ACRONYMS AND ABBREVIATIONS

SME Small and Micro Enterprises

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 TABLE OF CONTENTS
ACRONYMS AND ABBREVIATIONS.....................................................................................................i
TABLE OF CONTENTS.............................................................................................................................ii
1. INTRODUCTION...................................................................................................................................3
1.1. Background of the Study..................................................................................................................3
1.2 Statement of the Problem...................................................................................................................4
1.3 Objectives of the Study......................................................................................................................5
2. REVIEW OF LITERATURES...........................................................................................................7
2.1 Definition and concepts of SMEs......................................................................................................7
Table 1: basis of defining MSEs in various countries..................................................................................8
2.2 Economic, social and political arguments of small business enterprises............................................9
2.3 The reasons for the importance of the small business to the economy.............................................10
2.4 Special contribution of small business.............................................................................................11
2.5 The MSEs Development strategies..................................................................................................12
2.6 Policies affecting MSE development...............................................................................................13
2.7 Characteristics of micro and small enterprises.................................................................................14
2.8 Sickness in small scale industries....................................................................................................15
2.9 Remedial measures for sick units.....................................................................................................17
2.10 Major constraints of Ethiopian MSE..............................................................................................18
2.11 The policy environment and employment in MSEs.......................................................................18
2.12 Structure and Performance of Small Scale Industry....................................................................19
3. RESEARCH METHODOLOGY.......................................................................................................21
3.1. Description of Study Area............................................................................................................21
3.4. Sampling Technique and Sample Size............................................................................................21
3.5 Method of Data Analysis...........................................................................................................22
4. WORK SCHEDULE AND BUDGET BREAK DOWN...................................................................23
4.1. Work Schedule..............................................................................................................................23
4.2 Budget break down-----------------------------------------------------------------------------------------------------23

5. REFERENCES......................................................................................................................................25

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 1. INTRODUCTION
1.1. Background of the Study
Ethiopians’ industrial base and economic development are the lowest even by the African
standards. There are various constraints to the country’s industrial development. The
most notable ones are: while the sector has been dominate by capital-intensive
technology and it is fully depend on foreign capital goods and to a large extent for raw
materials, its foreign currency earning capability has been limited; the foreign earning of
Ethiopia is based up on primary agricultural outputs but as the country is by and large a
price taker in the international market for these products, the country find it difficult to
generate all the foreign currency required for its industrial development; obsolescence of
machinery and equipments; and low level of local technological development; lack of
technological information; lack of skilled labor; low demand for industrial goods which
emanate from low level of income; low quality of locally manufactured goods and hence
consumer bias against local products; lack of well developed infrastructures and under
capacity performance. The policies pursued in the past failed to imitate appreciable
industrialization in the country (Handout provided by instructor Mohammed Teshome on
the course development planning and project analysis, 2010).

To enhance industrial development the governments of Ethiopia have been pursuing

different strategies. In the imperial era, import substitution strategy was formally pursued.
Industrialization of the time was characterized by the promotion of foreign investment,
the establishment of large and medium scale industries (large and medium scale foreign-
owned industries), active import substitution production and strong growth rather than
promoting small scale enterprises. As the effort was concentrated on the large and
medium scale industries, the small scale industry was almost neglected. The trend of the
industrial development took a new turn since the mid 1970s when the strategy for
industrial development was pursued by the sole involvement of the government and the
private sector was discouraged. Private ownership was limited to small scale and hand
craft industries. In the post 1999 period the change in the government brought about a
significant change policy in favor of liberalization and privatization of the industrial
sector, especially the manufacturing sub sector (Ibid).

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In the mid 1980s many African countries (Ethiopia since the early 1990s) entered in to
SAPs. The ultimate aim of SAPs was to transform state owned enterprises in to
competitive and economic organization and there from achieve growth. By 1997, over
2700public enterprises had been privatized as part of the SAPs in the region. (Eastern
Africa Social Science Research Review: vol III, 1987)

The Ethiopian industry includes large and medium scale industries, small scale and hand
craft industry, mining, quarrying, electricity and water, and construction. (Ayele Kuris,
2006). In Ethiopia micro enterprises are defined as enterprises found in all sector of
Ethiopian economy with paid up capital of (fixed assets) of not more than birr 20000 but
excluding high consultancy firms and high establishments, and employ 1 up to 5 persons
while small enterprises are defined as those with paid up of birr 20000 and not exceeding
500000 and employ 6 up to 20 persons (CSA, informal sector survey, 2001/2) and
(ministry of trade and industry).

