Factors that Contribute to the Failure of Micro and Small Enterprise in Addis Ababa City, Ethiopia

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Addis Ababa University


Micro and small enterprises (MSEs) development are among the focus areas where efforts are being made in Ethiopia to reduce poverty and foster economic growth and development. The main purpose of this study was to investigate factors that threaten the existence of MSEs and leads to the failure of MSEs in Addis Ababa. The study has selected 130 enterprises using stratified probability sampling from the sample frame of operating and closed MSEs, and conducted an interview via phone. A binary logistic regression model; that uses Stata statistical software was employed. Necessary tests such as model specification, model fitness, and multicollinearity tests were conducted and the assumed binary logistic regression confirmed to suit the model. The result was interpreted using the odds ratio and marginal effect. Accordingly, factors such as lack of self-motivation to start own business, lack of own work premises, lack of access to the market development, firm size micro-enterprise, and gender of a business owner being female were found significant and have positive relationship MSEs failure. Whereas factors prior work experience and lack of access to the use of technology have a negative relationship with MSEs failure. Therefore Addis Ababa job creation and enterprise development sector office and other concerned development agencies need to note factors identified for MSEs failure and use them as an input while planning and mentoring MSEs operators to reduce the effect of factors that contribute to MSEs failure and make a better business environment for business owners and sector can effectively contribute to the country’s economic development. So as to reduce the constraints/challenges that lead to the MSE's failure, suggestions based on findings and research directions were forwarded.



MSEs failure, analyze factors, econometric analysis.