RIFT VALLEY UNIVERSITY CHIRO CAMPUS

Challenges of Micro and Small Scale Enterprises Development in Ethiopia: A

Case of West Hararghe Zone Chiro District

RESEARCH PROPOSAL

PRPARED BY: AHIMAD NAJASH ABDUJABAR

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ACRONYMS AND ABBREVIATIONS

CSA Central Statistical Authority

ECA Economic Commission of Africa
ETB Ethiopian Birr
FeMSEDA Federal Micro and Small Enterprises development Agency
GDP Gross domestic Product
GTP Growth and Transformation Plan
ICT Information Communication Technology

ILO International Labor Organization

MDGs Millennium Development Goals
MELFED Micro Enterprise Laying the Foundation for Economic
Development
MOTI Ministry of Trade and Industry
MSEDACA Micro and Small Enterprises Development Agency of the
Administration
MSEs Micro and Small Enterprises
MSMEs Micro, Small and Medium Enterprises
MSDS Micro and Small Enterprises Development Strategy
MUDCO Ministry of Urban Development and Construction
NGO Nongovernmental Organizations
OECD Organization of Economic Corporation and Development
SMEs Small and Micro Enterprises
SNNPRS Southern Nations, Nationalities and Peoples Regional State
SPSS Statistical Package for the Social Sciences
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TABLE OF CONTENTS
ACRONYMS AND ABBREVIATIONS ii
TABLE OF CONTENTS iii
Table of list iv
1. INTRODUCTION 1
1.2 Statement of the Problem 5
1.3 Objectives of the Study 7
1.3.1 General Objective 7
1.3.2 Specific Objectives 7
1.4 Research Questions 8
1.5 Significance of the Study 8
1.6 Scope of the Study 8
1.7. Limitation of the Study 9
1.8 Organization of the Study 9
2. LITERATURE REVIEW 10
2.1Theoretical Literature Review 10
2.1.1 Definition of Micro and Small Enterprises Development 10
2.1.2 Definition of Micro and Small Enterprises in Ethiopia 11
2.2 Challenges for the Expansion of MSEs in Ethiopia and other Countries 14
2.2.1 Lack of access to finance and credit: 14
2.2.2 Lack of clear and pragmatic national policy and institutional qualities: 16
2.2.3 Location and working space problems: 17
2.2.4 Lack managerial and other skilled labor, and lack of training: 17
2.2.5 Lack of sufficient marketing and high competition level: 18
2.2.6 Lack of formal or informal linkages / business cooperation amongst enterprises: 20
2.2.7 Lack of good infrastructure facilitates: 21
2.2.8 Previous business experience and service year: 21
2.2.9 License and record keeping: 22
2.2.10 Raw material problems: 22
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2.3. Empirical Literature 24

2.3.1 Micro and Small Scale Enterprises (MSE) Development in Ethiopia: 24
2.3.2 MSE as a key means for the country’s development 25
3. RESEARCH METHODOLOGY 27
3.1. Research Design 27
3.2. Study Area 27
3.3. Population of the Study 28
3.4 Data Sources and Data Collection Techniques 30
3.5. Sampling and Sample Size 30
3.6 Sampling techniques 31
3.7. Sample Size Determination 31
3.8. Data Analysis Technique 32
REFRENCES 36
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1. INTRODUCTION

The Micro and Small Enterprises (MSEs) share a key role in generating and sustaining
economic growth and equitable development in almost all economies. The exploitation
of the potential of the indigenous sector that uses local resources and appropriate
technology as an engine for growth is seen as an alternative development model to the
traditional large-scale intensive model in developing economies (OECD, 2006). In cities
and towns of Ethiopia, MSEs and informal sector in general are the predominant income
generating activities. They have a significant contribution to local economic
development and used as the basic means of survival (Tegegne and Mulat, 2005; Elias,
2005). Most governments also recognize the potential of MSEs to create employment
and contribute to poverty eradication, although in many cases this potential is not being
fulfilled (Reinecke and White, 2004).

In many countries, especially in developing countries micro & small enterprises are
small informally organized commercial operations owned and operated mostly by the
poor. They account for a substantial share of the total employment and Gross domestic
Product (GDP) contribute significantly to the alleviation of poverty and income creation.
They are often the chief economic defense of the most vulnerable households in high-
risk environment, such as civil conflict and natural disasters (micro enterprise laying the
foundation for economic development (MELFED, 2004).

Nowadays, there are multi-dimensional problems like extreme poverty, unemployment,

low per capita income, and unequal income distribution facing in many developing
countries. As a result, different governments are framing different strategies and policies
to create job opportunities and to pull these countries out of their problems. One strategy
as to create jobs and accommodate maximum number of citizens has been emerged, i.e.
the establishment of MSEs (Ermias, 2011).
Micro and Small Enterprises Strategy in 1997 and established the Federal Micro and
Small Enterprises Development Agency in 1998. The country’s industrial policy in 2003
and the poverty reduction strategy program of 2006 have singled out MSEs as major
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instruments to create a productive and vibrant private sector and reduce poverty among
urban dwellers (Ephrem, 2010; MOFED, 2006; MoTI, 1997).

Micro and Small Scale business Enterprises are seen as the most important alternative
sector in fostering socio-economic developments in both developed and developing
countries. Particularly, they make undoubtedly a huge contribution to employment in
many developing countries where there is a challenge of high unemployment and
poverty exists. Several studies reveal that MSEs in these countries are considered as
crucial in employment creation and generally contribute to economic growth as an
engine of development and vehicle towards fulfilling the Millennium Development
Goals (MDGs). Chief among these goals is the reduction of poverty through creating
employment, wealth and improvement of living standards, because poverty and
unemployment rate are considerably higher in these countries than developed countries,
(Robinson & Pharr, 1991).
The Growth in MSEs has been found to have a link with economic growth and poverty
alleviation. In order to generate enough income to help minimize the incidence of high
level poverty in most developing economies, international funding bodies and economic
growth analysts have suggested to policymakers in developing economies to make
greater efforts at promoting private sector development with MSEs being at the forefront
(Snodgrass & Winkler, 2004).

1.2 Statement of the Problem

Ethiopia is implementing various strategies to reduce poverty and unemployment. One
of the poverty reduction strategies is micro and small enterprises development strategy.
Micro and small enterprises are components of plan for accelerated and sustained
development to end poverty (MoFED, 2006). The current Growth and Transformation
Plan (GTP) has also give due attention to enterprises and states that micro and small
enterprise development is the key industrial policy direction contributing to envisaged
structural transformation of the economy. Furthermore, GTP states that overall objective
and key government policy direction for micro and small enterprises is to expand the
quality and quantity of micro and small enterprises (MoFED, 2006, 2010).
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In Ethiopia specifically, MSEs have being confronts by many of these problems.

