible to comply with the unreasonable bureaucratic procedures associated with
registration. The structuralisms perspective is that there are structural barriers -not just bureaucratic
barriers - to formalization and argued that vested interests in the formal economy promote informal
arrangements Chen et al., (2002).

2.4.2.6 Policy Environment

The internal constraints and the external once discussed above which are considered as hindrance for
the normal functioning of informal enterprises include are generally known as “Supply” constraints,
because they limits in one way or another the capability of the informal sector entrepreneurs to
generate goods and services and hence generate income Sethuraman, (1997). Apart from this most
studies on the informal sector shows the existence of demand constraints which limits the
opportunities for production.

17
Studies on informal sector show that a substantial proportion of the units are faced with a stagnant or
declining demand for their output; many also reported facing "too much competition" as explained
by Sethuraman, (1997) it indicates the existence of limited opportunities. These findings are
indicators of overcrowding of the market; by the same token they can be interpreted as failure of
demand to grow, at least not as rapidly as the supply. He emphasized that development policies, if
properly conceived and implemented, could ensure greater demand for informal sector output and
thus open up new opportunities for participation.

2. 5. Previous Studies on the Ethiopian MSE Sector

A lot of studies has been carried out locally and internationally reviewing micro and small enterprises. Most
of these research concentrate on businesses in the cities and urban centers. They also concentrate on their
study areas based on their own objectives. For instance, survey done by Gebreyesus, (2007) on six major
cities of Ethiopia finds that the major determinants of MSE on Ethiopia. More importantly, the study is not
critically evaluated and examines the socio economic attributes of MSEs (especially income generation and
employment opportunity). The study solely emphasizes on determinant factors and ignores the socio
economic attributes of MSE on Ethiopia, besides it focuses on major Cities and Urban centers rather than
small towns.

Rahel and Paul, (2010) in their study, based on the survey-covering 123 businesses units in four Kebeles
of Nifas Silk Lafto and Kirkos sub cities of Addis Ababa ,and aimed to investigate the constraints and
key determinants of growth, particularly in employment expansion, among women-operated MSEs, found
out that the studied enterprises registered 25 percent increment in the number of total employment they
created since their establishment with an average annual employment rate of 11.72 percent. With regard to
the sources of initial capital of the studied enterprises, the study indicated that, the main ones were loan
from MFI, personal saving or equb, and loan from family/friend.

Moreover, the concrete problems that the targeted MSEs faced at their startup were lack of capital,
skills problem and lack of working space. With having an objective to assess the impact of group-
based MSEs on poverty alleviation, Daniel (2007) conducted a research in Nekemte city of the
Oromia Regional State of Ethiopia. According to this study, 48 percent of the surveyed respondents
are of a view that their income has increased while 22.7 percent said that their income has decreased
as a result of their engagement in the studied MSEs. The study further indicated that the studied
respondents consumption expenditure has increased after they start to work in MSEs, which has
resulted in the improvement of the operators consumption and ownership of water, housing,
household assets, education and medication. The same study showed that MSEs have a protective

18
role on averting vulnerability of their members to risks such as food shortage, unemployment and
lack of income. Most importantly, the research pointed that MSEs have helped for the economic
empowerment of women. Lastly the study identified that Lack of market, stiff competition, lack of
working capital, raw material shortage and poor managerial skills are among the problems that MSEs
are encountering.

Drawing on a data generated from 133 samples working in the construction and garment and textile MSEs,
Getahun (2009) carried out a research in Gullele sub-city of Addis Ababa city to assess the impact of MSE
intervention on urban poverty reduction by examining the level of employment creation, change in income
and living standard of the beneficiaries in terms of education, health, household assets and clothing. The
study found out that the studied MSEs have created a permanent and temporary employment opportunity.
The income and expenditure of the beneficiaries of the MSE program has shown an increment, according to
the study. The respondents believed that their engagement in an improved health and clothing, and
increased ownership of basic household assets such as table, chair, bed, radio and tape recorder. After
identifying lack of finance, inadequacy of production space and lack of training as bottlenecks that hamper
the poverty alleviation role of MSEs, the study stressed the need for a real commitment from all
stakeholders especially government, NGOs, micro finance and educational institution.

Dereje (2008) studied the nature, characteristics, economic performance, opportunities and challenges of
MSEs in the construction sector based on 125 sample enterprises. The results of the study revealed the
following characteristics of MSEs are identified.

Most of the enterprises are managed by youngsters, loan and membership contribution were the main
source of their start-up capital, and profit is shared equally among members, and have received business
development services.

With regard to the constraints of the MSEs, the study identified problems such as shortage of capital, lack
of raw materials, absence of government support, lack of market, lack of credit facilities and high interest
rate. The same research showed that, since their establishment, the capital and job creation capacity of the
enterprises has shown a significant increase.

