Determinants of The Sustainability and Growth of M

Teka Journal of Innovation and
Journal of Innovation and Entrepreneurship (2022) 11:58

https://doi.org/10.1186/s13731-022-00261-0 Entrepreneurship
REVIEW Open Access
Determinants of the sustainability

and growth of micro and small enterprises
(MSEs) in Ethiopia: literature review
Beza Muche Teka*
*Correspondence:
[email protected]; beza_ Abstract
[email protected] The role of micro and small enterprises (MSEs) has been recognized in Ethiopia at the
Department of Accounting strategic and policy levels. They are considered as a way to create jobs, alleviate pov-
and Finance, College of Business erty, ensure food security, and promote private sector development. Despite several
and Economics, Debre Markos
University, Debre Markos, government programs and support schemes aimed at empowering MSEs to be more
Ethiopia competitive and sustainable, they continue to fail at alarming rates. Previous studies
revealed that the failure rate of MSEs in developing countries like Ethiopia is higher
than in developed countries due to a variety of internal and external factors. Thus,
the objective of this study was to identify the major factors that commonly affect the
sustainability and growth of MSEs in Ethiopia through systematic literature review. In
order to achieve the objective of the study; published previous research works (journal
articles) in the manufacturing and service sector from 2006 to 2021 were used. The
findings from different empirical studies revealed that financial factors, marketing fac-
tors, political-legal variables, lack of adequate infrastructure, technological factors and
manager or owner personal characteristics are the major factors that commonly deter-
mine the sustainability and growth of MSEs in Ethiopia. Finally, the study suggested
that government, non-governmental organizations (NGOs), and financial institutions
should give great attention towards the sustainability and growth of MSEs in Ethiopia.
Keywords: Sustainability and growth, Financial factors, Marketing factors, political-
legal variables, Infrastructure factors, Manager or owner personal characteristics
Introduction
The contribution of Micro and Small enterprises (MSEs) to employment, growth, and
sustainable development is now widely acknowledged throughout the world. Micro and
small enterprises (MSEs) are described as the natural home of entrepreneurship. Most
large enterprises in Ethiopia and throughout the world began as MSEs and grew to
maturity over time as capital and business management experience accumulated (EEA,
2015; Ethiopia’s MSED Policy & Strategy, 2016). MSEs are considered critical to soci-
ety’s overall development. They are at the heart of economic and social empowerment
for citizens, as governments cannot simply generate jobs for everyone. MSEs are one
of the ideal locations for young people to be entrepreneurial, develop new technology,
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Teka J ournal of Innovation and Entrepreneurship (2022) 11:58 Page 2 of 16
and develop substitute products to replace imported goods (Gebremariam, 2017). The
importance of micro and small enterprises (MSEs) in a country’s long-term growth has
drawn the attention of numerous countries throughout the world. They promote eco-
nomic development by reducing poverty, creating job opportunities, increasing self-suf-
ficiency, increasing industrial production and exports, and making a major contribution
to GDP growth (Baleseng, 2015; Rahel, 2018). MSEs have become key urban economic
activities in most industrialized countries, notably in terms of creating urban jobs. MSEs
and the informal sector are the primary income-generating activities in developing
nations in general and in Ethiopia in particular, and so they contribute significantly to
local economic development and are used as a basic means of survival (Gebre-egiziab-
her and Demeke 2004 as cited in Rahel, 2018). One of the primary drivers of economic
growth and employment creation is the MSE sector. This is especially true in several
low-income African nations, where MSEs and the informal sector account for over 90%
of enterprises, generate over 50% of GDP, and employ over 63 percent of the popula-
tion (Ahmed, 2012 as cited in Rahel, 2018). Micro and Small and enterprises are the
economic activities that separate the developed and developing worlds (El-Khasawneh,
2012 as cited in Baleseng, 2015). Many academics recognize the importance of micro
and small companies in economic development (Baleseng, 2015; EEA, 2015; Ethiopia’s
MSED Strategy, 2011; Ethiopia’s MSED Policy & Strategy, 2016; Rahel, 2018).
Due to differences in economic development across the world, the definition given
to Micro and Small Enterprises is not similar. To define MSEs’, different countries uti-
lize different criteria such as the number of employees, yearly turnover, total assets, and
startup capital. A micro enterprise in Ethiopia’s industrial sector (manufacturing, build-
ing, and mining) is defined as a business that employs up to five people, including the
owner, and/or has total assets of less than Birr 100,000. Similarly, a micro enterprise in
the service sector (retail, transportation, hotel, tourism, ICT, and maintenance) is one
that employs up to five people, including the owner, and has total assets of less than Birr
50,000. In the industrial sector, a small business is defined as one that employs 6 to 30
people and/or has a paid-up capital or total assets of less than Birr 1.5 million. Accord-
ing to Ethiopia’s MSED Strategy (2011), a small service sector business has between 6
and 30 employees and/or total assets or paid-up capital of Birr 500,000.
Similarly, there is no single universally accepted definition for sustainability. MSEs sus-
tainability is defined in a variety of ways by different scholars. For example, Hubbard
(2009) defines a sustainable business as one that serves the demands of its stakeholders
without jeopardizing its ability to supply those needs in the future. A sustainable firm,
according to Savitz and Weber (2006), is one that generates profit for its shareholders
while also safeguarding the environment and enhancing the lives of those with whom it
interacts. As a result, sustainability stresses combining stakeholders’ needs and profit-
ability with environmental protection. Enterprises’ sustainability can be interpreted in
a variety of ways, with the potential to bring value to the environment, communities,
customers, and the bottom line for businesses of all sizes. In Ethiopia, and in this study,
sustainability is defined as an enterprise’s ability to continue operating in a given busi-
ness climate, as described by proclamation No. 686/2010 (Amare, 2020).
MSEs are considered the best mechanisms for capital accumulation and economic
empowerment in Ethiopia because they play an important role in creating employment

