ROLE OF MICRO AND SMALL BUSINESS ENTERPRISE IN POVERTY

ALLEVIATION
(CASE STUDY IN ARSI NEGELE)

A STUDENT RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF REQUIREMENT FOR B,A DEGREE IN BUSINESS
ADMINISTRATION AND INFORMATION SYSTEM

SUBMITTED BY: SUBMITTED TO:- HAILU

ABDO DR.RAMAKRISHNAN
ID.NO.02394/01

JIMMA UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
DEPARTMENT OF BUSINESS ADMINISTRATION AND INFORMATION
SYSTEM

MAY, 2011
JIMMA, ETHIOPIA
Abstract

This research takes its case study on roles of micro and small
business enterprise Micro and Small Scale Enterprise on poverty
question and its major constraints that hinders the development of
the sector in Arsi Negele town. For this purpose simple random
samples that includes 20% of the Micro And Small Scale Enterprise
in the town have been taken to explore the role of the sector
specially in employment creation and income improvement and to
assess the major constraints that in habits the sector not to develop
like infrastructural problems, availability of sufficient capital to run
the business, credit facilities, co operative activities and other
related problems, on the performance of micro and small business
enterprises in the study area.

Interview questionnaire (schedule) is the dominant data collection

tool that would be used for the study along with interview. Both
primary and secondary data form the operators (owners) of the Arsi
Negele town administration respectively replenished the
information need of business and from trade, industry and
development bureau the researcher for the completion of the study.

Conclusions and recommendations are suggested driving inferences

that indicate the role of the sector, the impact of variables
considered on the performance of Micro and Small Scale Enterprise
and how the problems should be solved after the data collected is
processed, analyzed and carefully interpreted to arrive at feasible
findings.

I
Acknowledgements

First I would like to thank heartily my advisor Dr. Ramakrishnan and

my friends who give me suggestion, comments and advices for
writing this proposal.
Second I also give my heart gratitude for Jimma University College
of Business and Economics Department of Business Administration
and Information System and social library workers.

Last but not the least, the most I need to thank all employees in
Role of micro and small business enterprise in poverty alleviation
which give me statistical information and important secondary
source for development of this research paper.

II
Table of Contents
Abstract..............................................................................................I
Acknowledgements............................................................................II
Table of Contents..............................................................................III
Chapter One
1. Introduction................................................................................1
1.1. Background of the Study.........................................................1
1.2. Statements of the Problems....................................................3
1.3. Objectives of the study............................................................4
1.3.1. General Objectives............................................................4
1.3.2. Specific Objective..............................................................4
1.4. Significance of the study.........................................................5
1.5. Scope of the Study..................................................................6
1.6 Limitation of the Study.............................................................6
1.7 Organization of the Study.........................................................7
1.8 Methodology................................................................................7
1.9 Material (Data’s)......................................................................7
1.10 Area of the Study...................................................................7
1.11 Source of Data........................................................................8
1.12 Method of Data Collection.....................................................9
1.13 Method of Sampling...............................................................9
1.14 Method of Data Analysis........................................................9
CHAPTER TWO
2. REVIEW OF RELATED LITERATURE...............................................11
2.3 Political Affecting Micro and Small Scale Enterprise
Development................................................................................13
2.4 Arguments for the success and fall of Micro and Small Scale
Enterprise.....................................................................................15
CHAPTER THREE
DATA PRESENTATION AND ANALYSIS..............................................17

III
3.1 ROLES OF MICRO AND SMALL ENTERPRISE IN POVERTY
ALLEVIATION IN ARSI NEGELE TOWN...........................................17
3.2 Creation of Employment.........................................................18
3.3. Income Generation................................................................22
3.4 PROBLEMS AFFECTING THE DEVELOPMENT OF MICRO AND
SMALL ENTERPRISE IN ARSI NEGELE TOWN.................................24
3.5 Accessibility of Training Problem............................................24
3.6 market and Production Place Problem...................................25
3.7 Market Related Problems.......................................................26
3.8 Problem Related to Infrastructure..........................................31
3.9 Problem related to co-operative activities of MSE in Arsi
Negele Town.................................................................................32
3.10 Institutional Factors on MSEs..............................................33
CHAPTER FOUR
FINDINGS, CONCLUSION AND RECOMMENDATION..........................36
4.1 Main Findings.........................................................................36
4.2 Conclusion..............................................................................38
4.3 Recommendations..................................................................39
References.......................................................................................41
APPENDIX………………………………………………………………………….

IV
List of Tables

Table Page
Table 3.2.1- Demographic characteristic of the respondents..........19
Table 3.2.2- Reason to get in the MSE.............................................21
Table 3.2 3- The income Improvement of MSC operators...............22
Table 3.3.2- Sufficient capital to run your business.........................23
Table 3.5.1- Have you access to credit facilitate.............................25
Table 3.6.1- Operation place of MSE operators...............................26
Table 3.7.1- Have you access market problem...............................27
Table 3.7.2- Reason for the lack of market problem.......................27
Table 3.7.3- Lack of sufficiency working capital..............................29
Table 3.8.1- Infrastructure affected.................................................31
Table 3.9.1-Form of working activity of MSE operators...................33
Table 3.10.1- Governmental restriction...........................................33
Table 3.10.3 -Institutional factors facing MSE operators.................34
Table 3.10.3 -Type of business engaged.........................................35

List of Figures
Figures Page
Figure 3.3.1- Monthly income category of MSC operators...............23
Figure 3.3.2- Monthly income category of MSC operators...............23
Figure 3.7.1- Initial Capital Category of MSE operators..................28
Figure 3.7.2 - Reasons for lack of credit facilities............................30
Figure 3.8.1 - Charge of Infrastructure facility.................................32

V
CHAPTER ONE

1. INTRODUCTION

1.1. Background of the Study

Reducing and eventually eliminating absolute poverty is perhaps
the primary challenge of the currently in Ethiopian policy makers.
The incidence of poverty manifests in many forms. It’s most direct
expression being low levels of income and consumption. The World
Bank estimated the per capital income of Ethiopia to have been
about 100 in the year 2002. Thus less than half the average for the
world’s low level income countries. The average income for the low
income countries in the same year was $400 while the average for
sub-Saharan Africa was $500 world development reports 2002.
(2003 p-3) Developing micro and small scale enterprises play a
significant role in improving the deterioration of living standard of
the people and narrow the development gap of the country with the
other world.

Micro and small enterprises are characterized by having greater

inter and intra sect linkages, uses local raw materials and labor
intensive technologies, have potential fro competition, one that
have a relatively small share of the market and is managed by its
owners or part owners in a personalized way and not through the
medium of formalized management structure. It is independent in a
sense that it doesn’t part of a larger enterprise and that the
owners/managers should be free from outside control in taking their
principal decisions.

In Ethiopia micro enterprises are defined as those business

enterprise with a paid up capital of not exceeding birr 20,000 and

1
employ five (5) to nineteen (19) persons high technical consultancy
firms and other high technical establishments. Around the world
micro and small business enterprises are increasingly seen as the
creators of new jobs. The flexibility and dynamism of micro and
small enterprises have made them more competitive and adaptable
than large firms, many of which have been forced to down size and
restructure. The benefits of business net works and commercial
linkage between micro and small enterprises are now recognized as
effective and efficient means of doing business as we enter new
currently.

