ASSOSA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

DETERMINANTS OF SMALL SCALE ENTERPRISES

TRANSFORMATION INTO MEDIUM SCALE ENTERPRISE IN ASSOSA
TOWN, BENISHANGUL GUMUZ REGIONAL STATE IN CASE OF
ASSOSA TOWN
BY: MOHAMMED YIMER GELAWU

ID NO:

ADVISOR:

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF

ECONOMICS, COLLEGE OF BUSINESS AND ECONOMICS, IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF A MASTER’S
DEGREE IN DEVELOPMENT ECONOMICS

JUNE /2021
ASSOSA, ETHIOPIA
TABLE OF CONTENTS

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ACRONYMS/AVERVATION

AEMFI: Association of Ethiopian Microfinance Institutions

BDS: Business Development Service

BOFED: Bureau of Finance and Economic Development

CSA: Central Statistics Authority

EC: European Commission

ETB: Ethiopian Birr

FEMSEDA: Federal Micro and Small Enterprises Development Agency

GDP: Gross Domestic Product

GTP: Growth and Transformational Plan

ILO: International Labor Organization

IMF: International Monitory Fund

LDCs: Less Developed Countries

MFI: Micro Finance Institute

MOFED: Ministry of Finance and Economic Development

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 CHAPTER ONE
1. INTRODUCTION
1.1 Background of the Study
From global point of view, it has been recognized that Micro and Small scale enterprises
(MSEs) play a vital role in economic development, as they have been the primary sources of
Job/employment creation, output growth and the central focus of the industrial development
strategy, not only in less developed countries (LDCs) but also in developed countries. MSEs
played a vital role in the progress of the economy of the developed nation due to the fact that
it reduces the unemployment problems by using lower capital per employment, avoid extra
costs for development of industrial infrastructure, reducing the risk of the investments, check
imbalance between different sections of the economy and maximize the use of locally
available resources Syed and Mohammed, (2009).

The dynamic role of micro and small-scale enterprises (MSEs) in developing countries as
necessary engines for achieving national development goals such as economic growth,
poverty alleviation, employment and wealth creation, leading to a more equitable distribution
of income and increased productivity is widely recognized. In an attempt to accelerate growth
rates in low-income countries, particularly in Africa, many development partners and donors
have made the promotion and development of MSEs a major concern. This shows that MSEs
are seen as essential facilitator for economic growth, job creation, industrial development and
poverty alleviation, equitable distribution of income both in developed and developing
countries (Boaten, 2012).

In Ethiopia until 1997 E.C, there were no organized policy and support systems catering to
the development of the MSEs sector, so because of this, structural, institutional, and policy
barriers were not being addressed. Premises, markets, finance, supply arrangements,
regulatory barriers and legitimization of entrepreneurial activity were among the most urgent
barriers. Recognizing the significance of this sector, the Ethiopian Government issued the
National Micro and Small Enterprises Strategy in 1997 and established the Federal Micro and
Small Enterprises Development Agency in 1998 (Haftu Berehanu, 2009).

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The country`s industrial policy which was issued in 2003 and the poverty reduction strategy
of the 2006 had singled out MSEs as major instruments to create a productive and vibrant
private sector and reduce poverty among rural and urban dwellers. The MSEs sectors
contribute to the economy by creating employment opportunities, production of goods and
services and other value added activities. The five year Growth and Transformation Plan
envisages ensuring faster and sustained development of the industrial sector and enabling the
sector to gradually play a key role in the economy. To this end, particular emphasis is given to
the promotion of micro and small enterprises as well as supporting the development of
medium and large scale industries. Focus is laid on creating favorable conditions to export
oriented and import substituting industries so as to accelerate structural changes in the sector
(2nd GTP, 2017).

Assosa is the administrative town of the Benishangul Gumuz Region and located 586 km far
from the capital Addis Ababa. The total population of this town for the year 2009 E.C was
61,265 (31,201 males &30,064 females) Micro and small enterprise operates in two Wereda
and ten Ketenas (OFED, 2017).

The transitional development of small scale to medium scale enterprises, changes over time in
their employment and output shares, market orientation and location are usually thought to be
related to many factors, including the level of economic development, changes in real income
per capita, population growth, and progress in technology. Given this thought, the most
important question will be addressed in the paper is the factors affecting transformation of
Small Scale to medium scale enterprise in Assosa Town. More specifically, challenges and
opportunities. Therefore, this thesis was try to review some empirical studies based on
primary and secondary data on the transformation of small scale enterprises.

1.2 Statement of the Problem

In Ethiopia, the MSEs sector is the second largest employment-generating sector following
agriculture (CSA, 2013). A national survey conducted by Ethiopian Central Statistical
Authority (CSA) in 2005 which covers 48 major towns indicates that nearly 585,000 and
3,000 operators engaged in micro and small scale manufacturing industries respectively,
which absorb about 740,000 labor forces in total. Accordingly, the whole labor force engaged
in the micro enterprises and small scale manufacturing industries is more than eight folds
(740,000 persons) to that of the medium and large scale manufacturing industries (90,000

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persons). This is a contribution of 3.4% to GDP, 33% of the industrial sectors contribution
and 52% of the manufacturing sectors contribution to the GDP of the year 2001 (CSA, 2013).

Even though the roles of micro and small enterprises in the Ethiopian economy are better
recognized, there is no adequate study on the sub sector. Although significant strides have
been made to allow micro and small enterprises to be created, there are formidable obstacles
militating against the development of both existing micro and small enterprises and those
aspire to start up a new. Equally, there may be some opportunities that need to be realized.

In a normal process micro and small scale enterprise have to develop from one level of
growth to the next level of growth that means from micro to small, from small to medium,
and from medium to large scale enterprise by fulfilling the criteria needed. When it is
developed from small scale to medium scale, creates employment opportunity, facilitates
industrial development, it becomes independent from government support and leave the place
for new micro enterprise. So, if this process is continues, the development of industries will
be fast and its contribution for economic growth also increases. But for some different reason
this process is not properly applicable especially from small scale to medium.

Moreover the existence of a strong small business sector is necessary for the boosting of the
economy. However, the transformation of small scale enterprise to medium scale is decisive
to preserve the flow of new small businesses into the economy. In addition, such transition
will further reduce the unemployment rate and increase the number of products or services
offered to the society and help to achieve the country growth and transformation plan.

The Ethiopian government adopted the national Micro and Small Enterprise Development
Strategy for the first time in November 1997. The policy identified a number of constraints
hampering the development of MSEs. The policy serves as guideline to all stakeholders to
stimulate the establishment of new enterprises and enabling the existing ones to grow and
become more competitive. This policy identified un-favorable legal and regulatory
frameworks, underdeveloped infrastructure, poor business development services, limited
access to finance, ineffective and poorly coordinated institutional support as the key
constraints that hinders the development of the sector (MSEs strategy for Ethiopia, 1997). In
addition, the reviewed empirical studies with regard to the sector focused on socio-economic
determining factors of MSEs success and its major challenges and constraints (Solomon,
2004; Girmay, 2006).