Teka Journal of Innovation and Entrepreneurship (2022) 11:58 Page 3 of 16
opportunities, particularly for urban youth and women. They also serve as an engine to
transform economies from agricultural to industrial (Gebremariam, 2017). Ethiopia’s indus-
trial development policy prioritizes the development of micro and small businesses. MSEs
are the primary engines of employment creation in urban areas, and job creation is at the
heart of the country’s development strategy. The importance of MSEs as job creators is
pushed not only in low-income nations like Ethiopia, but also in high-income countries like
the United States. As a result, because MSEs play such an important role in job creation,
one of Ethiopia’s top development priorities is to stimulate and strengthen MSE develop-
ment (Ethiopia’s MSED Policy & Strategy, 2016).
Most governments have seen an increase in awareness and acknowledgment of the role
played by Micro and Small Enterprises (MSEs) and their contribution to the economy as
a result of the current highly competitive environment (Hlatshwako, 2012), which is not
unique to Ethiopia. The relevance of the micro and small enterprise sector in Ethiopia,
especially for low-income, poor, and female populations, can be shown in their substantial
presence, percentage of employment, and minimal capital requirements. Governments and
other development partners are interested in micro and small firms for these reasons alone.
MSEs are considered as a burgeoning private sector in many developing nations, particu-
larly countries in transition, such as Ethiopia, where they create the foundation for private-
sector-led growth (Ethiopia’s MSED Policy & Strategy, 2016).
These roles of MSEs have been recognized in Ethiopia at the strategic and policy levels.
They are considered as a way to create jobs, alleviate poverty, ensure food security, and pro-
mote private sector development (Gebrehiwot and Wolday, 2006). Ethiopia is one of the
countries working to meet the Sustainable Development Goals (SDGs). Policy and strat-
egy for the growth of micro and small enterprises can make a significant contribution to
achieving sustainable development goals. The Sustainable Development Goals, as well as
the national and ministerial Growth and Transformation Plans (GTP) II documents, pay
significant attention to the issue of job creation and employment, and it is closely linked to
the Micro and Small Enterprise Development Policy and Strategy (Ethiopia’s MSED Policy
& Strategy, 2016). Various development plans in Ethiopia have emphasized broad-based
growth and transformation through the promotion of MSEs’, but both the degree of unem-
ployment and the quality of jobs remain a worry. As a result, one of the main problems fac-
ing Ethiopia’s government is to increase employment opportunities to alleviate widespread
poverty and establish an internationally competitive industrial system. Thus, increasing
employment opportunities to alleviate the widespread poverty and create an internationally
competitive industrial structure are among the policy challenges the Ethiopian government
is currently confronting (Meressa, 2020). Therefore, in order to make the MSEs sector the
engine of economic growth and reduce the problem of unemployment, it is important to
understand factors influencing the sustainability and growth of MSEs in the context of Ethi-
opia. Thus, the objective of this study is to identify the major factors that commonly affect
the sustainability and growth of MSEs in Ethiopia through systematic literature review.
Methodology
To identify the factors that affect the sustainability and growth of MSEs in Ethiopia,
several studies were conducted in the past and majority of the studies found contradic-
tory results. Hence, the focus of the current study is to identify the major and common

factors that influence the sustainability and growth of MSEs in Ethiopia through sys-
tematic literature review. Only past similar empirical studies in Ethiopia related to the
sustainability and growth of MSEs in the manufacturing and service sector were con-
sidered. The period of the study includes research outputs published by international
journals, covering from 2006 to 2021. Finally, the findings from different empirical stud-
ies were summarized and compared and then conclusions were drawn about the most
important factors that commonly influence the sustainability and growth of micro and
small enterprises in Ethiopia.
Theories related to the sustainable growth of SMEs (theories of change)

