.

CHAPTER-ONE
1. INTRODUCTION

1 .1 Background of the Study

In this time, generating economic growth in developing countries while reducing poverty is
fundamental development challenge. To ensure that the contribution of micro enterprises to key
sub sectors and national economies is maximized, and ensure that the poor are not left out of
economic development micro and small scale enterprise need access to finance, business services
and improve input , they also needs a conductive enabling environment that facilitates rather than
inhibits their participation in markets. Micro and small scale enterprises in Ethiopia is extremely
dominative and socially in efficient. Its greatest asset is the desire to survive and eventually get
rich. The other advantage is its creativity and ingeniousness. The small scale enterprises by no
means a homogenous late, consequently the support should be differentiated and properly given
to the disparity groups. The farmers are the leaders since they are the primary initiators of change
whether these are in terms of producing new goods or new ways of production. But, these
innovators and drivers must have the support of and access to the constituent of elements to
effectively utilize their creative capacity and translate their vision into reality (Wordier A.,
1989).
Unity is strength when there is teamwork and collaboration wonderful things can be achieved
(Mattie steepened, 1990).
It is believed that the urban development policy and strategy that micro and small scale
enterprises are the key in reducing unemployment and poverty in urban areas
The concept of micro finances has been started in Bangladesh. The German Bank was
established as a research project on rural economic program to help the low income groups under
the Chicago University in 1978. The central mission was to credit and financial services
primarily to rural women and its disadvantage groups (Paul, B.1996).
As we compared the current situation with the past governance, there is some improvements ;
however, still now several factors are affecting the performance of micro and small scale
enterprises are exist; financial, market condition, technical skill of owners, government action
and expansion of illegal business are some of them (Nemaha, 1992).

1.2 Statement of the Problem

1
Some of the reasons that initiated me to do this research project on the role and factors
determining micro and small scale enterprise were:

 Lack of adequate capital for beginning with competitive market.

 Those who had different background and interest were unwillingly grouped
together.
 The majority of adults in town were unemployed.

To investigate these reasons, the following research proposal questions are important:-

1. What are the major factors that micro and small scale enterprise face in their performance?

2. What are the possible solutions that can be applied to solve the problem?

3. Is the performance of the micro and small scale enterprise satisfactory or not?

4 What is the government role in the growth of micro and small scale enterprise?

1.3 Objective of the Study

1.3.1 General objective of the study

The general objective of this study was:-

 To examine factors that affect growth of micro and small scale enterprise in Bahir Dar
Town.

1.3.2 Specific Objective

The specific objectives of this study were include:
 To assess the role of small scale and micro enterprises in reduction of
unemployment
 To examine the government role in financing and organizing micro and small
scale enterprises
 To assess the financial power of micro and small scale enterprises

1.4 Significance of the Study

The study have been expected to:-

2
  Provide basic information concerning the role and determinants of growth of micro
and small scale enterprises.
 Develop certain strategies to up lift or at least to minimize those problems.

The outcome of this study helps the Bahir Dar Town administration to give more emphasis
for the growth and development of micro and small scale enterprises to medium and large scale
enterprises.

The result will also bring some improvement on the problems that micro and small scale
enterprise supporting institution and the sector as whole.

1.5 Scope of the Study

The scope of the study deals with micro and small scale enterprise.

The basic bodies to be include in this study during data collection were wood processing sectors,
metal work sectors, blocket production organized group, coble stone and the like.

3
 CHAPTER-TWO

2. LITERATURE REVIEW

2.1 Conceptual literature

One of the major consequences of rapid urbanization process has been the burgeoning supply
of job seekers in both modern (formal) and in formal sectors of the urban economy. In many
developing countries the supply of workers far exceeds the demand the result being
extremely high rates of unemployment and under employment in urban areas. Models of
developments that stress complementarities are related to some of the models used in the
endogenous growth approach, but coordination failure approach is valued relatively
independents and offer some significant and distance insight .put simply the coordination
failure is a state of affairs in which agents inability to coordinate their behavior leads to an
outcome that leaves all agents worse off than in alternative situations that is also equilibrium.
Tovar and smith (2007)

In their model, Tovar and smith (2007) emphasized the need for coordinating the effort of
different enterprises in order to maximize the benefit they can generate from the economic
activity. Herdsman (1987) purpose the concept of total quality management is essential for
the success of small business. Before getting in to implementation we need to get organized,
Herdsman (1987). For successful implementation of total quality management, small
businesses need to follow a structure, Herdsman (1987)

Human resources of employees are important for managements and organizational science
but they are widely ignored in small scale entrepreneurs of small scale enterprises and an
efficient utilization of employee’s skills, motivation and behaviors are essential for business
success, Rauch and frees (2001).In their study Rauch and Frees (2001) emphasizes the need
for human resource management’s strategies for the success of small business.

