The Role of Micro and Small Enterprises for

Sustainable Economic Development and

Structural Transformation: The Ethiopian

Experience.

August, 2013

Addis Ababa

Ethiopia

Table of Content

Content

Page

I. Introduction - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - 3

II. Background and Definition of Micro and Small Enterprises in

Ethiopian Context - ------ 5

III.Challenges Facing the Micro and Small Enterprises - - - - - - - -

- - - - - - - - - - - - - - - -- 7

IV. Policy Interventions and implementation to facilitate the Micro

and Small Enterprises

Development in Ethiopia - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - ---- 8

A.Objectives of MSE Development Strategy - - - - - - - - - - - - -- - - - - - - - - - - - - - - - 8

B.Policy Interventions - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - 9

C.Policy Implementing Institutions and Commitment of the Leadership and

Stakeholders - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 14

V. Achievements of the Micro and Small Enterprises Development

Strategy

Interventions - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -- - - - - - - - 16

VI. Conclusion - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - 18

I. IntroductionIn the Federal Democratic Republic of Ethiopia Micro and Small

enterprises constitute and is expected to constitute a

significant portion of the economy and play a central role in

enhancing the urban economic dynamism, innovation and major

source of job creation. The development of the sector has been

widely recognized as a crucial strategy for urban development and

industrial growth. This is not an easy mission as a number of

challenges and barriers need to be sorted out. This mission

demands comprehensive policy to address and unlock the vicious

problems that should be solved at the local and federal level. To

this effect, in 2011/12 the Ethiopian Federal Government has

formulated a new National MSE Development and Promotion Strategy,

which enlightens a systematic approach to alleviate the problems

and facilitate the growth of MSE’s.

The policy document has been taken six factors as the integral

part of the micro and small enterprises development. These are:

1) The need to strengthen entrepreneurship culture through skill

development on the job training with practical experience

exchange including business development services; 2) The

technology and innovation transfer including machinery supply

facilitation; 3) Market access facilitation; 4) Financial access

and smooth cash flow facilitation including machinery leasing; 5)

The reduction of entry barriers facilitation the production and

sales premises including clusters development; and 6) The

strengthening of the information dissemination and delivering

services in one stop shop including the networking among the

small and micro enterprises. To facilitate the implementation of

these factors supportive structures has been established at the

federal, regional and city level. Accordingly at the Federal

level the key implementing body is the Ministry of Urban

Development and Construction and is responsible for developing

regulations, undertaking capacity building initiatives and

providing technical support to federal and regional MSE’s

Agencies.

The importance of the micro and small enterprise in Ethiopian

economy is very clear and important but there are a number of

challenges that must be addressed with a comprehensive package.

As indicated above the six key areas of the challenges should be

given due attention and they require the commitment of the

government and major stakeholders.

In order to create favorable business enabling environment for

the micro and small enterprises the government considered various

elements of support packages that are listed above at federal,

regional and local levels. To implement these packages the

Ethiopian Government has taken measures by developing legal

framework and streamlining regulatory conditions that reduces the

entry barrier for new micro and small enterprises. In addition

to this, the specific support programs which are given by the

government also include provision of incentives for

subcontracting of the medium and large enterprises for micro and

small enterprises, promotion of the products of micro and small

enterprises, infrastructure access for their production premises

and institutional strengthening of the private sector

associations and chambers.

II. Background and Definition of Micro and Small

Enterprises in Ethiopian Context.The Federal Democratic Republic of Ethiopia (FDRE) adopted

Agricultural Development Led Industrialization (ADLI) and private

sector development strategy in 1995 G.C. One of the issues given

priority in these strategies has been the Micro and Small

Enterprises (MSE) development. Micro and Small Enterprises

development Strategy were formulated in 2000 G.C. Among the

principal objectives of the strategy; exploitation of local raw

material, creation of productive job opportunities, and adoption

of new and appropriate technologies are the major ones. Packages

such as manufacturing (textile, leather and leather products,

Agro processing and metal & wood works), service, construction,

urban agriculture, and the retail sectors has been developed

taking their wide-ranging backward and forward linkages to

facilitate easy start up of the micro and small businesses.