If–then business management theory of change
Business management skills are a primary driver of productivity. Lack of managerial
skills and capability among SME employees and leadership is a substantial limitation to
company growth and the ability of SMEs to resist economic shocks (Addis, 2019; Alene,
2020; Bruhn et al., 2013; Iddrisu et al., 2012). As a result, one frequent belief among
development practitioners is that increasing the capacity of SME owners and employees
will improve the performance and growth of their businesses if they learn new skills,
resulting in increased labor demand, additional sales revenue, and job creation (Gebre-
mariam, 2017; USAID, 2019; Worku, 2009) (Fig. 1).
Access to finance theory of change

One of the most critical impediments to SME sustainability and growth is a lack of
investment funding, and access to credit is a key driver of business success (Loening,
et al. 2010). Credit makes it possible for businesses to invest in productive assets that
will boost productivity, increase production, and hire additional personnel as produc-
tion inputs (Ibid). Several studies have looked into the impact of access to financing
interventions on the growth of small businesses (Kassa, 2021; Meressa, 2020). According
to the findings, some of these measures, such as better credit information and collateral
law change, can help firms perform better in areas like sales and employment (Cook &
Olafsen, 2016; USAID, 2019) (Fig. 2).
Increase
profits
They increase
cost efficiency
Increase
SME owners They change employment
Recieve business
Training practices Increase
profits
They increase
sales
Increase
employment
Fig. 1 If-then business and thecnical training theory of change. Source: Adopted from USAID (2019)

Increase
They profit
increase cost
They change efficiency Increase
They business employment
purchase practices
needed and / or Increase
services improve They profit
More SMEs productivity increase
Recieve sales Increase
(more and employment
/or cheaper
dollar They
They improve Increase
They profit
purchase product
increase
needed quality and
sales Increase
equipment /or product
offerings employment
Fig. 2 If–then access to credit theory of change. Source: Adopted from USAID (2019)
Lenders have improved More SMEs Recieve

See '' Acess to Credit''
information on the (more and /or cheaper
theory of change
creditworthiness of SMEs credit)
Fig. 3 If–then access to credit information theory of change. Source: Adopted from USAID (2019)
Access to credit information theory of change

According to the evidence, information asymmetries impede SMEs’ access to funding,
while credit information can assist SMEs’ in becoming more financially integrated
(Cook & Olafsen, 2016; Global Financial Development Report, 2014; MSED Strategy,
2011; Kassa, 2021; USAID, 2019; William, 2017). Any information that helps a lender
determine if a company is creditworthy is considered such information, and it is typi-
cally used to calculate credit scores that predict repayment based on borrower char-
acteristics (Global Financial Development Report, 2014) (Fig. 3).
Market access theory of change

SMEs may be able to scale up through expanding into new markets. However, break-
ing into these areas can be difficult. SMEs struggle to access information about mar-
ket opportunities, and potential clients do not know how to easily find SMEs’ that can
meet their needs. Moreover, many market opportunities are out of reach for SMEs’,
due to legal and financial constraints, along with high quality standards (Innovations
for Poverty Action, 2017). Both the SME and the large purchasing firm gain from a
market linkages approach (helping the creation of long-term commercial partner-
ships between SME suppliers and larger buyer enterprises). Through this approach,

SMEs’ can achieve a stable market for their products and services. Market linkages
initiatives have been shown to improve SME sales and employment, as well as have a
favorable impact on SME sustainability (Arráiz et al., 2013; USAID, 2019). Businesses
with greater ties to a range of organizations grow more quickly than their competitors
(Meressa, 2020) (Fig. 4).
Literature review
Micro and Small Enterprises (MSEs) are considered as an important contributor to eco-
nomic growth and employment creation in Ethiopia (Ethiopia’s MSED Policy & Strategy,
2016; Negash and Sileshi, 2019). However; despite several government programs and
support schemes aimed at empowering MSEs to be more competitive and sustainable,
they continue to fail at alarming rates (Baleseng, 2015; Rahel, 2018). Micro and small
enterprises fail at a high rate across the world. MSE entrepreneurs encounter numerous
challenges that hinder their long-term viability and growth. While many MSEs start-ups
survive in Ethiopia, many others fail after a few years, leaving only a small fraction to
expand into medium and large businesses (Amare, 2020; Cherkos et al., 2018; Ethiopia’s
MSED Policy & Strategy, 2016). Previous studies revealed that the failure rate of MSEs
in developing countries like Ethiopia is higher than in developed countries due to a vari-
ety of internal and external variables (Arinaitwe, 2002 as cited in Rahel, 2018). These
factors have an impact on the MSEs day-to-day operations as well as its long-term per-
formance and survival. The incidence of termination of small and medium-sized enter-
prises in Ethiopia is relatively common. For example; of the 650 enterprises considered
in one Zone (administrative province), 330 (50.8%) were found to be censored (sustained
enterprise) and the remaining 320 (49.2%) were found to be terminated or failed enter-
prises (Amare, 2020). Similarly a study conducted by Cherkos et al. (2018) also prove
that because of poor working premises, lack of access to finance, infrastructure prob-
lem and lack of entrepreneurship competency, there was 50% drop—out rate in MSEs
in Amhra Region, Ethiopia. This situation creates pressure on the country’s economy by
producing jobless citizens which is contrary to Ethiopian government micro and small
enterprise development policy and strategy (Ethiopia’s MSED Policy & Strategy, 2016)
focused on the issue of job creation and employment through MSEs’. Therefore, the cur-
rent study is intended to identify the major factors that commonly affect the growth and
sustainability of MSEs’ in Ethiopia through systematic literature review.
SMEs They increase