Around the world micro and small enterprises are seen as creators of new jobs. The
flexibility of and dynamics of MSEs have made them more competitive and adaptable
than large firms. The roles of MSEs are to contribute much to social and economic
development objective (EEA, Berhanu Nega, and Befikadu Degefe: first annual
conference on Ethiopian economy, 1999/2000)

1.2 Statement of the Problem

MSEs have not been able to contribute substantially as needed to the economic
development particularly because of financial, production place and marketing problems.
These problems are still major hand cups to the development of the sector. Lack of
adequate finance and credit has always been a major problem of Ethiopian MSEs. Small
scale unit do not have easy access to capital market because they mostly organized on
proprietary partnership bases and are of very small size. They do not have access to
industrial sources of finance partly because of their size and partly because of the fact
that their surpluses which can be utilized to repay loans are negligible. Because of their
size and partly because of the fact of their limited profit, they search for investment

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purposes. Consequently, they approach to money lenders who charge high interest rate.
Hence, MSEs continue to be financially weak. (Haile G/Tinsae, 2007).

Small-scale enterprises find it difficult to get raw materials of good quality and at cheaper
rates in the field of production. Very often they do not get it in time. As a result, the
enterprises very often fail to produce goods in requisite quantities and of good quality of
low cost. Furthermore, the technique of production, which these enterprises have
adopted, are usually outdated. Because of their poor financial position they are not able to
buy new equipments consequently their productivity suffers. Besides, many MSEs are
suffering with the problem of marketing their products. (Ibid)

We have observed some ideas from the above stated facts about the problem facing the
MSEs, in the country of the world especially those in developing countries like Ethiopia
as an example. Also the study areas’ MSEs Sectors are very weak and their impact on
economic contribution is very little. It is clear from this that some factors are hindering
the good performance of the sector. The question is therefore, “what are those factors
which have been and are chronic to the growth of the sector in the study area
particularly?”

1.3 Objectives of the Study

1.3.1 General Objective

The main objective of the study will be to construct an empirical study of the assessment
of risk management of small scale and micro enterprises in the case of harar town.

1.3.2 Specific objectives

The specifically, the objectives these studies are to:

 Identify the major constraints of the sector that needs to be solved and to know
how these problems affect the working capacity of the sector;
 Assess the economic contribution of the sector in reducing unemployment level of
the people;
 Analyze the contribution of the sector in improving the income level of the people
and

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  Recommend what should be done to solve the problems stated in the study, to
conclude the study in the shortest and brief form.

1.4 Significance of the study

This study provide enough information about small scale enterprises, for small scale
enterprise owners and varies outside parties such as regulatory bodies and tax authorities
which require financial statements and it will enable the small scale enterprises owners to
evaluate their accounting system and make improvement.

In addition; the study performed will have the result of strengthening the relationship
between SMEs and banks by specifically identifying the main barriers between them,
provide knowledge to SMEs about the importance of accounting practices, it fill the
research gap in the area and provides the basis for further research.

The study is used for two main reasons. First, it may serve as research material for policy
makers, non-government and government organizations to strengthen the development
and promotion of MSEs. Secondly, it used as the benchmark for those who want to
conduct further detailed study on the different aspects of the sector

1.5 Scope of the Study

Harari region has 17 rural kebeles and 19 urban Kebeles. This study will be limited to the
urban kebeles SMEs assessment of risk management of small scale and micro enterprises.

The scope of this study spread across SMEs in Harar town. This town is selected because
it is one of the town in which MSEs has not developed and given due consideration by
government and non-government organization.

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 2. REVIEW OF LITERATURES
2.1 Definition and concepts of SMEs

Specifying any size to define the small business is necessarily arbitrary, because people
adopt different standard of different purposes. They are two approaches to define small
scale business enterprises.