GTP (Growth and Transformation Plan), which is the successor of

PASDEP and the current five year development program of Ethiopia

(2010 -2014), has also given a priority to MSE’s development. The

GTP has put the MSE’s development as one of the seven identified

growth pillars of the country. Some studies of the sector clearly

indicated that MSEs have been on the forefront in job creations,

poverty reductions, proliferations of entrepreneurships and thus

economic development concurrently (CSA, 1997; MoTI, 1997; Haftu,

et al, 2009; GTP, 2010).

Similar to other developing countries, MSEs in Ethiopia by virtue

of their size, location, capital investment and their capacity to

generate greater employment have proved their powerful propellant

effect for rapid economic growth. The sector is also known as an

instrument in bringing about economic transition by effectively

using the skill and talent of the citizens without requesting

high-level training, much capital and sophisticated technology.

The Micro and Small Enterprises sector is also described as the

national home of entrepreneurship. It provides the ideal

environment enabling entrepreneurs to exercise their talents to

full fill and to attain their goals. In all successful

economies, MSEs are seen as an essential springboard for growth,

job creation and social progress at large. The small business

sector is also seen as an important force to generate employment

and more equitable income distribution, to activate competition,

exploit niche markets, enhance productivity and technical change,

and through all of these stimulate economic development. On the

other hand the importance of medium and large enterprises for the

growth of the Ethiopian economy cannot be denied, it is

imperative that even if the labor absorptive capacity of the

micro and small business sector is high, the average wealth or

value created per head or person is usually lower than the medium

and large businesses and their role in the technological

transformation and growth national product is vital for our

country economic development.

Small and Medium Enterprise (SME) is defined in different

countries having different criteria and there is no

internationally agreed definition of the sector. However, the

most commonly used criterion are the number of jobs employed,

sales turnover and capital investments. They are also divided

based on typical indicators such as (1) informal or formal; (2)

the stage of business development; (3) market orientation; (4)

pace or innovation and use of technology; and (5) the stage in

the corporate life cycle of the business.

In case of Ethiopia, Microenterprises distinguished as a separate

category so as to support them properly and facilitate their

development and sustainability. The definition of the sector is

based on not only the number of employment and capital investment

but also between the manufacturing and service industry category.

According to the 20011 MSE Development Strategy of the Federal Democratic

Republic of Ethiopia, MSE is defined as enterprises with less than 30

employees and 1.5 million ETB or (81,000 USD) capital. Micro

enterprises are defined as an enterprise which employed between 1

and 5 employees, while small enterprises are defined as

enterprises that employed between 6 and 30 employees. The

employment criterion is the same for manufacturing and service

sector. For the capital investment, the manufacturing sector

should have 1.5 million ETB for small and 100,000 ETB for micro

enterprises paid up capital. Whereas in the service sector

required having 500,000 ETB for small and 50,000 ETB for micro

enterprises paid capital investment.

The micro and small enterprises development, in the case of

Ethiopia, involves four key stages such as: 1) Start – up; 2)

Growth; 3) Maturity and 4) Graduation from micro and small

enterprises to medium enterprises. In these each of the stages

there is differing needs in terms of policy interventions and the

contingency of the support packages relative to the development

stage of the respective enterprise.

III.Challenges Facing Micro and Small Enterprises in

Ethiopia

In most developing countries, despite the varying in definition

and existence of their context micro and small businesses do

share a number of common characteristics. They usually tend to be

initiated by individual effort; they do also have greater

operational flexibility and high motivation for innovation and

change. They suffer from financing, market access, working

premises and information. In general they face a wider range of

constraints and they are unable to address the problems by their

own, even in effectively functioning market economies. Therefore

the Government has a key role to play in MSE problem solving and

creating favorable business environment. Policy makers can have

the responsibility of creating the platform or some sort of

councils that bring the cooperation among multiple actors,

institutions and the private sectors.

In the Ethiopian context, MSEs have been challenged by vicious

circle of problems which are basically attitude, knowledge, skill

and structural in nature. In our country the developmental

prospects of the sector is promising and growing but there are a

number of critical challenges that must be addressed to sustain

the achievement already secured. Some of the most critical

challenges are:-

1) The limited capacity of the government to deliver efficient

and effective support services that are identified by the

policy and backed by legal packages;

2) The attitude of the citizen towards job and lack of muchinitiative for new entrepreneurial projects;

3) Lack of facilities like working premises, working capital,machinery and related supplies;

4) Lack of skill to produce competitive products that enables topenetrate or access new market;

5) Lack of up to date information about the inputs, market,finance etc

6) Lack of financing and proper cash flow etc and organized

service deliver for tax registration, trade license,

information, credit facility, etc. These barriers of the micro

and small enterprises development can be categorized into

external to the enterprises that are beyond the entrepreneurs’

control such as business enabling environment and internal to

the enterprises that are within the control of the enterprises

such as attitude for generic competitiveness issues and

managerial experiences. Thus the above mentioned problems

should be taken in to consideration when the interventions are

identified for solving the problems.

