ASSESSING FACTORS AFFECTING THE GROWTH OF SMALL AND MEDIUM

ENTERPRISES IN ADAMA CITY ADMINISTRATION, EAST SHEWA ZONE

BY
ABUBAKER-ABDURO

A THESIS SUBMITTED TO HARAMBEE UNIVERSITY DEPARTMENT OF

BUSINESS ADMINISTRATION IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE MASTER OF BUSINESS ADMINISTRATION (MBA)

ADVISOR
ABEBE-SHAWUL(PHD)
ADAMA, ETHIOPIA
NOVEMBER, 2024
 Background
• Small and Medium Enterprises (SMEs) have become engines
of poverty reduction, employment creation and business
development in various countries worldwide.
• Empirical studies show that SMEs contribute to over 60% of
GDP and over 70% of total employment in low-income
countries.
• For instance, a study conducted by FDRE (2013) reported that
SMEs are major derivers of both employment and economic
growth contributed to more than 50 % to GDP and 60 % to
employment in developed economies that constitute less than
30% of employment and 17% of GDP in developing countries.

• SMEs in Ethiopia are the second largest employment

generating sector next to agriculture in providing the basis for
medium and large scale enterprises
 …cont’d

• In African countries, the share of SMEs in economic activities

has been significantly increasing for it greatly contributes in
economic growth and poverty alleviation
• The Ethiopian government is focusing on the SMEs basically
for their contribution in reducing poverty and unemployment
better than other sectors
• The government has been supporting SMEs through financial
support, creating marketing link, providing production and
promotion area
• Studies reveal that in current business conditions, where
business life cycles have a short lifespan, SMEs in each
country have their characteristics based on the type of business
and its environment that affect its growth.
 …cont’d
• The researcher experienced that some SMEs were
dissolved at early stage in the process because of their
inability to resist internal and external factors and
some others struggle to survive with no change from
time to time.
• This study aimed to assess factors affecting the
growth of SMEs in Adama City Administration
(ACA).
 Problem Statement
• Small and Medium Enterprises (SMEs) contribute
significantly to the national economy by alleviating poverty
and creating jobs.
• Ethiopia has developed a five-year Growth and
Transformation Plan (GTP) which emphasizes on expanding
youth employment.
• To this end, the government has been providing support
services to SMEs operators in five major areas that consist of
providing production and marketing space, skill and business
development services, market development and linkage and
financial access.
• Nevertheless, SME has short-lived with high rate of failure
due to factors such as resource limitations, poor management
and lack of strategic planning processes may have contributed
to their failures.
•
 …cont’d

• Researchers have identified factors for SMEs as lack of access

to external finance and weak capital base, inexperience in the
field of business, particularly lack of technical knowledge plus
inadequate managerial skills, lack of planning and lack of
marketing skills.
• SME’s in Ethiopia is no exception as facing environmental
factors such as social, economic, political and legal along
with, internal (personal) factors like individual attitudes,
training and technical know-how are all that affected SME
growth.
• Another study identified the problems of SMEs as related to
poor market linkage and poor promotional efforts; lack of
selling place, institution-related problems including
bureaucratic bottlenecks, weak institutional capacity, lack of
awareness, failure to abide to policies, rules and regulations,
directives, absence of training, poor monitoring and follow-up.
 Gaps
• Studies in Ethiopia showed out of the total sample, 40% of
SME are growing and 60% are non-growing in terms of
employment.
• In terms of capital, 69% of SME are growing and 31% are
non-growing.
• However, the studies did not investigate barriers that affect
growth cycles and factors that affect for growth of SME.
• In Adama City Administration (ACA), due to different barriers
and affecting factors, some SMEs were dissolved in early age
& others struggle to survive with no change from time to time.
• Despite such barriers and factors, there were no studies
conducted in ACA on the issues under study.
• To fill the above gaps, this study focused on barriers that affect
growth cycles, processes & procedures, internal and external
factors that affect the growth of SMEs in ACA.
 Research Questions

1) What are the barriers that affect the growth cycles of SMEs in
ACA?
2) How do the processes and procedures of establishment affect
the growth of SMEs in ACA?
3) What are the internal factors that affect the growth of SMEs in
ACA?
4) What are the external factors that affect the growth of SMEs in
ACA?
 Objectives of the Study
• General Objectives
• The general objective of this study was to assess factors
affecting the growth of SME’s in Adama City
Administration (ACA)
• Specific Objectives
• To assess barriers that affect the growth cycles of SMEs in
ACA
• To examine the ways the processes and procedures of
establishment affect the growth of SMEs in ACA
• To identify internal factors that affect the growth of SMEs in
ACA
• To identify external factors that affect the growth of SMEs
in ACA
 Research Methodology

