HAWASSA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

Department of Economics

Contribution of micro and small enterprise in reducing urban

unemployment and their major constraints (case of Yirgalem)

A senior essay submitted to department of economics for the partial

fulfillment of B.A degree in economics

By: Wondmagegn Birhanu

Advisor: Michael G (M.A)

June: 2015

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Abstract
This study is designed to analyze economic role small scale business enterprise
in yirgalem town. This paper was both primary and secondary data are
collected and analyzed. During the study, primary were collected from 100
operators MSEs. In addition secondary data were collected from yirgalem city
trade and industry office. Questionnaire and interview were used as data
collection instruments. A simple random sampling technique is used and even
element of the paper was investigated. For data analysis, descriptive statistical
tools such as tables, frequency distribution and percentage were used to
describe the responses on the role of MSEs. The study revealed that there is a
growth rate of MSEs in yirgalem city.

The purpose of undertaking this paper was to give sufficient information to the
organization concerned small scale enterprise. Finally this paper was organized
introduction part, review related literature. In this thesis an attempt is made
to assess whether MSEs create employment opportunities and in Yirgalem
city. And Most of the MSEs also face constraints during operation and
start up time and the major constraints are in their order is financial shortage
and unable to get access and affordable house rent. To conclude MSEs
have great contribution in reducing unemployment and in providing income to
those owners and employees of MSEs. Based on the major findings a number
of policy recommendations are drawn. Among these access credit has vital role
in growing MSEs. Giving work place and business development service would
help MSEs to produce and sell products easily. This study was worked on
MSEs owned cooperatively since most MSEs found in the area are owned by
cooperatives.

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Acknowledgment

First of all, thanks to the Almighty God and Saint Mary. Then I would like to
express my deepest and sincere gratitude to my mother for being the pillar for
my academic progress through her aptitude, financial support and prayers.

I would like to also to express my sincere gratitude to my advisor Michael G

for his invaluable comments, suggestion, encouragement and corrections which
helped me satisfactorily complete my research paper.

I express my deepest and sincere gratitude to Yirgalem city trade and industry
office and micro and small enterprise operators who willing to give
information about their business for me for the input they offered for the
success of the study.

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Acronyms

CSA Central Statistical Authority

IMF International Monetary Fund

MSEs Micro and Small Enterprises

ILO International Labor Organization

NGO Non Governmental Organization

WB World Bank

LDCs Least Developed Countries

GNP Gross National Product

GDP Gross Domestic Product

YCFES Yirgalem City Finance and Economic Sector

KG Kinder Garden

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CONTENTS

CHAPTER ONE..................................................................................................................................1
INTRODUCTION...............................................................................................................................1
1.1 Background................................................................................................................................1
1.2 Statements of the problem..........................................................................................................2
1.3 Research Question.....................................................................................................................3
1.4 Objective of the study................................................................................................................3
1.4.1 General Objective...............................................................................................................3
1.4.2 Specific Objective...............................................................................................................3
1.5 Methods of Research..................................................................................................................3
1.5.1 Data type and source...........................................................................................................3
1.5.2 Methods of analysis............................................................................................................3
1.6 Scope of the Study.....................................................................................................................3
1.7 Significance of the Study...........................................................................................................4
1.8 Limitation of the Study..............................................................................................................4
1.9 Organization the paper...............................................................................................................4
CHAPTER TWO.................................................................................................................................5
REVIEW OF RELATED LITRATURE..............................................................................................5
2.1 Historical Role of Small business Enterprise.............................................................................5
2.2 Conceptual Framework for Employment Generation.................................................................6
2.3 General Characteristics of Micro and Small Enterprises............................................................7
2.3.1 Low Initial Capital and High Labor Intensive.....................................................................7
2.3.2 Mobilize Local Resources Efficiently.................................................................................7
2.3.3 Family Owned Enterprises..................................................................................................8
2.3.4 Poor Managerial Structures.................................................................................................8
2.3.5 Location of the Enterprise Rely on the Demand and Supply of its Product..................8
2.4 The Key Role of Micro, Small and Medium Enterprise.............................................................8
2.4.1 Micro and Small Enterprises and Innovations and Inventions.............................................8
2.4.2 Micro and Small Enterprises and Human Resources Development.....................................9
2.4.3 Micro and Small Enterprises and Income Generations......................................................10
2.4.4 Promote Women’s Entrepreneurship and Gender Equality...............................................10

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 2.4.5 Linkage with other Sectors................................................................................................11
2.5 Micro and Small Enterprise in Developing Countries..........................................................11
2.5.1 Dynamics of Micro and Small Enterprise in Developing Country....................................11
2.5.2 Specific Countries Experiences.........................................................................................12
2.6 Informal Sector and Micro and Small Enterprises....................................................................14
CHAPTER THREE...........................................................................................................................15
REASEARCH METHODS AND DESCRIPTION OF......................................................................15
THE STUDY AREA.........................................................................................................................15
3.1 Description of the Study Area..................................................................................................15
3.1.1 Location............................................................................................................................15
3.1.2Population..........................................................................................................................15
3.1.3Financial institution............................................................................................................15
3.1.4Infrastructure......................................................................................................................15
3.1.5Education...........................................................................................................................16
3.1.6Economic activity..............................................................................................................16
3.2Research Methods and Procedures............................................................................................16
3.2.1. Data Type and Source......................................................................................................16
3.2.2 Sampling Techniques........................................................................................................16
3.2.3 Data Analysis....................................................................................................................17
CHAPTER FOUR.............................................................................................................................18
DATA PRESENTATION AND ANALYSIS....................................................................................18
4.1 Employment opportunities of MSEs in Yirgalem town...........................................................18
4.2 Profile of MSE operators.........................................................................................................19
4.2.2 Enterprise information......................................................................................................21
4.2.3 Employment creation........................................................................................................26
4.2.4 Constraints........................................................................................................................29
CHAPTER FIVE...............................................................................................................................31
CONCLUSION AND POLICY IMPLICATION..............................................................................31
5.1 conclusions..............................................................................................................................31
5.2 Policy implications...................................................................................................................31
References.........................................................................................................................................33

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 List of tables
Table NO page NO

Table 4.1 MSEs being in operation up to 2006(EC)…………………………………18

Table 4.2 distribution of the respondent by age and sex………………………20

Table 4.3 education level of the operators……………………………………..21

Table 4.4 marital status………………………………………………………...21

Table 4.5 types of business, operators engaged in……………………………..21

Table 4.6 start-up period of the operation……………………………………...22

Table 4.7 the form of ownership……………………………………………….22

Table 4.8 the source of capital ………………………………………………...23

Table 4.9 start-up capital……………………………………………………….23

Table 4.10 capital at current time……………………………………………....24

Table 4.11 Use of New Technology…………………………………………....25

Table 4.12 Introducing New Technology ……………………………………...25

Table 4.12 previous occupations ………………………………………………26

Table 4.13 previous occupations of the operators ……………………………..26

Table 4.14 number of job created………………………………………………27

Table 4.15 monthly incomes of the operators’ ………………………………...27

Table 4.16 the monthly expenditure of the operators…………………………..28

Table 4.17 improvement on the livelihood of the operators……………………29

Table 4.18 constraints during start-up of the operation………………………...29

Table 4.19 constraints during operation………………………………………..30

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 CHAPTER ONE

INTRODUCTION

1.1 Background
It is often argued that micro and small enterprise (MSEs) plays significant role in the
creation of employment opportunities and generations of income for quite a large proportion
of the population. Reviews of studies in the area confirm that the contributions of MSEs in
this regard have been recognized all over the globe (Liedholm, 2001, etal).