SMEs linked to improve sales and
new domestic business overtime, Increase profit
markets and / or practices compititors
large firms learn from
source from and / thier business
SMEs improve models and Increase
or provide product offerings
business / practices employment
technical (spillover
support to SMEs effect)
Fig. 4 If–then market linkage theory of change. Source: Adopted from USAID (2019)

Conceptual framework of the study

From the above related theories and empirical literature reviews, the following concep-
tual framework is developed for the current study. The variables included in the con-
ceptual framework are classified as internal and external factors. Accordingly; financial
factors, marketing factors, infrastructural factors, political-legal factors and technologi-
cal factors are grouped under external factors whereas managers/owners personal char-
acteristics is an internal factor (Fig. 5).
Determinants of the sustainability and growth of MSEs: empirical evidence in Ethiopia

Financial factors
Lack of access to finance, poor book keeping and accounting system, shortage of ade-
quate initial investment, shortage of working capital, poor repayment culture and their
inappropriate use of credit are the major financial factors that determine the sustain-
ability and growth of MSEs in Ethiopia (Addis, 2019; Alene, 2020; Amare, 2020; Batisa,
2019; Ethiopia’s MSED Policy & Strategy, 2016; Fikadu, 2015; Gebremariam, 2017;
Gemechu & Teklemariam, 2016; Gebrehiwot & Wolday, 2006; Hagos et al., 2014; Kass,
2021; Meressa’s, 2020; MSED Strategy, 2011; Rahel, 2018; Solomon, et al., 2016; Samuel,
2019; Vedanthadesikan & Malarvizhi, 2018). Because small businesses are "too big" for
microfinance organizations but "too tiny" for banks in terms of loan size, access to credit
appears to be a major binding limitation for their expansion. This reflects the "missing
middle financial intermediaries" that support small businesses. Small businesses face a
greater difficulty in obtaining finance than micro businesses, which typically have access
to microfinance institutions (MFIs’) because their lending needs are within the capac-
ity of MFIs’. Due to the burdensome bureaucracy and high collateral requirements,
a huge percentage of micro and small businesses have not applied for a loan or credit
from formal financial institutions. Lack of collateral is one of the main challenge pre-
venting growth oriented MSEs from achieving their rapid growth potential and becom-
ing competitive in the market. Most enterprises are unable to obtain finance at the right
time and of the required amount. Lack of continuity and absence of financial services
that meet the specific nature of a particular business complicate the problem (MSED
Financial Factors
Marketing Factors
Infrastructural
Factors Sustainability and
Growth of MSEs
Political-legal Factors
Managers/owners
Personal
Characteristics
Technological
Factors
Fig. 5 Conceptual framework. Source: Own development (2022)