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Most studies, in academic and non-academic institution, focus on factors that hinder the
growth of MSEs and the outcome of the program in aggregate forms. Regarding the role of
micro and small enterprises in the process of industrial development, empirical studies fail to
investigate the transitional development of small scale enterprise to medium scale enterprises.
For instance, the research conducted by Solomon (2004) also tried to analyze growth
determinants of MSEs and found that product diversification is a major determinant factor for
the growth of small enterprises in Addis Ababa. His finding revealed that business experience
is associated with new start-ups calls for the promotion of the culture of apprenticeship and
intern experience sharing for the young as a possible area of intervention in employment
generation schemes to minimize the extent of unemployment. The researcher holdup to see
MSEs Contribution in the development of medium scale industries by solving their challenges
and using their opportunities.

Girmay (2006), on his study on Managerial Performance Measurement in Small Scale

Industries, which focus more on investigating whether SSIs can operate as successful and
surviving firm and to formulate data base model of managerial performance measurement.
The researcher also tried to identify the challenges faced by MSEs in Addis Ababa. Some of
the factors identified are: lack of access to capital and credit, lack of clear and pragmatic
national policy to enhance the development of SSIS, lack of premises and land, lack of
entrepreneurial, managerial and other skills, lack of skilled workforce, lack of information
about separate supportive organization socio-cultural constraints, lack of sufficient marketing
and promotional support. However, the study failed to investigate how small scale enterprise
can develop to medium scale enterprise.

From the above mentioned studies, it is possible to learn that factors affecting
transformational development of Small Scale to medium scale enterprise are not studied.
Therefore, this study tries to assess factors affecting transitional development of Small Scale
to medium scale enterprise in Assosa Town and come up with policy recommendations.

1.3 OBJECTIVES

1.3.1 General objectives

The general objective of the study to assessment determinants of small scale enterprises
transformation to medium scale enterprise in Assosa town.

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1.3.2 Specific objectives

In addition to the general objective of the study, the study has the following specific
objectives to achieve

1. To identify the external and internal constraints for the transformation of small scale
enterprise to medium scale enterprises in case of Assosa town.
2. To identify the major opportunities for small scale enterprise transformation to Medium
scale enterprise in case of Assosa town.

1.4 Basic Research Questions

The study will provide answers to the following basic research questions.
1. What are the major internal and external challenges for transformation of Small Scale to
medium scale Enterprise?
2. What are the major opportunities and prospects in transformation of Small Scale to medium
scale Enterprise?

1.5 Significance of the Study

The study will also assist planners and practitioners to give emphasis on MSEs in their
development programs and projects and to arrive at appropriate solutions to the problems on
MSEs. Accordingly the finding of the study may help policy and strategy makers and
practitioners in designing and implementing appropriate policies that would enhance the
transformational development of small scale enterprise to medium scale enterprise in the
region.

Finally it may also be helpful for Assosa town micro and small scale enterprise agency to take
corrective measures so as to overcome the challenges and search opportunities for small scale
enterprise transformational development. Furthermore, the outcome of the study would give
important insight for further studies. The importance of this study is it may serve as
springboard for other studies, which may focus on similar topics and issues, related to micro
and small business challenges and opportunities.

1.6 Scope of the study

In order to address the research objectives, the study was enclosed spatially and operationally.
The study is limited to Benishangul Gumuz Regional state, Assosa Town as a research
setting. It is also delimited to those MSEs who have been registered under the MSE
development strategy of Ethiopian government in the Town. Assosa Town is selected

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purposely for the reason that this town consist of largest proportion of the total MSEs of other
Town in the region. Hence, the town can be a good representative for analyzing the
transformational development of MSEs in the region.

1.7 Limitations of the study

The main problems during the survey period will most of the documents that are concerned
with micro enterprises are written in Amharic. To translate in to the required instruction
language (English) took longer period. Another problem encountered in the study will
shortages of data. Therefore, what the researcher did was, try to manage his time properly and
instead of concentrating only on the survey data, he cross check the data that is gathered
through survey with the interviews, and different reports (published and unpublished
concerning the issue under study) so as to make the data representative and the outcome of the
research findings credible. Because of the above effort, It is very important to note that these
limitations did not have any significant interference with the outcome of the study.

1.8 Organization of the Paper

The paper has five chapters. The relevant literature in the field will be reviewed in the second
chapter. Research design and methodology are presented in the third chapter. Following this,
Chapter four contain data presentation, analysis, discussion of data and summery. Finally,
conclusions and recommendations are presented in the fifth chapter. Following references and
appendices are presented.

1.9 Definitions of Key Terms

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CHAPTER TWO
2. REVIEW OF RELATED LITERATURE

2.1. Theoretical Literature Review

2.1.1 Introduction
In this chapter, the number of theoretical and empirical works on Micro and Small Scale
Enterprises which has received a great deal of attention in development literature, and in the
leading programs of the most development patterns are presented. Accordingly, numerous
development programs and projects have been launched in many developing countries and
emphasis is now shifting towards the development of Micro and Small Enterprises in order to
increase the productivity, purchasing power and standard of living of their people so as to
achieve economic growth and development. This is because it has been realized that most
countries should have programs to develop this sector of the economy since it is the engine of
growth for every economy especially in all developing countries like Ethiopia. In addition to
this there would be some conceptual work which wuold used to support the study.

This chapter comprises of two main sections. These are Theoretical Literature review and
Empirical Literature Review on MSEs.

2.1.2 Definitions and concept of MSEs in global context

Regarding the definition of the term MSEs universally accepted definition is not yet given.
This is because of the heterogeneity of MSEs themselves and the nature of the economy in
which they operate. This become the agent for the absence of establishing feasible global
definitions that can be used everywhere in the same manners. Due to this and the other related
factors, different countries use different criteria such as number of employees, assets,
employed capital, sales turn over, or combination of the above factors to determine the size of
the enterprises. For instance the most common definitions used by regulators are based on the
number of employees, sales and/or loan size (Boaten, 2012)

Boaten, 2012, first formulated an economic and statistical definition of a small firm. Under
the economic definition, a firm is said to be small if it meets the following three criteria: It has
a relatively small share of their market place; It is managed by owners or part owners in a
personalized way, and not through the medium of a formalized management structure; and it
is independent, in the sense of not forming part of a large enterprise.

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The Bolton Committee applied different definitions of the small firm to different sectors.
Whereas firms in manufacturing, construction and mining were defined in terms of number of
employees (in which case, 200 or less qualified is considered to be a small firm), those in the
retail, services, wholesale, etc. were defined in terms of monetary turnover (in which case the
range is 50,000-200,000 British Pounds to be classified as small firm). Firms in the road
transport industry are classified as small if they have 5 or fewer vehicles. The given definition
of Bolton committee for the concept small and micro enterprise is not without criticisms. It is
highly criticized on the apparent inconsistencies between defining characteristics based on
number of employees and those based on managerial approach.

In addition to this in Nigeria, the Small and Medium Industries Enterprises Investment
Scheme (SMIEIS) defines MSEs as any enterprises with a maximum asset based of 200
million excluding land and working capital and with a number of staff employed not less than
10 or more than 300 International Finance Corporation publications (2001).