One of the characteristics of less developed countries of the world is rapidly growing urban
population and work forces combined with a much slower increases in employment
opportunities in large scale, 2010). This phenomenon has been noted in economies such as
china and India with high population growth as well as in the relatively under populated
countries of Africa.

Because of the bad outcome of urban unemployment and under employment, MSEs have
become the point of attention to many governments in developing countries. Governments in
these countries have instituted measures to support MSEs as strategy to achieve sustainable
economic development and poverty reduction (Mm Akola, 2009, etal).However, not all
MSEs have the capacities to create employments and economic development. Some of them
are completely survivalist or MSEs with minimum prospect of contributing to employment
opportunities (Molaka, 2012). Nonetheless micro and small enterprise have constantly
gained acceptance in development, because of their significant role in employment creation
and then reducing poverty.

MSEs are therefore highly linked to economic growth, job creation and income generation
within poor and disadvantaged communities in developing countries (Nets Wera, 2001;
Espan, 2009).

According to the Ethiopian central statistics agency (2003) almost 50% of all new jobs
created in Ethiopia are attributable to small business enterprise. Until recently, MSEs have
not been major area of attention in Ethiopia (Alemayu 2006, as cited in Kafalew and
Chinnan, 2012). However, MSEs are now increasingly recognized unlike previous notion
that these sectors are not linked to modern and formal sector (Mc, Pherson as cited in T,
Eshetu, 2013 etal). The study made by Aregash (2005), 98 percent of business firms in
Ethiopia are micro and small enterprises, out of which micro enterprises represent 65
percent of all business.

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According to the 2003 Central Statistic Agency (CSA) report, in Ethiopia there were
974,676 micro and 31,863 small enterprise establishments in Ethiopia, which accounted for
99.40 percent and 0.46 percent respectively of the industrial establishment. Large and
medium enterprises (employing more than ten employees) were 642 accounting for
the remaining of 0.11 percent. Micro enterprise and small enterprise provide
employment opportunities to 877,370 (89.75 percent) and 8929 (0.91 percent)
respectively (CSA 2003). Large and medium enterprises on the other hand accounted for
about 9.34 percent and 0.91 percent of industrial employment respectively (CSA
2003). In addition, about 47 percent and 42 percent of these MSEs were engaged in
manufacturing and petty trading respectively. The remaining 11 percent were
employed in traditional activities (service, agriculture, transport, construction, mining
etc).

In cities and towns of Ethiopia small scale business enterprise and informal sector in general
are the predominated income generating activities; these have a significant contribution to
local economic development and used as the basic means of survival. Industrialization is the
key economic development of agriculture change in the economy. That is why to the
ultimate goal of any country economic policy is the attainment of higher industrialization
even though the county has long history of orison manufacturing activities. The
development of modern industries is a recent phenomenon (Elais 2005).

In Yirgalem, there were 632 MSEs as of 2006 (Yirgalem city Trade and Industry office,
2006). Majority of the MSEs that exist in Yirgalem are owned by male.

1.2 Statements of the problem

According to IMF report of 2013 the urban population which constitute 14 million in the
2012 survey is relatively small compared to the total population(7.3 million in the 2007
census) , and the pace of urban job creation not appear strong enough to pool the urban
population into stable jobs. Unemployment rate at national urban level shows the overall
unemployment rate of 17% and the corresponding male and female unemployment rate are
11.4% and 24.2% respectively (CSA, 2012). Unemployment, particularly urban
unemployment, is one of the critical problems in Ethiopia. Due to increase in unemployment
in Ethiopia the FDRE has undertaken different measures starting from federal to grass root
level to enhance the strength and competence of MSEs (Kafalew and Chinnan , 2012) . The
factor that forced the government of Ethiopia to undertake this program is the presence of
large numbers of jobless people in the urban areas. In Yirgalem also there are large numbers
of unemployed people who are active. There is a shortage of studies on the role of micro and
small enterprise done by experts in the study area.

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1.3 Research Question

 How much do that micro and small enterprise contributing to reduce unemployment
in Yiralem Town?
 What are the basic constraints of micro and small enterprises?
 To what extent are micro and small enterprises in yirgalem town function?

1.4 Objective of the study

1.4.1 General Objective
The general objective of this study was to analyze the contribution of micro and small
enterprises in employment creation and its major constraints in yirgalem town.

1.4.2 Specific Objective

 To analyze the contribution of MSEs in employment creation in yirgalem town.
 To evaluate the importance of micro and small enterprise towards mobilizing local
resource.
 To analyze the growth rate MSEs in yirgaem town.
 To analyze the major constraints of MSEs in yigalem town.

1.5 Methods of Research

1.5.1 Data type and source

The study has used qualitative and quantitative types of data. Both primary and secondary
source of data has been used to fully answer the research question.

1.5.2 Methods of analysis

The study has used descriptive analysis. Descriptive statistical tools such as tables and
percentages have been used to analyze and present the data. It enables the analysis to give
meaningful interpretation.

1.6 Scope of the Study

The scope of this study was to deal with micro and small enterprise in Yirgalem town at the
recent time. To be purpose among micro and small enterprise the study concentrated on five
types of enterprise, which are manufacturing, construction, service, trade, and urban
agriculture.

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1.7 Significance of the Study
As the study intention to conduct on micro and small enterprise it has paramount
significance (benefits) are to provide awareness to the individual who want to engage on this
sector, it provides on in word look to the current behavior of the sector that might be useful
in developing promotional schemes offer, it also provides necessary current issues such as
how to formulate social economic strategy that focus on growth of employment (reduction
of unemployment), poverty and environment deterioration to enhance economic
development of the study area.

1.8 Limitation of the Study

In conducting this study there were various limitations that the researcher has faced in
process. These are financial and non financial limitations. The financial limitations include
lack of finance or money and non financial limitation are shortage of time and shortage of
reference books or shortage of previous studies regarding on MSEs in the study area.

1.9 Organization the paper

The research paper has been prepared in five chapters. The first chapter is introduction;
which includes statement of the problem, objectives, methodology, significance of the study,
scope and limitation of the study. Literature review is second chapter and the third chapter
deals with brief description of the study area and research methodology. Results obtained
are discussed in chapter four and finally chapter five presents the summary, conclusion and
recommendation of the study.

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 CHAPTER TWO

REVIEW OF RELATED LITRATURE

2.1 Historical Role of Small business Enterprise

Small business has one of the controversial stories economic developments. The role of
small enterprises in an economy has frequently been undermined and even misinterpreted
(dagem, 2007). In the past small business were believed to hinder economic growth by
attracting scarce resources from their large counter parts (act and audretch, 1993).

Starting from the industrial revolution up to the 1960s large corporations capitalizing of
scale was considered as the driving force of growth and development (ACs, 2003). The
emergences of computer based technology in production, administration and information has
reduced the roles of economies of scale in many sectors. According to ACs and Audretch
(1993) they have shown a shift toward an increased role for small business enterprises. This
was mainly due to changes in production technology, in consumer demand, labor supply the
pursuit of flexibility and efficiency. These factors in turn led to restructuring and more
evidence became available to indicate that economic activity moved away from large
enterprises (firm) to micro and small enterprise. For instance Robert G. Blayney and Otero
(1985) provided the changing role of micro and small enterprises in both developed and
developing countries. The same with these literatures, the changing patterns of consumer
expenditure, and demand pattern that resulted from rising living standards contributed for
the development of small business in many developing and developed countries. Moreover,
many new business opportunities in micro and small enterprises have been created as many
large firms resized in attempt to reduce cost. In general it is the key element and driving
force in creating job and realizing economic developments. The paradigm shifts has in turn
brought a rise in the promotion of small business and the entrepreneurial initiative at local,
national, and international level.