According to the CSA Report (1994-1995), the major obstacles experiences by MSEs
are lack of access to finance, working premises (at affordable rent), luck of skills and
managerial expertise, infrastructure, information and technology. These problems result
in failure of these businesses to expand and have the effect of preventing their expansion
almost from the beginning of their operations.
However, it is hardly possible to think that all micro enterprises are successful in serving
the purpose they are intended for. This is largely true that their growth is dependent on a
number of factors, such as lack of training, lack of entrepreneurial skills, lack of
security, lack of promotion, insufficient amount of startup finance, high cost of input,
education, gender and managerial incompetence (Mukras, 2003; Mukras and Seemule,
2005). The challenges further include unfavorable legal and regulatory environments, in
some cases, discriminatory regulatory practices, lack of access to markets, finance,
business information, lack of business premises at appropriate rent, low ability to acquire
skills and managerial expertise, low access to appropriate technology and poor access to
quality business infrastructure.
The current information is likely to be very useful in the formulation of policies by
Government, NGOs, donor agencies and other bodies interested in helping to shape and
improve of Micro and Small Enterprises. Hence, this study is deems to assess the
challenges of micro enterprises and challenging the growth of Micro and Small
Enterprises which have not been adequately studied in Hosanna town. In this study, the
effort is make to assess the development of micro enterprises and identify the Micro and
Small Scale Enterprises Development in West Hararghe Zone Chiro District.

1.3 Objectives of the Study

1.3.1 General Objective

The general objective of this study is The Challenges of Micro and Small Scale
Enterprises Development in Ethiopia A case of West Hararghe Zone Chiro District.
1.3.2 Specific Objectives
The specific objectives of the study are:
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1. To extent that the government assists the MSEs to access and make use of available
credit facilities in study area.
2. To identify the basic challenges that face MSEs in the town.
3. To identify the nature of MSEs in study area.
4. To assess the growth rate of MSEs within the study area.

1.4 Research Questions

The study has attempted to answer the following research questions.
1. What is the implication of multiplicity of government facilitates/ shapes on micro
and small enterprises?
2. What are the major challenges that MSEs face in the study area?
3. What is business ownership formatting?
4. Does your enterprise show growth rate within 2007-2008?

1.5 Significance of the Study

The study helps to clearly understand and examine the situations and challenges of
MSEs so that appropriate and evidence-based interventions can be made. The Micro and
Small Enterprises are the engines of growth and development of the developing
countries like Ethiopia where poverty and unemployment are prevalent. Effective
functioning of Micro and Small Enterprises is considered as one of the important
strategies to meet out the poverty reduction policy of the government.

Understanding the factors hindering the growth and survival of MSEs in this town helps
policy makers governments (federal, regional and zone), NGOs, and other stakeholders
to design targeted policies and programs that will actively stimulate innovation, as well
as helping those policy makers to support, encourage, and promote MSEs for
unemployment and poverty alleviation through minimizing the constraints hindering the
growth and survival of the enterprises. The findings of this study will help MSEs in
Hossana town within an insight into the benefits of using different challenges studied in
this research to predict the challenges that affect the development of MSEs.
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1.6 Scope of the Study

In Ethiopia there are so many SMEs operating in the country and each one of them face
some challenges which normally prevent them growing and also to contribute to the
economy effectively. Within the context of this study the focus is on challenges facing
SME's operating in Hosanna town which will go a long way to represent the challenges
facing SME's in Ethiopia. Looking at the limitations of this study the researcher focused
on selected SME's from the following groups to represent the whole sector. This
includes: Construction, Manufacturing, Urban agriculture, Service and Trade . This study
describes its scope only to those enterprises which are Micro and Small Enterprises
according to the Ethiopian Ministry of Trade and Industry (MoTI) definition. The study
will undertake in West Hararghe Zone Chiro District. The main aim of this study is to
the look in to the operating and business development of MSEs organized under
different saving and credit associations managed in Hosanna town.

1.7. Limitation of the Study

Certain Limitations is encountered at the course of conducting this study. One of the
greatest challenges that the researcher encountered at this study related to access to and
collection of hard data due to extreme data gaps situations in the town. This compelled
the researcher to limit the study to Micro and Small Enterprises. Another limitation of
this study relates to time, funds and logistics constraints, which limited the intensity of
the spread or area of coverage of the study.

SMEs are spread throughout the length and breadth of West Hararghe Zone Chiro
District but the research only covers a certain percentage of them. The researcher is also
faced with some respondents who fail to complete questionnaire given them and this
limits the number of respondents who are involve in the study despite the researcher’s
efforts and approaches to explain the potential benefits of the study to them.

1.8 Organization of the Study

The study is organized into 5 chapters. Chapter 1 has already dealt with the introduction
consisting of background of the study, statement of the problem, objectives of the study,
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research questions. Significance of the study, scope of study and limitations of the study.
Chapter 2 deals with the review of relate literature including theoretical and empirical
literature. Chapter 3 deals with the research methodology, study area, population of the
study, data sources, and data collection techniques, sapling and sample size, sampling
techniques, sample size determination and data analysis techniques. Chapter 4 presents
the results and discussion. It is the discusses research findings and analyses on the basis
of the identified indicators. Chapter 5 is deals with the summary, conclusion and
recommendations of the study.

2. LITERATURE REVIEW

2.1Theoretical Literature Review

2.1.1 Definition of Micro and Small Enterprises Development

According to, OECD (2004), worldwide consensus that high rates of economic growth
contribute to economic and social development and poverty reduction. At the same time,
there is growing recognition that poverty reducing growth depends on the quality of
growth: its composition, distribution and sustainability.
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The importance of the small enterprises sector is well recognized worldwide due to its
significant contribution to gratifying various socio-economic objectives, such as higher
growth of employment, output, promotion of exports and fostering entrepreneurship.
Recent empirical studies show that small enterprises contribute to over 55% of GDP and
over 65% of total employment in high-income countries. Small enterprises and informal
enterprises, account for over 60% of GDP and over 70% of total employment in low-
income countries, while they contribute over 95% of total employment and about 70% of
GDP in middle-income countries. In the European Union countries, for example, there
are some 25 million small businesses, constituting 99% of all businesses; they employ
almost 95million people, providing 55% of total jobs in the private sector (Hidayet et al.
2010).
According to, Hillary (2000),MSEs are defined in a range of ways using different factors
like; number of employees, volume of sales, and the capital value of the business.
Although many countries around the globe seem to use common factors in their
definitions, the degree of emphasis and measures used differ quite considerably. To this
end, different governments and writers in MSEs definition differ considerably. This
difference is influenced largely by, the industry within which the MSE is competing and
population and stage of a country’s economic development.