Size of employment, capital investment or turnover is used as criteria to categorize enterprises

along scale of operation and define micro, small, medium and large enterprises. This
categorization is important for functional and promotional purpose to achieve the desired level of

4
development. In the case of Ethiopia, there is uniform shortage of definition at the national level
to have a common understanding of micro enterprises sector while the ministry of industry and
trade uses capital investment, the central statistical authority uses employment and favors capital
intensive technology as yardstick to define micro and small scale enterprises. Micro enterprises
are those enterprises in the formal sectors of the economy with paid capital of not exceeding
20,000 birr and excluding call agency categorized enterprises into different series of operation on
the size of employ high technical consultancy firms and other high – technology establishments
and nature of equipment.

Accordingly establishments employing less than 10 persons and using more operated equipments
are considered as small scale manufacturing enterprises. Enterprises in the micro enterprise
segment are sub divided into informal sector operations and cottage industries (Woodier, A.,
1989).

2.2 Historical Role of Micro and Small Scale Enterprises

The history of small business (enterprises) has been one of the most controversial stories in
economic development in the world. The role of small business in an economy has frequently
been undermined and even misinterpreted. In the past, small businesses were believed to impede
economic growth by attracting scarce resources from their larger counterparts (Act retch. 1993).

Different sizes and characteristic of enterprises so, careful definition of micro, small and medium
sized enterprises is very crucial. Due to this, countries adopt their own working definition. AS
explained above, it is impossible by any means to provide clear and universally acceptable
definition of small enterprises the scale of business in any one country clear and agreed national
definition are needed for focusing discussions on the sector for research purposes and above all
for facilitating appropriately tailored supports and assistance to the sector. Usually, micro and
small scale enterprise are defined based on either quantitative criterion or on qualitative criterion.
Nonetheless, many developing countries apply the quantitative criterion.

2.3 National Strategies and Policies on the Development of Micro and Small Scale
Enterprise in Ethiopia

5
The government has recognized the contribution of the informal sector. It has been recognized
and pay attention to the promotion and development of micro and small scale enterprise for the
important vehicles to address the challenges of unemployment, economic growth and quite in the
country. To this effect, it has formulated a national micro and small scale enterprise development
and promotion strategies. In 1997, which enlightens a systematic approach to alleviate problems
and promote the growth of micro and small scale enterprise The overall objective of the strategy
is to create an enabling environment for micro and small scale enterprise with specific objective
to facilitate economic growth being equitable development create long term jobs, strength
cooperation between micro and small scale enterprise promote export and balances preferential
treatment between micro and small scale enterprise and bigger enterprises ( Jelly H. and Robert
H. )

The tight foreign exchange control and heavy import and rent seeking business community.
(Gebrehiwot, 1997). The 1997 National Micro and small scale enterprise strategy figure out the
various policies, structural and institution related problems that constrained the role of the micro
sector in and contribution to national economy. It thus primarily aims at creation enabling legal,
institutional and other supportive environments for the development of National Micro and small
scale enterprise. The specific objectives of the strategy include

