RIFTVALLY

UNIVERSITY
COLLEDGE HAWASSA

FACTOR AFFECTING THE PERFORMACE

MICRO AND SMALL ENTERPRISE
HAWASSA CITY ADMINSTRATION

GROUP MEMBERS ID
1.BIRUK HAILE RUVHAW/0729/17

2, SELAMAWIT BERHANU RVHAW/1014/17

3, MIHRET ALEMAYEHU RVHAW / 0953/17

4, ABEL ZERAY RVHAW/1605/17

5, MEKDIS TEREFE RVHAW/0914/17

[HAWASSA ETHIOPIA]
 Acknowledgment
First and for the most we would like to thanks my savoir God Who helps me through all my
life. Next, we would like to thank our advisor Mr. MOTI for the advice, and constructive
comments to prepare this paper. It is obvious; it was difficult to do best my research without
supervision and direction of him.

Then, we wish to express our families for their consistent moral and financial support through
my university life.

Finally, we would like to thank the owners of micro and small business enterprise and managers
of MSE in Hawassa city administration town for their corporation in supplying to me the
necessary information. Especially we would like to thank the manager of the sector, for his
genuine in supplying to me the necessary material what we have requested them.
 abstract
The study was conducted on the factors that affecting the performance of MSEs in Hawassa city
administration. It was addressed four basic research question designed to assess the factor that
affect the performance of MSEs. The study was conducted by using both primary and secondary
data. The primary data was obtained more information by conducting interview and
questionnaire. The researchers were used stratified random sampling producers for selecting the
sample from the entire population. After the data has been gathered, it would be processed,
analyzed, and interpreted. The data analyzed has been carried out based on tabular, chart; and
percentage to generate careful interpretation of the analyzed information. The major factors that
affect the growth of MSEs were lack of financial access, managerial skill awareness about
business, lack of technology, market related factors, lack of infrastructure and lack of
information. Finally, based on finding, conclusion and recommendation the research expected to
provide reasonable result that could help the enterprise to take corrective action for the future
activity.
Table of Contents
abstract.........................................................................................................................................................i
Acknowledgment.........................................................................................................................................ii
List of table.................................................................................................................................................vi
List of Acronyms.......................................................................................................................................vii
CHAPTER ONE..........................................................................................................................................1
1. INTRODUCTION...............................................................................................................................1
1.1 .BACKGROUND OF THE STUDY.................................................................................................1
1.2 STATEMENT OF THE PROBLEM.................................................................................................4
1.2.1Researchers questions..................................................................................................................6
1.3 OBJECTIVES OF THE STUDY.......................................................................................................6
1.3.1 General Objective.......................................................................................................................6
1.3.2 Specific Objectives.....................................................................................................................6
1.4 SIGNIFICANCE OF STUDY...............................................................................................................6
1.5. Scope of the Study............................................................................................................................6
1.6. Limitation of the study......................................................................................................................7
CHAPTER TWO.........................................................................................................................................8
2. LITERATURE REVIEW........................................................................................................................8
2.1. Theoretical Review...........................................................................................................................8
2.1.1. Concept and Definition..............................................................................................................8
2.1.2. Definitions of MSEs from Ethiopian context.........................................................................11
2.1.3. Characteristics of MSEs...........................................................................................................13
2.1.4 Constraints of micro and small enterprises in Ethiopia.............................................................13
CHAPTER THREE...................................................................................................................................16
3. RESEARCH DESIGN METHODOLOGY..........................................................................................16
3.1. Research Design.............................................................................................................................16
3.2. Type of data source.........................................................................................................................16
3.2.1. Primary and secondary data.....................................................................................................16
3.4 The sampling techniques.................................................................................................................16
3.5. Sample size.....................................................................................................................................17
3. 6. Method of data analysis and presentation......................................................................................18
CHAPTER FOUR.....................................................................................................................................19
4. DATA ANALYSIS AND PRESENTATION........................................................................................19
4.1 .Description of demographic characteristics of respondents............................................................19
4.2. Basic characteristics of the enterprises...........................................................................................23
4.3. Factor that affecting the performance of MSEs..............................................................................26
4.4 Results on Governments Role toward the performance of MSEs....................................................33
Table 4.20 the current major opportunities of MSEs.............................................................................33
CHAPTER FIVE.......................................................................................................................................35
5. CONCLUSIONS AND RECOMMENDATIONS................................................................................35
5.1. INTRODUCTION..........................................................................................................................35
5.2. CONCLUSIONS............................................................................................................................35
5.3. RECOMMENDATION.......................................................................................................................37
REFERENCE............................................................................................................................................39
Appendix A...............................................................................................................................................41
Appendix B...............................................................................................................................................45
List of table

Table 4.1: Age of the respondents

Table 4.2: Educational levels of the respondents

Table 4.3: Marital Status of the respondents

Table 4.4: Respondents time of starting business

Table 4.5: Respondents initial capital to run their business (in ETB)

Table 4.6Respondents attitude on preparation of business plan

Table 4.7 Distribution of sample size by subsector

Table 4.8: Initiation to start Business

Table 4.9: The source of starting capital of their current business

Table 4.10: Financial related factors that hinder the performance of MSEs

Table 4.11: Management related factors that affects the performance of MSEs,

Table 4.12: Market related factors that influence the performance of MSEs

Table 4.13: Information related factors that hinder the performance of MSEs.

Table 4.14: Infrastructural related factors that hinder the performance of MSEs

Table 4.15: Technology related factors that hinder the performance of MSEs

Table 4.16: Entrepreneurial factors that affect the performance of MSEs

Table 4.17; Government regulation related factors that hinder the performance of MSEs

Table 4.18: Working place related factors that influence the performance of MSEs

Table 4.19: What kinds of support you get from the government to growth your business

Table 4.20 the current major opportunities of MSEs

 List of Acronyms

 MSME Micro, Small and Medium Enterprises

 FEMSEDA Federal micro and small enterprise development agency
 MSE Micro and Small enterprises
 MOTI Ministry of Trade and Industry
 REMSEDA Regional Micro and Small Enterprise Development Agencies
 CSA Ethiopian Central Statistics Authority
 MELFED Micro Enterprise Lying Foundation for Economic Developments
 UNDP United nation development program
 CHAPTER ONE

1. INTRODUCTION
1.1. BACKGROUND OF THE STUDY
There is no universally agreed definition of micro and small enterprises (MSEs). Some of the
commonly used criteria are number of employees, value of assets, and value of sale and size of
capital or turn over, the capital invested and the total balance sheet (asset, liability and capital).
The European commission define micro and small enterprise within above criteria. The small
enterprise is annual work unit between 10 and 50, annual turnover less than 10 million or annual
balance sheet less than 10 million Euros. The micro enterprise is less than 10 annual work unit
and less than 2 million Euros. (European Commission, 2005). In some countries, micro and
small enterprises are categorized based on the capital that is invested and, in some countries,
based on the employment opportunity they provide. The World Bank define MSEs with above
criteria. The small enterprise is between 10 and 50, and total assets 1-3 million Dollars or total
annual sales. The micro enterprise is less than 10 numbers of employee and total assets or total
annual sales less than 100,000 Dollars (Independent Evaluation Group of World Bank, 2008).

Though micro and small Enterprises constitute the major share in terms of numbers in Ethiopia,
there is no consistently placed definition for the sub sector by different bodies. In 1997, Ethiopia
has defined micro enterprise as an enterprise with total asset of less than 20,000 Birr and small
enterprise as enterprise with total asset of Birr 500,000 or less. In this definition, the only base
used is the total asset unlike international originations definition base. To align the definition
with at least some countries and international originations, the country has revised the definition
of micro and small enterprise in 2011. In the new definition, some of the attributes used by other
countries and international organization are addressed. In addition, the segregated sectors have
service and manufacturing. (International journal of commerce, Business and management
vol.No.1Jan-Feb 2017)
According to the new small and micro enterprises development strategy of Ethiopia (published
2011) the working definition of MSEs is based on capital and labor. Micro enterprise the
enterprise consists less than 5 hired labor force for both service and industry sector and with
capital Birr 4,500-100,000(industry) and Birr 2,200-50,000(service) sectors. Small enterprise the
enterprise consists 6-30 hired labor for both service and industry sector with capital start up Birr
70,000-1,500,000 or greater than (industry) and greater than Birr 500,000 for service sectors
(FEMSEDA, 2011).

