International Journal of Scientific and Research Publications, Volume 6, Issue 5, May 2016 617

ISSN 2250-3153

The Challenge and Prospects of Small Scale Enterprise in

Ethiopia: A Survey of Some Selected Small Scale
Enterprise in Addis Ababa City
Mohammed Getahun (Lecturer)

Department of Accounting & Finance, College Business and Economics,

Jimma University, Ethiopia

Abstract- The small scale industries have a very important and be centred around Small Scale Enterprise; because of its great
effective role in the developed countries generally and in role in terms of production activities, employment generation and
developing countries especially because it is considered the the overall improvement in the qualities of the life of people.
backbone of their economies. In respect of this, the main purpose Furthermore, the study made by Wolfenson (2001), the
of this study is to identify the problems and prospects of small small business sector is recognized as an integral component of
enterprise in Addis Ababa sub-city. To do this, data were economic development and a crucial element in the effort to lift
collected from both primary and secondary sources. The main countries out of Small- Scale businesses are driving force for
instrument of data collection was the questionnaire and supported economic growth, job creation, and poverty reduction in
by interview. The data were presented in tables as frequency, developing countries. They have been the means through which
distribution in the data analysis; the techniques of percentages accelerated economic growth and rapid industrialization have
frequencies were used. The empirical studies elicit major been achieved, Saucer (2005).
challenges which seem to affect performance of SSEs in sub- According to the study conducted by Behrman J. R., and
cities which include: inadequate finance, inadequate Deolalikar .A. B, (1989); Khan and Manopichetwattana, (1989),
infrastructures, poor management practices, multiple taxation and with rapid growth in population, African countries have been
capital shortage in that order, are the major challenges affecting experiencing the problem of large size of unemployment through
small scale businesses in Ethiopia. The researcher suggested that its economic history since indeterminate time in the past.
the challenges and problems of the SSEs in Ethiopia are having Because of this fact, the problems of unemployment and poverty
many centers and hence can only be effectively tackled by a have been the prime challenges that many governments have
multi-dimensional and concerted approach by all stakeholders tried their best to alleviate these challenges at all levels Chrisman
i.e. the governments and their agencies, banks, regulatory and Leslie, (1989).
authorities, tax authorities,), the employees of SSEs, multilateral In addition of the above, the challenges and the problem of
and bilateral agencies and donors. small scale enterprises are tied to some economic variables and
the challenges that generally characterized the nation’s economy.
Index Terms- small scale, challenges, prospect, problems, Some of the challenges and problems include high level of
industries unemployment, high poverty incidence, lack managerial skills
and low industrialization capacity, lack of finance, inconsistent
government policies and inadequate infrastructure and insecurity
I. INTRODUCTION of the business climate among others. Nevertheless, the internal
characteristics of small scale enterprises too have also interact
A ccording to the research conducted by Rajan (2013) states
that the definition of small scale industry may vary from
country to country, year to year, from period to period and from
with some economic variables to undermine the capacity of the
economy. Issues of low level of entrepreneurial skills, poor
time to time and according to the level of economic development management practice, inadequate equity capital and lack of
reached in a country. Sometimes it is defined in terms of number information among other problems.
of workers employed and on the use of electric power and also in In spite of these problems and challenges, the current
terms of investment made. Despite of this, small Scale Enterprise economic reform process ongoing in Ethiopia aimed at reducing
when established varies in its mode of formation, its sizes, its poverty, unemployment and strengthening of basic institutions
organisational setup, and in its activity. The reason for this is and sub sector of the economy target at improving and enhancing
because the type chosen by each individual operator will depend the capacity of small scale enterprises is beginning to show a
on the financial capability to manage such enterprise. renew optimism on small scale enterprises as instrument of
Small Scale Enterprise forms the bedrock of the economic economic growth and development.
growth of every nation. This is because no nation can achieve a The aims and objectives of this study is to realize the
viable economic growth and development without the immense contribution of small scale enterprises sub-sector in the
establishment of Small Scale Enterprise. Small Scale Enterprise economy .This research also aim to highlight and make critical
has always been in the forefront of development strategies of study of the problems of small scale enterprises and offer use full
every nation. Thus, the quest of any nation’s development must recommendation that would enhance the implementation of the
best solution so as to prevent the reoccurrence of such problem.

