HARAMAYA UNIVERSITY

COLLEGE OF AGRICULTURE AND ENVIRNOMENTAL

SCIENCES
DEPARTMENT OF AGRICULTURAL ECONOMICS
THE ROLE OF MICRO AND SMALL SCALE ENTERPRISES IN POVERTY
REDUCTION: THE CASE OF HARAMAYA TOWN, EASTERN HARARGHE
ZONE, OROMIA NATIONAL REGION

BY: -
MOHAMMEDNUR IBRAHIM
ID NO: - 2484/12

ADVISOR:-KINDINEH S. (M.Sc.)

JULY, 2022
HARAMAYA ETHIOPIA
ACKNOWLEDGEMENT

2
 ABBREVIATIONS AND ACRONMY

AT ………………Appropriate Technology
CSA…………….. Central Statistical Authority
EEC……………..European Economic Commission
ILO……………...International Labor Organization
MEMLSA………… Ministry of Education and the Ministry of Labor and Social Affairs
MSEs……………… Micro and Small Scale Enterprises
NGOs…………… Non-Governmental Organizations
SAP……………….. Structural Adjustment Program
SMEs ……………… Small and Medium enterprises
SSEs……………. Small Scale Enterprises
TITBs ……………… Trade, Industry and Tourism Bureaus
UNECA…………..United Nations Economic commission for Africa
USSR……………..Union of Soviet Socialist Republic

3
Contents
ACKNOWLEDGEMENT...................................................................................................................................................2
ABBREVIATIONS AND ACRONMY..............................................................................................................................3
LIST OF TABLES...............................................................................................................................................................5
1. INTRODUCTION...........................................................................................................................................................6
1.1 Background of the Study...........................................................................................................................................6
1.2 Statement of the Problem..........................................................................................................................................7
1.3 Objectives..................................................................................................................................................................8
1.3.1 General Objective..............................................................................................................................................8
1.3.2 Specific Objective.............................................................................................................................................8
1.3. Research Questions.............................................................................................................................................9
1.4 Scope and Limitation of the Study............................................................................................................................9
1.5 Significance of the Study.....................................................................................................................................9
2. REVIEW OF RELATED LITERATURE.....................................................................................................................10
2.1 Theoretical Literature Review................................................................................................................................10
2.1.1 Definitions.......................................................................................................................................................10
2.1.2 Role of MSSEs in Economic Growth..............................................................................................................10
2.1.3. MSSEs and Developing Countries.................................................................................................................12
2.2 Empirical Literature Review..................................................................................................................................12
2.2.1 Size and Diversity of MSSEs in Ethiopia.......................................................................................................12
2.2.3 Challenges of Micro and Small Scale Enterprises..........................................................................................13
2.3 Possible opportunities that alleviate the problems of small business…………………………………………………………..15
2.3.1 Extenal advice…………………………………………………………………………………………………………………………………………..15
2.3.2 Planning, budgetingand forecasting………………………………………………………………………………………………………….15
2.3.3 Audit…………………………………………………………………………………………………………………………………………………………17
2.3.4 Cash flow statement………………………………………………………………………………………………………………………………...17
3. METHODOLOGY........................................................................................................................................................18
3.1. Description of Study Area..........................................................................................................................................18
3.2 Type and Source of Data.........................................................................................................................................19
3.3Sampling Technique and Sample Size.....................................................................................................................19
3.4. Methods of Data Collection...................................................................................................................................19
3.5 Method of Data Analysis........................................................................................................................................20
3.6 Variable in the study………………………………………………………………………………...
…………….20
3.7 Method of data analysis…………………………………………………………………………..……………….20
3.8 Goodness of fit of the model……………………………………………………………...
……………………….21
3.9 Expected outcome………………………………………………………………………...
…………………….....22

4
4. work plan…………………………………………………………………………………………………………...
….22
4.1 Work plan………………………………………………………………………...…………………………………..22
4.2 Budget plan…………………………………………………………………….…………………………………..…
23
5. Questionnaires on the role of micro and small scale enterprise in poverty reduction………………………..……….25
6. REFERENCE................................................................................................................................................................28