So since micro and small business are major feature of the

economic hands cape in most developing countries to day the
contribution of these enterprises to the creation of jobs and to the
alleviation of poverty has been recognized by many third world
governments. In Arsi Negele town it was in 2004 that the cities
macro and small enterprise established as office and started to
work some facility for the sector like co-operating them, giving
some training s, facilitating credit services for operators.

But the development of micro and small scale interposes in Ethiopia

is so slow that little attention was given to the development of the
sector in the previous governments. Are there any reasons behind
the poor performance of the sector? To address this problem this
study would be systematically assess the main constraints that are
pushing back micro and small enterprise from rapid expansion done
to accelerate its development and enhances economic development
of the country in general and Arsi Negele town in particular.

2
Despite these encouraging measures taken, the overall
performance of Micro and Small Scale Enterprise is not significantly
increased.

3
+q1.2. Statements of the Problems Different policy
impact and regulatory challenges of micro and small scale
enterprises in Ethiopia showed us that, different constraints
faces the Ethiopian micro and small scale enterprises such
as high taxation, in adequate business premise, shortage of
capital. Inadequate market, lack of credit access,
infrastructural problems and others.

This study attempts to deal with that whether the specified

problems done by previous study on Ethiopian case are really the
problem in Arsi Negele town? In what extent the problem is faced
and also to assess other factors that haven’t taken to consideration
in the past study, such as production and market place problems,
co-operative problem, society’s attitude towards the Micro and
Small Scale Enterprise operators and other related problems will be
assessed. Like the majority of the remaining developing towns of
Ethiopian, Arsi Negele is a town where the majority of people live
under absolute poverty. It is unhidden fact that the limited numbers
of large and medium scale enterprise are labor saving a long with
rapidly rising population of the town which has made it impossible
for large and medium scale enterprise a lone to provide gainful
employment and sufficient income to pull the majority of its
population out of its miserable existence. This calls then for
assessing options especially for development of micro and small
enterprises. But the Micro and Small Scale Enterprise sector in Arsi
Negele town hasn’t given due consideration either by governmental
or non-governmental organizations. This makes the micro and small
scale enterprises to face different challenges and shut down their
business sectors.

This increased number of unemployment and poverty in this town

and make the development of the sector to lag behind.

4
The question is there fore, how to promote the Micro And Small
Scale Enterprise in Arsi Negele identifying their key constraints that
have been and are bottle necks to the development of the sector
and what should be done to address these constraints and put the
sector in the rapid growth path is the facial point of this paper.
To assess the basic question problems that the research expected
of answer of:
1) What are the attitudes of users to wards credit?
2) Is there coordination with credit institution?
3) What is significance of micro finance and small business in
poverty alleviation?

1.3. Objectives of the study

1.3.1. General Objectives

The general objective of the study is to assess constraints of micro

and small business enterprises in Arsi Negele town and also to know
how much the enterprise is playing a role in reducing poverty at the
specified area.

1.3.2. Specific Objective

 To identify the major constraints of the enterprise that need

immediate solution and that will be solved in the long run.
 To show the role of the sector in improving the income level of
the people.
 To show the contribution of the sector in reducing
unemployment level in the specified areas.
 To recommend what should be done to solve the problem of
the sector.

5
6
1.4. Significance of the Study

This study would be used as a reference for studies that are going
to the place in this area regarding micro and small scale enterprise.
The result of this study is important for micro and small business
operators in Arsi Negele town and for concerned governmental
bodies in that:-
 Identify the different problem that faces the micro and small
business operators in Arsi Negele town and propose the
problems to the concerned government and non-government
bodies in order to search solution for the problems.
 Give suggestions and recommendation for those engaged in
the enterprise how they solve minor problems by them selves.
 After studying the share of the sector in improving the income
level of the poor people and reducing unemployment in the
town. Propose such benefits of the sector to the concerned
governmental bodies to give considerable attention on the
expansion of the sector.
 It is also used as a reference for further researchers that will
be done on this area.

7
1.5. Scope of the Study

The study would be limited in Arsi Negele town. This town is

selected because, it is one of the towns in which macro and small
enterprises hasn’t developed and given due consideration by
government and non-government organizations.

The study uses only 20% of micro and small enterprise registered in
the Arsi Negele town trade, industry and development bureaus and
included those operators in merchandise activities in small scale
industries and those in municipal activities and excluded those who
works in different hotels and cafeterias because of time limitation
and assessed the constraints and role of the Micro and Small Scale
Enterprise in the town.

1.6 Limitation of the Study

The study conducted has the following limitations.

 Although large scale sample survey is required for this study,
time and financial constraints hindered not to study above
stated sample size. So, the approach taken here is not
intended to generate statistical reliable out put based on
rigorous research. However, it does generate some
hypothesis and provide in sight in to some of the issues under
investigation.
 The unwillingness of concerned governmental bodies to give
information about the town MSEs and to respond to some
questions was one of the problems faced during the study.
 Lack of sufficient written documents, research paper done on
related topic in the town made the researcher not to get
sufficient information from secondary data as proposed.

8
 Because MSEs have not kept books of account from
concerned governmental offices, the responses on start-up
capital, costs they face and income they got from MSEs
depend on respondent’s memory. A part from its memory
reliance, the respondents may understate their actual income,
capital size and may over state their costs due to various
reasons. Thus the information used in this paper should be
viewed as indicative rather than definitive.

1.7 Organization of the Study

The paper is organized as follow:- Chapter one review the

introduction part of the study while chapter two reviews the related
literature on micro and small enterprises then chapter three data
presentation and analysis and chapter four recommendation and
colluding remarks are give.

1.8 Methodology

The methodology is the core of scientific research as it is the way

through which findings are to be achieved this is an essential
prerequisite for the validity and reliability of the result to be found
out.

All the micro finance and small scale enterprise focus on poverty
alleviation. Therefore, may forget group of the study is that the
poor people who are organized in microfinance and small scale
enterprise in Arsi Negele Town.

1.9 Material (Data’s)

9
Date which is the raw information is the basic element in any
research studies because the more value and actual data will used
in particular study they are more reliable and dependable
information development and result of the study.

1.10 Area of the Study

The study was carried out in Arsi Negele Town which is found in
Oromia regional state, which is 333km away from Addis Ababa.

1.11 Source of Data

The information required to carry on this study is the identification

of factors that challenges the development of micro and small
enterprises and to know the role of enterprises in alleviation of
poverty, especially increasing the income level of the poor and
reducing unemployment in Arsi Negele Town. The information is
essential in order to compare the benefit of the micro and small
business enterprise has with.
The constraints it faces on its development. Te information is also
necessary in order to search for solution how the challenges be
solved.

So it was variables the study included is that:

i) Demographic factors: In this part sex, age education and
materials status of the micro and small business operators
identified.
ii) Infrastructural condition: In this case the fulfillment of
infrastructure for micro and small scale enterprise operators is

10
observed and also the impact of shortage infrastructure on small
scale enterprise is identified.
iii) The problems of working place for production and
marketing was assessed.
iv) Capital: under this source of finance, accessibility to credit, fund
requirement for operations, the availability of sufficient capital for
going the business was identified.
v) Training activities: This includes productivity improvement
trainings; marketing techniques method cost minimization and
profit maximization. The study will identified whether this training
are available or not.