A definition of MSEs in the industrialized world would differ from how MSEs are
defined in the emerging economies. An enterprise categorized as micro enterprise in
USA may be treated as medium enterprise in Africa or somewhere in Asia for the fact
that the definition of MSE is relative to economic development. The annual turnover
figures also differ from country to country, depending among other factors on population
size and stage of economic development. From this we can learn that there is no
common definition of MSEs and that the definitions vary from country to country
depending largely on the size of the economy, the levels of development, culture and
population size of a country involved.

2.1.2 Definition of Micro and Small Enterprises in Ethiopia

Size of employment, capital investment or turnover is used as criteria to categorize

enterprises along scales of operations and define Micro, Small, Medium and large
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Enterprises. This categorization is important for functional and promotional purposes to

achieve the desired levels of development (MSEDS, 2011). In the case of Ethiopia, there
is lack of uniform definition at the national level to have a common understanding of
MSEs sector. While the definition by Ministry of Trade and Industry (MoTI) use capital
investment whereas the Central Statistics Authority (CSA) uses employment and favored
capital intensive technologies as yardstick.

According to the MoTI (2004):Micro enterprises are those business enterprises in the
formal and informal sector, with a paid up capital not exceeding Birr 20,000 and
excluding high tech consultancy firms and other high tech establishments.
Small enterprises are those business enterprises with a paid up capital of above Birr
20,000 and not exceeding Birr 500,000 and excluding high tech consultancy firms and
other high technological establishments (MoTI, 2004). On the other hand, CSA (2004)
categorizes enterprises into different scales of operation on the size of employment and
the nature of equipment.

According to CSA (2004): Enterprises in the micro enterprise category are subdivided
into informal sector operations and cottage industries. Cottage and handicraft industries
are those establishments performing their activities by hand and using non power driven
machines. The informal sector is defined as household type establishments or activities,
which are non-registered companies and cooperatives operating with less than 10
persons. Establishments employing less than ten persons and using motor operated
equipment are considered as small scale manufacturing enterprises. (CSA, 2004).
Due to the absence of uniform definition of the sector, the agency failed in gathering
data about cottage and handicraft industries for the last 7 years. Hence, the data collected
from the MSE and the ongoing strategy and support frameworks become different to
analyze and to interpret in scientific ways.
When the MSE development strategy is formulated in 1998 the definition of MSEs was
by considering other countries experience especially the South African experience
(MSEDS, 2011). The definition given at that time was only based on paid capital or
capital investment as most businesses were confined to family man power basis and lack
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of availability of manpower information of the sector. Hence, the following are

identified as short comings/gaps of the 1998 definition (MSEDS, 2011).

Although the main objective of MSE is to create job opportunity, it was difficult to
compare the achievements in job creation with the definition. And it does not show
enterprise capital size/amount/ when it is compared with the experience of other
counties. The existing definition of the sector considered a paid up capital without
considering the experience in reality. It does not show the full pictures of MSEs as they
are established based on self-paid up capital and credit from banks (MSEDS, 2011).
Though the definition underlines a paid up capital, the transfer from micro to small and
from small to middle was on the basis of total asset. Since the definition of small
enterprise does not include high technology and consultancy/advise/ services, it should
be revised from the angle of technology and construction services. Thus, based on the
above mentioned reasons the existing definitions of the sector were reviewed in January
2011on international experience and current process of the sector basis (MSEDS, 2011).
Based on both national and international experiences the government of Ethiopia defines
micro enterprises which involved in manufacturing, construction and mining as an
enterprise that operates with a maximum of 5 people (including the owner) and/or own
up to ETB100,000 total asset. The total equity aspect is limited to a maximum of ETB
50,000 if the micro enterprises are engaged in the service sector including retailer,
transport, hotel and Tourism, ICT and maintenance service.

Likewise, the Ethiopian government classifies enterprises that have 6 - 30 employees

(including the owner) and/corporate with a total asset that is beyond the micro
enterprises in the industry segment but not exceeding ETB 1.5million as small
enterprises. On the other hand the definition puts enterprises engaged in the service
sector like in the retail, transport, hotel and Tourism, ICT and maintenance under small
enterprise once their capital exceeds ETB 50,000 until it reaches ETB 500,000 and/or
employing the same 6-30 employees as the enterprises operating under the industry
sector. Over all the countries definitions sides the total asset yardstick in times of
ambiguity.
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Table 1 Definition of MSEs

Enterprise Sector No Employees Total asset in

birr
Micro enterprise Industry ≤5 ≤100,000
Service ≤5 ≤50,000
Small enterprise Industry 6-30 ≤1.5million
Service 6-30 ≤ 500,000
Source: Ethiopian Micro and Small enterprises strategy 2011
CSA adopts its own definition which is not well aligned with the MSE policy and
FeMSEDA’s definition which is based on the size of employment and extent of
automation.
The micro enterprises are categorized into different scales of operations based on the
size and nature of employment that was in use classifies enterprises into different size
categories based on number of workers as criteria. For example, according to the CSA, a
micro enterprise is one with less than 10 workers. Accordingly, it sub-divides micro
enterprises into informal sector operations and cottage industries. Cottage and handicraft
industries are those establishments performing their activities by hand. The informal
sector is defined as household type establishments or activities which are non-registered
and operating with less than 10 persons. For the ease of consistency and comparability of
various data, this study has adopted the definition given by the MoTI. For the purpose of
directing its policy and program support, the Ministry of Trade and Industry (MoTI)
adopted definition of micro small and medium enterprises based on paid up capital.
Micro enterprises are those business enterprises with a paid up capital of less than birr
20,000 and excluding high-tech consultancy firms and technology establishments
FMSEDA (Federal Micro and Small Enterprises Development Agency, 2007).

2.2 Challenges for the Expansion of MSEs in Ethiopia and other Countries
According to Commission on Legal Empowerment of the Poor (2006), most MSEs in
Ethiopia faces critical constraints both at the operation and start up level. Some of these
constraints include lack of access to finance, access to premise, infrastructure, training in
entrepreneurial and management skills, information on business opportunities, and social
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and cultural factors particularly related to deficient entrepreneurial culture and excessive
corruption.