1 facilitating economic growth and bring about equitable development

2 creating long term (sustainable) jobs

3 Strengthening cooperation between Micro and small scale enterprise

4 Providing the basis for medium and large scale enterprises

Promoting exports and

5 Balancing preferential treatment between Micro and small scale enterprise and bigger
enterprises

2.4Central Statistical Agency (CSA) Definition of Enterprise

Large and medium scale manufacturing enterprises have been classified as establishments with
greater than ten employees using automated machinery. Small and medium machineries (SMM)
are those enterprises that engage less than ten persons using power driven machinery. Cottage
are those household type enterprise located in household normally using own or family labor and
6
mostly manual rather than automated or mechanical machinery. In light of the above definitions
and taking into consideration the Ethiopian situation micro, small and medium enterprises are
business activities that are independently owned and operated, have small share of the market are
managed by the owner and employing 5 or less employees. This has recently been revised to
include employment up to 10 workers and capital reaching up to 20,000 birr. Small scale
enterprises are those enterprises that employ 6-49 employees and they share the characteristics
with micro enterprises in other aspects. Medium enterprises are those enterprises which have
relatively higher share of the market, are independently or jointly owned and managed by the
owners or appointed executives and employees (50-99) % (Woodier, A., 1989).

2.5 Role of Micro and Small Scale Enterprises

The classical development theories such as modernization and dependency theories view small
informal enterprises as general unproductive organizations. The modernization theory
development is seen as process whereby agriculture is gradually mechanized and small low
productive, artisan workshops eventually replaced by large scale enterprises with a higher
production. The theory assumes that the industrial structure in developing countries eventually
will mirror what happened in Europe and America, where large scale, capital intensive
enterprises emerged. Production would then by constructed in towns to exploit urban labor and
capital market and either services or infrastructure would be eventually disappear to what
happened in the west. Under these circumstances, the theory, postulates that small enterprises are
survive either in direct dependence on large enterprises as subcontractor to them or as party
producer and traders operating in extremely competitive markets with little possibilities for
growth and capital accumulation of capital to invest (Paul, B., 1996).

2.6 Overview of the Micro and Small Scale Enterprises Sector in Ethiopia

In most fast developing countries, micro and small scale enterprise by virtue of their size,
location capital investment and their capacity to generate greater employments have proved
powerful proponent effect for economic growth. The sector is also known as instrument bringing
about economic transition by efficiently using the skill and talent of people without requesting
high level training, capital and sophisticated technology. Moreover, they create job opportunities
for a substantial segment of the population. Micro and small scale enterprises sector accounting

7
the bulk of non-agricultural economic activities, are highly concentrating in the production and
consumption of textiles, food and beverage processing (Woodier, A., 1989).

CHAPTER-THREE

3. METHODOLOGY

3.1 Background of the study area

This study was conducted in Bahir Dar town.

Bahir Dar is a city in north western Ethiopia and the capital of the Amhara region.
Administratively, Bahir Dar is considered a special zone. Bahir Dar is one of the leading tourist
destinations in Ethiopia with a variety of attractions in the nearby lake Tana and Blue Nile River
or Abay. The city is distinctly known for its wide a venues lined with palm trees and a variety of
colorful flowers. The city 578 kilo meters north west of Addis Ababa, having altitude and
longitude of 11 36 N 37 23 E and elevation of 1840 meters above sea level.

Based on the 2007 census conducted by central statistical agency of Ethiopia, this has a total
population of 221,991 with an increase of 130.90% over the population recorded in the 1994
census of whom 108,456 are men and 113,535 whom with an area of 213.45 square kilometer.

Bahir Dar town administration of micro and small scale enterprise was established as officially in
1999 E.C. This micro and small scale enterprise located in north western of Amhara Region in
Bahir Dar town, which is found about 578 kilometers far from capital city of the country.(source:
Bahir Dar town administration operational manual).

Bahir Dar town administration of micro and small scale enterprise was organized in nine sub
cities (kefle ketema’s ). The micro and small scale enterprise is organized independent citizen
especially unemployment youth . This micro and small scale enterprise is a government institution
and holding its own activities under two programs. These are regular and package program.
(source: Bahir Dar town administration MSSE’s bureau 2008).

3.2 Method of Data Collection

The source of data will be primary data. This primary data used to achieve the objective of the
study and to get reliable information from the target population(group) .

8
The method of data collection was determined by the following factors:-

Objective of the study nature of information, operational possibility cost. Basically, there are
different methods of data collection. Based on the origin of data, Statistical data can be classified
as Primary& Secondary data. Among them, this research proposal was conducted by using
primary source of data; this has been collect information from respondents through closed ended
questionnaire.

3.3 Target population

T he target population in this study were the population of micro and small scale enterprises in Bahir dar
town incase of Belay Zeleke kefle ketema .

