THE ROLE OF MICRO AND SMALL SCALE ENTERPRISES

IN POVERTY ALLEVIATION AND EMPLOYMENT

CREATION (THE CASE OF ARBA MINCH TOWN)

A SENIOR ESSAY SUBMITTED IN PARTIAL FULL FULLMENT FOR THE

REQUIREMENTS OF DEGREE OF BACHELOR OF ARTS IN ECONOMICS

ADVISOR: ATO TEWOLDEBIRHAN T.

PREPARED BY: GEREMEW MILKIAS RBE/495/98

DEPARTMENT OF ECONOMICS

FACULTY OF BUSINESS AND ECONOMICS

ARBAMINCH UNIVERSITY

JUNE, 2008

ACKNOWLEDGEMENT
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First and foremost, I would like to extend my heart felt gratitude to Almighty God for his
invaluable cares, supports, forgiveness, willingness .

I would like to express my deepest gratitude to my advisor Ato Tewoldebirhan Tesfay for
his unreserved effort of evaluating, correcting and giving constructive ideas and
suggestions during the compilation of the paper. My greatest appreciation goes to Ato
Debebe Dagne, head of Arba Minch town micro and small scale enterprises development
bureau and all his staff members and colleagues for giving the necessary information and
related data to make this paper meaningful.

I express my deepest thank to my family for their love and continuing effort and
encouragement that provide the concentration and mental stability that I would like to
have.

Finally I would like to extend my gratitude to all who have helped me in one or another
way during the preparation of the paper.

TABLE OF CONTENTS
CONTENTS page

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Abstract ……………………………………………………………........... i
Contents ……………………………………………................................... ii
List of tables ……………………………………………............................. v
Abbreviations ……………………………………………........................... vi
Acknowledgment ……………………………………………...................... vii

CHAPTER I
1. INTRODUCTION
1.1 Background of the study………………………………………… 1
1.2 Statement of the problem ………………………………….………..... 3
1.3 Objectives of the study …………………………………………… 5
1.4 Research design and methodology ………………………………… 5
1.4.1. Method of data collection ………………………………… 5
1.4.2. Method of data analysis and presentation ……………………… 6
1.5 Scope of the study………………………………………………… 6
1.6 Significance of the study…………………………………………… 6
1.7 Limitation of the study …………………………………………… 7
1.8 Organization of the study……………………………………..…… 7

CHAPTER II
1. REVIEW OF RELATED LITERATURE
2.1 Theoretical Literature Review ………………………………....….... 8
2.1.1. Definitions ……………………………………………...…… 8
2.1.2. Economic Social and Political aspects
of small business enterprises…………………………….…. 10
2.1.3 Role of MSEs in economic growth ……………………....... 12
2.1.4 Special contribution of small business ……………………… 14
2.1.5. MSEs and developing countries …………………………… 16
2.2 Empirical Literature Review…………………………………. 22
2.2.1 Size and diversity of MSEs in Ethiopia…………………… 22
2.2.2 Role and contribution of the sector………………………… 23

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 2.2.3 Constraints facing the sector ……………………………… 24
2.2.4 Some evidence from the field from other countries………… 25
2.3 Public/Government Organizations ……………………… 27
CHAPTER III
2. FINDING AND DISCUSSIONS
3.1 Background of the respondents …………………………………........... 29
3.1.1 Distribution of respondents by sex ……………………………….... 29
3.1.2 Distribution of respondents by age ………………………………..... 29
3.1.3 Distribution of respondents by educational status ………………..... .30
3.1.4 Distribution of respondents by previous job status …………........... 30
3.1.5 Distribution of respondents by year of entrance …………… 31
3.2 Formation of Micro and Small Scale Enterprises ………….............. 31
3.2.1 Package programs ………………………………………………..... 32
3.2.2. Regular programs ………………………………………….……... 33
3.3 Employment creation …………………………………………...…... 33
3.4 Government Support ……………………………………………….... 37
3.5 Reason for Venturing ……………………………………………….... 38
3.6 Performance of MSEs …………………………………………………. 39
3.7 Problems of MSEs ……………………………………………… 41
3.8 MSEs and Poverty Alleviation………………………………………… 43

CHAPTER IV
3. CONCLUSION AND RECOMMENDATIONS
4.1 CONCLUSIONS …………………………………………….........…… 46
4.2 RECOOMMENDATIONS………………………………....…………... 47
BIBLIOGRAPHY ………………………………............….……. … 49
APPENDICES…………………………………………….………… 50
APPENDIX I INTERVIEW……………………………………… 50
APPENDIX II QUESTIONNAIRE……………………………….. 52
ABBREVIATIONS
AT Appropriate Technology

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CSA Central Statistical Authority
EEC European Economic Commission
FeMSEDA Federal Micro and Small Enterprises Development Agency
ILO International Labor Organization
MSEs Micro and Small Scale Enterprises
NGOs Non Governmental Organizations
SAP Structural Adjustment Program
SMEs Small and Medium enterprises
USSR Union of Soviet Socialist Republic
SSEs Small Scale Enterprises
UNECA United Nations Economic commission for Africa

LIST OF TABLES
TABLE 3.1 Distribution of respondents by sex………………………………… 29

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TABLE 3.2 Distribution of respondents by age ………………………………… 29
TABLE 3.3 Distribution of respondents by educational status ………………… 30
TABLE 3.4 Distribution of respondents by previous job status ………………… 31
TABLE 3.5 Distribution of respondents by year of entrance to the business…… 31
TABLE 3.6 Number of Associations and individuals organized (1997-2000 E.C)...34
TABLE 3.7 Employment Creation by Associations…………………………… 36
TABLE 3.8 Distributed loan for MSEs (1997-2000 E.C) ……………………… 37
TABLE 3.9 Reason for venturing………………………………………………... 39
TABLE 3.10 Growth Capacity of Enterprise………………………………… 40
TABLE 3.11 Profitability of the enterprises………………………………… 41
TABLE 3.12 Problems of MSEs…………………………………………….. 42
TABLE 3.13 Improvement in living standard (a)………………………… 44
TABLE 3.14 Improvement in living standard (b) …………………………… 44
TABLE 3.15 Increase in income ……………………………………………… 45

ABSTRACT
A number of issues related to micro and small scale enterprises in Arba Minch town are
raised. There is an extreme and dreadful need to expand and develop these enterprises as
well as solve their problems in order to be able to reap the potentials of these enterprises
in employment creation and poverty alleviation. This study attempts to convey the role of
these enterprises in employment generation and poverty reduction as well as their
problems in the study area (Arba Minch town). Furthermore, it envisages feasible course
of actions for the development and better performance of these enterprises in the town.

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 CHAPTER I
1. INTRODUCTION
1.1 Background of the study
Majority of developing countries are agrarian in economic, social and cultural outlooks.
Farming is not only an occupation but a way of life for majority of people in Asia, Africa,
and Latin America. Economic development can be achieved through integrated efforts
that encompass all the sectors of the economy. However, these countries were making
great efforts for economic development giving special attention and concern for
agricultural sector. Most of Economies of developing countries produce primary products
(Todaro, 1993).

For well managed and sustained development great emphasis should be given to the
Industrial sector .The industrial sector serves multi purposes through the backward and
forward linkages with the agricultural sector. It plays great role in enhancing economic
development.

The 19995 world summit for social development reiterated the inseparable link between
poverty reduction and employment, stating, inter alia, that:”productive work and
employment are central elements of development ….sustained economic growth and
sustainable development as well as the expansion of productive employment should go
hand in hand. Full and adequately and appropriately remunerated employment is an
effective method of combating poverty and promoting social integration.” Creating
enough jobs and productive employment to break the vicious cycle of poverty remains
one of Africa’s most dounting development challenges. The regions economies have not
achieved enough employment creation or enough labor absorption capacity to keep pace
with population growth, urbanization and the rising expectations of their citizens.
(Economic and Social Survey of Africa, 1995-1996, UNECA).

Economic development is achieved by balancing the economic growth with that of

population growth. Currently, there is high population growth in the country. Making
wise use of the growing population will minimize its impact on economic development.

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The population growth is relatively high in rural areas than urban areas. This led to the
currently expanding rural-urban migration. This is the major cause for the currently high
urban unemployment. To reduce urban unemployment, improved labor absorption
capacity and making use of growing population, the major means is expansion of micro
and small scale enterprises.

Micro and small scale enterprises are kind of establishments with small capital
investment. Although there are a variety of measures to categorize micro and small scale
enterprises in different countries, in Ethiopia an establishment is said to be micro or small
enterprise if it is set up with capital less than Birr 500,000. To be more specific, micro
enterprises are those enterprises with stat up capital of less than Birr 20,000 where as
small enterprises incorporate all establishments whose capital of setting (start up ) lay
between Birr 20,000 and Birr 500,000.( Hailay,2003).

SSEs have characteristics that justify promoting them in a development strategy. They
create employment at low levels of investment per job, lead to increased participation of
indigenous people in the economy, use mainly local resources, promote the creation and
use of local technologies, and provide skills training at a low cost to society (ILO 1989).

The expansion of these enterprises plays dual role in the economic development of the
country. The role of micro and small scale enterprises in the economic development of
the country is immense. The micro and small scale enterprises sector is a home for many
of those who are unable to find job in the formal sector. In other words, it is a major
source /area of employment creation.

They also create backward and forward linkages between Agricultural and Industrial
sectors of the Economy. The micro and small scale enterprises supply raw materials for
the agricultural sector (different farm inputs) which will improve the productivity of the
rural agricultural sector which is getting worse because of rapidly growing population
and environmental degradation. Thus the increased productivity of the agricultural sector
will enable the rural population to earn better income and it also make available the

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required agricultural inputs for industrial sector (food, beverage, etc). The increased
income of rural population creates wider market for the micro and small scale enterprises.

