The Determinants of Growth of Leather and Leather Products Manufacturing Micro and Small Scale Enterprises

Abstract

During the past decade, there has been an explosion of interest in how micro and small enterprises (MSEs) can help provide jobs, alleviate poverty, and supply the essential goods and services people need to enjoy an adequate standard of living and maintain basic human dignity.

This interest has been the result of several developments. First, the nature and extent of employment in MSEs have been studied in a wide variety of countries. Through path-breaking studies, the importance of MSEs, in terms of employment opportunities and numbers of enterprises have been documented in both developing nations and industrialized countries such as the United States, Italy, and Germany. In addition, research since the 1980s has shown that small businesses play a major role in generating non-farm employment in industrialized countries, as well as in developing countries and regions.

Second, during the 1990s, new technologies and global competition have introduced additional factors that have highlighted the importance of MSEs. Corporate downsizing efforts, for example, have become common throughout the world, resulting in shrinkage in the workforce in the corporate sector. African entrepreneurs where Ethiopians are the principals, face significant uncertainty with regard to demand, dependability of infrastructure, existing of corruption, trust, prices, and so on. Most investment is held back due to risks. Some firms grow and shine and others Demise. Even many of the larger firms do not grow (Bigsten and Soderbom 2005, Tybout 2000).

Small manufacturing firms play a very important role in the economics of both developed and developing countries, representing well over 90 percent of all manufacturing enterprises in the world. However, it is also a common occurrence that every year many of these small firms are forced to close their doors. Of those operating, some grow rapidly while others lag behind or grow slowly. Though there exists a sizable amount of literature on the underline causes of failures of micro and small firms, empirical investigation into factors contributing to their success or growth are sparse.

In most swelling countries, like Ethiopia, MSEs represent the vast majority of firms, spawn a substantial share of both overall employment and output. Given their significant economic role, one might expect MSE growth to drive up overall increases in output and income levels of their respective employees in particular and the country in general. In many cases, however, their largest economic contribution appears to be one of maintaining rather than generating new employment and income for the poor. In Ethiopia, the informal sector plays a significant role in the economy. According to the 1999 survey by the Central Statistical Agency (CSA) the urban informal sector comprises about 50.6 per cent of the 2.88 million total urban employments. Women employment accounts for about 58 per cent of the employment in the informal sector. Recognizing the significance of this sector, the Ethiopian government issued the National Micro and Small Enterprises Strategy in 1997 and established the Federal Micro and Small Enterprises Development Agency in 1998. The country’s industrial policy in 2003 and the poverty reduction strategy in 2006 have singled out MSEs as major instruments to create a productive and vibrant private sector and reduce poverty among urban dwellers. A further look of employment Konjit, (2011) shows that from 2001- 2003 the total job created in the Addis Ababa city alone is about 700,000 from which 37% is women. In overall economic development, a critically important role is played by micro, small and medium enterprises in the developing world. The vast majority of countries relies on the dynamism, resourcefulness and risk-taking of private enterprises (to which most small scale manufacturing enterprises belong) to trigger, sustain the process, and form the base for private sector led economic growth. In this regard, micro and small scale manufacturing industries are playing an ever-increasing role in the manufacturing industrial structure of the country. Expansion and development of the sector increase agricultural productivity through providing agricultural inputs and creating demand for agricultural outputs. Furthermore, small scale manufacturing industries play a key role in stimulating other sectors of the economy, such as trade, construction and services and in reducing unemployment. Basic data on manufacturing output, input, employment, fixed assets, investment and capacity are of paramount importance of designing and formulating industrial development programs, strategies and policies.