LIST OF TABLES
1. Table 1: Work plan……………………………………………………...22
2. Table 2: Budget plan stationary cost……………………………………23
3. Table 3: Personal cost…………………………………………………..23
4. Table 4: Transportation cost……………………………………………23
5. Table 5: Budget summary……………………………………………...24

5
1. INTRODUCTION
1.1 Background of the Study

Majority of developing countries are agrarian in economic, social and cultural outlooks.
Farming is not only an occupation but a way of life for majority of people in Asia, Africa,
and Latin America. Economic development can be achieved through integrated efforts
that encompass all the sectors of the economy. However, these countries were making
great efforts for economic development giving special attention and concern for
agricultural sector. Most of Economies of developing countries produce primary products
(Todaro,201 3).

Economic development is achieved by balancing the economic growth with that of

population growth. Currently, there is high population growth in the country. Making
wise use of the growing population will minimize its impact on economic development.
The population growth is relatively high in rural areas than urban areas. This led to the
currently expanding rural-urban migration. This is the major cause for the currently high
urban unemployment. To reduce urban unemployment, improved labor absorption
capacity and making use of growing population, the major means is expansion of micro
and small scale enterprises(Hailay, 2016). Micro and small scale enterprises are kind of
establishments with small capital investment. Although there are a variety of measures to
categorize micro and small scale enterprises in different countries, in Ethiopia an
establishment is said to be micro or small enterprise if it is set up with capital less than
Birr 500,000. To be more specific, micro enterprises are those enterprises with start-up
capital of less than Birr 20,000 where as small enterprises incorporate all establishments
whose capital of setting (start-up) lay between Birr 20,000 and Birr 500,000.

6
Small scale enterprise have characteristics that justify promoting them in a development
strategy. They create employment at low levels of investment per job, lead to increased
participation of indigenous people in the economy, use mainly local resources, promote
the creation and use of local technologies, and provide skills training at a low cost to
society (ILO,2019). The role of micro and small scale enterprises in the economic
development of the country is huge. The micro and small scale enterprises sector is a
home for many of those who are unable to find job in the formal sector. In other words, it
is a major source /area of employment creation.

In another way the development of micro and small scale enterprises in the urban area
raises the income of the urban poor and unemployed by creating employment
opportunity. The rise in the income of the urban population will expand the market for
agricultural commodities produced in the rural areas. The expansion of agricultural
market enables the rural population for getting better income from their agricultural
production.

Thus in general the development of MSEs have great role in balanced growth of rural
and urban sectors which is very essential for developing countries. However, to enjoy all
the above advantages and fruits of MSEs, they have to perform at their full capacity. The
major ingredient for their performance at their full capacity is financial capital. It is
obvious that the establishment and expansion of micro and small scale enterprises require
enough financial capital. There are many available financial services for micro and small
scale enterprises but only small are attainable for them with respect to collateral. This is
to mean that only small financial institutions provide loan for establishing micro and
small scale enterprises without asking collateral.

1.2 Statement of the Problem

Development of micro and small scale enterprises leads to employment of the majority of
the labor force. The employment situation may be different ranging from self-
employment to wage employment. The self-employment may be as an entrepreneur. This
may grow to family employment and further employment in wage if successful
entrepreneurship is established.

7
The development of MSEs has also capacity to enable the employed to have their own
source of income and get relief from dependence. Apart from employment creation and
income generating capacity, MSEs can also serve as bench mark for an economy towards
sustainable Industrial growth. The extra revenue generated by MSEs can also be used for
establishment of large scale or huge industries. This shows how much MSEs are crucial
for development.

There are also many other roles that micro and small scale enterprises play in the
economic efficiency and development. They often introduce better production methods in
terms of processing speed, quality of output, energy consumption, etc. improved
production methods in turn result in better goods and services. The improvement may be
in terms of price, quality, location, ease of use, packaging, effectiveness of product, etc.

Micro and small scale enterprises always keep their eyes open to identify and exploit
market opportunities. Once they identify an exploitable market opportunity, they devote
themselves to satisfy the market gap. However, in reality they hardly succeed in meeting
all the market demand, a situation that opens the opportunity for others to establish their
own similar business and meet the rest of the market’s need.