2.2.1 Lack of access to finance and credit:

Lack of adequate capital, sufficient loan, and inefficient financial market in terms of
facilitating financial resources to entrepreneurs are the major obstacles in doing business
particularly in the informal sector. Most micro and small enterprises are highly risky
ventures involving excessive administrative costs and lack the experience in dealing with
financial institutions and do not have a track record of credit worthiness with banks.
Since most banking institutions are reluctant to provide small enterprises with loan and
credits, most MSEs are unable to secure collateral requirements. As a result of absence
in financing, the creation of new enterprises and the growth and survival of existing ones
will be impeded (Commission on Legal Empowerment of the Poor, 2006).

Access to finance is a major bottleneck for the rapid growth and development of MSEs
mainly due to targeted mechanism put in place to address the financial needs of small
scale enterprises. Most micro and small enterprises do not have access to micro finance
institutions and most banks are reluctant to avail credit facility to small enterprises
unless they have acceptable collateral. The standard of loan appraisal, the long delay the
banks take to sanction loans, unfavorable disposition towards small loans and the limited
collateral requirement, which is over 100% of the loan amount, are the major obstacles
that small scale enterprises are facing (Commission on Legal Empowerment of the Poor,
2006).
Moreover, the interest rate by most micro finance institutes, which is higher than the
lending rate of formal banks, inhibits effectiveness in addressing the needs of micro
enterprises (Commission on Legal Empowerment of the Poor, 2006).
According to Wolday and Gebrehiwot (2006), more than 93% of MSEs replied that they
did not apply for bank loans for the reasons they considered themselves as discouraged
potential borrowers, need credit but are discouraged from applying by the perceived or
real high collateral requirement, high cost of borrowing, difficulty of processes,
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ineligibility, or concern about their repayment ability and uninformed (i.e. not aware of
the facility, or where and how to apply, etc.).

The findings of Mulu (2007) also indicate that banks and MFIs do not seem to support
MSEs expansion. Due to this 85% of the respondents have never received credit from
these formal sources. The availability of other informal sources of finance, however,
affects growth positively and significantly. This shows that in the absence of formal
source of credit, informal networks appear more appealing for MSEs. Hence, firms with
better network to borrow from informal sources such as, relatives, friends, and suppliers
better loosen credit constraints, and grow faster.
Lack of finance has been considered in many studies as a key success factor for MSEs
such as Rolfe et al (2010), Mbonyane & Ladzani (2011), Olawale & Garwe (2010)
Okpara (2011) and Etumeahu, 2009)
2.2.2 Lack of clear and pragmatic national policy and institutional qualities:
Despite the strategies and other rules and regulations that are in vigor in theory, most
interventionist policies regarding MSEs are inappropriate and impractical. For instance,
most government policies have a tendency to over regulate and limit the growth of
private sector enterprises and they are over bureaucratized and unfriendly to support
small businesses (Commission on Legal Empowerment of the Poor, 2006).
A study conducted by Economic Commission of Africa (ECA) (2001) in countries such
as Ethiopia, Cameron, Gabon, Nigeria, Senegal and Uganda have shown that the
regulatory and policy environment in which MSEs operate proves to be major handicap
for their expansion and growth. The same study reveals that the complexity of customs
system and many forms and declarations required have had a negative impact on the
general business environment diverting entrepreneurs’ efforts from more productive
tasks.
The findings of Eshetu and Mammo (2009) also indicate that legal and regulatory
problems are major obstacles to efficient operation of Micro and Small Enterprises.
According to this study, bureaucratic registration requirements for licensing, high policy
control, overregulation, corruption, high tariffs and unfair tax were found as major
policy-related constraints that adversely affect the sector. Free market policy has also
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exposed them to international competition, and this had a significant positive impact on
their challenges.
According to, Mbonyane & Ladzani (2011) further found that the government is not
actively providing support mechanisms for business registration to ensure the success of
micro-enterprises.
There is also poor communication between the government and small business owners.
Lack of proper regulation in terms of borrowing funds from the banks by small business
owners; lack of focus in formulation and implementation of policies, and tax laws affects
the challenges of MSEs. For the proper promotion of the development of small business
enterprises, there is need for a well-articulated plans or programs by the government
(Etumeahu, 2009).

2.2.3 Location and working space problems:

For MSEs, lack of premise is unquestionably a serious problem. Most informal

operators do not get access to suitable locations where they can get easy access to
markets. The issue of acquisition and transaction cost has become very prohibitive to the
emergence of new enterprises and to the growth and survival of existing ones. The issue
of land provision and the land lease system has greatly constrained the chances of Micro,
Small and Medium Enterprises who aspire to startup businesses (Eshetu & Mammo,
2009).
According to Rolfe et al, (2010) findings location is critical factor for sales and income
of Small Scale Enterprises and hence entrepreneurs benefit from businesses in formal
residential areas. Logically, this finding stems from the higher per capita income and
demand density in developed urban areas. Demand density also makes taxi ranks and
train stations more lucrative. These spaces are limited and thus a source of competitive
advantage that cannot be copied or re-created. Mbonyane & Ladzani (2011) found that
small businesses select a site without first thoroughly analyzing the suitability of
location. The same researcher found that most of the micro-enterprises are failing owing
to a lack of space provided by the government and the various shortcomings of the small
business owners regarding their businesses. Olawale &Garwe (2010) also found that
poor location has a negative impact of the challenge of Micro and Small Enterprises.
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2.2.4 Lack managerial and other skilled labor, and lack of training:

There is lack of knowledge of entrepreneurial and managerial capacity, and marketing

experience. Lack of skill leads to problems in production due to the unfamiliarity of
workers with rapid changing technology, lack of coordination of production process, and
inability to troubleshoot failures on machinery and/or equipment’s is a critical problem
that MSEs are facing since they cannot afford to employ specialists in the fields of
planning, finance and administration, quality control, and those with technical
knowledge (Commission on Legal Empowerment of the Poor, 2006).
Moreover, MSEs lack resources required for research and development and there is
inadequate technical and entrepreneurial skills (Commission on Legal Empowerment of
the Poor, 2006).There is lack of formal education and training in MSEs operators. The
most common form of acquiring skills in the MSEs sector is through apprenticeships.
Though the formal education system prepares students for paid employment, there are
very few vocational institutions that cater for developing skills. This inevitably leads to
low level of innovation in almost all sectors of the economy and severe shortage of
training opportunities for potential entrepreneurs (Gebrehiwot & Wolday, 2004).
Mbonyane & Ladzani (2011) found that more than 50 percent of micro-enterprises lack
training in proper business management. As a result, there is lack of technology
available to Micro and Small Businesses Enterprises. The results of this research show
that the government does not have enough support mechanisms available to ensure that
small business owners and their employees receive the training that would enable them
to run the business successfully. Most owners do not have management experience and
adequate training and skills to operate a business (Okpara, 2011). Olawale and Garwe
(2010) also found lack of business skills and shortage of skill labor which results from
absence of proper training are affecting micro and small enterprises negatively.
Furthermore, there has been research that indicates that enterprises who had received
training in their areas of business reported that their businesses were doing well. But
enterprises who did not receive training in their areas of business perform less. This
indicates that relevant training can produce positive results in the running of businesses
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(Bowen et al 2009). Management is one of the fundamental bases of business

