Determinants of Micro and Small Enterprises Growth in Ethiopia: The Case of Nekemte Town of Oromia Region, Ethiopia

Abstract

Micro and small enterprises (MSE) are recognized as important vehicles of economic growth, employment creation, income generation, and poverty reduction. As a result, MSE occupy a prominent position in the development agenda of Ethiopia. The main objective of this study is to examine determinants of MSE growth in terms of profitability of MSE business in Nekemte town. The total population of the study was 504 MSEs operating in five sectors (construction, manufacturing, urban agriculture, trade and service) which is used as a stratum. Proportional stratified sampling technique was used for the selection of 96 MSEs from the strata. Following this, key informants are selected from MSEs by purposive sampling technique. Data was collected by using structured questionnaire from the selected respondents and analyzed by using statistical package for social science (SPSS-version 16.0.) and STATA soft ware. The study shows that the major source of finance for MSE is personal saving. It is only less than one fourth of the respondents that are borrowed loan from MFI. The study shows that MFI loan term is too short to run the business. Most of the respondents are characterized by low level educational status and lack work experience. Most of the MSEs that are operating in government shade complain for its sufficiency and suitability of the location for running business. The result of regression analysis shows that sources of finance for MSE operators, loan term (duration of loan period) that MSEs borrowed from MFI, previous business experience of the operators, marketing skill of members of the business, source of raw materials of the MSE, and major customers of the product or services of MSEs affects positively the growth of profitability of MSEs business significantly at 1% level of significance. Managerial skill of the respondents and suitability of the location of the business positively determine the growth of MSE in terms of the profitability of MSE business significantly at 5% level of significance.  Also, educational status of MSE operator affects negatively the growth of MSE significantly at 5% level of significance in the study area. These findings corroborate the need for integrated approach towards the growth of MSE sector. Based on the findings the researcher recommends that locality based approach for solving problems of MSEs through prioritizing the challenges as per their severity; enhancing capacity of the MSE development agency through provision of skill and business training; improving local business environment through provision of sufficient work premises at appropriate location & facilitating access to credit from financial institutions are the major once.

Keywords: Micro and small enterprise, Growth, Profitability, Determinant factor, Nekemte