It is now well agreements among researchers, academicians, and policy makers that small
enterprise play a vital role in contributing to overall economic performance in any country
(Kefale and Chinnan, 2012). One the most important contribution of micro and small
enterprise in this context includes poverty alleviation through job creation. Most of the
current large enterprise has their origin in small scale enterprises. MSEs are different from
large scale enterprises in three main aspects; uncertainty, innovation and evolution (Javed, et
al, 2011).

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2.2 Conceptual Framework for Employment Generation
Poverty is “a vicious circles of poor health, reduced working capacity, low productivity, and
shortened life expectancy” (ILO 2003 P, 1). The only way that people can escape from
poverty is through work, which create more and better jobs including income derived from
work (Poul Venderberg 2006). According to ILO reports of 2003, shows that the poor do not
cause poverty, that poverty is expensive because it hinder growth and fuel instability that the
poor are often the ultimate entrepreneurs because they need to innovate to survive.

Historically the employment act of 1817 Great Britain represented major miles tone in the
development of economic policy to reduce poverty (Broun J.Von 1995). Similar intervention
like Africa plane to action of 2003 aims to reverse the current trends of pervasive and
persistent poverty and to unemployment on the continent and to have tangible improvement
in the living standard of the people and their families at the national level (Africa union
2004).

In the late of 1990’s and particularly in the current century, there has been increasing
international agreement on the importance of small enterprise. As Mayoux ( 2003) argued,
small enterprise are the only source of income and employment for increasing large number
of poor women and men because small enterprises offer the only means of coping with
rising cost of substance and services rising unemployment in the journey of structural
adjustment economic liberalizations.

The development of MSEs are move along to the existence of some level of entrepreneurial
environment enterprises culture amongst the people. Even though an entrepreneurial skill
exists in all countries, it varies in degree according to traditions, environment, and history.
But such skill and motivations require not only a well defined institutional structure which
understood by operators and entrepreneur (for example, formal rights and protections to
physical and other property). But also it demand sustained political commitment from the
country in question. In access to resources like land or working premises capital, labor and
infrastructure contribute to the development of MSEs (Mayoux, 2003).

The main goal behind any enterprise is to generate income for the entrepreneurs (operators)
and their families. In the case of marketing out enterprise, the goal have to be produced,
transported, transformed, and then marketed. The physical asset involved need to be
acquired, serviced, and repined. All these activities required human labor force fully or in
part, depending on the flexibility of the business and the level of technology employed.
Human labor has a price whether it is a family member is quite important for households to
enhance access to basic needs (for example access to education, health care etc) to improve
livelihoods create assets (Broun, J.Von, 1995). Now a day’s employment creation programs
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for poverty reduction growing interest to governmental, nongovernmental organization
(NGOs) and development intended agencies. Like any other implementation programs
MSEs function in creating asset for operators of MSEs and in rising the productivity of the
operators through education and public health and other human related measures.

While asset creation and productivity enhancement are necessary mutually exclusive they
operate on different time scale. Education for example, improves human capital over the
long periods, whereas employment creation programs can potentially create income for the
poor very quickly (Broun, J. von, 1995).

2.3 General Characteristics of Micro and Small Enterprises

Micro and small enterprise have characteristics that justify them in promoting development
strategy. They create at low level of investment per jobs; use mainly local resources,
promote the innovation and use local technologies. They also provide skills and training at
low cost to the society (ILO 1989). Micro and small enterprise in most countries share
generally common characteristics with very few variations; especially developing countries
have similar characteristics of micro enterprise.

2.3.1 Low Initial Capital and High Labor Intensive

Start-up capital has been among the basic characteristics of micro enterprises. Many MSEs
start operation with very low amount of capital owing to the nature of operators. The reasons
for choosing the activity indicate that initially MSEs operators starts with a very low amount
of capital.

Because small business has differently sufficient capital to be able to purchase the capital
intensive machinery that may give big business. Due their probability advantage on
standardized, mass market products small business has aggravated to ward low cost of entry.
By paying lower wages over the long hours, in offering few benefits, minimizing exposure
in slack period by employing port timers and through direct creative participation and
decision of the owner, small business has often been able to equalize and sometimes beat the
advantage of large size intensive business (WB, 1998).

2.3.2 Mobilize Local Resources Efficiently

Productions in small business in formal sectors uses domestic labor and raw materials more
intensively than large scale business; their technology is simple flexible than large firms.
They innovate particularly in their ability to recycle worm-out materials. Micro and small
enterprise by making use of predominantly local resources engaged in production of goods
and services of mass consumption and stimulated the growth of the economy.

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The expansion of micro and small enterprises also contribute toward more equitable regional
development and distribution of income and wealth (MOTI, 1997).

2.3.3 Family Owned Enterprises

Ownership of a business influences success through risk taking and thereby affecting
investment on enterprises.

Most micro and small enterprises are established and at the same time owned by family
members. In this case the family members play a dominant role in insuring continuity and;
daily support and the necessary net works within a country. This explains their ability to
flexible decisions, affording less bureaucracy and taking timely (Mansour, 1999).

2.3.4 Poor Managerial Structures

Most micro and small enterprise are owned and managed by one personnel who take care of
all managerial function of the enterprises such as organization, marketing, production
account. These heavy loads in the owner-managers prevent them from working out proper
strategic plans for their business, as they are usually bagged down with the problem of the
daily running (Andualem 1997 as cited in Dagem 2010).

2.3.5 Location of the Enterprise Rely on the Demand and Supply of its Product

Enterprise location affects success through its impact on demand for goods and services
produced (Liedholm, 2002). From the supply side location affects costs of inputs and
thereby affects competitiveness. Enterprises located near competitors face stiff competition
and may experience lower profit compared to those enterprises located further away from
competitors. According to Liedholm, located in rural area face less completion and
sometimes even pass monopoly power over goods and services they provide.

2.4 The Key Role of Micro, Small and Medium Enterprise

Micro, small, and medium enterprises play key roles in a society including contributing to
jobs through innovation and creativity as well as aiding human resources development. The
immediate and the long run effect is that they affect level of income and ultimately
contributing to poverty alleviation.

2.4.1 Micro and Small Enterprises and Innovations and Inventions

The role of innovation for entrepreneurial success was first explained by Schumpeter,
(1934). Schumpeter emphasizes that innovation leads to the introduction of new goods and
services through a new combination of existing resources. Schumpeter attests that firm
engaged in this new method of production will grow. He argues that the only firms that
engage in innovation activities are dubbed to be entrepreneurial. Lumpkin and Dess (1996)

8
augment Schumpeterian theory but add concepts such as novelty, creative process,
experimentation and technological process. They argue that innovation represents
willingness to depart from old methods of production or service delivery and does not
necessarily mean radical way of change in doing something. Currently studies emphasize on
incremental innovation, where innovative are assumed to include not only introduction of
new methods production, but also adaption new product, process or method that have
already been in use in other parts of the world but that are to the country/firm that adopts the
technology(Van Dij and Sandee, 2002).

Innovation capability of MSEs is not only in developing new goods or services but also in
stimulating investment interest in new firms being created. Although developing counties
firms have been criticized for not being innovative, MSEs have the capacity to change this
phenomenon. Unlike some years ago, the activity of MSEs have resulted in for instance the
processing of fruits and vegetables for the local and international markets, they are often at
the forefront of the production of the most of the nontraditional export commodities such as
textiles packaged dry fresh fruits. MSEs engaged in shoe making rubber processing,
designing wears, manufacturing medicine (under licensing), computer, car, and bus
assembling.