development. Most of the small business owners do not acquire enough education before
establishing business of their own and they are still blind in seeing the wisdom of formal
learning or acquiring managerial skills in doing business though claim to be successful
with their acquired experience. This has resulted to the low level of attention to the
welfares of their workers. It is therefore important for small business owners to absorb
the skills of proper management (Etumeahu, 2009).

2.2.5 Lack of sufficient marketing and high competition level:

The marketing problem is the main constraint for the growth of enterprises (Rahel &
Paul, 2010). Micro and Small Enterprises in Ethiopia faced various marketing problems.
There is lack of product diversity and as a result similar products are overcrowding the
market. In addition to this certain Micro and Small Enterprises lack the skill to modify
their products and they have lack of sufficient range of product designs (Assegedech,
2004). Ethiopian Micro and Small Enterprises have different pricing problems such as
lack of costing knowledge, did not include overhead costs, salary or wage of family
members involved in the production process are not considered, and do not know the
exact earning from sales (Assegedech, 2004). Many MSEs plan to promote their
products, however, their budget is mostly limited. In addition to this, such MSEs have
lack of awareness haw to compete in the market. MSEs are less advantageous to
compete in the market than large companies since they have smaller economies of scale
(Assegedech, 2004).
In terms of problems related to product diversity, the findings of Assegedech (2004),
Rahel and Paul (2010) and Eshetu and Mammo (2009) are similar. According to Eshetu
and Mammo (2009), majority of MSEs produce or give services of similar products in a
limited domestic market. Most of them do not seek new possibilities and opportunities
outside the local markets.
According to Rahel and Paul, (2010) also reported the presence of competition is the
most significant factor. This is because of the reason that enterprises in the same sector
sell identical products without any additional distinctiveness and innovative activities.
This led them to compete for the same demand. Due to this, the local markets crowded
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with similar products or services and the level of competition among local producers of
goods and services is intense. As result, the returns are fairly low. In addition, presence
of illegal traders around their market place leads to unbalanced competition and low
demand for merchants who are legal. This results in lack of demands which is another
problem for the enterprises.
The establishment of markets in residential areas also limits the demands. The change in
demand and being unable to modify their products with the demand is the other
marketing problem. Because of such collective factors (stiff competition from local and
foreign products), most of the MSEs are claimed that they are at a disadvantage. There
are no sufficient institutional facilities that nurture the promotion, growth and
development of MSEs. Marketing their products effectively as well as accessing and
acquiring information on business opportunities are the major bottlenecks that micro and
small entrepreneurs face all over the country. As a result, the design and quality of
products of MSEs are below standard. In addition, lack of marketing skills and weak
infrastructural facilities renders small businesses to be uncompetitive (Commission on
Legal Empowerment of the Poor, 2006).
According, to Mbonyane &Ladzani, 2011, Olawale & Garwe, 2010 Bowen et al, 2009
also found that lack of appropriate marketing practices are among the major constraints
that hinder the smooth function of MSEs.
According, to Bowen et al, (2009) found that there is fierce competition in the small
business sector which leads to price competition and small margin of profit. Olawale &
Garwe, (2010) also show that high competition is among the major factors that hinder
the growth of micro and small enterprises. This is due to the reason that most of MSEs
tend to congregate in dense markets and overcrowded town. Small business owners do
no longer find it easy in competing with their own goods which is mostly perceived by
consumers as low quality ones when compared with those of the multinational
companies. Due to the aggressive competition small business enterprises are facing from
companies that operate with greater capital outlay, companies with better and modern
equipment’s for production, companies with better manpower and companies with
marketing capabilities have resulted to low level of business and at times outright
closure by small business owners (Etumeahu, 2009).
 21

2.2.6 Lack of formal or informal linkages / business cooperation amongst enterprises:

According to Gebrehiwot and Wolday, (2004) a good portion (about 50%) of MSEs do
not consider them as useful at all. The other factor that hinders growth and expansion of
MSEs is the effectiveness with which they interact with large or similar firms. In other
words, formal and informal linkages or business cooperation through networking are not
common. Large public enterprises and the few foreign affiliates do not outsource some
of their operations to local MSEs. The legal and institutional mechanisms to enforce
contractual obligations and government policy to design appropriate incentive
mechanism to encourage the expansion of business linkages/sub-contracting
managements is at its infant stage.
A study conducted by Eshetu & Mammo (2009) also indicates that there is poor linkage
between enterprises. Despite the existing market problems, only 14.26% of respondents
considered linkage as being important for development. According to that research
finding one factor that could explain this low level of partnership and other forms of
business undertakings could be the capacity of MSEs in Ethiopia. The limited number of
medium and large size enterprises in the country conical the mutually benefits that could
be derived from undertakings of partnership and linkages.

2.2.7 Lack of good infrastructure facilitates:

Good infrastructure facilitates have a positive effect in reducing the cost of operation.
MSEs Owners in Ethiopia indicated that lack of efficient, reliable, safe and affordable
infrastructure is affecting the development of their business. The physical infrastructure
facilities are not adequately developed and expanded in Ethiopia to meet the growing
demand of MSEs activities. As a result, most MSEs have problems related to business
premises such as an increase in house rent, lack of basic services such as telephone lines,
electricity supply, sewerage and water services (Eshetu & Mammon, 2009). According
to Commission on Legal Empowerment of the Poor (2006), though not directly linked,
inadequacy of infrastructure (road, banking service, electricity, telecommunication and
other services in facilitating smooth operation of private investment are serious
impediments. Rahel & Paul (2010) also identify that even if access to infrastructure is
not reported as a significant problem, lack of access to water and lack of awareness
 22

about the advantages of telephones and media leads to a negative or insignificant effect
on the growth of enterprises. According to the findings of the same research most MSEs
have an easy access to transportation. But, the number of enterprises that has access to
the rest of the infrastructures such as telephone, television, radio and water are limited

2.2.8 Previous business experience and service year:

Previous business experience of the owner affects growth significantly and positively
(Mulu, 2007). The researcher further found that Smaller and younger firms grow faster
than large firms. The previous ownership of business has a positive and significant
contribution, since they acquire the knowledge in running business and they expand their
social networks (Rahel & Paul, 2010). Eshetu & Mammo (2009), Rolfe et al, (2010) and
Olawale & Garwe (2010) also found that lack of experience is among the factors that
adversely affected the performance of MSEs. Bowen et al (2009) further found that
majority of businesses that had been in operation for a shorter period reported that their
business performances were on the decline. It also seems that most Micro and Small
Businesses hit their peak at the fifth year. After the fifth year, most entrepreneurs seem
to suffer from what may be described as entrepreneurial burnout and the excitement
declines.