In reality, literature on MSEs in Ethiopia is scanty and most of the available studies were conducted
for specific purposes or on specific aspects of MSEs. Current available researches, as the above-
reviewed studies and other related works elsewhere show, studied MSEs as part of their prime target
of assessing the impact of micro-finance, or about the major challenges facing the sector. Moreover,
other studies have been also conducted in particular areas in line with the interest of certain
governmental or non-governmental or civil society organizations or donors who commissioned the

19
studies, and mainly tailored towards addressing gender concern specifically as well. Furthermore,
only few studies Daniel (2007); Getahun (2009) and Tegegne and Meheret (2010) were conducted to
assess the sector‟s contribution to poverty reduction. But, unlike these studies, this research tried to
qualitatively assess the overall livelihoods situation of the MSE operators in a holistic way by
targeting and deeply investigating those operators engaged in Urban farming, Construction, Trade,
Service, Metal and wood work activities in Hurumu town of Ilu Aba Bor zone Oromia Region to
build on the scarcity of literature touching on the MSEs in rural and small towns.

2. 6. Conceptual Framework

Performance of micro and small enterprises depends on certain factors as set out into two
categories as dependent and independent variables. Independent variables include: market access and
business information services, access to financial resources, availability of managerial experience in
business and access to infrastructure. Government regulations are included as a moderating variable.
The relationship of the variables is displayed in the figure below.

Figure 2.1 Conceptual Frameworks

Market Access and business

information services (markets and
trends, quality suppliers, business
risks and business strategies).

Access to finance (sources of

capital, accessibility to loans and Performance MSEs
ability)  Increase in income
 Increased well being
Availability of managerial
 Increased food security
experience (training and
development of entrepreneurship
and business management)

Access to infrastructure (access to

roads, work space, accessibility of
lands and electricity and utility)
Government Regulations (Ease
of Licensing and Tax incentives
to MSEs)

Source: developed from different literature (2013)

20
 CHAPTER THREE

3. RESEARCH METHODOLOGY
3.1 study Area

According to national census reported a total population for this woreda of 123,031, of whom 61,018
were men and 62,013 were women; 22,851 or 18.57% of its population were urban dwellers. The
majority of the inhabitants said they were Protestant, with 60.87% of the population reporting they
observed this belief, while 28.58% of the population practised Ethiopian Orthodox Christianity, and
8.21% were Muslim.

Based on figures published by the Central Statistical Agency in 2005, this woreda has an estimated
total population of 133,799, of whom 68,401 are men and 65,398 are women; 28,294 or 21.15% of
its population are urban dwellers, which is greater than the Zone average of 12.3%. With an
estimated area of 637.19 square kilometers, Bako Tibe has an estimated population density of 210
people per square kilometer, which is greater than the Zone average of 152.8.

The 1994 national census reported a total population for this woreda of 92,608, of whom 45,245
were men and 47,363 women; 15,827 or 17.09% of its population were urban dwellers at the time.
The three largest ethnic groups reported in Bako Tibe were the Oromo (90.34%), the Amhara
(7.63%), and the Sebat Bet Gurage (1.02%); all other ethnic groups made up 1.01% of the
population. The Oromo language was spoken as a first language by 89.82%, and 9.4% spoke
Amharic; the remaining 0.78% spoke all other primary languages reported. A plurality of the
inhabitants professed Ethiopian Orthodox Christianity, with 44.79% of the population reporting they
practiced that belief, while 22.37% of the population said they were Protestant, 19.31% practiced
traditional beliefs, 9.23% were Muslim, and 0.98% were Catholic.

21
3.2. Research design
To undertake the study, the researcher will be adopted descriptive and explanatory rersearch design
of cross sectional nature, which employs quantitative and qualitative techniques. The researcher
adopts survey methodology since it provides quantitative or numeric descriptions of trends, changes
and opinions of population by studying a sample of that population Creswell (2005). Therefore, it
will be useful to describe the existing situations about the constraints and socio economic aspects of
the community. In addition, this method, as Payne (2004) points out, is used to mix quantitative and
qualitative methods.

3.3. Sampling techniques and Sample Size

In Bakko woreda, there are a total of 253 licensed Micro and Small Enterprises. Out of this MSEs 53
are found in Bakoo town. From these 53 MSEs in the town, 38(72%) of them are the major types in
terms of performance are located at the top, (according to the information from the experts of the
district MSEDO). These 38 MSEs are engaged under Urban farming, Construction, Wood and Metal
works, Service and Trade, and provides job and income for 190 member participants.

The researcher will employs purposive sampling methods to select MSEs sectors and study area and
random sampling methods for participants of FGD. The rationale behind the selection of stratified
sampling method is to include the representatives from different sectors. Many of MSEs are
organized and operational at the capital of the district. This will make the sector easily accessible to
the researcher.