I. size criteria: - Even the criteria used to measure the size of business vary. Size refers
to the scale of operations. Examples of criteria used to measure size are:

-Number of employees -total capital investment

-Asset size -total investment in plant and machinery

-Insurance enforce -volume or value of production

-Volume of deposits -volume or value sales of turn over

-the combination of the above

Although the first criteria listed above, number of employees, is the most widely used
yardstick, the best criterion in any given case depends up on users purpose. To provide
clear image of small firms, the following general criteria for defining small business are
suggested.

a) Financing of the business is supplied by one individual or small group only in rare
case would the business have more than 15 or 20 owners.
b) Except for its marketing function, the firms operations are geographically
localized.
c) Compared to the biggest firms in the industry, the business is small
d) The number of employees in the business is usually fewer than 100. ( Haile
G/Tinsae, 2007: small entrepreneurship and business management)

Obviously, some small firms fail to meet all the above standards. MSEs the world above
comprises a widely divergent spectrum of establishments, ranging from micro and rural
enterprises to modern industrial units using sophisticated technologies. Because of their
contribution in each and every national economy, the importance and emphasis on MSEs

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has been accentuated in the minds of policy makers, planners and industry. This is the
consequences of the recognition that the shift from agrarian to industrial and to post
industrial knowledge base societies is not through the large scale industrial houses but
through individual and small initiatives by visionaries from the MSEs. (Ibid)

Table 1: basis of defining MSEs in various countries

country Category of industry Criterion

Ethiopia Micro enterprise Investment paid up capital not exceeding
Small enterprise $2300(Br,20,000)
Investment paid up capital $2300-
5747(birr,20000-50000)
Australia Manufacturing <100 employees
service < 20 employees
Germany MSE <500 employees
France MSE <10-499 employees
Japan manufacturing <200 employees
Canada manufacturing <200 employees
USA Very small <20 employees
Small <20-99 employees
Medium 100-499 employees
China MSE Depends on product group, usually 100
employees, investment ceiling $18 million
Indonesia MSE <100 employees
Malaysia MSE <175 full time workers
Thailand Labor intensive <200 employees
Capital intensive <100 employees
Source :( ibid)

The MSEs cover a wider spectrum of industries and play an important role in both
developed and developing economies. Ethiopia is no exception and MSEs occupy a
prominent position in the development of Ethiopian economy.

On the basis of environment criteria, the general acceptable divisions are:

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  Up to 19 workers – micro or very small enterprises
 20 up to 100 workers – small enterprises
 101 up to 500 workers – medium enterprises

II. Economic /control criteria:-This criterion covers markets share, independency and
personalized management

Market share: The characteristics of small firms share of the market is that it is not large
enough to enable it to influence the price of the national quantities of good sold to any
significant extent.

Independency: It means that the owner has control of the business itself. It therefore
rules out those small subsidiaries which, though in many ways fairly autonomous,
nevertheless have to refer major decision to a higher level of authority.

Personalized management: Personalized management is the most characteristic factor

of all. It implies that the owner actively participates in all aspects of the management of
the business, and in all major decision making process.

2.2 Economic, social and political arguments of small business enterprises

Small businesses have to play a vital role in Ethiopian economy

The equality argument: Our goal is to being the establishment of socialistic

patterns of society. Our objectives are equitable distribution of wealth and
decentralization of economic power. The benefits of industrial growth should be shared
by as many people as possible and should improve the general standard of living.
Proliferation of small enterprises will go along way in achieving these objectives.

According to this argument, income generated in large number of small enterprises is

dispersed more widely and its benefit is derived by a large population. This is due to wide
spread ownership and decentralized location of the micro and small units.

The employment (less capital and more labor) argument: The MSEs have the capacity
to generate a much higher degree of employment than the larger-scale sector. Planners
have realized the necessity of encouraging small scale industries because they require less
capital but generate more employment.

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This argument is based on the assumption that small scale are labor intensive and thus
create more employment per unit of capital. According to prof. P.C.Mahalanobis,
household or cottage industries require very little capital. It is the small scale enterprises
which help the enlargement of the job opportunity.

The decentralization argument (removing regional imbalance): Another problem is the

continuous shifting of the people from rural to urban which causes over crowding in
cities with slum conditions due to lack of social and medical amenities which require
heavy investment. This problem can be solved by inducing people to set up industries in
rural areas.

Creating self employment opportunities: In India since independence it has had a steady
rise in the number of qualified engineers seeking suitable job. But having inadequate
avenues, they can have self employment by setting up small industries with the help and
expertise provided by the government and other agencies.

