NEVIS Review 20, Section I, Ref# 20.1
July 1, 2013
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Micro-
and Small Enterprises as Vehicles for Poverty Reduction, Employment Creation
and Business Development: The Ethiopian Experience
Excerpts
|
By Tegegne Gebre-Egziabher, PhD
and Meheret Ayenew, PhD
|
(Source: FSS Research Report: No. 6, 2010)
In many countries, there is now a wide
recognition of the contribution of micro- and small enterprises (MSEs) to
economic growth. In a cross-section of both developed and emerging economies,
the contribution of the MSE sector to total employment, entrepreneurship and
innovation cannot be underestimated. For example, this sector generates about
6.2 percent of the aggregate employment in the United States, 22.3 percent in
China, about 80 percent in India, 67 percent in Japan and about 70 percent in
EU countries (Carter and Jones-Evans 2004). To further underscore the
social and economic importance of micro- and small enterprises, one UN study
indicated that the sector represented 99 percent of all enterprises and
provided around 65 million jobs in EU countries (UNCTAD 2005).
The potential advantages of a dynamic MSE sector
have generated high expectations in many developing countries about the
contributions of this sector to job creation and poverty reduction. Add to this
the optimism that the full development of the MSE sector can foster
competitiveness in the economy and achieve a more equitable distribution of the
benefits of economic growth in both developed and developing
economies. Such considerations have motivated many governments to put in
place national policies to stimulate the growth of this sector in service,
distribution and manufacturing-related economic activities.
Throughout the 1950s and 1960s, the currently
vibrant Asian economies greatly benefited from the growth of the MSE
sector. Governments of these nations pursued a strategic focus on
export-oriented, medium-sized enterprises that fuelled the overall
industrialization process and helped penetrate the international market
place. The secrets of success lay in the fact that these firms were adept
at applying technology and training to address the needs of growing markets.
Additional success factors include mutually cooperative inter-firm
relationships that led to exchanges of information and know-how and thus
rendered individual firms less prone to risks, not to mention government
support in technological extension services, including research support and
information on sources of technology and encouraging linkages and networking
among enterprises (UNCTAD 2005; Kula, Choudhary and Batzdorff 2005).
Given the enormous differences between the
socio-economic background of the Asian countries and other developing nations,
a direct replica of Asian experiences may not be a realistic option. With this
proviso, however, it is extremely important that developing countries take
useful cues from the Asian experience in their attempt to develop the MSE sector
and make it a robust engine of economic growth and employment creation. In
this regard, recommended steps include appropriate macroeconomic policies; an
outward orientation with a focus on export promotion; measures to attract
foreign direct investment; and effective selective interventions. In addition,
adequate institutional capacity to formulate and implement appropriate economic
policies, undertaking selective interventions and attracting foreign direct
investment; and an efficient infrastructure to ensure sustained economic growth
are also suggested as essential options (Hawkins 1998).
From the perspective of developing countries,
MSEs have a number of advantages that make them attractive in accelerating
economic growth. First, because MSEs are fairly labor intensive,
employment opportunities are generated with a relatively low capital cost, a
factor with limited supply in many developing nations. Secondly, they
utilize raw materials and labor-intensive technology that are domestically
available. Thirdly, policies and programs can be put in place to encourage the
development of these industries in different parts of the country thereby
reducing concentration of enterprises in certain areas and promoting balanced
economic growth. Fourthly, manageable production capacity and their
flexibility make them suitable to respond to current national demand and the
limited size of the market in many developing nations (Fasika and Daniel 1997;
Andualem 2004).
MSEs can contribute tremendously to the growth of
national economies. However, many developing countries have not been lucky
to benefit from the growth of this sector mainly due to institutional and
policy constraints. Ill-conceived development strategies; a complex legal and
regulatory environment that stifles the growth of the sector; shortage of
adequate business development services, including lack of access to finance,
markets and business skills and appropriate technology are to be blamed for
lack of success.
Within the Ethiopian context, despite the
potential contribution of the MSEs to poverty reduction and employment
creation, the Government had not, until very recently, extended adequate
support to the development of the sector. Simply put, there has not been
meaningful government support in terms of recognition and access to
finance and skills required for operating small businesses and enterprises
profitably and efficiently (UNCTAD 2005; Eshetu and Zeleke 2008). This has
meant that this sector is at its infancy and therefore needs a major
institutional and resource boost to contribute to the country’s program of
sustainable development and poverty reduction.
On the other hand according to the Household
Income, Consumption and Expenditure Survey (HICES) of 2004/05, urban poverty
incidence has increased from about 33% in 1995/96 to about 35.1% in
2004/05. At present, the urban unemployment rate stands at a staggering 25
per cent of the employable population.
These two hard realities have forced the
government of Ethiopia to turn to the MSE sector as a strategy that can have a
lasting effect on reducing urban poverty, creating employment and bringing
about overall growth in the business sector. As per the Government’s PASDEP,
the plan is to reduce urban unemployment through support for small and
micro-enterprises and acceleration of the creation of urban-based employment,
including vocational and technical training programs, a community-based and
labor-intensive urban works program; expanding micro-finance institutions; and
providing market support and service premises for small and micro-enterprises.
This is also reflected in the national urban
development policy which has two main packages:
i) the
urban development package; and
ii) the urban good
governance package
The objectives of the urban development package
are to reduce unemployment and poverty, to improve the capacity of the
construction industry, to alleviate the existing housing problems, to promote
urban areas as engines of economic growth and to improve urban social and
economic infrastructure particularly for youth. Among the package’s five
pillars, micro-/small enterprise development program is the major one.
The micro- and small enterprise development
program under the urban development package (2006) has the following
objectives.
·
To reduce urban poverty and unemployment by
supporting micro- and small scale enterprises;
·
To achieve fast growth through the creation of
linkages between micro- and small enterprises with medium and large
enterprises;
·
To facilitate the growth and expansion of micro-
and small enterprises and create a foundation for industrial development; and
·
To promote the economic linkages between rural
and urban areas.
The development of micro- and small businesses therefore
has been touted as a vehicle to reduce poverty and create jobs for the
increasing number of graduates out of the nation’s technical and vocational
education training institutes. Accordingly, the Government has earmarked
significant resources for the expansion of the MSE sector in the different
Regions.
This program has set ambitious goals to attack
urban poverty and reduce unemployment in the urban areas of the country. Among
other things, it planned to create employment opportunities for 1.5 million
residents in 825 towns over the period 2006/07-09/10. According to the program,
50% of these beneficiaries will be women; and the Government plans to invest
Birr 6.2 billion and provide 4900 hectares of land for MSE development.
While the government’s intention
and policy are in the right direction, it is necessary to examine the effects
of the policy and the extent to which the policy has achieved its objectives of
employment creation, poverty reduction and business growth in a sustainable
way. Evidence in this regard is hard to come by. To date, there has not been an
independent assessment of the contribution of the MSE development strategy to
poverty reduction, job creation and business growth either at the federal or
Regional levels.
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