Conservation of natural resources is the other major role played by the micro and small
scale enterprises. This is because they use or invent production methods that consume
less energy and raw material. In addition to this they also make better utilization of
resources through the use of resources that have been ignored and labeled as “useless”.
Therefore this kind of initiatives to improved use of neglected resources and conservation
of the ones already in use. To make use of these all benefits the expansion of micro and
small scale enterprises is unquestionable measure.
1.3 Objectives
1.3.1 General Objective
The general objective of the study is to investigating the major roles of micro and small
scale enterprises in poverty reduction and employment creation.

1.3.2 Specific Objective

The specific objectives of the study are:

8
 • To investigate the role of micro and small scale enterprises in generating income
and employment creation,
• To assess the challenges of micro and small scale enterprises in the study area
• To provide suggestions and recommendations for the improvement of the sector.

1.4. Research Questions

• What are the roles of micro and small scale enterprises in income generation and
employment creation?
• What are the challenges of micro and small scale enterprises in the study area?
• Should be done to improve the performance of small and micro enterprises in
Haramaya town?

1.5 Scope and Limitation of the Study

This study investigates micro and small scale enterprises that will work in Haramaya
town. It assessed their role in poverty reduction and employment creation, different
challenges of the sector in the study area.

Due to economic factors, the study also has the following limitations: the study covered
only in Haramaya town so this may not represent to the whole areas of Eastern Hararghe
region. the same to this the researchers select only three kebeles of the city out of 17
kebeles; so this is also another limitation because these three kebeles may not fully
represent the remaining kebeles.

1.6 Significance of the Study

As our country is one of the least developed and poor countries with rapidly rising
population that increases the rate of unemployment proportionally, this study shows the
potential of micro and small scale enterprises to curb the unemployment and reduce
poverty and their problems that should be solved for better performance of the
enterprises.

Studying their role in reducing unemployment and poverty is necessary to give due
consideration for the sector and make use of its potential for vast national economic
development.

9
This research could also be used as a starting reference for researchers who want to
conduct a depth study on the role of small and microenterprises in Haramaya town.

2. REVIEW OF RELATED LITERATURE

2.1 Theoretical Literature Review
2.1.1 Definitions

According to Haylay, small and medium enterprises (SMEs) cover a wide spectrum of
industries and play an important role in both developed and developing countries.
Ethiopia is no exception and SMEs occupy a prominent position in the development of
Ethiopian economy. Over the years, the number of SMEs is growing from time to time
(Hailay, 2013).

The definition of SMEs varies from country to country. All over the world, numbers of
employees or capital investment or both have been used as the basis for defining SMEs.
On the basis of environment criterion, the generally acceptable divisions are;
• up to 19 workers micro or very small
• 20-100 workers small
• 101-500 workers medium
On the other hand, SMEs defined on the investment paid up criteria. Based on this
criterion, micro enterprises are those small business enterprises with paid up capital of
not exceeding US$ 2350 (20,000 Birr). The small enterprises are those business
enterprises with a paid up capital of above US$ 2350 (20,000 Birr) and not exceeding
US$ 58, 750 (500,000 Birr). (Ibid, 2013).

10
2.1.2 Role of MSSEs in Economic Growth

Small scale enterprises play an important role in social, economic and political roles in
employment creation, resource utilization and income generation and in helping to
promote change in a gradual and peaceful manner (Batra 2013).

In a developing country like India, small scale enterprises play a significant role in
economic development of the country. These industries by and large represent a stage in
economic transformation / transition from traditional to modern technology. The
variation in traditional nature of this process is reflected in the diversity of these
industries. Most of the small enterprises use simple skills and machinery. Besides playing
economic role for the country, small enterprises because of their unique economic and
organizational characteristics also play social and political role in local employment
creation, balanced resource utilization, income generation and in helping to promote
change in gradual and peaceful manner (Ibid, 2013).

The need for industrialization also lies in the fact that at all levels of promotion process,
other than the final demand level, industrial investment have more forward and backward
linkages with various industries.