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Defining small-scale industry is a difficult task because the

1.1 OBJECTIVES OF THE STUDY definition of small-scale industry varies from country to country
This research comes in with the intention of identifying the and from one time to another in the same country depending
challenges and prospects, militating against the success of small upon the pattern and stage of development, government policy
scale businesses in Ethiopia. This will cover the way for and administrative set up of the particular country.
recommendations for addressing and, if possible, eliminating There is no single criterion for classifying business
them so that small scale businesses could occupy their pride of enterprises as small or medium scale globally. Each country
place. To achieve this, the project would be attempt to the tends to derive its own definition based on the role of small-scale
following specific objectives. industries are expected to play in the economy and the program
1. To identify the major challenges that faces the small of assistance designed to achieve that goal. Varying definitions
scale enterprise while operating their business. among countries may arise from differences in industrial
2. To analyze role of Small scale enterprise for the national organization at different levels of economic development in parts
economy and poverty alleviation in Ethiopia of the same country (Anamekwe, 2001).
3. To establish how government policies affect the growth
of small scale enterprises in Addis Ababa city 2.2. IMPORTANCE OF
4. To suggest policy intervention that helps to mitigate the SMALL SCALE
challenges of small scale enterprise. In a developing country like Ethiopia, the role and
importance of small-scale industries is very significant towards
1.2. RESEARCH QUESTIONS poverty eradication, employment generation, rural development
The main interest of this research is to answer revolve and creating regional balance in promotion and growth of various
around finding solutions to the problems militating against the development activities.
SSEs in Addis Ababa so that they can improve and stabilize their This clearly shows the importance of small-scale industries
performance and hence fulfill their expected roles in economic in the economic development of the country. The small-scale
development of Ethiopia. It sought to solve the following industries have been playing an important role in the growth
questions; process of economy. In spite of, stiff competition from the large
1. What are the constraints that face small scale enterprise sector and not very encouraging support from the government.
while operating their business?
2. What is the role of small scale enterprises contributed in the 2.2.1. EMPLOYMENT GENERATION
national economy and poverty reduction? The basic problem that is confronting the Ethiopian
3. What is the effect of government policies on the growth of economy is increasing pressure of population on the land and the
small scale enterprises in Addis Ababa sub-city? need to create massive employment opportunities. This problem
4. What measures should be taken by concerned government is solved to larger extent by small-scale industries because small-
actors and bodies to facilitate and/or control small scale scale industries are labour intensive in character. They generate
enterprise. huge number of employment opportunities. Employment
generation by this sector has shown a phenomenal growth. It is a
1.3 JUSTIFICATIONS OF THE STUDY powerful tool of job creation.
The study is designed to expose the challenges of small
scale industries to the problems they would encounter in the 2.2.2.MOBILISATION OF RESOURCES AND
course of the business and also highlight the remedies and ENTREPRENEURIAL SKILL
thereby keep them in a better position to run the business in the Small-scale industries can mobilize a good amount of
in the most optimal manner. Enterprise is one of the features of savings and entrepreneurial skill from rural and semi-urban areas
economic development and growth. The role of small-scale remain untouched from the clutches of large industries and put
enterprises in Ethiopia cannot be overlooked, in the sense that them into productive use by investing in small-scale units. Small
small-scale enterprise has played a vital role in the development entrepreneurs also improve social welfare of a country by
of our economy.The study will also serve as a stepping-stone and harnessing dormant, previously overlooked talent.
make the modest contribution for those who are interested to
conduct research on small scale enterprise. In addition to these 2.2.3. EQUITABLE DISTRIBUTION OF INCOME
research work, when successfully completed, will be uniquely Small entrepreneurs stimulate a redistribution of wealth,
relevant in a number of ways. Hence, the challenges so identified income and political power within societies in ways that are
will help in improve, overhauling and energizing small scale economically positive and without being politically disruptive.
businesses to restore them to their pride of place in reducing Thus small-scale industries ensures equitable distribution of
crippling poverty, embarrassing high unemployment rate, and income and wealth in the Ethiopia society which is largely
economic stagnation. characterised by more concentration of income and wealth in the
organised section keeping unorganised sector undeveloped.

