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List of Tables
Table of Contents
1.1. Background of the Study
1.2. Statement of the Problem
1.3 .Objectives of the Study
1.3.1. General Objective
1.3.2. Specific Objectives
1.4. Research Questions
1.5. Scope of the Study
1.6. Significance of the Study
1.7. Limitations of the Study
2. LITERATURE REVIEW
2.1. Key Terminologies
The Concept and Definitions of Micro and Small Enterprises:
2.2. Theoretical Framework
2.2.1. Sociological Theory
2.2.2. The Pro-Medium and Small MEs and Anti- Medium and Small MEs Debate
2.3 Review of Related Policies
2.4. Analytical Framework
2.5. Empirical Literature
3. RESEARCH METHODOLOGY
3.1. Study Area
3.2 Study Design
3.3 Data Collection Methods
3.4 Data Sources
3.5. Sampling Procedure
3.6 Data Analysis
3.7 Data Validity and Reliability
3.8. Ethical Considerations
4. RESULTS AND DISCUSSIONS
4.1 Demographic Characteristics of Sample Respondents
4.1.1 Sex of the Respondents
4.1.2. Age of the Respondents
4.1.3. Marital Status of the respondents
4.1.4. Educational Level of the Respondents
4.2. The Enterprises Characters
4.2.1. The Established Year
4.2.2. Reason for Establishment
4.3 Socio economic Conditions
4.3.1 Income Creation and Related Issues
4.3.2 Employment Creation
4.4. Contributions of the Enterprises to Social Capital Development
4.4.1 Willingness to Help Each Other
4.4.2. Shouldering responsibility and sharing skills and knowledge among workers
4.4.3. Knowledge Transfer
4.5. Constraints of the Micro and Small Enterprises (wood and metal works)
4.5.1. Working Environment
4.5.2 Raw material availability
4.5.3 Marketing condition
4.5.4 Other limitations
5. CONCLUSION AND RECOMMENDATIONS
Abbildung in dieser Leseprobe nicht enthalten
First and for most, I would like to express my sincere gratitude to my research major advisor Mr. Disasa Merga (Assistant Professor) for his invaluable comments and professional guidance, utmost cooperation, concrete suggestions, valuable criticism and assistance. His dedication and scientific commitment guidance during the project design taught me a lot. Next, my special thanks to my co-advisor Mr. Tariku Ayele (Assistant Professor) for his valuable comments and significant suggestion during the research process. I would also like to extend my sincere gratitude to the Jimma City Small and Micro-Enterprises Office (JCSMEO) for their cooperation and allowing me to contact and interview the youth entrepreneurs working at the enterprises organized under their supervision and for devoting their precious time in providing the required information from their documents and through the designed questionnaire. Indeed, their cooperation was critical and this work would not have been possible without their willingness.
My sincere thanks are also extended to Jimma Agricultural Engineering Research Center (JAERC), Oromia Agricultural Research Institute for expressing me special cooperation to study. My appreciation and thanks go also to my fiends Ato Abraraw Tesfay and Mengistu Jifara, for their different kinds of support. Definitely their precious advice encouraged me a lot. My thanks to my sisters, brothers and friends here in Jimma, or elsewhere, thank you for your continuous moral support. I would express my most profound appreciation to my wife, Zafere A. Raya, for her love, prayer, continuous encouragement and multidimensional support during my study period. I would also express my most deep appreciation to my children Salihat, Abdenur and Ihsan for their love, understanding, and endless patience at time of paternal care and supervision failure due to my attention to this study. Above all for all my achievements and coming to this end, I would say thanks to my lord Allah, the most generous.
Table 1 Age, Gender and Marital Status of MSE Owners
Table 2.The MSE Owners Level of Education
Table 3.Year of Establishment of the MSEs
Table 4. Reason for Establishment of this Type of Enterprises
Table 5. Major Income Sources before Joining the Enterprises.