Research Design
• In order to answer the research questions, a descriptive
design was adopted.
• This is where research is trying to describe what is
happening in more detail, filling in the missing parts
and expanding understanding on the theme.
Research Approaches/Methods
•This study used mixed research methods.
•Creswell (2009) stated mixed research methods enable
to understand a problem more comprehensively and it is
the most popular applications in the practice of research.
 Sampling Design
• Target population
• Enterprise and industry office sector heads, work process
owners, SME members, experts and cluster resource centers
coordinators
• Sample Frame
• Enterprise and industry development office and 4 clusters in
its selected 4 kebeles.
• Sample size
• This study used Yamane Taro (1967) formula with 95%
confidence and 5% acceptable sampling error.

The acceptable sampling error

• = = 187
 Data Collection Tools
• Interview
• In this study, open ended structured interview
questions were prepared to collect data from office
head and cluster resource center coordinators.
Focus Group Discussion (FGD)
• Work process owners and experts of SME office took
part on the FGD
Questionnaires
• This study used close ended structured questionnaires
to collect data from SME members
 Data Analysis Tools
• Quantitative data that were collected by questionnaire were
analyzed by using frequency, mean and standard deviations
that were presented in tables, percentages and charts by using
Statistical package of Social Science (SPSS) software version
24.
• The data that were obtained through FGD and interviews
were analyzed through narrative descriptions in words.
 Data Analysis and Presentation

• Barriers that affect the growth cycles of SMEs in ACA

• Resource limitations
• Poor management
• Lack of access to external finance and weak capital base
• Lack of strategic planning processes may have contributed
to their growth cycle failures at different stages of SME
 The Processes and Procedures of Establishment of SME
•Time-consuming procedures of obtaining loans
• A lengthy list of guarantees
•Complicated loan application procedures,
•Procedures of licensing different types of businesses,
•Processes used by government agencies, banks, and financing
companies
• Being joblessness (unemployed)
• Bringing a guarantee of caliber or map and plan of land or
house in the living area.
• The process of cooperation is long and costs a lot of money
• Time taking requirements to get the loan,
• Collateral requirements.
 Factors Affecting the Growth of SME
A) Internal (personal) Factors
 Individual attitudes
 Lack of training and technical know-how
 Lack of human resources
 Lack of finance and technology
B) External Factors
 Infrastructure
 Marketing and working place
 Entrepreneurship and government policy factors
 Interview and FGD Results

• The interviewees contended that many decisions lack a clear

legal foundation since the needed justifications are not
appropriately repeated from head office.
• In addition, some rules require clarification or revision,
which adds complexity to the audit process.
• As a result, at the end of the interview, the auditor and audit
are unable to reach an agreement on these laws.
• The results of the interviews indicated that the
management's assistance to the department was not as
expected at DDRA medium taxpayers.
• Management's lack of commitment to help those auditors
advance and enhance their audit with planned trainings was
the other problem affecting effectiveness of tax audit.
 Conclusion
 The barriers that affect the growth cycles of SMEs in ACA
were resource limitations, poor management, lack of access
to external finance and weak capital base, lack of strategic
planning processes may have contributed to their growth
cycle failures at different stages of SME
• The procedures consist of time-consuming of obtaining
loans and a lengthy list of guarantees, procedures of
licensing different types of businesses, processes used by
government agencies, banks, and financing companies.
• The internal or personal factors were attitude, human
resources, access to finance and technology
• The external factors were infrastructure, marketing and
working place, entrepreneurship and government policy.
 Recommendation
• Based on this study, the researcher recommends the
following:
• Some SME members are not sufficiently exposed to skills
and up to date technologies in the area of business.
• Entrepreneurship should be promoted to all citizens
including young people, through the establishment of an
adequate technical vocational training system and through
the creation of favorable business environment.
• The government should eliminate the regulatory load as
much as possible especially, the taxation system that made
most of people to operate under informal market.
• It is well recognized that SME are big sources of income
for the country but should not be difficult to the extent that
it faces stiff challenge to growth and access to finance
Thank you so much!