Nonetheless, the development of innovation and its commercialization through

entrepreneurial activity has helped generate enough incomes for those involved to alleviate
their poverty levels as well as to promote economic growth (Daniel, 2010).

According to Levy and Powell (2005) MSEs are thought to be flexible and innovative
organizations that are able to respond quickly to customer and market demands (flexibility).
Contrary to what happens in large firms. MSEs and entrepreneurs are bedrocks of new
goods and services, new methods of production, the opening up of an economy by setting or
opening up of new market, introduction of new source of supply as well as industrial re-
organization (Kruger, 2004; Jennings, 1994). So the innovation of these ventures is their
capability to create a paradigm by shift by altering the conventional ways in the terms of
available technology, strategy, skill and styles (Jun and Deschoolmeester, 2003).

2.4.2 Micro and Small Enterprises and Human Resources Development

Several of the informal training (apprenticeship) and on the job training occur in MSEs. For
instance in Ethiopia areas where such entrepreneurial training typically takes place include;

 Mechanic shops (fitting)

 Seamstresses and tailoring shops;
 Hairdressing and barbering;
 Traditional catering (chop bars);
 Electrical repairs (radio, television, fridges etc);
 Furniture designs and carpentry

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  Food and beverages providing
 Merchandising and retail trade

The human resource development comes through an active participation of the training on
the job. The MSEs owner usually supervises the trainee to develop his or her skill,
experience, knowledge, and abilities over a period of time. The apprentice upon the
completion of his or her period of training is ready to set up his or her business to
additionally employ and train more people.

2.4.3 Micro and Small Enterprises and Income Generations

The role MSEs and entrepreneurship in economic growth and development involves more
than just increasing per capita output and income; it involves initiating and constituting
change in the structure of business and society (Hisrich, Peters and Shepherd, 2008). This
change is accompanied by growth and increased output, which allows more wealth to be
divided by the various participants. Change and development is facilitated according to
economic growth theory that is by innovation (Hisrich, et al, 2008). Innovation is not only
key in developing new products or processes but also in stimulating investment interest in
new firms being created. According to Daniel (2010) this new investment works on both the
demand and supply sides of the growth equation; the capital created expands the capacity for
growth (supply side), and the resultant new spending utilizes the new capacity and output
(demand side). According to these writers, the development of innovation and its
commercialization through entrepreneurial activity, stimulate generate enough incomes that
promote economic growth.

Similarly, small entrepreneurial firm have been found to have a relationship with economic
prosperity as they serve as sources of government tax revenue, contribute to gross domestic
product, providing of employment, facilitating the distribution of goods and services,
providing of flexible specialized goods and services serving as the source of industrial
innovation (Boame, 2004). The world bank as reported in Beck, Demirgue-Kunt & Levine
(2003) supports MSEs development based on the argument that MSEs makes special
contribution to developing economies by generating the needed income necessary for
alleviating poverty.

2.4.4 Promote Women’s Entrepreneurship and Gender Equality

Women face particular barriers in their struggle against poverty and often require targeted
support in starting or expanding enterprise (Belay, 2012). According to ILO (2003),
women’s entrepreneurship is promoted through specific projects and through the
mainstream of gender equality in other small enterprise activity. MSEs are particularly
important for women since they offer a more flexible, less restrictive form of employment
and can be undertaken by the skill they acquire.

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Strengthening the capacity of women micro-entrepreneur to better develop their activities
has been a strategic activity of overall economic growth. Recent statistics confirm that
women’s economic activity play important role in the growth of many of the world
economics, in line with this action by ensuring gender equality it increases women’s to
access to asset, education, training and participation in decision making and enable them to
voice the problem they faced with regard to limited access to resource; women’s
contributions as worker and as manager of women of welfare are believed to be central to
the ability of community and nations to tackle the current crises of survival (Sen, et al, 1987
as cited Hailmichael, 2010). In fact to improve living condition of the poorest section
women are must be drown to a better standing. This would fasten women’s participation rate
in education and training program. It is also of a primary importance that precautions to be
taken to ensure that women have equal access to government resources provided through
training and employment creation program.

2.4.5 Linkage with other Sectors

Today among economist and policy workers, local linkages play a crucial role to the
developments of industrial sector local linkages act as mechanism for transforming growth
from MSEs to other sectors and vice versa; it enhance technological transfer and job
opportunity by boosting the local value added, they raise domestic income and foreign
exchange earnings (mokenin, 1997 as cited in Yohanes, 2004). Micro and small enterprise
promote subcontract acting arrangements and act as a bridge to transfer to large scale
enterprises. They facilitate effective diffusion of technologies as a result. Moreover, MSEs
provide significant inter sartorial linkage, interpreting economic sector through forward and
backward linkage (Ellis, 1993 as cited in Yohannes).

2.5 Micro and Small Enterprise in Developing Countries

Individually and collectively, LDCs are far from expected of possible gains micro and small
enterprise. The sector is suitable for the growth of developing countries based on the given
characteristics. According Todaro (1994), LDCs have the following common characteristics:

 Level of living comprising low income, high inequality, poor health and inadequate
education;

 High rate of population growth and dependency burdens;
 Low level of productivity;
 High and rising level of unemployment and under employee;
 Significance dependence on agricultural production and primary product export.

Based on the above given common characteristics, the obstacle that developing countries
face in accelerating progress are different in degrees and in kinds. The difference reflects the
enormous diversity in their resource availability, economic structure, social and political,

11
traditional, management skill and their relationship to the international economy. However,
the existed real problems face by the countries force them to involve in the informal sectors.
Further the situation makes the countries to turn their faces to the small business sector.
Most of them did not give the necessary attention that has to be given.

2.5.1 Dynamics of Micro and Small Enterprise in Developing Country

Liedholm (2002) mentions of the dynamics of micro and small enterprises in terms of net
expansion that arise from the net entrants and net expansion from growth of existing firms.
One of the pressing findings of his study is that enterprise expansion from existing firms has
contributed more to the overall expansion in the size of MSEs than the net new firm
addition. Changes in sales and profit are positively related with employment growth.
Liedholm (1993) computed annual average growth rate of micro enterprise for 11 sub-
Saharan African and obtained about 5.3% of firms for Botswana, 2.8% for Kenya, 8.2% for
Lesotho, and 17.8% for Nigeria were experiencing a negative growth rate (contraction)
using employment growth as indicator of success. The same study reveals that on average
about 65% of micro enterprises in the selected countiers have remained stagnant. According
to Belay (2010) obtained 101 (35.3%) enterprises form Ethiopia have staganetd or achieved
a zero growth rate in employment indicating a relatively better performance compared to the
average of African countries mentioned above. However, only 27 (9.4%) of the MSEs have
achieved a growth rate ranging between zero and ten percent annually. None of the MSEs
have achieved zero growth rates in profit implying that employment expansion comes long
after firms have experienced profit (Salif Ouedrago et al, 2010).

2.5.2 Specific Countries Experiences

China
In 2000 China had more than 20.85 million small-scale enterprises, with 128.2 million
employees and generating 2,720 billion dollar in added value, and 9.14 percent increase
every year of the small- scale enterprises (Daniels, L. and Mead, D.C. 1998).