IV. Policy Interventions and implementation to

facilitate Micro and Small Enterprises

Development in Ethiopia.It is obvious that developing countries need a clear policy

direction that helps them reduce the wide open gap between the

ever growing number of job seekers and available vacant posts.

Many developing countries have intervened with different policies

that follow different paths to achieve the same end, unemployment

reduction and economic development of their respective nation.

The Ethiopian Government, like many other developing countries

has developed the MSE’s development strategy that is convenient

to the national context so as to achieve the target. The MSE

strategy, which virtually implemented during the PASDEP period,

it has also continued to be implemented the GTP period with some

improvement and update. The Government has had a central role in

creating conducive business enabling environment to micro and

small enterprises development of the country. There has been a

strong political will and commitment to make a difference in the

development of the micro and small enterprises and to increase

their contribution for the gross national product of the country

by creating more wealth and adding value. The intervention

strategies can be summarized as follows:

A.Objectives of MSE Development Strategy:

The government of Ethiopia has developed MSE strategy with the

following general objectives:

1) To create accessible job opportunity and inclusive

development so as to improve the living standard of the

society and then to reduce poverty.

2) To create conducive business enabling environment and

assure competitiveness among enterprises so as to have

sustainable national economic development that is going to

bring the industrialization.

3) To pave ways for industrial development by encouraging

and supporting MSE graduation to medium enterprises; and

facilitating and creating supportive environment for MSE

and by medium and large enterprises subcontracting,

forward and back ward linkage; and also by facilitating

internationalization.

4) To create sustainable market by strengthening

agriculture-industry linkage so as to develop synergy and

virtual growth.

B.Policy InterventionsThe Government of Ethiopia developed comprehensive and practical

policy interventions to facilitate micro and small enterprises

development in the country. The micro and small enterprises

require a number of supportive policies for the facilitation of

their development. The key challenges identified in the

government policy to be addressed can be categorized in to six

key areas. These are:

1) The need to strengthen entrepreneurship culture through

skill development on the job training with practical

experience exchange including business development

services;

2) The technology and innovation transfer including

machinery supply facilitation;

3) Market access facilitation including subcontracting and

internationalization;

4) Financial access and smooth cash flow facilitation

including machinery leasing;

5) The reduction of entry barriers facilitation including

the production and sales premises and clusters

development; and

6) The strengthening of the information dissemination and

delivering services such as tax registration,

licensing, information about the facilities and loans,

etc in one stop shop including the networking among the

small and micro enterprises.

1. Training in Entrepreneurship, Skills Development and

Business Management

Entrepreneurship, in the Ethiopian Government micro and small

enterprise policy, is defined as a citizen or team of citizens

creating their own job that is something new, different or

underemployed with calculated risk taking attitude for future

betterment to add value or saving for oneself and the society.

The government is getting ready to facilitate such initiatives by

providing support such as

1) Facilitating resources like credit, working premises,

labor jobs, trainings, etc.

2) Arranging trainings that support internal traits or

attitude change,

3) Supporting in the preparation of solid business plan

4) The government is diligently doing to create conducive

business enabling environment and to make changes in the

attitude of the political leadership, social and cultural

networks and associations. These all is to create the

favorable external environment for the micro and small

enterprises.

Moreover 33 government universities and more than 300 TVET

centers are given responsibility to deliver short and long term

trainings for their graduates. The acquisition of relevant

vocational, technical and business skills in TVET centers is

generally regarded as one of the critical factors for success in

small enterprises. The government and developmental partners are

trying to promote awareness about the importance of

entrepreneurship with the strategies such education through

universities and training through TVET center. Developmental

partners like UNDP aggressively embarked up on the intuitive to

train more than 200,000 citizens on the subject by establishing

independent center to discharge this responsibility. There is

institutional responsibility to accommodate the disadvantaged

segments of the society such as women, youth and rural

entrepreneurs to be included.