Strategy, 2011; Tarfasa et al., 2016). Lack of access to medium or long-term loans is a
key stumbling block for businesses looking to grow their operations. The reasons for this
are well known, particularly the fact that MSEs pose a high risk to lenders because many
of them lack adequate assets and are undercapitalized. Furthermore, banks find it dif-
ficult to analyze the creditworthiness of potential MSE borrowers due to weak account-
ing records and a lack of other financial data. Furthermore, due to the relatively high
cost of processing small loans, banks are often hesitant to lend to MSEs’. Commercial
banks and formal money lending organizations are hesitant to lend money to MSEs or
request strict requirements such as collateral security due to management inefficiency,
poor repayment culture, inappropriate use of credit, lack of experience in using credit
to improve competitiveness, and lack of precise information needed to assess the risk
of providing money to MSEs. As a result, most MSEs prefer to use personal savings and
contributions from relatives as a main source of credit (MSED Strategy, 2011; Kassa,
2021; William, 2017) which is consistent with the country’s Micro and Small Enterprise
Development Policy & Strategy (Ethiopia’s MSED Policy & Strategy, 2016).
Enterprises having access to finance expand faster than those with limited credit,
despite the fact that the majority of businesses encounter numerous problems in obtain-
ing debt financing from formal institutions (Kassa, 2021; Meressa, 2020). This corre-
sponds to the access to finance theory of change (USAID, 2019). For example, according
to a study conducted by Kassa using binary logistics regression, MSEs can be improved
by 13.475 times when the owners obtain credit from financial institutions, it imply-
ing that without financial resources, the success and growth of the enterprises will not
be achieved easily by the business owners. On the other hand, financial and resource
management inefficient MSEs were 5.49 times more likely to fail than their competitors
(Worku, 2009). All these imply that more access to finance contributes to the growth of
MSEs (Kanbiro and Bekele, 2020).
Evidently, with regard to the impact of initial investment, Meressa (2020) on his empir-
ical study indicates that businesses that started with at a higher beginning investment
expand quicker than those that started with a lower first investment or in other words it
implies that enterprises which started their business operation with higher initial invest-
ment grow faster than their counterparts and they have better sustainability experience
(Ethiopia’s MSED Policy & Strategy, 2016; Kassa, 2021).
Marketing factors
Inadequacy of market, difficulty of searching new market, lack of demand forecasting,
poor customer handling system, lack of available market information, lack of promotion,
lack of connection with successful and other businesses or market linkage, and lack of
adaptability are the major marketing factors that determine the sustainability of MSEs
in Ethiopia. Empirical results indicated a positive relationship between MSEs growth
and market access (Addis, 2019; Batisa, 2019; Amare, 2020; Ethiopia’s MSED Policy &
Strategy, 2016; Gebremariam, 2017; Gemechu & Teklemariam, 2016; Gebrehiwot and
Wolday, 2006; Hagos et al., 2014; Kassa, 2021; MSED Strategy, 2011; Rahel, 2018; Solo-
mon, et al. 2016; Samuel, 2019; Tadesse, 2020; Vedanthadesikan & Malarvizhi, 2018).
For example, the odds ratio result of a study conducted by Negash and Sileshi (2019)
indicates that the growth of MSEs which have access to market is 29.19 times greater

than those which have not good marketing access. When it comes to market linkage,
businesses that have a stronger connection to a variety of organizations expand faster
than their competitors; which is in line with the market access theory of change (Mer-
essa, 2020; USAID, 2019). Meressa also demonstrated that businesses with more con-
nections to diverse organizations through trade shows and bazaars grow quicker than
their competitors. In general; MSEs which had access to market linkage registered
higher growth rate than those which had no access to market linkage (Alemayehu and
Gecho, 2016). Limited market linkage, on the other hand, makes MSEs’, particularly
small businesses, not benefited from technology transfers, marketing their products and
other useful business relationships (Tarfasa et al., 2016). As a result, they are becoming
despondent to continue their business (Feyisa and Tamene, 2019).
Political‑legal factors
Political-legal variables such as lack of government support, tax and lack of accessible
information on government regulations are the major political and legal factors that
determine the sustainability and growth of MSEs in Ethiopia (Addis, 2019; Amare, 2020;
Batisa, 2019; Gemechu & Teklemariam, 2016; Hagos et al., 2014; Rahel, 2018; Vedan-
thadesikan & Malarvizhi, 2018; Vedanthadesikan & Malarvizhi, 2018; WilliIam, 2017).
The suitability and sufficiency of the work premise provided by the government threaten
to utilize the potential of MSEs. Furthermore, a lack of an enabling business task envi-
ronment from the support institution has an impact on MSEs long-term viability and
growth. Although the Ethiopian government has attempted to liberalize and improve
the policy, regulatory, and institutional support environment for MSEs’, resulting in
increased investment and competition as well as improvements in licensing procedures,
Gebrehiwot and Wolday (2006) found that there is still divergence between stated poli-
cies and directives. Lack of adequate business support services and unfair tax request by
the revenue office continue to be major roadblocks to MSEs sustainability and growth.
However; collaboration with business support institutions and other organizations can
serve to acquire the expertise and services that currently are lacking in the industry
(Wodajo, et al. 2020). Furthermore, weak business environment, and policy and regula-
tory barriers are among the common challenges’ MSEs are facing in Ethiopia (Solomon,
et al., 2016).
Infrastructure factors
Lack of infrastructure such as electricity, lack of access to land or work place/shade and
inappropriate business location are the main challenges that affect the sustainability and
growth of MSEs in Ethiopia. The empirical findings of most previous studies revealed
that access to infrastructure is a crucial determinant in MSEs success, since those with
sufficient infrastructure expand quicker than those that do not (Addis, 2019; Amare,
2020; Batisa, 2019; EEA, 2015; Gemechu & Teklemariam, 2016; Gebremariam, 2017;
WilliIam, 2017; Samuel, 2019; Vedanthadesikan & Malarvizhi, 2018). Enterprises that
own adequate land as a working premise have a better chance of making a profit and
grow faster than their competitors (Alene, 2020; Meressa, 2020). MSEs that were operat-
ing at own working premise grow faster than those that operates at rented and at fam-
ily working premise. Furthermore, due to the relatively high rent cost that hinder their

