Journal of Sustainable Development; Vol. 12, No.

3; 2019
ISSN 1913-9063 E-ISSN 1913-9071
Published by Canadian Center of Science and Education

Contributions of Micro, Small and Medium Enterprises (MSMEs) to

Income Generation, Employment and GDP: Case Study Ethiopia
Hailai Abera Weldeslassie1, Claire Vermaack1, Kibrom Gebrekirstos2, Luback Minwuyelet3, Mahlet Tsegay3,
Negasi Hagos Tekola3 & Yemane Gidey3
1
Department of Economics, School of Accounting, Economics and Finance, College of Law and Management
Studies, University of KwaZulu-Natal, Durban, South Africa
2
Department of Economics, College of Business and Economics, Adigrat University, Ethiopia
3
College of Business and Economics, and College of Social Science and Languages, Aksum University, Ethiopia
Correspondence: Hailai Abera Weldeslassie, Department of Economics, School of Accounting, Economics and
Finance, College of Law and Management Studies, University of KwaZulu-Natal, Durban, South Africa. E-mail:
[email protected]

Received: March 2, 2019 Accepted: April 10, 2019 Online Published: May 30, 2019
doi:10.5539/jsd.v12n3p46 URL: https://doi.org/10.5539/jsd.v12n3p46

Abstract
The pillar goals of this research are to review the conditions of MSMEs, their contribution to employment creation,
income generation, poverty alleviation, contributions to the local, regional and national GDP, stimulating
entrepreneurial climate and the challenges and opportunities in the design, implementations, marketing
opportunities, linkages, financial sources, dynamics, survival and policy landscape. To achieve the presented
purposes, we collected primary and secondary data through a survey, focus group discussions and documents
reviews. We used qualitative and quantitative approaches to analyse the collected data using various statistical
programs.
We used descriptive and econometric statistical analysis to process the data, obtain the relevant estimation results
and fully discuss the purposes under the study. We firmly maintain that the systems we presented, and the methods
applied enabled us to tackle the aims of the study. MSMEs in Ethiopian are the chief sources of job, income,
significantly contribute to the local, regional and national GDP and key policies to eliminate poverty.
In the log-linear regression, we found that MSMEs initial capital, BDS, access to credit facility are the key
determinants of MSMEs performance. Majority of the MSMEs produce for local and regional markets; few for
national markets and none for international markets. Besides, we found that sex of MSMEs owner/manager, BDS,
access to credit and capital size strongly determine the survival of MSMEs.
Based on this study, the major obstacles of MSMEs in Ethiopia are the question of sustainability, lack of credit,
weak market linkage, insufficient training, weak human resources development schemes, dependency on
government and spoon-feeding mentality, oscillations in government policies, price variations, weak links and
poor market and product development strategies.
Acronyms: CSA–Central Statistical Agency, EFFORT-Endowment Fund for the Rehabilitation of Tigray, EU-
European Union, FGT- Foster Greer Thorbeck, GDP- Gross Domestic Product, GTP- Growth and
Transformation Plan, HICE -Household, Income and Consumption Expenditure, ILO - International Labor
Office, MSEs-Micro and Small Enterprises, MSMEs-Micro Small and Medium Enterprises, OECD -
Organization for Economic Co-operation and Development, SMEDAP - Small and Medium Enterprise
Development Authority of Pakistan, TVET–Technical and Vocational Education and Training
1. General Overview of MSEs
1.1 Background and Context
In the first-generation era in economic development, the role of micro, small, and medium enterprises (MSMEs,)
in economic development had frequently been undermined and even misinterpreted. It was believed MSMEs to
slow down economic growth by attracting scarce resources from their larger counterparts (Audretsch, et al.,
2000).

46
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Until the 1960s, it has been considered that large corporations capitalizing on economies of scale as the driving
force of growth and development. The emergence of computer-based technology in production, administration
and information has, however, reduced the role of economies of scale in many sectors. Many studies (e.g., Acs &
Audretch, 1993) have shown a shift in industry structure away from a greater concentration and centralization
towards less concentration and decentralization which resulted into a shift towards an increased role for small
firms.
This was mainly because of changes in production technology, in consumer demand, labour supply, flexibility
and efficiency. These factors led to the restructuring and downsizing of large enterprises and the entry of new
firms. The available evidence show that economic activity moved away from large firms to small, predominantly
young firms.
Then changing patterns of consumer expenditure and demand patterns resulted in an alternative view that small
business is the key element and driving force in generating income, creating employment, contributing to the
local and national over all economies and realizing economic development. This paradigm shift in thinking,
perspective and perception has brought a revival in the promotion of small businesses and entrepreneurial
initiative at local, national and international levels.
Now, it is well accepted that MSMEs play a fundamental role in contributing to the overall economic
performance of countries (Dean et al.1996; Karlsson et al. 1993). Small businesses play an important role in
community development by tempting private investment back into lagging areas and spread the benefits of
economic growth to people and places too often left behind. Through their capital investments, private small
businesses and micro-enterprises create jobs and new opportunities that promote community-building and social
activities in the rural and small towns. Hence, the economic contribution of small business to economic growth
and job creation is now well recognized and established in the literature.
Proponents of policies and programs to support small firms have long claimed that they are more labor-intensive,
efficient, fair in distributing the income they generate, widely dispersed geographically, and nurturing of
entrepreneurs (Nichter & Goldmark, 2005). The sector speeds up the competitive strength of a national economy
by creating job opportunities for the mass, adding flexibility and industrial diversification, and making use of
resources they may otherwise be drawn into the development process (Seleshi, 2001). For instance, in 2004,
micro and small-scale enterprises contributed 6.2% of employment in the US, 22.3% in China, 80% in India, 67%
in Japan, and 70% in the European Union (Tegegne & Meheret, 2011).
The micro, small and medium enterprises (MSMEs) a sector generate substantial employment and output in
many countries (Nichter & Goldmark, 2009). These authors reviewed that the sectors’ share of overall
employment is higher in developing countries, which are typically more focused on small-scale production. In
addition, studies in five African countries (Botswana, Kenya, Malawi, Swaziland, and Zimbabwe) found that
MSEs generate nearly twice more level of employment than registered, large-scale enterprises and the public
sector do (Mead & Liedholm, 1998). An ILO study (2003) examining firms with fewer than 10 workers found
that they generated 58% of total employment in Paraguay, 54% in Mexico, and 53% in Bolivia.
The contribution of the MSE sector to total output differs across countries. For example, MSMEs contribute
approximately 31% of overall GDP in the Dominican Republic, 13% in Kenya, and 11% in Pakistan (SMEDAP,
2002).
1.2 Horizontal Linkage
Firms can form a cluster by themselves or organized by MSMEs officials to work together. Among the huge
legal organizational options for forming horizontal cooperation are cooperatives, associations, consortia,
producers’ group, consumers group and other collaborative structures. This linkage helps small firms overcome
many of the disadvantages of being small, providing a way to merge production, improve their bargaining power,
enhance access to credit, market information and infrastructure (Goldmark & Barker, 2005; Steen, Magnani, &
Goldmark, 2005).
Clusters (by geographical and sectoral agglomeration of enterprises) also facilitate MSMEs’ growth and
sustainability via enhancing horizontal and vertical linkage. Clusters inevitably involve spillover effects and
pursuant of joint actions such as sharing types of machinery and materials.
1.3 Vertical Linkage
Firms form a vertical linkage with their buyers and suppliers. This linkage facilitates MSMEs’ growth and
sustainability by expanding a firm’s horizon of viable business opportunities and enhancing firm capabilities.
Harmony with buyers can reduce the unforeseen risks and costs connected with entering new markets by
47
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

offering a secured flow of orders, critical information about market requirements and games, and sometimes a
reduced need for capital investment (Aw, 2002). Relationship with large firms can help link rural industries to
urban and international markets. This can lead to improve firm capabilities by providing opportunities for
learning and innovation. To explain this, when an industrial buyer shore up with quality control, maintenance,
and technical issues (Berry, Roderigus, & Sandee, 2002) the concept of vertical linkage prevails. (e.g., MSMEs
involved in Sesame production and role of College of Agriculture, Aksum University).
1.4 Institutional Linkage
It directly relates support provision by public institutions, technology transfer centers, legal aid centers, business
leadership coaching, to MSMEs’ improvements in capacity building. Besides, access to market information or
innovation may help small firms respond to new opportunities. While the absence of all said above have negative
impacts and are comprehended as constraints on MSMEs’ growth and sustainability (Field, Hitchins, & Bear,
2000; Gbson, Hitchins & Bear, 2001; Lusby & Panlibuton, 2002). There are divergent views on whether the
development of markets stimulates MSE growth and sustainability (Steen et al., 2005).
1.5 Determinants of MSMEs’ Growth and Sustainability
Following the argument by Reinikka and Svensson (2001), factors that constrain firms’ investment consequently
limit their growth. When MSMEs have inadequate access to relatively differentiated markets, they force them to
operate in low-income market segments. This confines their levels of sales and profits since most of them
compete for the same customers (Sengendo et al., 2001). Low sales and profit may depress firms’ future
investments and therefore their growth (Ishengoma, 2005). Thus, low profit implies internal weakness and
limited resources, which may limit firms’ capacities to upgrade their investments.
Identification of a firm’s growth determinant factors and the relationship between/among them is complex.
Cognizant to this several types of research/experts in this field have developed various frameworks. Churchill
and Lewis (1983), growth model breaks the growth continuum into stages of development. At each stage in a
firm’s life, we commonly conceive various factors like owners’ aim, managerial skill, access to capital/credit,
technology application, and another start as growth determinants.
Several topologists (e.g., Mitra, 2002; Mitra & Pingali, 2000) shed light on the issues specific to family
characteristics and women-owned firms. Experts on this field identify dominant constraint factors that small
business enterprises face in different growth stages. Some points in cases are starting up and working capital,
leadership and market issues, prosperity and succession crisis (Patel, 1995).
Considering age, research findings on developed country MSEs have explored the association between a firm’s
age and growth. The studies reveal that older firms’ experiences less growth (e.g., Evans, 1987; Heshmati, 2001;
Variyam &Kraybill, 1992) are consistent with developing countries works of literature. More report mixed
results. For instance, Heshmati (2001) shows that while younger firms experience faster employment growth in
Sweden; older firms experience faster growth in assets and sales volume. Within this context, researchers usually
pay due attention to the effect of firm size and age. In the late 1980s, a debate emerged surrounding Gibrat’s Law,
which posits that a firm’s growth is independent of size.
Contrary to the above theory, immense empirical studies find that smaller firms grow more quickly. Example,
Meghana, Asli and Vojislav (2001) find that small firms with less than 2 years have the highest employment
growth rates. In fact, higher sales volume and productivity growth not accompanied this. In this research, a
firm’s productivity and assets/sales growth were uncertain.
Besides, lack of access to credit, ranging from lack of collateral to bias against small firms, MSMEs face greater
financial constraints than do large firms. A study of 10,000 firms across 80 Developing countries found that
credit is mentioned more frequently by smaller firms as a severe constraint on growth (Schiffer and Weder, 2001).
MSEs in these countries rarely receive credit facilities from formal banks. Thus, they rely on other types of
credit such as trade credit, overdrafts, and informal sources (Bigsten et al., 2003). Microfinance institutions also
provide an important source of financing for MSMEs; their outreach and terms of the loan are very limited
(Swinnen, 2005).
Owing to limited access to capital, entrepreneurs across the globe typically start firms primarily through their
own savings (Mason, 1998; Gebrehiwot and Amaha, 2006). To cite examples, a study over 14, 000 MSMEs in
Latin America found that owners mostly used their own resources and savings (61%) or those of their family and
friends (14%) to launch their firms (Hernandez-Trillo, Pagain, and Paxton, 2005). These findings are like the
findings of the present study. The most important sources of finance for participant MSEs are personal saving,
micro-finance, and families and friends.