3.3. Sampling design and Techniques.

Sampling techniques is a system of taking small ratio of observation from population to get
information of those large populations from the sampled observation by using some statistical
techniques.

The sampling technique in this study was simple random sampling (SRS) to select the
representatives from target population (frame). From Bahir Dar town micro and small scale
enterprises I select Belay Zeleke kefle ketema MSSE’S. In this case the units in the populations
are numbered from 1 to N. A series of a random number between 1 to N is then drawn by means
of lottery method. At any draw, the process used must give an equal chance of selection at any
number in the population but not already draw

3.4 Sample Size Determination

Determining the sample size is very important issue for the precision of the survey.

For this study we use simple random sampling in order to determine the population size of the
enterprise’s because determining the sample size is the key step on the overall statistical process.
An appropriate sample size is means of gaining high precision, accuracy and confidence with
minimum cost. Then the sample size is determined from 300 enterprises in Belay Zeleke kefle
ketema as follows.

To determine the sample size we have to make the following notations and assumption.
9
 Notations and assumptions:

 Level of significance or probability of making certain error is denoted by α and it is

assumed to be 0.05 or 95%
 Z α/2=z0.025=1.96

 Size of total enterprise is denoted by N.

 no is initial sample size

 The estimator will produced by set of sample from the sample population
are normally distributed.

 Information to determine sample size of the population are:-

no = (z α/2)2*s2/d
2

Where Zα/2=1.96

d=margin of error which is equal to 0.08

no= (1.96)2*(0.35)/0.082

=73.53

no/N=73.53/382=0.19<5%

no
Therefore n = 1+ ( n 0/ N )

Where N is the size of total enterprise.

10
 n=73.53/1+(73.53/382)

=61.66≈62.

3.5. Variables in the Study:

Dependent variable:

 Current capital

Independent variables:

 Age of enterprise

 Sex of Enterprise

 Martial status

 Beginning capital

 Profitability of business

 Habit of receiving feedback from customers

 Government motivation

 Lower educational level of workers

 Frequency of customers to visit

 Number of workers

 Educational level of enterprise

11
  Business through planning

3.6. Statistical Analysis

3.6.1 Descriptive statistics

Descriptive statistics consist of the collection, organization, summarization and presentation of

data in a meaning full form, by using charts, graphs to describe the frequency distribution and
percentages. In this study we used descriptive statistics such as frequency tables, minimum,
maximum and measure of central tendency (mean).descriptive statistics utilizes numerical and
graphical methods to look for patterns in a data set.

3.6.2 Inferential statistics

Inferential statistics is the procedure by which we reach conclusion about a population based on
the information contained in the sample from that population. It consist of estimation and
hypothesis testing and their ways of estimation of a certain parameter; namely point estimation

and interval estimation. In this study a set of methods have been to generalize from sample to population by

performing hypothesis testing, determining the relationship among variables and making estimation by using

multiple linear regression and analysis of variance.

3.6.3 Multiple linear regressions

The primary objective of regression is to develop a regression model, to explain the association
between one or more variables in a given population.

A regression model is a mathematical education provides prediction of values of dependent

variable based on the known values of two or more independent variable. Multiple linear
regressions contain one dependent variable and two or more independent variables to measure
the function (linear) relationship between them . (Douglas M, Third edition ; Develop the idea
of linear regression model).

The Model is Yi=βo+β1x1+…………+βkxk+ϵ i

Where

12
βo =the intercept of Yi when xi=0.

β1 +β2+……..+βk are the coefficients of xi’s.

Yi=the dependent variable

X = the independent variables.

ε i=the error terms.

In this study there is one dependent variable current capital and ten independent variables. That
means

Y=β0+ β1X1+ Β2x2+ β3x3+ β4x4+ β5x5+ β6x6+ β7x7+ β 8x8+ β9x9+ β10x10+ £

Where Y=Current capital

1. X1= Age of enterprise

2. X2= Sex of enterprise

3. X3= Martial status of an enterprise

4. X4=Beginning capital

5. X5= Profitability of enterprise

6. X6 = Habit of receiving feedback from customer

7. X7 = Government motivation

8. X8=Lower educational level of workers

9. X9=Frequency of customers visit

10. X10=Number of workers

11. X11=Educational level of manager

12. X12= Business through planning

£= The error term.