In many countries, especially in developing countries micro and small enterprises are small
informally organized commercial operation owned and operated mostly by the poor. They
account for substantial share of the total employment and gross domestic product (GDP)
contributes significantly to the alleviation of poverty and income creation. They are often the
chief economic defense of the most vulnerable households in high-risk environment, such as
civil conflict and natural disaster (MELFED 2004).

Setting up business needs business ideas that does must be original and it does have met the
needs of a clearly identified group of customers. It also has to be sufficiently different from
products or service offered by competitors to have some chance of survival in the market place it
is uniqueness that will make people buy your product or service. Most people base their business
up to skill, experience or qualification they have, perhaps gained in previous import through a
leisure-time. The micro and small enterprise enjoys tradition of infinite variety and solid
achievements. It plays role in history since practically the beginning of recorded time. It
flourished in almost all ancient customers. Their product and service however were frequently
shoddy and slipshod customers were often created and defrauded. There result was that small
business become object scorn (Siroplis Nicholas 1997(2))

MSEs are important for the individual and the nation. It provides employment, raise the standard
living and they mobilize of the work force population (Kithae, 2012).

In developing countries, MSEs by virtue of their size, capital investment and their capital to
generate greater employment, have demonstrated their powerful propellant effect for rapid
economic growth. The MSEs Sector also has been instrumental in bringing about economic
transition by providing goods and services which are adequate quality and are reasonably priced,
to a large number of people by effectively using the skills and talent of large number of people
without requiring high level training, large sum of capital or sophisticated technology (ILO,
2008)

Micro and small enterprise has potential to create or capture on entries in to industry. The
incentives to innovate are greater the motivation to innovate is greater. Micro and Small
enterprise supply products and services more cheaply whose sales volume is small, those
products close personal content with customer and those that must meet each customer unique
the needs they major creator of new jobs. Micro and small enterprise the decision made by owner
will be implemented more quickly and d less likely to be diluted by subordinated. Growth micro
and small enterprise operate at strategic than tactical level. They have good knowledge of their
markets and industry, close content with customers and commitment to quality, particularly of
service they seek out creating for themselves markets machinery and innovation and flexi able
they focus on cash flow and rather than turn over not over all micro and small enterprise are
presented with opportunities because of uniqueness of every firms. small enterprise has its own
weakness and strengthens. The strengthens includes financial performance (small manufactured
on average, earn high return on their investment than do large business enterprise) innovation
(small enterprise people tends to be more risk whose ideas are shocking trade). It weakness
includes failure, chiefly due to ease of entry and lack of material propertied (Sirpplis Nicholas
1997(8)).

The aim of MSE development and provision of MSE service are to enable the entrepreneur to
take advantage of market opportunities and improve the access to skill development
opportunities that strengthen entrepreneurial capabilities (UNIDO, 2002:36).

Werotaw study (2010:226-37 as cited in Admasu 2012) showed Micro and small enterprise in
Ethiopia is, however, confronted with several factors that affect the performance of MSE. The
major factors include financial problems, lack of qualified employees, lack of proper financial
records, marketing problems and lack of work premises, etc. Besides, environmental factor
affects the business which includes social, economic, cultural, political, legal and technological
factors. In addition, there are also personal attitudes or internal factors that affect the
performance of MSE, which are related to the person’s individual attitude, training and technical
know-how. Generally; there are external and internal factor which are still affecting the
performance of MSEs.

Micro and Small business can be service rendering, firm, manufacturing origination,
merchandise business and small scale industries. Several factor that influence the performance of
the micro and small enterprise such as production technology, managerial skill of owner, the raw
material, government to impose tax, business plan, availability of infrastructure, market, lack of
finance, working premises, political legal culture and lack of owner product modification.
Therefore, this study focus on the factor that influence the performance of small business
enterprise in hawassa city administration with respect to the above problem mention.

1.2 STATEMENT OF THE PROBLEM

It is true that micro and small enterprise have vital part to play in the economy of the country.
Micro and small enterprise owner is an individual who establish and manages business for
principal purpose of furthering personal goals.

The development of MSEs has long has been regarded as crucial for the achievement of boarder
development objectives, including poverty alleviation, economic deployment and promotion of
more democratic and pluralist societies. Pursuant to this, the shared and principal objective three
major development plan of Ethiopia, implemented to date have been to ensure broad based
economic growth which means the main course to poverty reduction mainly through
employment generation and economic stimulation.

The working place is one of the main components that needed for success full and sustainable
growth of enterprise because it is essential in creating access to resources and necessary markets.
Most of the people they have no working premises; their working places is shared with other
members in the cooperative (Rahel and Issac, 2010).

Finance is the base point for any business activities lack of adequate finance has always been
other problem of Ethiopian micro and small enterprise. Since most of the operators /owner are
poor they start the business with their little capital. Credit from formal sources are not only
managed by government regulation but often they rare also form part of public sector demotion
and hence administered by bureaucracy that is generally un friendlily to the poor, ill rates and
semi-educated in small firm sector. Similar altitudes also prevail in the private sector, the private
banks, for example rarely find it profitable to deal with these units, though a few exception are
emerging (Sethuraman , 1997). The MSEs are able to source and obtain finance mostly from
informal sector like friends and relatives while medium or large enterprises obtain funds from
banks. This unequal access to finance by MSEs and medium or large enterprise undermined the
role of MSEs in economic development in Africa countries (Word Bank, 2004)

The business plan factors affect the performance of MSEs because in order to do one business
plan must identify the title, customer, environment, market, finance or cost to start up, place and
profit of the business in future. Also, the entrepreneurship has owned factor on the MSEs. It
includes preparing business plan, lack of motivation and drive, lack of persistence and courage to
take responsibilities for one’s failure, and absence of the initiative to access ones strengthens and
weakness are factor that related to entrepreneurs.

Before starting the business, the owner of the business should consider with the product and
customer’s lines well adequate on the new culture. If they will be selling in quantities large
enough and at price high enough to be tables as well as the owner should analyze the component
of their product what features need to adopted to ensure that the product meet both quantities and
qualities are competitive and accept in market with another entrepreneurship. The factors
affecting the performance of the MSEs Likes marketing, business plan, finance, use of
technology, managerial owners, and infrastructure and working places are basic variables. But
some others factors are luck of luck attraction of customers, and motivation also factor affecting
performance of the MSEs. addition to this researcher also not only identifying the factors
affecting the performance of the MSEs but also will try to examine to startup operation and to
expansion their business environment and to assess use current opportunities are available given
by government for MSEs development in Hawassa city administration.

To address above problem, this study therefore aims to provide a view relating to study of factors
affecting the performance of MSEs through a compressive review of literature and empirical
study in the area. This resulted in the development of theoretical framework for the initiation of
policies and programs for enterprise development. Form practical point of view, it serves not
only provides a self-check to current enterprise sector, but also increase the involvement in
business activities through a better understanding of the determinants of the performance of
enterprise.
1.2.1Researchers questions
 What is external factor that affect the performance the MSEs?
 What is internal factor that affect the performance of MSEs?
 What are the current available opportunities for MSEs?

1.3 OBJECTIVES OF THE STUDY

1.3.1 General Objective

The general objective of the study is to assess the factors that are mostly affecting the
performance of MSEs in Hawassa city administration.

1.3.2 Specific Objectives

The specific objectives of this study are mainly to:

 To assess the internal factor that affect performance of the MSEs.