Ancillary function: Many small scale enterprise unit supply parts and accessories bigger
industries. This ancillary function involves specialization in specific areas and results in
greater profitability.

Export promotion: Small scale enterprises are now a days opening up fresh avenues in
the export market in our world. Realizing the importance of the MSE sector in the
Ethiopian government has adopted several measures to speed up the growth for the
sector. (Haile G/Tinsae, 2007)

2.3 The reasons for the importance of the small business to the economy

Advocates of small business argue that they are important to the economy for a number
of reasons;

1. They generally offer much greater adaptability than larger firms. With
bureaucracy and fewer channels of communication, decisions can be taken
rapidly. A larger organization may be burdened with constraints which tend to
slow the decision making process such as the need to negotiate new working
practices with trade union representatives. As the organizations grow, there is an
inherent tendency for them to become more risk averse by building in system of

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 control which makes them slower to adapt to changes in their business
environment.
2. It also argued that small business tend to be good innovators. This comes about
through greater adaptability, especially where large amount of capital are not
required.
3. Most large firms started off as very small business, so it is important to the health
of the economy that there is a continuing supply of growing companies to replace
those larger firms that die.

The presence of large number of small business in a market is also useful for increasing
the competitiveness of markets, thereby achieving government objectives of a more
flexible economy and lower inflation. (Adrian Palmer and Bob Hartley, 2007: the
business environment, 5th edition).

2.4 Special contribution of small business

As part of the business community, small firms unquestionably contribute to our nations’
economic welfare. They produce a substantial portion of our total goods and services.
Thus their general economic contribution is similar to that of big business. But they make
exceptional contribution such as:

Providing new jobs: As the population and economy grows, small scale enterprises
provide new job opportunities. Between 1980 and 1986, firms with fewer than 20
employees, accounted for more of the total job growth than did firms of 500 and more
employees.

Simulating economic competition: In competitive business situation, individuals are

driven by self interest to act in a socially desirable manner. Competition act as the
regulator that transforms their selfishness in to service. When the producers consist of
only a few big businesses, however, the customer is at their mercy. They may set high
prices, withhold technological developments exclude new competitors or otherwise abuse
their position of power.

Aiding big businesses: The fact that some functions are more expertly performed by
small business enables small firms to contribute the success of larger ones. If small

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enterprises were suddenly removed from the contemporary, big businesses would find
themselves saddled with a myriad activity that they would perform only inefficiently.

Producing goods and services efficiently: The continued existence of micro and small
business is a competitive economic system is in it self evidence of efficient small
business operation. If small firms were hopelessly inefficient and making no useful
contribution, they would be forced out of business quickly by strong competition (ibid)

2.5 The MSEs Development strategies

The industrial development strategy of the federal government of Ethiopia issued in

2003, clearly states that the private sector will be the engine of industrial development. It
also indicates that promoting MSEs is one of the important instrument to create
productive private sector and entrepreneurship and that the government will give due
emphasis and priority to promote this sector. (Quoted on Oromiya and small enterprise
development and promotional strategy, 1999)

The primary objective of the national micro and small enterprise development strategy of
Ethiopia (issued in 1997) is to create enabling legal institutional and other supportive
environment for the development of MSEs. The specific objectives include:

 Facilitate economic growth and bring about equitable development.

 Create long term jobs.
 Strengthen cooperation between MSEs
 Provide the basic for medium and large scale enterprises
 Promote exports
 Balance preferential treatment between MSE and bigger enterprises

The fundamental principle that guide interventions by stakeholders stated

in the strategy are as follows;

 Support to the MSE operators will be based on the Agricultural

Development Led Industrialization (ADLI) and private sector
development.
 All support to MSE sector should be designed to all round
 Support service should as much as possible is based on fees

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  Addressing marketing problems of MSEs operators will be given due
consideration
 Emphasis will be given to the advancement of the women
 The staff of support institutions should be adequately skilled and trained
 The private sector will be involved in the supply of commercial BDS to
MSE operations. (ibid)

2.6 Policies affecting MSE development

Designing and implementing appropriate economic policies, strategies, and legal

regulatory frameworks prerequisite for creating an enabling environment to promote
MSE. (Gebrehiwot Ageba and Wolday Amha, 2004)