1.12 Method of Data Collection

The method that was used to collect both primary and secondary
data based up on the source of data from the source of data by
using personal interview, direct communicational and
questionnaires.

Secondary data was collected from various documents analysis of

periodical reports of micro finance and small scale enterprise
development in Arsi Negele Town carried out by the association of
micro and small scale enterprise published and unpublished
documents are to be used to collect secondary data by considering
their accuracy and reliability.

1.13 Method of Sampling

The data were collected from those who engaged in micro and
small business enterprises. The sampling techniques which the
researcher used to collect the primary data was simple random

11
sampling. Out of the total number of micro and small business
enterprises which registered under the cites trade, In industry and
development bureau which equals 648, 20% of the sector which
totally equals 130 were randomly selected and one person either
the owner of the business or any one employed in the sector from
each MSE selected and interviewed the structure questionnaire
prepared. The total number of micro and small scale enterprises
was gained from the city’s trade, industry and development bureau.

1.14 Method of Data Analysis

After gathering all the required qualitative data the analysis to

tables charts, percentage, graphs and etc. Finally the data
analyzed will be presented in understandable way then conclusions
drum and allowed interpretation. Among the society lack of raw
materials and use of traditional equipment is also mentioned as one
of the problems that hinders their development.

12
CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1. Characteristic of Micro and Small Scale Enterprise

Micro and small enterprise are generally seen as labor intensive

capital saving and an effective means of creating most of the new
jobs in the world.

There are many reasons for this Micro and Small Scale Enterprise
are flexible and adoptable to a rapidly changing technological lands
scopes by providing goods and services in small batches with rapid
delivers. They complement the activities of large scale enterprises
and work in symbiosis with it in turn Micro and Small Scale
Enterprise frequently need the activities of other entrepreneurs
creating business built on vowed added products and services.
Small enterprises more over generate more innovation per research
dollar than large corporation in a number of sectors of the economy.
In developing countries the state clearly has role in increasing

13
functioning telecommunications system connection to utilize and
accessible transportation as well as in educations a number of
skilled workers, technicians and managers. In most developing
countries exports are continued to a small percentage of micro and
small enterprise with the majority continuing to operate at low
quality and technical levels and facing serious management and
marketing barriers. It is more vulnerable to currency fluctuation and
protections in export markets. Those enterprises operating
productivity in dynamic information, rich market places, frequently
interacting with buyers and seller can often acquire both
technologies for improved productivity and needed. Skills to survive
in volatile export markets (Lalkaka & Bishop, 1996, business
incubators in economic development p 1-5).

Some characteristics of small firms that differentiate from large

firms are
One person: - The owner (manager) has an over whelming
influence on the small firms. Their views and values was influence
all aspects of its activities. There is also a risk of over dependency
upon one individual for the well being of firm.
Small Firms :- are unlikely to be able to exert much influence on
the market. They are price takers in the classic economic sense
and are likely to face significant competitions. Small firms likely to
operate in a single markets or limited range of markets probably
offering a limit range of product or services.
, issued in 2003, clearly state that private sector will be the engine
of industrial development. It also indicates that promotin Likely to
be over reliant on small number of consumers.

 The fundamental principle that interventions by take holders

stated in the strategy are as follows.

14
 Support to the MSE operators will be based on the agricultural
development led-industrial (ADL) and private sector
development.
 All support service should as much as possible is based on
fees.
 Addressing marketing problems of MSE operators will be given
due considerations.
 Emphasis will be given to the advancement of who men.
 The staff of the support institutions should be adequately
skilled and trained.
 The private sector will be involved in supply of commercial
boost to MSE operations.
Their view and volume will influence all aspects of its activities.
There is also a risk of over dependency up none individual for the
well being of the firm. Small firms are not public companies. This
means they often have problems in raising capital and this can
significantly constrain their choice of strategies. Indeed, for many
small firms seeking to grow, raising finance can become a major
strategic issue and relationships with finance institutions such as
banks can becomes a major resources issue. (Jim dewhurts and paul
burns small and entrepreneurship. 1996 p. 5).

Most Small Firms:- are unlikely to be able to exert much

influence on the market. They are price takers in the classic
economic sense and are likely to face significant competitions.
Small firms likely to operate in a single markets or limited range of
markets probably offering a limit range of product or services.
, issued in 2003, clearly state that private sector will be the engine
of industrial development. It also indicates that promotin Likely to
be over reliant on small number of consumers.

15
 The fundamental principle that interventions by take holders
stated in the strategy are as follows.
 Support to the MSE operators will be based on the agricultural
development led-industrial (ADL) and private sector
development.
 All support service should as much as possible is based on
fees.
 Addressing marketing problems of MSE operators will be given
due considerations.
 Emphasis will be given to the advancement of who men.
 The staff of the support institutions should be adequately
skilled and trained.
 The private sector will be involved in supply of commercial
boost to MSE operations.
Their view and volume will influence all aspects of its activities.
There is also a risk of over dependency up none individual for the
well being of the firm. Small firms are not public companies. This
means they often have problems in raising capital and this can
significantly constrain their choice of strategies. Indeed, for many
small firms seeking to grow, raising finance can become a major
strategic issue and relationships with finance institutions such as
banks can becomes a major resources issue. (Jim dewhurts and paul
burns small and entrepreneurship. 1996 p. 5).

2.2. The Micro and Small Scale Enterprise

Development strategy
The industrial development strategy of the federal government of
Ethiopia g Micro and Small Scale Enterprise is one of the important
instruments to create productive private sector. The primary
objective of national micro and small enterprise development

16
strategy of Ethiopia (issued 1997) is to create enabling ligament
strategy of and entrepreneurship and that the government will give
due emphasis and priority to promote this sector. The primary
objective of national micro and small enterprise development
strategy of Ethiopia (issued 1997) is to create enabling legal
Institutional and other supportive environment for the development
of Micro and Small Scale Enterprise.

The specific objectives include

 Facilitate economic growth and bring about equitable develop.
 Create long-term jobs.
 Strengthen co-operation between Micro and Small Scale
Enterprise.
 Promote exports and.
 Balance preferential treatment between Micro and Small Scale
Enterprise and bigger enterprises. The fundamental principle
that guide interventions by stake holders stated in the
strategy are as follows (Quoted on oromia micro and small
enterprise development and promotional strategy. 1999.p 10-
11).
 Support to the MSE operators will be based on the agricultural
development led-industrial (ADLI) AND PRIAVATE SECTOR
DEVELOPMENT.
 All support service should as much as possible is based on
fees.
 Addressing marketing problems of MSE operators will be given
due considerations.
 Emphasis will be given to the advancement of women
 The staff of the support institutions should be adequately
skilled and trained.

17
 The private sector will be involved in supply of commercial
Boost to MSE operations.

2.3. Political Factors Affecting Micro and Small Scale

Enterprise Development

Designing and implementing appropriate economic policies

strategies and legal and regulatory frameworks are prerequisite for
creating an enabling environment to promote MSES.