 To assess the external factor that affects the performance of the MSEs.
 Examine the current available opportunities for MSEs.

1.4 SIGNIFICANCE OF STUDY

The study would be conducted on the factors affecting the performance of the MSEs in Hawassa
city administration. The outcome of the study was use full for the owner, researcher, other
researchers and the government s. The Study was important for the researcher to be familiar with
the basic concepts of researchers, enables to engage in entrepreneur activities and own business
and other researcher uses as a reference who engaged to study in this area. The finding was
expected to help MSEs in Hawassa city administration and others in order to alleviate the factor
that affect the performance of MSEs, to assist in policy formulation and development of frame
work for critical finance, working place, marketing and others factors effect of MSEs.

1.5. Scope of the Study

The study assessed factors affecting the performance of micro and small enterprise in Hawassa
city administration. This study was particularly emphasized on most important factors such as
the working premises, technological, infrastructural, marketing, financial, politico-legal,
management and entrepreneurial factors.

CHAPTER TWO

2. LITERATURE REVIEW
2.1. Theoretical Review

2.1.1. Concept and Definition

One major problem that arises while dealing with micro, small and medium sized enterprises is
lack of clear cut and universally accepted definitions. There is no generally accepted definition of
micro, small and medium sized enterprises. No single definition can reflect the differences
between firms, sectors or economies of different size and at different levels of development.
Most international organizations have adopted a non-definitional policy, although many also
employ a working definition. Attempts to define micro, small and medium enterprise or MSEs
have led to a remarkable diversity of conceptions that actually generated unresolved debates as to
the variety of approaches to defining them. Moreover, the distinction between the micro, craft,
and cottage, small and informal sectors is often not clear (UNDP, 2001).

The concept and definition of MSEs has changed in some countries, responding to changed
needs and problems of development. In some countries it has been revised to enlarge the scope
and coverage, while in others it was limited to small scale manufacturing activities. Nevertheless,
there are opinions supporting the view that diversity of definitions is necessary and has to be
encouraged. This supported on the ground that in which on the context they are applied. For
instance, Harper pointed out that cited in Bereket (2010) „‟the scale of a business needs only to
be defined for a specific purpose, and there is no point in attempting to produce a universally or
even nationally accepted proceeded by very clear understanding of the purpose for which is to be
used‟‟. Evidently therefore, because definitions of MSEs vary from country to country, there
could be no global definition (Levitsky, 1989). What is started or identified as micro and small
enterprises in many industrialized countries may differ in other developing countries. This is
because the amount of capital invested and the number of people employed operating and
implementing micro and small enterprise and the level of technology vary from one country to
another. In some countries MSEs labeled based in the number of employees and others on capital
invested. Most definitions of micro and small enterprises depend upon the policy makers
(financers, labor officers, traders, and service personnel). The common criteria that are used by
different countries are: 1. Number of employees, 2. Asset employed 3. Sales turn over or 4.
Combination of the above three factors.

According to the Tom (2008) a discussion of SMEs among different multilateral development
institutions, as represented below by the maximum size criteria for SMEs.

Table 1: SME definitions used by multilateral institutions.

Institution Maximum # of Maximum Revenue or Maximum Asset ($)

Employees Turn over ($)
World Bank 300 15,000,000 15,000,000
Multilateral 100 3,000,000 None
Investment Fund
(MIF) - Inter
American
Development Bank
(IADB).
African Development 50 None None
Bank
UNDP 200 None None
Asian Development No official, definitions use only definitions of individual national
Bank governments.
Source: Tom, 2008.

Definition of MSEs by European Commission in 1996 micro and small-scale enterprises were
defined as enterprises which employ one up to 10 and less than 50 persons and whose annual
turnover or annual balance sheet total up to 2 million euro and does not exceed 10 million euro
defined micro and Small enterprises respectively. The European Commission utilizes three
criteria to determine whether an enterprise is a micro or small sized. These are staff headcount,
annual turnover, and annual balance sheet. The new definition developed in 2005it helps to
promote innovation and foster partnerships, while ensuring that only those enterprises which
genuinely require support are targeted by public schemes and offers this choice since, by their
nature, enterprises in the trade and distribution sectors have higher turnover figures than those in
manufacturing. Providing an option between this criterion and the balance sheet total, which
reflects the overall wealth of an enterprise, ensures that MSEs engaged in different types of
economic activities are treated fairly (Kushner et al, 2010 cited in Weldegbriel, 2012).

Stanley and Morse (1965) cited in Walelign (2008) stated that post World War Japan defined
MSEs is according to the value of the firm’s capital or the number of its employees. Micro and
small enterprises as one either having capital not exceeding ¥50m or having not more than 300
employees in manufacturing industry, and either having capital not greater than ¥10m or having
not more than 50 employees in commerce and service sectors. They further reported an Indonesia
Agency for Small and Medium Enterprises as defining small scale enterprises to mean all
enterprises, household or cottage, employing less than 10 full time workers and not using motive
power or machinery, and medium sized industry as one employing between 10 – 50 workers and
using motive power.

In the Indian context, micro and small enterprises as per the Micro, Small and Medium
Enterprises (MSME) Development Act, 2006 are defined based on their investment in plant and
machinery (for manufacturing enterprise) and on equipment’s for enterprises providing or
rendering services. According to the (MSME) Development Act of 2006, (India) a micro
enterprise is where the investment in plant and machinery does not exceed twenty-five lakh
rupees. A small enterprise is where the investment in plant and machinery is more than twenty-
five lakh rupees but does not exceed five core rupees. In the case of the enterprises engaged in
providing or rendering of services, as: (a) a micro enterprise is where the investment in
equipment does not exceed ten lakh rupees. (b) a small enterprise is where the investment in
equipment is more than ten lakh rupees but does not exceed two chore rupees. Congo defined
small enterprise by laws as employing 5-9 persons, medium sized 22-99 persons, and large scale
one which employees over 100 persons (Andualem, 1997).
According to the survey conducted in Ghana, there are a number of criteria which serve to define
small scale enterprises. Among the number of employees in the small-scale enterprises is less
than 10 workers and in terms of fixed asset not more than 10 million cedes (the Ghanaian
currency or money them, the number of employees employed in the sector is the major one and
fixed asset is the other criteria like our birr) for plant and machinery (Helm sing and Kolstee,
1993). Micro enterprise is one with fewer than ten employees; and a small enterprise is one with
1150 employees (Annette, 2005).

2.1.2. Definitions of MSEs from Ethiopian context

Two different definitions of MSE are used so far. These are: The 1997 definition of MSE
development strategy/Ministry of Trade and Industry (MoTI), and Definition given by CSA
(2011). The definition used by Ministry of Trade and Industry (MoTI), which uses paid capital or
capital investment as a yardstick, has been developed for formulating micro and small enterprise
development strategy in 1997 by considering other countries‟ experience, especially the South
Africa experience. According to the MoTI, Micro enterprises are those businesses enterprises, in
the formal and informal sector, with a paid-up capital not exceeding Birr 20,000(1200 USD) and
excluding high tech consultancy firms and other high-tech establishments. Small enterprises are
those business enterprises with a paid-up capital above Birr 20,000(1200 USD) and not
exceeding Birr 500,000(30000 USD) and excluding high tech consultancy firms and other high-
tech establishments.