Policies and regulations during the derg era were openly aimed at curtaining (if not
eliminating) the private sector. Restrictive policies such as fixing, accessing on industrial
capital, introducing one-man one-license rule, favoring the state and prostate
organizations, availing foreign exchanges and bank loans, restrictions on license and
investment etc. (which discourages the participation of the private sector ) in the
economy were in place. In general the legal requirements to obtain license during the
derg were bureaucratic which discourage the participation of the micro and small
enterprise operators. The tight foreign exchange control and heavy import restrictions
(both inputs and other commodities) created scarcity of imported commodities and
corrupt and rent seeking business community. (ibid)

Following the fall of the derg, drastic measures were taken to transform the commend
economy to a market led one, which is bound to affect MSEs. The main macro economic
reforms and restructuring that, directly or indirectly affect the development of MSEs
include:

 Adoption of market economic policy

 Deregulation of domestic prices
 Devaluation of the local currency
 Privatization of the public enterprises
 Decentralization of power and formation of regional states
 Issuance of the national micro and small enterprises strategy in 1997

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  Establishment of the federal micro and small enterprise development agency
(proclamation No 33/98)
 Establishment of the federal micro and small enterprise strategy in1997
 Formulation of a new labor law
 Financial sector reforms including the opening of the private banks, insurance
companies, and micro financial institutions. This is also included the monetary
management and liberalization of interest rate and foreign exchange markets.
 Fiscal policy reforms including tax reform, budgetary restructuring and reductions
of government deficits.
 Introduction of investment laws to encourage private investment.
 Liberalization and promotion of foreign trade
 Promotion of favorable economic environment and bilateral regional and
multilateral valuations. (ibid).

2.7 Characteristics of micro and small enterprises

Micro and small scale enterprises are generally seen as labor intensive, capital saving and
an effective means creating most of the new jobs in the world.

There are many reasons for this MSEs are flexible and adoptable to a rapidly changing
technological land escape, by providing goods and services in small batches with rapid
delivers. They compliment the activities of large scale enterprises and work in symbiosis
with it. Inter MSEs frequently needs the activities of other entrepreneurs creating
business built on value added products and services. Small enterprises moreover generate
more innovation per research than large corporation in a number of sectors of the
economy. The requested for health small enterprise sectors development is favorable
macroeconomic framework that ensures stable national currency, controlled inflation and
predictable exchange rates. In developing countries the state clearly has role in increasing
supportive condition, in organization of infrastructures, including functioning
telecommunication system connection to utilities and accessible transportation as well as
in educating a number of skilled workers, technicians and managers.

In most developing countries exports are continued to small percentage of MSEs with the
majority continuing to operate at low quality and technical levels facing serious

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management and marketing barriers. It is more vulnerable to currency fluctuations and
protectionism markets. (Lalkaka and Bishop, 1996, business incubators in economic
development, p.1-5)

Soma characteristics of small firms that differentiate from large firms are:

One person: - the owner or manager has an overwhelming influence on the small
firms. Their views and values will influence all aspects of activities. There is as
also a risk of over dependency up on individual for the wellbeing of the firm.
Most small firms are unlikely to be able to exert much influence on the market.
They are price takers in the classic economic sense and a really to face significant
competition.
Small firms are likely to be over reliant on small number of customers. This
means they are particularly vulnerable to losing only one customer and the effect
of such a lose the firm is disproportionately large is another reason why they are
riskier than larger firms.
Small firms are not public companies. This means they often have problems in
raising capital and this can significantly constrain their choice of strategies.

Indeed, for many small firms sacking to grow, raising finance can become a major
strategic issue and relationships with financing institutions such as banks can become a
major resource issues. (Jim Dew hurts and Rual Burns small business and
entrepreneurship, 1996, p.5)

2.8 Sickness in small scale industries

Small scale enterprises become inoperative or work at very low capacity due to the
problems of either internal or external reasons or a combination of both (R.v.Badi. N.v.
Badi; entrepreneurship, 2008, p.502-503)

As per sick industrial companies Act, 1985, “a sick industrial undertaking means a unit
which is registered for not less than 7 years and at which at the end of any financial year
accumulated losses equal to or exceeding its entre net worth and has also suffered cash
losses in such financial year and the financial year immediately preceding such financial
year.”