Policies and regulations during the Dirge era were openly aimed at
curtailing (it not eliminating) the private sector. Restrictive policies
such as faking a selling on industrial capital, introducing one-man
one license rule avoiding the sate and parasitical organizations in
availing foreign (which discouraged the participation of the private
sector in the economy) were in place. In generally, the legal
requirements to obtain license during the Dirge to were
bureaucratic which discouraged the participation of micro and small
enterprise operators. The tight foreign exchange control and heavy
import restrictions (both in put and other commodities created
scarcity of imported commodities and corrupt and rent seeking
business community.

Following the fall of the Dirge, drastic measures were taken to

transform the command economy to market led one, which are
bound to affect MSES.

The main macro economic reforms that, directly or indirectly, affect

the development of MSEs includes:
- Adoption of market economy policy
- Deregulation of domestic policies
- Devaluation of the local currency.
- Privatization of public enterprises.

18
- Decentralization of power and the formation of regional
state.
- Issuance of national micro and small enterprise strategy
in 1997.
- Establishments of the federal micro and small enterprise
development agency proclamation No 33/98.
- Formulation of new labor low.
- Financial sector reforms including the opening of private
banks, insurance companies and micro finance
institution.
-Monetary management and liberalization of interest rate
and foreign exchange market.
-Fisical policy reforms turn including tax reform
budgetary restructuring and reduction of government
deficities.
- Introduction of investment laws to encourage private
investment.
- Liberalization and promotion of foreign trade.
- Promotion of favorable economic environment and
bilateral regional and multi lateral international relations
(Gebrehiwot Ageba and Woldely Amha,2004,PP.4-5).
2.4 Arguments for the success and fall of Micro and
Small Scale Enterprise
According to Nicholas Siropolis in his book small business
management 6th edition reasoned why small business succeed or
fail.
I. Age:- Younger people who start a business have a great
chance of failure than older people do.

19
II. Capital:- Business that starts with too little investment by
owners has a greater chance of failure business with
adequate investment by owners.
III. Economic timing:- Business that starts during recession
have a greater chance at failure than that start during
prosperity.
IV. Education:- Propel with no college education who start a
business have a greater chance of failure than people with
one or more years of college education.
V. Experience:- Business run by people with out prior industry
experience has a greater chance of failure than business run
by people with prior industry experience. Similarly
businesses run by people with out prior managerial
experience have a great chance of failure than business run
by people with prior menagerie experience.
VI. Marketing:- Business owner out marketing skill have a
greater chance of failure than owners with marketing skills.
VII. Parents:- Business owner whose parents didn’t own a
business have a greater chance of failure than owners
whose parents did own business.
VIII. Partners:- A business started by one person has a grater
chance of failure than a business started by more than one
person.
IX. Planning:- Business that do not prepare business plans
have a greater chance of failure than business that prepare
business plan.
The growth and survival of small business firms could be viewed as
out comes of the economic process. Carl liedholm and Aonald C.
Mead, 1999 in their small enterprises and economic development in
20-21 identified some explanatory variable that affect the micro and
small enterprises some of these explanatory variables will arise at

20
the firm level while other could arise either inside the firm or
external to it (at sectored macro level). Both the growth and
survival of small business firms could be depend on several firm
level variables paramount among these would be the age and
initialize of the firm. These would be hypothesized to be related to
these dependent variables as follows.
i. Firm age:- Reflecting the stage in the life cycle of the
enterprises.
ii. Initial size would also be expected to be inversely
related to these variables. Firm growth and survival
would also be expected to influence by several factor
external to the firm. These include variables such as
sector, location and macro-variable.
Factors internal to the firms, the individual level variables would
also be hypothesized to affect the survival and growth of micro
enterprise. Prominent among these would be the key variable
relating to the entrepreneur, such as gender and human capital.
iii. Gender: enterprise run by female enterprise news are
hypothesized too grow less rapidly and to be less likely to survive
than those run by their male counter parts.
Vi. Human capital: - It is expected that entrepreneurs with higher
levels of formal education, technical training and experience
would more likely to be grow and survived than those with
lower levels of human capital.

21
22
CHAPTER THREE
DATA PRESENTATION AND ANALYSIS

3.1 ROLES OF MICRO AND SMALL ENTERPRISE IN POVERTY

ALLEVIATION IN ARSI NEGELE TOWN

In most of developing countries, micro and small enterprise by

virtue of their capacity to generate employment have proved their
power full role for rapid economic growth employment have proved
their power full role for rapid economic growth. The sector is also
known as an instrument in brining about economic transition by
effectively using the skill and talent of the people without
requesting high level training, much capital and sophisticated
technology (Oromo MSC development strategy. 1999 pp.7).

The micro and small scale enterprise is also described as the home
of entrepreneurship. It provided the ideal environment enabling
entrepreneurs to exercise their talents to the full and to attain their
goals. In all the successful economics, MSEs are seen as an
essential spring board of growth, job creation and social progress at
large. The small business sectors is also seen as an important force
to generate employment and more equitable income distribution to
activities completion, exploit niche markets, enhance productivity
and technical cleanse of which all those stimulate economic
development.

While the importance of large industrial and other enterprise for the
growth of economy cannot be denied, there is an ample evidence
that the labor absorptive capacity of MSEs are high, the average
capital cost per job created is usually lower than in binge enterprise

23
and its role in technical and other innovative activities is vital for
countries like Ethiopia. Looking at the inherent characteristic of
the sector, the following are some of the role of micro and small
enterprise in poverty alleviation in the study area (Arsi Negele
town).

3.2 Creation of Employment

In the Ethiopian context, the challenge of employment generation is

equivalent to achieving the objective of sustained growth and
reduction of poverty (Ministry of Finance and Economy
Development) MOFED) 1994. In fact they are inseparable and
interdependent long run development goals. Thus, with the rapidly
increasing population of 3% per annum and an even faster growth
of the youth of population reaching working age combined with
population pressure on agricultural sector the demand for micro and
small business enterprise are increasing from day to day. According
to the Arsi Negele town administration offices the number of
unemployment is increasing from day to day and becoming the
most serious problems in the town. This calls for high efforts of
government, private sectors and non-government organization.

Through one of the effort unemployment is alleviated in most

countries was through industrial citation and development of large
scale enterprise, which is more favorable and conducted in
developed countries, for countries like Ethiopia unemployment
problem can be solved through development of micro and small
enterprise which employee more people per unit capital than large
firms.

24
According to the World Bank Economic Review vol. 18, 2004 No 3
pp.9 poor people typically have alimented endowment of the human
capital through to be necessary for employment in the public sector
or in more technology intensive large scale enterprise, small
enterprise more generally employ unskilled labor force.

Table 3.2.1 Demographic characteristic of the respondents

N Characteristics of Respondents Numbe %

o respondents r
1 Sex Male 85 61.5
Female 45 38.5
Total 130 100
2 Age >15 55 42.3
15-30 35 26.9
31-60 25 19.2
Above 60 15 11.5
Total 130 100
3 Educational status Illiterate 30 31.1
Primary school 58 44.6
Secondary 28 21.5
School 10 7.7
Technical 4 3.1

25
College grade - -
Other 130 100
Total
4 Marriage status Marriage 45 34.6
Un marriage 65 50
Divorced 8 6.2
Windowed 12 9.2
Total 130 100

Sex distribution is one of the demographic characteristics as

indicated in table 3.11 item 1 85 or 61.5% of the owner of small
business in male and 45 or 38% of the owners of small business
female. From this conclude that the male is more employed than
female this was practiced in our country. Ethiopia that most of the
time male participant in different activities. In different directions
and they have more job opportunity.