Kenya
The micro and small enterprises (MSEs) sectors in Kenya is important for employment
improvement. It is repository for persons either to find job in modern sector or retrenched
from formal employment. A 1999 national base line survey of these enterprises reviled that
there were 1.3 million employed in such enterprises. This means Kenya’s micro and small
enterprise sector contributed 15% of the total employment and 18% to national domestic
products. Studies describe the MSEs sector in Kenya is very dynamic with rapid investment
and enterprise growth (Kimuye, 1999). Micro and small enterprise are generally
undercapitalized due to operational difficulty in accessing credit. Only small proportions are
able to successfully apply for and use credit. Even, assuming along proposition of those who

12
do not borrow, so out of choices is an outcome of self selection out of the credit market due
to low success probabilities.

Burkina Faso
In Burkina Faso, based on the 1990 survey on MSEs, there were 90,000 established
micro enterprises. Between 1985 and 1982, the sector is estimated to have contributed 30
percent of the GNP which exceeded agriculture (20-45 percent) and the modern
secondary sector (23-86 percent) in the same period. Moreover, the MSEs sector
employs 77 percent of the nonagricultural population and 8.6 percent of the total active
population of Burkina Faso (UNCTAD, 2005).

According to Todaro (2000) the informal sector is a major provider of urban jobs in many
Asian countries. Among individual countries for which statistics available, the figure
reaches 50% in India, 45% in Indonesia, 35% in Malaysia and 60% in Pakistan. In the case
of Latin American countries 61% in Bolivia, 55% in Argentina, 56% in Brazil, and 69% in
Paraguay. Besides, ILO (1998) survey report of 17 African countries found that the
informal sector contributes on average 20 percent of GDP and 61percent of the sub-Saharan
labor force employment. For instance, in the years between 1980 and 1985 the employment
share of MSEs for Kenya and Ghana was around 40% and 80% respectively, out of the
total urban employment.

According to Wick ware 1998; cited in Loop, 2000), MSEs have a significant contribution
in creating employment opportunities for the poor in urban areas. Accordingly, he
estimates the percentage of people engage in such sectors in some sub-Saharan cities
during the 1900s as; Accra 70 percent; Addis Ababa 61 percent; Dare Salaam 56 percent;
Kampala 46 percent; and Harare 17 percent. Hence, MSEs have important employment
share in the economy of those cities.

Ethiopia
According to the Central Statistical Authority (CSA) survey, there are almost 570,000
MSEs in Ethiopia, 99.4% of which are micro-enterprises with fewer than ten
employees, accounting for 88.2% of private sector employment. The microenterprises
are very small. On average, they employ one and a half workers (this includes the owner and
perhaps one occasional helper), and earn an annual operating surplus of 1,300 birr. Sole
proprietors operated 82 percent of urban enterprises. Of the total employment in these urban
micro-enterprises, family members accounted for 60%. Beyond family members,
apprentices constituted a large proportion of the remaining MSE work force (CSA, 2003).
The average micro-enterprise has a capital of 3,528 birr, a yearly production value of 2,300
birr and an annual surplus of 1,300 birr. Although small enterprises significantly more
productive and profitable than micro-enterprises, small-scale industries are also very small,

13
with an average of slightly more than three employees, 18,934 birr in annual operating
surplus, capital of 38,554 birr, and production value of 68,800 birr. A recent study
on MSEs indicated that MSEs in Ethiopia are confronted by many problems. The
constraints facing MSEs in most developing economies are similar: unfavorable legal
and regulatory environment and, in some cases, discriminatory regulatory practices; lack
of access to markets, finance, business information; lack of business premises at affordable
rent; low ability to acquire skills and managerial expertise; low access to appropriate
technology; and poor access to quality business infrastructure (CSA, 2003).

According to the CSA (2003) report, 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 (Ibid, 2003).

The problem of raw material shortages, lack of working capital and effective marketing
practices faced by micro and small manufacturing industries result in the failure of
these businesses to expand (Ibid, 2003). The same problems, when experienced by
informal sector operators, have the effect of preventing their expansion almost from
the beginning of their operations Ibid, page 35. Results of the Ibid, page 43 survey
showed that for about 50% of informal sector operators, the first major difficulty when
starting their operation was the lack of sufficient initial capital and this problem becomes
more critical when the informal sectors operators intended to expand their businesses.

2.6 Informal Sector and Micro and Small Enterprises

There are overlapping definition between informal sectors and micro and small enterprises.
Especially in developing countries where their economies are largely dominated by informal
sectors, the majority of micro and small enterprises are arranged in these sectors. According
to Essie Clarke (2012) the majority of world’s workers are participating in small-scale
enterprises, a large proportion of which operates in the informal economy. In some official
principles, engaging in these sectors is known as micro and small enterprises (MSEs). The
size of the sector is estimated in some part of Africa to constitute17-27% of the work force
while it over 90% in others (Essie Clarke, 2012).

14
 CHAPTER THREE
REASEARCH METHODS AND DESCRIPTION OF
THE STUDY AREA
3.1 Description of the Study Area
This part deals with the brief description of the study area and discusses the sources and
methods of data collection.

3.1.1 Location
Yigalem is located between 60⁰40' north latitude and 380⁰23' east longitude and
elevation between 1500 to 1800 meters above sea level. It is located in the southern region
of Ethiopia, covering an area of 1140 hectare. It found 47 km away from Hawassa. The city
has subtropical climate condition and also it has on average 453ml rainfall distribution
during autumn, 501.70 during winter, and 283.2 during summer season.

3.1.2 Population
The population is increasing from time to time. The major components of the city
inhabitants are small scale merchants, civil servants and daily laborers. According to
the CSA (2007), Yirgalem has 31468 populations. According CSA (2007) the population is
growing at fastest growth rate of 2.9% per annum. Currently it has 39555 population 51.2
percent of this population is male. The reason for this high population growth is mostly high
fertility rate. (yigalem city finance and economic development sector, 2015).

3.1.3Financial institution
There are different financial institutions in the city to encourage the city’s resident to save
and delivers loan to work and improve increase their low livelihood in the town. The banks
which are available in the town include commercial bank of Ethiopia, development bank of
Ethiopia, bunna international bank, and business and construction bank. There are also
micro finance institutions which are Omo micro finance and Cidama micro finance
institutions.

3.1.4 Infrastructure
Efforts are being on progress to expand infrastructural facilities such as, cobblestone, asphalt
road, 24 hour public good facilities like electric power supply, water supply, and
telecommunication on the town.

15
3.1.5 Education

Educational institutions in Yirgalem, are being expanding at a faster rate. There are 7 public
and 17 privet primary schools and secondary schools 3 public and 1privet, and 1 preparatory
school. Furthermore, there is one technical vocational school, 1 university campus and three
colleges giving training /education to middle high level professionals. The increment of
educational institutions at all level is encouraging (YCFES, 2015). Generally, there are
approximately 56 schools from KG up to University College.

3.1.6 Economic activity

The city’s economic activity is largely dependent on micro and small enterprises. It covers
47% of society’s income. It is also believed Yirgalem has large economic opportunity for
agriculture. The majority of the inhabitant’s livelihood depends on the informal business.
According to the statistical bulletin of Yirgalem city trade and industry office (2015), there
are a total of 632 micro and small scale enterprises in the town. Out of these 147(23.26%)
are manufacturing industries, 109(17.25%) are construction, 107(16.93%) service,
182(28.8%) are trade and 87(13.76%) are urban agriculture sectors, Yirgalem city trade and
industry office (2015).

3.2 Research Methods and Procedures

3.2.1. Data Type and Source
The research has relied on both qualitative and quantitative types of data. Concerning
sources of data, both primary and secondary sources have been used in generating
valuable and relevant data.