Table 2: Definitions of MSEs given by MoTI

Sector Manpower A paid capital

Micro enterprise ………………………….. ≤ 20,000ETB (1200 USD)
Small enterprise ………………………….. ≤ 500,000ETB (30,000 USD)
Source: MoTI, 1997

On the other hand, CSA categorizes enterprises into different scales of operation on the size of
employment and the nature of equipment. To CSA, establishments employing less than ten
persons and using motor operated equipment are considered as small-scale manufacturing
enterprises. Enterprises in the micro enterprise category are subdivided into informal sector
operations and cottage industries: Cottage and handicraft industries are those establishments
performing their activities by hand and using non-power-driven machines whereas the informal
sector is defined as household type establishments or activities, which are non-registered
companies and cooperatives operating with less than 10 persons. All enterprises employing ten
or more workers are grossly considered as medium and large enterprises (CSA, 1999 and 2000;
cited in Tegegne and Meheret, 2010). By identifying the gaps of the existing definition of MSE,
ignoring the size of employee and by taking total asset as criteria and by dividing it in to industry
and service sector; and considering the inflation and fluctuation/irregularity of currency, the
Federal Micro and Small Enterprise Development strategy (2011) improved definition of MSEs
and presented as follows. The improved definition of micro enterprises under industry sector
(manufacturing, construction and mining) are an establishment operates with 5 people including
the owner and/or their total asset is not exceeding Birr 100,000. Under service sector (retailer,
transport, hotel and Tourism, ICT and maintenance service), micro enterprises are the one that
operates with 5 persons including the owner of the enterprise and/or the values of total asset is
not exceeding Birr 50,000. Furthermore, the small enterprises under industrial sectors
(manufacturing, construction and mining) are those business enterprises operates with 6-30
persons and/or with a paid-up capital of total asset Birr 100,000 and not exceeding Birr 1.5
million. However, under Service sector (retailer, transport, hotel and Tourism, ICT and
maintenance service). It operates with 6-30 persons or/and total asset, or a paid up capital is with
Birr 50,001 and not exceeding Birr 500,000 (CSA, 2011).

Table 3: Definitions of MSEs given by CSA

Level of the enterprise Sector Human power Total asset (ETB)

Industry ≤5 ≤ 100,000

Micro enterprise Service ≤5 ≤ 50,000

Industry 6-30 ≤ 1.5 million
Service 6-30 ≤ 500,000
Small enterprise
Source: CSA, 2011

2.1.3. Characteristics of MSEs

MSEs that prevail in most countries especially developing countries have similar characteristic
some of them are high mortality rate, flexibility in nature, use local resources, bases for large
scale enterprises (Mansour, 1999 cited by Yohannes, 2004). Zewde and Associates (2002) cited
in Siyum (2015) identified that the MSE sector is characterized by a number of highly diversified
activities, which can create job opportunity for a large segment of the population. The
characteristics of the informal sector (small and micro enterprises) have also been described as it
is easy to enter, it is financed mainly from personal and family resources, it requires low starting
capital, it uses labor intensive techniques, and it relies on the non-formal school system such as
apprenticeship and on the job training. Donald (1999) cited in Siyum (2015) also identified the
following distinguishing features, namely more/ labor intensive, more efficient, more equitable
in distributing the income they generated, geographically more widely diversified, and more
nurturing of entrepreneurs.

2.1.4 Constraints of micro and small enterprises in Ethiopia

Being ease to entry and the need of small startup capital, micro enterprises absorbs much labor
force. But their development is retarded by different constraints they face while operating.
According to Bereket (2010) the factors that face MSEs are divided internal and external factor
(problems). The internal factors can be during start up or operations, which hinder the normal
functioning of MSEs, include: limited human capital (the skills, schooling, technical know-how
and motivation of employees), lack of working capital, the utilization of obsolete technology,
poor location and conflict among partners. Lack of capital since the starting capital of member of
small business is derived from either personal saving or loan from relatives, using latest and
moderate technologies is unattainable. On the other hand, lack fixed assets restrain from loan that
issued by financial institutions. In some regions micro finance institutions (MFIs) issue lower
account of loans which limits the number of borrowers. If there is a change in MFIs, it is
predicted the number of borrowers to increase (Mahider, 2009). Use of poor technology the lack
of technical dynamism of the small-scale sector explains its limited upward mobility even when
it is not reinforced by government policies, leading to the phenomenon of depressed relative
labor productivity in the small enterprises (Dipak, 2001).
The external factors can be during start up or operations which affect the normal functioning of
MSEs, include low access to financial services and low business development services (include
training, consultancy and advisory services, marketing assistance, working place, information,
technology development and transfer, business linage promotion and linkages to finance and
financial services), limited market and poor supply of economic infrastructure and public
services. Market problems market problem arises because of distance from city center,
completion, with local and international producers, problem of product quality and lack of
investment to tap the export market. In addition to this understanding about where their products
have demand, which need it, and at what price also have negative impact. The primary problem
could be in the form of supplying poor quality goods and services, information asymmetry about
input price, consumer needs and market conditions (AEMFI, 2009 as cited in Hassen, 2012).
Lack of infrastructure facilities the development of business and industrial premises (shops,
factories, market stands, etc.) and infrastructure facilities, including the supply of electricity,
water, telecommunication connections, and sewage systems are crucial infrastructure facilities
and utilities which warrant the growth and expansion of business enterprises (MoTI, 1997). Lack
of information small and medium enterprises are lacking badly technological information. Poor
awareness of the latest technological achievements makes them dependent on the information
they manage to get from scarce resources. (Tefere, 1996). Unfavorable Rules and Regulations for
a large proportion of informal sector activities compliance with existing laws and regulations is
beyond their economic means. Therefore, they operate outside these laws and regulations, which
bar informal operators from access to resources market, working place and productive inputs,
which facilitate their activity. An attempt to make them legal trying to apply all existing
regulations on informal activities might affect their employment generation capacity, since
entrepreneurs refrain from expanding their business in fear of additional cost (Endanchyelem,
2000). Lack managerial and other skilled labor, and lack of training. Raw material problems raw
material is a basic component for the existence of the MSEs since they create a backward linkage
and demand for other sector products. The high cost is the key raw material problem for the
growth of enterprises. Lack of standardization, raw material storages, and poor quality of raw
materials are also major problems. Strong forward and backward linkages between sectors of the
economy in supply of raw materials facilitate market for the output goods and services (Eshetu &
Mammo,2009).
 CHAPTER THREE

3. RESEARCH DESIGN METHODOLOGY

3.1. Research Design
To conduct this study, the researcher was use descriptive from of research design. In this study
descriptive analysis is used because of its simplicity and clarity to draw inferences. The major
purpose of descriptive research is description of the state of affairs as it exists at present. Then
this study describes and critically assesses factor affecting the performance of MSEs in Hawassa
city administration. Measuring the answer was quite easy since alternatives will be given for the
respondent to choose their answers. There are also open spaces made for respondents to write
comment and give alternative choices from the option provided.

3.2. Type of data source

3.2.1. Primary and secondary data

The researcher is used both primary and secondary data source together requires data. The
primary data collects through questionnaire. The questionnaire includes both close-end and open-
ended questions, whereas secondary data gatherers from different source such as file (related
document) , office manuals and annual reports ,magazine , internet and previous researchers
done on the same issue was used in this research paper .

The primary data was collected as primary source through both open and closed questionnaire
and unstructured interview. The questionnaire distributes to the target respondents. They are
owners or operators of micro and small business enterprise and the interview is conducted
coordinator of micro and small business enterprise of Hawassa city administration.
3.4 The sampling techniques

The sampling technique implemented for the study was stratified random sampling technique.
Because the population was large, heterogeneous group and cost effective. The sample size for
the study was based on the stratified random sampling. Because, in the population there are five
sectors such as, manufacturing, service, trade, construction and urban agriculture sectors.

3.5. Sample size

Currently, the total number of micro and small business enterprises operated in Hawassa city
administrations town are around 400 enterprises which are engaged in five sectors such as
construction, manufacturing ,service ,urban agriculture ,and trade (Hawassa city administration
town manual document 2009 EC) According this report there are 118 are service sectors, 126
are manufacturing enterprises, 14 are construction enterprises, 108 are engaged in trade sectors
and the remaining 34 MSEs out of the total 400 are urban agriculture sector. From these
different sectors, the sample has been selected through simple random sampling. The researcher
was statistically select 60 or 15% respondents from each owner of enterprises construction,
manufacturing, trade and services sector.

n= N/1+ (N*(E)) 2where …n=sample size E= acceptable range of error.

n = 400/1(400*(0.15) 2 =60 N= total population source Yamane stratified
formula (1967; 886). N=400

e=15%

n=60

We usually follow the method of proportional allocation under which the size of the samples
from the represent strata are kept proportional to the sizes of strata. That is, if Pi represents the
proportion of population included in stratum i, and n, represents the total sample size, the number
of elements selected from stratum i=nPi.To illustrate it,

We have sample of size n=60 to be drawn from a population of size N=400which is divided into
five strata of size N=108, N2=14, N3=34, N4=126, N5=118.