48
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Developed country researchers have explored similar trends, including ranges of creative mechanisms used by
smaller firms to leverage tangible and intangible assets, termed as “bootstrapping” (Lahm & Little, 2005; Neeley,
2003). Even after MSEs overcome the start-up hurdles, lack of access to credit frequently hinders their growth
during their early years, as younger firms find financing even more difficult than older firms do (Schiffer &
Wedder, 2001).
1.6 Macroeconomic Factors
Macroeconomic factors such as a business cycle, GDP growth, price and exchange rate stability, the regulatory
and institutional environment and government policies play major roles in shaping MSMEs in developing
countries. Growth opportunities are wax and wane to the swift growth of MSMEs (Liedholm, 2002). However,
there are caveats, regarding the relationship between MSMEs and economic growth. Since the MSMEs in
developing countries expand during an economic downturn because of an increase in a survivalist type
interventions.
An econometric study in Nicaragua reveals individuals become self-used and start-up small business during bad
economic times and then leaves them for salaried jobs when the economy recovers (Pisani & Pagan, 2004)
Macroeconomic and price stability is an important factor for MSMEs’ growth and sustainability (Tybout, 2000).
A survey of 500 MSMEs in Ghana found that entrepreneurs perceived their three top problems to be inflation,
high-interest rate, and depreciation of the local currency (Robson & Obeng, 2008).
The regulatory and institutional environment and bad leadership are notoriously burdensome when compared
with developed countries (World Bank, 2006) frequently hammers MSMEs’ growth and sustainability. An
econometric analysis of firm-level data in 54 countries suggests that financial, legal, and corruption challenges
the growth and sustainability of this sector (Beck, Demiruguc-Kunt, & Maksmovic, 2005)
1.7 MSMEs Country Experience
MSE Economic contribution: India
The contribution of micro and small enterprises (MSME) sector to manufacturing output, employment and
exports of India is significant. The sector accounts for about 45 percent of the manufacturing output and 40
percent of the total exports of the country. The MSME sector uses about 42 million persons throughout the
country. There are over 6000 products, ranging from traditional to high-tech items, which are being
manufactured by the Indian MSMEs. A wealth of works of literature shows that the contribution of MSME
sector to overall Indian industrial production is over 38.57%. Besides, the contribution of the MSE sector to the
gross domestic product (GDP) is over 5.94%.
Contribution of MSME in Malaysia
The Census results confirmed that MSMEs are major employers in the labour market. The 518,996 MSMEs that
responded to the census used over 3 million workers, accounting for 65.1% of the total employment of 4.6
million of these business establishments.
MSMEs in Japan
As a study conducted by Pushpakumara and Toshimitsu (2007) revealed that, MSMEs play a major role in every
area of the national economy in Japan. Their importance is indicated by the very large share of the economy they
occupy, whether in terms of several enterprises, the total number of employees, or export earnings. In Japan, in
2006, SMEs numbered 4.2 million and accounted for 99.7% of all firms compared to 0.3% of large firms.
MSMEs used 42 million people, which is 78% of total employment. MSEs accounted for 47.7% of the total
manufacturing shipment volume. Further, manufacturing MSMEs play a vital role in socio-economic
development in Japan
MSMEs in Nigeria
We have considered small and medium enterprises as the engine of economic growth and for promoting fair
development. The major advantage of the sector is its employment potential at low capital cost. The labour
intensity of the MSME sector is much higher than that of the large enterprises. The role of small and medium
enterprises in the economic and social development of the country is well established. The sector is a nursery of
entrepreneurship, often driven by individual creativity and innovation (Adeyemi, Sidikat Laraba, 2011). It was
also noted that the MSE sector is the main driving force behind job creation, poverty reduction, wealth creation,
income distribution and reduction in income disparities.
Most of the government interventions did not create a much-needed transformation because of poor coordination

49
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

and monitoring and policy inconsistencies. MSE sector also formed the vanguard of the modern enterprise sector
and presents the propelling force of economic modernization and growth in Nigeria. They are an important
sector that needs to be adequately factored into policymaking and programme implementation in Nigeria.
MSEs Contribution to the EU Economy
Despite their small individual size, the most striking phenomenon of MSEs is perhaps their contribution to
employment in the EU economy. We found no less than two-thirds of employment in the non-financial business
economy in the MSMEs sector. Of the 90 million people used in MSEs, the micro firms use 40 million, or 30%
of the total employment in the non-financial business economy. Thus, 92% of all enterprises provide 30% of
total private employment and are at the same time tiny individually.
MSEs’ contribution to employment growth (83%) has been even bigger than could be expected from their share
in total employment of the EU non-financial business economy (67%). The annual employment growth rate of
MSEs was more than double that of large enterprises (1.9% versus 0.8%). In absolute terms, the number of jobs
in the EU non-financial business economy increased by 11.3 million in recent periods. MSEs accounted for
employment growth of 9.4 million jobs, while employment in LSEs increased by 1.9 million. In terms of
value-added by sector, MSEs’ contribution was highest in the services sector, accounting for 54.7% of total value
added, followed by agriculture (39.7% of total value-added of the sector) and manufacturing (37.1%). This
reflected the dominance of large enterprises in the manufacturing sector, where 1,353 large enterprises
contributed about 62.9% of the total value-added of the sector. Similarly, 271 large enterprises contributed about
60.3% of total value-added in the agriculture sector.
MSEs Economic Contribution Variations
While we use less than 5.5% of the formal workforce used in SMEs in Azerbaijan, Belarus and Ukraine, this
share is over 80% in Chile, Greece, and Thailand (MSME 250). Similarly, the ratio of the informal economy
relative to GDP varies from 9% in Switzerland to 71% in Thailand. While the importance of informal enterprises
decreases with economic development, the importance of formal micro, small and medium-sized enterprises
increases. There is a steady decline in the contribution of the informal sector to GDP, from the low-income
countries (32.07%) to the high-income countries (11.5%). Similarly, the informal sector’s contribution to total
employment also shows a general decline from the low-income group (41.67%) to the high-income group
(17.9%), though it increases in the middle-income group
1.8 MSEs in Ethiopia
Recent pieces of literature reveal that the MSE sector in Ethiopia is the second largest employment-generating
sector following agriculture (Desta, 2002). MSMEs play a fundamental role especially for women, as a strategy
of poverty reduction and increasingly for employment creation (Rahel & Issac, 2010). In successful developing
countries, MSMEs because of their size, location, capital investment and their capacity to generate greater
employment, have shown their powerful gelignite effect for rapid economic growth (Zewde and Associates,
2002).
The MSE sector has also helped to bring about economic transition by providing goods and services are of
adequate quality and are reasonably priced, too many people particularly in rural areas, and by using the skills and
talents of many people without requiring high-level training, large sums of capital or sophisticated technology
(Ibid). Issuing the first national MSMEs Development and Promotion Strategy in 1997; formulation of Women
Policy in 1998; the establishment of the Federal MSEs Development Agency and issuing Ethiopia’s Industrial
Development Strategy in 2003 aim to promote MSMEs development and empower women in particular by
facilitating conditions to have access to resources and to take part in economic activities (Rahel & Issac, 2010).
We also see the small business sector as an important force to provide the ideal environment for enabling
entrepreneurs and optimally exercise their talents, to attain their personal and professional goals; generate
employment and more fair income distribution; activate competition; exploit niche markets; enhance
productivity and technical change through the combination of these measures, to stimulate economic
development (Zewde and Associates, 2002; Desta, 2002). Rahel and Issac (2010) have shown that the role of
MSMEs in employment and income generation is widely recognized, especially for women, and has become a
major playing field for policymakers and donors with dual objectives of enhancing growth and easing poverty.
In the past fifteen years, Ethiopia has registered strong economic growth. The Gross Domestic Product (annual
average growth in percent) of GDP, Agriculture and allied activities, industry and services from 2006 to 2010
was 11, 8, 10 and 14.6 respectively (MoFED, 2010).
Considering the sectoral distribution of GDP (in percentage), 47.4, 13.6 and 39 in 2005 and 41, 13 and 46 in
50
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

2010 in agriculture and related activities, industry and services respectively.

Similarly, Ethiopia has registered tremendous achievements in the social service sectors, particularly in the
education and health sectors. Believing that MSEMs play a key role in realizing these broad-based
socio-economic developments, the Government of Ethiopia has given due attention to the promotion and
development of MSMEs by articulating and implementing appropriate strategic policies.
To maintain the growth momentum and achieve the envisaged Growth and Transformation Plan (GTP,)
2011-2015 goals, fostering and strengthening the small-scale and micro-enterprises is a critical strategy. Thus,
MSMEs have been the pillar implementation stages of agricultural development-led industrialization (ADLI,)
and shall continue to play a significant role as implementation tools of GTP (MSMEs Growth Stages
Implementation Guideline, 2011)
1.8.1 MSME Policy Overview in Ethiopia
With the help of good governance, Ethiopia has achieved considerably fast socio-economic growth for the last
consecutive years. In these last few years, we have given great attention to MSMEs with the belief they can play
a crucial role in the socio-economic development of the country. The Ethiopian government has designed and
implemented policies and strategies for MSMEs.
These new (January 2003 E.C) MSMEs’ policy guidelines are prepared with the view and aim to sustain past
best experience, to achieve the 5-year GTPI, focusing on government directions, incorporating best experiences
from last five-year package and contextualized the best experience from foreign countries.
The policy document has three parts. We comprise part one of MSMEs’ development strategies, MSMEs’
definition, and government focus directions and enterprise, and developmental stage-based support of MSMEs’.
Part two contains the objectives of MSMEs’ development support strategies, human capital and technological
growth, a provision of market opportunity and place, finance and loan service, shade centers development and
comprehensive service centers development strategies. The third part contains policy initiatives like support
institutes’ capacity building and the role of policy implementing bodies.
1.8.1.1 MSMEs Development and Ethiopian Renaissance
MSMEs have a very crucial place in the Ethiopian industrialization plan. This is because the focal point of
Ethiopia’s economic development plan is to create job opportunity and MSMEs are the most important means of
job creation, especially in towns. This is true not only in developing countries but also in developed countries
like Japan. Ethiopia gives attention to MSMEs especially the manufacturing sector as they are the key to
production and industrialization. For instance, Japan, which is highly industrialized, gets over 50% of its
manufacturing products from MSMEs.
MSEs are the main actors of industrial growth not only during the Ethiopian renaissance journey but also after
we complete this journey. We transfer a considerable number of MSEs to medium and large enterprises. Thus,
MSEs are main sources of industrialization and developmental capital owners. Therefore, it is the right decision
for Ethiopia to focus on MSMEs’ development.
Besides the above reasons, the Ethiopian Government has political reasons to focus on MSMEs. The government
(EPRDF) has succeeded to have a strong base in the farmer which about 85% of the population. EPRDF gets
strong support from the wealthy farmer and it has achieved keeping and enhancing the farmers’ benefit. The
Ethiopian government wants to attract the town dwellers. Those with less capital but more labour are especially
targets of interest as they can fit to take part in MSMEs. Therefore, in this way the government can mobilize the
entire population to the motion of socio-economic development through agriculture and MSMEs.
Among the attention and support given to MSMEs by the Ethiopian government are to fight rent seeking
thinking, solving technological, skill, and capital and market problems. Thus, with a belief that MSEs can play
an important role in the Ethiopian renaissance, the Ethiopian government is highly committed to making and
implementing favourable policies and strategies for MSMEs.
1.8.1.2 MSMEs’ Development Strategies
The main objectives of the strategies are:
 Increase the income of citizens, reduce poverty, and create a fair distribution of capital by creating vast job
opportunity.
 To sustain agricultural development and make it a basis for industrialization.
 Create competent and sustainable fast growth.

51
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

 To diversify MSMEs’ development by creating big developmental capital owners in towns.

To achieve these objectives, the strategies focus on important MSMEs’ development directions. These directions
include general development, human capacity building, technological growth, financial source and provision,
production and market place provision, market linkage and opportunity, comprehensive and central service,
industrial extension service, capacitating supportive bodies and comfortable working environment. There are
important strategies of support to develop MSMEs. Best experiences and constraints in MSEs are also well
assessed to help easily implement the support strategies and develop MSMEs.
The Ethiopian government has given special focus to export and manufacturing products which can substitute
imported goods. We give the MSME policy shows two sectors which can create vast job opportunities to enjoy
manufacturing, construction, petty trade, service and agriculture.
1.8.1.3 MSEs’ Development Based Support and Initiatives
We base the support given to MSMEs on their developmental stage or growth. We can classify support as
start-up, growth, and maturity supports.
They enjoy supports given at start-up stage providing start-up capital, motivate and facilitate the enterprises to
legally register, BDS and entrepreneurial capacity building and technical pieces of training. They support
MSMEs at a growth stage in finance, skill and technology capacity, linkage and market opportunity,
diversification and provision of production and market centres, and making them legal. Finally, MSMEs at
maturity stage are given supports enjoy enhancing their competency; providing tools and material ease that can
help them transfer from small to the medium enterprise; recognize and certifying those transferred to medium
enterprises.
We list here the initiatives which help achieve the strategic objectives and.
 Capacity building of supporting institutes
o TVETs
o MSME development agencies (Federal & Regional)
 Capacity building of micro-finance institutes
 Capacity building of every hierarchical management and actors of MSMEs
 Identifying and informing the roles of different bodies who are to implement the strategy.
 Putting and communicating the objectives and tasks of MSEs to stakeholders.
1.8.2 Definition of MSMEs in Ethiopia
According to the revised Micro and Small-Scale Enterprises Growth Stages Guideline No.004/2011, the revised
definition considers used labour force including family labour; total assets without working building and the
division of sub-sector into service and industry are the main criteria.
1.8.2.1 The Revised Definition of Micro Enterprises
A. Industrial sector (includes manufacturing, construction and mining sub-sectors)
A business enterprise which uses not over five labour force including business owner and family labour and/or
the monetary value of the enterprise’s total asset is not over 100000 Br.
B. Service sector (includes retail trade, transport, hotel and tourism information technology and repairs)
A business enterprise which uses not over five labour force including business owner and family labour and/or
the monetary value of the enterprise’s total asset is not over 50000 Br.
1.8.2.2 The Revised Definition of Small Enterprises
A. Industrial sector: (includes manufacturing, construction and mining sub-sectors)
A business enterprise which uses 6-30 five labour force including business owner and family labour and/or the
monetary value of the enterprise’s total asset ranging100001-1500000 Br.
B. Service sector: (includes retail trade, transport, hotel and tourism information technology and repairs)
A business enterprise which uses 6-30 five labour force including business owner and family labour and/or the
monetary value of the enterprise’s total asset ranging50001-500000 Br. According to the revised guidelines
mention above, when the labour force used, and monetary value of an enterprise’s total asset do not conform; the
latter prevails.

