ARBA MINCH UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

FACTORSAFFECTING THE PERFORMANCE OF MICRO AND

SMALLENTERPRISE IN ARBA MINCH TOWN

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF

ACCOUNTING AND FINANCE IN PARTIAL FULFILMENT FOR THE
REQUIREMENT OF BACHELOR ART (BA) DEGREE IN ACCOUNTING
AND FINANCE

PREPARED- BY : EPHREM ASSEFA

ID. EBE/1282/10

ADVISOR: THEODR0S. (MSC)

SUBMISSION DATE _ JUNE/ 07/ 2021

ARBA MINCH – ETHIOPIA

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 Abstract
Micro and small enterprises (MSEs) are considered as an engine for development
through promoting entrepreneurial talents, creation of employment opportunity,
self employment capability and fostering economic growth.

This research will aims to investigate factors affecting the performance of MSEs in
Arba Minch Town .For the sake of achieving the objectives of the study, researcher
will be employ both primary and secondary data .Primary data will collects
through questionnaire and interview as best instrument of data collection; on the
other hand secondary data will be from office manuals and annual reports.

In order to collect reliable information which are relevant to the study, the
researcher uses both probability and non probability sampling techniques.
Accordingly this particular study employs personal judgment and stratifies
sampling methods of non probability and probability sampling techniques
respectively.

Descriptive method of data analysis will be employ to analyze collects data. The
data collects will presents in tabular form with percentage computes values and
pie charts. Finally, based on the findings of the study, recommendation and
conclusion will forwards to the concern body.

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 Table of Contents
Contents Page no.
Abstract………………………………………………………………………………….. iii

Acknowledgements……………………………………………………………………… iv

Table of Contents……………………………………………………………………… v

List of Acronyms …………………………………………………………………… x

CHAPTER ONE ................................................................................................. 1

INTRODUCTION ................................................................................................ 1
1.1 Background of the Study ...................................................................................... 1

1.2 Statement of the Problem ...................................................................................... 2

1.3 Objectives of the Study ......................................................................................... 3

1.3.1 General Objective ........................................................................................... 4

1.3.2 Specific Objectives ......................................................................................... 4

1.5 Significance of Study ............................................................................................ 4

1.8 Organization of the paper .................................................................................... 5

CHAPTER THREE ....................................................................................... 19

RESEARCH METHDOLOGY……………………………………………………………………19
3.1 Introduction ......................................................................................................... 19

3.1.1 Research Design ........................................................................................... 19

3.2.3 sources of data and Data Collection instrument...........................................

3.1.3 Sample size ………………………………………………………………………………………

3.1.4 Sampling technique ......................................................................................... 20

Bibliography ……………………………………………………………..…………….. 30

Appendix A Questionnaire …………………………………………………….………. 41

List of Acronyms
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 CED Committee for Economic Development

CSA Ethiopian Central Statistics Authority

FeMSEDA Federal Micro and Small Enterprises Development Agency

GEM Global Entrepreneurship Monitor

GTP Growth and Transformation Plan

HASIDA Handicraft and Small Scale Industries Development Agency

HLCLEP High Level Commission on Legal Empowerment of the Poor

MFIs Micro Finance Institutions

MoTI Ministry of Trade and Industry

MoWUD Ministry of Works and Urban Development

MSDA Micro and Small Enterprises Development Agencies

MSMEs Micro, Small and Medium Enterprises

ReMSEDAs Regional Micro and Small Enterprise Development Agencies

UNIDO United Nations Industrial Development Organizations

CHAPTER ONE

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1.INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The micro and small business sector is recognized as an integral component of
economic development and a crucial element in the effort to lift countries out of
poverty (Wolfenson, 2007). The dynamic role of micro and small enterprises (MSEs)
in developing countries as engines through which the growth objectives of
developing countries can be achieved has long been recognized. It is estimated that
MSEs employ 22% of the adult population in developing countries (Fisseha, 2006).