expansion and diversification, MSEs operating in rented working premises had a lower
growth rate than MSEs operating in their family working premises (Abay et al., 2014;
Kanbiro & Bekele, 2020). MSEs having better access to adequate infrastructure expand
quicker than their competitors. As a result, access to infrastructure (such as access to
working premises, proximity to raw materials and having enabling working environ-
ments) has a positive and considerable impact on MSE sustainability and growth in
Ethiopia (EEA, 2015; Hagos et al., 2014). On the other side, poor business environment
and lack of adequate infrastructure (like frequent power outages, and a scarcity of water)
have significant negative impact on MSEs sustainability and growth (Alemayehu and
Gecho, 2016; Tarfasa et al., 2016). For example; Cherkos et al. (2018) on their empiri-
cal study indicated that due to daily power interruption, 25% of MSEs work time is lost.
Cherkos et al. also shows that even though working areas are built, around 65% of the
MSEs did not start work due to lack of infrastructure or facilities in the sheds. Similarly,
inadequacy of working premises is a major challenge; most of the MSEs are working at
a very small room which is completely unsuitable for production and service delivery
(Feyisa & Tamene, 2019). Business location has also significant impact on the growth
of MSEs. Micro and Small scale enterprises located in urban areas or near to different
infrastructures grow faster than enterprises located in rural areas or far from different
services and infrastructures (Addis, 2019; Meressa, 2020; Samuel, 2019).
Manager or owner personal characteristics

Owners/managers’ age, education level, lack of prior experience in accounting and busi-
ness management, family size, MSE’s age, lack of business knowledge, lack of strongly
held confidence and underdeveloped entrepreneurial mindsets/entrepreneurship com-
petency among the operators of MSEs, lack of good communication skill and a lack
of technical and managerial experience/skill gap all influenced the sustainability and
growth of MSEs in Ethiopia (Alene, 2020; EEA, 2015; Ethiopia’s MSED Policy & Strategy,
2016; Hagos et al., 2014; Kanbiro & Bekele, 2020; Kassa, 2021; MSED Strategy, 2011).
MSE growth is adversely correlated with the owner’s age and family size. This suggests
that the younger owner with a smaller family grows faster than the older owner with a
larger family. This result assured that the youngest owners’ enterprises were more suc-
cessful than the other group (Kassa, 2021). The owner/manager’s education and prior
experience has also a good and considerable impact on MSE growth. This demonstrates
that MSEs owned/operated by people with a greater degree of education and prior expe-
rience expand quicker than their counterparts or in other words it implies that firms
owned and managed by entrepreneurs with a higher formal education do better finan-
cially than their peers (Alene, 2020). For example; the odds ratio result of an empirical
study conducted by Alemayehu and Gecho (2016) indicated that the probability of MSEs
growth for MSEs which had owners with education level 12 completed and above is 11.7
times higher than those MSEs with education level under 12 grade. In general, firms with
more experienced, educated and trained entrepreneurs grow more rapidly than those
with entrepreneurs possessing smaller stocks of human capital (Wodajo, et al., 2020).
Most of the enterprise operators did not have prior experience in basic account-
ing and business management and thus they are not able to effectively manage their
businesses. This invariably resulted in large scale start up failures and loss of hope,

even desperation, on the part of the operators (Ethiopia’s MSED Policy & Strategy,
2016; MSED Strategy, 2011). Most importantly, human capital development is critical
for company employees, since it has been established that companies with a higher
proportion of trained and skilled production workers expand at a statistically signifi-
cant faster rate than companies with a lower proportion of trained workers (Tarfasa
et al., 2016) which is consistent with the business and technical training theory of
change (USAID, 2019). In Ethiopia, managerial efficiency and entrepreneurship skill
are the most important variables in ensuring the long-term survival of micro and
small businesses (Gebremariam, 2017; Worku, 2009). Having a high degree of mana-
gerial abilities and entrepreneurship competency improves the long-term survival
and profitability of micro and small enterprises. For example; the binary logistics
regression odds ratio result by Negash and Sileshi (2019) related to entrepreneurship
competency explains that the probability of growing for those MSEs having entre-
preneurship competency is 60.79 times higher than those MSEs that have no entre-
preneurship competency. Previous entrepreneurial experience and training have
significant positive effect on enterprises performance. This implies that as an individ-
ual firm’s experience grows, so does the firm’s profitability and growth (Alene, 2020).
On the other hand; lack of access to training has negative contribution towards the
growth of MSE (Kanbiro & Bekele, 2020).
In terms of the effect of gender on the growth of micro and small businesses, Tef-
era et al. (2013) found that there is a considerable gender difference in the growth of
MSEs, with male-owned businesses increasing faster than female-owned businesses
because of the fact that woman has dual responsibility. On the contrary, empirical
study conducted by Merssa (2020) revealed insignificant effect of gender on growth of
micro and small enterprises. Similarly, Negash and Sileshi on their study also identi-
fied that owner/manager characteristics such as gender and age have no significance
influence on the growth of MSEs.
With regard to training, entrepreneurs who receive business training to build the
required skills and information needed to improve business performance perform
better in their businesses. Similarly, MSEs with access to business information expand
quicker than their rivals because having adequate business information can improve
and strengthen customer interactions, boost firm image, promote market connec-
tivity, and enable them to compete with other businesses (Addis, 2019; Batisa, 2019;
USAID, 2019).
Furthermore, job-related factors such as a lack of harmonious relationships among
employees/teamwork, lack of determination, lack of initiative to assess one’s strength,
and lack of tolerance to work hard or motivation are the primary internal variables
that affect MSEs sustainability and growth in Ethiopia (Ethiopia’s MSED Policy &
Strategy, 2016; Rahel, 2018). Motivation of owner is found significant for MSEs
growth. Due to lack of interest to join MSEs; owners who join MSEs at last when
they unable to get any alternative are not ready to perform their activity by their own
interest; as a result they become unsuccessful. On the other hand MSE owners who
joined MSEs by their own choice regardless of other alternatives perform well. This
implies that growth rate for MSEs with owners who joined by choice is higher than
those joined because of lack of alternative (Alemayehu & Gecho, 2016).