52
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Table 1. Classification of MSEs

Enterprise Sector An asset in Birr (excluding Number of Workers (including involved
Size working building) family members)
Micro Service Not over 50000
Industry Not over 100000 Not over 5 individuals
Small Service 50001-500000
Industry 100001- 1.5 million 6-30 individuals
Source: MSEs’ Development, Support Scheme, and Implementation Strategies: FDRE, January 2011, Addis
Ababa

1.9 MSMEs in Tigray

In Ethiopia there are inadequate opportunities in the formal sector employment to soak up rural people and new
urban entrants into the labour market and creating a formal sector employment is a major challenge. We
constrain many people into marginal activities in the informal sector as subsistence petty traders and tiny
handicraft producers with a limited market scope that are often categorized as micro, small and, medium
enterprises (MSMEs). It thus gives MSMEs special attention by the government as they comprise the largest
share of total enterprises and employment in the non-agricultural sector.
This sector creates huge employment as they are small business activities, family-based and often reliant on
workers with skills and experiences specific to the enterprise.
Unemployment is one of the critical social problems of Ethiopian towns and that of Tigray in particular. The
urban unemployment rate in Tigray was about 13.7% and 21.1% in 2006 and 2009 respectively (CSA, 2009).
Tigray Regional Trade and Industry Bureau (the client of this study) is promoting and supporting micro, small,
and, medium enterprises. It designs strategic policies and creates an enabling the environment to the target group
by acclimatizing comprehensive approaches such as business development service approach, information centres,
incubation centres and cluster approach.
However, those antipoverty interventions introduced and being implemented by the government ought to be
continuously scrutinized in terms of its contribution to employment creation, poverty alleviation, total final
output production and women empowerment, the possible sectoral, industrial, market, institutional and industrial
linkage and growth and sustainability determinants.
Finally, an unexploited potential area of the region in micro, small, and medium enterprises should be discussed
as it ensures the prospects and sustainability of the sector by diversifying and integrating it instead of
concentrating on limited sectors and producing identical products.
1.10 Statement of the Problem
Although flourishing MSMEs contribute significantly to the national economy by easing poverty through income
generation, contributing to the socio-economic by empowering women, employment creation, contribution to the
gross domestic product (GDP), being vanguards of industrialization and core pillars for economic and structural
transformation by promoting saving and capital accumulation. Until recently, governments of developing
countries, the development communities and development agents have never given the MSME sector apposite
recognition and support from the Ethiopian government (Eshetu & Zeleke, 2008). Besides, the MSME sector in
Ethiopia faces several constraints that hold back its rapid growth and development and therefore reduce the weight
of its potential contribution to the national economy and inhibit the economic empowerment of women (Zewde &
Associates, 2002).
In recent years, the Ethiopian government has articulated strategic policies to promote and support micro, small
and medium enterprises. As it has been an instrumental implementation stage of the Plan for Accelerated and
Sustainable Development to End Poverty (PASDEP) (2005/06-2009/10). Besides, it is succinctly outlined in the
Growth and Transformation Plan (GTP) (2011-2015/16) that this sector shall continue to play a critical role in
achieving the GTP’s envisaged objectives.
Why does the Ethiopian Government prioritize this sector? The rationale for prioritizing this sector is that in any
endeavours of poverty alleviation MSEMs play a critical role as the poor with limited skill and start-up capital
can take part in wide ranges of petty business activities.

53
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Not only this sector creates employment and generates income for the poor but also helps them enjoy economic
growth by consuming domestic investment. By joining the limited capital and skill of the poor, now they can
take part in large projects impossible before. Even the individual MSMEs who did not have access to startup
capital and workplace have now the opportunity to engage in income generating economic activities.
In this context, unemployment is a big concern in Ethiopia as well as in Tigray. The civil service structure in the
region is over-saturated. As there are over 70,000 civil servants (many of them being teachers, police forces and
development agents). Hence, there is no vacant space to generate employment opportunities to the gigantic youth
prospect graduate from TVETs and Universities (unpublished regional parliamentary report, 2009/10).
Uniquely, though the private sector (like EFFORT) in Tigray plays a significant role in generating employment
opportunities; unemployment is rising especially in urban areas 13.7% and 21.1% in 2006 and 2009 respectively
(CSA, 2009).
Creating employment is a hard pressing issue in the region. We mean the development of MSMEs to open great
job opportunities in the region. However, the constraints to and opportunities for the growth of such enterprises
have not been systematically studied. This, therefore, has resulted in a paucity of information in the sector. As
the sector has a dynamic behaviour, we require continuous research as input for developing informed policies
and strategies to create an enabling environment to further support and nurture the enterprises. Human capital
skill gap, innovation, product and market development, government and public policy coordination failure and
sources of finance are among critical challenges that may numbered the development dimensions of considering
MSMEs as vanguards of industrialization in transforming the economy and society of developing countries
Weldeslassie, (2017.
We expect refinements in the methodological, empirical and policy research methods and approach. The
dynamic nature of the sector implies that there is a need to undertake a survey to explore the status and prospects
of MSMEs in the region to solicit and articulate policy options. Thus, this study aims at investigating the current
status of MSMEs and providing analytical information that guides the regional government in the formulation of
public policies; institutions and infrastructural development affecting this sector; capitalizes its importance in
bringing about sustainable development in the region. The study also aims at assisting government and
non-government organizations to design intervention strategies to help these enterprises and play their role in
achieving the GTP.
Finally, this study examines MSMEs in Tigray and explores how they contribute to sustainable poverty
alleviation, GDP, women empowerment, employment opportunities; market-industry- linkage, dynamics,
challenges and prospects.
1.11 Objectives of the Study
The general aim of this study is to investigate the current status of MSMEs in Northern Ethiopia with particular
emphasis in Tigray. Specifically, it is aimed to:
 assess the contribution of MSMEs to the macro-economy in terms of employment generation, women
empowerment, GDP growth (gross value added);
 investigate the MSMEs growth and sustainability determinants;
 examine MSMEs market-linkage; and
 Scrutinize the contribution of MSMEs to industrial growth.
1.12 Data Sources and Methods
1.12.1 Methods of Data Collection
Data for the study have been collected by administering a structured interview that contains both open- and
close-ended questions, documents review, focus group discussions and interviews with focal persons. To do this,
20 enumerators have been recruited and trained for two days on data collection methods and on contents of an
interview guide. Subsequently, enumerators in collaboration with supervisors have filled interview guides. We
have collected secondary data from sectoral reports, manuals, policy documents, focus group discussion and
previous research works.
To take the participants for the study lists of MSMEs clustered by sectors we collected lists of MSMEs clustered
by sectors from local administration trade and industry offices of each sample town. Then, MSMEs were
selected randomly using proportional stratified random sampling technique from each town in each MSME type
and sector. About an interview with a focal person, we collected data from Trade, Industry and Urban

54
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Development Administrators and MSME Officials of each town.

Specifically, a cross-sectional stratified random survey was conducted to get data on basic household information
(age, gender, and education level), household and group members’ income, business establishment information,
enterprise characteristics, group formation, MSMEs performance, sources of finance, BDS and Need-Based
Training, markets and market linkages, women empowerment, MSMEs constraints and issues of raw material,
industrial linkage and growth and survival determinate.
1.12.2 Pilot Survey
After a pre-test and continuous discussion with the client, we conducted a pilot survey in Mekelle from Jan.
15-23, 2011 by taking a random sample comprising 50 participants from all sub city administrations of the state
city. Then, we thoroughly revisited and changed the interview guidelines based on the feedback from trainees.
We conducted the whole survey from Feb 8- March 5, 2011. Data management, analysis and preliminary report
writing March10-May 30, 2011. This research is then enriched, developed and improved based on the various
discussions with governments, key informants and the MSMSs based on the preliminary report.
To check the effectiveness of research method and be alert about some unanticipated difficulties in the survey
data for the study have been collected by administering a structured interview that contains both open- and
close-ended questions, documents reviews, focus group discussions and interviews with focal persons. To do this,
20 enumerators have been recruited and trained for two days on data collection methods and on contents of an
interview guide. Subsequently, enumerators in collaboration with supervisors have filled interview guides. We
have collected secondary data from sectoral reports, manuals, policy documents, and previous research works.
To take the participants for the study, we collected lists of MSMEs clustered by sectors from local administration
trade and industry offices of each sample town. Then, MSMEs were selected randomly using a stratified random
sampling technique from each town in each MSME type and sector. About an interview with a focal person, we
collected data from Trade, Industry and Urban Development Administrators and MSEMs Officials of each town.
1.12.3 Study Area Description
The study area, Tigray, is in northern Ethiopia and has a rugged terrain, ranging between 400 to almost 4000 km
above sea level, covering a total area of 53,000 km. It lies between latitudes 12° 15' N and 14° 57' N and
longitudes 36° 27' E and 39° 59' E.
We structure the region into seven administrative zones and 36 districts (Fig. 1), and we estimate its population
to be about 6.5 million of which 80% live in rural areas. The climate is predominantly semiarid with irregular
rainfall and frequent drought periods. Average annual rainfall ranges between 500 and 900 mm, with a unimodal
pattern, except in the southern part of the study area where a second, smaller rainy season allows local growing
of two successive crops within one year (Nyssen et al. 2005).
The seven zonal administrations of Tigray regional state are Western, North-Western, Central, Eastern,
South-Eastern, Southern and Mekelle special zones. According to CSA 2007 census (2008), it has a population
of 4,314,456, where over 19.53% of the population lives in urban areas. In terms of sex distribution, close to 50%
of the population are females. Amongst the Urban residents, the female population amounts to 52.76%. This
number is slightly greater than females that live in rural Tigray that comprise 50.26%. Considering the age
cohort, 51.87% of Tigray population falls between 15 and 64; whereas over 60% of the urban population is in the
working age group.
The study is conducted on eighteen towns of the region, namely Alamata, Korem, Maychew, Mekelle (North and
South Woreda), Wukro, Adigrat, Abi-Adi, Adwa, Aksum, Shire, Humera, Sheraro, Enticho, Mekoni, Adi-Gudom,
Freweini, and Dansha. The client, Bureau of Trade and Industry in collaboration with the consultant, Aksum
University research team selected these sites. The reason for selecting the sample towns mentioned above was
because there is a high accumulation of MSMEs in these towns. The first twelve towns are town woreda
administrations and the last six towns are emerging towns from each zone.
We locate all towns at a considerable distance from the heart of the state-city (Mekelle-Tigray). Alamata, Korem,
Maychew, Mekoni and Adi-Gudom 187, 127, 164, 126 and 37 km to the South of Mekelle, respectively. Mekelle
(North and South Woredas), the capital city of regional government comprises seven sub city administrations.
Wukro, Freweini and Adigrat are located 46, 78 and 115 km to the North and North-West of Mekelle,
respectively. Abi-Adi, Enticho, Adwa and Axum are located 95,177, 219 and 244 km to the North-West, East of
Mekelle respectively. Shire, Sheraro, Humera and Dansha are located 307, 402, 590 and 695 km to the West of
Mekelle respectively (Bureau of Construction, Road and Transport, 2011).
As far as climate is concerned, Dansha, Humera, Sheraro, Alamata and Abi-Adi have tropical “kola”
55
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Agro-ecological zone. Whereas, Shire, Axum, Adwa, Enticho, Adigrat, Wukro, Mekelle, Freweini, Adi-Gudom
and Mekoni are in the midland (weina dega) agro-ecological zone. Finally, Maychew and Korem have a
temperate (dega) Agro-ecology.
1.12.4 Sampling
The survey is aiming at collecting relevant data on MSMEs in northern Ethiopia, with special reference to Tigray.
It tries to assess the contribution of MSMEs to the macro-economy in terms of employment generation, women
empowerment, and GDP. It is worth mentioning that MSMEs’ contribution to industrial growth, dynamics of
MSMEs, linkage to market, challenges and opportunities they face are also integral parts of this survey.
Sample MSMEs selected for the study was derived from the 2008 Ethiopian census. We selected them from 18
towns (12 big and 6 emerging towns) of the region applying probabilistic and non-probabilistic sampling
techniques. The research team and Tigray Regional State, Bureau of Planning & Finance selected purposively
the 18 towns (the client). We selected these towns because there are many MSMEs are found mainly in urban
and semi urban areas. Then, a sample that contained 1500 MSMEs were selected using proportional stratified
random sampling from the selected towns. We prefer this technique because it is convenient to take participants
from the strata of towns and sectors. We classify the MSMEs as Construction, Metal and Woodwork, Services,
Petty Trade, Urban agriculture, Textile and Handicraft. We calculated the following to select the number of
participants MSMEs from the towns and sectors using the following formula:

Ni * n
ni  ,
N
where N= population size
n= sample size = 1500
Ni = size of ith stratum
ni = number of participants selected from the ith stratum

Once the number of MSMEs to be selected from each town and we determine each sector, the respective
researcher assigned to each town selected the participants using simple random sampling. Here, 2002 E.C.
survey lists of MSMEs were obtained from kebele and MSME offices (i.e., a list of private enterprises was
obtained from kebele offices and that of group enterprises from MSME offices) and the actual participants were
randomly selected in their names. The enumerators’ team located and interviewing the selected participant
MSMEs using the interview guide. We find the number of selected enterprises by sector and location in annex-1.
1.12.5 Methods of Data Analysis
The models used in this research include log-linear, logistic models, FGT, a residual approach. I used STATA15
software package to analyze descriptive and inferential statistics. We present data in the form of Tables, Figures
and Graphs.
2. Characteristics of MSEs
In this section, we shall present a brief description of data on the business sector, size category of firms, current
MSMEs’ asset, MSMEs’ age, type of ownership, the situation of workplace, recording habit of the transaction
and sources of finance.
2.1 Size Distribution of MSEs by Sector
Table 2 illustrates the size share of MSMEs together with mean asset and share of firms. Looking at the size of
firms by the mean asset of the total, 2.4% are micro-enterprises with the capacity of employing 64% of the total
employment created by MSEs in the study. The percentages of small enterprises are 14.6% and the employment
generated by these firms is 35% of the enterprises examined in this research. The proportion of medium and
large enterprises by mean assets are 83%. However, medium and large enterprises only create 1% employment
opportunity.
Considering the size of MSMEs by a share of firms (number of firms in each category), 66.8%, 32.2% and 1%
drop on micro, small and medium and large enterprises, respectively. These findings show that even though the
majority (99%) of the enterprises is MSMEs as expected, there are enterprises which do not belong to the group.
This may bring two problems. First, it may affect the enterprises’ moral and demotivate them. Though the
enterprises are expected to be graduated, they are still treats as MSMEs. Second, these enterprises already

56
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

grownup, and supposed to be graduated and engage in other area are still competing with MSMEs in getting
support which they do not deserve.
Considering the size of firms by mean asset and MSEMs sub-sectors, of the micro-enterprises, the manufacturing
sub-sector has the highest share (0.8%) followed by the construction sub-sector. While the rest subsectors under
this category have a similar share of mean assets. When we look at the right-hand side three columns of table 2
below, it displays size by a shade of firms (frequency) in each MSEMs sub-sector. In this context, petty trade has
the highest share of firms (20%) followed by the construction (17%) and manufacturing sub-sectors of the
micro-enterprises. Similarly, petty trade (14%) has the highest share in the small MSEMs sub-sectors yet
followed by services (9%) and urban agriculture (5%) sub-sectors. When we consider the two size categories
(mean asset and share of firms) and MSEMs sub-sectors, medium and large enterprises have the highest share in
the former and smallest share in the latter.
Recently, there is a high price inflation of commodities and high demand for construction mainly because of
economic growth and the expansion of institutions, universities, and housing development. Here, MSMEs can
serve as the best strategies to satisfy these demands.
In sum, of the total mean asset share of medium &, large firms are 83% while their share by size (frequency) is
1%. However, these firms use 1% of the total MSEMs survey employment creation. Whereas mean asset share
of micro-enterprises is 2.4% though their share by size (frequency) is 66.8% and create employment
opportunities to 64% of the total employment created by survey MSMEs. Medium and large enterprises are
enjoying governmental support as small firms though supposed graduate.

Table 2. MSMEs size distribution by sector, mean asset and share of firms
Sector Size by a mean asset (%) Size by share of firms (%)
Micro Small Medium and large Micro Small Medium and large

Manufacturing 0.8 3.6 0 12.99 1.02 -

Construction 0.7 4.5 31 16.57 4.01 .08
Petty trade 0.3 2.2 12 19.71 13.58 0.37
Urban Agriculture 0.3 2.3 20 7.52 5.11 0.32
services 0.3 2 19 10 8.54 0.23
share of total firms 2.4 14.6 83 66.8 32.2 1
Employment 64 35 1 64 35 1

2.2 Firms’ Age and Sectorial Distribution

Figure 1 shows a life span of MSMEs in each sector. They classify ages of MSMEs into four: ≤3, 3 < x ≤ 6, 6 <
x ≤ 9, and > 9 years of age. It draws the ages of MSMEs from their year of establishment. Figure 1 depicts that,
there are younger MSMEs in the age range of three years and below. One can observe that MSMEs have
boomed over the last three years especially in the construction (157 enterprises/ 23.93%) and trade (130
enterprises/ 19.82% of those reported this information). This is because of the growing economic development
we can observe and special attention of the government to MSMEs.
As already seen in Table 2 construction, manufacturing and service sectors are contributing more and
diversifying in these sectors may be more helpful. There are younger MSMEs in the construction, trade, and
service sectors. Studies show that young enterprises grow more rapidly and contribute better than older
enterprises. The relationship between firm age and small firm growth in developing countries is robust (Nichter
& Goldmark, 2005; 2009). This may inform policymakers and administrators to always have newly established
or young enterprises (MSEs) in the selected sectors.

57
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

180
157 ≤3
160
3< x≤6
140 130
6< x≤9
120
>9
97
Frequency

100

80 68
60
37
40 31
25
17 17 14 18 19
20 8
4 4 6 2
0 1 1
0
Manufacturing Construction Trade U.agriculture Services

Figure 1. MSEs’ age

2.3 MSEMs Business Ownership (Legal Status)

Table 3. shows that most MSMEs are in a sole proprietorship (744 enterprises or 52.28%) and cooperatives (596
enterprises or 41.88%) ownership form. While most of the participants from the construction sector are
cooperatives (243 enterprises or 91.01%), participants from the trade are run by sole proprietors (308 enterprises
or 69.21%). All construction and most of the service and manufacturing MSMEs have legally registered.
Relatively high numbers of trade and urban agriculture sectors have no legal status. Even though the majority
(97.75%) of the participant MSMEs has legally registered, there are some with no legal status. And these
informal MSMEs will not get any support. The informality of MSEs reduces chances for growth and is
associated with several other characteristics that make growth difficult (Nichter & Goldmark, 2005).

Table 3. MSEMs ownership (Legal Status)

Sector Sole proprietorship Simple partnership Cooperatives No legal status Total
Manufacturing 176 9 112 4 301
Construction 18 6 243 0 267
Trade 308 28 94 15 445
Urban agriculture 105 1 47 10 163
Service 137 7 100 3 247
Total 744 51 596 32 1423

2.4 Workplace for Business Enterprises

Table 4 presents the place where entrepreneurs run their business. The table shows that a considerable proportion
(43.18%) of the participant MSMEs run their business in separate rooms. This shows that many entrepreneurs run
their business in a separate place, and this may help them focus on their business. Separate working places have
probably good market opportunity. One-fourth of the participants MSMEs run their business in living rooms and
nearly one-fourth in a rented house. Relatively few entrepreneurs use shades to run their business. Despite the
claim’s entrepreneurs pose for not getting a working place, only a few of them are using shades to run their

58
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

business. But this is open for further investigation. Are there enough shades and/or are the shades need-based and
suitable market places?

Table 4. Business enterprise’s workplace

Workplace Frequency (f) Percent (%)

Living room 369 25.70

Separate room 620 43.18
In shades 131 9.12
In a rented house 316 22.01
Total 1,436 100.00

2.5 Recording Habit of Transactions

Table 5. Recording of transaction

Sector Recording of Transaction
Yes No Total

Manufacturing 190 121 311

Construction 227 40 267
Trade 292 143 435
Urban agriculture 109 54 163
Service 190 57 247
Total 1008 415 1423
Percent 70.80 29.16 100

While nearly three-quarters of the entrepreneurs kept records of their transactions, a minority of them did not (see
Table 5). We can observe that a considerable proportion of entrepreneurs (29.16%) do not use a book of records.
We found this to be serious limitation, and it is mainly because of knowledge and skill about the issue. This
problem can easily be minimized by supporting entrepreneurs with BDS and related pieces of training.
2.6 Sources of Finance to Run the Business
MSMEs used various sources of finance to run their businesses. Table 6 shows the finance sources of entrepreneurs
to run their MSEs or businesses. The most common source of finance that entrepreneurs used to run their business
is personal saving. This result shows encouraging performance in saving and it needs further strengthening and
scaling up. The second important source is a formal loan from micro-finance. Microfinance institutions are very
helpful as they are easily accessible. Family or friends and personal asset are also the third and fourth sources.
These results are consistent with that of Gebrehiwot and Wolday (2006), “we have seen that family or friends is
widely practised among MSEs; that most of the trade credit-recipient (family or friends) MSEs lack access to bank
loans; that MSEs that receive trade credit is also likely to give trade credit (in effect, passing on the credit) and that
MSEs mainly depend on single primary suppliers.”

59
jsd.ccsenet.org Journal of Suustainable Devellopment Vol. 12, No. 3; 2019

Table 6. Soources of finannce to run the bbusiness

Sourcce Frequency (mark out of 5) Totaal score Rank
1((%) 2 (%)) 3(%) 4(%) 55(%)

Personal saving 2224 (19) 72 (6.10) 154(13.1) 135 (11.4) 5595 (51) 4345 1
Familly or friends 3772 (48.1) 45 (5.8) 120 (15.5)) 111 (14.3) 126 (16.3) 1896 3
Inform
mal saving (like equub)
e 4225 (63) 57 (8.5) 98 (14.6) 83 (12.4) 7 (1) 1200 5
Form
mal bank loan 5999 (87.8) 27 (4) 22 (3.2) 15 (2) 19 (2.8) 874 7
Personal asset 3552 (49.9) 44 (6) 133 (18.8)) 82 (11.6) 995 (13.5) 16422 4
mal loan from miicro-finance
A form 3446 (43.2) 30 (3.8) 49 (6) 99 (12.4) 2277 (34.6) 23344 2
Moneey Lenders 5552(81.2) 45 (6.6) 47 (7) 21 (3.1) 15 (2.2) 942 6

3. MSMEs Contributioon to Regionall Economy an

nd Performance
In this chaapter, we attem
mpted to comprehend the rolle of MSMEs and their contrribution to thee regional econ
nomy
in terms of employmentt creation, outpput, poverty reeduction, and w
women’s empoowerment in T Tigray. Towardds the
end of thiss chapter, we analyze
a the deeterminants off MSMEs’ growwth performannce with the hhelp of econom
metric
investigatiion.
3.1 MSME
Es Employmentt Contribution
3.1.1 Empployment by Siize Category

% of Total, Micro, 
64.3

% of Total, Small,  AAverage Numb
ber of Employe
ees Per
7
34.7 FFirm
%
% of Total

Averaage Number off 
Averaage Number oof  Averaage Number off  Emplo
oyees Per Firm, 
Emplo
oyees Per Firm
m,  Emplo
oyees Per Firm
m,  Mediuum and Large ,, 
Micro, 6.7 SSmall, 7.5 7 [SERIES 
% of Total, M
Medium NAMEE][CATEGORY 
and Largge , 1 NAM
ME]; [VALUE]
% of Tota
al, , 0

Figgure 2. Averagge numbers of workers per fi

firm by firm sizze category

Figure 2 aabove reveals information rregarding empployment accoording to firm m size. They uuse nearly 99% % of
employeess in MSMEs while
w Medium and Large entterprises use oonly 1%. Our ffindings are likke previous stu
udies
conductedd in developingg countries (seee Ayyagari et al., 2011). Thhe figure also sshows that the average numb
ber of
workers peer firm is simillar regardless oof size.