2. Access to Appropriate Technology and Machinery

There is clear National Technology Policy (NTP) intervention in

Ethiopia. In respect to the micro and small enterprise

development the policy intervention is to strengthen the national

capability for the development of indigenous technology and

attainment of a national capacity for the assessment, selection,

acquisition, adoption and adaptation of foreign technology that

are appropriate to the micro and small enterprises. The

followings are the four critical components have been given due

attention; the product development, the value chain process of

the product manufacturing or processing, marketing of the product

and the backup service delivery capabilities. In this perspective

the Ethiopian micro and small enterprises are experiencing

serious difficulty in discharging this responsibility.

The government has been taken the responsibility to fill the

capability gap by establishing institutions doing this job. The

institutions that are in charge of this responsibility are

textile, metal and engineering, hides and skin institutes. There

is also on job training that helps the micro and small

enterprises can adopt and gain better capability of what

technologies are more effective.

These institutions are responsible for the technology

acquisitions and transfer in their respective industry. There is

collaboration platform between the stakeholders that facilitate

the connections and linkages of the stakeholders for the

successful technology transfer and outsourcing among themselves.

It is expected to create enabling environment for micro and small

enterprises in respect to technology transfer.

3. Access to Market

The micro and small enterprises generally face difficulties in

accessing new markets as they have limited resources, expertise

and market information. In the MSEs policy intervention document

Government of Ethiopia identified four critical issues that must

be intervened in order to solve the market problems of the

sector. These are:

1) The Skill of the MSEs concerning the business opportunities,

about their customers, distribution mechanism, local rules and

regulations on license, tax, facilities, loans, etc.

2) The rule and regulation to have some privileges on government

services must be transparent and accountable so as to

facilitate the market entrants’.

3) The trade barriers such as tax, tariff and non-tariff for

micro and small enterprises needs to be addressed by the

responsible government institution.

4) The cooperation platform between the micro and small

enterprises and medium and large enterprises for subcontracting

and technology transfer is very important and needs the

facilitation by the government. The responsible government organs

also need their own platform that integrate and synergize the

support of the sector. The government is expected to facilitate

to prepare trade promotion tools and facilitate trade fairs,

arranging subcontracting meetings and trade missions.

Responsibility for steps to overcome this constraint falls upon

many different groups: individual entrepreneurs and groups of

small businesses which have to compete and cooperate between

themselves. with others for the same clients, regional

governments, chambers and business associations who should see to

it that there are no hindrances to market access of new comers,

and big enterprises who should re-orient procurement towards

small suppliers and sub contractors.

4. Access to Finance Making sure an access to sustained finance and sufficient cash

flow is very important MSEs especially at their start-up that has

usually famine of cash. Their different developmental stage and

business life cycle usually require varying needs of cash flow.

In the policy document different instruments has been identified

as the possible sources of finance for the micro and small

enterprises business. Those that are identified as options of

sources are: 1) informal such as personal loans from family and

friends, personal savings; 2) internal such as finance from the

business itself; 3) commercial such as loans from banks; 4)

equity such as the owners contribution; 5) asset based leasing

such as machinery; 6) micro finance loans having guarantee fund

from the government.

These multiple financial instruments are associated advantages

and challenges that need to be understood in order to effectively

implement the micro and small enterprises development strategy

interventions. In the respective financial instruments the

government facilitate for the micro and small enterprises based

on their level of development stage. One example of the

government intervention is to provide the guarantee that connects

the financial institutions and the micro and small enterprises.

This facilitates loans by providing guarantee and credit

information for the MSEs that develops confidence in the

financial institutions to provide the loan. The issues such as;

working capital access for the businesses; providing adequate and

timely information; providing the business development services

with the financial services together; and arranging stakeholders

meeting to strengthen the relationships and mutual understanding

among themselves has been taken in to consideration in the

process of the sector’s policy intervention.

5. Access to Facilities and Related Services

Infrastructure is one of the basic factors required to enhance

the pace of industrialization in any country. The development of

business and industrial premises (shops, offices, factories,

market stands, etc.) and providing the service on the cost

recovery system by the city administration is one of the

important issues that should be addressed. Infrastructure

facilities, including the access of electricity, water,

telecommunication connections, sewerage systems, etc. are crucial

infrastructural facilities and utilities which warrant the growth

and expansion of business enterprises.