According to the National Board of Small Scale Industries (NBSSI) in Ghana, both fixed
asset and number of employees are applied as criteria in the definitions of micro and small
scale enterprise. It defines a Small Scale Enterprise as one with not more than 9 workers, has
plant and machinery (excluding land, buildings and vehicles) not exceeding 10 million Cedis
(US$ 9506, using 1994 exchange rate).

The European Commission (EC) coined the term `Small and Medium Enterprises (SMEs)
based on the following three components. According to this commission where Firms with 0
to 9 employees are considered as micro enterprises the one with 10 to 99 employees are
categorized under small scale enterprises. Mean while firm with 100 to 499 employees are
indicated as medium enterprises. In other ways World Bank since 1976 indicated that firms
with fixed assets of less than US$ 250,000 in value (excluding land) are Small Scale
Enterprises. As it is indicated above micro and small scale enterprise can be defined based on
the economic statuses of the country.

For instance according to (UNIDO,1983) for developing countries while firms with 100+
workers are considered as large, the one with 20 - 99 workers are categorized under medium
firms. Adding to this it categorized firms with 5 - 19 workers under small scale firm and firms
with < 5 workers under micro firms. For Industrialized Countries the source indicated that
firms with 500+ workers are large and medium firms are those firms with 100 - 499 workers.
According to the same source firms with ≤ 99 workers are categorized under small (MSEDS,

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2011). From this, it can be said that there is no unique definition for micro and small scale
enterprise.

In general the definition for the concept micro and small scale enterprise is different from
country to country based on socio –economic status. This indicated the absence of clear cut
and universally accepted definitions for this concept since different criteria are used.

2.1.3 Definition of MSEs in Ethiopian context

In the case of Ethiopia, there is also lack of uniform definition at the national level to have a
common understanding of the MSEs Sector. Even though difficulty is there in having clear
cut definitions, the country wide used definition of MSEs according to MoTI and CSA is
based on level of paid-up capital/fixed asset, size of employment, the technological
establishment used and consultancy services. This categorization is important for functional
and promotional purposes to achieve the desired levels of development.

However, three mostly used definitions of MSEs are the definition by Ministry of trade and
industry (MoTI) on the basic criteria of capital investment and on the other hand by central
statistical authority (CSA) that uses employment and MSEDS use the capital investment and
employment. In addition to the above mentioned definition currently, the revised MSEs
Strategy divided MSEs in terms of product and service. According to the definition of
Ministry of Trade and Industry MSEs sector are categorized into micro enterprises and small
enterprise for the purpose of a strategy (MoTI, 1997).

Table 1:Definition annd supports for stages of enterprise

Stages Definitions Supports provided

Start-up Individuals, groups or associations are Financial support, well founded skill
organized legally, start production and and technical support, market,
are provided services workplace and legalization of the
enterprise
Growth The enterprise is competent in terms of Initial capital, legal support, business
price, quality and supply in the market. management, entrepreneurship idea,
accounting skill and technical training
which increase productivity and
quality
Maturity The enterprise is competent and Creating competent enterprise
profitable in the market; establish new (through using KAIZEN, expanding

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 enterprises; fulfill the definition of the market destination etc); identifying
sector and promoted to medium or and providing equipments that can
competent and profitable while it is in help MSE to promote to Medium level
MSE stage. enterprise; providing certificate that
shows their (MSE) promotion to
growing enterprise stage
Source : Mekonnen(2014)

Accordingly Micro Enterprises are those small business enterprises with a paid-up capital of
not exceeding Birr 20 000, - and excluding high technical consultancy firms and other high
technological establishments. Whereas, Small Enterprises are those business enterprises with
a paid-up capital of above 20,000 and not exceeding Birr 500 000 and excluding high
technical consultancy firms and other high technical establishments (Haftu, 2009).

The other definition in Ethiopian context is the definition used by CSA which categorized
MSEs in to different scales of operation depending on the above mentioned yardsticks.
According to CSA a micro enterprise is one with fewer than 10 workers; those with 10-50
workers constitute small enterprises while medium and large scale enterprises are those with
more than 50 employees.

In addition to the above mentioned definition currently, based on the gathered experience, by
identifying the gaps of the existing definition of MSE, ignoring the size of employee and by
taking total asset as criteria and by dividing it in to industry and service sector; and
considering the coming 5 years inflation and fluctuation/irregularity of currency the improved
definition is presented as follows: Micro Enterprises are those enterprises having 5 workers
including family members and its total asset not exceeding Birr 100,000 for manufacturing
enterprises and Birr 50,000 for service providing enterprises. Small enterprises are those
enterprises having 6-30 workers and its total capital not exceeding Birr 1.5 million for
manufacturing enterprise and Birr 500,000 for service providing enterprises. When ambiguity
is encountered between manpower and total assets as explained above, total asset is taken as
primary yardstick (MSEDS, 2011).

2.1.4 Concepts of transformation of small scale enterprises

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2.1.4.1 Growth stages, constraints and transitions
Micro and small scale enterprises remain the very important agent in the economic
developments of one country. They become the bench mark for the transitional development
of economy in most developing countries. The study undertaken by Boaten (2012) affirmed
this idea. According to this study the dynamic role of micro and small-scale enterprises MSEs
in developing countries is indicated as necessary engines for achieving national development
goals such as economic growth, poverty alleviation, employment and wealth creation, leading
to a more equitable distribution of income and increased productivity. That is why an attempt
to accelerate growth rates in low-income countries, particularly in Africa gets the attentions of
partners and donors of the world. This shows that MSEs are seen as essential facilitator for
economic growth, job creation, industrial development and poverty alleviation, equitable
distribution of income both in developed and developing countries.

In light of the foregoing for economic growth and development, it would appear that a
reasonably large and vibrant SME sector would be highly desirable, especially for
underprivileged economies, which characteristically appear to have smaller and less vibrant
SMEs sectors. Size and vibrancy in turn require that start–up, micro and smaller firms (MSEs)
are able to transit to the next stage that is into SMEs (Galbraith, 1982; Kazanjian, 1988).

The (Hanks ,1993) propose four stages model and has received a lot of attention in literature.
Where the first stage is characterized as startup, young and small enterprises with simple
organizational structures, the second stage is expansion stage which is slightly older and
larger enterprises with more complex organizational structures. The third is maturity stage. At
this stage enterprise become larger than in the previous stage with more complex structures.
The last and fourth stage is diversification stage at which the enterprise reached the highest
level of entrepreneurship. These stages indicate the evolutionary developments of micro and
small scale enterprise. Essentially, stage models commonly propose that enterprises transit
gradually from one stage to another such that most, if not all, firms do start small. However,
the models also claim that the transitional process can often be highly challenging since firms
experiences different problems typical of a particular stage of growth. Those firms that are
able to resolve the problems are usually able to transit to the next stage, others may be forced
to exit the business environment altogether or remain ever small.

(Berger and Udell ,1998) propose a three stage firm growth: very small; medium–sized, and
large firms. According to this model, the transition from the very small to the large firm stage

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is determined largely by access to confined sources of finance. For instance, in the case of a
very small firm, survival and transit to the medium stage would be determined importantly by
the availability, and the firms’ accessibility to insider (founder capital, trade credit, etc.) and
angel finance. Thus, in the absence of angels, a very small firm must rely only on insider
finance; the model predicts that at this stage, external debt, such as a bank loan, is highly
unlikely due mainly to the firms’ size, age and operational opacity.