Age is also one of demographic characters the variable that indicate

the proportion of people by dividing it in to different section as
youth, adult and old a sit indicated in the table 3.1.1 item age less
than 15 then 55 or 42.3% of owners of small business age between
15 and 30 then 35 or 26.9% of them or between 31.60 25 or 19.2%
of owner of small business and adult of can understand that most of
owners of small business are young, adult and old age ration is very
small. It is know that education is the key for development of the
country. If there is high educated person is one country it is known
how there is growth in the country. As it indicate in the table 3.1.1
item 3 tree that 30 or 23.1% of owner is of small busses in the town
is illiterate 58 or 48.6% of them is where there education standards
is 1-8 primary school, 28 or 21.5% of them is 9-12 secondary
school, 7..7% of them from this possible to understand that most of

26
owner of small business the town their educational standard is 1-8
grade followed by 9-10 grade illiterate rate occupied the third rank
and ration of those who learn higher grade is very less.

Marriage is other elements of demographic variables as it indicate

in the table 3.1 items 4 that 45 or 34.6% of the owner’s small
business in the town is married, 65 or 50% of them where
unmarried. 8 or 6.2% of them where divorced and 12 or 9.2% of
them where widowed. From these it is possible to conclude that
most owners of small business in the town married and to
unmarried and widowed ration of owners of small business sin the
town is the least of all other variables.

The data collected also indicates that most of the operators which
cover 75.4% of them have no jobs before they engaged in to this
enterprise (Annex 2). This show that most of the operators have
got jobs opportunity from this sector.

According to the town micro and small enterprise bureaus the micro
and small enterprise register legally under their office have opened
job opportunity for mire than 3000 peoples of the Arsi Negele town
and in the 130 micro and small enterprise taken into the sample
there are 350 employees engaged in different activities.

According to Lihedholm and Mead (1999), there are two

approaches, to the emergence and expansion of MSES and the
increase in the number of people engaged in such activities a one
approach perceives this as an outcome of improved opportunities
for people (including the poor and disadvantaged) to participate “ In
ways that empower and nourish” Them. According to the second
approach on the other hand it is an indication of failure of an
economy to provide only minimal subsistence support. While the

27
two approaches stated are general facts for this study, the
researcher has attempted to get some information that may throw
some light on the issue of Arsi Negele town context. Accordingly
researcher ahs asked respondents as to why they got into the
respective business and responded their reason s the following
table indicates.

Table 3.2.2 Reason to get in the MSE

Reason Number Percentag

e
a. To get income for survival 75 55.7
b. Capital requirement to run the business 32 24.6
is small 12 9.2
c. Parents in this business 6 4.6
d. No other alternative 5 3.8
e. Little (no) regulatory restrictions -- --
f. Others
Total 130 100

As the above table indicates 55.7% of the respondents in the

sample reasoned that they engaged into this business sector to get
income for survival, while 24.6% of the respondents reasoned that
hey engaged in to the sector because of the capital requirement to
run the business is small. The third reason that 9.2% of the sample
operators engaged into the sector is due to the fact than their
parents engaged into this sector is to get income for survival and
the capita requirement to run the business is small.

3.3. Income Generation

28
One of the roles of micro and small business enterprise is means of
generating income. In Arsi Negele town most of the respondents
either have no any means of getting income or have minimum
income before they engaged into this sector. But after they
engaged into this micro and small enterprise sector 93.8% of the
operators responded that they have got income improvement and
only 6.2% of the operators have responded negatively as indicated
in the following table.

Table 3.2 3- The income Improvement of MSC operators

Do you get income improvement Number Percenta

ge
 Yes 122 93.8
 No 8 6.2
Total 130 100

Asked also to state their monthly income categorization most of the

respondent’s monthly income is less or equal to 500 which includes
56.1% of the sample micro and small enterprise operators. And
also 37.7% of them some responded that their monthly income lies
between Birr 500-1000. And only 6.2% of operators responded that
their income lies between Birr 1000-1500. No respondents said that
heir monthly income is greater than Birr 1500. From this we see
that though, there is income improvement after they stared to
operate in this sector the monthly income they have got from the
business is limited.

29
The following figure shows the monthly income of respondents in
the sample.

Figure 3.3.1 Monthly income category of MSC operators

Figure 3.3.2- Monthly income category of MSC operators

Also respondents asked whether the income they have got form
MSEs sufficient to fulfill their families basic necessity majority of
them (63.8%) responded that through the income they got from this
sector is not enough to save and expand their business sector it is
enough to fulfill their families basic necessity. But 36.2% of them
responded that the income they got the sector is not sufficient to
fulfill their family’s basic necessity.
Table 3.3.2- Sufficient capital to run your business

Do you have sufficient capital run Number Percentag

e
Ye 48 36.2
No 82 63.8
Total 130 100

30
3.4 PROBLEMS AFFECTING THE DEVELOPMENT OF
MICRO AND SMALL ENTERPRISE IN ARSI
NEGELE TOWN

Efforts to promote the development of MSEs often involve helping

entrepreneurs solve problems that constrain their growth. To do
this effectively it is help to know the problem according to tits
severity that micro and small enterprise faces.

The problems affecting micro and small enterprise ranges from lack
of conductive polices to day to day operational constraints. For
instance a study conducted by ECA (2001) indicated that, although
the regulatory and policy environment for MSE vary across. Africa
countries such as Cameron, Ethiopia, Gabon, Nigeria, Senegal and
Uganda have shows that the policy environment in which micro and
small enterprise operates proves to be a major handicap for their
expansion and growth.

But now a day recognizing crucial role that the MSE plays in the
national economy, the central and regional government of Ethiopia
has taken active and encouraging steps to promote the growth of
the sector, such as formulating federal and regional MSE
development strategy. But many problems still continued to afflict
the development of micro and small enterprise. The objective of
this chapter is therefore, to point out the main constraints of micro
and small enterprise in Arsi Negele town.

31
3.5 Accessibility of Training Problem
Training applies to transfer of knowledge, skills or an attitude which
is organized to prepare people for more productive activities or to
change their working environment. The training can be given either
through formal or non-formal educational programs. The non
formal training might be directed to people who have never gone to
any school. The training mainly concentrated on skill training,
marketing and financial management, entrepreneurship or how to
use technologies on their enterprise. So, the skill of micro and small
enterprise operates is an important determinant of productivity of
particular the skill development of micro and small enterprise
operators is so poor. In the study area of the total number of
business operators in the sample size 84.6% of them haven’t got
any skill developmental training about micro and small business
enterprise that enhances the productivity of the sector. From the
samples size only 15.4% of them got sill development training by
the town MSE bureau. So, most of the operators down skills from
one generation to the next as family tradition rather than getting
formal or non-formal education how to develop their enterprise.
This clearly depicts that such skills remained stagnant because of
lack of training facilities for most of the operators. The operators
reasoned for the lack of this training that, government or other non-
government organization hasn’t expanded the training facilities for
the sectors operators in the Arsi Negele town and also responded
that the lack of training centers in the Arsi Negele town has its own
impact on the skills development of MSE.

