Challenges and Opportunities of Small and Medium Scale Enterprises (SMEs) in Addis Ababa (The Case of Arada Sub City)

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Addis Ababa University


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.



Small and Medium Scale