Table 6. Initial Capital of the Enterprises
Table 7. Main financial Source to Start Business
Table 8.Current Capital of the Enterprises
Table 9. Five Years (2012-2016) Annual Average Income of Owners from the MSEs
Table 10. Response on Ways of Income Utilization
Table 11. Income Tendency after Starting the MSE
Table 12. Response on Living Style Condition in Relation to Income
Table 13.Changes in living style as a result of increased income
Table 14. Saving Status of the MSEs
Table 15.Saving System of the MS
Table 16.The MSE owners’ activity before establishing the enterprises
Table 17. Number of the Employees per MSEs
Table 18.Types of Jobs Created on Average Number of Persons per MSE
List of Tables Continued
Table 19.Duration of the Sample Respondent in the MSEs
Table 20.The Respondents Willingness to Help Each Other
Table 21.Contribution of working in enterprise for youth competence and productivity
Table 22.Perception on knowledge, skill and experience role on competence and living
Table 23.Lessons learned from a Working in the Enterprises
Table 24.Types of the Workshops Used by the MSEs
As the number of people living in urban areas increases, a given country’s economy needs to be less dependent on agriculture for poverty reduction and economic prosperity. Thus, the industrial sector, having stronger spread out effects and forward and backward linkages to other sectors can push the whole economy (Lanjouw et al., 2001). With unemployment rate of ranging from 25 to 45 percent in most developing countries, "self-employment" and "micro enterprise development "is seen by many donor agencies as the only way to reach the "poorest of the poor". Small and micro enterprises are considered as sources of income, employment, skills, goods, services, etc., for people in developing countries.
The MSE development program has been implemented by having different target groups mainly the TVET, graduate youth from different fields of studies, poor and unemployed women, street beggars, MSE operators under high risk (e.g. Wood and Metal workers, operators on walkways and open air) business operators, disabled people with different skills and all enterprise operating within the selected subsectors’ (Urban Employment and Unemployment Survey, 2009). In order to come out of multiple socio-economic problems, various countries design different development plans at different times and in different sectors at different levels such as micro, small, medium, and large levels. Incorporating the Micro and Small Enterprises (MSEs) sector in the development plans is one of the mechanisms to realize development, which is multi-dimensional in nature mainly economic, social, political, cultural and environmental. MSEs are considered vital business for local, national, or even for the global economy. The micro and small enterprises have many contributions like absorbing large proportion of labor force, generation of income especially for poor people, create different linkages with other sectors, and provide important goods and services to the society though they are small by their character, as a sector. Basically, MSEs are huge in the economy though the earlier development thinking considered MSEs as indicators of malfunctioning of the economy; however, this trend has changed recently. The issue of MSEs Development ranked first among the priorities of socio-economic development, given the growing need for employment creation and poverty alleviation (Nugent and Yhee, 2001). The potentials of MSEs to address multiple socioeconomic problems, especially in developing countries have been recognized by recent development trends, which focus on the grass root to realize development at the country level. The MSE sector is the major source of employment and income for the urban dwellers in most developing countries. For example, this sector generates about 48 % of the aggregate employment in North Africa, about 51 % in Latin America, 65 % in Asia, and 72 % in Sub Saharan Africa (ILO, 2002). Besides, this sector generates about 6.2 % of the aggregate employment in the United States, 22.3 % in China, 80 % in India, 67 % in Japan, and 70 % in European countries (Tegegne and Mehret, 2010).