Gunnar Myrdal, while describing the relationship of industrialization and economic

development, writes that the manufacturing industry represents in a sense a higher stage
of production in advanced countries. The development of manufacturing industry has
been concomitant in these countries with spectacular economic progress and rise in the
level of livings; not least in the under-developed countries, the productivity in industry
tends to be considerably greater than in traditional agricultural pursuits. Economic
development through industrialization is sought, therefore, “not only as a means of
bringing about a shift in power within the underdeveloped nations”. (Batra 2013)

The role of small scale industries or entrepreneurship in economic development involves

more than just increasing precipitate output and income; it involves initiating and
constituting change in the structure of business and society. This change is accompanied
by growth and increased output, which allows a more wealth to be divided by the various

11
participants. What is an area facilitates the needed change and development? One theory
of economic growth depicts innovation as key, not only in developing new products /
services for the market but also in stimulating investment interest in the new venture
being created. This new investment works on both the demand and supply side of the
growth equation; the new capital created expands the capacity for growth (supply side)
and the resultant new spending utilities the new capacity and output creates (demand
side) (Hisrich and Peters,2013)

In spite of the importance of investment and innovation in the economic development of

an area there is still lack of understanding of the product evolution process. This is a
process through which innovation develops and commercializes entrepreneurial activity,
which in turn stimulates economic growth. (Ibid, 2012)

2.1.3. MSSEs and Developing Countries

SSEs have characteristics that justify promoting them in a development strategy. They
create employment at low levels of investment per job, lead to increased participation of
indigenous people in the economy, use mainly local resources, promote the creation and
use of local technologies, and provide skills training at a low cost to society (ILO,2019).

The sector plays an important role in various African countries. According to the
ILO/JASPA"African Employment Report" (ILO/JASPA, 2018), the sector makes a
significant contribution to the gross domestic product in Liberia (34.6%), Nigeria
(24.5%), Kenya (19.5%), and Benin (17.7%). In Kenya, the sector is expected to play a
key role in employment creation. Employment projections for 2000 indicate that 75% of
urban jobs are expected to be in this sector, along with 50% of all rural employment
(ILO, 2019). The sector currently employs 40–60% of the urban labor force and
contributes 25–33% to total urban incomes.

However, it is generally recognized that SSEs face unique problems, which affect their
growth and profitability and, hence, diminish their ability to contribute effectively to
sustainable development. Many of the problems cited have implications for technology
choice. These problems include lack of access to credit, inadequate managerial and
technical skills, and low levels of education, poor market information, inhibitive

12
regulatory environments, and lack of access to technology (Harper, 2014; ILO, 2019;
House et al., 2011).

2.2. Empirical Literature Review

2.2.1 Size and Diversity of MSSEs in Ethiopia

The sample survey, conducted in 48 major towns by the Central Statistical Authority
(CSA), in May 2017, showed that there were 584,913 informal sector activity operators
and 2,731 small-scale manufacturing industries, employing a total of 739,898 people. The
survey revealed that a micro enterprise on average engages one person, with the average
annual operating surplus at about Birr 1,300 ($162).

With regard to the diverse nature of activities in the informal sector (mainly micro
enterprises), the survey indicated that the majority of activity is concentrated in two main
broad sectors: namely, 47 per cent in manufacturing and 42 per cent in trade and services.
The distribution of activities among the rest of the MSEs is about 6 per cent in
community and personal services, with the remaining 5 per cent involved in the areas of
agriculture, hunting, forestry and fishing, mining and quarrying, construction and
transport activities. The part of the survey covering “Small-scale Manufacturing
Industries”, showed that the small manufacturing industries are mainly engaged in the
manufacture of food, fabricated metal, furniture and clothing. These sub-sectors
constitute more than 85 per cent of the surveyed small-scale manufacturing industries.
(CSA, 2017)

Each small-scale manufacturing activity engages, on average, 3 persons per establishment

including the owner. The average annual wage per employee is Birr 1,914 ($239). The
average operating surplus per industry is Birr 18,934 ($2,368), which shows that income
generated by small manufacturing activities is much greater than that generated by
operations in the informal sector. The average capital per informal sector activity during
the survey period was found to be Birr 3,528 ($441), while the average capital per small-
scale manufacturing industry was Birr 38,354 ($4,794)(CSA, 2017)(CSA, 2017).