In another way the development of micro and small scale enterprises in the urban area
raises the income of the urban poor and unemployed by creating employment
opportunity. The rise in the income of the urban population will expand the market for
agricultural commodities produced in the rural areas. The expansion of agricultural
market enables the rural population for getting better income from their agricultural
production.

Thus in general the development of MSEs have great role in balanced growth of rural
and urban sectors which is very essential for developing countries. However, to enjoy all
the above advantages and fruits of MSEs, they have to perform at their full capacity. The
major ingredient for their performance at their full capacity is financial capital. It is
obvious that the establishment and expansion of micro and small scale enterprises require
enough financial capital. There are many available financial services for micro and small
scale enterprises but only small are attainable for them with respect to collateral. This is
to mean that only small financial institutions provide loan for establishing micro and
small scale enterprises without asking collateral.

Recognizing the in affordability of the major financial institutions for the micro and small
scale enterprises, the government has established special financial institutions that are
prepared to provide funds for the establishment and expansion of micro and small scale
enterprises. They are micro finance institutions (OMO microfinance in the case of
Arbaminch town)

1.2 Statement of the problem

Development of micro and small scale enterprises leads to employment of the majority of
the labor force. The employment situation may be different ranging from self
employment to wage employment. The self employment may be as an entrepreneur. This

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may grow to family employment and further employment in wage if successful
entrepreneurship is established.

The development of MSEs has also capacity to enable the employed to have their own
source of income and get relief from dependence. Apart from employment creation and
income generating capacity, MSEs can also serve as bench mark for an economy towards
sustainable Industrial growth. The extra revenue generated by MSEs can also be used for
establishment of large scale or huge industries. This shows how much MSEs are crucial
for development.

There are also many other roles that micro and small scale enterprises play in the
economic efficiency and development. They often introduce better production methods in
terms of processing speed, quality of output, energy consumption, etc. improved
production methods in turn result in better goods and services. The improvement may be
in terms of price, quality, location, ease of use, packaging, effectiveness of product, etc.

Micro and small scale enterprises always keep their eyes open to identify and exploit
market opportunities. Once they identify an exploitable market opportunity, they devote
themselves to satisfy the market gap. However, in reality they hardly succeed in meeting
all the market demand, a situation that opens the opportunity for others to establish their
own similar business and meet the rest of the market’s need.

Conservation of natural resources is the other major role played by the micro and small
scale enterprises. This is because they use or invent production methods that consume
less energy and raw material. In addition to this they also make better utilization of
resources through the use of resources that have been ignored and labeled as “useless”.
Therefore this kind of initiatives to improved use of neglected resources and conservation
of the ones already in use. To make use of these all benefits the expansion of micro and
small scale enterprises is unquestionable measure.

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1.3 Objectives of the study
The general objectives of the study are to investigate the major roles of micro and small
scale enterprises in poverty alleviation and employment creation and to provide some
possible measures for improvement of the sector.
The specific objectives of the study include:
 To critically investigate the role of micro and small scale enterprises in
generating income or poverty alleviation and employment creation,
 To investigate capacity of micro and small scale enterprises to grow to medium
and large scale enterprises,
 To examine the performance of micro and small scale enterprises in the study
area,
 To critically assess the problems of micro and small scale enterprises to start.
operate and expand their business and lastly,
 To provide suggestions and recommendations for the improvement of the sector.

1.4 Research design and methodology

1.4.1. Method of data collection
The researcher will make use of both primary and secondary data. This is as a result of
need for accurate data for successfully undertaking the study. The primary data will be
collected from sample respondents through preplanned questionnaire the secondary data
will be collected from both published and unpublished documents from concerned
organizations.

The sampling technique employed will be stratified random sampling in order to obtain a
representative sample as the enterprises are engaged in different kind of business. There
are totally 186 Associations which are engaged in six lines of business; weaving and
tailoring (23), construction (71), wood and metal work (16), food catering or processing
(19), municipality (9) and urban farming or agriculture (48). From this total, as it is
difficult to manage, I took 50 (26.88%) Associations and give equal chance for all
associations proportionally for the six groups. As a result 6 weaving and tailoring, 19

11
construction, 4 wood and metal work, 6 food processing, 2 municipality and 13 urban
agriculture associations were examined.

1.4.2. Method of data analysis

The researcher will employ both qualitative as well as quantitative method of data
analysis. The qualitative technique will be employed for the data obtained from
organizations and the information obtained from the sample respondents. The
quantitative technique of analysis will be employed on both qualitative as well as
quantitative information obtained from both sources.

The researcher will employ descriptive method of presentation through the use of
descriptive statistics by percentages in tables.

1.5 Scope of the study

This study investigates micro and small scale enterprises that are working in Arba Minch
town and that are formed by the help of the bureau of micro and small scale enterprises
under the package and regular programs. It assess their role in poverty alleviation and
employment creation, problems to start, operate and expand as well as tries to show their
potential to grow to medium and large scale enterprises and in reducing unemployment
and alleviation of poverty. It only investigates those operating in Arba Minch town and
organized under the town’s MSEs Bureau.

1.6 Significance of the study

As our country is one of the least developed and poor countries with rapidly rising
population that increases the rate of unemployment proportionally, this study shows the
potential of micro and small scale enterprises to curb the unemployment and reduce
poverty and their problems that should be solved for better performance of the
enterprises.

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Studying their role in reducing unemployment and poverty is necessary to give due
consideration for the sector and make use of its potential for vast national economic
development.

1.7 Limitation of the study

The researcher has faced many problems in undertaking this study. The major one is lack
of relevant and well documented data as well as reference materials. Inaccessibility of
concerned associations which made the disbursement and collection of questionnaire very
difficult is another. The other major limitations are financial shortage and limited
computer centers for typing and editing the manuscript which made the final stage of the
preparation of the paper very difficult.

1.8 Organization of the study

This research paper is organized comprising four chapters. All the four chapters are
containing many sub sections related to the chapter. The first contains introductory
topics. Second chapter contains review of related literature. The third chapter contains
find8ind and discussions of the research topic raised by the researcher and the last chapter
contains conclusions and recommendations of the researcher from the discussions of the
previous chapters and personal observations.

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 CHAPTER II
2. REVIEW OF RELATED LITERATURE
2.1 THEORETICAL LITERATURE REVIEW
2.1.1 Definitions
Specifying any size standard to define small business is necessarily arbitrary, because
people adopt different standards for different purposes. For example, legislators may
exclude small firms from certain regulations and specify ten employees as the cutoff
point. Moreover, a business may be described as “small” when compared to large firms,
but “large” when compared to smaller ones. For example, most people would classify
independently owned gasoline stations, neighborhood restaurants, and locally owned
retail stores as small businesses. (Hailay, 2003).

Similarly, most would agree that the major automobile manufacturers are big businesses.
In addition, firms of in between sizes would be classified are large or small based on
individual viewpoints. There are two approaches to define small business. They are
measure of size and on economic control definition. (Ibid, 2003)

Hailay further discusses on the classification in two approaches on the basis of measure
of size and an economic control criterion. Discussing the size criteria, Hailay states that
even the criteria used to measure the size of a business vary. Some criteria are applicable
to all industrial areas, while others are relevant only to certain type of business. Examples
of criteria used to measure size as Hailay stated are number of employees, sales volume,
asset size, insurance in force and volume of deposits.

Examining the Economic/control criteria Hailay states that the Economic / control
definition covers market share, independence and personalized management and all the
three characteristics must be satisfied if the business is to rank as a small business.

Based on the size of the enterprises the entrepreneurs run, enterprises are classified as
small, medium and large-scale enterprises. SMEs the world over comprise a widely
divergent spectrum of establishments, ranging from micro and rural enterprise to modern

14
industrial units using sophisticated technologies. Because of their contribution in each
national economy, the importance and emphasis on SMEs has been accentuated in the
minds of policy makers, planners and the industry. This is the consequence of the
recognition that, the shift from agrarian to industrial, and to postindustrial knowledge
based on societies is not through the large industrial houses but through individual and
small initiatives by visionaries from the SMEs. (Haylay, 2003).

According to Haylay, small and medium enterprises (SMEs) cover a wide spectrum of
industries and play an important role in both developed and developing countries.
Ethiopia is no exception and SMEs occupy a prominent position in the development of
Ethiopian economy. Over the years, the number of SMEs is growing from time to time.
(Ibid, 2003).

The definition of SMEs varies from country to country. All over the world, numbers of
employees or capital investment or both have been used as the basis for defining SMEs.
On the basis of environment criterion, the generally acceptable divisions are;
 up to 19 workers  micro or very small
 20-100 workers  small
 101-500 workers  medium

On the other hand, SMEs defined on the investment paid up criteria. Based on this
criterion, micro enterprises are those small business enterprises with paid up capital of
not exceeding US$ 2350 (20,000 Birr). The small enterprises are those business
enterprises with a paid up capital of above US$ 2350 (20,000 Birr) and not exceeding
US$ 58,750 (500,000 Birr). (Ibid, 2003).

Small businesses are characterized by closely held ownership, a primarily local area of
operations, and small scale operations. Often run buy the owners themselves, many small
businesses are mall by design where the primary objective is employment for the owners.
(Dawit and Dawit, 2005).

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Micro, small and medium-sized enterprises (According to EEC)
Micro, small and medium-sized enterprises are defined according to their staff headcount
and turnover or annual balance-sheet total. A medium-sized enterprise is defined as an
enterprise which employs fewer than 250 persons and whose annual turnover does not
exceed EUR 50 million or whose annual balance-sheet total does not exceed EUR 43
million. A small enterprise is defined as an enterprise which employs fewer than 50
persons and whose annual turnover and/or annual balance sheet total does not exceed
EUR 10 million. A micro enterprise is defined as an enterprise which employs fewer than
10 persons and whose annual turnover and/or annual balance sheet total does not exceed
EUR 2 million.

2.1.2 Economic, social and political aspects of small business enterprises

Small business enterprises have to play a vital role in Ethiopian economy. They need a
strong support on socio-economic and political grounds.