Due to its important characteristics or attributes, such as less capital intensive in nature, innovative and competitive in nature, flexibility, etc., the MSEs sector is believed to play an essential role in economic development in most capital-scarce and labor-abundant countries. Recently, most developing countries, including Ethiopia, have recognized the essential contributions of MSEs in terms of job creation, income generation and alleviation of poverty. The idea of Micro and Small Enterprise development emerged in Ethiopia as a promising agenda in the 1980s (Endalsasa, 2012). Different reasons have been mentioned for such event: the sector of MSE is a preferable pathway for poverty reduction; the MSEs sector is a platform for sustainable development and productivity; and MSEs are crucial actors within the trade sector and a platform for economically empowering both men and women. Having recognized the importance of MSEs to the economy in terms of employment creation, income generation and equity, the government of the Federal Democratic Republic of Ethiopia (FDRE), adopted National Micro and Small Enterprise Development Strategy in 1997. Thus, the Federal Micro and Small Enterprise Development Agency (FMSEDA) were established by Council of Ministers in 1998 (Proclamation No.33/1998) to encourage, coordinate and assist institutions which provide support for the development and expansion of MSEs in the country at large. Subsequently, the Regional Governments also established Regional Micro and Small Enterprise Development Agencies (RMSEDAs) in 2000 to expand system for overall financial and technical service to assist MSEs development at the regional, zonal and district levels.
Most big businesses in Ethiopia have started as SMEs and have grown to their maturity over long period by accumulating capital and business management experiences (EEA, 2015). The sector enables entrepreneurs to start their business from the smallest unit by providing an opportunity to them to exercise their skills and talents and thereby to transfer small business into a large one. MSEs are considered essential facilitators for growth, job creation, and social progress by creating employment opportunities. In Ethiopia, about half of the urban labor force is engaged in the MSE sectors and for instance, Addis Ababa nearly accounts for about 40% of the total operators in micro and small enterprise activities (Gebrehiwot and Wolday, 2005). Because the sector has high capacity in absorbing large labor force and generating income, the efficiency of the sector is essential to address multiple socio-economic problems in Ethiopia.
The different socio-economic problems of Ethiopia like low economic development, high unemployed labor force, high illiteracy, and so on need to be addressed by involving various sectors at different levels. MSE sector is one of the sectors which play key roles in minimizing socio-economic problems. The presence of micro and small enterprises in Ethiopia are vital being potential to create employment; contribution to a more efficient allocation of resources having labor-intensive production methods. Thus, the current government of Ethiopia has recognized and paid due attention to the development of micro and small enterprises for they are important tools to address many socio-economic problems in the country. As a result of supports provided by the government offices, the number of different types of micro and small enterprises has been increasing from year to year. According to the FMESDA, a total of 70,500 new MSEs were established in 2011/12 employing 806,300 people across the country.
According to the Jimma Zone Micro and Small Enterprises Office report (2016), over 300,000 young people have been organized in the micro and small enterprises sector for the past five years, of which about 69 enterprises are on the way to move to the medium size. In this study, the main issue is to identify the major contribution of the metal and wood work enterprises to the socioeconomic improvement of the youth in Jimma City.
The early prospect on the small scale enterprises were in view of insignificant and un-productive entities that avoided taxes and had less potential for growth and entrepreneurial capacity development. At the period, when most developed countries’ economies have shown various signs of stagnation and structural decline, MSEs have been taken as generators of new growth, primary sources of technological changes, job creation, and as one of the major factors in maintaining socioeconomic stability. Different studies have been conducted on MSEs operating in Ethiopia. For instance, Andualem (1997) and Mizan (2009) conducted their studies, focusing on the economic role of the micro and small enterprises sector in general. It is also equally important to see the non-economic role of the sector in their input to social capital development in the way that employees in a given group-based enterprises have a chance to share many things like ideas, skills, and knowledge including the enterprises role in social networks, membership and access to various social groups, relationships of mutual trust and reciprocity that enhances youth livelihood and better psychosocial stability.