13
2.2.2 Challenges of Micro and Small Scale Enterprises

Micro, Small and Medium Enterprises in developing countries are however confronted
with several drawbacks and challenges they have to overcome in order to operate
successfully. Major obstacles include for example access to finance, competition, market
access, appropriate technology and access to raw materials (Mead & Liedholm, by Eva,
M., 2018).

Micro and Small scale enterprises account the bulk of economic activities in most
developing countries. However, they face many critical problems such as lack of
infrastructure, inadequate or lack of training in entrepreneurial management skills, lack of
information in business opportunities, social and cultural impacts, different
entrepreneurial cultures, lack of development of appropriate regulatory frame works,
government reforms and excessive corruption (Workneh, 2017).

As indicated in the Ethiopian urban Socio-economic Survey, the problems of MSEs in

Ethiopia both at the existing and the emerging enterprises. Some of these includes: access
to financial capital and credit, problems of raising investment capital, lack of sufficient
loan able funds and facilities, (Fasica, D.and Daniel, A. by Wolday, A.2017). In addition,
lack of access to premise and land, considerable insecurity on business owners
concerning location and acquire lands which are not suitable to get easy access to
markets, lack of training on entrepreneurial and management skills, lack of training
institutions and centers, lack of infrastructures, lack of sufficient market and promotional
supports, lack of business information, lack of specific national policy to enhance the
development of the sector and problems on the education system (Andu,2017).

The Federal Micro and Small Enterprise Development Agency, (2014) stated that
“despitetheir undisputable contribution to the overall economic development of the
country, they areentangled in varied problems of varied degrees and complexity like
those in other developingeconomies globally”. Their problems include: Lack of access to
start up and operating financial resources, Lack of work premises both for production and
sales,Shortage of skill and managerial expertise, Inadequacy of supply of
materialMarketing problems and others.

14
In general, micro and small enterprises have great potential to achieve the desired
development goal and to reduce poverty and unemployment. They do have the capacity
to increase the level of income of individuals and to improve the living standards of the
large poor. They are highly applicable in developing countries since they require low
start- up capital and have great potential to absorb a huge amount of work force. However
they are confront by many problems like mentioned above. Therefore, they need special
attention to make better out of them.
2.3 Possible opportunities that alleviate the problem of small business

Entrepreneurs of small business should be ready to take up all the necessary actions in
order to prevent a business failure. Businesses rarely fail suddenly: Failure is a gradual
process which usually involves a downward spiral. However, sometimes failure results
from ambitious expansion plans not accompanied by the appropriate level of finance. It
should be stressed that entrepreneurs should have a proactive approach, taking the
necessary actions as soon as financial problems become apparent.
The small business control from affecting through:-

2.3.1 External Advice

Advice from professionally qualified financial accountants should be sought regularly,

beginning at the startup phase, and continuing through all the stages of business life.
Management education should be provided even before starting out in business.
There is a key role of professionally qualified accountants in areas such accounting,
financial planning and credit management. Bookkeeping and Financial Reporting
practices should be according to recognized accounting principles and sound business
practice, in order to produce high quality financial information, which sets the ground for
the efficient and effective growth and the survival of the business.

2.3.2 Planning, Budgeting and Forecasting

A well-run business will have controls in place to monitor the business plans and an
information system which regularly updates the management on progress towards its
objectives.
The following describe the systems which offer management the opportunity to control
and manage the business

• Strategic Plans

15
Preparing a strategic business plan is an important step in developing a long-term view of
where the business is going and how it plans to get there. It is particularly relevant at
critical times during small business development phase.
The key issues to be addressed in a strategic business plan include marketing and
financial issues.

Key marketing issues:

• The products or services currently offered and the potential developments to the
range of products;

• The customer base and how it might be expanded;

• The distribution channels currently employed and alternative strategies for the
future.

Key financial issues:

• The current level of funding and the requirements for future developments,

• The anticipated profitability and cash flow of the business,

• The current and future return to investors.

Business plans must be a constant reference point for the management and updated
periodically as the business progresses towards its goals.