I Socialistic Idea
Our goal is being the establishment of a socialistic pattern of the society. Our objectives
are equitable distribution of wealth and decentralization of economic power.

The benefit of industrial growth should be shared by as many people as possible and
should improve the general standard of living proliferation of small enterprises will go a
long way in achieving these objectives. The state of Ethiopia where there is a large
network of small-scale enterprises, with comparatively less investments in the large-scale
sector, the general standard of living is much higher than in the states where heavy
investments have been made in large-scale industries. (Haylay, 2003).

II Less Capital and More Labor

The main problem is that we have vast manpower but inadequate capital, which has
resulted in increasing unemployment. This is unlike situation in western countries where
work force is limited but capital resources are enormous. Planners have realized the
necessity of encouraging small industries because they require less capital but generate

16
more employment. It is estimated that through the net-out per worker in large and
medium industries is more than twice as compared to that in small-scale industries, the
investment of capital per worker is about seven times. Therefore, the small-scale sector
has the capacity to generate a much higher degree of employment than the large-scale
sector (Ibid, 2003)

III Removing Regional Imbalance

Another problem is the continuous shifting of people from rural to urban areas which
causes over-crowding in cities with slum conditions due to lack of social and medical
amenities, which require heavy investments. This problem can be solved by inducing
people to set up small industries in rural areas. The prolific setting up of agro-based
industries will go along way in creating a balance in our country’s economy (Ibid, 2003).

Small-scale enterprises have social and economic significance. The social and economic
significance can be the remarkable capacity of small enterprise to absorb labor, which
contributes to ease the pressure of unemployment, employing workers in limited formal
training, providing income-earning opportunities for a large proportion of the population
by producing goods and services locally using labor-intensive methods. Majority of
economically active population in less developed countries find their source of livelihood
in the small-scale enterprises. Hence, the urban economy of less developed countries
small scale enterprises provide a major source of urban employment and economic
activity(Todaro,1993).

IV Creating Self Employment Opportunities

In India since independence it has had a steady rise in the number of qualified engineers
seeking suitable jobs. But having in adequate avenues they can have self employment by
setting up a small industries with the help and expertise provided by the government and
other agencies. Main bank and several industrial corporations, here, have arranged special
training programmes for young entrepreneurs, who can easily set up their own units with
package assistance from the government. (Haylay, 2003).

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V Ancillary Function
Many small scale industry units supply parts and accessories to bigger industries. The
ancillary function involves specialization in specific areas and results in greater
profitability. The government has, therefore, relaxed the ceilings of investment in plant
and machinery for ancillary units.

VI Export Promotion
Small scale industries are nowadays opening up fresh avenues in the export market in our
world. Realizing the importance of the small scale sector in the economy the Ethiopian
government has adopted several measures to speed up the growth for small industries.

VII Supply of Critical Raw Materials

The government liberalized the import policy to ensure regular supply of raw materials to
small industrial units, and devised a more efficient and consistent system of distribution
of critical raw materials.

2.1.3 Role of MSEs in economic growth

Small scale enterprises play an important role in social, economic and political roles in
employment creation, resource utilization and income generation and in helping to
promote change in a gradual and peaceful manner (G.S. Batra 2003)

In a developing country like India, small scale enterprises play a significant role in
economic development of the country. These industries by and large represent a stage in
economic transformation / transition from traditional to modern technology. The
variation in traditional nature of this process is reflected in the diversity of these
industries. Most of the small enterprises use simple skills and machinery. Besides playing
economic role for the country, small enterprises because of their unique economic and
organizational characteristics also play social and political role in local employment
creation, balanced resource utilization, income generation and in helping to promote
change in gradual and peaceful manner (Ibid, 2003).

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The need for industrialization also lies in the fact that at all levels of promotion process,
other than the final demand level, industrial investment have more forward and backward
linkages with various industries.

Gunnar Myrdal, while describing the relationship of industrialization and economic

development, writes that the manufacturing industry represents in a sense a higher stage
of production in advanced countries. The development of manufacturing industry has
been concomitant in these countries with spectacular economic progress ands rise in the
level of livings; not least in the under-developed countries, the productivity in industry
tends to be considerably greater than in traditional agricultural pursuits. Economic
development through industrialization is sought, therefore, “not only as a means of
bringing about a shift in power within the underdeveloped nations”. (G.S.Batra 2003)

Economic growth therefore entails the movement resources from a low productivity
sector –agriculture to a high productivity sector- industry. The pressing need of the
developing counties is rapid industrialization in order to be able to achieve the basic
objectives of their economic and social progress. It has been recognized that
industrialization is certainly a solution to the problem of raising the standard of living of
the people. Some international organizations in advanced countries have started taking
interesting the industrialization of the underdeveloped countries, by helping them in their
efforts for industrialization.

The role of small scale industries or entrepreneurship in economic development involves

more than just increasing percapita output and income; it involves initiating and
constituting change in the structure of business and society. This change is accompanied
by growth and increased output, which allows a more wealth to be divided by the various
participants. What is an area facilitates the needed change and development? One theory
of economic growth depicts innovation as key, not only in developing new products /
services for the market but also in stimulating investment interest in the new venture
being created. This new investment works on both the demand and supply side of the
growth equation; the new capital created expands the capacity for growth (supply side)

19
and the resultant new spending utilities the new capacity and output creates (demand
side).(Hisrich and Peters,2003)

In spite of the importance of investment and innovation in the economic development of

an area there is still lack of understanding of the product evolution process. This is a
process through which innovation develops and commercializes entrepreneurial activity,
which in turn stimulates economic growth. (Ibid, 2002)

2.1.4. Special contribution of small business

As apart of business community, small firms unquestionably contribute to our nation’s
economic welfare. They produce a substantial portion of our total goods and services.
Thus, their general economic contribution is similar to that of big business. Small firms,
however, possess some qualities that make them more than miniature versions of big
business corporations. They make exceptional contribution as they provide new jobs,
introduce innovations, big aid business, stimulate competition, and produce goods and
services efficiently. (Haylay, 2003).

1) Provide New Jobs

As the population and economy grow, small businesses provide new job opportunities. It
seems clear that small businesses produce the “lion’s share” of the new jobs, sometimes
adding jobs while large corporations are “downsizing” and laying off employees (Ibid,
2003).

2) Introducing Innovation
New products that originate in the research laboratories of big business make valuable
contribution to our standard of living. There is question, however, as to the relative
importance of big business in achieving the truly significant innovations. The record
shows that many scientific breaks through originated with independent inventors and
small organizations. Studies of innovation have shown the greater effectiveness of small
firms in research and development. Innovation contributes to productivity by providing
better products and better methods of production. The large number of small firms that

20
provide the centers of initiative and sources of innovations are thus in a position to help
improve a country’s productivity. It is interesting to note that research departments of big
businesses tend too emphasize the improvement of the existing products. Unfortunately,
preoccupation with an existing product can some times blind one to the value of a new
idea. (Ibid, 2003)

3) Stimulating Economic Competition

Many economists, beginning with Adam Smith, have expounded the values inherent in
economic competition. In a competitive business situation, individuals are driven by self-
interest to act in a socially desirable manner. Competition acts as the regulator that
transforms their selfishness in to service. When producers consist of only a few big
businesses, however, the customer is at their mercy. They may set high prices, withhold
technological developments, exclude new competitors or otherwise about their position
of power. If completion is to have, a “cutting edge” there is need for small firms (Ibid,
2003).

4) Aiding Big Business

The fact that some functions are more expertly performed by small business enables
small firms to contribute to the success of larger ones. If small business were suddenly
removed from the contemporary scene, big businesses would find themselves saddled
with a myriad of activities that they could perform only inefficiently. Two functions that
small businesses are the distribution and supply function. (Ibid, 2003).

5) Producing Goods and Services Efficiently

Common sense tells us that the efficient size of business varies with industry. The
continued existence of small business in a competitive economic system is in itself
evidence of small business operation. If small firms are hopeless and inefficient, they will
make no useful contribution. They would be forced out of business quickly by stronger
competition. We believe that small business contributes in a substantial way to the
economic welfare of our society. (Hay lay, 2003).

21
2.1.5. MSEs and developing countries
Private-sector development as a suitable alternative for promoting sustainable and
balanced growth in Africa has attracted considerable attention. Many governments and
development organizations have focused on the promotion of small-scale enterprises
(SSEs) as a way of encouraging broader participation in the private sector. The promotion
of SSEs and, especially, of those in the informal sector is viewed as a viable approach to
sustainable development because it suits the resources in Africa.

A number of factors have helped to direct the attention of development agencies to the
merits of SSEs. For instance, at the peak of the economic crisis in the early 1980s, the
SSE sector grew tremendously and exhibited unique strengths in the face of recession
(Grey-Johnson 1992). The sector continued to grow, despite hostile economic, regulatory,
and political environments. The entrepreneurs in this sector came to be regarded as highly
opportunistic and innovative. They emerged spontaneously to take advantage of
opportunities that arose in the changing business environment. Moreover, they
demonstrated great creativity in starting enterprises with minimal resources. It has been
suggested that most technological innovations and product diversifications in Africa
come from this sector (Juma et al. 1993). The SSE sector has been described as the most
accessible and competitive of African economies (World Bank 1989).

SSEs have characteristics that justify promoting them in a development strategy. They
create employment at low levels of investment per job, lead to increased participation of
indigenous people in the economy, use mainly local resources, promote the creation and
use of local technologies, and provide skills training at a low cost to society (ILO 1989).

The sector plays an important role in various African countries. According to the
ILO/JASPA "African Employment Report" (ILO/JASPA 1988), the sector makes a
significant contribution to the gross domestic product in Liberia (34.6%), Nigeria
(24.5%), Kenya (19.5%), and Benin (17.7%). In Kenya, the sector is expected to play a
key role in employment creation. Employment projections for 2000 indicate that 75% of
urban jobs are expected to be in this sector, along with 50% of all rural employment (ILO

22
1989). The sector currently employs 40–60% of the urban labour force and contributes
25–33% to total urban incomes.