Existing literatures on socio economic contributions (Helmsing, 2005) remark that there are three major actors of local economic development: the government, the private and the community sectors. The private sector incorporates, among others, economic establishments of micro, small, medium, large and extra-large (heavy) industries. Among these, MSEs are taken in this study to represent the private sector. MSEs are remarkably taken to represent the local private sector from among the different economic establishments as MSEs basically play essential role in improving the socio-economic conditions of the people involved in the sector. Issues like widespread unemployment, shortage of the formal sector to absorb fairly sufficient level of labor, increasingly heavy capital shortages, the need for local resource mobilization and stimulation of the local economy and other points of concern made MSEs quite strange and relevant entities that deserve sufficient attention as well as policy focus in the socioeconomic development initiatives of urban areas. In Ethiopia, the private sector is largely dominated by the MSE “operators” (Alfenburg, 2010). MSEs in Ethiopia account for the bulk of non-agricultural economic activities and nearly for 95.6 per cent of total industrial employment (CSA, 2003). The relative importance of MSEs is growing as a result of the urban population dynamics and the alarming urban poverty level. In Addis Ababa, for instance, the poverty level is about 60%, which means that over 1.7 million people in the city are living below poverty line. Given the current rapid rural-urban migration and crippling formal sector, MSEs have become important urban economic activities and hence major hosts of urban employment.
MSEs have vital role for creation of employment opportunities and increase economic growth at the local level constitute the very and inseparable objectives of local level development. Though there are several strategies, MSEs remain to be the main players in socio economic development. However, the ability of MSEs to contribute to socio-economic development heavily depends on the strength of their competitiveness in their activities operation to change the livelihood of the members. Though MSEs are believed to contribute to socio-economic change in many different ways, different problems can limit their performance, competitiveness and ultimate contributions. The MSEs problem is either internal or external mainly those linked to the enterprises’ limitations and weaknesses or the general environment, including, the economic policy and institutional situation that affects the MSE sector as a whole (Gebrehiwot and Wolday, 2001; Tegegne and Mehret, 2010). The MSE sector constitutes a variety of economic activities ranging from informal to formal micro and small enterprises. Among the manufacturing enterprises, the sub-sector has been selected for this research as it has been identified as one of the key MSE sub-sectors in Ethiopia. The study was conducted on wood and metal work MSE sub-sector focusing on its broader socioeconomic contributions to the youth living in the Jimma City. The trend for growth and the key problems related to the enterprises activities were assessed. Different studies have been conducted to illustrate the nature, operation and contribution of MSEs and their contributions to socioeconomic development in particular. However, such studies take the issues of general MSE sector with no or little focus on specific sub-sectors like wood and metal work enterprises. For instance, Fitsum (2002), Gebrehiwot and Wolday (2001; 2006), and Tegegne and Meheret (2010) have raised different issues on MSEs in the Ethiopian context.
However, each of these literatures sees MSEs in general within their own viewpoint focusing at limited areas and specific socioeconomic backgrounds. Probably one possible reason for this could be that most of the writers have taken MSEs in general with no focus on a specific sub-sector like wood and metal technical manufacturing enterprises. The study shows that among the total of 821 enterprises established between the period 2004 to 2008 in Jimma City, most of them did not start their business activities and forced to discontinue their business due to some problems like absence of working site, financial facilities, materials and necessary working infrastructures, and disagreement of the peoples that only about 324 enterprises joined their business activities and considered for as a total active population of MSE including industry, services, trade, construction and urban agriculture enterprises. Whereas currently, even the metal and wood work enterprises sub-sector alone constitute 348 enterprise owner operators that found in Jimma City serving being as job opportunities mainly for youth (Jimma City MSE Office Report 2016). Because of labor intensive nature of the metal and wood work enterprises, it has room for a substantial figure of young labor forces serving as a means to manage their livings. But, in Jimma City, manufacturing (wood and metal work) enterprise is neglected that forced some to discontinue their business.
However, this specific sector has substantial task in accommodating the huge labor force of young people that require considerable attention by identifying and recognizing its contribution in reducing socioeconomic problems of the youth in the study area through easing bottlenecks that affect its performance and sustainability. The input of this specific activity to the youth socioeconomic improvement is not assessed sufficiently though it needs due attention from the concerned institutions that involved in MSE development activities. Hence, this study is made with intention to identify the contributions of metal and wood work MSEs to socio economic improvement of the youth in Jimma City as the central concern of this research.
The main objective of the study is to investigate the contributions of metal and wood work micro and small enterprises to socioeconomic improvement of the youth in Jimma City.