The above mentioned physical infrastructure elements are not

adequately developed and expanded to meet the growing demand of

businesses activities in Ethiopia. The main factor for such

underdevelopment is due to the obvious nature of infrastructural

projects which entail huge investment cost outlays. Hence, most

enterprises particularly the small and micro enterprises are

facing serious problems in this regard. To address these

problems, the government has drawn various programs with regard

to developing road networks, power, water, telecommunication,

etc. and concerted efforts are being made to carry out such

programs.

Local administrators and municipalities would use and implement

cluster development as one of the main development direction in

order to resolve bottle necks of production sites, to promote

technology supply, to create market opportunity and to solve

capital constrain, and to supply production and sales center in

cost recovery system. Enterprises that are graduating from small

to medium level will be supported by facilitating working

premises or land, credit and sustainable market to make sure that

they are going to be sustainable in the industry.

The business and technology incubation has been taken as one of

the intervention areas. The incubations are providing valuable

assistance to the micro and small enterprises especially the

start-ups. The business development service is also provided as

one of the facilities in one stop shop services. These include

such as 1) The facilitation of the out sourcing and

subcontracting from the government and medium and large

enterprises; 2) Raising awareness about the importance of

entrepreneurship and the business development services is

undertaken in the one stop shop service center; 3) The

facilitation of conducive business enabling environment and 4)

The participation of the higher institutions, developmental

partners, TVET, R & D institutions and the private sector in the

entrepreneurship and business development service would be

appreciated.

6. One Stop Shop Service “Single Window Service” system has been developed to assist and

support the entrepreneurs, especially the new business

registration, tax registration and loans facilitation and working

premises and some related trainings. In this one stop shop

service center information has been give about tax, credit,

trainings, etc. These supports enabled enterprises to be

effective when they are organized by fulfilling legal

preconditions and lay a foundation for their sustainable growth

and development.

C. Policy Implementing Institutions and Commitment

of the Leadership and StakeholdersAfter the development of the policy intervention document, there

had been the policy implementation plan that selected the issues

which has been indicated in the previous topic with their

priority settings so as to address firstly, the pressing

problems. There was also major frameworks of monitoring and

evaluation of the intervention. This has been taken to

consideration to ensure the proper governance, transparency and

accountability of the micro and small enterprises policy

intervention implementation. The plan had included the

consultation of major stakeholders, the senior experts in the

sector, the technical and vocational education and training

colleges, the entrepreneurs themselves, too. The generic issue

has been building the competitive capacity of micro and small

enterprises, creating cooperation and completion among the

enterprises, generating employment through the implantation of

the intervention, and finally to make sure that every citizen is

benefiting from the imitative and increases the well-being of all

the people in the country.

The responsibility for support and implement the policy

intervention falls upon a wide range of organizations,

associations, and agencies. These include all levels of

government, Developmental partners, community based

organizations, development and business associations, and private

institutions.. The commitment of these institutions and the

degree of cooperation among them largely determines the

effectiveness of the policy intervention implementation.

The Federal political leadership has fully been committed

creating the conducive business enabling environment for the

sector and in strengthening supportive facilities and allocate

the scarce public resources to be channeled in the most effective

way to bring about a difference with sense of urgency. Moreover,

special attention has been given to build the capacity of the

policy implementing institutions and their institutional

arrangement and also structural adjustments of the critical

stakeholders. The major owners and stakeholders identified by the

government for the implementation of the strategy are: Ministry

of Urban Development and Construction; Ministry of Trade;

Ministry of Industry, Ministry of Education (TVET); National Bank

Of Ethiopia; Regional Bureaus; Federal MSE Development Agency;

Regional MSE Development Agencies; City administrations; Micro

finances; the developmental partners; and Business Associations.

1. Ministry of Urban Development and

Construction

Coordinating major stakeholders having the micro and small

enterprises council chairmanship is one of the main duties and

responsibilities of the MUDCo. Capacity building to federal MSE

agency and the regional respective institutions is also the very

important mission. The development of legal packages that

facilitate the proper implementation of the policy intervention

implantation is also the responsibility of MUDCo.