However, it is generally recognized that SSEs face unique problems, which affect their
growth and profitability and, hence, diminish their ability to contribute effectively to
sustainable development. Many of the problems cited have implications for technology
choice. These problems include lack of access to credit, inadequate managerial and
technical skills, and low levels of education, poor market information, inhibitive
regulatory environments, and lack of access to technology (Harper 1974; ILO 1989;
House et al. 1991).

A) Choice of Technology

Technology choice has important implications for growth and productivity in industry.
The use of technology is always tied to an objective. Because various types of
technologies can be used to achieve an organization's objectives, the issue of choice
arises. The concept of technology choice assumes access to information on alternative
technologies and the ability to evaluate these effectively. Moustafa (1990) asserted that
effective choice is based on preselected criteria for a technology's meeting specified
needs. Further, it depends on the ability to identify and recognize opportunities in
different technologies. The expected outcome is that the firm will select the most suitable
or "appropriate" technology (AT) in its circumstances.

The concept of AT has been a subject of debate for many years. Stewart (1987)
contrasted two general views. First, welfare economics defines AT as a set of techniques
for making optimum use of available resources in a given environment. Second, social
scientists and those working in AT institutions associate AT with a specific set of
characteristics. According to Stewart, the characteristics defining AT normally include
"more labour-using, less capital-using, less skill-using, making more use of local
materials and resources, and smaller in scale."

It is also sometimes emphasized that AT should not affect the environment negatively
and that it should fit in with the socioeconomic structures of the community. The
23
suggested characteristics are too numerous, which implies that a technology can be
appropriate in some ways and inappropriate in others. Kaplinsky examined the trade-offs
involved in the choice of technology and found that mechanized production can, at times,
turn out an inexpensive, higher quality product for consumers, whereas normal
production of a lower quality and higher cost product generates more employment (ATI
1987). This illustrates the dilemma involved in evaluating technology and raises the
question, Appropriate for whom? This article is concerned with the gaps in knowledge,
skills, or resources that hinder effective choice of technology at the enterprise level. In
this context, the term appropriate is used loosely to mean technology that is most
advantageous to the enterprise's purpose and circumstances.

B) Small Enterprises

The heterogeneity of the SSE sector complicates the problem defining it. The concept is
defined in different ways, depending on the purpose of classifying firms as micro, small,
medium sized, or large. Technologically, the sector is said to use low-level inputs and
skills, to have much greater labour intensity, to produce lower priced products, and to
operate on a small scale. The study on which this article is based focused on enterprises
in the carpentry and hair-care sub sectors employing fewer than 20 employees. It covered
micro and small enterprises operating at various levels along the formality–informality
continuum. The "Private Sector Diagnosis Survey" (USAID 1989) found that most small
enterprises in Kenya had fewer than 20 employees.

C) Factors Influencing the Choice of Technology by SSEs

Entrepreneurs decide at the enterprise level which technologies to use. The main factors
influencing their choice of technology include the objectives of the firm, the resources
available, the nature of the market, and their knowledge of available technologies
(Stewart 1987). Moreover, the entrepreneurs need technical and managerial skills to
choose, adapt, and effectively use technology.

Additionally, one would be in a better position to choose a technology if one were able to
assess the demand for the firm's products, estimate the rate of change in the market that
24
may call for change in technology, gather information about alternative technologies, and
estimate the potential return on investment for each alternative. However, many
entrepreneurs in this sector lack the education, training, management experience, and
other competencies needed to respond to these issues. Because of their economic and
organizational characteristics, many SSEs lack information about technologies and have
no way of gauging the appropriateness of those they are aware of (Neck and Nelson
1987).

Macro policies also affect technology choice at the firm level through the overall
socioeconomic, political, and legal forces. It has been suggested that general
socioeconomic environment, industry-specific regulations, taxes, subsidies, trade and
financing policies, science and technology research, and dissemination policies tend to
favour large-scale enterprises (ATI 1987).

D) Problems Hindering the Effective Choice of Technology by SSEs

The literature indicates that SSEs face unique constraints that hinder the effective choice
of technology. Many SSE owners or managers lack managerial training and experience.
The typical owner or managers of small businesses develop their own approach to
management, through a process of trial and error. As a result, their management style is
likely to be more intuitive than analytical, more concerned with day-to-day operations
than long-term issues, and more opportunistic than strategic in its concept (Hill 1987).
Although this attitude is the key strength at the start-up stage of the enterprise because it
provides the creativity needed, it may present problems when complex decisions have to
be made. A consequence of poor managerial ability is that SSE owners are ill prepared to
face changes in the business environment and to plan appropriate changes in technology.

Lack of information is a key problem affecting SSEs access to technology. Harper (1987)
suggested that technologies used by SSEs in developing countries may be inappropriate
because their choice is based on insufficient information and ineffective evaluation. Neck
and Nelson (1987) suggested that ignorance is a key constraint affecting the choice of
technology by SSEs. Further, level of education is relevant, as it may determine the

25
entrepreneurs' access to information. Generally, the ability to read and write, exposure to
a broader world, and training in the sciences enhance one's ability to understand, respond
to, use, and control technologies (Anderson 1985).

Lack of access to credit is almost universally indicated as a key problem for SSEs. This
affects technology choice by limiting the number of alternatives that can be considered.
Many SSEs may use an inappropriate technology because it is the only one they can
afford. In some cases, even where credit is available, the entrepreneur may lack freedom
of choice because the lending conditions may force the purchase of heavy, immovable
equipment that can serve as collateral for the loan. Another related problem is the lack of
suitable premises and other infrastructure.

The national policy and regulatory environment has an important impact on technology
decisions at the enterprise level. The structural adjustment programs (SAPs) currently
implemented in many African countries are aimed at removing heavy policy distortions,
which have been viewed as detrimental to the growth of the private sector. However,
much as these policies may in principle favour SSE growth in the long run, concern has
been shown about the ability of the SSE sector to increase production and create more
jobs under conditions of declining demand (Henk et al. 1991). SAPs tend to severely
affect vulnerable groups in the short run and have been associated with the worsening
living conditions in many African countries (USAID 1991). Furthermore, severe cutbacks
in government services, such as health and education, force many small-business owners
to draw more money from their businesses to meet these needs, thus hindering investment
in technology and business expansion. In addition, the resulting reduction in employment
and real wages leaves many potential customers without the ability to buy, thus reducing
demand.

E) Policy implications

SSEs are obviously incapable of sourcing, evaluating, and adapting technologies

effectively. The government policy should, therefore, aim to develop these capabilities in
SSEs through supportive institutions. Policy can encourage the development of assistance

26
programs to facilitate SSEs' access to resources, information, training, and technology.
Further, policy should promote the development of technologies appropriate for SSEs.
Although it is possible to develop policies designed to improve the circumstances of
SSEs, it may be more feasible to support the development of technologies compatible
with the SSEs' circumstances.

Policies should aim to encourage and promote the development of local technologies.
Emphasis should be on the promotion of the local tool industry to reduce reliance on
imports. SSEs are said to face a "liability of smallness." Because of their size and
resource limitations, they are unable to develop new technologies or to make vital
changes in existing ones. Still, there is evidence that SSEs have the potential to initiate
minor technological innovations to suit their circumstances. However, for SSEs to fully
develop and use this potential, they need specific policy measures to ensure that
technology services and infrastructure are provided. Further, research and development
institutions that are publicly funded should be encouraged to target the technology needs
of SSE.

The problem of access to information may be attributed to the inadequacy of SSE support
institutions. This point to the need for a supportive policy to encourage the establishment
of documentation canters and information networks to provide information to SSEs at an
affordable price. Market characteristics significantly influence technology choice. The
government can facilitate the SSEs' choice of technology by creating an environment that
is conducive to fair competition.

The crucial focus of policy should be an enabling environment for technology decisions
at the enterprise level. There is a need to go beyond statements of policy objectives and to
take specific and consistent measures to ensure that the policy objectives will be
achieved. There is a need to address the overall policy framework to ensure that the
policy instruments are consistent with key objectives. In some cases, there appears to be
an obvious contradiction between policy and implementation.

27
2.2 EMPIRICAL LITERATURE REVIEW
2.2.1 Size and Diversity of MSEs in Ethiopia
The sample survey, conducted in 48 major towns by the Central Statistical Authority
(CSA), in May 1997, showed that there were 584,913 informal sector activity operators
and 2,731 small-scale manufacturing industries, employing a total of 739,898 people. The
survey revealed that a micro enterprise on average engages one person, with the average
annual operating surplus at about Birr 1,300 ($162).

With regard to the diverse nature of activities in the informal sector (mainly micro
enterprises), the survey indicated that the majority of activity is concentrated in two main
broad sectors: namely, 47 per cent in manufacturing and 42 per cent in trade and services.
The distribution of activities among the rest of the MSEs is about 6 per cent in
community and personal services, with the remaining 5 per cent involved in the areas of
agriculture, hunting, forestry and fishing, mining and quarrying, construction and
transport activities. The part of the survey covering “Small-scale Manufacturing
Industries”, showed that the small manufacturing industries are mainly engaged in the
manufacture of food, fabricated metal, furniture and clothing. These sub-sectors
constitute more than 85 per cent of the surveyed small-scale manufacturing industries.

Each small-scale manufacturing activity engages, on average, 3 persons per

establishment including the owner. The average annual wage per employee is Birr 1,914
($239). The average operating surplus per industry is Birr 18,934 ($2,368), which shows
that income generated by small manufacturing activities is much greater than that
generated by operations in the informal sector. The average capital per informal sector
activity during the survey period was found to be Birr 3,528 ($441), while the average
capital per small-scale manufacturing industry was Birr 38,354 ($4,794).