II. LITERATURE REVIEW 2.2.4. BETTER UTILIZATION OF LOCAL

2.1. OVERVIEW OF SMALL- RESOURCE
SCALE ENTERPRISES The use of indigenous resource which involves very low
(SSES) capital to set out the small scale industry allows for conversion of

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minimal resources into productive ventures. Also, small scale Adequate and timely supply of credit facilities is an
industries are known for their creativity in the utilization of local important problem faced by small-scale industries. This is partly
raw materials that do not necessitate advanced technology to due to scarcity of capital and partly due to weak creditworthiness
process. of the small units in the country.
2.2.5. SUPPORTS THE GROWTH OF LARGE
INDUSTRIES 2.3.6. LACK OF MACHINERY AND EQUIPMENT
The small-scale industries play an important role in assisting Small-scale units are striving hard to employ modern
bigger industries and projects so that the planned activity of machineries and equipment in their process of production in
development work is timely attended. They support the growth of order to compete with large industries. Most of the small units
large industries by providing, components, accessories and semi- employ out-dated and traditional technology and equipment.
finished goods required by them. In fact, small industries can Lack of appropriate technology and equipment create a major
breathe vitality into the life of large industries. stumbling block for the growth of small-scale industries.

2.3. PROBLEMS AND 2.3.7. ABSENCE OF ADEQUATE

CHALLENGES OF SMALL INFRASTRUCTURE
AND MEDIUM Ethiopian economy is characterized by inadequate
ENTERPRISES infrastructure which is a major problem for small units to grow.
2.3.1. SHORTAGE OF RAW MATERIAL Most of the small units and industrial estates found in towns and
Procurement of raw materials of required quality, and cities are having one or more problems like lack of power supply,
quantity competitive price is the most serious faced by this water and drainage problem, poor roads, raw materials and
sector. Though the institutional arrangements regard to the marketing problem. Thus absences of adequate infrastructure
allocation mechanism often work against the interest of these. adversely affect the quality, quantity and production schedule of
This is more pronounced in the case of scare raw materials that the enterprises which ultimately results in under-utilization of
have to be imported. Besides, frequent interruptions in the capacity.
availability of essential raw materials prevent fuller and
economic utilization of productive capacity of small units (Simon 2.4. EMPIRICAL REVIEW
Bridge, Ken O’Neil and Stan Cromie, 2003). According to Stephen and Wasiu (2013) the transformation
of traditional industries is one of the contributions of small scale
2.3.2. INADEQUATE FINANCE industries to the growth and development of the country. In short
Most of the micro and small enterprises depend on external the modern sector has evolved through structural transformation
finance or non-institution. Financial assistance by the various and modernization of the traditional type-cottage or artisan
agencies, like financial corporations and commercial bank, often industry. Small scale industry can be a means of achieving a
falls much short of their requirements. In order to supplement the smooth transition from tradition to modern industrial sector.
institutional finance micro and small enterprises have to Study made by Fabayo (1989) observed that one major
approach the unorganized money market at terrible heavy rates claim for focus on SMEs is that they are large employers of labor
of interest or on suppliers credit on exceedingly unfavorable and this makes them vital in coping with the problems of
terms Private finance, ultimately spoil the unit and cause for unemployment and poverty. According to him, strong evidences
sickness in the small business (Balu, 2000). based on country and regional experiences exist to show that
small firms are major source of employment opportunities for a
2.3.3. LACK OF MANAGERIAL SKILLS wide cross-section of the workforce: the young, old part-time
Small business are owned by one person or small group of workers and the cyclically unemployed.
people and managed by their owners, who with all management According to the studies conducted by Ibrahim (1986),
usually with the other little help. In our country most of micro provide evidence that management skills are critical factors in
and small enterprises launched without a feasibility report. both the failure and success of businesses (Lichtenstein & Brush,
Moreover, wherever such reports were prepared, the purpose was 2001). They illustrate that accounting, cash flow, and marketing
to use them as advice to obtain institutional finance than to serve need management skills and lack of them is a major cause of
as a plan to make the unit a success. failure. Weaknesses in these areas are found to impact on all
other areas of the business. A lack of management skills and
2.3.4. PROBLEM OF SKILLED MANPOWER expertise is a major constraint hindering the progress of the SME
The success of a small enterprise revolves around the sector in Kenya.
entrepreneur and its employees, provided the employees are A study conducted by Bhavani T.A. (2010) highlights the
skilled and efficient. Because of inefficient human factor and issue of quality employment generation by the SSIs and negates
unskilled manpower create innumerable problems for the the short term attitude of increasing the volume of employment
survival of small industries. Non-availability of adequate skilled generation compromising with quality. The author argues that
manpower in the rural sector poses problem to small-scale employment generation by the SSIs may be high in quantitative
industries. term but very low in quality. Technological up-gradation would
enable the small firms to create quality employment improving
2.3.5. INADEQUATE CREDIT ASSISTANCE remuneration, duration and skill. This structural shift may reduce