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

The sector has potential to provide the ideal environment for enabling
entrepreneurs to optimally exercise their talents and to attain their personal and
professional goals (MoTI, 1997). In all successful economies, MSEs are seen as an
essential springboard for growth, job creation and social progress. The small
business sector is also seen as an important force to generate employment and
more equitable income distribution, activate competition, exploit niche markets,
and enhance productivity and technical change and, through the combination of all
of these measures, to stimulate economic development. This is not denying the
importance of large industries and other enterprises for the growth of the
Ethiopian economy. There is ample evidence to suggest that the labor absorptive
capacity of the MSE sector is high. The average capital cost per job created is
usually lower than in big business, and its role in technical and other innovative
activities is vital for many of the challenges facing Ethiopia (MoTI, 1997).

In Ethiopia, MSEs sector is the second largest employment-generating sector

following agriculture (CSA, 2005). A national survey conducted by Ethiopian
Central Statistical Authority (CSA) in 2005 in 48 major towns indicates that nearly
585,000 and 3,000 operators engaged in micro and small scale manufacturing
industries respectively, which absorb about 740,000 labor forces.

According to Mulhern (1995), MSEs exert a strong influence on the economies of all
countries, particularly in the developing countries. He reported that the MSEs have

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been a major engine in the economic growth, innovation and technological
progress. In addition Carrier (2008) stated that;

The MSEs are more fertile than their larger enterprises in terms of innovation and development. The
MSE sector is characterizes by highly diversifies activities which can create job opportunities for a
substantial segment of the population. This indicates that the sector is a quick remedy for
unemployment problem. To curb unemployment and facilitate the environment for new job seekers
and self-employment a direct intervention and support of the government is crucial.

Werotaw study (2010 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 relates to the person’s individual attitude, training and technical know-
how. Generally;the main focus area of this study to assess factors affecting the
performance of MSEs in Arba Minch Town.

1.2 STATEMENT OF THE PROBLEM

In most developing countries, MSEs face constraints both at start up phases and
after their establishment. In Africa, for example, the failure rate of MSEs is 85% out
of 100 enterprises due to lack of skills and access to capital (Fedahunsi, 1997). It is
typical of MSEs in Africa to be lacking in business skills and collateral to meet the
existing lending criteria of financial institutions (World Bank, 2004). This,
according to World Bank, has created finance gap in most markets. The MSEs are
able to source and obtain finance mostly from informal sectors like friends and
relatives while medium or large enterprises obtain funds from banks. This unequal
access to finance by MSEs and medium and large enterprises has undermined the
role of MSEs in the economic development in African countries (World Bank, 2004).

The study conducts by Ethiopian CSA discloses that, the contribution of small
enterprises in creating job opportunities and in the development of our economy is
vital (FMSEDA, 2006). However, their contribution is very low in compare with that
of other countries due to financial problem, lack of qualified employees, lack of
proper financial records, marketing problems, lack of working premises and raw
materials. Lack of information about market opportunities and standards and
regulations is one of the underlying factors that hinder their performance (Mulu
Gebreeyesus, 2009).

According to Zeleke study (2009 as cited in Admasu 2012) lack of integration

between the vocational curriculum taught at academic institutions and skills
required at the workplace in small businesses and enterprises is a major obstacle
to the growth and development of MSEs.

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The same author continued stating:

The performance of the MSE sector in Ethiopia is poor in comparison with similar
sectors in other … African countries such as South Africa, Kenya, Uganda and
Tanzania. Small business enterprises in Ethiopia are generally characterize by an
acute shortage of finance, lack of technical skills, lack of training opportunities and
raw materials, poor infrastructure and over-tax.

In most urban areas of Ethiopia, MSEs have a problem of finance when establishing
the business most individual sources of finance come from personal savings and
loans acquired from relatives, friends and moneylenders with high amount of
interests (MoTI, 2005). After the business goes operational, the probability of
becoming profitable and paying back debts along with accrued interest is less.
Besides, MSEs do not conduct market research and develop/design a product or
service as per the need of customers (Zeleke , 2009).

