Challenges and Opportunities of Small and Medium Scale Enterprises (SMEs) in Addis Ababa (The Case of Arada Sub City)
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Date
1997
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Addis Ababa University
Abstract
Despite the tremendous increase in number of SMEs, little research exists that examines
challenges and opportunities of small and medium enterprises (SMEs) in developing
countries, especially in Ethiopia.
SMEs occupy a prominent position in the development agenda of many developing
countries like Ethiopia. SMEs are long recognized as important vehicles of economic
diversification, employment creation, income generation and distribution, and poverty
alleviation. The number of SMEs in Ethiopia is steadily growing. But, much more
important than their number is their current status, stage and pace of development The
government of Ethiopia has been promoting the development of SMEs through the
formulation and implementation of Micro and Small Enterprises Development Strategy
as of November 1997.
The purpose of the study is to identify the challenges and opportunities of the SMEs in
Arda sub city and to give recommendations based on the problems. Primary data were
collected from 115 SMEs in Arada Sub city of the capital city; Addis Ababa. The study
covers almost all sectors that identified by Addis Ababa city administration SMEs office.
Therefore the study identifies the major factors towards the success of the SMEs by
considering all sectors The findings indicated that SMEs face different problems. These problems are financial
factors, marketing, management and HRM factors, environmental factors and the like.
Inadequacy and costly of credit facilities and sources is the major problem of the SMEs
in the sub city. More over Shortage of working capital, intensity of competition, like lack
of business development services, collateral requirement by financial institutions, conflict
with neighbors and lack of transparency among SMEs office at the time of allocating the
working place were the major problems identified in the study.
The study shows that sole proprietorship form of SMEs is most common in Arda sub city.
All of the sample firms were owned by citizens only. The findings indicated that SMEs
use informal sources finance than formal sources. The sources of capital for SMEs in the
sub city falls under the two traditional sources; borrowing from friends & relatives and
personal saving. Other informal sources like “Equib” play the great role than the formal
sources like microfinance. Most of SMEs prepare business plan but they did not have
business associations.
The findings of the study have important implications for SMEs, support agencies and
future research by academics, consultants and researchers.
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Keywords
Small and Medium Scale