The study has the following specific objectives:
1. To assess contribution of metal and woodwork MSEs in employment creation for youth in the Jimma City
2. To investigate the metal and woodwork Operators’ income before and after involvement in the enterprises.
3. To assess the role of metal and woodwork MSEs on members willingness to cooperate among themselves in solving social problems.
This study attempted to answer the following basic research questions:
1. What are the contributions of micro and small metal and wood work enterprises to solve the youth unemployment problems?
2. What are the contributions of metal and wood work MSE to the youth economic improvement?
3. What are the major contributions of the metal and wood work MSE to benefit the youth in improving relationship among the enterprise workers through group work?
In Jimma Town, there are many micro and small enterprises engaged in different activities like metal and wood works, construction, textile, food processing, urban agriculture, and so on. These enterprises are owned by individuals, groups and cooperatives. However, this study targeted those micro and small enterprises engaged in metal and wood works established in the forms of private, partnership and cooperative ownerships, and operated by youth as individuals and groups. Though the contribution of micro and small enterprises can be seen from social, economic, cultural or environmental angles, the study mainly focused on the socio-economic contributions of those enterprises to the livelihood enhancement of the youth in Jimma Town.
The potentials of micro and small enterprises to create job opportunities and to generate income made them vital economic instruments, especially in developing countries where the majority of people earn low incomes. Information which is gathered and analyzed in this study provides empirical findings on the role of MSEs for socio economic improvement of the youth participated in the MSEs. The findings of this study are believed to show the relationship that exists between the workers involved in MSEs and their socioeconomic characteristics. Hence, this study can help in providing more information to different stakeholders like policy makers, and development planners working in the establishing and expanding area of micro and small enterprise including evaluation and for developing strategies that address the issues of MSEs sector in socio-economic development of the young people involving in the enterprise activities. It will also serve as a reference material for other researchers that are interested to conduct further studies on the similar enterprises. Furthermore, the findings of this study can serve as a source of information for persons who need to know about the relationship between metal and wood work manufacturing enterprises, and the relative amount of employment opportunity and income they generate as they participate in the MSEs.
The major limitation of the study is that it targets only those MSEs engaged in metal and wood works with particular focus on their contributions to socioeconomic development of the youth engaged in the enterprise manufacturing activities. This study may not be inclusive enough to encompass all variables used to quantify the MSEs socioeconomic contribution to all operators working in the sector as long as some social contributions aspects of the MSEs are not easily quantifiable and measurable. Moreover, respondents were not limited to youth operating MSEs activities or establishments found in Jimma city and restricted to a limited number of individual operators who are participating in the informal sector activities during the survey period.
The Concept and Definitions of Micro and Small Enterprises:
The definition and types of micro and small enterprises differ from country to country and there is no universally stated definition for such enterprises. Depending on their realities, objectives, and level of its economic development, each country has to establish its own definition for them. For instance, in Ethiopia, micro and small enterprises are given different meanings at different times. The most applicable definition is given by Ministry of Trade and Industry on the bases of three criteria-level of paid-up capital (fixed asset), using high technology establishment and consultancy services. Accordingly, the definitions of MSEs are presented as follows. Micro enterprises are business enterprises found in all sectors of the Ethiopian economy with a paid-up capital (fixed assets) of not more than Birr 20,000, and higher consultancy service businesses and other higher technological enterprises are not included. Small Enterprises are business enterprises with a paid-up capital of more than Birr 20,000 but not more than Birr 500,000 excluding high-technological consultancy firms and other high-technological establishments. Large and medium enterprises are those business enterprises with more than 500,000 Birr in paid-up capital.
Alternatively, CSA categorizes enterprises into different scales of operation on the size of employment and the nature of equipment; establishments employing less than ten persons and using motor operated equipment are considered small scale manufacturing enterprises. Micro enterprises are subdivided into informal sector operations and cottage industries. Cottage and handicraft industries are those establishments performing activities by hand and using non-power driven machines, while the informal sector is defined as household type establishments or activities, 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 (Tegegne and Meheret, 2010). Hence, this study preferably used the CSA’s definition since it is easier to identify the existing types of enterprises based on the number of the employee that an enterprise has.