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As per state financial corporation, “a small industry is considered as a sick unit if it has
failed to pay them (a) two installment of loan repayment or (b) three installments of
interest payment on loans.”

According to the workers, “a sick unit is one which is not paying the wages in time,
paying wages in installments and paying wages in cash and kind. The government office
considers a small unit as a sick if it is not able to pay the taxes, electricity bills, water bill
and income tax.”

Table 2: Reason for industrial sickness

No. Internal reasons External reasons

1 Wrong selection of product process, layout Infrastructural related
reasons like
communication, location
etc
2 Excess construction of building and purchase of Finance related problems
poorer quality machinery and equipments such as banks, financial
institutes
3 Under utilization capacity Inability of big industries
to give work load to
smaller units
4 Poor skill amongst workmen and lack of interest of Lack of interest of big
key partner or owner industries to develop small
industry personnel
5 Marketing problems due to too many competitors Show growth of big
and quality problems industries and inability to
encourage new
entrepreneurs
6 Inability to cope up with high level competition Big industries are slow to
due to liberalization adopt total quality
management culture and
hence unable to up lift
small industries in terms of

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 technology
Source: ibid

2.9 Remedial measures for sick units

The industrial sicknesses do not happen over night. The experienced owner and
employees will be able to understand its sickness and therefore there is scope for taking
corrective actions and improve the health of the sectors. Some of the remedial measures
suggested are as follows:- (ibid)

The internal problems are within the control of the owners. The quality
problem can be attended by analyzing the problems and getting them
solved on sustainable basis with the help of parent company engineers or
consultants
Similarly the poor work load problem can be attended by doing additional
products, diversification, taking the help and guidance of parent company
engineers
The minimum paper work of salary records, invoices, purchase bills, sales
tax and income tax payment has to be maintained so that bankers have
some documents and proofs for providing financial assistance.
The public relations with the government officials, banks financial
institutions, vendors and customers have to be very well maintained so
that small deviation and delays in transactions do not cause worry and
problems
In view of limited resources the funds and facilities should be allocated on
priorities such that the main business activity is attended on continual
basis
Workers’ non-cooperation or any other problems should be attended
promptly and timely to avoid labor unrest strikes.
If the industrial sickness cannot be solved by the owner it can be referred
to BIFR (Board for Industrial and Financial Reconstruction). This

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 organization tries to revive the industry by (a) providing funds, (b)
changing the management and (c) arranging the acquisitions or mergers.
Any rehabilitation program will have to be finalized and attended at a
faster rate so that demoralization does not set in. (ibid)

2.10 Major constraints of Ethiopian MSE

Of the factors reacted as very severe problem, the top fives are high taxes, inefficient
(arbitrary) tax administration, high collateral requirements, lack(inadequate) business
premise and lack of business supports in that order. Considering factors that are rated as
major problem or higher taxes (51.2%), high collateral requirements (47.1%), arbitrary
tax administration (43.8%), lack of adequate business premise (41.5%), lack of
/inadequate access to credit (38.5%) figure out prominently, other factors rated as major
or very severe problem by a good number of MSE include bureaucratic requirement
(23.1%), penalties (including kick backs to officials) for operating without license, if and
when detected (19.7%), weak legal enforcement (19.3%), crime and theft (18.5%),
competition (15.5%), entry regulation (15.1%) and inability to use the institutional
enforcement mechanism {legal and judicial system and policy (14.8%)}. This contrasts
clearly with the situation in Kenya, where the issues of tax, business premise and
bureaucratic requirements harassment do not appear as major problems. (Gebrehiwot
Ageba and Wolday Amha, 2004, policy impact and regulatory challenges of MSEs in
Ethiopia, p.16)

2.11 The policy environment and employment in MSEs

Micro and small enterprises account for 97.5% to 99.7% of all enterprises in India.
(Reinecke and white, policies for small enterprises). In Chile, Guinea, Pakistan, Peru,
South Africa, Tanzania and Viet Nam for example, the MSEs survey result show that
micro enterprises often grow and that their employment growth rates are fairly high.
Although, micro enterprises grow fast, their growth path is short. The growth rates drop
quickly as enterprises move to a slightly larger size, turning negative as enterprises to
reach the size of about 10 workers. Relatively few enterprises attain a size of 10 or more
paid workers. For example, between 2% (South Africa) and 5% (Chile) of the sample
enterprises with 3-4 paid employees in 1999 had increased employment level to 10 or