As highlighted above, the MSE sector is characterized by a range of highly diversified

activities, which can create job opportunities for a substantial segment of the population.
This suggests that the sector may be a quick remedy for the unemployment problem. To
curb unemployment and facilitate a suitable environment for new job seekers and for

28
self-employment, direct intervention and support by the Ethiopian Government is crucial.
A comprehensive definition, specifically categorizing this sector, is therefore greatly
needed in order to channel the right and appropriate forms of support facilities in the right
direction.

The Central Statistical Authority (CSA), for the purposes of its survey on “Urban
Informal Sector Activity Operators and Small-scale Manufacturing Industries”, attached
various definitions to enterprises in different sectors, viz: the informal sector, cottage or
handicrafts, small-scale manufacturing industries and medium- and large-scale
manufacturing industries. The CSA based its definitions on the size of employment and
extent of automation for small-, medium- and large-scale enterprises and used a
combination of criteria for defining informal sector operators. However, as indicated in
the National MSE Strategy, shortcomings in the drafting of these definitions may have
meant that some capital-intensive establishments, which should fall solely under
medium- or large-scale enterprises, may possibly have come within the scope of the
definition for the MSE sector. Therefore in order to exclude those capital-intensive
enterprises, which should not be entitled to the support services established for “real”
MSEs, it was advised that a new definition be drafted which takes this into account.
Hence, a definition that is based on capital, and which takes into consideration the level
of technical and technological capacities, was adopted as part of the MSE National
Strategy.

2.2.2 Role and Contribution of the Sector

In successful developing countries, MSEs by virtue of their size, location, capital
investment and their capacity to generate greater employment, have demonstrated their
powerful propellant effect for rapid economic growth. The MSE sector has also been
instrumental in bringing about economic transition by providing goods and services, that
are of adequate quality and are reasonably priced, to a large number of people
particularly in rural areas, and by effectively using the skills and talents of a large number
of people without requiring high-level training, large sums of capital or sophisticated
technology.

29
The micro and small enterprise sector is also described as the natural home of
entrepreneurship. It has the potential to provide the ideal environment for enabling
entrepreneurs to optimally exercise their talents and to attain their personal and
professional goals. In all successful economies, MSEs are seen as an essential
springboard for growth, job creation and social progress.

The small business sector is also seen as an important force to: generate employment and
more equitable income distribution; activate competition; exploit niche markets; enhance
productivity and technical change and, through the combination of all of these measures,
to stimulate economic development.

While we cannot deny the importance of large industrial and other enterprises for the
growth of the Ethiopian economy, there is ample evidence to suggest that the labour
absorptive capacity of the small business sector is high, the average capital cost per job
created is usually lower than in big business, and its role in technical and other innovative
activities is vital for many of the challenges facing Ethiopia.

According to the results of the study mentioned above, the whole labour force engaged in
informal sector activities and small-scale manufacturing industries is more than eight
times (739,898 persons) that of the medium- and large-scale manufacturing
industries(90,213 persons)

2.2.3 Constraints Facing the Sector

In most developing countries MSEs face a wide range of constraints and they are often
unable to address the problems they face on their own - even in effectively functioning
market economies. The constraints relate amongst others to: the legal and regulatory
environments; access to markets; finance; business information; business premises (at
affordable rent); the acquisition of skills and managerial expertise; access to appropriate
technology; access to quality business infrastructure and, in some cases, discriminatory
regulatory practices.

30
In Ethiopia specifically, MSEs have been confronted by many of these problems.
According to the CSA Report (1994-1995), 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. The lack of working premises was also found to
present difficulties for the informal sector operators who, faced with insufficient capital,
were often impeded from the start.

It is suggested that the problems of raw material shortages, lack of working capital and
effective marketing which face small manufacturing industries, result in the failure of
these businesses to expand. Whereas the same set of problems, when experienced by
informal sector operators, have the effect of preventing their expansion almost from the
beginning of their operations. For instance, the results of the survey on “Urban Inform
Sector Activities” showed that out of the 584,913 informal sector activity operators,
about 50 per cent replied that their first major difficulty when starting their operation was
the lack of sufficient initial capital. According to their responses, this problem becomes
more critical when they intend to expand their businesses.

2.2.4 Some Evidence from the Field from Other Countries

This section highlights the findings of a study carried out on the SSE sector in Kenya.
The survey used a random sample of 140 SSEs operating in the carpentry and hair-care
sub sectors in Kenya. The two sub sectors are largely dominated by small and micro
enterprises. Interviews were conducted with owner and managers of SSEs. The literature
survey included a review of policy documents outlining government policy objectives for
SSE development and technology issues in Kenya (for a detailed report of this study, see
Ngahu [1992]).

The findings of the study correspond to those in the literature. Most of the SSE (78%)
was individually owned, and the others were partnerships. The SSEs had not grown much
over the years. More than 51% had fewer than 5 workers, and only 22% had more than
10 employees. Sixty-three percent of the owners surveyed had secondary education.
31
More than 60% had some kind of training in a technical area of business, but only 13 and
12% had any training in general business management and marketing, respectively.

Most tools and equipment used in the two sub sectors were imported from Europe or
Asia. In some cases, even simple tools, such as brushes, hammers, and tape measures,
were imported. In the hair-care sub sector, the chemicals, materials, and equipment were
mainly imported. The tendency to rely on foreign sources and the large-scale industrial
sector for supply of equipment sometimes led to an incompatibility of the needs and
capacities of the SSEs. Wangwe (1993) suggested that SSEs are trying to avoid risk by
avoiding unproven technologies.

To get information about products, tools, equipment, and processes to use in business,
many SSEs rely heavily on friends, competitors, and training courses. More than 64% of
the respondents indicated that friends were their main source of information on available
technologies. Other sources include training courses, magazines, and sales people. The
high reliance on friends as a source of information may explain the similarities among
products and services from this sector. Both sub sectors serve markets that are clearly
segmented, and technologies in enterprises serving the same market were very similar.
The key method for technology choice in these enterprises seemed to be simple imitation
based on observation.

The government policy on the use of technology in the production of goods and services
is to encourage "the application of technologies that minimize wastes and exhibit
recycling possibilities; the use of local and renewable materials; the use of local talents
and inputs wherever possible; and the active development of innovations and inventions"
(Government of Kenya 1989). Although the policy objectives appear explicit, it is not
clear which policy measures or government interventions have been intended to affect the
process of technology choice by SSEs.

32
2.3 Public/Government Organizations
There are quite a number of public organizations involved in the direct delivery of
various types of BDS. Some of them are also engaged in facilitating the provision of
services through NGOs and the private sector.

(a) Federal Micro and Small Enterprise Development Agency (FeMSEDA)

According to the National MSE Development Strategy, the role of the Federal Agency is
to assist, encourage and support regional MSE development agencies. In particular, the
Federal Agency focuses on the training of trainers, dissemination of developed
prototypes, information and consultation, facilitation of services, marketing and
maintaining technological databases to be used by regional MSE development agencies
and other concerned institutions. FeMSEDA mainly provides training and marketing
services to potential and existing MSE operators. In the training aspect, it provides
vocational and technical skills in various fields such as ceramics, bamboo, foundry,
woodwork, handicraft and leather. It also provides business skills such as the GTZ’s
CEFE (Competency based Economies through Formation of Enterprises) and the ILO
training packages: “Improve Your Business” (IYB) and “Start Your Business” (SYB). In
regard to the marketing services, FeMSEDA provides a market outlet for MSE products
through its sales and display centre and by organizing MSE product exhibitions at
national and local trade fairs. FeMSEDA normally charges fees for its services but
usually the payment is made by NGOs.

(b) Regional Micro and Small Enterprises Development Agencies (ReMSEDAs)

Regional MSE Development Agencies (ReMSEDAs) were established to co-ordinate
support services for the implementation of the Regional MSE Development Strategies.
According to the National Strategy, the major role of ReMSEDAs is to provide MSEs at
regional, zonal and local levels with services in relation to business expansion. These
services shall include inter alia: human resource development, information and
consultation, and technical and marketing services. ReMSEDAs are established and
functional only in three regional states: Tigray, Oromia and Amhara. The Addis Ababa
City Government is also in the process of preparing the necessary conditions for the

33
establishment of a Regional MSE Agency. Neither FeMSEDA nor the ReMSEDAs have
specifically focused programmes or specialized services for women entrepreneurs.

(c) Trade, Industry and Tourism Bureaus (TITBs)

Trade, Industry and Tourism Bureaus are regional government bodies that are mandated
to promote trade and industry in the respective regions. In addition to their regulatory
role, they are also involved in the provision of business development services to MSEs.
They mainly provide services on business training, based on the ILO training packages,
and also deliver some marketing services with regard to trade fair organization and
market price information.

(d) Ministry of Education and the Ministry of Labour and Social Affairs
The Ministry of Education and the Ministry of Labour and Social Affairs as well as their
delegated regional structures, are jointly involved in providing training services. The
training services concentrate on developing vocational and technical skills and last for up
to ten months.

The training areas include: metal and woodwork, mechanics, electronics, leather
manufacturing, draughting and surveying, building construction and handicrafts. The
services are offered free of charge and operate on an open access basis.

34
 CHAPTER III
3. FINDING AND DISCUSSION
In this study the researcher inquire 50 respondents or association in Arba Minch town
which are established by the town’s micro and small scale enterprises bureau. Interviews
are made with the selected officials of the bureau and qualitative information is collected
from this.

3.1 BACKGROUND OF THE RESPONDENTS

3.1.1 Distribution of respondents by sex
Table 3.1 Distribution of Respondents by sex
Sex Number of respondent Percent
Male 33 66.0
Female 17 34.0
Total 50 100.0
Source: compiled by the researcher May, 2008

Out of the total of 50 respondents surveyed, 33 are males and the remaining 17 are
females. This corresponds to 66% of male and 34% female respondents.