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the rate of employment generation in the short run but would III. RESEARCH DESIGN AND METHODOLOGIES
ensure high-income employment generation in the long run. This study also employs both quantitative and qualitative
The study made by Subrahmanya Bala (2011) has probed the research methodology. In order to come up with comprehensive
impact of globalization on the exports potentials of the small information, both first hand data are consulting. Since Small
enterprises. The study shows that share of SSI export in total Scale Enterprises sector operators are formally registered and
export has increased in protection period but remain more or less their numbers are somehow known, purposive sampling
stagnated during the liberalization period. However, the technique are employs to get better responses from respondents
correlation co-efficient in liberalization period is higher than that taking their list from Addis Ababa sub-city the operators small
of protection period suggesting that the relationship between the scale enterprise of team office.
total export and SSI export has become stronger in liberalization Since it is practically impossible to study all sectors of small
period. This may be due to the drastic change in composition of scale enterprise, therefore, manufacturing and services enterprise
SSI export items from traditional to non-traditional and growth in were selected by random sampling technique to select samples
its contribution to total export through trading houses, export adopted for this study. A sample from the total population 7919
houses and subcontracting relation with large enterprises. Thus, randomly two hundred fifty (235) SSEs was selected and used
the current policy of increasing competitiveness through infusion for this Study. In order to cater for those selected respondents
of improved technology, finance, and marketing techniques who may for one reason or the other, fail to complete and return
should be emphasized. their questionnaires, a total of two hundred and thirty five (235)
As study done by Akampumuza (2007) noted that one of the SSEs were chosen as respondents and questionnaires sent to
most difficult problems facing the Nigerian SMEs is lack of good them. The first 212 completed and returned questionnaires were
advice, lack of education, high illiteracy levels, high incidence of eventually used for the study. The analysis involved descriptive
poverty, disease, inadequate information, poor decision making, statistics such as frequencies, mean, median, and percentages.
shortage of skill, lack of efficiency, lack of lending policies, poor
record keeping as well as the amount to be borrowed. This
explains why it is dangerous for the small scale enterprises to IV. RESULTS AND DISCUSSION
borrow from the formal credit market.
According to Thibault et al. (2002) suggest that factors 4.1 DEMOCRATIC CHARACTERISTICS OF THE
influencing business performance could be attributed to personal RESPONDENTS
factors such as demographic variable and business factors such
as amount of financing, use of technology, age of business, Table 1: Gender of the respondents
operating location, business structure and number of full-time
employees as important factors in examining the performance as Frequenc Percen Valid Cumulative
small scale business operators. y t Percent Percent
As per study by Owualah, (1999) remarked that an Vali Male 114 53.8 53.8 53.8
entrepreneur in a small scale business in a bid to achieve the d Femal 98 46.2 46.2 100.0
organizational objective is therefore confronted with bundles of e
problems such as, inadequate capital and lack of access to Total 212 100.0 100.0
financial services, due to terms and conditions of financial Source: Survey Study, 2015
institutions (lack of collateral). Poor financial management,
owner’s personal habits, lack of training, inadequate Table 1 shows Information gathered shows that the
infrastructures, marketing problems, employment and over answered and returned questionnaires include a total of 112
reliance on relations among others. On the other hand study respondents, Fifty three point eight percent (53.8%) of the
conducted by As Njoku (2002) identifies, inconsistencies in respondents in this study are male, while forty six point two
government policies is a major problem affecting small and percent (46.2%) are female. This result indicates those males are
medium scale enterprises. more involved in small scale enterprise operations than female.