2.1.4.2 Financial constraints and the MSE–SME transition

In spite of the debate on firm characteristics in comparison with financial constraints, the
MSE to SME transition is likely to be importantly constrained by the lack of access to
external finance (Beck et al., 2005). In a worldwide survey of 80 countries and 10,000
executives, Schiffer and Weder (2001) show that smaller firms report higher levels of growth
obstacles compared to medium or larger firms. More recently, Beck eta al (2010) note that
while domestic credit to the private sector has generally been increasing in most developing
countries, anecdotal and statistical evidence suggest that smaller enterprises continue to be
largely left out. According to this source the higher financial obstacles reported by smaller
firms across developing and developed economies is consistent with both anecdotal evidence
as well as theory’s predictions.

In addition (Beck et al. 2005) suggested that smaller firms typically need smaller loans but
greater capacity and collateral problems usually translate into higher risk premiums.
Consequently, smaller firms grow much more slowly. The survey also shows that the level of
access to external finance may differ across countries that mean the share of small firms with
no external finance ranged from 19 to 73%. While these studies confirm that smaller firms
may have more difficulties in accessing external finance, they neither does not purse show nor
suggest that smaller firms are completely deprived of external finance. In this respect, a large
number of studies have also attempted to examine and understand the reasons for the lower
degree of access to external finance by smaller firms. Accepting its economic significance on
one hand and appreciating its generic financing constraints on the other, governments around
the world have assumed the responsibility of providing and facilitating financial assistance to
the SME sector.

According to (Beck et al.,2010), common strategy has been the partial credit guarantee (PCG)
scheme. Designed to expand lending to SMEs, a PCG is essentially a risk transfer and
diversification mechanism seeking to lower the risk to the lender by substituting part of the

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counterparty risk by the issuer, which guarantees repayment of part of the loan in case of a
default To solve this financial problem Multilateral organizations such as the World Bank
strongly support government efforts to assist local SMEs sectors.

According to the World Bank (2002, 2004) the Bank itself allocates billions of dollars to
support SMEs programs worldwide; more than $10 over the 1998–2002 period and $1.3 in
2003 alone has been allocated. The Bank is also actively involved in assisting governments
design strategies for alleviating financing constraints of SMEs.

2.1.5 MSEs Transformation measures

There is a little agreement in the existing literature on how to measure growth thus most
previous studies have used a variety of different measures such as total assets, sales,
employment size, profit and capital (Davidson & Wiklund, 2000). Moreover, growth has been
measured in absolute or relative terms. Perhaps the most common means of firm growth is
through relatively objective and measurable characteristics such as growth in sales turnover,
total assets and employment size. These measures are relatively uncontroversial, the data tend
to be easily available and it increases the scope for cross study comparability (Freel &
Robson, 2004). But it is difficult to get reliable time series data on growth of fixed assets/sales
(better indicator of growth) and MSEs owners would be unable to report their sales or profits
even at the present time expecting that their guesses as to sales of ten years ago would be
accurate is folly. Hence, the measurement of growth in terms of changes in the numbers of
workers is objective. Interestingly, Evans (1987) reports that estimates using employment size
is similar to those that use sales besides growth in sales and growth in the number of workers
are highly correlated. Therefore, this study measures the growth of MSEs using employment
size.

2.1.6 The role of micro and small enterprise

The role played by MSEs, through the various socio-economic benefits emanating from the
sector was found to be important in the overall development effort and process of nations. In
other words, by generating larger volumes of employment as well as higher levels of income,
the MSEs will not only have contributed towards poverty reduction, but they will also have
enhanced the welfare and standard of living of the many in the society (Mukras, 2003).

Employment creation: To reduce unemployment micro and small enterprises make

unquestionably a huge contribution, especially in the developing world. Most studies
conclude that small enterprises are more labor intensive than larger ones, and some even finds

13
that the smaller firms also produce more output (or value added) per unit of capital and thus
generate more output as well as employment for a given investment than do larger firms
(Haggblade et al., 1990).

When we look at the share of employment in MSEs and large industries for lower and higher
income countries, 62%, and 38% of employment opportunity in lower income countries
created small scale and large scale enterprise respectively. However, the share of employment
in MSEs in higher income countries is still considerable and it accounts for 41% of the total
employment and the rest51% by large industries (Workneh, 2007).

Poverty reduction: For micro and small scale enterprise the chance to operate their own
business at a very low startup capital, and expand from that point will help them support
themselves and their family. This intern will operate to a reduced nationwide poverty
(Benyam, 2008).

In addition to the above role of MSEs, according to the study of Liedholm and Mead (1999),
the basic contributions of MSEs are also believed to be income generation and employment
creation and they identified and summarized the contribution of MSEs as the following:
Contribution to household income and welfare; which Providing income maintenance for
those with few options; Providing basis for growth in income and welfare through asset
accumulation, skill development and access to more rewarding economic opportunities; and
Providing employment opportunities; Contribution to self-confidence empowerments of the
individuals to Recognition of the dignity of individuals; and Spreading the vision, that change
is possible. Contribution to social change, political stability and democracy through
increasing confidence in local representative community based institutions, through
developing of individuals feelings of responsibility and participation in governance; also
through creating institutional structure reflect, people`s needs and objectives. Contribution of
distributional or developmental objectives by providing new for the opportunities Poor; and
by means of providing new opportunities for the woman Contribution to demographic change,
through reduction of birth rate and through reduction in rural-urban migration.

2.1.7 Theories on Micro and Small Scale Enterprises

Different theories were developed on the development of MSEs at different times. In this
session some theories related to micro and small scale enterprises are presented. For instance,

14
according to Tambunan (2006), two theories were developed in connection with micro and
small scale enterprise. These are: classical and the modern theories. The Classical theory -
states that poverty and the importance of MSEs development correlate positively. In the
course of rapid economic development, the economic share of MSEs declined; while those of
large and medium enterprises dominate the economy. In other words, the higher the
proportion of people living in poverty, the more will be the contribution of MSEs in reducing
poverty.

This theory however, is criticized for neglecting the economic growth of MSEs through
networking and clustering, agglomeration. It only focused on the relationship between levels
of income and the growth of MSEs. Because of these short coming of the theory, the modern
view was developed in 1980s. The Modern Theory- postulates that the major reason for the
emergence of the notion of flexible specialization was the long debate of how to interpret the
new global pattern of production caused by globalization forces and industrial restructuring.
Global production had transformed from mass to individual production system and flexible
specialization is the result of this debate.

Hence, according to (Tambunan, 2006) the modern theory has three characteristics: Flexible
and Specialization firms in the community form part of a bounded community which
outsiders are largely excluded. High level of competitive innovation - there is a continuous
pressure on firms in the community to promote innovation in order to keep an edge of their
competitors and; High level of cooperation - there is a limited competition among firms in the
community over wages and working conditions encouraging greater cooperation among them.