60
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

3.1.2 MSEs Business Ownership and Employee

Table 7. Average number of workers per firm by ownership form

Ownership Type Average Number of % of Total
Employees Per Firm

Sole proprietorship 5.6 43.1

Partnership 6.5 2.6

Cooperatives 8.5 53.3

Total 6.8 100

Firms differ in size according to their legal status as seen in Table 7. Cooperatives create the highest job
opportunity with an average of 8.5 employees per firm and which account 53.3% of the total employment. A sole
proprietorship has an average of 5.6 employees per firm but accounts for 43.1% of total employment. Partnership
firms create a job on average for 6.5 workers. While several workers per firm in partnerships is high compared to
sole proprietors, their contribution to the total employment is minimal (2.6%).
3.1.3. Employment by Sector

Table 8. Employment by sector

Business Line Average Employment by Firm Size

Micro Small Total % of Total

Manufacturing 5.3 5.5 5.4 15

Construction 8.5 9 8.8 25
Petty trade 6.1 7.3 6.7 19
Urban Agriculture 7.5 7.5 7.5 21
Service 6 7.5 6.8 20
Total 35.2 100

Employment also differs by sector, as Table 8 shows. The greatest percentage of employees is engaged in the
construction sector accounting approximately 25% while urban agriculture ranks second as it uses nearly 21% of
the total MSMEs employment. For micro-enterprises, employment per enterprise is highest in construction and
urban agriculture (8.5 and 7.5 respectively). Among small firms, the average employment per enterprise is higher
in the construction sector.
3.2 MSEMs Output Contributions
3.2.1 Sectoral Contributions
In this subsection, the relative contributions of MSMEs to the regional economy in terms of Gross Value Added
are presented. They calculate it as the residual of the units’ total output less intermediate consumption (that is,
goods and services used up in producing the output)1.

1
This has to be interpreted with caution as all economic costs may not be fully reported by all respondents (MSEs).

61
jsd.ccsenet.org Journal of Suustainable Devellopment Vol. 12, No. 3; 2019

Peercentagge Sharee of Tota
Percentage Shal Contr
P are of  ribution
ution, 
Total Contribu
M
Medium and LLarge , 
2.5, 2%

Miccro
P
Percentage 
Smaall
Share of 
Peercentage Shaare of  Total  Medium and Larg
ge
TTotal Contributtion,  C
Contribution
Small, 47.6, 48% , Micro, 
49.9, 50%

Figure 3. Relative
R of conntribution of M
MSEs to regionnal GDP by sizze of the enterrprise

Figure 3 sshows that miccro-enterprisess have a share contribution oof nearly 50% % to the regionnal economy out
o of
the total coontribution maade by micro, small, mediumm and large-sccale enterprisees. This is folloowed by a sha
are of
nearly 47% % contributionn by small ennterprises. MS SMEs have a share contribbution of 97.55% to the regional
economy oout of the totaal contribution made by micrro, small, meddium and largee-scale enterprrises. One can infer
from figurre 3 that the share contributioon of medium and large enterprises to the rregional econoomy is 2.5%.

Contribution
n of MSEs to R
Regional Econo
omy by sectorrt
Manufacturing
Percentage Share of 
Consstruction
Total Contrribution, 
Constructio
on , 55.3 Pettyy Trade
Urbaan Agriculture
Serviice
Perrcentage Sharee of  P
Percentage Sha are of 
To
otal Contributioon,  TTotal Contribution, 
Petty Trade, 20
0.2 Service, 22.6

Percentaage Share of 
Perccentage Share of  Total Contribution, 
Totaal Contribution,  Urban Agriculture , 
Man nufacturing, 0.6 1
1.3

Figure 4. Conntribution of M
MSEs to regionnal economy bby sector

As observved in Figure 4, the sectoraal contributionn of MSMEs to the GDP is also interessting. Constru uction
contributedd the highest proportion (555.3 percent), followed by Service (22.6 percent) and petty trade (20.2)
percent.
Figure 4 fu
further shows that
t manufacturingg sector to the regional econnomy has rema
the contribbution of the m ained
tiny. The share of this sector in regiional total outtput is less thhan 1%. This shows that thhe region need
ds to

62
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

modernize this sector as it is a pillar of transformation from an agriculture-based economy to that of industry
based and attain sustained economic growth.

Table 9. MSEMs over all contribution and per person engaged by firms
Size Value-added per person engaged

Micro 12390.53
Small 21775.89
Medium and Large 42243.42

MSE Gross Contribution Referring to the Sample

Contribution Types Gross contributions

Gross contribution Per Person 15943.42

Gross employment creation 10568
Gross total asset contribution to the regional economy 5600912 birrs

Referring to Table 9, micro-enterprises have the smallest contribution (12390) of value-added per person
engaged as compared to small enterprises (21775.89). While medium and large enterprises have the highest
contribution (42243.5) of value-added per person engaged. Considering MSMEs overall contribution, gross
value added per person, gross employment creation, and gross total asset contribution to the regional economy
are slightly above 15943.5, 10,568 and 5,600,912 million respectively.
In sum, we may conclude that this sector contributes significantly to the macro-economy of the region though
disentangling the contribution of each subsector and presenting absolute values may not be plausible owing to
poor baseline data in the region. As a final remark, the above figures display only the hard facts referring we
make to the sample survey and no extrapolation. We arrive contribution per person at by computing the benefit
accrued to MSEs Participants i.e. the value of final output-expenses (value of input + wage + rent + tax + utility
and other expenses) divided by MSMEs participants.
Contribution per person engaged here is the contribution per person engaged in MSMEs either individually or in
a group. One should remember we do not refer the employees as engaged persons because they are benefited
from the value of output indirectly in terms of employment.

Table 10. Contribution per person engaged by sector

Size Contribution per person engaged

Manufacturing 10605
Construction 28534.92
Petty Trade 10915.77
Urban Agriculture 3636.952
Service 14630.83
Overall contribution Per Person 15104.99

Table 10 presents the value-added per person engaged in terms of a sector. Thus, the table shows that
construction and service have respectively 28534.92 and 14630.83contribution per person engaged. Urban
agriculture and Petty trade contributed to 3636.952 and 10915.77 value-added per person engaged, respectively.
The lowest value-added per person is created by the Manufacturing (10605) while the overall contribution per
person engaged is 15104.99. This is an insightful result which has an interesting implication for policymakers.
There is clear policy direction in the construction sector that states 40% of public construction should give 40%
of public construction to MSMEs as sub-contractors. Thus, it could be the main reason for the boom observed in
the construction sector. In fact, there has been a fast growth in the construction sector nationwide owing to
persistent economic growth. Therefore, this could be the other cause of MSME boom in the construction sector
as there is no exception in Tigray.

63
jsd.ccsenet.org Journal of Suustainable Devellopment Vol. 12, No. 3; 2019

3.3 Meanss of Livelihoodd

80
60
Percent
40
20
0

0 20
0 40 60 80
0 100
propohhin
ncome

Figuure 5. Proportioon of Househoold Income from

m MSEs (% of proprietors)

MSEs in tthe region seeems to providde a larger fraaction of houssehold incomee. Overall, 80% % of the surv
veyed
MSMEs proprietors repoorted that theirr enterprise proovided 100 perrcent of their ffamily’s total iincome. The higher
dependencce on MSEs in the region may reflect that many peersons are enggaged in this Micro and Small S
Enterprises.
3.4 Womenn's Empowerm
ment

No, 48.87
7, 49%
Yes , 51.13, 51%
Ye
es
No

Figurre 6. Permissioon for participaation in MSEs

Since wommen entrepreneeurs make up a significant poortion of the M

MSE entreprenneurs in total (227.92%), this study
s
attempts too explore the benefits
b and barriers specificc to women enntrepreneurs. IIn this section,, issues such as
a the
need for ppermission to start an enterrprise, perception of womeen entrepreneuurs on specificc issues - whether
women enntrepreneurs feel improvemennt and ultimateely empoweredd is presented.

64
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Husband
Father/Mother
Father/ Mother‐ in‐Law
Others

Figure 7. Permission for participation in MSEs

Women entrepreneurs face diverse responses from their families or relatives while attempting to start a business.
While families strongly oppose women setting up an enterprise, others lent significant support. The pie chart in
Figure 6 shows that 51.13% of the participant women entrepreneurs responded “No” to the question “Do you
need any permission from your family to start a business?” Thus, the findings show that about half of the women
entrepreneurs needed none permission from their families to start a business. The bar graph in Figure 6 shows
that 64.10% and 30% of women entrepreneurs that needed to get permission from their families received it from
their fathers and husband, respectively.

Table 11. Improvement of access to resources

Do you have equal access to? Yes (%) No (%)

Nutritious food 92.31 7.69

Handling and spending money 92.36 7.64
Interpersonal communication 94.81 5.19
Education/training 84.35 15.65
Owned property 59.55 40.45
Able to get health care services for your family 82.95
Overall 84.40 15.60
Table 11 shows that most women entrepreneurs (84.4%) got overall improved access to resources such as food,
money, health care services and education because of their engagement in business.
Table 12. Improvement in decision making
Decision Yes (%) No (%)
Domestic decision 92.08 7.92
Financial decision 91.40 8.60
Child welfare decision 93.64 6.36
Reproductive health decision 93.92 6.08
Socio-political decision 90.95
Overall 92.40 7.60

65
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Table 12 presents the improvement in decision making about different issues of participant women entrepreneurs
because of their engagement in MSMEs. The results in the table show that 92.40% of the participant women
entrepreneurs have got an improvement in decision making about different issues because of their engagement in
MSMEs.
Similarly, annex-1 show that a significant portion of women entrepreneurs fell improvement in gender
perception, coping to household shocks, and overall change in income and living conditions. Hence, it can be
safely concluded that taking part in micro and small business helps women to be better empowered better society
with better health and living conditions.
3.5 Reporting Results of Paired t-test on Total Asset and Employment Creation

Table 13. Results of paired t-test on total asset and employment creation
Variables mean S.E t-ratio observation
Current assets (in 2002 E.C.) 76457.8 3388.3 1500
Previous assets (in 2001 E.C.) 60982 2534.8 7 1500
Current employment (in 2002 E.C.) 9.62 .45 1500
Previous employment (in 2001 E.C.) 9.2 .39 2 1500

We asked respondents to show their asset value and level of employment in 2002 E.C and 2001 E.C. We conduct
the paired t-test to substantiate MSMEs growth in terms of asset accumulation and employment creation. The
t-ratio for the first variable is significant at 1% level of significance which implies significant growth in MSMEs
total assets in 2002 E.C. as compared to 2001 E.C. The second variable is significant at 5% level of significance
likewise. This entails increasing employment in 2002 E.C. as compared with 2001 E.C. It also assists us to judge
the consistency of the above results.
3.6 MSEs Role in Poverty Reduction

Table 14. Sample MSMEs poverty status

Poverty Measures Estimation Results
Coefficients S.E
Headcount ratio 38.6 0.013
Poverty gap ratio 18.8 0.008
Squared poverty gap ratio 12% 0.006

Engagement in the MSME sector has brought income gain for the beneficiaries. With this context, we consider
1.25 dollar per day as a proxy to the poverty line (bumpy indicator). This is the worldwide indicator in poverty
analysis. Besides, we consider households’ average income of MSMEs’ participants as a proxy for poverty
indicator. This is obtained by dividing total income by the household members (family size). In this perspective,
the MSMEs proportion of the poor below the anchor line is 38.6%. While the poverty gap (income need to
become non-poor) is 18.8%. Finally, the depth of poverty is 12%
The above poverty measures are close to national measures. Hence, MSEs have a significant contribution in
poverty reduction.
3.7 Determinants of Performance of MSMEs (Econometric Investigation)
We conduct an econometric study to estimate the determinants of growth performance of the MSEs by running
the following regression equation.
growth  1   2 age   3i Sectordummies   4 linkage   5 credit   6 techno   7i educationdummies 
 8 initialcapital   9 gender  10 training
Where growth is the measure of growth performance of MSEs in terms of sales growth2 and the explanatory
2
Different authors use different dependent variables such as employment, sales productivity, value added growths

66
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

variables are
I) It includes Age and MSE in the model to test the dependence of enterprise growth to its age and initial
size.
II) Sector: it includes the sector dummies in the model to capture any effects of operating in the other
sub-sectors compared with the manufacturing as the base sector.
III) Training: training affects performance
IV) We add access to credit into the model to observe the effects of financial resources. They take those who
had access to credit as a reference group.
V) We added linkage which takes value one in case of having any kind of linkage with other enterprises since
being related with other enterprises may have positive effects on growth in terms of business opportunities which
could open new markets or increase productivity by sharing equipment or skilled personnel.
VI) Human Capital: The educational level variables EDU (i =1, 2, 3) are the human capital determinants. By
incorporating these variables into the model, we would like to test whether the education level of the
entrepreneur impacts the growth of the enterprise. A college education is a reference here.
VII) Technology a dummy that takes the value one if the entrepreneur stated that he/she uses the latest
technology in the sector she/he is active.
VIII) Gender, a dummy taking the value one if the entrepreneur is male.
Estimation Result of Employment Growth Determinants
Applying linear regression to estimate the parameters of the model, both Breusch-Pagan and White tests for
heteroscedasticity-rejected homoscedasticity. As a remedy, we have computed White standard errors and the
results we report the results in Table 15.
As seen in Table 15, the conclusion reads that initial capital is inversely related to growth. Specifically, initial
capital is a significant variable; MSEs with higher initial capital has significantly lowered growth rates than
MSEs with a lower initial capital. Putting differently, other factors being equal, MSEs that started a business with
higher capital have lower average growth rates than MSEs that started with lower capital levels. Besides, MSEs
with lack of access to credit grow less compared with MSEs with credit access... Demand conditions as showed
by sales growth is also a significant factor. Further, the technology dummy shows that MSEs that use modern
technology grow faster. Two things are worth nothing from table 15. First, as shown by the training dummy,
MSEs with trained owners have higher growth than those without training do. This finding has an important
policy implication. Second, the linkage has a significant impact on growth. Holding other factors constant, MSEs
that have linkage have higher average growth rates. Our findings are consistent with the existing empirical
literature (see the findings of Liedholm and Mead (1993), McPherson (1996), Mulu (2007) and Ozar (2003)).