According to the study conducted in Addis Ababa university by Zeleke (2009) and
Admasu(2012) particularly in Arada and Lideta sub cities concluded that
marketing, infrastructural and entrepreneurial factors are the basic variables
which affects the performance of MSEs. But some other factors such as luck of
commitment to their business, and luck of awareness regarding to business plan is
still uncover. In addition to this, the study focuses not only identifying factors which
affect performance of MSEs, but also the researcher try to assess important
opportunities which are currently available for MSEs in Arba Minch Town.

In view of the above problems, the central questions that should be answers by the
researcher are the following:

-what are the critical factors that mostly affect the performance of MSEs?

- What are the sources of finance or funds available to the MSEs?

-what is the attitude of MSEs on the preparation of business plan?

-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 will be accesses factors that are mostly affecting
the performance of MSEs in Arba Minch Town.

1.3.2 Specific Objectives

The specific objectives ofthis study are mainly to:

 Examine the critical factors affecting the performance of MSEs.

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  Identify the sources of finance available for MSEs.
 Analyze the attitude of MSEs in the preparation of business plan.
 Examine the current available opportunities for MSEs.

1.5 SIGNIFICANCE OF STUDY

The findings of this study will be useful to the stakeholders including:

i. For the researcher

The result of this study will be important for the researcher to be familiar with the
basic concepts of research. In addition to this, it enables the researcher to engage in
entrepreneurial activities and to develop his/her own business.

ii. Academics/Other Researchers

Findings from this study will assist academicians in broadening of the prospectus
with respect to this study hence providing a deeper understanding of the critical
factors that affect the performance of MSEs. In addition, it is important for other
researchers as a reference who engaged to study in this area.

iii. Micro and Small Enterprises

The findings of this study will help MSEs in Arba Minch Town and others, within an
insight into the benefits of using different factors studies in this research to predict
and pro-act against the factors that affect the performance of MSEs.

iv. Governmental Policy Makers

The government can use the findings of this study to assist in policy formulation
and development for a framework for critical finance, marketing, work premises
and other factors that affect the performance of MSE. Moreover, the findings of this
study will help the policy makers and financial institutions how to encourage
establishing or expanding MSEs. It also enables them to know what kind(s) of
policies should be framed.

1.6.Scope of the Study

The study will be assesses factors affecting the performance of MSEs in Arba Minch
Town. This study will particularly emphasizes on most important factors such as
the politico-legal, working premises, technological, infrastructural, marketing,
financial, management and entrepreneurial factors. To facilitate the accuracy and
reliability of data, the researcher collects information from the most recent sources
which covers from 2004-2006 periods..

1.8 ORGANIZATION OF THE PAPER

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This paper will be organizes as follows: Chapter one contents the introduction part
of the research, chapter two presents the theoretical and empirical related
literature to the study, while chapter three provides research methodology. Chapter
four outlines data presentation, analysis and interpretation and chapter five
concludes and suggests some recommendations.

CHAPTER THREE
3. RESEARCH METHODOLOGY

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3. 1. INTRODUCTION
In order to analyze the potential impacts of factors on performance of MSEs, this
study will be made use of a research methodology. This chapter will discusses
procedures and activities under taken, focusing on sources of data, data collection
instrument, sampling method, data presentation and analysis of data.

3.1.1 Research Design

Research design is the blueprint for fulfilling research objectives and answering
research questions. In other words, it is a master plan specifying the methods and
procedures for collecting and analyzing the needs of information.

The types of research will be employing under this study l mainly descriptive type
research. The major purpose of descriptive research is description of the state of
affairs as it exists at present. Then this study will be describes and critically
assesses the factors affecting the performance of MSEs in two sub-kebeles of Arba m
inch town.

3.1.2 Sources of data and data collection instruments

The study will employs both primary and secondary sources of data.

i. primary sources
In order to realize the objectives of the study, the researcher will use well designs
questioner as best instrument.

The interview method will employs to gather information specifically from

managers/owners of the enterprise.

ii. Secondary sources

Secondary data from files /related documents/, office manuals, and annual
reports

this Will uses

3.1.3 Sample size

Currently, the total number of MSEs enterprises operates in Arba minch town are
around 453 (Arba minch enterprise document 2006). These enterprises are
unevenly distributes in 9 kebeles. From this, the researcher statistically select 60
enterprises as a sample from a total of 101 and 69 enterprises of 02 and 03 kebele
respectively.

