The Impact of Subsidy on the Growth of Small and Medium Enterprises (SMEs)

Abstract

The Ethiopian economy can be largely characterized as an agrarian economy. In spite of the fact that the economic growth performance was poor in the past; the country is experiencing strong economic growth presently. In accelerating the industrial transformation process, reducing unemployment and alleviating poverty, the government considered SMEs as the strategic sector by recognizing that they play significant role in stimulating business, creating employment and encouraging innovation which is a base for industrialization. However, in some situations, the support and subsidy for SMEs becomes the determining factor in weakening them and make them more dependent.

The result of study shows that the support by the government is more at the lower level of enterprises. But, when the enterprises grow the support decreases accordingly. Thus, as the SMEs do not have any incentive to grow, they prefer to stay small rather that grow to medium or large enterprises and this results dependency and inefficiency in the operation of SMEs.

Keywords: SMEs, Subsidy program, growth, income, employment, dependency.