The sociological theory of entrepreneurship considers social cultures as the driving force of entrepreneurship. The entrepreneur becomes a role performer in conformity with the role expectations of the society, and such role expectations base on religious beliefs, taboos, and customs. According to (Kamunge et al., 2014) religion serves as the major driver of entrepreneurship, and the spirit of capitalism is also important, which highlights economic freedom and private enterprise. Capitalism thrives under the protestant work ethic that harps on these values. The right combination of discipline and adventurous free-spirit define the successful entrepreneur.
Two schools of thought have emerged in the studies of Medium and Small Micro Enterprises (MSMEs). They are the supporters and against MSMEs perspectives. Donor countries and development agencies share the view of the Pro-MSMEs that springing up of such entrepreneurial and innovative ventures help promote economic growth and reduce the high poverty level in such developing economies (Agyapong, 2010). The Pro-MSMEs have argued that MSMEs enhance competition and entrepreneurship and thus have economy wide benefits in efficiency, innovation and productivity growth. Thus direct government support of MSMEs can help countries obtain social benefits. Second, Medium and small enterprises are generally more productive than large firms but are slow-moving in their development by failures of financial markets and other institutions for capital and other non-financial assistances. Thus, pending financial and institutional improvements, direct government support of MSMEs can advance economic growth and development. Finally, the growth of MSMEs increases employment more than the growth of large firms because MSMEs are more labor intensive (Agyapong, 2010). However, the Anti-MSMEs advocates questioned the efficacy of MSMEs in promoting growth and reducing poverty. First, they argue that large enterprises may exploit economies of scale and more easily undertake the fixed costs associated with research and development, improving productivity. It was also argued that small businesses are neither more labor intensive nor better at creating jobs than large firms. Moreover, they doubt the crucial role of small businesses and instead emphasize the importance of the business environment facing all firms, big and small (Agyapong, 2010).
The divergent views by researchers indicate that there is no consensus among researchers on this important phenomenon. The varied opinions expressed by the different groups may be due to the different settings, the economic environment where studies were carried out and the different methodological approaches employed (Agyapong, 2010). Hence, this study preferred to depend on the Pro-Medium and Small MEs and Anti- Medium and Small MEs Debate theoretical framework since it was easier to consider the issue of SMEs from varied opinions expressed by the different groups based on the supporters and against MSMEs perspectives. Generally, through institutional support system and concerted individual or group endeavors, MSEs can help reduce youth unemployment, boost efficiency in production, increase income, improve social status, and make remarkable contributions to the socioeconomic development of a nation.
The existing policy documents provide broad and detailed policy framework and institutional setting for micro and small enterprises operation and development in the country. Accordingly, the Growth and Transformation Plan (GTP 2010) formulated to cover the period 2010/11-2014/15, The FDRE, micro and small enterprises development strategy document (1997 and 2011) are the most apparent policy documents in the area. These documents clearly reveal: (i) the emphasis given to the MSE sector (particularly the GTP 2010); (ii) the constraints challenging the sector and what measures should be taken to address the challenges (FDRE 2011); and (iii) the need for redefining the MSE sector (FDRE, 2011).Thus, the national policy framework (the GTP) clearly states that micro and small enterprises constitute “the main strategic direction of industrial development” in the country.
In Ethiopia, the MSEs sector gets the attention of the government because it gives a marvelous benefit for the society at large. To this effect, the government has formulated a National MSE Development and Promotion Strategy in 1997, which enlightens a systematic approach to alleviate the problems and promote the growth of MSEs in view of overall objective to create an enabling environment for MSEs, with specific objectives to create long-term jobs; provide the basis for medium and large-scale enterprises; facilitate economic growth; bring equitable development; strengthen cooperation between MSEs; promote export; balance preferential treatment between MSEs & bigger enterprises.
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