3.6.4 Assumption of regression model.

There are several multiple regression assumption, these are:-

13
  The relationship between dependent and explanatory variables is
linear.
 The independent variables are deterministic (fixed) data matrix.
 There is no multicollinearity (i.e. no exact linear relationship between
the explanatory variables).
 Error terms are normally distributive with mean 0 and variance 1.
 Errors from different observation are uncorrelated
 Regression model linear (current capital) verses Age of enterprise in
year, Beginning capital, habit of receiving feedback, government
motivation& profitability of the business have linear relationship.
 The dependent variable (current capital) is containing random
variables. Variance of the error terms at different period is constant.
3.6.5 parameter estimation

Based on the data, The study wanted to estimate the parameters βo , β1 , β2, ……,βp.

This is equivalent to finding the straight line that gives the best fit of the point in the scattered
plot of Y and x1,x2………xp. We use the ordinary least square estimation method in this study.

The least square estimator of βi is (x̒ ̒ x)-1 x̒y.

3.6.6 ANOVA Test

The analysis of variance is used for lasting the association or relationship between response
variables and independent variables. For testing over all significance of the model or testing
whether the explanatory variables do actually have any significant influence on the dependent
variable. The analysis of variance is used for lasting the association between response variable
and independent variables. It also used for constructing the all factors are linearly related to
dependent of current capital.

The distribution with degree of freedom of numerator k-1 and degree of denominator n-k where
k=number of explanatory variables in the model.

14
 ANOVA Table

Source of variation Sum of square Degree of Mean square F cal

freedom

Regressions SSR k-1 SSR/k-1

Error SSE n-k SSE/n-k MSR/MSE
Total SST n-1

3.6.7 Hypothesis testing

Hypothesis is a statement about the value of population parameters. Hypothesis testing is

procedure based on sample evidence and probability theory used to determine whether the
hypothesis is a reasonable statement and should not be rejected or unreasonable and should be
rejected.

Steps of hypothesis testing

1. Define the null hypothesis and alternative hypothesis.
Null hypothesis is the assumption about the population parameter that we believe unless we
have evidence to contradict it and it is denoted by H0.
Alternative hypothesis is the complementary of the null hypothesis ,which is the hypothesis
we believe if we reject the null hypothesis and it can be denoted by H1

H0: β0= β0= β1= β2=………= βi Vs B1: at least one differs.

2. Define type one error (α- value).
Type -1 error (α) is rejecting the H0 when it is true.
Type-2 error (1-α) is not rejecting H0 when it is false.
Here we have α=0.05(5% significance level).

3 .selecting the distribution we [Link] we use F-distribution to test the hypothesis and
finding of the tabulated value:

15
F tab=F α (k ,n-k)

compute the test statistics

MSR ( SSR
K )
F cal = MSE =
( N −SSEK −1 )
Where

MSR=mean square regression.

MSE=mean square error.

SSR=sum square regression.

SSE=sum square error.

K =is the explanatory variable and it is the degree of freedom of residual.

n-k =the degree of freedom of the error.

5. making decision.

Decision Rule: If the computed F-value is greater than the tabulated F-value (F α(k, n-k)) with
α=0.05 significance level. Then reject [Link] we do not reject H0.

Alternatively we can reject the null hypothesis by comparing p-value with α-value.

 We reject H0 if α-value exceeds p-value. Otherwise we fail to reject H0.

6. Conclusion. we can conclude with computed results.

3.6.8 Model Adequacy

After we fit the model the next step is that checking model adequacy. when the number variable
is small, the assumption of linearity can be checked by interactively and dynamically
manipulating the plots. The tasks of checking the linearity assumption becomes difficult when
the number variable is large. The following plots of standardized residuals can be used to check
the linearity, normality, multicollinearity and constant variance assumption:

 Normal probability plot of the standardized residuals.

16
  Scatter plots of residuals against predictor variables.
 Variance inflation factor.

CHAPTER FOUR

WORK PLAN AND BUDGET

4.1 WORK PLAN

This study have taken 5 months. The plan of the study was allocated for various activities of the
research as shown below on the table

No Activities November Decembe January Februar March May June

r y
1 Topic
selection

2 Writing 
research
proposal

3 Proposal 
submission
4 Data 
collection
5 Data 
analysis and
processing
6 Report 
writing
7 Submission 
of final
draft
8 Final 
presentation

4.2 BUGDET BREAK DOWN

In this study the following material cost was appropriately available.