3.1.2 Distribution of Respondents by Age

Table 3.2 Distribution of respondents by Age
Age Group Number of respondents Percent
16-25 12 24.0
26-35 22 44.0
35-50 10 20.0
Above 50 6 12.0
Total 50 100.0
Source: compiled by the researcher May, 2008

The respondents surveyed were all above 16 years of age. From the 50(fifty) respondents
surveyed, 12 are youngest of age between 16 and 25 accounting for 24%. The 22
35
respondents were of age range 26-35. They account for 44%. This age group is the major
age group that is highly engaged in the micro and small business from the sample. The
other 10 respondents were of age range 35-50. They account for 20% of the sample
respondents. The remaining 6 respondents were of age of above 50. This age group
account for 12%.

3.1.3 Distribution of Respondents by Educational Status

Table 3.3 Distribution of respondents by Educational Status
Educational Status Number of respondent Percent
Illiterate 3 6.0
Grade 1-8 5 10.0
Grade 9-12 16 32.0
Technical & vocational 24 48.0
Diploma 2 4.0.
Degree & above - 0.0
Total 50 100.0

Source: own survey May, 2008

As shown in table above, majority of the respondents 24 out of 50(which account for
48%) are graduates from Technical and Vocational training centers. The others which
account for 32% are high school graduates of different class levels. There are some from
the primary level who quit their education and engaged in this business. There are no
entrepreneurs who have engaged in this business with Degree or above but there are 2
who have diploma. There are also three (3) who are illiterate.

3.1.4 Distribution of Respondents by Previous Job Status

The members of Associations formed under the micro and small scale enterprises are not
only those who don’t have job. There are some members of the associations which quite
their previous job and join the micro and small enterprises organized under the bureau,
with respect to this variable the respondents’ response is shown below.

36
 Table 3.4 Distribution of respondents by previous job status
Have you had a job before Number of respondents Percentage
you start up this kind of
business
YES 16 32.0
NO 34 68.0
Total 50 100.0
Source: own survey, May 2008

As the above table shows, the member of associations organized under the bureau are
also from two sources. Those who had not have job are the major ones. They account for
68% of the sample respondents. The remaining 32% of the sample respondents have had
a job and they joined this line of business by expecting better income from the business.

3.1.5 Distribution of Respondents by Years of Entrance to the business

The sample respondents have entered the business in the four previous years.
Table 3.5 Distribution of Respondents by year of Entrance
Tear Entrance Number of Respondents Percentage
1997 E.C 15 30.0
1998 E.C 13 26.0
1999 E.C 12 24.0
2000 E.C 10 20.0
Total 50 100.0
Source: own survey May .2008

As the above table shows majority of the associations are organized in the previous years.
The number of associations organized in the succeeding years falls gradually.

3.2 FORMATION OF MSEs UNDER MSEs BUREAU

Micro and small scale enterprises are kind of establishments with small capital
investment and use unsophisticated technology. Micro enterprises are those enterprises
37
with start up capital of less than birr 20,000 and use unsophisticated technology where
small enterprises are those establishments whose start up capital is less than birr 500,000
and do not use high level technology.

In Arba Minch although, small and micro enterprises as defined above have long history
of existence, But have got due consideration from the government only after 1997 E.C.
now they are considered and recognized as the commendable alternative for tacking
unemployment and alleviating poverty.

The bureau of micro and small enterprises commenced its operation in 1997 E.C. Its main
objective is the formation of micro and small scale enterprises that will play the major
role in the reduction of unemployment and alleviation of poverty. Its main objective is
gradual transformation of the economy into industrial economy by development of these
enterprises into medium and large scale enterprises.

The bureau of micro and small enterprises organizes micro and small scale enterprises for
the unemployed and those who want to be engaged in these sectors in two forms.

 Package program
 Regular program

3.2.1 Package Programs / Associations

These are associations which are engaged in areas that require spatial (vocational and
technical) skills. They are mainly formed by Graduates of Technical and Vocational
Education Training centers that have not yet employed. They form associations of 10-20
members who seek employment in these sectors or areas of business. These are
associations who receive all round or comprehensive support from the government. The
supports that are provided for those formed under the package program include
formation, financial, provision of place for sale and manufacturing, training and
counseling, marketing, supply of raw material, business development service, appropriate
technology information and public relation and the like.

38
These are those associations which are provided with due consideration and all round
support. The Micro and Small Scale Enterprise bureau of the town has devoted its time
and effort for the development of these enterprises. They are the major associations
which are generating employment opportunities for the unemployed youth of the town.

3.2.2 Regular Program

These are associations that are formed by those who entered into this business by their
own interest to participate in trade service and handcraft business. They are formed by
10-20 members and are provided with limited support from the government. Some of the
supports provided include, formation, financial, training and counseling and the like.
These are the other major type of associations which are generating large amount of
employment.

3.3 EMPLOYMENT CREATION BY MSEs

Since the beginning of formation of micro and small scale enterprises under the bureau of
micro and small scale enterprises in 1997 E.C, large number of unemployed youth have
got employment opportunities as well as individuals engaged under micro and small scale
enterprises and their line of business in the previous years is presented below.

In Ethiopia, people living in the urban areas are estimated at about 15% the remaining
85% confined to the rural areas. It is usually the urban areas that are the breading ground
for micro enterprise development

In Arba Minch town since the regaining of formation of micro and small scale enterprises
under the bureau of micro and small scale enterprises in 1997 E.C large number of
unemployed youth have get employment opportunities and are running their business.
The number of Associations as well as individuals engaged under micro and small-scale
enterprises and kind of activities in the previous four years is presented below.

39
 Table 3.6 Number Association and Individuals organized under MSEs bureau
1997-2000E.C
Kinds of Year
Activities 1997 1998 1999 2000(9month)
/ Lines of Number of members Number of members Number of members Number of members

Association
business/
association

No of

No of

No of
Female

Female

Female

Female
No of

Total

Total

Total

Total
Male

Male

Male

Male
%

%
Walling & 7 69 92 6 8 75 5 20 40 30 60 50 2 8 40 12 60 20 9 36 36.7 62 63. 98
tailoring 2
Construction 5 44 88 6 12 50 11 98 89. 12 10. 110 15 11 79. 31 20.6 15 46 48.7 93.1 36 6.8 52.3
9 9 9 3 9
Metal & Weed 2 18 90 2 10 20 1 9 90 1 10 10 9 86 95. 4 44.4 90 4 46 97.8 1 2.1 47
work 5 27
Agro 3 10 37.5 20 62.5 30 2 2 10 18 90 20 = = = = = = 14 49 25.9 14. 74 18.9
Processing 0
Municipality 15 60 25 40 40 3 = 0 30 100 30 2 9 45 11 55 20 = = = = = =
4
Urban farming 5 45 90 5 10 50 10 85 85 15 15 100 19 17 87. 24 12.3 19. 14 51 26.8 14. 13. 196
0 6 9 4 5 9
Total 26 20 75.8 64 24.15 26. 32 21 66 10 33. 320 47 39 82. 82 17.3 47. 81 66.9 63.5 38. 36. 10.13
1 5 5 4 6 12 2 7 4 3 2 4
Aggregate 18 14.7 69.8 63. 30. 2112
Total 6 6 6 1
Source Arba Minch Town MSE Bureau and own computation May, 2008

40
As the above table shows, at the first year of its commencement, the towns MSE bureau
was able to form or organize totally 26 Associations and create employment opportunity
for 265 people. These associations were organized under six types or lines of activities.
These are walling and tailoring, construction, metal and woodwork, Agro processing
(food processing), municipality (town cleaning) and urban farming. In these activities in
the year there were 7, 5,2,3,4 and 5 Associations respectively were organized. In all these
associations except agro (food) processing, the participation of males is greater than that
of females. When we look at the total figure it shows great variation concerning the
participation of sexes. The males have around 75% and females have 24% share in the
business (Associations)

In 1998, the total number of associations organized is better than the previous year 32
Association consisting of 320 individual members were organized. This shows 23.07%
growth with respect to number of association and 20.75% growth with respect individual
members. The other major improvement is concerning the participation of females. The
overall participation of females increased from 24.15% to 33.125%. This shows 37.16%
improvement in females’ participation. Specifically females’ participation was very much
improved in weaving and tailoring (from 8% to 60%)

There was much increase in both the number of Associations and individual members
organized under the towns MSE bureau in 1999E.C (last year). Totally 47 Associations
were organized consisting 474 youths as their members. This represents 46.8% increase
in number of Association and 47.7 increase in the number of members as compared to the
previous year when due compare this with the level that was prevailing in the initial year
it represents 80.76% increase in number of individual members of association.

This shows us that the number of association organized as well as number of members is
increasing from year to year. The number of associations that are organized have
increased from 47 to 81 in 2000E.C. this represents 72.34% growth and the number of
member has increased from 474 to 1053 this represents 122.15% growth as compared to
previous year.

41
Looking at the total numbers, we realize that in the last four year the towns MSE bureau
was able to form 186 associations which consists of 2112 members under the package
programs 1476 males and remaining 836 females which accounts for 69.89% males and
30.11% females.