Table 3.4.1 Have you access to credit facilitate

Do you have access of training Number Percenta

ge

32
Ye 20 15.4
No 110 84.6
Total 130 100

3.6 market and Production Place Problem

Lack of suitable market and production areas inhibit the expansion
of project by existing firms and can also act as barrier to entry of
new enterprise. Lack of suitable market and production places in
one of the main problem of micro and small enterprise in Arsi
Negele town. From the MSE operators responded of the
questionnaire, 61.5% of them faces either production place problem
or marketing place problems are now operating their activities in
rented place (homes, in their own residence or small shade around
their house, as show in the following table.

Table 3.5.1 Operation place of MSE operators

Place of operation Number Percentage

In their home 25 31.3
In rented place 44 55
On the street 7 8.8
Others 4 5
Total 80 100
The above table indicates that out of respondents that have
production and marketing place problems 55% of them are
operating in rented place 37.3% of them in their home 8.8% of the
on the street.

33
So, this problem impeded the smooth running of the sector and
affects the efficiency and product activity of the sector and there by
educes income profit and also impedes the growth of the sector. As
the table above indicates, because most of the operators do their
job in rented place, they are subjected to monthly rent for the
production and marketing place, which is additional cost that affects
the owner’s net profit.

3.7 Market Related Problems

Micro and small business enterprises operate as participant in
market system. They can rely on others to supply them with inputs
used in their economic activities, and they sell their output to
buyers. Liedholm and mead (1999), PP.54 Considered MSE, as
participant in market system for two dimension of interest one
concerns the nature of the links that join producers back to the
supply of inputs and forward to consumers of the product. A second
one concerns the nature of products or services they produce
themselves. In a free market economy, particularly with market
liberalization ands tiff competition, marketing is a key determining
factor to the success of MSEs.

Efficiency in marketing determining sales, profits and growth in the

micro and small enterprise (MSE) sector. In Ethiopia in general and
study are in particular MSEs have serious problems in marketing
their products. According to Wolday Amga and Gebrehiwot Ayeba
(2004), In Ethiopia 69% MSEs have no sufficient market for their
products (Services) at current level of production despite the fact
that they reported low rate of capacity utilization.

Table 3.6.1- Have you access market problem

Market Problem Number Percenta

34
ge
Ye 81 63.3
No 49 37.7
Total 130 100

In the study area (Arsi Negele Town) marketing is one of the major
stumbling blocks that forces on the development of micro and small
business enterprises. Among the respondents in the sample 62% of
them forces serious market problem. Most of the operators stated
that they don’t sell their products immediately as they wanted and
also forced to sell at lesser prices. This makes them not to get
enough profit from their sector and unable too over their cost.
Asked to state their reason that causes this market problem most of
the responded that less quality of their product and increased
number of competitors as the major problems.

Table 3.7.2 Reason for the lack of market problem

Reason for the lack of market Number Percentag

e
Less quality of product 35 43.2
Increased number of competitors 31 38.3
Limited consumer awareness about 15 18.5
the product -- --
Others
Total 81 100

As stated on the above table the major respond for the lack of the
market for the cities MSE operators is less quality of their product
(43.2%) which is related tot eh lack of skill development training on
how to improve their product and lack of business ideas such as

35
marketing information and knowledge that would help them
develop new marketing outlets as well as review diversifying of
their products and services there by increasing market share and
revenues. The other reason stated for the lack of market on the
Arsi Negele town increased number competitors (38.3%), this
increased number of competitors are those specially participated in
illegal trade activities, which highly affect those micro and small
enterprise registered under the Arsi Negele town trade industry and
urban envelopment bureau and pay necessary tax for the
government so, competing with such illegal trade activities high
causes micro and small enterprise (MSE) in town.

Majority of MSEs in the Arsi Negele town have started from scratch,
with small start up capital by their operators. The study’s sample
survey indicates that 40.8% of the operators initial capital is less
than Birr 5000 and 27.7% of the operators initial capital lies
between Birr 50.00-10,000. This shows that most of the operators
that is about 68.5% (40.8%+87.7%) of them started with capital of
less than Birr 10,000. The study shows that only 31.5% of the
operators initial capital greater than birr 10,000, of which 15.4% of
the operator’s initial capital was between Birr 10,000-15,000. This
study shows that most of the operators started their business with
minimum initial capital. The following figures summarize the initial
capital of the respondents.

36
5-10 10-15

Figure 3.7.1 Initial Capital Category of MSE operators

Asked to state their source of initial capital most of the operators

responded that hey have got from their own source (Such as family
saving, browsing from friends/relatives and some them form micro
fiancé.

Lack of sufficient working capital is another problem that the micro

and small business finance operators face. The sample data
indicates that 83.1% of the MSE operators faced the problem of
sufficient working capital to run their business effectively (Appendix
2) Solved one of the method through which working capital problem
source is through facilitating credit services for MSE operators in the
town. The majority of the operators have not forgotten such
facilities. The study’s sample data shows that 57.7% of them face
the problem of credit facilities while 42.3% of them a re access to
credit facilities (appendix 2).

From those who have the access to credit facilities 49.1% of them
are getting credit services form micro finance institution, while

37
25.4% the operators have got the credit service from saving and
credit association and 21.8% of them form bank as the following
table indicates.

Table 3.7.3 Lack of sufficiency working capital

Source of credit Number Percentage

i. Banks 12 21.8
ii. government project 2 3.6
iii. Non-government -- --
organization
iv. Saving and credit 14 25.4
association
v. Micro finance 27 49.1
Vi. Others -- --
Total 55 100

Respondents requested that Micro-Finance Institution (MFIS) and

Saving and Credit Association are good institution that helps micro
and small business enterprise in the Arsi Negele Town.

For those who couldn’t have access to credit facilities they reasoned
that lack of collateral and limited number of credit source as the
main problem (Cause) for them not to get enough credit facilities of
those respondents 53.3% of them faces in adequate collateral to
get credit for bank and 16% of them reasoned that lack of creditors
as the main problem for the lack of credit facilities, and also 13.3%
of them for the fear of inability to pay, which comes from market
related problem and other elated constraints, they don’t want the
accessibility of credit 12% and 5.3% of the sample operators also
reasoned that it is too difficult to process sand don’t want to incur
debt respectively. The summary is shown in the following figure

38
The summarize is shown in the figure

Figure3.7.2 3 Reasons for lack of credit facilities

3.8 Problem Related to Infrastructure

Infrastructure one of the basic factors to enhance the development

in any country. But the infrastructural facility (Such as electricity,
telephone service) transportation services and water supply, in the
study area is so slow that it affects the development of MSE sector.
Even through micro and small enterprise don’t use sophisticated
technology that operates with full infrastructural facilities.