Primary source: primary data has been collected through field work survey. Information on
the status of employment, income and other data has been collected from the MSEs
owners, employees, and from process owner of Yirgalem city of Trade and Industry
office. The researcher has used interview, questionnaire.

Secondary sources: In this study, secondary data has been collected from officially
published and unpublished materials, from Yirgalem city trade and industry office and from
the city’s finance and economic development sector. Reports, statistical bulletins, brochures
and other material have been used for other necessary information.

16
3.2.2 Sampling Techniques
In this study simple random sampling has been taken for the operators of micro and small
enterprise. Here five sectors of MSEs are taken. Those are manufacturing, Service,
Construction, trade, and urban agriculture sectors. In Yirgalem, there are 632 micro and
small enterprises, out of which 107 are service sectors, 147 are manufacturing enterprises,
109 are construction enterprises, 182 are engaged in trade sectors and the remaining 87
MSEs out of the total 632 are urban agriculture sector. From these different sectors, the
sample has been selected through simple random sampling by judgmental decision.

3.2.3 Data Analysis

The counting and placing of data in particular group and sub group have been done
through simple and cross tabulation. Descriptive statistical tools were used to analyze data.
Descriptive statistical tools such as tables, percentages, and percentage are used. The
quantitative and qualitative data have organized in suitable manner.

17
 CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Employment opportunities of MSEs in Yirgalem town
There is an agreement that MSEs, due to their greatest labor requirement, have greater
potential for creating as large scales one. Particularly MSEs play greater role in under
developed countries of the world (Robert G, Blaey and Otero, 1985). As a result countries
like Ethiopia consider development of MSEs in urban area as a prime choice to tackle
unemployment and poverty. The developments of MSEs are a means of creating more jobs
at relatively low capital investment and they have greater potential to absorb a large number
of unemployed and underemployed populations in urban cities of the country.

Table 4.1 MSEs being in operation in Yirgalem up to 2006(EC)

No Types of enterprise Enterprises Number of members

Male Female Total
1 Construction 109 681 246 927
2 Manufacturing 147 347 692 1039
3 Service 107 364 242 606
4 Urban agriculture 87 264 189 453
5 Trade 182 409 320 729
Total 632 2065 1689 3744
Source; Yirgalem City trade and industry office, 2006(EC)

As depicted from Table 4.1, contribution of MSEs in creating employment opportunity was
significant. Construction sector which has 928 members and it created job for 681 males and
for 246 females. Manufacturing sector contains 1039 members and created job opportunity
for 347 males and for 692 females. And it got the lion’s share of the whole sector. Service
sector contains 606 members created job opportunity for 364 males and for 242 females. As
well as urban agriculture contains 453 members it created employment opportunity for 264
males and for 186 females. And finally the trade sector has 729 members and it created job
opportunity for 409 males and for 320 females. Totally micro and small enterprises created
employment opportunity for 3744 peoples, 2065 for males and 1689 for females from this
data we can understand that MSEs are playing a significant role in creating employment
opportunity in yirgalem town.

18
4.2 Profile of MSE operators
The survey conducted on 100 micro and small enterprise operators from two sub cities of
Yirgalem town. The operators were asked to answer the question honestly while they are at
work. The gathered data were analyzed and presented using table, percentage, and
frequency. The analysis has done based on four parts. Part one has analyzed the background
of the operators, part two has analyzed enterprise information, and part three has analyzed
the employment creation and finally part four major constraints of MSEs.

4.2.1 Background of the operators

Table 4.2 distribution of the respondent by age and sex.

Frequency Percentage
Age group
18-24 20 20%
25-31 32 32%
32-38 29 29%
39-45 16 16%
46-51 3 3%
Total 100 100%
Sex distribution
Male 54 54%
Female 46 46%
Total 100 100%
Source: own survey
Table 4.2 shows that out of the total 100 respondents 54 are male and 46 are female which
accounts for 54 % and 46 % respectively. The survey the survey result indicates that the
women participants in this sector are small compared with the male participants. MSEs are
particularly important for women since they offer a more flexible, less restrictive form of
employment, and can be undertaken by the skill they acquire.

19
Strengthening the capacity of women micro-entrepreneurs to better develop their activities
has been a strategic activity of overall economic growth. Recent statistics confirm that
women’s economic activity play important role in the growth of many of the world
economies. In the line with these actions by ensuring gender equality it increases women’s
to access to asset, education, training, and participation in decision making and enable them.

It can be seen that the majority of (32%) of the operator were between 25-31 years of age.
This age group is highly economically active youth. In fact the majority of the youth was
unemployed in many places. Therefore, these sectors can play significant role by absorbing
the unemployed youth. In developing countries the youth unemployed is very large in
number; MSEs are expected to create employment for those youth people in urban area.

Table 4.3 education level of the operators

Education level Frequency Percentage

Illiterate 6 6%
Below grade eight 14 14%
9-10 15 15%
10-12 18 18%
Diploma 25 25%
Degree 12 11%
Read and write only 10 11%
Total 100 100%
Source: own survey
Table 4.3 shows that the largest proportions 25% of the operators are above grade 12 (which
include, 10+2, 10+3, TVET). It is followed by education level of grade 10-12 which contain
18% of the operators, between 9-10 includes 15%, below grade eight which is 14% , read
and write only are 10%, and illiterates are 6% of the operators and the rest 12% have a
degree. The survey shows that MSEs Plays crucial role in absorbing educated people.
Though there are large number peoples those who were unemployed in many places, these
sectors play significant role in reducing unemployment in urban area. Besides that MSEs
promote innovation if the educated peoples engaged in activities which are congruent to
their fields of study.

20
Table 4.4 marital status

Marital status Frequency Percentage

Married 34 34%
Single 46 46%
Divorce 6 6%
Under age 11 11%
Widowed 3 3%
Total 100 100%
Source; own survey
With regards to marital status 34% operators are married, followed by 46% of operators are
single (not married). The other of the sample respondents which are divorced is account for
6% and those widowed are account for 3 %. And the rest which are under age is account for
about 11%.

4.2.2 Enterprise information

Table 4.5 types of business, operators engaged in

Types of business Frequency Percentage

Construction 17 17%
Manufacturing 24 24%
Service 18 18%
Urban agriculture 7 7%
Trade 34 34%
Total 100 100%
Source: own survey
The survey shows that the majority of the operators’ 34% are participating in trade sector,
followed by manufacturing sector which include food processing, producing clothes
(garments) and others accounts for 24% . Construction sector which include cobblestone,
road construction and others account for 17%, Service sectors which are include 18 % of the

21
sector. And finally urban agriculture (plantation and animal husbandry) includes 7% of the
sector.

Table 4.6 start-up period of the operation

Years of start up Frequency Percentage

1797-2000EC 23 23%
2001-2003EC 36 36%
2004-2006EC 41 41%
Total 100 100%
Source: own survey
In accessing years of start-up of the operators the survey result depicts the patterns of
different years beginning of the activities (years they got license from the government).
Around 41% of the operators were started in year of 2004-2006EC which took the greatest
proportions of the operators.36 % of the MSEs have established in between 2001-2003EC,
23 % of the operators started their activity in the year ‘‘between’’ 1997-2000(EC).

Table 4.7 the form of ownership

Form of ownership Frequency Percentage

Sole proprietorship -
Partnership -
Corporation 100 100%
Total 100 100%
Source: own survey
According to this table shows there are three types of owners of employments. But, this
survey has been taken for only those micro and small enterprises who owned by corporate.
So according to the table 100% of the MSEs owned by corporate.