In general, according to (Tambunan,2006), the flexible specialization on MSEs states those

MSEs grow faster than large enterprises with the process and are important source of
invention, efficiency and innovation. They are also capable of standing the competition with
large enterprises. Hence, in the courses of development, the economic share of MSEs
increases or in other words, MSEs contribute a lot for poverty alleviation; while, it declines in
the classical theories.

The other theories are the firm growth theory, and the economic theory. The firm growth
theory-The firm growth theory asserts that MSEs are more likely to disappear and be replaced
by modern large-scale industry. This theory has, however, been shown to be inaccurate in the
sense that MSEs do not normally compete directly with large enterprises; rather, they often
tend to remain micro and small, co-existing with large multi-national companies, which

15
phenomenon the World Bank, 1989 has identified as the missing middle (Ryan, 2005). The
most obvious activity where these niches exist is in distribution to areas or income groups
where their costs would be prohibitively high for large enterprises.

Liedholm and Mead (1993) came to the conclusion that macro-level empirical evidence
indicates that, as aggregate per capita income increases, there is a systematic pattern of
evolution of MSEs towards larger firms based in larger localities, producing more modern
products. The economic theory of the growth of small firms has been concerned with the
relationship between growth and firm size. The conventional wisdom in economic theory has
long held that, due to economies of scale and scope, the growth of firms is positively related
to their size. Large firms were typically expected to have advantages over small firms and so
grow more rapidly. This process was expected to lead to a growing concentration of industry.
This partly explains the emphasis on large scale industry in the former centrally planned
economies (Scase, 1997).

But to some extent it no doubt also explains the fascination of economists from both east and
west with the newly privatized firms in those countries. It was expected by many that all that
was needed to release the forces of growth were a transfer of ownership from the state to
outside owners who would engage in a process of strategic restructuring which would lead
inevitably to rapid growth of the privatized firm sector. It was also thought that the small firm
sector would play a relatively insignificant role in regeneration and transition growth.

2.1.8MSE`s experience in Ethiopia

Recognizing the significance of this sector, the Ethiopian government issued and established
the National Micro and Small Enterprises Strategy and the Federal Micro and Small
Enterprises Development Agency in 1997 and 1998 respectively. The country’s industrial
policy in 2003 and the poverty reduction strategy in 2006 have singled out MSEs as major
instruments to create a productive and vibrant private sector and reduce poverty among urban
dwellers (Mulu, 2009).

The Ethiopian government released the country’s first MSEs Development strategy in
November 1997 E.C. The primary objective of the national strategy framework is to create an
enabling environment for MSEs. In addition to this basic objective of the national MSE
strategy framework, the MOTI has developed a specific objective which includes, facilitating
economic growth and bring about equitable development, creating long-term jobs,
strengthening cooperation between MSEs, providing the basis for medium and large scale

16
enterprises, promoting export, and balancing preferential treatment between MSEs and bigger
enterprises (MOTI, 1997).

The implementation of the strategy is planned to follow five stages. These are awareness
creations, needs identification and implementation planning, resource identification, training
of support agency staff and strengthening the business and entrepreneurial culture. The
strategy indicated criteria for prioritizing MSEs for support. MSEs which are based on local
raw materials and labor intensive having greater inertia and inter-sect oral linkages
(particularly with agriculture), import substitution and export capacity, MSEs engaged in
activities that facilitate and promote tourism.

In general, according to (MoTI, 1997) and (MoI,2006), governmental bureaus, Micro

Financing Institutions, Technical and Vocational Training Centers, productivity
empowerment units, different NGOS, MSEs Councils, the project support units etc are made
to work for the promotion of MSEs in Ethiopia. As a result, it is possible to understand from
the above discussed policies that the current government is giving great attention for the
sector to alleviate the abject poverty, unemployment and to achieve better income
distributions.

March 2011 a task force headed by the Ministry of Urban Development and Construction
(MoUDC) and the Federal Micro and Small Enterprises Development Agency (FeMSEDA)
published a new strategy for the development of MSEs. The strategy identified and analyzed
key MSE development constraints namely, financial, training/consultancy, market, and
infrastructure, and technology transfer, institutional and cross-cutting issues.

According to the new strategy (2011) the overall vision of the strategy is to create a
competitive MSE sector that lays the groundwork for industrial development. To realize this
vision, three objectives have been identified, which are: to increase the employment and
wealth creation capability of MSEs, to enable the MSE sector to become more competitive
and link with agricultural development and to ensure MSE development by creating a large
entrepreneurial base in towns and cities throughout the country. The major output of the new
MSE Development Strategy is the creation of support packages that relate to the areas
identified as constraints to the sector. The target areas for the new strategy are manufacturing
sector (textile, leather and leather products, food processing and beverage, metal works and
engineering, wood work including, agro-processing), construction, trade, services and urban
agriculture.

17
According to the strategy there are two forms of development level of MSE. While the first is
transition from small to medium, the second is a step to be competent within the level they
have. The developmental support of government to MSE is also on the basis of these
transition levels of growth. Hence, based on the experiences of other countries developmental
stages of MSE in Ethiopia within the level can be divide into three stages that is Start-up,
growth and maturity.

The key principles in the strategy are to: sustain growth path through accumulating capital in
a short period of time; create a fertile breeding ground for “developmental investors”
strengthening the limited capital and technology of MSEs; create “developmental investors”
and “developmental politics” in cities; make industry and city development areas as a
direction of government priority; develop the capacity of youth skills and their job creation
ability, improve the saving culture of university and TVET graduates and assign them in the
sector; Ensure industrial extension services in TVETs will provide sustainable human
capacity and technology development, based on the specific industry development strategy
direction.

Generally according to the Micro and Small Enterprise Development Strategy, 2011, 1.5
million job opportunities were created, more than 4 billion loan was given through MFI, about
34 million square mater lands was supplied, 8000 sheds and 380 buildings were constructed
for production and sales purpose. A lot of job opportunities were created and income of the
MSEs rose in the past 5 years as considerable attention was given to the sector.`1 It also
enabled to acquire best experiences in addition to stimulating the development of socio-
economic of towns. In Ethiopia an enterprise to be transformed from small to medium level of
growth is when it enabled to be competent in price, quality, and supply using the support
given to the level. In addition, if they have greater than 30 workers and its total capital were
exceeding Birr 1.5 million for manufacturing enterprise and Birr 500,000 for service
providing enterprises.

2.1.9 Challenges and problems of MSEs Development

To achieve the desired objectives for MSEs, there are a number of barriers that hinders the
attainment of the enterprises. Of special importance here is the set of barriers which hinder the
growth of potentially fast growth enterprise which have the greatest capacity to generate jobs
and introduce innovations and new technologies http://www.man.com. Despite the wide-
ranging economic reforms instituted in the sectors, SMEs face a variety of constraints owing

18
to the difficulty of absorbing large fixed costs, the absence of economies of scale and scope in
key factors of production, and the higher unit costs of providing services to smaller firms&
value added per unit of capital invested (Steel and Webster. 1990).