Technological factors
The widespread use of outdated technology and working techniques is the other major
challenge to MSEs competitiveness. Among the primary technical related variables that
have a significant impact on MSEs sustainability and growth are lack of open minded-
ness and preparedness for continual improvement, as well as a lack of readiness to adapt
new technology and working techniques (Ethiopia’s MSED Policy & Strategy, 2016). To
overcome technological, operational, and market competitiveness difficulties, MSEs
must first commit for change and continual improvement (Addis, 2019; Batisa, 2019;
Ethiopia’s MSED Policy & Strategy, 2016; MSED Strategy, 2011; Samuel, 2019; ).
Other factors
In addition to the above major factors, lack of knowledge of the potential of MSEs (the
attitude that considers engagement in MSEs a sign of poverty and backwardness and
then discounts their potential economic role), preference for paid employment and
dependency are also among the challenges that negatively influence the sustainabil-
ity and growth of micro and small Enterprises in Ethiopia (Ethiopia’s MSED Policy &
Strategy, 2016). Further, innovation and imitation have also significant positive effect on
growth of MSEs and it is suggested that the owner-managers of small enterprises can
achieve higher growth through following different form of innovations and imitations
such as product, process, work practice, marketing and supply relations. This can be
realized by enhancing human capital through training and experience (Wodajo, et al.,
2020).
Conclusion and recommendation

Micro and Small enterprises are the backbones of a country’s long-term economic
growth. It can be utilized as an explicit approach for promoting faster and more inclusive
economic growth. Various development plans in Ethiopia have emphasized broad-based
growth and transformation through the promotion of MSEs (Ethiopia’s MSED Policy &
Strategy, 2016). However, despite a lot of effort that has been made by the government
to improve the sustainability and growth of micro and small enterprises, they are con-
fronted with several factors. Some enterprises fail to sustain, some others remain for a
long period without transforming, and most are producing similar and non-standard
products (Cherkos et al., 2018).
This study will be utilized as input for policymakers and development agencies to aid
the country’s economic progress by identifying the major factors that commonly influ-
ence MSEs sustainability and growth. It will also be employed as a source of information
for comparable future studies. Both internal and external factors that determine the sus-
tainability and growth of MSEs in Ethiopia are identified through systematic empirical
literature review.
Accordingly, financial factors (such as lack of access to finance, poor bookkeeping and
accounting system, shortage of adequate initial investment, shortage of working capital,
poor repayment culture, their inappropriate use of credit, lack of experience in using
credit to improve competitiveness and lack of precise information needed to assess the
risk of providing money to MSEs), marketing factors (such as poor customer handling