2. The Federal Micro and Small Enterprises Development Agency

The Agency mainly focus on training of trainers, dissemination of

developed prototypes, information and consultancy, facilitation

of facility issues, marketing and internationalization,

technology and machinery leasing and data base are expected be

organized by federal, regional or city level institutions or the

designated organs and other concerned stakeholders. Moreover the

Agency also intended to capacitate and support the regional MSE

development agencies and carry out domestic and export market

development activities.

3. Regional Micro and Small Enterprises DevelopmentAgency

In order to design and implement MSE’s support programs at

regional and local levels, it has become imperative to establish

regional agencies or designated appropriate organs in each region

of the country, which are considered as interfaced to the Federal

Agency. The regional agencies or the designated organs provide

extension services such as human resource development,

information and consultancy, facilitation, technical and

marketing to MSEs at regional, zonal and local level. The

critical implanting and strategic leadership role is played by

the regional agency of the micro and small enterprise

development.

4. One Stop Shop Service Center at Local Level As per the need and requirement of the specific regions, MSE’s

support centers will be established at local level through:

1) Small business support service centers will be

established under the respective regional agencies or the

designated organs at Zonal city and district level in order

to provide promotional support services at grass root

levels.

2) All local support service centers are responsible for

providing comprehensive and integrated information and

advisory services to MSEs within their vicinity.

3) The centers report to the respective regional agencies

or the designated organs about their activities are funded

mostly by the regional governments.

5. The Sector’s Capacity Building Institutes

The roles of sector industry development institutes are also

clearly indicated on the strategy document to build the technical

capacity of the micro and enterprises. Among the various duties

of those institutions are: 1) providing special skill development

support to model growth oriented enterprises; 2) providing market

networking support to small, medium and large enterprises; and 3)

Implementing support frameworks by providing/giving special

attention to enterprises those graduated from small to medium

enterprises.

V. Achievements of the Micro and Small EnterprisesDevelopment Strategy Interventions

Due to the promising socio-economic development plan

implementation, and democratization process, Ethiopia has

achieved significant growth in the past consecutive years.

Recognizing and believing the contributions of MSE’s in the

socio-economic development in the past, various MSE development

policies and strategies were formulated and implemented.

Accordingly the following promising results were achieved in the

last decade.

1. Millions of Citizens Secured Job opportunities

In Ethiopia, like many other developing countries, medium and

large scale manufacturing and state bureaucracy could not create

enough job opportunity to the increasing labor force in urban

areas. In such cases the role of MSE’s can be regarded as a

source of lively hood to the poor and unemployed citizen.

Similarly in Ethiopia millions have secured jobs through the

successful implementation of Micro and Small Enterprises

development program. As shown in the following table, more than

5,349,763 people got their jobs (both permanent and temporary)

only during the specified six years due to this program. This can

be compared with the national target that sets out to solve the

unemployment problems of the 1.5 million people in the major

urban centers across the nation. Among the job opportunities

created in the country sector include manufacturing (Textile and

garment, leather products and agro processing sector),

construction, urban agriculture and service sector.

Figure 1:- Job Opportunity Created

V.1 Financial Access to the Operators

It is imperative that nations must use their scarce resource and

human power in order to bring about intended changes in the lives

of their people. However, any endeavor requires money as input to

achieve its target. The MSE program mainly targets the socially

disadvantaged citizen like the unemployed women and youth. This

segment of the society used to be marginalized due to the lack of

startup capital. One of the crucial inputs intended to be

provided for MSEs is the credit service. Cities and Regions were

the guarantors of the loan and the different Micro financial

institutions have been extending to the MSEs. As it can be seen

from the following figure more than birr 6.2 billion has been

extended to the MSEs as loan which has benefited about 583,877

entrepreneurs.

Figure 2:- loan given to MSEs

V.2 More than 1.5 million and 10,000 operators became

beneficiaries form various training and Business

Development Service respectively.

As indicated in the strategy document one of the main support

areas expected from the government is the provision of capacity

building training to the operators. In this regard much is done

and more than 1.5 million MSE operators received basic trainings

in the last few years.

V.3 More than 1097 One Stop Shop Service centers that are

providing integrated services have been made operational.

Throughout the country about 1097 one stop shop services centers

were established and through those centers about 5,000 trained

professionals are providing appropriate services to the

operators.

V.4 Billions of Birr was Secured through Market Linkages.