2.2.9 License and record keeping:

Micro enterprises with business license grow faster than those who have not license.
But, the results for small enterprises were not significant. This might be due to the fact
that unlike the micro firms the variation of possession of business license might not be
important predicting growth differential among the small firms’ category since most of
them (above 90%) have business license (Mulu, 2007).
According Commission on Legal Empowerment of the Poor (2006), MSEs complain
about the bureaucratic system governing the business environment and it requires a lot of
money to get the business license. According to Mbonyane & Ladzani (2011) most
Micro and Small Enterprises acknowledged that their businesses had not been licensed,
although owners were reluctant to disclose this fact. The results also indicate that more
 23

than half of the micro enterprises and about 4% of the small businesses did not keep
records.

2.2.10 Raw material problems:

Raw material is a basic component for the existence of the MSEs since they create a
backward linkage and demand for other sector products. The high cost is the key raw
material problem for the growth of enterprises. Lack of standardization, raw material
storages, and poor quality of raw materials are also major problems (Rahel & Paul,
2010). Strong forward and backward linkages between sectors of the economy in supply
of raw materials facilitate market for the output goods and services (Eshetu & Mammo
2009).
The factors reviewed in this study are summarized in table 2 below. From the factors
analyzed in the literature of this study, year of establishment, favorability of the business
environment, level of competition, access to raw material, access to tainting and
management practice, quality of supporting institutions, financial factors, infrastructural
factors, marketing factors, and rules and regulations related factors were tested to see
their impact on the challenges of MSEs.

Table 2: Summary of the constraint facing MSEs

All challenges and constraints Other countries Ethiopia

Lack of access to finance and Lack of access to finance and Lack of access to finance and
credit Credit credit
Lack of clear and pragmatic Lack of clear and pragmatic Lack of clear and pragmatic
national policy national policy national policy
Lack of institutional qualities Lack of institutional qualities Lack of institutional qualities:
Location and working space Location and working space Location and working space
Problems Problems Problems
Lack managerial skill and Lack managerial skill and Lack managerial skill and training:
 24

training: Training
Lack of sufficient marketing Lack of sufficient marketing Lack of sufficient marketing and
and high competition level and high competition level high competition level
Lack of formal or informal Lack of formal or informal Lack of formal or informal
linkages linkages linkages
Lack of good infrastructure Lack of good infrastructure Lack of good infrastructure
Facilitates Facilitates Facilitates
Previous business experience Previous business experience Previous business experience and
and service year and service year service year
Record keeping Record keeping Record keeping

Raw material problems Raw material problems Raw material problems

Source: Compiled based on the reviewed literature

2.3. Empirical Literature

2.3.1 Micro and Small Scale Enterprises (MSE) Development in Ethiopia:

MSEs Development was given a prior attention during the first growth and
transformation plan (GTP) period. The GTP has indicated the MSEs development as one
of the seven recognized growth pillars. Some studies rightly point out that MSEs have
been on the forefront in employment creations, poverty reduction, proliferations of
entrepreneurships and consequently overall contribution to the economic development of
the country (MoTI, 1997; Haftu, et al, 2009; GTP, 2010). In line with this the recent two
MSE strategy documents introduced (1997 and 2011) by the current government of
Ethiopia worth looking.

MSE Development Strategy formulated in 1997 clearly enlightens a systematic approach

to alleviate the problems and promote growth of enterprises. The primary objective of
this national MSE development strategy was to create enabling environment for MSEs to
operate. It was the responsibility of the MSEs then to exert great effort to operate, grow
and progress to the next level. Facilitating economic growth to bring equitable
development, creating long term jobs, strengthening cooperation between MSEs, setting
the basis for medium and large scale enterprises, promoting export and balancing
 25

preferential between MSEs and bigger enterprises were the main objective of the 1997
strategic document.

The government in its 2011 MSE development strategy document identified and given
priority attention to 5 key MSE development sectors believed to substitute import and
engage in manufacturing. The sectors which were given priority attention are the
manufacturing, the service, construction, urban agriculture and the retail sector. The
strategy also outlines different criterion to identify their growth stage. The growth stage
is then used to analyze the specific problems that MSEs face at a given growth stage and
provide them the necessary support.

According to the strategy, textile, garment, leather production, food and beverage
processing, metal works, metal engineering, wood works and agro-processing are given
a prior attention under the manufacturing sector. Likewise the strategy clearly names,
sub-contracting, building material provision, traditional mining, cobble stone, and
infrastructure subcontracting under construction sector. The trade sector has also been
designed to accommodate whole sale and retailer of domestic and raw materials supply
as key engagement areas. Rural transport, café, storage, tourism, managerial advisory,
beauty salon, electronics, software development and internet café are some of the areas
identified under the service sector. Similarly areas of engagements like beekeeping,
poultry, modern irrigation, and production of vegetables and fruits are mentioned as key
areas that are given due attention in order to attain the strategic goals set by the
government.