Table 15. Regression results

Dependent Variable: Employment growth
Independent Variables Coef. Std. Err.

Initial capita -.0920 *** .0279

Firm age -.0210 .0598
Credit -.2887*** .1020
Linkage .2795** .1165
Construction -.2650 .2265
Sales growth .3620** .1574
Petty trade .2906** .1657

Urban agriculture .2763* .2027

Service -.0301 .2043
High School -.0323 .2454
Elementary -.4341 . 5379

67
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Technology .1726* .0134

Taken part ..4387*** .1663
Female -.2914 . 2027
Age of Owner -.2061 .2768
Constant . 1.305 1.272
Observations: 500
R-Squared 0.52
Adjusted R2 0.51
F-statistic 32.77***

Notes: one, two, and three asterisks denote significance at 10, 5, and 1 percent levels respectively

4. Market Linkage and Determinants of MSMEs’ Growth and Sustainability

In this section, we shall present a brief description of various types of linkages such as (sectoral and institutional
linkages), industrial growth-related issues, training and business development service (BDS), determinants of
MSMEs’ growth and sustainability and major barriers to MSMEs’ development.
This study intends not only to provide a conceptual overview of determinants of MSMEs’ survival critical to the
arguments in a present discourse of this sector but also it synthesizes the concept of market linkage and prospects
of this sector.
The concept of MSMEs’ dynamics is becoming a wrestling ground for many experts in this area. MSMEs are in
a constant state of fluctuation. During any period, new firms are being created (new starts, or enterprise births),
while others are closing; some existing firms are expanding, and others are contracting in size. However, the
significance of most of these changes is overlooked by a limited focus on the aggregate changes in SMMEs’
performance indicators. For an economy that is dominated by small enterprises like Ethiopia, understanding the
factors influencing the enterprises’ life cycle is critical for facilitating the entrance of larger enterprises into the
market.
Also, several studies underline that the poor’s priority of security over economic growth is a neglected aspect in
considering MSMEs as antipoverty interventions.
Many kinds of research cast serious doubt on the survivalist camp of MSMEs and claim that enterprises enter the
same market all the time, which results in over-trading and involution growth. They go on castigating the generic
technical skills and business training in low-value-added activities while working with survivalist or
micro-enterprises, existing or new businesses. Creating new survivalist enterprises to compete with existing
enterprises in the same sectors and markets; rather than generating income and employment for the poor, it
contributes to the insecurity of existing entrepreneurs. If income is insecure, it is not sustainable (Von
Broembsen, 2003).
They contend, if a survivalist enterprise generates less income than the poverty line and the income generated
secured is insecure, then the organic growth of survivalist enterprises may make up a survival strategy but does
not ease the abject poverty and should not be pursued as a good strategy for MSMEs.
4.1 MSMEs Linkages
The data collected from the survey contained information on the linkages among MSMEs, including their
operating environment and enterprise networks. The questions on linkages included the contacts they maintained
with different enterprises. These concerned linkages with enterprises of various size and activities, linkages with
other enterprises in the same line of business, or different lines of business, with smaller or larger enterprises,
linkages with public institutions. We also asked enterprises whether they sold their products directly to
consumers for final consumption, or for further production.

4.1.1 Institutional Linkage

68
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Table 16. Institutional Linkage

Linkage with various partners Level of linkage (in percentage)
No linkage Moderate linkage Highly linked

Public institutions of the region 59.79 14.25 25.96

Regional colleges/TVETs/ 67.77 12.69 19.54
Universities and research centers 83.95 9.28 6.77
Other companies in the region (suppliers, customers, partners etc.) 50.79 18.8 30.41
Technology transfer centers 74.76 10.69 14.55
Companies outside the region 88.36 6.69 4.95
NGOs 81.59 8.17 10.24

Table 16 shows the linkage of MSMEs with various partners with varying levels of linkages expressed in terms
of percentage. The table shows that most of the enterprises have low linkage with various partners. Over 83% of
the participant MSEs has no linkage with universities and research centres; a similar proportion (88%) of them
has no linkage with companies outside the region; 81% of the participant MSEs has no linkage with NGOs. A
relatively considerable proportion of MSEs (30%) is highly linked with other companies in the region (suppliers,
customers, partners etc.). Next, to this partner, public institutions of Tigray Region are highly linked with 25.96%
of the participant MSMEs. A close proportion to 20% of the participant MSEs is also highly linked with
Regional colleges/TVETs/.
4.1.2 Sectoral Linkage

Table 17. Sectoral linkage

Do you have a linkage with other enterprises?

Sector Yes No

Manufacturing 26.52 73.48

Construction 37.97 62.03

Trade 14.29 85.71

Urban Agriculture 19.88 80.12
Service 23.31 76.70
Total 23.29 76.71

The survey generated information regarding the linkage between MSMEs and other enterprises, similar
enterprises and industries which shows sectorial linkage. As presented in Table 17, out MSEs a proportion of 23%
has linkage with other enterprises operating either in similar or dissimilar business fields, while 77% of the
enterprises have no linkage at all.
From this, a larger proportion accounting 37.97% and a similar proportion to that (26.52%) covers by
construction and manufacturing sectors, respectively. Trade accounts 14.29% is the least linked enterprise.
However, the majority (76.71%) of the participant MSMEs have no established linkage with other enterprises
and industries. From this one can infer that since the MSEs in Tigray have very limited linkage with each other
and other industries they are less competitive and sluggish to graduate into lead enterprises. They are weak in
providing supplies or purchasing from enterprises to make other products or services.
As the information got from a majority of respondents, the most common reasons for not considering linkage are
like lack of awareness on the importance of linkage, the need to be independent, and fear does not meet
obligations.

69
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

80

70

60

50

40
Manufacturing

Construction
30
Trade

20 Urbanagri

Service

10

0
Sub-contracting Sub-contracted Collaboration in Collaboration in To do business Other
bidding for utilizing
contracts equipment
Linkage kind

Figure 8. Linkage kind

It also raised for those who have a linkage, it also raised the question “what is the linkage?” 40.96% of the
enterprises have a linkage to do business, a very similar proportion, 38.91% of the enterprises have
sub-contracted kind of linkage. Similarly, only 8.53% of the enterprises have sub-contracting linkage kind, while
2.73% and 6.48% of the enterprises have established a linkage for collaboration in bidding for contracts and in
using pieces of equipment, respectively. Finally, 2.39% of the enterprises have a kind of linkage other than the
above mentioned once. Among those who have a linkage to do business and subcontracted kind of linkage, they
are from urban agriculture and construction sectors respectively (Figure 8).
4.1.3 Linkage and Innovation Policies
As inferred from Table 18, on average more than half of the sample enterprises (58.12%) responded that public
institutions of the region do not provide enough help for MSMEs in business startup, creating market opportunities,
promoting networking/internal linkage, human resource development and giving guidance. On average 59.08% of
the MSMEs agree that the public institutions of the region do not promote innovation atmosphere and Universities,
TVETs and research centers are very weak in scaling up and scaling out research findings related to MSMEs.
Besides, 61.38% of the respondents agree that public institutions of the region have very weak support in
developing clusters while 62.35% of the MSEs agreed that government institutions do not encourage MSEs by
purchasing innovative products.

70
 jsd.ccsenet.org Journal of Suustainable Devellopment Vol. 12, No. 3; 2019

Table 18. L
Linkage and innnovation policcies
Linkage and Innoovation Policies Rating (in percentage))
Disaagree Undecided Agree

A. Innovation
 Publicc institutions of thee region provide ssufficient help in tthe starting stage oof new business 57.552 10.43 32.05
 Publicc institutions of thee region provide hhelp in identifyingg and developing m
market opportunitiies 58.447 12.33 29.2
 Publicc institutions of thee region provide ssupport in networkking 62.888 12.2 24.93
 Publicc institutions of thee region promote internal linkages 62.551 13.15 24.34
 Publicc institutions of thee region support ddeveloping humann resources/short-term pieces of trainning 50.999 11.62 37.39
 Publicc institutions of thee region provide gguidance when neeeded 56.228 9.8 33.92
B. Linkage
 Regulaation and educatioonal policies shapee innovation perfoormance 52.19 12.33 35.48
 Innovaation policies and related support arre strongly technoology-driven 55.004 13.28 31.68
 Publicc institutions of thee region provide ssupport in developping clusters 61.338 13.2 25.42
 Publicc institutions of thee region promote an innovation-favvourable atmospheere 58.551 13.02 28.48
 Publicc institutions of thee region support innnovating industriies/businesses 60.992 11.2 27.88
 Publicc institutions of thee region play roless in scaling up andd scaling out reseaarch findings 63.14 14.16 22.7
 Goverrnment institutionss purchase innovaative products 62.335 15.32 22.33

4.1.4 Sourrces of Innovattion

Figure 9 sshows that the largest share for innovationn source our ccustomers which accounts too 30.34%. Bessides,
24.92% off the innovatioons come from m higher instittutions especiaally TVETs. T
The figure shoows that system
matic
in-house R
R&D and innoovation processs, which encouurages indigennous innovatioon, accounts onnly 16.2%; 16.97%
and 11.75%% from supplieers and skilledd employees off the firm, resppectively.
From the rresults, it is possible to deducce that most off the MSMEs pproduce new pproducts or chaange them base ed on
customers’ preference. They
T have a lim
mited initiativee to add value to products orr designing new
w products thrrough
systematicc in-house innoovation and R& &D regardlesss of customer dependence. T The trend withh higher institu
utions
especially TVETs is relaatively good annd the results innform concernned bodies to ddiversify the linnkage by involving
Universitiees, TVETs andd research centtres in innovatiion projects at large scale.

Customers, 30.34
P Higher instituttions, 
24.92
e
r
c
e Suppliers, 16.97
R&D , 16.02
n
t Em
mployees , 11.75
a
g
e

Figure 9. S
Source of innovvation

71
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

4.1.5 Industrial Growth

The survey generated information regarding the industrial growth of participant MSMEs. We try to describe
MSMEs growth in terms of the destination of the product, levels of employment they created, raw materials they
consumed, and level of sales revenue they generated.
When there is a high proportion of MSMEs product for further production, we expect their contribution to
industrial growth to be high. It involves as seen from Figure 10, on average 76.77% of MSMEs in producing
products for final consumption while 12.33% of them produce for further production and the remaining 10.90%
for both production and final consumption purpose. Sector-wise, the construction sector contributes 23.67% in
producing products for further production. The services sector contributes 6.61% of products for further
production. From this, we can infer that the forward marketing linkage MSEs with industries is weak.