Market linkage has been another crucial component of the support

areas that the government has been actively facilitated. It was

planned in the strategy that market linkages would be one of the

facilitation areas to help the MSEs sustain themselves in the

market and emerge competent in the context of throat cutting

competition. With regard to this instrument, the data indicates

that hundreds of thousands of MSEs have benefited from the

arrangement and billions of money has been earned as a result.

Through Facilitated access to participate in various exhibitions,

sub-contracting experience in addition to creating job

opportunities in housing development and government projects MSE

became beneficiaries from both domestic and international market

linkage using the opportunity ranged from 400,000-500,000

government purchase issued by regional governments. More than 979

thousands entrepreneurs became beneficiary from market linkage

worth more than 8,516 million birr. Organizing Exhibition to out

let operators’ product is one of the main mechanisms to create

market linkage. In this regard many exhibitions were organized

both at federal and regional level to facilitate market linkage

to the operators.

Figure 3: - Market created (in ETB) and Exhibitions made

V.5 Tens of Thousands of Hectares of Land has been made

ready and Supplied to Operators for Production and Sales

Premises.

Local administrators and municipalities would use and implement

cluster development as one of the main development tactics in

order to resolve the bottlenecks of production sites, to promote

technology supply, to create market opportunity and to solve

capital constraints, and to supply production and sales center

in cost recover principle. In this regard about 10,500 hectare

lands were supplied for production purpose, and about 11,626

sheds and 983 buildings were constructed for production and

sales purpose.

V.6 Technology Supply and Service Provision

About 61,000 enterprises and individuals became beneficiaries

from technology and production material support. Weaving tools,

agricultural implements and modern heaves were distributed.

Various implementation documents were produced by identifying the

MSE development obstacles to solve the problems. Generally a lot

of job opportunities were created and income of the MSE’s

increased in the past six years as considerable attention was

given to the sector. It also enabled to acquire best experiences

in addition to stimulating the development of socio-economic

conditions of cities.

V.7 Micro and Small Enterprises in Economic Structural

Transformation.

One of the study carried out by CSA, based on the national

account concept showed the significant contribution of MSE in

value addition to the national economy. According to the survey

result, the total estimated value added and operating surplus

generated by the entire MSE were Birr 750,233,897 and 718,427,992

in the year 2002. The average annual value added and operating

surplus per establishment/activity, were Birr 938.55 and 898.76,

respectively, in the reference period. The share of the Trade,

Hotels and Restaurants industrial group in the period under

review was 36.30 and 35.99 percent of the total national MSE

value added and operating surplus, respectively. The proportion

of Manufacturing in value added and operating surplus in the same

period was 34.57 and 34.85 percent respectively. However

according to the small scale manufacturing survey carried out in

2010/11 the value addition of the manufacturing sector shows

dramatic improvement and reached more than 5 Billion ETB (CSA,

2010/11.). Therefore as indicated above MSE plays great role in

transforming the Ethiopian Economy as indicated in the strategy

document. Table1:-Value Added of Micro and Small Enterprises by Major

Industrial group: 2002

Major Industrial Groups Value Added in Birr

Percentage share of Value added

Number ofPersonsEngaged

Percentage share of Persons Engaged in respective sector

Agriculture, Hunting Forestry And Fishing

1,826,217 0.24 18,301 1.83

Mining And Quarrying 2,046,672 0.27 1,153 0.12Manufacturing 259,364,750 34.57 456,104 45.73Construction 56,941,389 7.59 20,623 2.07Trade, Hotels And Restaurants

272,351,840 36.30 369,876 37.08

Transport 17,527,507 2.34 12,477 1.25Community And Personal Services

140,175,522 18.68 118,848 11.92

Total 750,233,897 100.00 997,382 100.00 Source: CSA, 2002

5.8 The Role of AGOA in Creating Market linkage to MSE

The Ethiopian MSEs have been entering in to the American Market

producing competitive products like processed organic food,

handmade cloths, leather products and hand crafts due to the AGOA

with a value of $ 42 million in the past 2 years. This shows

there is the opposite .This is a win-win scenario for both

nations that changes the relationship from aid to market

contract. The opp. must be exploited. Therefore it is

imperative to solve the supply side constraints of the MSEs that

are identified in the new strategy to enable them harnessing

AGOA:

Entrepreneurship Training: Competitiveness‘. Creating Conducive Business Enabling Environment

including facilities and credits. Marketing including internationalization promotion.