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more paid workers by 2001. The proportion of expanding MSEs was fairly similar
between enterprise owned by women and by men (Christensen and Goedhuys, forth
coming). In most countries, the share of women in MSEs Employment is much higher
than their share among medium-sized and large enterprises. Fore example, while women
account for 47% of own account workers and micro enterprises employment in Peru,
their share is 38% in small enterprises and only 30% in medium sized and large
enterprises. (ibid)

2.12 Structure and Performance of Small Scale Industry

The structure of small scale industry includes the number of establishments, number of
persons engaged, gross value of production, value added, operating surplus, fixed assets
and investments, there were 31,863 small scale manufacturing industries in Ethiopia of
which 19,996 (62.75%) located in urban and the remaining 11,869 (37.25%) were in rural
areas. All of the small scales manufacturing industries operating in rural areas are grain
milling service rendering establishments. Moreover, these structural distributions of small
scale manufacturing were concentrating on grain mill service sector in 2001/2 (1994
E.F.Y) as compared to other manufacturing industrial groups like food, textiles, metallic
and non metallic, wood, paper, and so on. In terms of number of establishment 27,223
(85.44%) construe grail mill manufacture, 84.75% of number of persons engaged,
79.21% of the value added, 75.65% of the gross value of production, 79.02% of the
operating surplus, 88.5% of the total fixed asset and 86.32% of the investment in fixed
assets in the small scale manufacturing industrial in the reference period. The other
important manufacturing in this respect were manufacture of fabricated metal products
(4.10%), manufacture furniture (3.45%), manufacture of wearing apparel (3.02%) and
manufacture of food products (2.17%). Thus industrial groups together contributed 12.74,
13.05, 20.75, 17.70, 8.36 and 9.34 percent of the total number of establishments, number
of persons engaged, gross value of production, value added, operating surplus, fixed
assets and investment in fixed assets in that order, in the reference period. The remaining
was shared by publishing and printing, manufacturing of wood and of products of wood,
manufacture of other non metallic mineral products and other industrial groups. (CSA,
2003)

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In the regional aspect, among the regional states, Oromia took by far the highest share in
the number of establishments (i.e. more than 37% of the total small scale manufacturing
establishments existing in the country during 2001/2 (1994 E.F.Y)). Next to Oromia,
Amhara, Addis Ababa, SNNPR, and Tigray are the leading four regions with 27.6, 12.09,
11.57, and 7.42 percentage share of the total number of establishments respectively.
(Ibid)

Regarding the distribution of establishments by major urban centers Addis Ababa,

Mekelle, Dire Dawa, Nazreth, Bahir Dar, Hawassa, Dessie, Harar, Jimma, and Gonder
are the first ten leading urban centers in terms of number of establishments. The numbers
of establishments in these urban centers are 386, 325, 320, 303, 260, 244, 228, 201, 171,
and 140 respectively. These urban centers constituted 30.19% of the total number of
establishments in all urban centers of the country. Their combined showed a similar share
in terms of the total number of persons engaged (30.57%), wages and salaries (35.54%),
gross value of production (36.02%), value added (40.77%), fixed assets (33.11%) and
investment in fixed assets (32.44%). (Ibid)

The structural distribution of number of persons engaged and number of employees by

manufacturing industrial group makes clear that on average 46.85% of the total persons
engaged in small scale manufacturing industries were permanent employees. The intra
manufacturing industrial group distribution ranged from 21.19% in manufacture of
wearing appeal to 69.23% in manufacture of parts and accessories for motor vehicles and
their engines. (Ibid)

3. RESEARCH METHODOLOGY
3.1. Description of Study Area

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Harari National Regional State is located in the Horn of Africa, Ethiopia, 525 km in the
East from the capital city, Addis Ababa. The region is located between 9 011’49”N and
9024’42”N latitude and 42003’30”E and 42016’24”E longitude. The altitude of Harari is
between 1300 - 2200 meters above sea level.