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

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n= 170/1+ ((170*(.1)) 2 N= total population and

=60 E= acceptable range of error

Source- Yamane (1967: 886)

This is because it is claimed by the government of Ethiopia, that the MSEs sector is a
prime strategy to economic development in urban areas and also the number of
enterprises in these sub-kebeles are many in terms of quantity. Second, the two sub-
cities were select based on their nearness and convenience to collect data in short
time.

Although there are different sectors in which the MSE operators have been engaged
in kebele 02 and 03, the sectors selected for this research are construction,
manufacturing and service sector because the largest concentration of MSEs
operators are engaged in these sectors.

3. 1. 4. Sampling method
In order to gather reliable information that is relevant to the study, the researcher
used both probability and non probability sampling techniques. Particularly
judgmental non probability sampling method was used to determine the number of
kebeles that should be included as a sample. Based on this, the researcher selects
kebele 02 and 03 as a target respondent group for the study. This method was
selected because it is less costly and convenient to use. More over; if the researcher
is well experienced, this technique is used to gather reliable data as probability
purposely selected kebeles.

In addition to this, the researcher uses stratifies probability sampling method in

order to select specific respondents from each purposely selects
kebeles.Accordingly; the researcher selects a sample of 24 i.e. ((69/170)*60)) and
36 i.e. ((101/170)*60)) enterprises from 03 and 02 kebele respectively.This method
will selects because the number and nature of business that MSEs engage doesn’t
constitute a homogeneous group.

More over; because the nature of business that MSEs operate in the two sub kebeles
are heterogeneous, the researcher selects 12 i.e. ((35/101)*36)), 14 i.e.
((39/101)*36)) and10 i.e. ((27/101)*36))respondents from manufacturing,
construction and service enterprises of 02 kebele respectively.

The researcher also tries to select 11 i.e. ((33/69)*24)), 9 i.e.((25/69)*24)) and 4 i.e.
((11/69)) enterprises from manufacturing, construction and service enterprises of
03 kebele respectively.

 N.B. there is no variability in the character of each unit in the strata.

3.1.5. Data presentation and analysis

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Before relevant information is gatheres the data are coded, classifies, and presents
in tabular, pie chart and graphical form with appropriate percentage computed
values. The analysis part will conducts by descriptive method of data analysis,
which is uses to compare and contrast different variables (factors). Finally,
appropriate conclusion and recommendation can be forwards based on the
findings of the study.

4. Supplement

4.1. COST AND TIME BUDGET

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 4.1.1 Time Budget
N Activity Months
o Mar April May Jun

1 Topic selection Xx

2 proposal Xx
development

3 Recommendation Xx
of comments to
first draft of the
proposal

4 printing of final Xx
proposal

5 Submission of Xx
proposal

6 Data collection xx

7 Data analysis X
x

8 Submission of X
first draft of x
research report
comments

9 Typing of final X
report x

10 Submission of Xx
final research

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11 Presentation and X
defense x

4.1.2 Cost Budget

Item Unit of Quantity or Unit cost Total cost

amount
measuremen or birr (Birr)
t
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Stationary material
cost 1 240 240

A4-size printing paper

GB 1 210 210

Flash T-plus 8 GB

Pen Piece 5 8 40

Secretarial service

Page 80 1.50 120

Writing and Printing

Photo copy expense page 80 1.25 100

Binding expense Piece 4 7 28

Other expense

Transportation 250

Internet expense 120

Total 1108

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Assegedech Woldelul. (2004). Marketing Strategies for Micro and Small Enterprises
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International Small Business Journal, 12: 11-23.

Currie, J. W. (2009): Socioeconomic Status, Poor Health in Childhood, and Human

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Dereje Lemma. (2008). Micro and Small Scale Enterprises in the Construction
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Eshetu Bekele & Sleeked Worku. (2008). Factors that Affect the Long-term
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