Table 2: Age of the respondents

Frequency Percent Valid Percent Cumulative Percent

Valid 18-24 68 32.1 32.1 32.1

25-30 84 39.6 39.6 71.7
31-35 49 23.1 23.1 94.8
36-50 11 5.2 5.2 100.0
Total 212 100.0 100.0
Source: Survey Study, 2015
point six percent (39.6%) of the respondents are in the 25-30 age
Table 2 shows Thirty two point one percent (32.1%) of the bracket. Twenty three point one percent (23.1%) of the
respondents are within the age bracket of 18- 24 while thirty nine respondents are in the 31-35 age brackets. Five point two

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percent’s (5.2%) of the respondent are above 35 age bracket. The businesses are middle aged and young people who are trying to
information suggest that most of the people investing in small invest in business in order to become their own boss.

Table 3: Marital status of respondents

Frequency Percent Valid Percent Cumulative

Percent
Valid Married 119 56.1 56.1 56.1
Single 86 40.6 40.6 96.7
Divorced 7 3.3 3.3 100.0
Total 212 100.0 100.0
Source: Survey Study, 2015

The marital status of the operators table 3 shows that 56.1% are mostly engaged in the operators of small scale business than
of the respondents are married and 40.6%, and 3.3%, of them are others. This could be due to the fact that married people have
single and divorced, respectively. Therefore, Married households pressure and responsibility to earn income than unmarried ones.

Table 4: Level of Education

Frequency Percent Valid Percent Cumulative Percent

Valid Primary 41 19.3 19.3 19.3
Diploma holder 68 32.1 32.1 51.4
Secondary 80 37.7 37.7 89.2
Degree holder 23 10.8 10.8 100.0
Total 212 100.0 100.0
Source: Survey Study, 2015

Table 4 shows that Thirty two point one percent (32.1%) of business enterprises in the study area are most well educated.
the respondents have diplomas, nineteen point three percent The majority of the respondents have secondary, diplomas and
(19.3%) of the respondents are primary 10.8% degrees and thirty university degrees. Education increases the likelihood of
seven point seven percent (37.7%) of the respondents are identifying good business opportunities and the chance of the
secondary. The result indicates the operators of small scale success of the business.

Table 5: Nature of the business respondent’s

Frequency Percent Valid Percent Cumulative Percent

Valid
Sole Proprietorship 110 51.9 51.9 51.9
partnership 80 37.7 37.7 89.6
family owned 14 6.6 6.6 96.2
others 8 3.8 3.8 100.0
Total 212 100.0 100.0
Source: Survey Study, 2015

Table 5 shows that 51.9 % of the total respondents engage respondents engage in family owned businesses, while the
themselves in sole proprietorship, and 37.7% are in partnerships. remaining 3.8% engaged in other businesses than the one’s
These two types accounted for almost 89.6% of the listed. From the study it can be concluded that sole proprietorship
212participants. The data further indicates that 6.6% of the dominated in the operator of small scale enterprise in Ethiopia.

4.2 CHALLENGE (PROBLEM) OF SMALL SCALE ENTERPRISE (SSE)

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Table 6: Infra-structure related factors

Descriptive Statistics
Items Obs Strong Agree Undecide Disagree Strongl Mea Std.
ervat Agree(SA (A) d (UN) (DA) y n Devi
ions ) Disagre
e(SDA)
Fr % Fr % Fr % Fr % Fr %
Poor infrastructure 212 92 43.4 108 50. 11 5.2 1 0. 0 0 1.62 0.60
(electricity, road, 9 5 74 6
etc.)
Insufficient and 212 70 33 115 54. 23 10. 4 1. 0 0 1.82 0.69
interrupted water 2 8 9 6 4
supply
Lack of business 212 75 35.4 103 48. 32 15. 1 0. 1 0. 1.79 0.69
development 6 1 5 5 8
services
Lack of sufficient 212 73 34.4 115 54. 19 9 5 2. 0 0 1.81 0.75
and quick 2 4 5
transportation
service
Lack of appropriate 212 70 33 102 48. 30 14. 9 4. 1 0. 1.91 0.82
dry waste and 1 2 2 5 4
sewerage system
Source: Survey Study, 2015

The result presented in table 6 shows that Poor of 0.606 and0.698.The mean scores Lack of sufficient and quick
infrastructure (electricity, road, etc.) is the main problem transportation service, Insufficient and interrupted water supply
followed by Lack of business development services that hinder and Lack of appropriate dry waste and sewerage system are 1.81,
the operators of small scale business in Ethiopia. The mean 1.826 and 1.91 with standard deviations of 0.7554, 0.694 and
scores of are Poor infrastructure and Lack of business 0.824.
development services 1.6274, and 1.79 with standard deviations