If all the stakeholders are committed to address the Ethiopian

Micro and Small Enterprises ‘supply side constraints to harness

the promise of AGOA, there would be a number of win – win

advantages like: Retaining the citizens in their own country by

creating jobs opportunity and minimizes immigration from Ethiopia

and Emigration to USA. Solve the problem of human trafficking.

This is not only going to bring sustainable peace for both and

other developing countries but also it assures us to have organic

products that are health and environmentally friendly. We can

have also lower cost products due to cheap and productive labour

forces. It is an opportunity that should be exploited optimally

for the well being of our globe or world. This is going to be a

good practice that can be scaled up to other developing

countries, too. Table 2:- Major MSE products exported and Value earned in2010/11 and 2012/13

No

ProductType

Value(ETB)2010/11

ValueIn USD

Value(ETB)2012/13

ValueIn USD

TotalIN USD

PercentageShare

ValueEarnedfrom USIn USD

Share ofUSmarket

1 2 3 4 5 6 7   81 Proce

ssed Food

228,183,819

13,039,075

245,194,959

13,398,632

26,437,707

63.1 3,093,211.7

11.7

2 Textile

104,754,900

5,985,994

112,564,394

6,151,060

12,137,054

29.0 1,941,928.7

16

3 Leather

14,462,913

826,452

15,541,125

849,242

1,675,694

4.0 955,145.5

57

4 Hand Craft

14,145,010

808,286

15,199,523

830,575

1,638,861

3.9 313,022.4

19.1

  TOTAL 361,546,641

20,659,809

388,500,002

21,229,508

41,889,315

100.0 6,303,308.2

 

Among the products produced by MSE in terms of foreign market

linkage (Export); processed food take the lion share (63.1%)

followed by Textile (29.0%) and leather products (4.0%) as well

as Hand crafts (3.9%) respectively. Through African Growth

Opportunity Act (AGOA) about 11.2% of processed food, 16.0 % of

textile, 57% of leather products and 19.1% of hand crafts

produced by MSE goes to the US market. Therefore, the

contribution of the opportunity act in solving the market problem

of the MSE is very worth full and significant.

VI. ConclusionMSEs contribute to a large extent to the development of every

country. In developing countries like Ethiopia, the MSEs play

vital role in reducing the massive unemployment and deep rooted

poverty. Having deep poverty and high unemployment, nurturing the

development of MSEs is not only a matter of choice but also a

means of survival. Besides creating job opportunity to multitude

of urban unemployed citizens, MSEs become a preferred development

tool of Least Developing Countries for a number of reasons; among

them

1) It engages citizen for wealth creation being labor intensive;

2) Enables optimum allocation of resources of the nation engaging

the citizen with low capital requirement and being productive;

3) Create jobs to the socially disadvantaged segment of the

society such as women, youth and unskilled labors by using such

as simple and cheap technologies, use local inputs, etc and

being still productive.

Furthermore, it is believed that MSEs could enable Least

Developing Countries to quickly attain one of the Millennium

Development Goals ‘eradicating extreme poverty and hunger by half

in 2020’. It is in this understanding that the government of

Ethiopia has given due attention and priority to the development

of the sector.

References

1. Federal Micro and Small Enterprise Development Agency

(FEMSEDA). January 2011, Micro and Small Enterprise

Development Strategy, provision framework and methods of

Implementation. Addis Ababa, Ethiopia.

2. Ministry of Trade and Industry. November 1997, Micro and Small

Enterprises Development Strategy. Addis Ababa, Ethiopia.

3. Federal Micro and Small Enterprise Development Agency

(FEMSEDA). 2011, Micro and Small Enterprise Development

Strategy. Addis Ababa, Ethiopia.

4. Ministry of Urban Development and Construction. March 2013,

Survey on Micro & Small Enterprises (MSEs) in Selected Major

Cities of Ethiopia. Addis Ababa, Ethiopia.

5. Ministry of Urban Development and Construction. 2013, ዓዓዓዓ ዓዓዓዓዓዓዓ ዓዓዓዓ (1998-2004 ዓ.ዓ) “Annual Statistical Abstract

(2006 – 2012)”, Addis Ababa, Ethiopia.