Among the 186 association 71 or 38.17% are working on the construction works which
are divide in to two these are production of bricks (raw material for construction purpose)
and working the construction works or services. The other major area of activity which
the associations are engaged under the MSE bureau is the urban farming /agriculture
which include 48 associational which account for 25.8%. These two kinds of activities
collectivity account for 63.97% of the total number of associations.
The employment opportunity is not only create by the bureau through organization. But
the associations themselves are also creating employment opportunity of large number of
persons
Table 3.7 Employment Creation by Associations
Number of employees

Kind of activity Male % Female % Total

Weaving and tailoring 25 75.7 8 24.2 33

Construction 83 83.83 16 16.16 99

Metal and wood work 28 77.7 8 22.22 36

Food processing 24 77.4 7 31

Municipality 2 28.57 5 71.42 7

Urban farming 32 74.4 11 25.58 43

Total 194 77.9 55 22.1 249

Source: own survey May, 2008

42
As the above table, shows the associations by themselves have created employment
opportunities for 249 persons. These are collected from sample 50 associations. The
others are also able to create employment opportunities. Among these employment
opportunities by the association majority are created by construction and wood and metal
work association. The others are also recruiting employees

3.4 GOVERNMENT SUPPORT

The MSE’s do not have enough financial capital to run their business. The government
also does not let them alone. The bureau of Micro and small scale enterprises provides
loans for these enterprises. The amount of loan disbursed during the pervious four yeas of
operation is presented below:
Table 3.8 Disbursed Loan for MSE’s (1997 – 2000E.C)
1997 1998 1999 2000 Total
Weaving and tailoring 113,371.50 10,000.00 = 110,000.00 233,371.50
Construction 10,500.00 475,277.70 803,277.00 2,196,500.00 3,486,504.80
Metal and wood work 76,700.00 40,000.00 189,200.00 286,500.00 592,400.00
Agro processing 40,000.00 30,000,00 = 24,000,00 94,000.00
Municipality 29,500.00 = = = 29,500.00
Urban agriculture 10,000.00 78,000.00 2500.00 116,000.00 206.500.00
Total 280,071.50 634,277.70 994,927.00 2,733,000.00 4,642,276.30
Source Arba Minch town MSE bureau May 2008

43
As the above table shows, the amount of loan disbursed is increasing from year. It shows
a growth of 126.7% from 197 to 1998 E.C. the successive growth rate are 56.86% and
174.69% from 1999 and 2000 E.C. in absolute term the amount of loan disbursed at the
first year in 280,075.50 birr. But it gradually increases and reaches to 733,000.10 in 2000
E.C. The total amount of loan disbursed in the four year amounts birr 4,642,270, 30.

When we look at the specific line of business with respect to the loan they have got,
except for 1997, construction is the major loan receiver. It has received the total of 3,486,
505.80 birr in the four years out of the total loan disbursed. This accounts for 75.1%. This
is because it is relatively more capital intensive than others.
The other majority kinds of support the government provide for the enterprise is
provision of the production and settling place. The bureau facilitates the place for
production and selling by making arrangement in collaboration with the town
Municipality. The place is also selected considering market condition, it also provides
clustering service. This refers to the collection of the enterprise in place where it is better
for marketing or they have better access for consumers.
The bureau also search for marketing options for the enterprise by making agreements
with both governmental as well as non – governmental organizations. This is one of the
special benefits that those organized under the package program receive.

The support from the government also includes training and counseling, supply of raw
materials, business development services (BDS), appropriate technology and production
material and others. These all kinds of supports are organized by the bureau of micro and
small-scale enterprises and other concerned organization such as TVET College and town
municipality.

3.5 REASON FOR VENTURING

The associations and their members have their own reason for the start up of this business
and run micro and small-scale enterprises.

44
 Table 3.9 Reason for venturing
Reason for start up Number of Percentage

respondent

Better market 9 18.0

Better profit 13 26.0

Require small start up capital 7 14.0

They have skill 17 34.0

No other alternative 4 8.0

Total 50 100.0

Source: own survey by the researcher May, 2008

As we can see from the above table there are many reasons for the members to participate
in micro and small state enterprises. The major reason for most of the respondents is that
they have the skill required to run the business (17 out of 50) sample respondents raised it
as the major reason. This accounts for 34.0%. The other is better profit seeking. This is
because they produce the goods that are in high demand in the area. 13 respondents sited
it as the major reason for their engagement. They account for about 26.0%. There are also
other who entered this business looking better market for these productions. These
account for 18.0% of the total 50 sample respondents.

There are also respondents who have started this business only because they don’t have
other alternative. This group of the respondents account for 8.0% the rest (14%) have
joined this line of business because it require small start up capital or they get it from the
micro finance institutions arranged with bureau of MSEs.

3.6 PERFORMANCE OF MSEs

The performance of the industrial sector can possibly be measured by gross value of
output, which refers to the total out put reduced during a time period. This means value
added at factor cost which is the difference between gross value of output and the value
of intermediate inputs, value added at current market price which is the sum of value

45
added at factor cost and indirect taxes less any subsidies, and value added per person
employed in a given period of time (Haile, 1995).

This is an industry or sector wise performance measure. To measure a specific firm’s

performance; we can use its profitability, capacity utilization, debt – equity ratio and
other measures. In this study the researcher used the growth capacity and profitability.

Table 3.10 Growth Capacity of Enterprise

Do you made any expansionary Number of respondent Percentage
work to your business?
Yes 32 64.0
No 18 36.0
Total 50 100.0
Source: own survey May, 2008
As the above table shows 32% of the 50 sample respondents have made some kind of
expansion to their business. These associations are from the construction, wood and metal
work and Weaving and tailoring kind of activities mainly. This shows us that they have
some kind of growth potential.

This is one of the steps required to grow to medium and large scale enterprises. To grow
to medium and large scale enterprises, any enterprise should first of all be profitable and
expand its operation. The expansion will continue by use of more complicated and
sophisticated machineries and technology for better and efficient use of more
complicated and sophisticated use of resource. These enterprises are currently at good
condition and making some kind of expansion to meet the required demand of the
market. This is especially in case of constructions and metal and wood work. These are
major kinds of businesses, which are expanding by employing more labor to meet the
current growing construction work in the area.

46
Table 3.11 Profitability of the enterprises
How much is your enterprise No of respondent Percentage
successful
Profitable 38 84.44
Stagnant 7 15.55
Incurring -
Total 45 100.00
Source: own survey May, 2008
 5 association has not determine was not determine their profitable condition their
profitable condition because of their late entrance (200 E.C)

As we can see from the above table out of the responded 45 association 38 were of
profitable whether is small or large. This accounts for 84.44%. The remaining are not
generating profit but they are in the market to sustain their lives.

3.7 PROBLEMS OF MSES

Small scale industries have been able to contribute substantially as needed to the
economic development particularly because of financial, production, and marketing
problems. These problems are still major handicaps to their development lack of adequate
finance and credit has always been a major problem of Ethiopian small business. Small
scale units do not have easy access to the capital market, because they are mostly
organized on proprietary partnership basis and are very small in size.
The problem of MSEs in Arba Minch town are not that much different from those
prevailing in the country generally. But on the basis of their severity the MSEs rank
problems in the following way.

47
 Table 3.12 Problems of MSEs
Problem Number of respondents Percentage
Lack of adequate finance 11 22
Marketing 8 16
Taxation 3 6
Bureaucracy 2 4
High interest rate 6 12
Competition 4 8
Shortage of raw material 9 18
Information 7 14
Total 50 100
Source: own survey May, 2008
As the above table shows, the major problem for micro and small-scale enterprise is lack
of adequate finance. It was sited as the major problem by 11 out of 50 total sample
respondents (accounts 22%). This is a result of fixed amount of loan available for each
kind of businesses. They can’t get all the funds they require for their business. The
bureau has set a maximum amount of loan for each kind of business. They can’t get
above that even if they want it for their expansion and operation.

The other major problem sited by the respondents is shortage of raw materials, including
machineries and appropriate technology. This hindered the enterprisers from using their
potential capacity for production and running the business. It is major problem for 9 of
the respondents. This represents 18%.

Marketing is the other problem that the micro and small scale enterprises face. This is
because these enterprises failed to get enough customers. The customers or people do not
have much better attitude toward them by expecting them to have low quality
productions. The customers are loyal to their previous clients.

48
Lack of adequate market information is the other main hindrance for the better
performance of the enterprises. The respondent also sited the interest rate to be high and
not affordable for them.

The problems that micro and small scale enterprise face are not only these they also
include fierce competition farm already established firms, taxation system and
bureaucracy.

3. 8 MSES AND POVERTY ALL AVIATION

It is widely acceptance that micro and small-scale enterprises play a vital in socio-
economic development of a country as well as generating income and for sustainable
development of the region a well as the country. Furthermore, MSEs play an important
role by providing the breeding ground for medium and large scale enterprises and in the
reduction of poverty. This is because MSEs have huge potential to check the different
facets of poverty.

Poverty implies a condition of life characterized by deprivation of some sort or the other,
and perceived as undesirable by the persons concerned and others. It is a
multidimensional concept and phenomenon. Generally there is Conesus among scholars
about poverty being conceived and defined as absolute or relative. Absolute poverty
implies a persons lack of access to objectively determined, reasonably adequate quantity
of goods and services, to satisfy his/her material and non-material basic needs. Relative
poverty on the other hand implies /means that a person’s access to the basic access of life
is relatively lower, as compared to some reference group of people.

Poverty generally refers to lack of employment hence income, adequate health care and
nutritional needs. And with respect to these variables, the MSEs are improving the living
standards of the entrepreneurs working in the MSEs.

49
 Table 3.13 Improvement in Living Standard (a)
Is your using standard importance as a result of Numbers Present
engage is in this kill
Yes 41 82
No 9 18
Total 50 100.0
Source: own survey May, 2008

As the above table shows major (about 82%) of the sample respondents’ living standard
is improved. For the remaining 18% respondents, it is not that much improved. This is
because they are not getting that much better than before. These are those who have
joined this business by quitting what they had before.

Table 3.14 Improvement in living standard (b)

In what terms is your living standard Number of Percentage
improved? respondent
Increased family income 10 20.0
Increased consumption expenditure 13 26.0
Increase health care 9 18.
Employment opportunity 12 24.0
Self dependence 6 12.0
Total 50 100.0
Source: own survey May, 2008
As the above table shows the MSEs are playing their role in poverty alleviation. The
participants in the MSEs have got different benefits by participating. Majority the
participants have got increased /better consumption expenditure and employment
opportunity. These two benefits are sited by 13 and 12 respondents respectively. These
two account for 26% and 24% of the total respondents. The other major benefit is
increased family income and increased health care expenditure. There are also individuals
who have got self-dependence and freedom from dependence.