2.3.2 MSE as a key means for the country’s development

MSE development is one of the key focus areas of the country’s development strategy.
Due to this it receives massive support from the government in the form of access to
finance, market, technology, training and working space (EDRI, 2014). As it was clearly
indicated in the GTP, the government strongly believes that MSEs are the right solution
to reduce urban unemployment and hence reduce poverty. For instance, MSE promotion
and support is the vital strategy to fulfill the job creation for 3million new citizens
indicated in the national plan in the short-run and achieving industrialization in the long
 26

run. The country adopts a layered policy support in which MSEs are categorized into
three different stages as startups, growing-middle and maturity. Start-up stage
enterprises refers to those enterprises found at their establishment stage and comprises a
group or individual aspiring entrepreneurs that seek various supports to make their
enterprise operational. The basic challenges at this stage include lack of initial and
working capital, poor knowledge of business management and entrepreneurship and lack
of knowhow about the different government policies and directives related to the sector.
In order to mitigate these challenges, FeMSEDA has designed a strategy that focuses on
facilitating access to initial capital, supporting MSEs in formalization and legalization
process and provision of training on business management, entrepreneurship and
production technique. Growing stage enterprises refers to those enterprises that are
competent in the market in terms of price and quality and successfully utilize the various
government support packages and are profitable in their business. However, enterprises
at this stage also suffer from different challenges like financial constraint, lack of
appropriate technology 9 and technical skill, absence of sufficient working and sales
premises and rent seeking behavior. To alleviate these specific challenges, FeMSEDA
has formed a national strategy that focuses on facilitation of financial support and skill
and technological development program. On the other hand, enterprises are considered
to have reached the maturity stage when they are fully profitable and engaged in further
expansion and investments in the sector. At this stage FeMSEDA has a strategy that
aims to strengthen enterprises in terms of productivity and product quality. Moreover, at
this stage, knowledge of international standards and better production technology are
disseminated to enterprises. We discuss each of the direct government support to MSEs
in subsequent sections.
 27

3. RESEARCH METHODOLOGY

3.1. Research Design

This study is both qualitative and quantitative research that attempts to accumulate
existing information and data regarding challenges and opportunities of Micro and Small
Scale Enterprises. It is appropriate to use this design in order to verify the observations
regarding the intended research questions. The research utilized both descriptive and
exploratory research methods. Existing literatures are also used in order to verify the
observations and come up with preliminary ideas regarding the research domain.

3.2. Study Area

This study is undertaken in Hosanna town. Hosanna town is located at a distance of 235
km away from the capital city, Addis Ababa, to south. The estimated total area of the
town is 11,000 hectares. It is characterized by temperate type of climate with daily

temperature ranging from 180c to 270c, and is located 1900 meter above sea level. The
total population of the town as per the national census of 2007 was estimated to be
161690. The town is a capital of the West Hararghe Zone Chiro District. It is divided
into 3 sub-towns and 8 administrative kebeles. Business activities and public sector
employment are the dominant economic activities in the town. The residents of the town
also practice urban agriculture in the peripheral areas of West Hararghe Zone Chiro
District.

3.3. Population of the Study

The study population will include the existing professional/skilled MSEs of the sectors,
the voluntary micro and small scale enterprises found in the study area, all enterprises
are include in the study. In Hosanna town, there are 190 micro enterprises in 3 sub-towns
operating in 5 sectors. These enterprises create job opportunities for a total of 190
individuals of the Hosanna town Micro and Small Enterprises Development Office.
Because of small number of enterprises found in the study area, all enterprises are
included in the study. Accordingly, managers of all of those 190 micro enterprises are
interviewees. The study of key informants are purposively select from West Hararghe
 28

Zone Chiro District, West Hararghe Zone Chiro District Micro and Small Enterprise
Development Office, Hosanna town Municipality, Hosanna town Omo-micro-finance
branch office, West Hararghe Zone Chiro District Trade and Industry Development
office, Children and Youth office. The study uses purposive sampling because it lets the
researcher directly select representatives of stakeholders that are mainly concern with the
issue being investigate.

The existing micro enterprises are operating in five major sectors in three sub towns of
the study area. These five major sectors are construction, manufacturing, urban
agriculture, trade and service. In each sector different activities are included such as
coble stone and concrete brick in construction sector; garment, handcraft, metal and
wood work in manufacturing sector; tea and coffee trade in trade sector; road cleaning,
car washing, shoe polishing and beauty salon in service sector; and seedling, fruit and
vegetable plantation in urban agricultural sector (Table 3).
3.4 Sources Data and Method of Data Collection

The researcher uses both primary and secondary sources of data are used. The
primary data is collection to using questionnaire, in depth interviews and
observation methods of data to be collection from operators or managers of MSEs
in.
One set of questionnaire containing both open-ended and close-ended types to
designed and administered to managers/owners of the enterprises. Initially the
questionnaires prepared in English but it will be translate into Amharic, to make
more understandable for respondents. The survey is also conducts through face to
face interview between the respondents and interviewer. The secondary sources of
data are gathering from files, pamphlets, office manuals, circulars and policy papers
are used to provide additional information are appropriate. In addition, variety of
books, journals, published and/or unpublished government documents, websites
and reports are reviews to make the study to will be achieving fully.
 29

3.5. Sampling and Sample Size

The researcher applies both probability and non-probability sampling methods in the
sampling and selection process. Stratified proportionate random sampling is applied as a
typical method of probability sampling technique to select MSEs operators and
managers of the enterprises as respondents. This technique is preferred because it is use
to assist in minimizing bias when dealing with the population. The population is
stratified sub-town wise and number of sampling units is taken in proportion to the
population of each stratum. Purposive sampling methods is uses as a key non-probability
sampling tools in selecting the town. Sampling is undertaken from different types of
activities: Manufacturing, Construction, Urban Agriculture, Services and Trades of
formally organize operators in the enterprises. The study is going to managers and
owners of enterprises the qualitative and quantitative sampling techniques. The
researcher will divide the MSEs into different divisions which will have their own
representatives who will be selects by using stratified random sampling techniques to
select staff who will form a sample of the general population.

3.6. Sample Size Determination

The study population was composed of MSEs operators in the five enterprises working
in Manufacturing, Construction, Service, Urban Agriculture, and Trade operating in the
three sub towns of the MSEs centers. The total population of the study is 190 enterprises.
The researcher has used the sample size determination formula, which is developed by
Yamane (1967), to determine the sample size of MSEs for the study.
N
n=
1+ N ¿ ¿
Where, n is the sample size, N is the total population size and e is the acceptable
sampling error. The investigator decided the confidence level of the study to be at 95%
consequently the level of precision (e) is 5%. Accordingly, 129 respondents have been
selected from the total of 190 MSEs. Using the above formula the sample size is
determined as approximately 129. Such determination is made to reconcile
manageability with representativeness. Accordingly, These129 respondents are selected
from three sub town in West Hararghe Zone Chiro District based on proportional basis.
 30

Therefore, [72/190) x 129] = 49 from Construction sector, [(30/190) x 129] =21 from
Manufacturing sector, [(55/190) x 129] =37 from Urban agriculture, [(25/190) x 129]
=17 from Service sector, [(8/190) x 129] =5 from Trade sector selects. Moreover, the
researcher takes all MSEs in the study area that operates under enterprises.
Table 4 of sample size determination
Sectors of MSEs Population Sample size
Construction 72 49
Manufacturing 30 21
Urban agriculture 55 37
Service 25 17
Trade 8 5
Total 190 129