2.2 Empirical Literature Review on MSEs

2.2.1 Empirical studies of MSEs in other countries

Beck et al. (2006) find, in a study spanning on 80 countries and 10,000 firms, that there was a
39% probability that a small firm would rate financing as a major obstacle (as opposed to
minor, moderate, or no obstacle) compared to 38% for medium and 29% for large firms.
Further, compared to large firms, small firms finance, on average, 13 percentage points less of
their investments with external finance. Access to finance remained a dominant constraint to
small scale enterprises.

According to the study of Aryeetey et al. (1994) reported that 38% of the SMEs surveyed
mention credit as a constraint. This stems from the fact that SMEs have limited access to
capital markets, locally and internationally, in part because of the perception of higher risk,
informational barriers, and the higher costs of intermediation for smaller firms. As a result,
SMEs often cannot obtain long-term finance in the form of debt and equity.

According to the study of Aryeetey et al. (1994) found that 7% of their respondents indicated
that they had problems finding skilled labor, and 2% had similar problems with unskilled
labor. However, only 0.9% of Malawian firms were reported to have had labor problems. This
seems a less important constraint to SMEs considering the widespread unemployment or
underemployment. SMEs generally use simple technology which does not require highly
skilled workers. However the skilled workers are required, an insufficient supply of skilled
workers can limit the specialization opportunities, raise costs, and reduce flexibility in
managing operations.

SMEs have difficulties in gaining access to appropriate technologies and information on

available techniques. This limits innovation and SME competitiveness. Besides, other
constraints on capital, and labor, as well as uncertainty surrounding new technologies, restrict
incentives to innovation. 18% of the sampled firms in Aryeetey et al. (1994) mentioned old
equipment as one of the four most significant constraints to 18.2% (Parker et al, 1995).

19
Access to finance remained a dominant constraint to small scale enterprises in Ghana and
Malawi. Credit constraints pertaining to working capital and raw materials were cited by
respondents between 24% and 52% (ibid). SMEs in Ghana and Malawi emphasized the high
cost of obtaining local raw materials; this may stem from their poor cash flows (Parker et al,
1995).
Mbroh (2011) in his study of the methods of accounting practices by small business owners
within the Cape Coast Metropolitan area of Ghana, concluded that, 34% of his respondents
studied did not practice any form of accounting in addition to a seeming problem with the
specific types of accounts frequently kept by the SBOs.

Relating to the study conducted by Lawal (2010) it follows that for SMEs irrespective of the
nature of their business ideology, key success factors such as proper planning, good financial
control, technology, sustainable improved employee productivity are germane to success of
the organizations whether such SMEs are with international presence or only domesticated in
Nigeria.

2.2.2 Empirical studies of MSEs in Ethiopian

Eshetu and Zeleke (2008) conducted a longitudinal study to assess the impact of influential
factors that affect the long-term survival and viability of small 25 enterprises by using a
random sample of 500 MSMEs from 5 major cities in Ethiopia. According to this research,
that lasted from 1996-2001, the factors that affect the long term survival of MSEs in Ethiopia
are found to be adequacy of finance, level of education, level of managerial skills, level of
technical skills, and ability to convert part of their profit to investment. This is so because the
findings of the study revealed that businesses that failed, during the study period were
characterized by inadequate finance (61%), low level of education(55%), poor managerial
skills (54%), shortage of technical skills (49%), and inability to convert part of their profit to
investment (46%).

According to the study of Mulugeta (2011) ,the critical problems of MSEs has recognized and
classified in to market-related problems, which are caused by poor market linkage and poor
promotional efforts; institution-related problems including bureaucratic bottlenecks, weak
institutional capacity, lack of awareness, failure to abide policies, regulations, rules,
directives, absence of training to executives, and poor monitoring and follow-up; operator-
related shortcomings like developing a dependency tradition, extravagant and wasting

20
behavior, and lack of vision and commitment from the side of the operators; MSE-related
challenges including lack of selling place, weak accounting and record keeping, lack of
experience sharing, and lack of cooperation within and among the MSEs and finally society-
related problems such as its distorted attitude about the operators themselves and their
products.

In addition to the above study, Workeneh (2007) in his study entitled Constraints of Micro
and Small Enterprise in addressing employment opportunity found that MSEs operators in
Addis Ababa face lack of adequate training, unfavorable regulatory policy of the government
institutions, problem of premise, and inadequate training in the area of marketing and
bookkeeping affect the performance and contribution of the sector

Conceptual framework

21
 CHAPTER THREE
METHODOLOGY
3. 1Introduction
The population of the study will briefly described in the research methodology and it deals
with the sampling design, the data sources, methods of data collection and methods of data
analysis, sampling techniques and ethical consideration.

3.2 Description of the Study Area

The study area for this research is in Benishangul Gumuz Regional State in north-Western
Ethiopia in Assosa town since relatively many MSEs are found compared with other towns of
the region. The region is located at 100 38` 20.45" N and 350 43` 58.92" E.

Assosa town micro and small scale enterprise development agency (ATMSEDA) data shows
that the town has Two Wereda and 10 Ketenas 1. There are 647 Micro and small scale
enterprise (MSE) in Assosa town. From these enterprises 176 enterprises are small scale and
medium scale enterprises with a total of 519 operators (ATMSEDA, 2017).

Assosa Town is selected purposely for the reason that this town consist of largest proportion
of the total MSEs of other Town in the region. Hence, the town can be a good representative
for analyzing the transformational development of MSEs in the region.

The administrative map of Benishangul Gumuz Regional State and Assosa Town

Source: Assosa Town Land Management Office (2017)

22
3.3 Research Methodology
This study will uses both quantitative and qualitative approaches of research design. The
study mainly use econometric Analysis to describe the existing situation and as well used
survey method so as to accurately and precisely describe the research population.

3.3.1 Data sources

3.3.2 Data collection techniques

In this study, primary data will collects from operators/management of MSEs, management
member and director of Benishangul Gumuz MSED Agency and with the actors of the Assosa
Town MSE officials. The researcher collected the primary data using field survey.

To collect necessary information from the sample population, sampling was carried out using
questionnaire. Initially the questionnaire was prepared in English but it translated into
Amharic later, to make more understandable for respondents.

The secondary sources of data will gather from files, pamphlets, office manuals, circulars and
policy papers to provide additional information where it was appropriate. In addition, variety
of books, journals, published and/or unpublished government documents, websites and
reports had been reviewed to make the study fruitful.

3.3.3. Sampling techniques and sampling size

3.3.3.1. Sampling techniques

Regarding to sampling techniques stratified random sampling technique was used. Both
probability and non-probability sampling design had been used to get information about the
larger study of population. From non- probability, purposive sampling will use to conduct
interview with the actors of the Assosa Town MSE officials; because they have information
about the sector. In the case of probability sampling, simple random sampling and systematic
sampling was employed.

There are five sectors of MSEs. These are: manufacturing; Service; Construction; Urban
Agriculture and Trade. Within these five sectors, there are a number of MSEs in each
category. The researcher in this regard had tried to take proportional number of MSEs.

23
3.3.3.2 Sample size
There are several approaches to determine the sample size. These include using a census for
small populations, imitating a sample size of similar studies, using published tables and
applying formulas to calculate a sample size. The study applied a simplified formula provided
by Yamane (1967) in order to determine the required sample size at 95% confidence level,

N
degree of variability of= 0.5 and with the level of precision (e)= 9% is n= 2 . Where
1+ N ( e )
n is sample size, N is the population size, and `e` is the level of precision.