The in adequate supply of infrastructural facilities affects the

enterprise directly or indirectly. Though it is not as such severe

39
problems started by the respondents 30.8% of them are subjected
too the lack of infrastructure l facility. Asked to state whether the
price (charge) of infrastructure affects their business activity, 69.2%
of them responded that the charge of the infrastructure is highly
affects their business and also increased their total cost. According
to the respondents, most of the time in order to get information
about market, to contact their customer and concerned
governmental bodies for different purposes through telephone they
are subjected to high telephone

Table 3.8.1 Infrastructure affected

Infrastructure affected Number Percenta
ge
Ye 90 69.2
No 40 30.8
Total 130 100

Charged and also those who are operating in wood work and metal
work are claimed that they are subjected to pay high electrical
charge whether they seller their products or no, others also stated
that transportation charge and water charge affects their business
activity as the following figure shows.

40
Figure 3.8.1- Charge of Infrastructure facility

As the figure above indicates 42.9% of the respondents faces high

charge of electricity whether they sell their product at feasible price
or not, while 31.4% of them faces high telephone charge and other
14.3% them faces high transportation cost and 11.4% of them faced
high water charge problem in relative to their ability to pay.

In general charge of infrastructures which don’t take into

consideration their ability to pay, causes the operators to incur high
cost of production, and these influences (affect) the profitability of
the operation directly or indirectly.

3.9 Problem related to co-operative activities of

MSE in Arsi Negele Town
The culture of doing business indecently is major weakness of the
operators in the study area. Though one of the main characteristics
of micro and small business enterprise is that of being operated and
managed by individual person, doing the business in co-operative
way has so many advantages like increasing capital, development
their skill from each other, division of labor, activate their works and

41
others. So the lack of co-operation among the operators forced
them to have limited skills, limited capital accumulation, which is
the main handicap of the development of the sector.
Table 3.9.1- Form of working activity of MSE operators

From operators Number Percentage

activity
Individually 110 84.6
Co-operated way 20 18.4
Total 130 100

As the above table indicates out of respondents answered the

questionnaire 18.4% of them are working in co-operations 84.6% of
them are working individually so this causes the operators of ace
lack of sufficient capital and less development of skill in relative to
those who are operating co-operatively.

3.10 Institutional Factors on MSEs

The micro and small enterprise development strategy which draws
heavily on the 1995/96 micro and small enterprise survey
(conducted by CSA) stresses that the Mses Sectors role has been
constrained by various policy structural institutional related
problems and bottle necks. (Quoted by Geberehiwot Ageba and
Wolda amha, 2004pp.58).
Table 3.10.1-Governmental restriction

Governmental destruction Number Percenta

ge
Ye 70 53.8
No 60 46.2
Total 130 100

42
In the Study area 53.8% of the respondents claimed at the
government activities influence their business such as unfair and
arbitrary tax assessment procedure and the tax rate is unfairly high.
In addition respondents strongly claimed that he government
interruption in their business activity highly affects their sectors.

Table 3.10.3 -Institutional factors facing MSE operators

Reason Number Percentage

- High taxation 35 50
- Power interruption 25 35.7
- bureaucratic process sing 10 14.3
getting license -- --
- Regulating its operations -- --
- Others
Total 70 100

As indicated in the above table of those respondents who said the

government activities influence their day to day business activities
50% of them claimed that high taxation high influence their
business also, and the arbitrary tax assessment hasn’t considered
the reality of the sectors 35.7% of the operators specially those who
are doing in co-operative way claimed that here as high power
interruption of government in their day to day activities.

They said that because the inputs they used for their business
sector has been provided by the government in their day to day
activities. They said that because the inputs they used for their
business sector has been provided by the government and their
product also distributed to the market through the cites micro and
small business enterprises. According to the respondents such
activities highly influences the development of their enterprises.

43
Some of them (14.3%) also claimed that there is bureau office
process to get license when they stored the business. So, the
above stated problems are some of severe problems there are other
factors that in habits there development some of these are people
attitude to their job.

Because of traditional culture the society ahs negative attitude for

their job giving those different names like. Kechikachi she more and
others especially to those whoa re operating in small scale
industries (like metal work, textile and garment, poetry work and
others) and separates them from some societal activities. Through
there is some improvement now a day it is not completely in
habited from the society. This causes the operators to be
demoralized and to face inferiority among society.

Lack of raw materials and use of traditional equipments is also

mentioned as one of the problems that hinders their development.

Table 3.10.3-Type of business engaged

Engaged Number Percentage

- Textile and garment 23 17.6%
- Metal and wood work 17 13.7%
- Food process 25 19.1%
- Construction service 20 15.4%
- Municipal activate 10 7.6%
- Merchandise activate 35 26.7%
Others/mention - -
Total 130 100

As the above table indicates 17.6% of the respondents in the

sample to engaged they business sector to get income for textile
and garment, while 13.7% respondents that they engaged in the
sector to get income for meta and wood work. . While 19.1%

44
respondent that they engaged in the sector to get income for food
process. While 15.4% respondent that they engaged in the sector
to get income for construction service, municipal activate 7.6%
respondent that they engaged in the sector to get income and the
highest respondent that they engaged in the sector to get income
for merchandise activate.

CHAPTER FOUR
FINDINGS, CONCLUSION AND
RECOMMENDATION

4.1 Main Findings

From the discussion held in chapter three and four we can draw the
following main findings.

Micro and small scale enterprise are creating a significant job

opportunity for a number of people, especially for those who have
minimum skills in the town and have no job opportunity.

Most of the operators have entered into this business to get income
for survival and the capital requirement to start the business is mall.

45
Majority of the operators income is improve after they engaged into
this sector.

The development of this sector (by providing required service)

reduces poverty and by in large contribute in the development of
the Arsi Negele Town. In order to utilize these potential of the
sector, it calls for higher efforts of governmental body, private
sectors and non-government organizations.

Though the sector has a significant role in reduction of poverty, the

micro and small scale enterprise in Arsi Negele Town are at a very
low stage of development.

The skill development training given to the MSE operators in Arsi

Negele Town is so poor that majority of the sectors haven’t any skill
development training and the operators handed down skills from
generation to generation as family tradition.

 Lack of suitable market and production areas inhabited the

activities of most MSE operators and forced them to operate
in their home, in tented place and on the street.
 Market related problem is also one of the major stumbling
blocks that hinder the development of MSE sector in Arsi
Negele Town. The reason for this is less quality of their
product and increase and number of competitors as major
one.
 Most of MSE in Arsi Negele Town started-up by minimum
capital they get from their own source/such as family saving,
borrowing from friends/relatives and also faced lack of
sufficient working capital run the business.

46
The credit facility given for MSE operators in Arsi Negele town is so
poor that greater number of operators faced the accessibility of
credit services. That for reasons for this is lack of creditors and
adequate collateral.

The operators are also subjected to lack of infrastructural facility

and high change of the existed infrastructure lack of co-operation
among the operators forced them to have limited skills, limited
access of capital lack of facilities that co-operate them and not
understanding the advantage of co-operation is the major reasons
stated by respondents.

Government regulations such as high taxation, power interruption

and bureaucratic process are one of the major battle necks for the
development of MSE operators in Arsi Negele town.

4.2 Conclusion

Ethiopia is one of the countries that challenge absolute poverty

which characterized by low levels of income and consumption an
increased number of unemployment. To solve this absolute poverty
micro and small scale enterprise have a great role especially in
improving the income level of the people and generating
employment opportunity for a number of people.