1.Budgeting
It is vital to prepare annual budgets to decide a plan for the business in the following
years and to provide a yardstick by which progress can be measured. The management
should be able to know whether the business is achieving its targets and if not, to see the
variances from the annual target. Budgets are best prepared with a ‘bottom up’ approach,
so that all the people involved are committed to the eventual targets even if the directors
have to amend the resulting consolidated budget to achieve the business’ goals.

16
 1. Forecasting
It is advisable for businesses with cash flow problems to prepare a daily forecast of
receipts and payments to calculate how much can be paid to the most pressing creditors
as well as highlighting the actions required to generate additional cash flow. The
availability of forecasting spreadsheets make preparation of ad-hoc forecasts easier and
often more meaningful. In case the management decides that the annual budget is no
longer relevant to the business, then ad-hoc forecasts can be substituted.

2.3.3 Audit

Where the financial statements of the company are audited, the entrepreneur will have a
higher level of assurance that the company’s financial information provides a sound basis
for economic decisions. Independent audit is also a deterrent against fraud and increases
the likelihood that any frauds committed will be detected. For this reason, it is advisable
also for those companies for which audit are not compulsory by national law to
commission a voluntary audit of their financial statements.

2.3.4 Cash Flow Statements

A cash flow statement is one of the most useful financial management tools to assess the
timing, amount and predictability of future cash flows and can be the basis for budgeting.
Cash flow information also enables users to develop models to compare the present value
of the future cash flows of different enterprises; it enhances the comparability of the
reporting of operating performance by different enterprises because it eliminates the
effects of using different accounting treatments for the same transactions and events. The
cash flow statement should report cash flows during the period classified by operations,
investing and financing activities.

17
 3. METHODOLOGY

3.1. Description of Study Area

The study will conduct in Haramaya Town which is located 505 km from Addis Ababa
and 20 km northwest of Harar town. The town is geographically located 9ᵒ24’N latitude
and 42ᵒ01ᵒ’E longitude. It is located in east hararghe zone in Oromia, Ethiopia. The total
population in Haramaya town is 15,317. The annual rain fall and temperature of the
district is 900 mill meter cube and 18 degree centigrade respectively.The Town contain
three kebele.

3.2. Research design

A research design is the program that guides the researchers in the process of collecting,
analyzing and interpreting the data. Researcher will use the descriptive form of research
design to provide solutions to the research problems.

Descriptive research involves gathering data that describe events and then organizes,
tabulates, depicts, and describes the data collection and researcher will use across
sectional study design, because researcher will use descriptive data analysis and
standardized question to collect data

18
3.3 Type and Source of Data

In this study both the primary and secondary data will be employee. The researchers will
mostly prefer, the primary data since it is more reliable. In primary source of data
collection will be conduct by interacting or communicating with the key informant those
who have deep indigenous knowledge. Among the primary data questionnaire and
interview scheduled interview will be used with open ended and close ended type of
questions. The schedule will be prepared in the language that respondents can understand
for the sake of simplicity and to get full information. Moreover, secondary data will be
collected from relevant documents especially previous evaluation reports. And also the
secondary source of data will be used to support the topics in some different issues will
collect from different written document available, such as magazines, internet, book, and
research articles.

3.4 Sampling Technique and Sample Size

A multi stage sampling procedure will be used to select sample respondents. In the first
stage, Haramaya town will be selected purposively due to proximity, time and budget. In
the second stage, 3 Kebeles (Ayer Tena, Selam and Satamo) will select among the 24
Kebele Administrations randomly. Totally 90 sample respondents will be selected from
the three kebeles According to selam kebele, Micro and small scale developmental
service association information tailoring, construction, wood and metal work, and food
catering or processing are the major one which contribute more for poverty reduction and
employment creation. The sample size will be calculated using Yamane formula (1967)
with 90 percent confidence level
N
n= 2
1+ N e
Where,
N=number of targeted population
n=required sample size
e=margin of error at 10% (standard value of 0 .1)
The sample size for each kebele will be calculated proportional to the
respective population size as:

19
 ( )
ni =
Ni
N
n

Where, n=n1 +n2 +n3 and N=N 1+ N 2+ N 3 , ni is sample size of ith kebele and N i
is population size of each kebele.