Therefore the sample size was as follows.

519
n= 2
1+ 519 ( 0.09 )

519
n= then the total sample size is n=100
1+ 519 ( 0.0081 )

Where n is sample size, N is the population size, and `e` is the level of precision. According
to the above formula, the sample size will be a minimum of 100. Here five sectors of MSEs
are taken. Those are manufacturing Industry, Service, and Construction sectors, market and
urban agriculture sectors. In Assosa, there are 519 operators of small and medium scale
enterprises. The sample taken would through proportionate stratified sampling by selecting
from each sector to get a total of 100 sample size. Simple random sampling was used to get
sample sizes of the small scale enterprise. This technique is preferred because it was assist in
minimizing bias when dealing with heterogeneous population.

Yamane’s formula was used to measure the sample size.

The sample size for my analysis was determined using the formula confidence 95 percent
level error level 5 percent and the target population was 800. (0.05 percent)
n=N/1+Ne2
Where, n=the sample size N=the size of the total population e=the error of 5%
n=N/1+Ne2
a) General sample size n=820/1+820 (0.05) 2 = 269 sample size (n) (Yamane's formula
1967)
Out of the total 269 dispersed questionnaires, 267 (99%) of them were returned. The collected
questionnaires are nearly approximate to the typology that was constructed on the site.

24
Table 2: Assosa Town Small Scale Enterprise Data

Assosa Town Small Scale Enterprise Data in the Year up to June30/ 2017

Name of Enterprise No Of No of Operators in each Respondent

Enterprise
Enterprise enterprise sample size
sample size
Male Female Total

Manufacturing Enterprise
15 20 25 45 9 9
Construction Enterprise
100 250 50 300 58 58
Urban Agriculture
Enterprise
20 40 20 60 11 11
Marketing Enterprise
18 44 10 54 11 11
Service Enterprise
20 15 45 60 11 11
Total
173 369 150 519 100 100

Source :Own field survey

3.3.4 Data analysis and presentation

For analysis of the data both quantitative and qualitative methods will employee. Quantitative
data generated from the survey questionnaire will analyze using STATA. Descriptive

25
statistics like frequencies, percentage, and average were applied to facilitate meaningful
analysis and interpretation of research findings. The results of processed data Assessing
Factors Affecting Transformation of Small Scale to Medium Scale Enterprise in and will
presented in tables, charts and pie charts. Qualitative data obtained through questionnaire and
interviews will analyze through both econometrics and descriptive method of analysis.

3.3.5 Design of the instruments

The instruments will design in such ways that can help for viability of the study. The
questionnaires would be designed both in English and Amharic languages. The purpose of
translating from English into Amharic language is to utilize those who cannot clearly
understand English language so that respond easily.

3.4 Econometric Methods of Data Analysis /Selection of a Model/

Questionnaires will first collect, edited, coded and entered into computer software called
stata. Logistic regression model would be used to identify determinants of small scale
enterprises transfer to medium scale enterprises. Dummy variables will used to analyze their
effect in transformation of small scale enterprises into medium scale enterprise. Accordingly,
variables assumed to have influence on of small scale enterprises transfer to medium scale
enterprises in different contexts would be tested in the model.

3.4.1 Determinant Variable and their symbol in Stata for Transformation of Small scale
enterprise into Medium Scale Enterprise (TRN)

The hypothesized variables that found to be important factors determining the transformation
of small scall enterprise to medium scale enterprise will gender of operators (gndr), Young
age of operators(yage), lack of market access for product and service of enterprise (Lmapse),
working capital(workcl), well trained managers(welltman), bureaucracy(bcrcy), lack of
convenient work place(workplc), lack of infrastructure(Linfra), appropriate machinery and
equipment(appmae), lack of short term and long term plan(Lstltplan) and low members
education level(loleveduc).

Binary logistic regression is the method used for analyzing the determinant factors for
transformation of small scale enterprise into medium scale enterprise. This is because of the
dependent variable has two alternatives i.e. either transform or not transform.

26
 P
Y =ln { }is the equation of binary logistic regression model.
1−P

Y =α + β 1 x 1 + β 2 x 2 + β 3 x 3 + β 4 x 4 + β 5 x 5+ β 6 x 6 +… … … .. βn x n+ ut

Where; Y= dependent variable i.e. Transformation of small scale enterprise

α = constant term

β = coefficient for respective explanatory variable

x = explanatory variable (determinant factors)

Therefore the model of the study was as follows:

Trnsse=α + β 1 age+ β 2 gndr + β 3 mapse+ β 4 bcrcy+ β5 welltman + β 6 toltwh+ β7 workcl + β 8 worplc + β 9 appm

3.4 Null and alternative hypothesis

Ho = Determinant factor have no impact on the transformation of small scale enterprise
H1= Determinant factor have impact on the transformation of small scale enterprise into
Medium scale Enterprises

CHAPTER FOUR

27
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APPENDICES 1. RESEARCH QUESTIONNAIRE

ASSOSA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS

Dear respondent,

My name is Mohammed Yimer and I am a graduate student in Assosa University. Currently, I

am undertaking a research entitled Determinants of small scale enterprises transformation into
medium scale enterprise in Assosa town, Benishangul Gumuz regional state. You are one of
the respondents selected to participate on this study. Please assist me in giving correct and
complete information. Your participation is entirely voluntary.
Finally, I confirm you that the information that you share me will be kept confidential and
only used for the academic purpose. No individuals responses will be identified as such and
the identity of persons responding will not be published or released to anyone. Thank you in
advance for your kind cooperation and dedicating your time.

31
Instructions
No need of writing your name
For scale type statements and multiple choice questions indicate your answers with a
check mark (√) in the appropriate block.
To be Filled by the Small Scale Enterprises Operators and Principal
SECTION I -General Information of the Respondents
1. Gender:
A. Male B. Female
2. Age:
A. 18-35 B. Greater than 35
3. Education levels
A Ilitrate litrate Grade 8-10 Diploma or TVET B. dgree
Above dgree
If your education level is not included in the above levels; please write the highest grade level
you have completed …………………………………
4. Marital Status?
A. Single
B. Married
C. Divorced
D. widowed

SECTION 2: General Information on Business Enterprises

1. In which category do your enterprise asset is included?
A. Between 500,0000-1.5 milion ETB B. Greater than 1.5 million ETB
C. Other specify -----------------------------

32
2. Do you prepare a plan for your future operations of the enterprise?
A. Yes B. No
3. If your response for question 2 is yes, what is the time span your plan covers?
A. below 1 year B. 1 to 2 years C. 3 to 5 years
D. above 5 years 8.
4. Do you have a book keeping and financial control system?
A. Yes B. No
5. If your response for question 4 is yes, what kind of book keeping and financial control
system you are using?
A. Recording the daily transaction B. Balance sheet
C. Income statement D. more than one
6. Do (es) the principal owner manager(s) of the enterprise have/has any management
experience before establishing this business?
A. Yes B. No
7. Do you have any marketing related skill training that you obtain either through your
formal education or any kind of informal education?
A. Yes B. No
8. If your response for question 7 is yes, what is the specific advantage you gained?
A. Know how to price your products B. know how to handle customers
C. Know how to sale your products D. Know how to create market linkages
E. More than one
SECTION 3: Determinants in Transformation of Small Scale to Medium Scale
Enterprises in Assosa Town

The major determinants in transformation of small scale enterprise are listed below. Please
indicate which of these factors are affecting the transformation of your enterprise.