Table 4.8 the source of capital

22
Source of capital Frequency Percentage
From personal saving 10 10%
Loan from micro finance 52 52%
Loan from bank 28 28%
From relative 3 3%
From friend 2 2%
From family 5 6%
Total 100 100%
Source: own survey
Micro and small from 6 kebeles of Yirgalem town followed the general pattern in financing
their start-up capital. Loan from micro finance was their number one source of finance to
start their business, which contains 52% of the proportion. From personal saving were 10%,
loan from bank were 28%, borrowing relative include 3%, from friend 2% and from family
were 5%.

As the survey results indicated importance of bank and micro finance as the source of start-
up capital is high. This result confirms with the general consensus that micro and small
enterprise operators have large access to formal financial institution to start their business.

As a result majority of the operators depends on bank and micro finance than personal
saving in financing their start-up capital. This implies the importance of formal micro
finance institution as compared to informal institution in financing their enterprise in the
survey area.

Table 4.9 start-up capital

Start-up capital Frequency Percentage

1000-10000 12 12%
11000-20000 22 22%
21000-30000 27 27%
31000-40000 20 20%
41000-50000 13 13%
>50000 6 6%
Total 100 100%
Source: own survey

23
From the table 4.9, 12% of operators responded that their initial capital fall within the range
of 1000- 10000birr. About 22% of the operators have started operation with initial capital
between 11000-20000 birr and about 27% of the operators have begun their operation with
the start-up capital found between 21000-3000 birr, about 20% of the operators’ started their
operation with capital found between 31000-40000birr. As well as 13% of the operators
start-up capital fall between the range of 41000-50000 birr. And only 6% of the operators
start their capital with above 50000birr. What we can observe from this survey result is that,
the majority of operators started their operation with initial capital range between 21000-
30000 birr.

Table 4.10 capital at current time

Current capital Frequency Percentage

10000-100000 10 10%
100001-200000 22 22%
200001-300000 28 28%
300001-400000 20 20%
400001-500000 12 12%
>500000 8 8%
Total 100 100%
Source: own survey

According to the research survey, majority (28%) of the enterprises have current capital
between 200001-300000 birr. And 22 % of the enterprises have a capital between 100001-
200,000 birr. The rest of the respondents‟ current capital is 100,001-200,000 birr,
200000 birr. Who their capital found in range between 300001-400000 birr is cover 20%.
10% are have current capital between 10000-100000. And the other 8% and12% of the
enterprises current found between >500000 and 400001-500000 respectively. By comparing
initial capital of the MSEs with current capital, there are significance differences in the
capital amount invested. In table 4.10 above most of the MSEs (28%) initial capital were
between 2000001-300000 birr.

Table 4.11 Use of New Technology

24
Use of new technology Numbers of respondents Percentage
Yes 84 84%
No 16 16%
Total 100 100%
Source: own survey

Based on this table shows most of the business enterprise use new technology were
84% (42) respondents and 16% (8) respondents not use of new technology.

Table 4.12 Introducing New Technology

Introducing new technology Respondents Percentage

Expenditure decrease 34 34%
Production increase 51 51%
To decrease man power - -
To increase man power 10 10%
Not introducing new 5 5%
technology
Total 100 100%
Source: own survey

According to this table shows 34% respondents were introduce new technology for
expenditure decrease, 51% respondents use to increase production, none of the respondents
use new technology to decrease man power, and 10% of the respondents use new technology
to increase man power, 5% of respondents not introducing new technology . Most of
business enterprise shows use of new technology. The largest proportion of introducing new
technology was to increase production.

4.2.3 Employment creation

25
Table 4.12 previous occupations

Previous occupation Frequency Percentage

Yes 41 41%
No 59 59%
Total 100 100%
Source: own survey

In this study also among the MSEs operators(members), majority of them (51%) had not
previous occupations and only 41% had previous occupations. According to this survey
MSEs created employment opportunities for those operators of MSEs. And among those
members of MSEs 59% had been unemployed, this means that MSEs created job
opportunity to 59% of the unemployed people. In addition to this MSEs created
employment for students in high school, college and university. From this we can
conclude that MSEs have indispensable role in employment creation.

Table 4.13 previous occupations of the operators

Previous occupation Frequency Percentage

Student 12 12%
Daily laborer 24 24%
House wife 22 22%
Private business employee 11 11%
Government employee - -
Unemployed 31 31%
Total 100 100%
Source: own survey

From the above table we can observe that 31% of operators were unemployed (jobless), 11%
were participated in private own business, 24% were engaged in daily laborer and 12% of
the operators were student, finally 22% were house wife. Generally MSEs Sectors creates
job opportunities for those who are student, daily laborer, house wife, engaged in private
own business, government employee, and for unemployed people.

26
 Table 4.14 number of job created

types of job Skill level Number of employee Freque percent

created skilled unskille 2012 2013 2014 2015 ncy age
d M F M F M F M F
Permanent 68 18 39 32 41 33 42 36 46 40 86 86%
Part time - - - - - - - - - -
Casual worker 9 5 2 1 2 2 7 5 8 6 14 14%
Others
Total 77 23 41 33 43 35 49 41 54 46 100 100%

According to table 14 above, most of the operators of MSEs (77 %) possess skill that helps
to administer and operate MSEs. Only 23% of the owners of MSEs are not skilled. Skill is
similar with knowledge and attitude which helps them to run the day to day activity
of the business. Skills can be managerial, financial or technical skill. Most of the operator
and employee of MSEs have also the skill to run MSEs and the rest of the MSE operators
employees do not possess skill to run MSEs. As the same as skill most of or 86% of MSEs
Operators are permanent (full time recruited) and the rest 14% percent are casual workers.
From this we can see that small enterprises create permanent employment opportunity for
86% of operator employees and temporary job opportunities for 14% of employees.

Table 4.15 monthly incomes of the operators’

Monthly income Frequency Percentage

Less or equal to 1000 35 35%
1001-1500 28 28%
1501-2000 18 18%
2001-2500 10 10%
2501-3000 5 5%
>3000 4 4%
Total 100 100%
Source: own survey

27
According to study above, many of the respondents (35%) monthly income is equal to 1000
birr. 28% of the respondents receive a monthly income between 1001-1500 birr. 18% of the
respondents receive a monthly income between 1501-2000 birr. 10% of the respondents get
the monthly income ranges between 2001-2500 birr. 5% of the respondents get the monthly
income between 2501-3000, the 4% of the respondents get the highest monthly income of
equal to or greater than 3,000 birr.

Table 4.16 the monthly expenditure of the operators

Monthly income Frequency Percentage

500-900 36 36%
901-1300 34 34%
1301-1700 19 19%
1701-2100 6 6%
2101-2500 3 3%
>2500 2 2%
Total 100 100%
Source: own survey

As we can see from table 4.16 36 % of operators expenditure found between 500-900, 34 %
of the operators lie between 901-1300, 19% found between 1301-1700, 6% of the operators
expend 1701-2100 of their income, and the other 3% and 2% of the operators expend 2100-
2500 and above 2500 respectively. The operators of MSEs use their income for different
purposes. However a majority of operators use their income for household consumption, to
create new business and use their income for children and to put the rest in to saving.

Table 4.17 improvement on the livelihood of the operators

Improvements Frequency Percentage

28
Improved 100 100%
Unimproved 0 0%
Total 100 100%
Source: own survey

According to table 4.17 the survey shows that 100% or all operators have respond that they
have improved their livelihood after they joined the micro enterprise.