Where N1-represent trade

N2-construction
 N3-urban agriculture
N4-manufacturing
N5-service
Adopting proportional allocation, we shall get the sample sizes as follow for the different strata;

Strata Pi= ni=nPi

N1 =0.27 60(0.27)=16

N2 =0.035 60(0.035)=2

N3 =0.085 60(0.085)=5

N4 =0.315 60(0.315)=19

N5 =0.295 60(0.295)=18

So we have used the sample of 60 from total population of 400. During data collection we have
distributed the questionnaires to 60 respondents as a sample, but due to some constraints out of
60respondents we have only collected their replies from 57 respondents.

3. 6. Method of data analysis and presentation

After the data is collected and analyzed using the basic data processing techniques such as;
editing, coding and classification. The data collected both from primary and secondary data
sources and analyzed using descriptive analysis and appropriate interpreting conclusion and
recommendation is forward base on the result. So, the data was analyzed and presented by using
tables, and diagrams which showed qualitative and quantitative data, to make data more suitable
for interpretation.
 CHAPTER FOUR

4. DATA ANALYSIS AND PRESENTATION

The purpose of this study is to critically assess the factors affecting the performance of MSEs in
Hawassa city administration town administration.

Around 60 questionnaires were distributed across the five sectors in Hawassa city administration
town, out of which 57 were completed and retrieved successfully, representing 96% response
rate. The data collected mainly through questionnaires and interviews were presented using table
graph, pie charts and percentage.

4.1. Description of demographic characteristics of respondents

It was important to analyze the demographic profiles of the respondents, so as to get better
understanding of the owners or operators of MSEs being researched. The demographic
characteristic of the respondents had been influenced the way they start up and growth of their
business.

Table 4.1: Age of the respondents

Age Category Frequency Percentage (%)

15-35 37 62%
36-50 19 32%
51-65 4 6%
>65 0 0%
Total 60 100%
SOURCE: SURVEY 2018

The above table indicates 37(62%) of the respondents were below 35 years, 19(32%) of the
respondents were between 36 – 50 years, 4(6%) of the respondents were between 51-65 years
and 0(0%) were above 65 years. From the above table the researchers have founded that most of
the participants of micro and small enterprise were existed under the productive age (15-35) and
(36-50) are the second dominant. Where those under old age (>51) are less participant.

Figure 4.1
 female and male

38%

62%

Source; from the interview

The above figure indicated that 23(38%) of the respondents were female and 37(62%) were
male. On the above figure the researchers can understand that there is only a small difference
between male and female in participation.

Table 4.2: Educational levels of the respondents

Responses Frequency Percentage

1st degree and above 27 45%
Diploma 14 23%
Preparatory 9 15%
High school 7 12%
Elementary and below 3 5%
Total 60 100%
SOURCES; SURVEY 2018

The above table shows that 27(45%) of the respondents were first degree holder and 14(23%) of
the respondents were Diploma holder, 9(15%) of the respondents were preparatory completers,
7(12%) respondents were 9-10 grade (high school) completers, 3(5%) respondents were those
who have complete elementary school and below. From the above statistics majority of MSE
were dominated by high school completers and those who have completed preparatory school, on
the other hand the number of respondents who had 1st degree and diploma were not actively
participated in the business of MSE because usually they seek for other job opportunity rather
than MSE.

Table 4.3: Marital Status of the respondents

Respondents Frequency Percentage

Married 19 32%
Unmarried 36 60%
Divorced 3 5%
Widow 2 3%
Total 60 100%
SOURCES; SURVEY 2018

On the above table 19(32%) of the respondents were married, 36(60%) respondents were
unmarried, 3(5%) of the respondents were divorced and 2(3%) of the respondents were
widowed. From this table researchers can conclude that most of the participants of Micro and
Small Enterprises were unmarried and less participants of MSE were widowed.

Table 4.4: Respondents time of starting business

Respondents Frequency Percentage

<1year 18 30%
1-3years 23 38%
3-6years 12 20%
6-9years 5 8%
>10years 2 4%
Total 60 100
SOURCES: SURVEY 2018

On the above table 18(30%) of respondents where start their business before 1years, 23(38%) of
respondents where starts their business from 1-3 years, 12(20%) of respondents where start their
business in 3-6 years, 5(8%) of respondents where start their business about 6-9years, while
2(4%) respondents stay in their business for more than 10 years. From the above statistics
majority of respondents were starts their business within 3-6 years and those start their business
within 1-3 years were the second dominant. Were the respondents start their business with in
1year and below are the third dominant of MSEs and small respondents are running their
business more than 10 years and 6-9years.

Table 4.5: Respondents initial capital to run their business (in ETB)

Respondents Frequency Percentage

<5,000 6 10%
5,000-10,000 15 25%
10,000-15,000 21 35%
15,000-25,000 7 12%
>25,000 11 18%
Total 60 100%
SOURCE: SURVEY 2018

On the above table 6(10%) of respondents of MSE were start with the capital of less than 5000
15(25%) of the respondents of MSE were between 5,000 and 10,000 Birr, 21(35%) of the
respondents were 10,000-15,000 Birr, 7(12%) of the respondents were 15,000-25,000 Birr,
11(18%) of the respondents were >25,000 Birr. The researchers can understand from this
majority of the owner of MSE initial capital were between 5,000-10,000 Birr which is very
small and only 11(18%) of the owner of MSE have more than 25,000 initial capital to start
business. This indicate that micro and small enterprises were started their business with small
amount of initial capital.

Table 4.6Respondents attitude on preparation of business plan

 respondent attitude

C A
30% 28%

B
42%

Source- from interview and questionnaires

As it is indicated on the pie chart, 4.2 respondents stated that they have their own business plan
while starting their business. According to the interview result, those who have business plan
enable them to be more profitable and competitive. More over; they state that their business plan
is a selling plan by developing the opportunity, determining the resources required, obtaining
those resources, and successfully managing the resulting venture. From the total respondents,
29% of them have no business plan but they are trying to prepare it for future operation.
Currently these individuals are taking some courses at poly techniques colleges particularly
regarding to preparation of business plan. The remaining respondents of the study i.e. 42% of
them have no business plan. The left amount has business plan. Because most of them have a
knowledge gap on the importance of business plan and they always resist while they are enforced
to prepare it.

4.2. Basic characteristics of the enterprises.

In this part, this paper focuses on the basic characteristics of the enterprises. Therefore, some
general information of the enterprises was sought and depicted in the following tables.

Table 4.7 Distribution of sample size by subsector

 Sectors Frequency Percentage
Manufacturing 19 31%
Trade 16 27%
Construction 2 3%
Agriculture 5 9%
Service 18 30%
Total 60 100%
SOURCES; SURVEY 2018

On the above table 19(31%) of the respondents were manufacturing sector, 16(27%) of the
respondents were traders, 2(3%) of the respondents were construction sector, 5(9%) of the
respondents were agriculture and 18(30%) of the respondents were service. From this table the
researchers can conclude that the service sector, trade and construction sector were the most
dominant sector of MSEs. Whereas, agricultural sectors are the least next to manufacturing
sector due to negative attitudes towards agriculture sectors.

