Small and Medium Enterprises are contributing to the import substitution efforts.
Obviously, most sophisticated private industries which sell their brand products in almost all parts of the globe had once been confined to small manufacturing sheds and at a local market.
The silver bullet to the success of these businesses might be a mix of two factors - the hard work of the individuals or the team that has started the businesses and the enabling ground their governments created. For instance, governments that have paid due attention to Small and Medium Scale Enterprises (MSEs) have championed in nurturing private innovations to a high-tech based industrialization.
The government of Ethiopia has recognized the role of MSEs in the socio-economic development of the society. Hence, due to its increased supports to the Enterprises, a number of MSEs have transformed themselves to large scale industries.
Availing the required finance to entrepreneurs and innovators is the pillar to the translation of the innovations from a business proposal to real business activities.
Ethiopia, with its 70 percent young demographic base, has bright ambitions of becoming stable and strong nation in Africa both economically and politically. Its huge youth population is, therefore, the main driver of the attainment of the ambition. That is why it has established microfinance institutions which enable the youth businesses to flex their muscles financially.
The MSEs and the financial institutions have also been made to feed on one another.
Federal Micro and Small Development Enterprises Agency (FMESDA) as well as many other micro-finance institutions are supporting the youth entrepreneurship to come to fruition.
The loan and saving services are benefiting the youth, including women, who have limited financial access. These segments of the society have in turn secured jobs to themselves and other fellow citizens as well.
Owing to this, the youth have been engaging in a range of sectors such as manufacturing, service, and industry. And the amount of finance needed to set up the enterprises also varies.
Micro scale business enterprises in the industrial sector--manufacturing, construction and mining--comprise up to five persons including the owner and/or has total asset not exceeding Birr 100,000.
Similarly, if the enterprise operates in the service sector--retailer, transport, hotel, tourism, Information Communication Technology (ICT) and maintenance--five persons can establish it while the asset cannot exceed 50,000 Birr. If it operates in the industrial sector, it can employ from 6 to 30 persons or can have a paid-up capital or total asset not exceeding 1.5 million Birr.
A small service sector enterprise is one that has between 6 and 30 persons and or has total asset or paid-up capital of 500,000 Birr.
Nowadays, the number of MSEs is increasing at a faster pace in Ethiopia. When we see the production of MSEs in Addis Ababa, it is accounted for over 15.2 % of Ethiopia's total GTP employment opportunity plan in 2015/16 fiscal year, FMESDA discloses.
The unbearable collateral requirement of private and state banks used to discourage small business from thriving. But, the loaning systems of the financial institutions have helped to bridge this gap.
Numerous SMEs which operate throughout the country have created over 1.7 million jobs to citizens, discloses Abozenech Negash, Deputy Public Relations Coordination Office with the Federal Urban Job Creation and Food Security Agency.
The institutions played a huge role in curbing poverty and unemployment says Mesfin Fituma, Business Development Head of Addis Credit and Saving Institution (ADCSI). "Quite many of the operators have transformed both their enterprises and lives."
The linkage between SMEs and micro-finance institutions has also grown meaningfully. Many of them have built good reputations in repaying their debts and growing their savings, he adds.
"For instance, 250,000 customers have saved seven billion Birr. This saving in turn has also gone to the enterprises in the form of loan."
In a nutshell, the micro-finance institutions have been playing massive roles in baking the youths to realize their vision. MSEs have been proven to be very important in many ways like promoting youth innovation, creating employment, diversifying businesses and increasing youth income as well as in fostering asset creation, import substitution, among others, he explains.
"We have understood that our clients are changing their livelihood. We always inspect and supervise micro and small enterprises. Based on that, most of them have achieved great success; even there are MSEs which have transformed their business into industry level. Not only this, there are enterprises that employs 50-60 people," the manager discloses.
To back his assertion, Mesfin indicates as quite many of the MSEs have already started exporting their products. "Especially those who involved in leather and leather products have penetrated the international market. There are also people who bake Injera (staple food made from Teff flour.) and export it to the Ethiopian Diaspora communities in North American and European countries."
In addition, Saudi-repatriates have also created their own business in their country.
Besides exporting products, enterprises are enjoying the local market opportunity.
The construction sector's huge appetite has become the largest local market opportunity to the enterprises, he points out, mentioning the massive construction of industrial parks, condominium houses as well as mega projects' undertakings.
As a result, enterprises, which previously took small amount of loans, have dramatically scaled up their loan demands. "We are striving to satisfy their growing demands."
Amara Credit and Saving Institution (ACSI), General Manager Mekonnen Yelewumwosen for his part notes as the micro-finance institutions have become reliable financial source to MSEs which operate in the areas of agriculture and trade activities.
ACSI was founded in 2006 to create financial access to urban and rural low income society, he says. "The enterprises' growth has increased the financial capacity of our institution too."
Various segments of the society such as the youth, women, elderly people and people with disabilities have got the opportunity to run their own businesses. Beekeeping, animal fattening, poultry production, and retail businesses are some of the areas the MSEs operators have engaged, Mesfin adds.
The General Manager indicates that ACSI has enhanced the number of its clients to five million. Customers have also saved 350 million Birr only in 2016.
Apart from providing loan and saving services, ACSI also consults its customers on the feasibility of their business plans, he adds.
"We often go to the business areas and witness their day-to-day activities first hand."
Regarding the major challenges facing the micro-finance institutions, he says that some operators fail to repay loans timely. On top of this, most micro-finance institutions are subjected to extra expenses for office rent.
Having realized this, state banks and Ethiopian Microfinance Institutions (AEMFI) are applying various endeavors.
The government is also providing every necessary support to step up the efforts of micro-finance institutions.
The government envisions increasing the accessibility of micro- finance institution during the second growth and transformation plan (GTP II). During this period, the institutions attempt to reach 50 percent of the rural community. By so doing, the rural community will have reliable access to finance to run on-farm and off-farm business. Side by side with this, the effort will help the same community to nurture its culture of saving, which in turn will put its impact on the domestic saving at national level.