50
 The major feature of poverty is low income that is the cause of unemployment. On this
respect the income that the individuals are getting shows an increase
Table 3.15 Increase in income
Average monthly income Number of Percent Average income after Number of Percent
before engagement in this respondents engagement in this respondent
business business
0 – 150 34 68.0 150 – 300 15 30.0
150 – 300 7 14.0 300 – 450 18 36.0
300 – 450 5 10.0 450 – 600 10 20.0
450 – 600 4 8.0 600 – 750 7 14.0
Total 50 100.0 Total 50 100.0
Source: own survey May, 2008

As shown in the above table 38% of the total sample respondents were the previously low
income earners. They all have come to earn a minimum of 150 ETB. In all income groups
after their engagement in the business shows an increase in their average monthly
income. Previously the maximum average monthly income was 600 ETB. But after their
engagement currently they earn 750 ETB. This shows minimum increase in income of
25%. Those who have no income source or the unemployed have secured a minimum of
150 ETB.

51
 CHAPTER IV
4. CONCLUSION AND RECOMMENDATIONS
4.1 CONCLUSIONS
In this study, the researcher tried to see the role of micro and small scale enterprises in
generating employment opportunities and alleviation of poverty in the study area as well
as their problems.

Micro and small scale enterprises have great potential tin creating employment
opportunities. We can see this from table 3.6 and table 3. 7 as it is evident from the
tables, within the past four years of operation, 2112 individuals have got employment
opportunities by organizing in 186 associations in micro and small scale enterprises and
for 249 individuals in the sample 50 associations as employees in these associations.

The role of these enterprises in reduction or alleviation of poverty is immense. This is

because first of all they reduce the unemployment level which is the major manifestation.
They also improve the living condition of poor people and generation of employment
opportunities for women which will reduce the inequality. As shown in table 3.12 and
3.13 , the living standard of almost all participants has improved since they are engaged
in this business. They become able to increase their consumption expenditure & health
care expenditures. As table 3.13 depicts the average monthly income has increased by
about 25% because of their engagement in the business.

This shows us that the micro and small scale enterprises are playing their in employment
creation and poverty alleviation

The micro and small scale enterprises have the capacity to grow to medium and large
scale enterprises. As we have seen in table 3.10, among the examined 50 associations the
32 are growing or at the moment they are expanding by employment of more labor and
increase in production capacity to meet the currently high market demand. The

52
enterprises are producing those goods which are in are in demand by the people and they
are generating profit and successful although they are facing many problems.
The micro and small scale enterprises are facing many problems which include lack of
adequate finance which is provided at pre limited size. This is the major problem which
the enterprises faced. This is because the financing bureau provides the fund which is
fixed for each type of business and can’t expand by their proposal. Shortage of raw
materials which increases their cost of production and marketing problems are the other
major problems which the enterprises face.

4.2 RECOMMENDATIONS
The preceding chapters have discussed thee role of micro and small scale enterprises in
the reduction of unemployment and poverty alleviation in Arba Minch town. After
analyzing all the prevailing conditions and facts at hand, the researcher recommends the
following points for the better performance of the sector and its contribution to the
overall economic development of the study area and largely the nation.
 All the concerned organizations should give due attention /consideration and
support for the enterprises especially the funding institutions should relax its loan
provision conditions. This is the major problem that the enterprises are facing
that limits their operation and expansion. By looking at their prospects and
previous status /performance, the funding institutions should provide the funds
for the enterprises.
 The bureau of micro and small scale enterprises should arrange conditions for the
supply of raw materials more than the current efforts and make an effort to
improve the market condition for the enterprises.
 The production or areas of business on which the enterprises are engaged should
be directed towards the demand of the people. Production should be demand
oriented and differentiated on the basis of market research. This is because most
of the enterprises are engaged on the production of the same type of goods or
commodities. And hence it will improve the marketing difficulties and offer
better market opportunities for the enterprises.

53
 There should be proper interconnection or interrelation between the enterprises.
This will create an opportunity for the enterprises to share experiences and for
improved performance of the sector as a whole.
 The concerned organizations should undertake follow up and continuous
guidance for the enterprises. They should also solve their problems at each stage
of their operation. They should also provide appropriate technology and
technical know how through training.

54
 BIBLIOGRAPHY
 Batra, B.S. (2003), “Development of Entrepreneurship” Deep and Deep
Publications Pvt. Ltd, New Delhi, India.
 Bhatia,B.S & Batra, B.S (2003), “Entrepreneurship and Small Business
Management ” ,Deep and Deep Publications Pvt. Ltd , New Delhi, India
 Dawit Arega & Dawit Ayalew (2005), “Entrepreneurship: A Challenging
Expedition to Success” Brana Printing Enterprise, Addis Ababa, Ethiopia.
 Debraj Ray (1998), “Development Economics”, Princeton University Press,
Princeton, Newjersy, USA.
 Hailay Gebretinsay, (2003), “Entrepreneurship and Small Business
Management”, Ethio General Press, Mekelle, Ethiopia.
 Haile Hagos Beyene, (1995), “Sectoral Analysis of the Ethiopian Economy”,
Mega Printing Press, Addis Ababa, Ethiopia.
 Hisrich, Robert .D & Peters, Michael .P, (2002), “Entrepreneurship” 5 th edition
Tata McGraw Hill edition, New Delhi, India.
 Kinfe Abraham (Dr),(2001), “The Dynamics of Economic Reforms ”, Ethiopian
International Institution for Peace and Development,EIIPD Press ,
 Todaro, (1993) “Economic Development in Third World Countries”, Longman
ice, London.
 http//www.eec.org/
 http//www.indiagov.

55
 APPENDICES
APPENDIX I INTERVIEW FOR MSEs BUREAU
This interview is prepared by Geremew Milkias who is currently working his senior
essay on the role of micro and small scale enterprises on poverty alleviation and
employment creation. It is prepared only for academic purpose. Please frankly fill in the
spaces provided the appropriate response. The information you provide will not be used
for other purposes of which you should be confident enough. Thank you in advance!!

1. What are micro and small scale enterprises? ………………………………..

………………………………………………………………...………..
2. When did micro and small scale enterprises start
operation? .........................................................................
………………………………..
………………………………………………………………...………............
3. What is the aim of development of micro and small scale enterprises?
.........................................................................………………………………..
………………………………………………………………...………............
4. How are they organized (in group or
individually)? .........................................................................
………………………………..
………………………………………………………………...………............
5. What is the difference in these forms of
organization? .........................................................................
………………………………..
………………………………………………………………...………............
6. How many individuals or associations are
organized? .........................................................................
………………………………..
………………………………………………………………...………............

56
7. In what areas of business are they
operating? .........................................................................
………………………………..
………………………………………………………………...………............
8. What is the financial source of the
enterprises? .........................................................................
………………………………..
………………………………………………………………...………............
9. What kind of incentives do you provide
them? .........................................................................………………………………..
………………………………………………………………...………............
10. What is the role of these enterprises in employment creation (how many individuals
have got employment in these
enterprises)? .........................................................................
………………………………..
………………………………………………………………...………............
11. What is the role of these enterprises in poverty
alleviation? .........................................................................
………………………………..
………………………………………………………………...………...........
12. What kind of problems do they
face? .........................................................................………………………………..
………………………………………………………………...………............
13. What have you done to solve their
problems? .........................................................................
………………………………..
………………………………………………………………...………............

57
APPENDIX II QUESTIONNAIRE:
To individuals or Associations doing in the MSEs Sector
This questionnaire is prepared by Geremew Milkias who is currently working his senior
essay on the role of micro and small scale enterprises on poverty alleviation and
employment creation. It is prepared only for academic purpose. Please frankly fill in the
spaces provided the appropriate response. The information you provide will not be used
for other purposes of which you should be confident enough.

Please give appropriate responses in each. Please mark () on which your response lies
and give your frank ideas on the space provided. Thank you in advance!!

1. Sex Male  Female 

2. Age 16-25  26-35 
36-50  Above 50 
3. Education illiterate  diploma 
Grade 1-8  vocational 
Grade 9-12  degree and above 
4. When did you start up this kind of business (MSEs)?........................
5. Have you had a job before you start up this kind of business?
Yes  No 

58
6. Why did you start up this kind of business?
Access to market  I have skill 
High profit  I have no other choice 
Low start up capital 
Other, please specify................................................................
7. From where do you get the start up capital?...................................
8. Do you get all the funds you need?
Yes  No 
9. If No, why? Please clarify......................................................
10. What problems do you face in raising the fund? Please specify..........................

11. Have you ever been provided with any kind of incentives from the government?
Yes  No 
12. If your answer for question number 10 is yes, what kind?
Access to finance  provision of market place 
Access to technology  provision of production place 
Training 
Other, please mention.............................
13. What kind of problems do you face during your operation?
Lack of adequate finance  bureaucracy 
Marketing  Tax 
High interest rate  Shortage of raw materials 
If any other, please specify...................................
14. How much is your enterprise successful in making business?
Profitable  Making loss  Stagnant 
15. Do you made any expansionary work to your business?
Yes  No 
16. Do you have any employed persons in your enterprise?
Yes  No 
17. If your response for question No 19 is yes, how many? .....................
18. What kind of benefits have you got engaging in this kind of business?

59
 Increased income  Employment 
Self dependence  Increased health care expenditure 
If any other, please mention........................................
19. Is your living standard improved as a result of engaging in this kind of business?
Yes  No 
20. In what terms is your living standard improved?
Increased income  Employment 
Self dependence  Increased health care expenditure 
If any other, please mention........................................

21. What is your average monthly income before you started up this kind of business?
0-150  301-450  above 601 
151-300  451-600 
22. What is your average monthly income after you started up this kind of business?
0-150  451-600 
151-300  601-750 
301-450  Above 750 
23. What do you suggest for improvement of the
sector? .........................................................................………………………………..
………………………………………………………………...………............
24. What do you suggest to solve the problems?
.........................................................................………………………………..
………………………………………………………………...………............
25. What are your general suggestions or recommendations for the better performance of
the sector? .........................................................................………………………………..
………………………………………………………………...………............

60
THANK YOU!!

61