4.2.4 Constraints
Table 4.18 constraints during start-up of the operation

Facing constraint during Frequency Percentage

start-up
Yes 53 53%
No 47 47%
Total 100 100%
Source: own survey

From the above Table 4.18 we can see that 53% of the majority of the enterprises have
responded that they have faced some constraint during start-up of the operation. But 47% of
the enterprises have responded that they haven’t faced constrained when they start the
operation. Among the constraints which they faced when start-up are, shortage of capital,
lack of business premises, others like training and skill are the major ones.

Table 4.19 constraints during operation

29
Facing constraints during Frequency Percentage
operation
Yes 56 56%
No 44 44%
Total 100 100%
Source: own survey

According to table 4.19, 44% of the operators have responded that they have not faced
constraint during operation. Like during start-up of the business, majority of the enterprises
56% faces constraints. During operation there are high constraints among some sectors like
construction and manufacturing sectors. This is because construction and manufacturing
sectors require technology and skilled manpower. Shortage of work place and shortage of
capital are also the other major constraints in yrigalem during start-up. Inability to get
skilled man power or technology may increase problems during operation. There are also
other different constraints on MSEs found at Yirgalem during operation like shortage of
market linkage, shortage of services such as transport and communication, lack of market
information etc.

CHAPTER FIVE

30
 CONCLUSION AND POLICY IMPLICATION
In order to assess the role of MSEs in reducing urban unemployment and their major
constraints in Yirgalem town, the study is based on field survey, using structured
questionnaire.

5.1 Conclusions
In developing countries like Ethiopia, the contribution of MSEs sector is important. It will
continue to play a major role in the socio economic condition of the country as a means of
livelihood for many people. Especially concerning about employment creation and income
generation, the sector play vital role. Though the characteristics and feature of urban
informal sector vary across countries, its small scale operation is common feature to all. This
definition applied by different person, organization and counties shows how broad the scope
of this sectors from global point of view.

Based on findings of the study, the following conclusions are made. At the end of 2013/14
MSEs in Yirgalem provided employment opportunity for more than 3744 members, for
2065 males and1689 females. These shows MSEs are likely to create employment for large
stock of the population in the city. Although this number is statistically important, there are
a lot of unemployed people in Yirgalem town, these require more efforts to be done to
reduce the unemployed population in the city.

In relation to major constraints of MSEs, such as shortage capital, shortage of work place,
shortage of market linkage and lack of market information etc, are found in the city which
are micro and small enterprises faced during start-up and operation.

5.2 Policy Implication

31
Based on the main findings discussed above, some policy implications, which have
important, are drown in order to create suitable environment for good performance and to
help micro and small enterprise developments.

To reduce unemployment and foster the employment opportunities in the sectors,

government should play active role through providing training and technical support to the
operators in order to enrich their knowledge concerning the establishment and running
business activities.

Micro and small enterprise development agency may have to sponsor and encourage
researcher to study the needs and constraints of MSEs in view of identifying the critical
areas of assistance.

The government or agency of micro and small enterprise should supervise the condition of
the MSEs by providing ongoing one to one supports. It also would be particularly useful to
have regular contact with other enterprise owner in similar business sector. Such contacts
create discussion of problems and sharing of both positive and negative experiences.

The supporting agencies and organization and donor need to strengthen, federal and regional
MSEs development agencies, chambers of commerce, ministry of trade and industry and
regional trade and industry bureaus by providing necessary facilities.

To overcome the constraint of MSEs operators, government should create certain market
conditions; through providing selling price, transportation facilities, avoiding illegal
competitor. To make accessible capital to the operators of MSEs government should have to
create the linkage between micro enterprises and micro finance institution in which the
operators can easily get credits and working capitals. And also have to provide working
place and business development service. Government also should have to provide market
display like exhibition and ways of exporting their product to foreign markets, which in turn
help the country to earn foreign exchange.

Finally, government institutions like the micro and small enterprise development agency and
financial institution has the duties to serve the societies, properly, honestly, transparently

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and should have to avoid any discomfort in giving services. This will help government plan
in reducing urban unemployment’s.

References
 Aregash, A. (2005). Public Private Partnership Projects of the GTZ in
Ethiopia: International trade and the protection of natural resources in
Ethiopia. Bonn: Eschoborn
 Alemayehu Hayle(2006) “Ethiopian Commercial bank Excess liquid up to
165% “.
 CSA (2012), “urban employment and unemployment survey” Addis Ababa
CSA (2011).
 Frank Jr(2010), “urban unemployment and economic growth in Africa”.
 ILO (1998) “informal sector in Africa. ILO publication, Geneva
 Jeff Bloem(2012), “micro, small, medium enterprise definition”.
 Kikuyu P.K (1999).The African factor in enterprise structure and

performance in Kenya. Discussion paper no 1999, Nairobi Kenya.

 Levy M and Powell P (2005),” strategies for growth in MSEs” the role of
information.
 Minilek Kefale and K.P.M Chinnan(2012) “employment growth and
challenges in developing countries”.
 Todaro M (2002) “economic development seventh edition”. Adisson Wesley.
 Todaro M (2003) “economic development of 3rd world” 5th edition.
 Leidholm C (1998) “dynamics of the micro and small enterprise in
developing countries”.
 UNCTDA (2005) “growing micro and small enterprise in LDCs.
 Vendenburg(2006), “poverty reduction trough small enterprise”.

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 HAWASSA UNIVERSITY

College of Business and Economics

Department of Economics

Questioners

These questioners prepared for the partial fulfillment of first degree in economics.
The main intentions of the questionnaires are to investigate contribution of micro and
small enterprise in reducing urban unemployment and their major constraint in
Yirgalem town.

 Background of the respondent

1. Woreda kebelle
2. Age
3. Sex A, male B, female

4. What is the level of education?

A, Below grad eight B, 9-10 C, 10-12
D, Diploma E, degree E, read and write only
5. Marital status
A, married B, single C, Divorce
D, under age E, widowed
6. Family headed households?
A, husband B, wife
C, son D, daughter
 Enterprise information
7. What is your Type of Business?
8. When did this enterprise start operation?
9. What is the form of ownership of this enterprise?
A, sole proprietorship B, partnership C, corporation
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 10. What is the source of capital?
A, from personal saving B, loan from micro finance C, loan from bank
D, from relative D, from friend E, from family
11. What was your capital when you start this business?
12. What is your capital at this time?
13. Does your enterprise show growth?
A, yes B, no C, stagnant D, not know
14. What is the change starting the employment?
A, income increase B, use of time improvement
C, gain satisfaction D, All
15. Do you use new technologies? A, yes B, no
16. If the answer for question No 15 is yes, what is the reason?
A, Expenditure decrease B, more product to increase
B, decrease man power C, to increase man power
 Employment creation
17. Do you have previous occupation? A, yes B, no
18. If the answer for the 14th is yes, what was your previous occupation?

A, Student B, daily labor C, house wife

D, private business employee E, government employee

In order to see the trend of employment creations fill in the following table

Types of job created Skill level Number of employee

Unskilled Skilled 2012 2013 2014 2015
(1) (2) M F M F M F M F
Full time recruited
Part time recruited
Casual worker

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Others
Total No.

19. What is the trend of your income?

A, increasing B, decreasing
C, permanent D, variable
20. What is your monthly income?
21. What is your monthly expenditure?
22. Is your enterprise environmentally friendly?
23. Do you have improved your livelihood after your engaged small scale
business enterprises?
A, Improved B, un Improved
 Constraints
24. Did you face constraints when you start up your enterprise?
A, yes B, no
25. Do you face constraints during operation?
A, yes B, no
26. If your answer to question number 26 and 27 is yes please mention the main
problem that affects negatively your enterprise during start-up and
operation respectively.

THANK YOU FOR YOUR CO-OPERATION

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