47
In the study area (Arsi Negele Town) where the number o
unemployment is increasing form day to day, the micro and small
scale enterprise ahs opened a huge employment opportunity for
many peoples especially for those have minimum skills and capital.
In the study area more than 300 engaged in this sector and most of
them have no job before they engaged to the sector. Most
operators also responded that their income is improved after they
engaged into the sector.

In genial the micro and small enterprise (MSE) sector has a great
role in reduction of poverty specially creating employment
opportunity and improving the income level of most peoples of the
study area.

Through, the sector has such a role, is development is at very low

stage of development and face different problems. According to the
respondents of the sample size some of the major problems they
faced after their engagement in the sector is like lack of sufficient
working capital that inhibit facilities, market problem lack of
infrastructural facility, market and production places and other
related problems.

So if this problem are solved and the sector has given high
consideration by government, non-government organization and
private sectors, the MSE sector plays a great role on the economic
development of the country and speed up the millennium
development goal the country planned to achieve.

4.3 Recommendations

48
As pointed above and small scale enterprise in Arsi Negele town
are constrained by multiattitude of problems such as lack of skill
development training, production and marketing place problems, in
adequate market, lack of working capital, lack of access to credit,
co-operative problems and others. Therefore, there should be an
integrated effort of government private sector and non-government
organizations to save these problems and put the MSE in the rapid
growth path in fact, the government is expected to play a major role
especially in the provision of an enabling business environment that
support the sector’s competitiveness and also to reduce
unnecessary business which constrain their developments.
Accordingly, the following are some of promotional assistance that
should be addressed by government, private sector and non-
government organizations.

Access to training:
- Encouraging the establishments of more training,
technical and demonstration centers that provide
training of trainers and basic training and technical
services to MSE operators.
- Facilitating the situation that the operators learn form
each others with those in the town of the countries.
- Access to production and market are should develop a
mechanism to provide land to MSE operators.
- Constructing different common clusters or clusters or
industrial zones where the operators produce and to
solve market place problems to construct market
centers small shops and giving for the MSE operators at
minimum rent.
Access to Infrastructure

49
- To provide infrastructural facilities for existing micro
and small enterprise and also start ups.
- The charge of infrastructures should also consider the
ability of MSE operators.
Access to Market
- To motivate large business sectors to systematically
expand its links with micro and small enterprise.
- Giving training to MSE operators in order to provide
quality products for domestic as well as export markets.
- Assist micro and small enterprise in advertising their
products through mass media such as Radio, TV, News
papers and Magazines.
- Establish market information centers that would collect
analysis stores and disseminates market related
information such as prices, sources of inputs, potential
market consumer needs etc.
Access to Capital
- Encouraging and creating an enabling ground for the
establishments of more financial institutions.
- Organize the informal credit schemes and.

50
References

1. Cari Liedholm and Donald C. Mead 91999), Small enterprises

and economic dev elopement 1st edition.
2. Lalkaka and Bishop (1996), Business incubators in economic
development.
3. Paul Burns and Jim Dewharst (1996), Small business and
entrepreneurship 2nd edition.
4. Michae minas (1994). The informal and formal sector
enterprises dynamics of linkages under policy reform.
5. Vonsant Deslia (2003), Small scale industries and
entrepreneurship.
6. World Bank Economic review (2004).
7. Central statistic Authority (2000/1) Report on small scale
manufacturing survey Addis Ababa.
8. Central statistical Authoriy(1997),Iformal sector servey,Addis
Ababa.
9. Gebre Hihot Ageba and Wolday Amha(2004) policy impact
and Regulatory challenges of Micro and Small Enterprise(MSE)
in Ethiopia.
10. Lokesh Koul (2003),Methodology of Educational
Research (3rd revied edition)
11. Wevotaw Befebih(Dr)(2004) Private sector development
in Ethiopia Addis Ababa.

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Appendix I
Jimma University
College of Business and Economics
Department of Business Administration &
Information System
The following are questions that peoples in sample size will be
asked to attain the objective of the study.

A. Demographic characteristics
1. Sex: Male Female
2. Age A. Below 15 B. 15-30 C.31-60
D.Above60
3. Education status Illiterate primary school
Secodnaryschool Technique Colleg gaduate
4. Marriage status Married Divorced
Unmarried Widowed
5. It married how many children do you have?
___________________________________________________________

B. Characteristics of the Business

6. In which type of business you are engaged?
Textile and garment Metal and wood work
Food processing Construction service
Municipal activities Merchandise activities
Others (mention) ________________________________________
7. What is the reason for you to get in to this business?
To get income for survival
Capital requirement to run this business is small
Little (no) regulatory restriction
Parents in this business

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No other alternatives
Others (state) ________________________________________________
8. In which category your copital belongs when you started your
busienss
0-5000 5000-10000 10000-15000

15,000-20000 > 20000

9. How many years since your started the business
_____________________________________________________________

C. Factors affecting the business

10. Have you got any skill development training about micro and
small business enterprises since you have stated your business?
Yes No
11. If No, please state the reason(s) for this more than one
answer possible.
Lack of training centers in the town
You don’t need such trainings
Government hasn’t started to give such trainings
Lack of professional persons who train you
Others (state)
---------------------------------------------------------------------------------------
------------
12. Have you faced production and marketing place problems?
Yes No
13. If yes where you are going your business
In your home in tented places
On the street Others (State)
14. Have you faced market problem?
Yes No
15. If yes, why?

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? Limited consumer awareness for your product
Less quality of your product
Increased number of competitors
Others (state)

16. If you are working individual or co-operative way?

Individually co-operative
17. If you are working individually, please state the reason for you
not co-operated?
i) Lack of facilitators who co-operate
ii) Not understanding the average of co-operate
iii) Government restriction not to co-operate
iv) Others (Steta)
18. Have you access to credit facilitate?
Yes No

19 .Do you have sufficient capital to run your business?

Yes No
20.In 17 number if yes, from which sector you get the credit?
i) From banks
ii) Governmental projects
iii) Non-governmental organizations
iv) Saving and credit association
V) Micro finance
21. If no, for question No, what are the reasons for not using the
credit facilities?
i) In adequate collateral
ii) Lack of creditors
iii) Fear of inability to pay
iv) Don’t want to incur debt
v) Too difficult to process

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vi) Others (state)
22. Do you have sufficient infrastructure to run your business
Yes No
23. If no, what is the reason for unfulfillment of the infrastructure?

24. are there governmental restriction in running your business?

Yes No
25. If yes, in what way?
High taxation
Bureaucratic process in giving license
Regulating its operation
Power interruption
Others
26. Is the price (charge) of the infrastructure affected your
business?
Yes No
27. If “yes” rank the problems according to its seventy?
i) High transportation charges
ii) High telephone charges
iii) High electrical charges
iv) contribution of the sectors
28. In which category your monthly income categorized
i) 0-500 iv) 1500-2000
ii) 500-1000 v) 2000-3000
iii) 1000-1500 vi) >3000
iv) 1500-2000
29. If you compare your income before you started the business and
after you started the business do you got any income improvement?
Yes No
30. Do you have job before you started the business?
Yes No

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31. Number of employers you business?……………………………………
32. Please mention some suggestions how some constraints of your
business solved?............................................................................

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