Ethiopia: Utilizing Opportunities, Overcoming Challenges to Encourage Small and Medium Scale Industries

The government in its poverty reduction scheme emphasizes on broadening job-creating opportunities and eyes on the manufacturing sector to take the lion's share of the economy. So far, hundreds of thousands could benefit from the scheme despite the fact that the sector still faces various challenges.

Recently, the Federal Micro and Small Business Enterprises Development Organization organized a panel discussion with stakeholders. On the occasion, its Director-General Asfaw Abebe said that the secret behind many countries' economic development is the emphasis is given to expanding small and medium-sized enterprises.

Small and medium enterprises motivate innovation, utilize local raw materials, produce goods which are basic needs of the society, use small capital in its initial phase, create employment opportunities and to some extent play a crucial role in import substitution.

However, as to him, in Ethiopian context, due to the prevailed anomalies in the trade activities, the small and medium-sized enterprises found themselves in a disadvantageous position.

The sector is still in its infancy level and its contribution to the economy is very law. In a country with 110 million citizens, there are only less than 20 thousand small and medium-sized enterprises.

The nation imports basic consumer goods such as closes and shoes, edible oil and others. Looking at it from a macroeconomic perspective, the nation annually imports worth 15 billion goods while it exports only worth 3 billion goods. Hence, it is essential to boost the sector to promote export and import substitution.

The Deputy Director of the Authority Daniel Olani on his part said that, to support the sector, the government has prepared a package which lasts for 15 years and benefits 80 percent of the enterprises by facilitating, among others, credit facility and investment support.

Study also carried out to identify the problems in Oromia and Addis Ababa. Some of the sectors the study covered include textiles, woodworks, metalworks, chemicals, agro-processing and urban farming, construction, feeder road construction, etc.

To make the study reliable, information obtained from stakeholders were utilized as an input. Some 35 producing enterprises in Oromia region and 45 industries in Addis Ababa responded to researchers' questionnaire.

Among the enterprises, 35 percent of the respondents said during their start-up, they faced working space problems, while 18 and 15 percent said the experienced power interruption and shortage of finance respectively.

After 5 years, 34 percent of them faced a lack of raw materials while 20 percent of them faced a shortage of power supply. Again, according to the study, 12 percent of them faced a shortage of working places, 16 percent shortage of working capital and 12 percent of them faced lack of demand for their products in the market.

As to Daniel, most of the enterprises faced similar problems. Some of them complained that the package is not implemented properly and others also said that, the prepared package does not meet their demands. The rising price of raw materials, the non-availability of the material in the market and restriction to access hard currency from banks crippled their activities.

Since 2006, the government tried its level best to alleviate the problems and established the Addis Ababa Input Supply Agency.

But only 23 percent of the enterprises are aware of the establishment of the agency and the rest, have no idea. Some enterprises said that the input supply agency working environment is cumbersome and the requirement for guarantee to get credit is very expensive. And as a result, it is impossible to get sufficient raw materials for many enterprises.

The enterprises' owners said that in fact, the agency opened 82 branch offices but it does not provide proper service to the customers.

In 2008, the raw material supply package was prepared. It avoided the previous requirement which requests that enterprises employ not more than 100 workers.

Still, the administration has not yet come up with a solution to the lack of sufficient working places for enterprises in Addis Ababa. In addition, there is no transparency in the land allocation process.

Enterprises found in the vicinity of Addis Ababa also face the threat of eviction due to border dispute between the city administration and the Oromia region.

They still don't have an alternative working place. On the other hand, though the administration paid 29 million birr in order to resolve the power interruption, the electric powers supplier has not yet taken measures.

According to Daniel, though the city's housing development bureau constructed 154 buildings for manufacturing enterprises, it is impossible to deliver as the houses are unfit to give the intended services.

On the other hand, in some regions, the constructed buildings are utilized for other purposes and this remained a challenge in resolving the problems the enterprises facing.

The other challenges are also posed by the enterprises themselves. Some of them have not yet begun construction after receiving land to construct workshops. Some unlawfully sold the houses while others utilize the buildings as a residential home.

With regard to access to finance, some enterprises complained that it was impossible to get a loan and even if they could, they could no9t do what they intended to do due to the small amount of the money they accessed. The collateral system of the banks is also beyond their capacity and this intern hampers their access to finance.

As to Daniel, at the regional level, there is no agency responsible to support the small scale enterprises. This again inhibited the people to take the opportunities. The micro finances found in the regional states are also underperforming.

Here in Addis and in regional states, the rate loan reimbursement rate is very low and this intern affects the capacity of the microfinance institutions to expand and make their services accessible.

The participants of the workshops forwarded some ideas that could be solutions to the problems the enterprises have been facing. These include strengthening cooperation between the admonitions of Addis Ababa city and the Oromia regional state, creating domestic and foreign market linkages to the enterprises, promoting their products, expanding infrastructures, and improving access to a loan. It is also recommended that the licensing process has to be systematized to ensure accountability in the sector.

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