17
 No Material Unit Quantity Unit price birr Total price
1 Pen Number 6 5 30
2 Paper Pack 1 100 100

3 Printing Page 50 1.20 60

4 Flash Number 1 160 160
5 Transport to Days 7 20 140
data collection
6 Ruler Number 2 7 14

7 Total 504

REFERENCES

Act and audretch (1993)-Small businesses were believed to impede economic growth by
attracting scarce resources from their larger counterparts

Bahir Dar town administration MSSE’S bureau 2007.

Bahir Dar town administration operational manual

Cochran book (1977), sampling technique third edition.

(Douglas M, Third ; Develop the idea of linear regression model).

18
Gebrehiwot, (1997) The National Micro and small scale enterprise strategy figure out the various
policies, structural and institution related problems that constrained the role of the micro and
small enterprise sector in and contribution to national economy.

Herdsman (1987) - purpose the concept of total quality management is essential for the success
of small business

Ngahu (1992). Small scale enterprise and entrepreneurship development in Ethiopia- second
edition, A.A

Paul B. (1996). Business Research

Douglas Montgomery () Regression Analysis Fourth Edition

Rauch and Frese (2001) - emphasizes the need for human resource management’s strategies for
the success of small business

Robert H. and Jelly H. (1997) Strength cooperation between micro and small scale enterprise
promote export and balances preferential treatment between micro and small scale enterprise and
bigger enterprises.

Todaro and smith (2006) -emphasized the need for coordinating the effort of different enterprises
in order to maximize the benefit they can generate from the economic activity

Woodier A. (1989). Small scale enterprise and entrepreneurship development in Ethiopia- first
edition, A.A

Appendix

BAHIR DAR UNIVERSITY

College of Science
Department of statistics

Questionnaire

The purpose of this questionnaire is to assess factors determining the growth of micro &small
scale enterprise in Bahir Dar Town in case of Belay Zeleke Kefleketema.

19
Dear respondent please try to respond each question without any bias and pick the letter for
multiple question choose item and also write short answer (respond) on the blank space.

1/ Age of an enterprise? A. below 10 B. 10 -15 C.16- 20 D.21-25

E. above 25

2/ Sex of enterprise? A. Male B. Female

3/ Martial status A. Single B. married c. unmarried D. divorced E. widowed

4/ what is the Educational level of enterprise? A. 1-4 B. 5-8 C. 9-12 D. diploma

E. above

5/ what is the Lower educational level of enterprise? A. Primary B. Secondary

C. diploma D. degree E above

6/ prevalence of customer A. occur B. not occur

7/ How often your costumers visit per month....……? A. Rarely B. Sometimes C.

Often D. never

8/ How much is your beginning capital in birr?

A. Below 5000 B.5000-15,000 C.16,000-30,000 D.31,000-45,000

[Link]

9/ Current capital in birr_______________________________

10/ How can you explain profitability of your business?

A. Very satisfactory B. Satisfactory C. Averagely

D. Very unsatisfactory E. Unsatisfactory

11/ what is the reason for question number 8? (You can choice more than one if it is possible)

A. Quality of product B. Amount of product

C. Number of workers D. Market price of product

If any other___________________________________________________________

20
12/ Do you have habit of receiving feedback from customers? A. Yes B. No

13/ Is the government motivates your business operation in this Keble? A. Yes B. No

14/ If your answer in question number 11 is “yes” by what way government motivates you?

A. Financial support

B. Training skill (skill development)

C. If any others________

15/ how much manpower (workers) do you have?

1. Initially ____________

2. Currently _______

16/ Have you using your business planning ? A. yes B. no

DECLARATION

I undersigned declare that the research is my original work and has not been presented for
degrees in any other university and all source material used thesis have been duly acknowledged.

Name Melaku W/gebreal

Signature……………………….

Place : college of science, Bahir Dar university.

Date: ……………………

21
This research has been submitted for examination with my approval as a university advisor

Name Senait Cherie(MSC).

Signature…………………………

Date…………………

Thank you!

22