Figure 10. Purpose of the produced product

Table 19. Results of paired t-test on employment creation, total inputs and sales revenue generated
Variables Mean S.E t-ratio observations
Current input (in 2002 E.C.) 70552.82 10722.94 702
Previous input (in 2001 E.C.) 59253.38 9801.86 3 702
Current sales revenue (in 2002 E.C.) 71898.58 6571.70 4 702
Previous sales revenue (in 2001 E.C.) 59095.06 6285.70 702
Current employment (in 2002 E.C.) 9.62 .45 1500
Previous employment (in 2001 E.C.) 9.2 .39 2 1500

We asked sample MSMEs to show their employment level, input value and level of sales in 2011 (current) and
2010 (previous). We conduct the paired t-test to show MSMEs contribution for industrial growth in terms of
employment level, sales revenue generated, and raw materials consumed. As stated in Table 19 above, the t-ratio
for the first and second variables is significant at 1% level of significance which implies significant growth in
raw materials consumption and sales revenue generation in 2011 as compared with 2010 the third variable is
significant at 5% level of significance. This entails increasing in employment creation in 2011 as compared with
2010

72
jsd.ccsenet.org Journal of Suustainable Devellopment Vol. 12, No. 3; 2019

Even thouugh MSMEs inn the region arre limitedly enngaged in prodducing produccts for further pproduction (suupply
for other iindustries), theey contribute significantly ffor industrial ggrowth by creating employm
ment opportun
nities,
generatingg sales and connsuming more raw materials.
4.1.6 Sourrces of Raw Material
M
Informatioon collected abbout a source of raw materiials for the parrticipant MSM
MEs is displayyed in Figure 11. 1 A
large propportion, 75.72%%, of the partticipant MSMMEs rely on raaw materials ggot from the rregion. It is worth w
mentioningg that, 15% off the participannts MSMEs geet their raw maaterials from oother regions. IIn contrast, a small
s
fraction, 99.28%, of the participant M MSMEs rely oon imported raaw materials. Besides, disccussions with focal
persons shhow that thouggh most of the raw materials are obtained ffrom the Tigraay region, it haas long distribution
channels w which contribuutes to the inflation of raw
w material pricce. The increaase in the cosst of raw mate erials
enforces MMSEs to reducee their profit m
margin.

Impo
ort, 9.28%, 9%
% 0, 0%

Other regions, 1
15%, 
15%

From Tigrrai region  , 
75.72
2%, 76%

Figure 11. Soource of raw m

material

4.1.7 BDS
S and Training
As shown in Figure 12, out
o of the totall sample of MS SMEs only 322 enterprises hhave got BDS while a majoriity of
them (10993) have not goot BDS so farr. As per the ddiscussions helld with focal ppersons, thouggh there are several
privates annd governmennt BDS providiing institutionss in the regionn there is a gapp in organisingg them to deliver a
proper or ddemand based BDS.

Figure 12. Provisions off BDS

Accordingg to Vandenbeerg (2006), ennterprises relyy on a range of business ddevelopment services (BDS S) to
understandd markets, deevelop productts, refine prodduction, and improve manaagement. BDS S can raise MSEs
M
productivity by addressiing key constraints such as llow skill levels, weak managgement, low leevel of techno
ology,
weak linkaages and suppoort systems.
Figure 13 shows that 60% 6 of the paarticipant entrrepreneurs neeed training in business plannning and running,
especially on bookkeepiing. However, 40% of the pparticipant entrrepreneurs ansswered “No” too the question n “Do
you need training?” As the informatioon got from a majority of rrespondents, thhe most comm mon reasons fo or no
need to takke part in trainning are like lack of awareness on the impoortance of trainning, not willinng to waste tim
me on
training/ scchedule of traiining/.

73
jsd.ccsenet.org Journal of Suustainable Devellopment Vol. 12, No. 3; 2019

No, 40%, 40
0%

Yes, 60%, 60%

Figure 13. T
Training particiipation

Training iss transferring information aand knowledgee to employerss/employees, eequipping empployers to tran nslate
that inform
mation and knowledge into practice to enhhance organizzational effectiiveness and prroductivity, and the
quality of the managemeent. Given todday’s business climate and thhe exponentiall growth in a ttechnology with its
effect on tthe economy anda society at large, the neeed for training is more pronoounced than ever. Training helpsh
increase joob satisfactionn and morale, iincrease motivvation, increassed efficiency in process, resulting in fina
ancial
gain, increeased capacityy to adopt new w technologiees and methodds, and increassed innovationn in strategiess and
products (MMcClelland, 2002).
2
As stated iin Figure 14, we
w also asked rrespondents to rate the main problems withh the training thhey received. More M
than half oof the respondeents of the survvey reported thhat the on-off nnature (irregulaarity) of offereed pieces of training
is the mostt serious probleem. 35.50% off the informantts responded thhat lack of helpp at a workplacce for implemen nting
the training offered is the next most prressing problem m. Similarly, a tiny proportioon of the respoondents, 4.85% % and
8.50% havve reported fitnness to the purrpose (not custtomized) and low outreach pproblems respeectively as the main
problems of the trainingg they receiveed. From the aaforementionedd information, one can safeely infer that, even
though diffferent pieces ofo training aree organized annd offered by ddifferent organns, participantss do not implement
effectivelyy because theree are very limitted follow-up and help from m the respectivee organ.

Percentaage , On‐off 
nature: n
not regular, 
5
51.1
Percentage , Lack 
Percentage

off assistance in 
wo
ork place, 35.55

Percentage , Lo
P ow  Perrcentage , Not 
outreach , 8.5
5 cusstomized, 4.85

Figure 14. Training probblems

74
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

4.2 MSMEs Growth and Sustainability Determinants

Addressing factors that determine the growth and sustainability of MSMEs is among the objectives of the study.
Some of these are limited market access, lack of need-based training, inflation, lack of credit access, procedural
difficulties in business startup, access to productive resources, and bad leadership.
4.2.1 Determinants of MSMEs’ Growth and Sustainability
We can view the theoretical deliberation on the link between business constraint and the growth potential of
MSEs from diverse angles. Business constraints not only limit physical capital accumulation but also a firm’s
capability to embark on its daily operations as they reduce its internal financing and its capacity to make proper
business decisions. Likewise, they may break off a firm’s business operations and therefore slow down its
growth.
This section overviews the theoretical and empirical MSEs’ growth and sustainability determinants from national
and international perspectives.

Figure 15. Conceptual framework of MSMEs constraints

4.2.2 Results and Discussions

While investigating the determinant factors of MSMEs’ growth and sustainability using cross-section data and
the respective methodologies discussed previously; first we succinctly describe the constraints; next, we present
and discuss the econometric results of growth and sustainability determinant factors and the sample mean tests.
Moving on, we shed light on external determinant factors we observed in a focus group discussion with
respective MSMEs official.
4.2.3 MSMEs’ Survival Determinants: Reporting Estimation Survey Results
In this part, we present, a brief description and definition of determinants of MSMEs’ growth and sustainability
explanatory variables given in Table 20. This table presents a definition and descriptive statistics of the
independent variables for the total sample, the sample with cooperatives and for those without. When we
conducted this survey in March 2011, we reached 1500 MSMEs, of which 753 were cooperatives and the rest
non-cooperatives. Of the total, 548 are female owned cooperatives. Of the females, 126 are cooperatives.
Table 20 presents a succinct description and definition of MSMEs’ growth and sustainability determinant
variables of all respondents used in the logit regression. Considering demographic characteristics, it shows that
the respondents are 35 years old on average and the average household size is four. In terms of education, 65%
of the participant MSEs’ member household heads are literate.
On an average MSEs’ current average capital is 19232. Considering employment creation, on average they use
six people. MSMEs establishment preference (individual or group), MSMEs access to the credit facility and
Access to need-based training and business development service are other explanatory variables significant at 5%

75
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

and 1% level of significance.

4.2.4 Summary Statistics and Descriptions of Variables

Table 20. Descriptive statistics and definitions of MSMEs’ growth and sustainability determinant variables
Brief description of variables Sample survey
Definitions Obs. Mean S.D t-test

Temporary business closure; dummy(1=yes) 323 1 0 -

Age of MSE owner/manager 1436 35 11 113.5***
Size of household members 1436 4 2.3 70.92***
The education level of the household head 1436 .65 3 83**
Sex of MSE owner/manager (1=male) 412 .71 .45 59.7 ***
MSEs establishment preference(1=group) 753 .52 .50 39.7 ***
MSEs access to credit facility (1=yes) 961 .363 .481 2.80**
Access to need-based training and business development service (1= yes) 472 .31 .46 26.2***
*** = significant at 1% level; ** = significant at 5% level; and * = significant at 10% level
Sources: Authors’ calculation from MSMEs survey

Having identified these explanatory variables, the next logical step is estimating the logistic regression using
these independent variables.
4.2.5 Results of Logistic Regressions MSMEs’ Growth and Sustainability Determinants
Estimation results of logistic regression in Table 21 are insightful in the case for the entire MSMEs’ growth and
sustainability determinants. The dependent variable is whether a certain MSME has experienced closed
temporarily because of various reasons. This is a typical example of binary response models. In fact, our core
aim is to explore the determinants of MSMEs’ growth and sustainability. In order to appropriately address the
issues, we asked participant MSMEs if they experienced temporarily close. The presumption is that identifying
the causes for temporarily close may help us identify the causes of MSMEs’ growth and continuity. We strongly
believe that not only this issue can better be addressed using longitudinal data via collecting data on the
previously in operation yet exited firms but also by collecting data on already exited firms in case of the sample
survey. The former is the better as the latter involves a difficulty of locating previously in operation but now
exited firms. Thus, the best remedy for the said issue in cross-sectional data analysis is to set questions that help
to investigate the causes of a temporary shutdown and make a logical deduction about determinants of firm
dynamics.
To explain the coefficient estimation results, MSEs owned/managed by man are more likely to temporarily stop
operation owing to various reasons, which is significant at a 5% significance level. This is consistent with the
arguments of (Mitra, 2002; Mitra & Pingali, 2000).

Table 21. Logistic estimates for determinants of MSEs’ growth and sustainability
Participation in micro-finance Coefficients Z Marginal effects after probit (mfx)
Variables
Sex of MSE owner/manager .364** 2.28 .0354
MSEs establishment preference -.092 -1.62 -.014
MSEs access to a credit facility .356** 2.28 .057
Access to need-based training and business development service(BDS) 0.852** 2.36 .730
Current capital per MSE .083* 1.85 .013
Current employment per MSE .011 1.29 .0017

constants -1.497** -2.87 --

76
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Number of obs = 1427 y = Pr (participation in mf) (predict)

LR chi2 (12) = 21.7 ** = .771
Prob > chi2 = 0.0012
Log likelihood = -570.2 Pseudo R2 = 0.1490
*** = significant at 1% level; ** = significant at 5% level; and * = significant at 10% level.

The coefficient estimates of MSMEs’ access to credit facility is significant at 5% significance level and the direct
association is not only consistent with constraints ranked by respondents but also with the findings of (Akoten,
Sawada, & Otsuka, 2006). It means MSMEs with access to credit facility are more likely to sustain their business.
Similarly, access to need based training and business development service (BDS) and current capital of MSMEs
are significant at 10% and 5% significance level, respectively. This is consistent with results of (Mason, 1998;
Gebrehiwot and Amaha, 2003) and (Field, Hitchins, & Bear, 2000; Gbson, Hitchins & Bear, 2001; Lusby &
Panlibuton, 2002). The implication is that MSMEs with access to need based training (BDS) are more likely to
survive and grow and the vice versa. We do not include other variables considered as independent but
insignificant as part of the report.
We can comprehend the estimation results of the marginal coefficient as a unit increase in access to credit facility
decreases the exit of enterprises by 5.7%, other things being the same.
In a similar fashion, a unit increase in BDS and need-based training reduces enterprises MSMEs death by 73%,
keeping other things constant. We may conclude from the results that access to credit facilities and need-based
training are key determinants of MSMEs survival. As a result, MSEs is drafting MSMEs policies and strategies
because of attention ought to be given to these factors.
4.2.6 MSMEs Challenges
This part summarizes the constraints of MSMEs’ growth and sustainability using common variables in the
literature. For comparison, we present the results using tables and econometric models. We asked respondents to
identify MSMEs start-up constraints and growth challenge from the various options and rank them as sever,
moderate and minor. The result is summarized below.

Table 22. MSEs’ start-up constraints and growth challenges

Item No. Constraints Frequency Percentage

1 Lack of startup and working capital 300 20.00

2 Unable to compete with large enterprises 257 17.10

3 Lack of market linkage and information access 207 13.80
4 Inadequate product/service demand 170 11.30
5 Inadequate working premises 150 10.00
6 Bureaucracy & lack of follow up 120 8.00
7 Lack of BDS service & skill-based training 95 6.30
8 Infrastructural problem 65 4.30
9 Insufficient technology 50 3.30
10 Inflation 40 2.70
11 An undeveloped image in the public 33 2.20
Total 1487 100

The MSMEs program faces many challenges that need to be surmounted in order to ensure smooth functioning
and ensure sustainability. As seen from Table 22, the challenges mostly crop out from lack of startup and working
capital, unable to compete with existing large firms, lack of market linkage and information access, inadequate
product/or service demand and inadequate working premises are the top five ranked barriers to MSMEs growth
and sustainability.