Table 4.8: Initiation to start Business

Responses Frequency Percentage

Desire of creating job 25 42%
Willing to earn profit 20 33%
To change family life 15 25%
TOTAL 60 100%
SOURCES; SURVEY 2018

The above table indicate that 25(42%) of the respondents were responded their motivation to
start the business were desire for creating jobs, 20(33%) of the respondents were responded that
the initiation to start business were willingness to earn profit and 15(25%) of the respondents
were responded their motivation to start the business were to change family life. The researchers
conclude that the majority of the respondent’s initiation to start a business for the purpose of
creating their own job.

Table 4.9: The source of starting capital of their current business

Response Frequency Percentage

Bank 5 8%
Micro Finances 17 29%
Personal saving 11 18%
 Borrowing from family 6 10%
Friendly relatives 3 5%
NGOs 16 27%
Others 2 3%
TOTAL 60 100
SOURCES; SURVEY 2018

As shown in the above table 5(8%) of the respondents were get the starting capital from Bank,
17(29%) respondents were responded as Micro finance institution, 11(18%) of respondents were
got from personal saving, 6(10%) of the respondents were met by borrowing from family,
16(27%) of respondents were get from NGOs and the lefts were got from friendly relatives and
other sources of finance to start their business.

Besides, the result of interview shows that majority of MSEs in the study area uses informal and
semi-formal financial sources. The formal financial institutions, particularly banks have not been
able to meet the credit needs of the MSEs. According to majority interviewee, the reason for
emphasizing on informal sector is that the requirement of collateral/guarantor is relatively rare
since such sources usually take place among parties with intimate knowledge and trust of each
other. But the supply of credit from the informal institutions is often so limited to meet the credit
needs of the MSEs. To wind up, such constraint of finance for MSE affects their performance
directly or indirectly.

4.3. Factor that affecting the performance of MSEs

The performance of micro and small-scale enterprises was hindered by various factors. These
factors were any obstacle that micro and small-scale enterprises owners have been confronted
both during startup of their business and while running their businesses. From review of the
related literature, factors facing MSEs were categorized into the following broad groups:
financial, marketing, management, working place, government, infrastructure, and training
related challenges.

Table 4.10: Financial related factors that hinder the performance of MSEs

S.n Respondents degree of agreement

Strongly Agree Undecided Disagree Strongly Total
o Finance related
agree disagree (%)
factors
1 Shortage of 44% 36.8% 10.5% 5.3% 3% 100%
 working capital
2 Inadequacy of 31.6% 47.4% 15.8% 3% 2% 100%
credit institution
3 Lack of cash 26.3% 36.8% 12.5% 15.8% 8.4% 100%
management
skill
Mean of owner’s 33.7% 40% 12.6% 8.4% 3% 100%
responses
SOURCE; SURVEY 2018

The above table shows respondents degree of agreement on financial related factors that hinder
the growth of MSEs, like shortage of working capital, inadequacy of credit institution and lack of
cash management skill. on the above table 33.7% of respondents where strongly agree on those
factors, while 40%,12.6%,8.4% and 3% of respondents were agree, undecided, disagree and
strongly disagree.

From the above table the researcher concluded that shortage of working capital is the dominant
factor affect the growth of MSEs from other financial related factors, while followed by
inadequacy of credit institution and lack of cash management skill.

Table 4.11: Management related factors that affects the performance of MSEs,

S.n Related Factors Respondents degree of agreement

Strongly Agree Undecided Disagree Strongly Total
o
agree (%) (%) (%) disagree (%)
(%) (%)
1 Lack of education 29.4 21 14.7 23.3 11.6 100
2 Poor organization 24 26.3 15.7 21 23 100
and ineffective
communication
3 Lack of clear 33.7 23 19 17 7.4 100
division of duties
and responsibility
Mean 29.4 23 17 20 10.5 100

SOURCE: SURVEY 2018

As indicated in the above table, averagely 29.4 % of the respondents in the town were strongly
agreed on those management related factors, 23% were agreed, 17% were undecided, 20% were
disagree and 10.5% were strongly disagree from the above table the researcher conclude that
even if those factors related to management is the factor that affect the performance of MSEs, its
effects on the performance of MSEs is not as much as financial related factors. Because, the
percentage of respondents who responses undecided, disagree and strongly disagree on
management related factors are more than those who are in financial related factors. To
conclude, all these managerial constraints were confirmed by the respondents in this survey, who
indicated that their business was constrained by poor management practice, poor organization
and ineffective communication and poor division of duties and responsibility.

Table 4.12: Market related factors that influence the performance of MSEs

S.n Respondents degree of agree

Strongl Agree Undecide Disagree Strongly Total
o Related
y agree (%) d (%) (%) disagree (%)
Factors
(%) (%)
1 Inadequate 23 35.7 18 15.8 7.4 100
market for
the product
2 Lack of 28.4 36.8 13.7 14.7 6.3 100
demand
forecasting
3 Poor 45 34.7 9.5 7.4 3 100
customer
relationship
in handling
Mean of 32 35.7 13.7 12.6 5.6 100
respondent’s
degree of
agreement
SOURCE: SURVEY 2018

On the above table 32% of respondents were agreed on market related factors that affect the
performance of MSEs, while 35.7% of respondents are agree which are dominant and the left
respondents 32.3% were undecided, disagree and strongly disagree. From the above table the
researcher concludes that market related factors that affect the performance of MSEs is the
dominant factor when compared to management related factors. Because only 32.3% of
respondents were replies undecided, disagree and strongly disagree on market related factors
while 47.5% were responses on management related factors. These indicate that market related
factors have strong influence on the growth of MSEs than management related factors.

Table 4.13: Information related factors that hinder the performance of MSEs.

S.n Related factors Respondents degree of agreement

o Strongly Agree Undecided Disagree Strongly Total
agree (%) (%) (%) disagree (%)
(%) (%)
1 Lack of market 34.7 31.6 13.7 11.6 8.4 100
information
2 Lack of promotion to 48 40 5 4 3 100
attract potential users
Mean of respondent’s 41.4 36 9 7.8 5.7 100
responses
SOURCE: SURVEY 2018

In the above figure 41.4% of respondents were responses strongly agree on information related
factors that hinder the performance of MSEs, 36% agree and the other 22.6% of respondents
were undecided, disagree and strongly disagree. The researcher concluded that most of the
performance of MSEs affected by information related factors such as lack of market information
and lack of promotion to attract potential users. As survey indicate 77.4 %( 41.4%+36%) of
respondents were agreed and strongly agreed on those related factors.

Table 4.14: Infrastructural related factors that hinder the performance of MSEs

S.no Related factors Respondents degree of agreement

Strongly Agree (%)
Undecided (%)
Disagree (%)
Strongly Total (%)
agree (%) disagree (%)
1 Power interruption 25.3 28.4 18 17 11.6 100
2 Insufficient water supply 47.4 44 5 3 _ 100
 3 Lack of sufficient 28.4 45 11.6 9.5 5 100
transportation service
Mean of respondent’s 33.7 39 11.5 9.8 5.3 100
responses
SOURCE: SURVEY 2018

In above figure 33.7% of respondents were strongly agreed on the infrastructural related factors
that affect the performance of MSEs while 39%,11.5%,9.8% and 5.3% of respondents were
responses agree undecided, disagree and strongly disagree respectively. The researcher
concluded that like other factors, infrastructural related factor is the other factors that affect the
performance of MSEs only 25.5% of respondents were replies undecided disagree and strongly
disagree. On the other hand, insufficient water supply is the major factors that affect the
performance of MSEs from infrastructural related factors.