1. In which age category most of your enterprise members found?

A. 18-35 C. Greater than 35
2. In which level of education category most of your enterprise members found?
A Below Diploma or TVET B. Above Diploma or TVET
3. Do you have short tetm and long term plan?
A/ Yes B/ No
4. Do you faced with the problem of Bureaucracy during your enterprise registration and
licensing?

33
 A/ Yes B/ No
5. If your answer for question no 4 is yes, what do you think the reason?

A/ Lack of accessible information on government regulations that are relevant to my

business
B/ Lack of appropriate policy
C/ lack of workers commitment and willingness problem in micro and small scale
enterprise development agency
D/ if other specify………………………………………………………………
6. From financial factors, Shortage of working capital is the one that affect the
transformation your enterprise. Do you agree?

A/ Yes B/ No
7. If your answer for question no 6 is yes, what do you think the reason?

A/ Inadequacy of credit institutions

B/ Fear of High collateral requirement from banks and other lending institutions on
medium scale Enterprises
C/ Fear of High interest rate charged by banks and other lending institutions on medium
scale enterprises
D/ Loan application procedures of banks and other lending institutions are too
complicated on medium scale Enterprise stage
E/ All
8. Do you agree with the statements that well trained and experienced employees
problem is one determinant factor in transformation of your enterprise?
A/ Yes B/ No
9. If your answer for question no 8 is yes, what do you think the reason?

A/ Poor organization and ineffective communication

B/ Lack of clear division of duties and responsibility among employees
C/Both
10. Is inadequate market for enterprise product and service is a problem for transformation
of your enterprise?
A/Yes B/ No
11. If your answer for question no 10 is yes, what do you think the reason?

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 A/ Lack of promotion to attract potential users
B/ Poor customer relationship and handling
C/ Poor product quality to attract market
D/ Lack of knowledge Searching new market
E/More than one
12. Do you think that working place factor determine your enterprise transformation?
A/Yes B/ No

13. If your answer for question no 12 is yes how do you think the problem?

A/ Current working place is not convenient

B/ Absence of own premises
C/Both
14. Do you think that infrastructural factor determine your enterprise transformation?
A/Yes B/ No
15. If your answer for question no 14 is yes, what do you think the problem?

A/ Electric power interruptions

B/ Inadequate and irregular water supply
C/ Shortage of transportation service and road access
D/ All
16. Do you think that entrepreneurial factor determine your enterprise transformation?
A/Yes B/ No
17. If your answer for question no 16 is yes, what do you think the problem?
A/ Lack of tolerance to work hard
B/ Lack of entrepreneurship training
C/ Lack of persistence and courage to take responsibility for ones failure
D/All
18. Do you think that lack of appropriate machinery and equipment factor determine your
enterprise transformation?
A/Yes B/ No
19. If your answer for question no 18 is yes, what do you think the problem?

A/ Lack of skills to handle new technology

B/ Lack of capital to acquire new technology
C/ Unable to select proper technology

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 20. What are the Opportunities for the transformation of small scale Enterprise
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APPENDIX 2. INTERVIEW QUESTIONS WITH MSE LEADERS AND

ACTORS IN DIFFERENT LEVEL

Thank you for your cooperation to the interview date of interview _________________

Name of the Organization _________________________________________

Name of interviewee _____________________________________________

Position in the institution _________________________________________

Time of interview: Started at ______________________________________

Ended at ______________________________________________________

1. What problems did/are you face/facing in your office in the process of transforming small
scale to growth medium scale enterprise?

2. What are the opportunities in the process of transforming small scale Enterprises to
medium scale Enterprises?

3. How you see the coordination of different sectors works on small scale enterprise?

4. How do you describe the general situation of MSEs in view of the goal set by the
government in transforming small scale to medium scale enterprise?

5. According the strategies of small scale enterprise all sectors work on small scale enterprise

play their role properly. If not, what is the problem?

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 6. From which government bodies do transformed medium Enterprises get support?

7. How do you monitor the activities of MSEs in your town?

TABEL 7. Marginal effects after logistic

Marginal effects after logistic

y = Pr(trn) (predict)

= .04095396

Table 3:Marginal Effect after logistic regression

variable dy/dx Std. Err. z P>z [ 95% C.I. ] X

gndr* .0968714 .09325 1.04 0.299 -.085902 .279645 .31

yage* -.0949456 .05829 -1.63 0.103 -.209197 .019306 .38

Lmapse* -.8415301 .0997 -8.44 0.000 -1.03693 -.646131 .43

workcl* .7480576 .26595 2.81 0.005 .226815 1.2693 .15

welltman* .281631 .12268 2.30 0.022 .041188 .522074 .57

toltwh* .0620224 .10135 0.61 0.541 -.136626 .260671 .41

bcrcy* -.2917366 .15906 -1.83 0.067 -.603481 .020008 .56

Lworkplc* -.7467399 .16229 -4.60 0.000 -1.06481 -.428665 .67

Linfrar* -.629184 .18844 -3.34 0.001 -.998528 -.25984 .54

appmae* .1182946 .08031 1.47 0.141 -.039116 .275705 .74

Lstltplan* -.6931464 .2555 -2.71 0.007 -1.19392 -.192377 .59

lowleveduc* -.0790402 .06464 -1.22 0.221 -.205734 .047654 .59

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Source: - Own model output, 2018

APPENDIX 3. OPPERATIONAL DEFINITION

Micro and Small Enterprise (MSE) can be defined as a group of people working together
for financial gain subject to the limits on numbers of workers and capital (Michael,1986:324)

• Micro-Enterprises: as small business enterprises with a paid-up capital of not exceeding

20,000 birr and excluding high tech consultancy firms.

• Small Enterprises: are those business enterprises with a paid-up capital of above 20,000 up
to 500,000 Birr and excluding consultancy firms and other high tech establishments.

• Medium scale Enterprises Enterprises: are those enterprises with a paid-up capital of
above 500,000 Birr.

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 DECLARATION
I declare that this thesis work entitled “Determinants of small scale enterprises transformation
to medium scale enterprise in Assosa town ” is my original work, has not been presented earlier
for award of any degree or diploma to any other university and that all sources of materials
used for the thesis have been duly acknowledged. I have produced it independently except for
the guidance and suggestion of my research advisors.

Declared by:

Name: Mulugeta Gerlu Bogale

Date: 19/10/2010 E.C

Signature: ______________

Advisor: Dr. Mahiphal Vadlapati

Signature: ____________________

Date: _______________________

Co-advisor: Anteneh B.(Msc)

Signature: ______________

Date: __________________

Place and Date of Submission:

Assosa Uiniversity College of Business and Economics Department of Economics Masters of
Development Economics June, 2018

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