3.5.1 Challenges affecting the development of micro enterprises

Following George et al. (1979), a multiple linear regression is used to analyze challenges
that affect the development of micro enterprises as follows:
Y=β0+β1X1+β2X2+β3X3+ β4x4+ β5x5+ D1+D2+D3+D4+ ε

Y = dependent variable

β0 = constant or intercept term

β1 = slope coefficient

X1 = independent variable

X2 = age of the operator

X3 = highest educational level attained by the operator

X4 = number of employees in the enterprise

X5 = amount of initial capital of the enterprise

 31

D1, D2, D3 and D4are dummy variables representing entrepreneurial skill of operator,

experience of managers, access to training and access to market, respectively. These

dummy variables take the values 1, if the enterprises have; skilled operator, experience
manager, access to training and access to market and 0, otherwise.
∈ = error or disturbance term

3.6. Variable Definition and Working Hypotheses

3.6.1. Dependent variable

Profit growth ratio: This represents the ratio value of total profit gain from the annual
sales of products and service delivered to annul total cost of enterprises incurred in
operating different activities in the enterprises. Growth of profit analysis is a systematic
process of calculating the overall monetary profits and costs of enterprises. The
challenges that affect the development of the enterprises in this study are analyzes by
using growth of profit ratio as dependent variable, which is the base to identify the
challenging factors of enterprises to exist in the business. Generally profit ratio analysis
is based on the principle that if the profit ratio of the enterprises is greater than one, the
enterprises development is good (survived) and if the profit ratio of the enterprises is less
than one, the enterprises development is bad /failed (Bouba, 2011).

3.6.2. Independent variables

Age of the enterprise (AOE): Age of enterprises refers to the duration of time that the
enterprises stay in the business. This study considers the enterprises age from the period
of establishment up to the time are data collect. Long period attendance of the
enterprises in the business builds the development of enterprises to stay in the business
(Amyx, 2005). It is assumed in this study that the longer duration stays of the enterprises
in the business result the good development of the enterprises. The age of enterprise
assumed to have positive influence on the values of profit growth ratio of the enterprises.
Therefore, the sign of the coefficient for the enterprises age is expects to be positive.
Age of the operator (AOR): The age of operators refers to the length of time that the
operators have existed. This study considers the particular stage in entrepreneurs life
ranges from 18-65 years of working age. According to Bonte et al. (2009), there is
 32

feasible relationship between the age of operators and development of the enterprises.
Thus, age of operators assume to have positive influence on the development of the
enterprises. Therefore, the sign of the coefficient for the operators’ age is expects to be
positive.
Educational level (EDL): The level of education attains by the operators of the
enterprises is the attainment level of formal education .The level of education attain is
likely to affect the levels of skills using which one may survive in the business (Wanjohi
and Mugure, 2008). The level of education is therefore assumed to have positive
influence on the values of profit growth ratio of the enterprises. Therefore, the sign of
the coefficient for the education level attains by the operators of enterprise variable is
expect to be positive.
Number of employees (NOE): The number of employees associate in the enterprises is
the total number of workers employed (Cetin, 2010). The number of employees in the
enterprises should be determined by the size of the enterprises Islam and Siengthai
(2010). It is assume in this study that the number of employees in the enterprises
indicates size of the enterprises as micro enterprises are labor intensive. The 5 to 6
numbers of employees with the size of enterprises assume to have positive challenge on
the values of profit growth ratio of the enterprises. The sign of the coefficient of the
variable for the number of employees is therefore expect to be positive.
Amount of initial capital (AIC): Amount of start-up capital is amount of initial capital
own from different sources of initial capital for enterprises which is essential for
enterprises to start the business (Islam and Siengthai, 2010). It is assumed in this study
that the higher amount of initial capital of the enterprises the higher profit growth ratio is
likely to be. The amount of start-up capital inter into the business is expects to have
positive influence on the values of profit growth ratio of the enterprises. The sign of the
coefficient of the variable for the amount of start-up finance is therefore expect to be
positive.
Entrepreneurial skill (ERS): The micro enterprises operators are expect to have sufficient
entrepreneurial skill in creation and modification of different products and services
(Timo and Minna, 2009). Therefore, enterprises which have sufficient entrepreneurs are
expects to have higher values of profit growth ratio. The sign of the coefficient of the
 33

variable entrepreneurial skill is expects to be positive. It is measure as a dummy variable

taking a value of one if the business operators have entrepreneurial skill and zero
otherwise.
Experience of the manager (EXM): The experience of managers refers to the managers’
knowledge or skill acquired over time. When the managers have the experience of being
able to lead, inspire and champion followers, the enterprises have good development
(George, 2005). Because of this reason the experience of managers assume to have
positive challenge on the development of the enterprises. Therefore, the sign of the
coefficient for the experience of managers is expected to be positive. It is measures as a
dummy variable taking a value of one if the enterprises have experience managers and
zero otherwise.
Access to training (ATR): Access to training for enterprises refers to the facilitation of
different trainings which assists the operators of the enterprises to develop in a suitable
way. Capacity building trainings will better prepare enterprises to develop in the
business they engaged (Benjamin and Bonno, 2007). Therefore, enterprises which have
sufficient access of training are expect to have good development. The sign of the
coefficient of the variable access of training is expects to be positive. It is measures as a
dummy variable taking a value of one if the enterprises have access of training and zero
otherwise.
Access to market (AMK): Access to market refers to the availability of market demand
for the particular commodity or service. Enterprises create different market access for
their products and services insure the existence of market alternatives for their product.
According to the findings of (Mahmoud, 2011), the higher level of market access results
the greater level of enterprises development. Thus, the sign of the coefficient of the
variable access of market is expects to be positive. It is measure as a dummy variable
taking a value of one if the enterprises have access to market and zero otherwise.

3.7. Data Analysis Technique

Both primary and secondary sources of data are analyzed using both qualitative and
quantitative methods. The collected data has been quantified and edited thoroughly. Few
respondents’ responses have been omitted due to missing of data. Later the data was
 34

coded and computed. The competed data have been tabled to the requirements. The
influence of the variables designed for each factor has been quantified with Likert scale
ranging from 1 to 5. Statistical tools such as mean, standard deviations and skewness
have been used to analyze and interpret the data.
The statistical package for social sciences (SPSS) version 20 is used for processing and
analyzing the data obtained from questionnaires. Descriptive statistics like frequencies,
percentage and figure is applied to facilitate meaningful analysis and interpretation of
research findings. Qualitative data obtained through interviews are analyzed through
descriptive method of analysis.

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