Table 4.15: Technology related factors that hinder the performance of MSEs

S.no Related factors Respondents Degree of agreement

Strongly Agree Undecided Disagree Strongly dis Total
agree (%) (%) (%) (%) agree (%) (%)
1 Lack of skill to 32.6 39 13.6 6.3 8.4 100
handle new
technology
2 Lack of appropriate 25 41 18 10.5 5 100
machinery and
equipment
3 Unable to select 28.4 37 20 9.5 5 100
proper technology
Mean of Responses 28.8 39 17.2 8.3 6 100
SOURCE: SURVEY 2018

On the above table 28.8% of the respondents of MSEs were agreed on technology related factors
that hinders the performance of MSEs while 39% of respondents were agree,17.2% were
undecided,8.2%were disagree and 6% were strongly disagree. The researcher can understand
from this the majority of the owner of MISEs were agreed and strongly agreed on the technology
related factors specially due to lack of skill to handle new technology which is the from
technology related factors
Table 4.16: Entrepreneurial factors that affect the performance of MSEs

Item Manufacturing Construction Service

Entrepreneurial factors Average %- Average %- Average %-

frequency Age frequency Age frequency Age
of of of
responses responses responses
Lack of motivation and
drive. 4.14 82% 4.18 83% 4.08 81%
Lack of persistence and
courage to take
responsibility
For one’s failure. 4.23 84% 4.37 87% 4.25 85%
Absence of initiative to
assess one’s strengths and
Weakness. 3.82 76% 3.74 74% 3.75 75%

Among the entrepreneurial factors, lack of persistence and courage to take responsibility for ones
failure scores the highest average frequency of response of 4.23, 4.37 and 4.25 with percentage
of response 84%, 87% and 85% for operators engaged in manufacturing, construction and
service sectors respectively. The second most important factor that affects the performance of
MSEs is lack of motivation and derives. Their average frequency of responses are 4.14, 4.18 and
4.08 with percentage of response of 82%, 83% and 81% for MSEs engaged in manufacturing,
construction and service sectors respectively. This shows that the operators of all sectors agreed
with that they have faced the problem of lack of motivation and derive for their work.
Furthermore, the average frequency and percentage of response indicates that absence of
initiative to assess ones strengths and weakness third entrepreneurial factors that hinder the
success of entrepreneurs employed in all sectors.

According to interview conducted with operator it was confirmed that, lack of tolerance to work
hard and absence of initiative to assess ones strengths and weaknesses are another factor
affecting the performance of MSEs. According to them this is due to negligence on the part of
employees and/or owner managers to develop and implement such a culture of tolerance and
assessment of strengths and weaknesses.

Table 4.17; Government regulation related factors that hinder the performance of MSEs

S.no Related factors Respondents degree of agreement

Strongly Agree Undecided Disagree Strongly Total
agree (%) (%) (%) (%) disagree (%)
(%)
1 Lack of 15.8 24 12.5 28.4 19 100
government
support
2 Tax levied on 22 41 18 11.6 7.4 100
their business is
not fair
Mean of the responses 19 15 20 13.2 100
32.5
SOURCE: SURVEY 2018

On the above table 19% of respondents were replies strongly agree on the factors, while 32%
were agree and 15%, 20% and 13.2% were undecided, disagree and strongly disagree
respectively. The researcher concluded from above table, regarding government regulation
related factors that affect the performance of the MSEs, the mean of 15%, 20% and 13.2% of
respondents represent undecided, disagree and strongly disagree. Thus, it may be concluded that
government regulation related factors are not major factor that hinder the performance of MSEs,
when compared to other factor.

Table 4.18: Working place related factors that influence the performance of MSEs
 S.n Related factors Respondents degree of agreement
Strongly Agree Undecided Disagree Strongly Total
o
agree (%) (%) (%) (%) disagree (%)
(%)
1 Absence of own 39 44 10.5 5.3 1 100
premises
2 Current working 22 21 20 23 13.7 100
place is not
convenient
3 The rent of 45 30.5 13.7 7.3 3 100
house is too
high
Mean of responses 35.3 31.8 14.7 11.8 5.9 100
SOURCE: SURVEY 2018

In the above table a vertically 35.3% of respondents were responses strongly agree on working
place related factors that affect the performance of MSEs,31.8% were responses agree,14.7%
undecided,11.8% disagree and 5.9% were strongly disagree on those factors. From the above
survey the researcher understands that among working place related factors absence of own
premises is the dominant factors that affect the performance of MSEs, and followed by high rent
house and inconvenience of current working place.

4.4 Results on Governments Role toward the performance of MSEs

Table 4.19: What kinds of support you get from the government to growth your business

Responses Frequency Percentage

Access of finance 14 23%
Access of technology 10 16%
Provision of market place 12 20%
Provision of production place 17 29%
Training 7 12%
TOTAL 60 100%
SOURCES; SURVEY 2018

According to the above table 14(21%) of the respondents were responded access to finance,
10(16%) of the respondents were responded as access to technology, 12(20%) of the respondents
were responded were provision of market place, 17(29%) of respondents were given response as
the provision of production place and 7(12%) of the respondents were responded as provision of
training. From the above table the researchers concluded that the aid obtain from the government
were all most the same. However, the provision of production place and market place are the
dominant and followed by access of finance.

Table 4.20 the current major opportunities of MSEs

Item Manufacturing Construction Service
Available Average %- Average %- Average %-
opportunities frequency Age frequency Age frequency Age
of of y of responses
responses responses
Growing number of
credit institutions 4.33 86% 4.28 85% 4.12 82%
Supply of
technological 2.45 49% 2.55 51% 2.38 47%
Inputs
Supply of working 4.14 83% 3.42 66% 3.51 70%
place
Availability of
supply chain of 3.14 63% 3.23 64% 3.33 66%
inputs
marketing 3.32 65% 3.61 71% 3.48 68%
relationship

Working place 3.4 67% 3.72 76% 3.51

Among the current available opportunities that are accessible to operators of MSEs, the growing
number of credit institution, scores the highest average frequency of response of 4.33, 4.28 and
4.12 with percentage of response of 86%, 85% and 82% for operators which are engaged in
manufacturing, construction and service sectors respectively.

The second most important opportunity that is currently available to MSEs is supply of working
place. Their average frequency of responses is 4.14, 3.42 and 3.51 with percentage of response of
83%, 76% and 70% for MSEs engaged in manufacturing, construction and service sectors
respectively. This shows that the operators of all sectors agreed with that they have an
opportunity of supply of place for work which is available to all sectors that are engaged in three
sub sectors.

According to interview and current situation conducted with operator it was confirmed that,
currently, particularly in relation to availability credit financial institutions such as Hawassa
town MFI encourage them to take loan for starting their business or for their working capital
need. This is an indicator of the growing number of credit institution

CHAPTER FIVE

5. CONCLUSIONS AND RECOMMENDATIONS

5.1. INTRODUCTION
In this chapter the conclusions and recommendations are discussed. For clarity purpose, the
conclusions are based on the research objectives of the study. Based on the findings of the study
recommendations are made to government bodies, to operators of MSEs and suggestion for other
researchers.

5.2. CONCLUSIONS
This research was conducted on Hawassa city administration town with the prime intent of
critically assessing the factors affecting the performance of MSEs typically engaged in
manufacturing, construction and service business activities. Specifically, the study attempted to
examine the sources of finance or funds available for MSEs, the problems affecting their
performance, attitudes of MSEs towards preparation of business plan and opportunities which
are currently available to MSEs operators. Based on the objectives and findings of the study, the
following conclusions are worth drawn.
The main sources of startup and expansion finance or funds for most MSEs are personal savings
followed micro finance institutions and family, friends/relatives. The formal financial
institutions, particularly banks have not been able to meet the credit needs of the MSEs. Since
there is high interest rate and collateral requirement, most MSEs have been forced to use the
informal institutions for credit. But the supply of credit from the informal institutions is often so
limited to meet the credit needs of the MSEs. In some cases, this problems may be the inability
of many operators to meet formal financial institutions requirements for example business plan,
governance systems and other accountability issues which are linked to business risk. This shows
that the studied operators accessed finance mainly from personal savings and informal sources.

The most important critical factors identified are financial factors which include shortage of
working capital, high interest rate charged by banks and other lending institutions, and too
complicated loan application procedures of banks and other lending institutions.