Thus the researcher decides that, the experience drown from the study of these relatively successful
sectors may helps to the concerned parties in enhancing the performance of other sectors.

Therefore, these 190 members are of study population. Since the study population is small or
manageable size, the researcher will collected data from entire population or all the member
operators will be included in the study as sample respondents.

After critically contacting the district MSEDO and operators of MSEs to get preliminary information
about the overall status, distribution, type and operation of MSEs by questionnaire survey, random
sampling strategy will be employed for the selection of respondent for FGD and indirect observation.
As clearly indicated in Kitchin and Tate (2000), this type of sampling needs that the sample units are

22
taken based on the researcher`s judgment and experiences that are assumed to be produce the
intended results.

Sample size determination formula

The sample size number of respondents will be determined by Using Yemane (1967) sampling
design formula. 95% confidence level will be employed

n= __N______

1+ N (e)2

n= __190__ n= __190__ =128

1+ 190 (0.05)2 1+ 190(0.05)2

Where, n is number of sample size

N total number of study population

e is the sampling error or level of precision i.e., 0.05

95% confidence level will be employed

Table 3.1 Sampling Frame

Sub-Sectors Total Population Sample Size
1 Urban farming 47 32
2 Construction 48 32
3 Wood and metal works 43 29
4 Service 52 35
Total 190 128

Source: from Bako micro and small industry office (2013)

3.4. Data sources

The study will be utilized both primary and secondary information accessed from various sources
.the primary data will be mainly generated through questionnaire survey. In addition to
questionnaire, focused group discussion, interview with key informants and informal observation

23
were used. Data gathered from primary sources will be further developed by a review of secondary
sources like books, articles, brochures and published and unpublished materials. The Secondary data
source includes pertinent documents, published and unpublished materials so as to make the findings
of the study more reliable.

3.5. Methods of data collection

A cross sectional survey method will be employed by using close ended structured questionnaires
among the representative of micro and small enterprise of performance in the zones. Primary data
will be collected with the help of structured close ended questionnaires and interview questions that
will be completed by key informants (manager of Bako town office of micro and small enterprise).

The questionnaires are designed to answer the questions identified in the problem statement and
include questions that are relevant to the study and will follow a logical sequence to avoid
misunderstanding. Close ended questionnaires will be prepared and adopted with the context of
enhance the validity, reliability and accuracy of data collected for the study. The secondary data will
be collected from unpublished materials and annual reports enterprises town offices.

3.6 Method of Data Analysis

After the accomplishment of the data collection there will be careful analysis and interpretation of
this data, which will be collected from the respondents. The qualitative data will be analyzed using
content analysis while the quantitative data will be analyze using descriptive and inferential analysis
( regression analysis, correlation analysis and ANOVA) using SPSS (version 22).It needs editing of
the data, coding the data, tabulating the data, classification of the data for the data preparation. Both
descriptive and inferential statistics will be used to analyze data from the field. Descriptive data will
be analyzed using tables and percentage to group the reaction of respondents to the questions asked.
The inferential statistical tool used to analyze the relationship between the independent and
dependent variables is the Pearson Correlation analysis to test hypothesis of the study.

3.7 Model specification

Multiple regression Model will be employed. This portrays factors affecting performance of micro
and small enterprises. Multiple linear regression model the of study is described as follows:

y = α + β1x1 + β2x2+ β3x3+ β4x4+ εi

24
Whereas Y is (DV) or performance of micro and small enterprises

α is Constant term or intercept

β is Coefficient of variables

SMSE – performance of micro and small enterprises

X1- Access of market

X2 – Access of finance

X3 – Access of infrastructure

X4- Management skills/experience

25
 CHAPTER FOUR

4. Budget and Time breakdown of research

4.1 Budget breakdown of research

The following table will show the budget breakdown to cascade and doing the research and data
collection activities.

No Activities Allocated budget Remark

amount in
Birr Cent

1 Witting and duplication of data collection 1000 00

questionnaire
2 Collection of data by data collection (periderm 1000 00
fee )
3 Budget utilization for transportation telephone 00
and internet service
 From Bakko
 Other Expense 1000

 Total
1500

2000
4 Editing and writing the main research 1000 00
5 Prepare the research document to stalk holders by 2000 00
preparing the documents
6 Other contingency 5000 00
Total Budget Required 15,500 00

26
4.2 Time breakdown of research

The following table will show the time when the research activities will be done and what will be the
time schedule for collection of data analysis and presentation of the result to the stakeholders.

No

February
January

March

April
Type work

May

Jun
1 Research question preparation -
 -
2 Distribute the question paper

3 Follow up question paper 

4 Data collection 

5 Organize data 

6 Analysis data 
7 Interpret data to adviser 
8 The end research thesis is interpret data 
9 Final defense of the thesis 

27
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