Table 7: Startup capital related factors

It items N SA A Ne DA SDA
Fr % Fr % Fr % F % F % me Std.
r r an Dev
Lack of working 21 72 34 109 51.4 24 11. 7 3. 0 0 1.8 .749
premises 2 3 3 3
Lack of raw materials 21 75 35. 110 51.9 24 11. 3 1. 0 0 1.7 .693
2 4 3 5 8
Lack of Information 21 69 32. 113 53.3 22 10. 8 3. 0 0 1.8 .749
2 5 4 8 5
High price of raw 21 87 41 111 52.4 11 5.2 3 1. 0 0 1.6 .641
materials 2 4 7
Pressure from 1.8 .710
government regulation 21 66 31. 115 54.2 28 13. 2 .9 1 .5 5
2 1 2
Inadequate skills 21 75 35. 111 52.4 21 9.9 5 2. 0 0 1.7 .712
2 4 4 9
Shortage of market 21 77 36 115 54.2 16 7.5 4 1. 0 0 1.7 .674
2 9 5
Lack of sufficient 21 72 34 115 54.2 21 9.9 2 .9 2 .9 1.8 .725
capital 2 1
Lack of credit facilities 21 86 40. 110 51.9 16 7.5 - - - - 1.6 .611
2 6 6
Source: Survey Study, 2015

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The result presented in table 7 shows that is high price of 1.7925 and 1.8066 with the standard deviations of .69340, .71168
raw materials and Lack of credit facilities the main problem and .72554 for small scale business some listed in Addis Ababa
followed by shortage of market that hinders the operators of city respectively and etc.41% of respondents ranked High price
small scale business. The mean scores of are 1.6698, 1.6698 and of raw materials and 40.6% of respondents ranked Lack of credit
1.7500 with standard deviations of .64, .61 and .67 for small facilities as the worst factor that is critically limiting the
scale business some listed in Addis Ababa city respectively. On operational efficiency of the operators of small scale business in
the other hand, Lack of raw materials, inadequate skills and Lack Ethiopia. However, both Shortage of market, Lack of raw
of sufficient capital are the main challenges that hinder the materials and inadequate skills were ranked as third, fourth and
operators of small scale business and the mean scores 1.7877, fifth to all factors limiting the operational efficiency of SSEs.

Table 8: Management skills related factors

Descriptive Statistics
Items N SA A Ne DA SDA
Fr % Fr % Fr % Fr % Fr % me St.de
an v
Lack of clear division 212 86 40. 10 49. 18 8.5 1 .5 2 .9 1.7 .718
of duties and 5 5 5 2 8
responsibility among
employees
Poor organization and 212 100 47. 90 42. 12 5.7 5 2. 5 2. 1.7 .866
ineffective 2 5 4 4
communication
Poor selection of 212 82 38. 98 46. 25 11. 4 1. 3 1. 1.8 .821
associates in business 2 2 8 9 4 1
Lack of well trained
and experienced 212 84 39. 10 49. 13 6.1 6 2. 4 1. 1.7 .833
employees 6 5 5 8 9 8
Lack of low cost and
accessible training 212 87 41 10 48. 14 6.6 6 2. 2 .9 1.7 .781
facilities 3 6 8 7
Lack of strategic 212 99 46. 87 38. 18 8.5 6 2. 7 3. 1.7 .958
business planning 7 7 8 3 7

Source: Survey Study, 2015

As shown in table 8 above, Poor organization and ineffective organization and ineffective communication associates indicates
communication, Lack of clear division of duties and the highest hinder the operators of small scale enterprise. On the
responsibility among employees and Lack of low cost and other hand, Lack of strategic business planning, poor selection of
accessible training facilities in business is the main problems that associates in business and Lack of well trained and experienced
hinder the operators of small scale business. It shows a mean employees are also the challenges of the operators of small scale
score of 1.7, 1.72 and 1.77 with a standard deviation of .866, enterprise and a mean score of 1.77, 1.78 and1.78 with standard
.718 and .781 for engaged in small business operators. Therefore, deviation .958, .821 and .833 respectively.
the average score of the respondents with regard to Poor

