18 March 2017

Ethiopia: MSEs Becoming Key Instruments to Ending Poverty

The implementation of the Small and Micro Enterprises (MSEs) strategy has helped the initiation and development of thousands of small businesses by young and enthusiastic entrepreneurs. Among those ambitious entrepreneurs, Aster and Frehiwot, both college graduates, may best characterize young entrepreneurs across the country, who are striving to create jobs and alleviate poverty. They had gone through bumpy and mazy roads to pursue their own businesses rather than searching for jobs. Though their engagement in handicrafts making and artisanship needs great skill and talent, the occupations are considered as drudgery with least payment by the society.

Both established embroidery and costume production enterprise using semi-traditional weaving machine around Shiromeda in Gulele Sub-city of Addis Ababa. They started operation two years ago, by contributing 10,000 birr each to make up 20 per cent of the 100,000 birr loan they secured from a local credit and saving institution. After many ups and downs to secure loan and shades to start their business, they managed to put their enterprise into operation a few months ago, with outdated weaving machines and supply of hand-woven thread.

Then after, their enterprise has been reorganized by incorporating eight other youngsters to venture into their weaving and costume production business. Contributing 10,000 birr individually to start their business, the group managed to secure over 300,000 birr credit from same credit institution. Their enterprise is looking for new market opportunities and is assessing possible ways that could help them to turn out profitability.

They said their products have started to attract many foreign and local consumers and face no marketing problem. However, they said they are faced up with supply crunch as their machines are outdated. The prospect of their enterprise is promising, according to them, so far as they keep producing quality material.

The government has been committed to expanding small and medium enterprises. It has been continuously encouraging individuals for self-employment and development through private ownership, particularly through participation of the youth. Even though some skeptics are mistakenly criticizing the government and its heavy-handed role in the economy, it has been playing pivotal role in executing mega projects, including GERD and the establishment of industrial parks, which can employ thousands of unemployed citizens. Above all, the government encourages the youth to establish their own enterprise and participate in poverty alleviation and development endeavours.

The government is discharging its responsibility to shake up development through the participation of citizens. It has chosen to take the initiative and fill the gaps of development activities which have not been covered by private investors. Likewise, the government is proud of and takes full responsibility for the emergence of several industrial parks and various job opportunities.

MSEs are among the poverty alleviation strategies fully initiated and incubated by the government's own policies and strategies. The MSEs strategy is geared towards enhancing awareness of people about self-employment and running small businesses, job creation, increasing incomes and contributing to the poverty alleviation and overall economic transformation of the country.

The promotion of micro and small enterprises has been a centrepiece of the Ethiopian government's strategy to alleviate urban unemployment among the youth since 2004. Since then, the government has adopted twin strategies of creating a business environment conducive to start and operate MSEs while at the same time actively triggering the establishment of new MSEs.

The strategy ushered in an era of booming small enterprises in Ethiopia, targeted to lift millions out of abominable poverty and improving incomes at household level, particularly changing the lives of poor citizens and generating supplementary incomes to them. To this end, thousands of enterprises have been organized in rural and urban areas.

The strategy requires participant individuals to organize themselves at least in fives (for the sake of convenience to give loans, training and technical assistance) and form enterprises in job-creating of sectors of their choice. It enables to access loans from credit facilities at local micro-finance institutions, without rigid collateral requirement. In this regard, the government has gone a long way to provide shades, offer basic technical and managerial skill trainings and create market linkages with its vast projects.

According to the Federal MSEs Agency, as much as 700,000 new enterprises were created by the government's support program during the first Growth and Transformation Plan (GTP I). Most importantly, best experiences have been gained during that time.

GTP II aims to create 2.1 million additional jobs and 160,000 extra enterprises in various urban centres across Ethiopia. The Agency says it has assisted to create 56,000 new enterprises which created 940,000 jobs so far.

Indeed, creating and nurturing MSEs is one strategy of poverty alleviation to which so much hope and resources have went into. Both the federal and regional states have been pouring billions of birr to strengthen MSEs. The efforts has resulted in the booming of MSEs and considerable improvement in the livelihood of millions.

Strengthening MSEs and cooperatives has been witnessing inclusive focus being given by the government to the rural and urban poor as well. MSEs in rural and urban areas are considered as potential contributors to poverty alleviation and transformation of the national economy. The government has attached prime significance to small enterprises to thoroughly transform the technical and production capacity of the manufacturing sector through time.

According to research conducted on large dataset collected from 13 major cities by Ethiopian Development and Research Institute (EDRI), consistent with the government's strategy, MSEs productivity levels are largely comparable by enterprise type but differ widely by gender and levels of education of the entrepreneurs.

EDRI growth calculation also indicates that while growth rates of self-initiated enterprises are higher, it is conditional on positive rates of growth; the likelihood of transition into larger size category appears to be larger among cooperatives. The research also suggests that the government should provide more customized support system that responds to the unique sets of binding constraints faced by MSEs.

Meanwhile, as part of the effort to level wider job opportunities to the youth, the government is poised to embark up on a program of mass job creation and entrepreneur incubation. The government has allocated 10 billion birr revolving fund which will be administered by state governments and the Commercial Bank of Ethiopia (CBE).

The news of big money allocation has so far increased enthusiasm of the youth in urban areas and different corners of the country. According to budgetary statement publicized by the Agency, 3.4, 2.6 and 1.8 billion birr will be earmarked to Oromia, Amhara and Southern Nations, Nationalities and Peoples states respectively. The fund will be loaned to the youth for the purpose of establishing enterprises that enable to devise job creation and productivity.

Although the details are on the process of being made clear, the project-based financing facility is expected to make breakthrough improvement to allay frustration over unemployment in urban areas. Nevertheless, the challenges of the previous MSEs support programme would be reduced eyed at making the new financing facility effective and bringing meaningful stride on employment and poverty alleviation.

Regarding enterprise development and enhancement of domestic productivity, the nation has planned in the GTP-II to promote 62, 500 MSEs from micro to small level and to upgrade 10,000 enterprises to medium level operators. Besides, entrepreneurship excellence centres will be established in 35 universities and MSEs participants would be offered trainings related to boosting productivity, work culture and skills.

Regarding assistance of the government and facilitation, over 2200 qualified one-stop shopping centres which include provision of working space, credit, and training and market linkages would be established (about 1,500 of them had been established across the country so far, according to the Agency). These centres would be instrumental in boosting productivity of enterprises and facilitating development of the manufacturing centre. In this regard, 9,000 hectares of developed land will be provided. In addition, some 15,000 shades and 600 buildings will be organized for this purpose.

Despite the numerous problems, according to the Agency, MSEs have enabled to provide desperately needed jobs to thousands of citizens. In fact, problems related to quality and productivity of MSEs is palpable. And, hence, ongoing efforts are being exerted to iron out their problems and enhance quality and quantity of their produce. To this end, tremendous activities are being undertaken to provide ample finance, training and injection of new skills and creation of reliable market link.

The government believes that MSEs are instrumental in creating job opportunities and improving the income and livelihoods of millions of poverty-stricken families. Accordingly, as ever, unreserved effort will be exerted to strengthen MSEs and help them employ as much young generation as possible and produce quality product very much needed at the local and global market.

Aster and Frehiwot said they managed to payback their creditors and they are striving to further add in more values to their products. They said things may not become bed of roses at the beginning. Young entrepreneurs should courageously and patiently try to withstand challenges and become productive and profitable in the long run.

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