The workings a premise factors such as absence of own premises and inconveniency of the
current working place hinder their performance. Marketing factors include inadequacy of market,
difficulty of searching new market, lack of demand forecasting, lack of market information and
absence of relationship with an organization/association that conduct marketing research.
Infrastructural factors incorporate power interruptions, and lack of sufficient and quick
transportation service that hinder the business performance of all sectors.

The main internal factors identified were management factors which include poor selection of
associates in business, lack of strategic business planning, and costly and inaccessible training
facilities. Lastly, the major entrepreneurial factors include lack of persistence and courage to take
responsibility for one’s failure and absence of initiative to assess one’s strengths and weakness.

Finally, the study has further identified that the different influences in which each of the factors
under study have in different categories of the business. The research clearly illustrates that, even
if the degree of those critical factors in manufacturing sector slightly differ from the factors that
are critical to construction and service sector businesses, most of the factors are considerably
common for three sectors. It has been noted that the following factors are prevalent to the
businesses such as financial, infrastructural, workings premises, and marketing had very high
effects on the performance of MSEs compared to other factors in the research area.
Currently it is claimed by the government of Ethiopia, that the MSEs Sector is a prime strategy
to economic development in urban areas. As a result of this various governmental bodies
designed various programs aimed at developing MSEs Sector. Most of the programs were
designed by taking into consideration of the following facts i.e., particularly to increase the
number of MSEs, increase productivity and employment opportunity, improving their
performance and competitiveness. Important measures such as increasing the number of
microfinance institutions, providing of place for work and supporting and awarding of MSEs are
currently taken in to account on the side of the government so as to make them more productive
and operationally sustainable.

5.3. RECOMMENDATION
Suggestions for corrective and complementary measures to enhance the potential performance of
MSEs are essential. Such recommendations demand an in-depth analysis of the influence of
different factors regarding the sector. Based on the findings and conclusions of the study, the
following recommendations are forwarded.

The Hawassa city administration town government bodies should provide affordable alternative
sources of finance for MSEs. This can be done by communicating with the banks and other
credit institutions to lessen their requirements. This should be done so that MSEs can get enough
access to finance for their business activities.

The strengthening of government institutions at different levels would play a major role in
positively influencing the development of MSEs, thus to reduce delays in processing legal
requirements. The government through various relevant departments should specialize more in
taking up a facilitative role, especially by reviewing all the blockings by laws, to address issues
of getting a license or getting a premise on which to operate. A number of factors should be
considered in designing all-encompassing policy for the promotion of the sectors.

Marketing factors are frequently indicated as the explanatory factor for most problems faced by
the studied MSEs. Therefore, it is necessary to solve this deep-rooted problem. Some of the ways
of doing so can be: -

- Providing selling and display places in areas close to working area.

- Linking the MSEs with other private contractors working within or around Hawassa
administration town so that the operators are able to secure market opportunity.

- Changing the perception of the general public through extensive awareness creation
mechanisms, since private individuals are envisaged to be the main buyers of the products
manufactured by MSEs in the long run.

The operators of MSEs should form groups and make use of pooled negotiating power for
borrowing purposes. They can use such negotiating power to purchase raw materials and receive
discounts which might lead to a reduction in the cost of production. This will enhance their
competitiveness through a reduction in the cost of production. The benefit of sharing such
service for the operators of MSEs is that it will strengthen the future survival, profitability and
eventual growth of MSEs.

To make MSEs competitive and profitable, increasing the capacity and skill of the operators
through continuous trainings, experience sharing from successful enterprises, and provision of
advice and consultancy are crucial. Moreover, improved provision of necessary infrastructure
and enabling the environment for business operations is generally an imperative. Uninterrupted
power supply and quick transportations are basic to effective performance of these enterprises.

Finally, investigating different factors based on the right information are vital for the good
performance of any business venture. This can be achieved by conducting more researches in
related areas. The focus for this study was on the manufacturing construction and service
business sectors. It is the researcher’s view that future research could therefore investigate the
other sectors like urban agriculture and merchandise and retail businesses and come up with
specific findings which will potentially contribute a lot in the development of the country in
general. This study dealt with more of the important and critical factors that affect the
performance of MSEs. The field of MSEs is large and very diverse. It is an interesting area with
many unresolved issues. It would be encouraging to get more solutions to many issues arising.
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 Appendix A
Rift valley university

College of Business and Economics

Department of Accounting and Finance BA program/weekend

Questionnaire to be filled by owners of MSEs

Dear respondent

Section 1: Introduction

We are graduating class students of Accounting and Finance department of Rift-Valley

University. Currently; I under taking research entitled Factor affecting the performance of micro
and small business enterprises in Hawassa city administration town. I am one of the
respondent’s selectees to participate on this study. Please assist us in giving correct and
complete information to contribute for the successful accomplishment of this study. My
participation is entirely voluntary and the questionnaire is completely anonymous.

Finally, I would like to confirm you that the information that share us to kept confidential and
only used for the academic purpose. No individual’s responses are identified as such and the
identity of persons responding will not be published or released to anyone. Thank you in
advance for my kind cooperation and dedicating my time.

Instructions

• No need to write your name

• Tick mark on the box provided

• Write your opinion on the space provided

Section 2: Respondents Demographic profiles

1. Sex: male female

2. Age: 15-35 36-50 51-65 >65

 3. Educational level: 1st degree and above diploma preparatory

High school

4. Marital status: married unmarried divorced widow

5. When did you start your business? <1yr 1-3yrs 3-5yrs 5-9yrs

>10

6. Initial investment (in ETB) :<5000 5000-10000 10000-15000

15000-25000 >25000

7. Owners attitude towards growth of MSEs: Good Bad Very good

Section 3: General information about your business enterprises

1. What is the main activity of your enterprises? A. manufacturing B. trade

C. construction D. agriculture E. service

2. How did you raise funds to start up your business? A. personal saving
B. NGOs C. Banks

D. borrowing from family E. friendly relatives

F. micro finance institution G. others (specify)….

3. Which of the following aspect is the most important for the success of your business venture?
A. business plan B. business opportunity

C. an entrepreneurial team D. training in business skill

Section 4: Factor affecting the performance of MSEs

The major factors that affect the performance of MSEs are listed below; please indicate the
degree to which these factors are affecting the performance of your business enterprises.
After I read each of the factors, evaluate them in relation to your business and then put a
tick mark under the choice below. Where 5-strongly agree, 4-agree, 3-undecided, 2-dis
agree, 1-strongly dis- agree,
 Please indicate the degree to which you agree with the following factors that have direct
influence on the performance of your business.

s.n General factors Degree of agree

o
1 Financial related factors 5 4 3 2 1
Shortage of working capital
In adequacy of credit institution
Lack of cash management skill

2 Management related factors

Poor organization and ineffective communication
Lack of clear division of duties and responsibility

3 Market related factors

Inadequate market for my product
Lack of demand forecasting
Poor customer relationship in handling

4 Information related factors

Lack of market information
Lack of promotion to attract potential users

5 Infrastructure related factors 5 4 3 2 1

Power interruption
Insufficient water supply
Lack of sufficient transportation service
6 Technology related factors
 Lack of skill to handle new technology
Lack of appropriate machinery and
equipment
Unable to select proper technology

7 Government regulation factor

Lack of government support
Tax levied on my business is not reasonable
8 Working place related factors
Absence of own premises
Current working place is not
convenient
The rent of house is too high
9 Entrepreneurial factors
Lack of motivation and drive
Lack of persistence and courage to
take responsibility for one’s failure
Absence of initiative to asses one’s
strengths and weakness.
 Appendix B
Interview question with manager of MSEs
1. What problems did you face while running MSEs in relation to:

Contextual factors:

• Premises factors

• Finance factors

• Technological factors

• Infrastructure (power, transportation, water supply)

• Marketing factors (relation with suppliers, customers and others)

2. What are the government aids towards the growth of Micro and Small
Business enterprises?