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Table 9: Political related factors

Descriptive Statistics
Items N SA A Ne DA SDA
Fr % Fr % Fr % Fr % Fr % mea St.dev
n
Lack of accessible
information on
government regulations 212 121 57. 57 26. 20 9.4 6 2. 8 3.8 1.69 1.014
that are relevant to my 1 9 8 3
business
Political intervention 212 79 37. 10 50. 21 9.9 2 .9 2 .9 1.77 .739
3 8 9 4
The tax levied on my 212 91 42. 97 45. 22 10. 2 .9 0 0 1.69 .692
business is not 9 8 4 3
reasonable
Lack of government 212 100 47. 93 43. 13 6.1 5 2. 1 .5 1.65 .742
support 2 9 9 1
Bureaucracy in company 212 129 60. 66 31. 14 6.6 2 .9 1 .5 1.49 .7054
registration and licensing 8 1 1

Source: Survey Study, 2015

As shown in 9 above, the bureaucracy in company On the other hand the tax levied on my business is not
registration and licensing the main challenge of small scale reasonable and lack of accessible information on government
business and has a mean score of 1.491with a standard deviation regulations are mean scores1.693 and1.693 with standard
0.7054. Also the table shows lack of government support mean deviation .692 and .739 while Political interventions has mean
value1.651 with standard deviation 0 .742 of challenge the scores 1.774 with standard deviation 1.014 of the operators of
operators small scale business. This reason is government has not small scale enterprise in Ethiopia.
done enough to create the best conducive environment for the
striving of SSEs, the problem of infrastructures ranges from 4.3 EXTENT TO WHICH GOVERNMENT POLICIES
shortage of water supply, inadequate transport systems, lack of AFFECT BUSINESS GROWTH
electricity to improper solid waste management.

Table 10: Extent to Which Government Policies Affect Business Growth

Frequency Percent Valid Percent Cumulative
Percent
Valid high 54 25.5 25.5 25.5
moderate 67 31.6 31.6 57.1
low 55 25.9 25.9 83.0
very low 36 17.0 17.0 100.0
Total 212 100.0 100.0
Source: Survey Study, 2015

The findings of the study as depicted in Table 10 above of the view that it affects business to a moderate level, 25.9% and
shows the response of the respondents on the extent to which 17% were of the opinion that it affects the business to low and
government policies affect the business. Based on the study very low extent respectively. From the above analysis it can be
findings 25.5% of the total respondents were of the view that noted that government policies affect business operation to a
Government policies affect business to a high extent, 31.6% were high extent.

4.4 SMALL SCALE ENTERPRISE OPERATORS’ RANKING OF OPERATIONAL EFFICIENCY PROBLEMS

Table 11: Small and Medium Enterprise Operators’ Ranking of Operational Efficiency Problems

Descriptive Statistics
Problem area Obser Minimu Maximu Mean Std.
vation m m Deviation
s Ranking ranking

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Problem of skilled man 212 1.00 9.00 3.3538 2.33505

power
Inadequate credit 212 1.00 9.00 2.2358 1.71169
assistance
Policy inconsistency and 212 1.00 9.00 6.0094 2.30801
government bureaucracy
Multiple tax and levis 212 1.00 9.00 5.3160 2.13060
Lack of access modern 212 1.00 9.00 5.7123 2.11006
technology
Inadequate managerial skill 212 1.00 9.00 4.3113 2.14349
Infrastructural problems 212 1.00 9.00 3.8679 2.19683
Marketing factors 212 1.00 9.00 6.2217 2.08649
Politic-legal factors 212 1.00 9.00 7.1981 1.93212
Valid N (list wise) 212
Source: Survey Study, 2015