The region has 17 rural kebeles and 19 urban Kebeles covering a total area of about 348
km2. Based on the figures from the Central Statistical Agency (CSA) published in 2008,
Harari has an estimated total population of 183,344 of which 92,258 (50.32 %) were male
and 91,086 (49.68 %) were female. About 84,023 (45.83 %) of the population are
estimated to be rural inhabitants, while 99,321 (54.17 %) are urban dwellers. With an
estimated area of 348 km2 this region has an estimated density of 527 people per square
kilometer. It is the third region next to Addis Ababa and Dire Dawa where the majority of
its population lives in urban area i.e.100%, 67.92% and 54.17% respectively.

3.2 Research Design

The study will be descriptive type of study. The data will be both qualitative and
quantitative.

3.3 Method of Data Collection

The method that will be used to collect data is formal sample survey which includes the
use of questionnaire and interview to collect primary data. In addition, secondary data
will be held to have detailed information. The secondary data gathered from different
written materials.

3.4. Sampling Technique and Sample Size

There are 110 cooperatives sectors which were legally organized is found in the study
area; each of the having different status, activities, number of group members and the
year of establishment for each sector.

Following this, 200 respondents from 24 cooperatives sectors will be selected using non-
probabilistic sampling, which is judgment method. This method is selected because the
researcher wants to select from the sample based on the information about the population
to be selected to obtain fact information. The other rationale of this method is it is more
representative.

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 3.5 Method of Data Analysis
To meet the specific objectives, this study will be employ descriptive tools. By applying
descriptive tools one can compare and contrast different categories of sample units with
respect to the descried characters ices.
In this study descriptive statistics, such as mean, standard deviation, percentages,
frequency of occurrence t- and chi-square tests will be used. This enabled the researcher
to analyze the gathered data and present it clearly. Data will be described and
summarized using tables and graphs.

4. WORK SCHEDULE AND BUDGET BREAK DOWN

4.1. Work Schedule

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S/N Description Of Activities Time Of Execution
April May June July
2020 2020 2020 2020
1. Design & finalizing questionnaires 
2. Pretesting 
3. Data collection 
4. Reviewing data editing & entry 
5. Data analysis & report writing  
6. Submission &Presentation of the report to advisor 

4.2. Budget Break Down

I. Personnel (per diem) Quantity Rate pay/day Work duration / day Total cost(Birr)
Data collector 2 500 20 10,000
Researcher 3 300 20 6,000
Subtotal 16,000
II. Stationary Unit Quantity Unit price Total cost

Photo copy Pieces 80 0.50 40

Printing Paper 60 3 180

Paper Packet 1 120 120

Pen Packet 1 50 50

Pencil & Eraser Pieces 5 5 25

Sharpener Pieces 2 30 60

Note Book Pieces 2 20 40

Flash Disk Pieces 2 120 240

CD RW Pieces 2 30 60

Subtotal 815
III Communication Unit Quantity Unit price Total cost(birr)
Mobile card Pieces 30 25 750

Transportation Trip 30 30 900

Subtotal 1,650
IV Budget Summery Expenses in birr
Per diem 16,000
Stationary 815
Communication 1,650
Total 1,8465

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 Contingency (5%) 923.25
GRAND TOTAL 19,388.25
Budget Source: personal fund.

5. REFERENCES
Adrian Palmer and Bob Hartley, 2007, Business Environment, 5th edition

Ayele kuris (Dr), The Ethiopian Economy, 2nd edition

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Berhanu Nega and Befikadu Degefe, 1999/2000, First Annual Conference on

Ethiopian Economy

CSA, (2001/2), Informal Sector Survey and Ministry of Trade and Industry

Eastern Africa Social Science Research Review, vol III:1987

Gebrehiwot Ageba and Wolday Amha,2004, Policy Impact and Regulatory

Challenges of MSE in Ethiopia

Haile G/Tinsae, 2007,Small Entrepreneurship and Business Management, 2nd

edition

Hand out provided by Instructor Mohammed Teshome, 2010, the course

Development Planning and Project Analysis

Jim Dew Hurts and Rual Burns, 1996, Small Business and Entrepreneurship

Lalkaka and Bishop, 1996, Business Incubators in Economic Development

Micro and Small Business Development and Promotional Strategy, 1999, Quoted

on Oromiya MSEs

Reinecke and White, Policies for Small Enterprises

R.v. Badi N.v. Badi,2008, Entrepreneurship

25