3.5. Methods of Data Collection

To get the required information, structured, semi-structured interview schedule will be

employed. Both primary and secondary data will collect from primary and secondary
sources. This will as a result of need for accurate data for successful study. The primary
data will be collected from sample respondents through preplanned interview schedule.
Whereas the secondary data will be collected from both published and unpublished
documents from concerned organizations.

3.6. Variables in the Study

Dependent variable:The business performance measured by income generated by small

businees which is continouos .

Independent Variables

The following are the independent variables will be used in this study: The independent
variables are access to finance, access to market, and access to networks, working
premises, ease of regulations, technology, age, gender, and education,acceess to market
transportation facility,tax,Interest rate.

3.7 Method of data analysis

In this study both quantitative and qualitative analysis will be undertaken. The study is
mainly use descriptive analysis (mean, minimum, maximum, frequency distribution) of
main data will be analyzed. Qualitative data will be obtained through focused group and
key informants discussion will be summarized, interpreted and narrated. Quantitative data
will be obtained using small business survey and the respondents will be asked.

20
To examine the factors affecting business performance, the multiple linear regression
model will be used to establish relationship between the independent variables and the
dependent variable by use of the following regression formula

Y = β0 + β 1 X 1 + β 2 X 2 + β 3 X 3 + β 4 X 4 + β5 X 5 + β 6 X 6 + β 7 X 7 + β 8 X 8+ β 9 X 9+ …+ β p X p +ϵ

Where, Y = business performance (Dependent Variable)

X 1 – X 9 = Independent Variables
X 1 = Availability of Managerial skill
X 2 access to BDS
X 3 = Customer relationship
X4 = Availability of marketing
X 5 = Access to Finance
X 6 = Availability capital
X7 = Availability of technology
X8 = suitability of working place
X9 = tax imposed
β 0 = Coefficient of the model
β 1 – β 9= Beta Coefficients of Determination
є = Error Term

3.8 Goodness of Fit of The model

Goodness of fit measures for linear regression is attempts to understand how well a model
fits a given set of data. To check the modeling assumptions of linear regression:
 Checking the linearity assumption
 Checking for outliers
 Checking the normality assumption
 Checking the distribution of the residuals does not depend on the predictors. these
are essential qualitative checks of goodness of fit

21
 3.9 Expected Outcomes

• The roles of small business in the study area will be identified.

• The major problems that influence performance of small business will be

assessed.

The possible opportunities that alleviate the problem of small business will be identified.

CHAPTER FOUR
4. WORK PLAN
4.1 Work Plan

Table 1: work plan

Activities February April May June

Proposal writing and 

defence

Literature review 

Selection of sample 
respondents

Data collection 

Data procesing and 

analysis

Research writing 

Research presentation 

22
4.2. Budget plan

Table 2: Budget plan

Stationary cost
Items Amount Unit cost Total cost
Paper 3pack 450 1350
Pen 3 20 60
Marker 2 30 60
Printing 34 2 68
Copy 34 2 68
Total 1606 birr

Table 3: Personal cost

Items Amount Unit cost Total cost

Food 6 50 300
Mobile card 4 25 100
Quessionnare 4 20 80
Data collection 30 5 150
Total 630 birr

Table 4: Transportation cost

Items Amount Unit cost Total cost

Transportation 4 round 20 80
Total 80 birr

Table 5: Budget summery

23
 Items Total cost
Stationary cost 1606
Personal cost 630
Transportation cost 80
Total 2316 Birr

Questionnaire on the Role of Micro and Small Scale Enterprises in poverty reduction