77
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

In the focus group discussion with key informants and MSEs managers/owners, we identified the following
limited product cost and quality, poor coordination between MSEs and other sectors, as other key challenges
hampering MSMEs growth. It is important to think of all kinds of innovative mechanisms to ease these
constraints. For example, in terms of finance, innovative mechanisms including private sector involvement and
encouraging and exploring supplier credit, venture capital, mobilization of own and group finance, capital
renting and so on.
5. Conclusion and Recommendation
5.1 Status (Conclusions)
Although MSMEs make the smallest total proportion of assets (17%), their contribution to employment creation
is much higher (99%) than that of medium and large enterprises (1%).
Despite their small size, Micro-enterprises make up about two-third enterprises. Thus, the smaller the enterprise,
the larger the employment it creates, unlike two assets. Sector-wise, manufacturing and construction have built
large assets (10%) and more employment (35%) as compared to petty trade, urban agriculture and service.
Notwithstanding some drawbacks cropping up from measurement and non-response errors of potentially
essential income and output indicator variables; the contribution of micro-enterprises in terms of employment
creation is higher as compared to small, medium and large enterprises. Sector-wise, construction and service
sectors, most of which are relatively younger, are huge sponges absorbing many employees. Considering
business ownership, cooperatives and sole proprietorship take the leading share in creating employment
opportunities.
MSMEs are important means to empower women. Most of the surveyed female entrepreneurs reported that they
have experienced significant empowerment in terms of access to resources, decision-making, gender perception,
and overall living condition.
There has been a great increment in the construction (68%), petty trade (70%) and service sectors (82%) which
are not over three years old. In terms of actual numbers, construction is the highest (157) as compared to petty
trade (130) and service (97) in the last three years.
Considering financial sources of MSEs, the two most important sources of finance during MSMEs start-up are
personal saving and micro-finance.
MSMEs have a greater contribution of value added per person engaged. It is because of this the sector absorbs
much labour force and it can be operational with low startup capital and skill. MSMEs play a significant role in
poverty reduction.
In the log-linear regression, we found that MSMEs initial capital, BDS, access to credit facility are the key
determinants of employment. We expect though females to account for about 50% of the entrepreneurs; they
make up only one third (less involved in construction and manufacturing).
Regarding MSMEs linkages, there are weak institutional and sectoral linkages. Majority of the MSMEs produce
for local and regional markets; few for national markets and none for international markets. In the logistic
regression, we find it that sex of MSMEs owner/manager, BDS, access to credit and capital size strongly
determine the survival of MSMEs.
5.2 Prospects/Recommendations/
 The policy for the growth of MSMEs is proper and needs to be further strengthening as it enhances
employment and poverty reduction. Construction has the largest contribution to employment which can be
further enhanced also by targeting the private sector.
 The findings of the study recommend woreda MSME offices and policymakers to focus on construction,
service, and urban agriculture because of their contribution to a job opportunity. As young enterprises contribute
more to the economy, we recommend it to always have young enterprises, i.e., the continuous establishment of
MSEs in unexploited areas.
 To enhance females’ participation in MSMEs there should be an intervention, especially in the
manufacturing and construction sectors.
 In sample respondents, we learned that information flow is limited, and consumers and suppliers rarely
meet. There is a dearth of knowledge about prices, products and supplies both on the buyers and sellers side. As
a result, MSMEs will not know what the need and demanded and consumers will not know what kinds of

78
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

products are available at what prices. Thus, innovative promotional mechanisms should be in place to overcome
the problem.
 We should involve MSMEs in diversified sectors convenient for input-output linkages.
 Institutions should take MSMEs’ development as their main targets, i.e., TVETs should identify
profitable sectors; develop business plans; and organize their graduates and assign them in the specified areas.
They should also closely follow-up implementing plans and adopt new technologies.
 Universities (especially regional) should also consider MSMEs’ development as a big pillar- capacity
building of TVETs; research and outreach services on MSMEs should be also integrated as their strategic
objectives.
 Creating national and international market opportunities:
 Diversifying MSMEs in unexploited areas like honey production, incense, oil seeds, mining
 Creating linkages with big companies of the region e.g. MSMEs-ALTEX-cotton, Messobo and Saba
Stones-Gypsum, Abergelle-live animals, MIE and so on.
 As MSMEs are important means of livelihood and sources of women's empowerment, women
entrepreneurs need special attention.
 Universities, TVETs and research centres should gear up their research findings towards innovation by
stimulating the development and spread of good practice in technology transfer, and in the nurturing of
innovative enterprises.
 It is better if the regional government tries to link MSMEs with each other and relevant bodies
especially with TVETs and higher institutions (a linkage that promotes collaboration and competition at the same
time).
 We must create awareness so that MSMEs can inspire the habit of continuously training and developing
their owners/managers and employees to build comprehensive capacity for maintaining their competitiveness.
 We should give technical and business training to MSMEs at a regular and well-organized way. The
regional government should establish a well-organized and specialized training centre at least at regional and
zonal levels. Hence, the training centres will be responsible to plan and execute need-based training. Particularly,
a system of providing BDS including keeping a book of records during the stage of starting-up and during later
phases of expansions.
 We should exert efforts to change the perception/attitude of the community and youth. Especially
attitudinal change and paradigm shift in saving habit and developing a clear vision.
 Finally, it is highly recommended that the regional government in cooperation with development
partners promote micro-enterprises in the region, as they are important sources of regional income; reduce
inequality and using a significant number of persons. Besides, the regional government should continue its
efforts to organize and help cooperatives. The support given to MSEs ought to be comprehensive ranging from
providing start-up capital to introducing a better technology.
References
Aw, B. Y. (2001). Productivity Dynamics of Small and Medium Enterprises in Taiwan (China). The International
Bank for Reconstruction and Development/the World Bank, Washington.
https://doi.org/10.1007/978-1-4615-0963-9_5
Ayyagari, M., Demirguc-Kunt, A., & Maksimovic, V. (2011). Small vs. Young Firms across the World
Contribution to Employment, Job Creation, and Growth. The World Bank, Policy Research Working Paper
5631. https://doi.org/10.1596/1813-9450-5631
Eshetu, B., & Zeleke, W. (2008). Factors that affect the long-term survival of Micro, Small and Medium
Enterprises in Ethiopia. South African Journal of Economics, 76(3).
https://doi.org/10.1111/j.1813-6982.2008.00207.x
Eshetu, B., & Zeleke, W. (2008, November). Women Entrepreneurship in Micro, Small and Medium Enterprises:
The Case of Ethiopia. Journal of International Women’s Studies, 10(2).
Gebrehiwot, A., & Wolday, A. (2006). Micro and Small Enterprises (MSEs) Finance in Ethiopia: Empirical
Evidence. Eastern Africa Social Science Research Review, 22(1), 63-86.
https://doi.org/10.1353/eas.2006.0002

79
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Green, C. J., Kirkpatrick, C. H., & Murinde, V. (2006). Finance for Small Enterprise Growth and Poverty
Reduction in Developing Countries. Journal of International Development, 18, 1017–1030.
https://doi.org/10.1002/jid.1334
Haftu Berihun, et al. (2009). Financial Needs of Micro and Small Enterprise (MSE) Operators in Ethiopia.
Occasional Paper No. 24, AEMFI, Addis Ababa.
ILO. (2003). Ethiopian Women Entrepreneurs: Going for Growth. Jobs Gender and Small Enterprises in Africa.
Marcucci, P. N. (2001). Jobs, gender and small enterprises in Africa and Asia: Lessons are drawn from Bangladesh,
the Philippines, Tunisia and Zimbabwe. Series on Women’s Entrepreneurship Development and Gender in
Enterprises–WEDGE, International Labor Office, Geneva.
McClelland, S. D. (2002). A Training Needs Assessment for the United Way of Dunn County Wisconsin.
Unpublished MSc Thesis, University of Wisconsin-Stout.
McPherson, M. A. (1999). Micro and Small-Scale Enterprises in Zimbabwe: Results of a Country-Wide Survey.
Michigan State University.
Mead, D. C., & Liedholm, C. (1998). The dynamics of micro and small enterprises in developing countries. World
Development, 26(1), 61–74. https://doi.org/10.1016/S0305-750X(97)10010-9
Nichter, S., & Goldmark, L. (2005). Understanding Micro and Small Enterprise Growth. USAID, Development
Alternatives, Inc. microREPORT #36.
Nichter, S., & Goldmark, L. (2009). Small Firm Growth in Developing Countries. World Development, 37(9),
1453–1464. https://doi.org/10.1016/j.worlddev.2009.01.013
Organization for Economic Co-operation and Development, OECD. (2002). High-Growth SMEs and
Employment.
Rahel, W., & Issac, P. (2010). Growth Determinants of Women-Operated Micro and Small Enterprises in Addis
Ababa. Journal of Sustainable Development in Africa, 12(6).
Schorling, A. (2006). The Involvement of Women and Men in Micro & Small Enterprises (MSEs) in Nefas Silk
Lafto Sub City: Discussion Paper & Guideline to Construct a Gender-Sensitive "Job Market". Addis Ababa.
Seleshi Lemma. (2001). Subcontracting Strategy for the Ethiopian Micro and Small Enterprises.
Small and Medium Enterprise Development Authority of Pakistan (SMEDAP). (2002). Creating a conducive
policy environment for micro, small and medium-sized enterprises in Pakistan. SEED working paper number
29. Geneva: International Labour Office.
Solomon, D. (2002). The Establishment of Network of Micro and Small Enterprise Support Institutions in TigraY
GTZ-MSE Programme.
The trade and Industry Bureau Addis Ababa. (June 2005). The working definition of MSE in Ethiopia-based on
capital.
Uzor, O. (2004). Small and Medium-Scale Enterprises Cluster Development in the South-Eastern Region of
Nigeria. Institute for World Economics and International Management, Universität Bremen.
Weldeslassie, H. A. (2017). Does microfinance help to reduce poverty in Ethiopia? Propensity score matching
impact analysis. Enterprise Development and Microfinance, 28(4), 255-283.
https://doi.org/10.3362/1755-1986.2017.HAW
Woldelul, A. (2004). Marketing Strategies: For Micro and Small Enterprises in Ethiopia. Ethiopian Business
Development Services Network, Addis Ababa, Ethiopia.
Zewde & Associates. (2002). Jobs, Gender and Small Enterprises in Africa: Women Entrepreneurs in Ethiopia.
Preliminary Report, SEED-ILO Addis Ababa.

80
jsd.ccsenet.org Journal of Sustainable Development Vol. 12, No. 3; 2019

Appendix
Annex-1 Population and Sample Size
No Sample City Sector Total Population Sector Sample
(Total Population) (Sample Size ) Size

S1 S2 S3 S4 S1 S2 S3 S4 S5 S6 S7

1 Mekelle 2444 1547 2100 12798 18889 132 82 70 109 42 9 2 446

2 Wukro 156 140 524 3132 3952 17 20 14 9 32 2 2 96

3 Adigrat 209 176 404 3923 4712 17 15 28 18 13 14 1 106

4 Freweini 0 15 89 841 945 6 1 6 2 5 6 0 22

5 Enticho 83 71 111 1460 1725 14 4 7 4 9 3 0 41

6 Adwa 34 183 335 2886 3438 4 7 13 34 14 9 1 82

7 Aksum 490 260 491 7153 8394 26 19 34 68 17 25 6 195

8 Shire 522 288 728 5122 6660 12 9 29 58 19 30 1 158

9 Sheraro 18 38 130 1573 1759 1 2 2 18 17 0 0 40

10 Humera 17 95 524 1884 2520 4 9 19 13 14 0 1 60

11 Dansha 0 1 33 216 250 0 0 1 3 2 0 0 6

12 Abi-adi 211 99 103 1351 1764 20 6 3 8 11 0 0 48

13 Adi-gudom 17 17 71 667 772 6 7 3 13 1 1 0 31

14 Maychew 54 41 182 1529 1806 3 1 3 22 8 6 0 43

15 Korem 93 53 145 1296 1587 2 3 2 20 5 3 0 35

16 Mekoni 96 23 114 688 921 2 1 1 9 6 2 0 21

17 Alamata 136 64 295 2552 3047 4 4 7 44 7 4 0 70

Total 63,141 270 190 249 445 222 110 14 1500

Source of population: Tigrai Trade and Industry Bureau

Key (for annex-1)

S1 =Construction

S2=Metal and woodwork

S3=Services

S4=Petty trade

S5= Urban agriculture

S6= Textile

S7= Handicraft

Copyrights
Copyright for this article is retained by the author(s), with first publication rights granted to the journal.
This is an open-access article distributed under the terms and conditions of the Creative Commons Attribution
license (http://creativecommons.org/licenses/by/4.0/).

81