system, lack of available market information, lack of promotion, lack of connection with
successful and other businesses or market linkage, and lack of adaptability), political-
legal variables (such as lack of government support, unfair tax request by the revenue
office, policy and regulatory barriers, lack of adequate business support service, and
lack of accessible information on government regulations), lack of adequate infrastruc-
ture (such as electricity, poor business environment, scarcity of water, proximity to raw
materials, work place/shade and inappropriate business location), manager or owner
personal characteristics (such as owners/managers’ age, education level, poor experience
in accounting and business management, lack of entrepreneurship competency, lack
of business knowledge, lack of strongly held confidence and underdeveloped entrepre-
neurial mindsets among the operators of MSEs’, lack of technical and managerial expe-
rience/skill gap, lack of harmonious relationships among employees/teamwork, a lack
of determination, a lack of initiative to assess one’s strength, and a lack of tolerance to
work hard), and technological factors such as use of outdated technology and little or no
readiness among MSEs in adapting new technology are identified as the major factors
that commonly determine the sustainability and growth of MSEs in Ethiopia.
Therefore; to reduce the negative effect of lack of access to finance on MSEs sustain-
ability and growth, the study recommends that banks and other credit giving financial
institutions should come up with creative policies that make it easy for the MSEs to
access financing. Microfinance institutions, as the primary source of credit for micro and
small enterprises, must develop distinct loan portfolios or financial products for busi-
nesses at various stages of development, as well as establish monitoring and follow-up
systems to assess the appropriate and result-oriented use of loans and then to improve
their creditworthiness. The provision of post-loan support to MSEs should be the focus
area of MFIs and government leaders at all levels. Another way to address the lack of
financial resources for MSEs in countries where banks demand high collateral security
is to build on and strengthen the self-help efforts of MSE operators and their families;
savings education should be incorporated into the curriculum and implemented as one
of the main functions of schools and TVETs’. A certain amount of savings shall be con-
sidered as a precondition when young graduates intend to start their businesses and
borrow from financial institutions and also appropriate awareness creation mechanisms
for promoting savings shall be developed through MFIs. In addition, the government
should think towards the establishment of especial financial institution like venture capi-
tal firms to finance and mentor entrepreneurs who have good business idea but have no
initial capital.
Market-based skills training, technological support, and market linkages should be
established, as well as support aimed at improving their marketing capacities. Train-
ing programs shall be planned and delivered based on training needs assessments and
shall be provided to help businesses improve their business and managerial skills. To
help MSEs become more productive and develop faster, research-based technology and
standardization support shall be provided by higher education institutions.
Some Micro and Small Enterprises have limited availability of some kind of resources
while they may have excess in other kind of resources. The development and mainte-
nances of organizational networks pave the ways to sharing resources and information
among network members (Wodajo, et al., 2020).

For other factors, it is suggested that the government and other stakeholders (such as
NGOs and financial institutions) should improve their provision of basic business infor-
mation and financial management skills, as this will allow MSEs to make more informed
investment decisions and improve their entrepreneurial skills.
The study also suggested that even if both internal and external factors have impact
on sustainability and growth of micro and small enterprises, MSEs are recommended to
focus and strive on solving the internal factors by themselves rather than waiting third
party solutions for external factors because solving internal factors need less effort and
can easily promote the overall performance of enterprises (Cherkos et al., 2018).
Finally, though most of the past studies findings with regard to the determinants of
the sustainability and growth of MSEs are consistent with those factors identified by
the Micro and Small Enterprise Development Policy & Strategy document of Ethiopia
(Ethiopia’s MSED Policy & Strategy, 2016), the problems are not still addressed, so the
researcher recommended that the old and outdated Micro and Small Enterprise Devel-
opment Policy & Strategy of the country should be revised taking in to account the cur-
rent dynamic business environment.
Limitation of the study and future research directions

The conclusion of the current study is simply based on summary of the results of similar
previous research works which didn’t indicate the statistical effect of the identified fac-
tors on the sustainability and growth of MSEs in Ethiopia. Therefore, future researchers’
can conduct similar research through Meta-Analysis by incorporating the statistical sig-
nificance effect of different factors.
Abbreviations
MSEs Micro and small enterprises
SMEs Small and medium enterprises
NGOs Non-Governmental Organizations
GDP Gross domestic product
MSED Micro and small enterprises development
ICT Information communication technology
FDRE Federal Democratic Republic of Ethiopia
GTP Growth and transformation plan
MFIs Microfinance institutions
EEA Ethiopia Economic Association
TVETs Technical and vocational education trainings
Acknowledgements
Not applicable.
Author contributions
Not applicable since the investigator (Dr. Beza Muche) is sole author. The author read and approved the final manuscript.
Authors information
This review manuscript is done by Dr. Beza Muche Teka. Dr. Beza Muche has seven publications in different reputable
international journals.
Funding
This research is done by the researcher himself and no funding opportunity from any source.
Availability of data and materials

The datasets used/literatures/during the current study will be available from the author on reasonable request.
Declarations
Competing interests
The author declare that no anyone who have competing interests in this manuscript.

Received: 29 October 2021 Accepted: 16 November 2022
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Determinants of the sustainability

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Theories related to the sustainable growth of SMEs (theories of change)

Access to finance theory of change

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Lenders have improved More SMEs Recieve

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Market access theory of change

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SMEs They increase

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Conceptual framework of the study

Determinants of the sustainability and growth of MSEs: empirical evidence in Ethiopia

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Manager or owner personal characteristics

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Conclusion and recommendation

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Limitation of the study and future research directions

Availability of data and materials

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Received: 29 October 2021 Accepted: 16 November 2022

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