Table 11 represents the most critical distribution of all the ratio to the intensity of the problems the table clearly shows that
findings in this study as it reveals the rankings of all the nine key inadequate credit assistance represents the greatest among all the
problem areas, which challenge small scale business in Ethiopia problem areas since it has the lowest mean of 2.24. Next to the
using the mean ranking as the determining factor or variable. The inadequate credit assistance, problem of skilled man power and
table also shows the distribution of how widely spread the infrastructural problems with mean of 3.35 and 3.87 respectively.
rankings are as well as their variability by way of standard These three problem areas stand out in terms of intensity or
variation. Inadequate credit assistance have the lowest ranking gravity as the next greatest problem area, inadequate managerial
mean of 2.24 with lowest ranking and hence greatest problem of skill has a mean of 4.3, which is close to twice the mean of in
one (1) and highest ranking and hence least problem of nine (9) adequate credit assistance problems.
with one of the smallest standard deviation of 1.9. The table also clearly shows the relative positions of the
Table 4.3 shows the relative positions of nine major gravities of the other problem areas identified in the study in
problem areas facing the operators of small scale business in descending order as follows: multiple tax and Levis, lack of
Ethiopian in the following order of their descending intensity: access modern technology, policy inconsistency and government
Inadequate credit assistance, problem of skilled man power, bureaucracy, marketing factors and politic-legal factors with
infrastructural problems, inadequate managerial skill, multiple mean ranking 5.32, 5.7, 6.01, 6.2 and 7.1981.
tax and Levis, lack of access modern technology, policy
inconsistency and government bureaucracy, marketing factors 4.5 ROLE OF SMALL SCALE ENTERPRISE FOR THE
and politic-legal factors. NATIONAL ECONOMY AND POVERTY
The above table 4.12 shows the distribution of the means of ALLEVIATION IN ETHIOPIA
the rankings of the problem areas of the SSEs by the two hundred
twelve respondents. Given that the rankings are in the inverse

Table 12: Role of Small Scale Enterprise for the National Economy and Poverty Alleviation In Ethiopia

Items N SA A Ne DA SDA
Fr % Fr % Fr % Fr % F % Mea St.d
r n ev
Enterprises are 212 9 42. 10 49.1 13 6. 5 2.4 1.68 .695
interested in alleviating 0 5 4 1
poverty from society
Do you think 212 9 46. 90 42.5 15 7. 6 2.8 2 .9 1.67 .801
enterprises contribute 9 7 1
to national economy

Source: Survey Study, 2015

The above table 12 shows that the majority of the respondents 46.7% strongly agreed that small business
respondents 42.5 % strongly agreed that small business are contributes to the economic growth of Ethiopia, 42.5% of the
interested in alleviating poverty from society, 49.1% agreed, respondents agree that small business contributes the economic
2.4% disagree. This chart illustrates that the majority of the growth, 2.8% disagree while 0.9% of the respondents strongly

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International Journal of Scientific and Research Publications, Volume 6, Issue 5, May 2016 626
ISSN 2250-3153

disagreed. This study has proven that small business contributes

to the economic growth of Ethiopia with a majority of 46.7%, 5.3 SUGGESTIONS FOR FURTHER RESEARCH
therefore for sure we can say that small business has can and This study concentrated on selected Small Scale Enterprises
have contributed the economic growth if this city of the country. in Addis Ababa sub city and other researcher studies should be
carried out to establish how Ethiopian Small scale enterprises are
4.6 PROSPECTS OF SMALL SCALE ENTERPRISE (SSE) fearing own and the challenges they are facing. More emphasis
Despite all the challenges facing Small-scale enterprise plays should be put on the following factors: , environment, inflation,
very important roles in the economic growth and development of tax regulation and high vulnerability related problems, diversity
a nation. It provides employment opportunities, encourages and of taxes and levies, unfair competition and dumping, marketing
sustains self-reliance, provides technical inventions and related issues, and business opportunities and diversification.
innovations promotes competition in the market which acts as a Other research can be done on medium scale enterprise by
check in the activities of monopolists, utilize waste product from identified manufacturer, trading, agricultural and service sectors.
big firm for further production. Small scale business has emerged
as a powerful tool in providing relatively large employment base
for given unit of investment, equitable wealth distribution and REFERENCES
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countries like Ethiopia.
The challenges and problems of the SSEs in Ethiopia are AUTHORS
having many centers and hence can only be effectively tackled First Author – Mohammed Getahun (MSc in Accounting and
by a multi-dimensional and concerted approach by all Finance), Institute: Jimma Universitty, College of Business and
stakeholders i.e. the governments (Federal, State and Local) and Economics, Jimma Ethiopia, Email: [email protected],
their agencies, banks, regulatory authorities, tax authorities,), the Phone: +251910904907
employees of SSEs, multilateral and bilateral agencies and
donors.

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