24
Objectives: this questionnaire is prepared for finding out information about the role of
micro and small scale enterprises in poverty reduction (the case of Haramaya town)
HOUSE HOLD INFORMATION
ID of respondents______________________________
1. Name of the respondent_______________________________
2. Kebele__________________________________
3. Sex: - Male Female
4. Age: - 16-25 26-35 36-50>50
5. Educational status: Illiterate read and write only Elementary (1-8)secondary
school (9-10) others (specify) _____________
6. Have you any Technical & vocational training?1. Yes 2. No
7. If “yes” in what program ___________________
8. Have you Diploma or Degree or above? 1. Yes 2. No
9. If” yes” in what program ___________________
10. Religion 1) Orthodox 2) Muslim 3) Protestant 4) Catholic
Others (specify) ____________
11. Marital status:1)Married 2) divorced
3) Widened 4) single 5) Family size___________________
DATA ON THE ROLE OF MICRO AND SMALL SCALE ENTERPRISES
Before getting enterprises
1. Did you have a job before getting in this kind of enterprises?
1) Yes 2) No
2. If your answer for question No.1 is “Yes”
2.1 How much was your level of monthly income in birr? ______________birr
2.2 How much was your level of monthly consumption expenditure? ______________birr
2.3 Is the income you got from that salary enough for you? 1) Yes 2) No
3. What was your household asset? Had you
• House 2) vehicle 3) Radio 4) Pc 5) TV

6) Mobile 7) motorcycle 8) others (specify)

_________________
4. Did you have saving habit?1) Yes 2) No

25
5. If your answer for question No.4 is “Yes” how much you save monthly/yearly?
1) 10 birr monthly or120 birr yearly 2) 50 birr monthly or 600 birr yearly
3)100 birr monthly or 1200birr yearly 4) other (specify) ___________
6. If your answer for 5 is no why?
1) Lack of income 2) lack of awareness 3) Lack access to
MFI 4) other activity (specify) _______________
7. What type of house if you have it?
1) Ordinary hut 2) Iron roof 3) Improved hut 4) other __________
8. What was the major challenge in your previous work before you enter to this MSEs?
1) Lack house 2) lack income 3) lack job satisfaction
4) External Influence 5) Lack skill and knowledge
8) Lack employment 7) Lack of communication with other employers
9) Other ________________
9. Is there anything to say about people those living in this condition?
________________________________________
________________________________________
After getting enterprises
1. How many years since you have started this enterprise?
1) <1yrs2) 1---5yrs 3) >5yrs
2. What was the initiator for you to join this enterprise? Because of:-
1) Better market at a time 2) from government giving workshop for you
3) By getting advice from others 4) by looking other person who start before you
5) It require small startup capital 6) No other alternative
7) Others, specify_________________________________________________________
3. In what way if government helps you when you start this enterprises activity?
1) By subsidy 3) by giving credit
2) By reducing tax 4) by giving lands to you
4. Do you have getting benefit from this enterprise?
1) Yes 2) No
5. If your answer for question No.5 is “Yes” mentions them.

26
1) Improved quality of house 2) increase monthly income 3)
getting job satisfaction 4) Improved skill and knowledge 5) start
to saving 6) increase monthly consumption levelget7)
others____________.
6. If your answer for question No.5 is “increase monthly income” expresses it in birr. It
increases from_____________ Birr to_____________ birr in month.
7. If your answer for question No.5 is “increase monthly consumption level “expresses it in
birr. It increases from_____________ Birr to _____________ birr in month.
8. Do you have additional asset after joining this enterprise?
1) Yes 2) No
9. If your answer for question No.7 is “Yes” mentions the additional asset
1) Radio 2) mobile 3) TV. 4) House 5) vehicle
6) Motor cycle 7) another enterprise 8) Others_____________
10. Did you made any expansionary work to your business? 1) Yes 2) no
11. If your answer for question no. 10 is “yes”, how much your enterprises successful?
1) Profitable 2) stagnant 3) incurring loss
12. Do you think that working in this Micro and small scale enterprise is better for your
family than other large scale enterprises?
1) Yes 2) No
13. If your answer for question No.5 is “Yes” why? Because it:
1) Use simple skills and machinery 2) change our life easily
3) Is profitable 4) Is easy to change our life
5) Other specify __________________________
14. What is your challenge in doing this MSEs?
1) Lack of adequate finance 2) Marketing
3) Taxation 4) Bureaucracy 5) High interest rate
6) Competition 7) Shortage of raw material
8) Information 9) Lack of infrastructure
10) Social and cultural impacts 11) Lack of development of frame works
12) Other, specify ________________________________________

27
15. Is there anything to say about role of micro and small scale enterprises?
____________________________________________________________________

6. REFERENCE

(CSA, 2017) “The sample survey, conducted in 48 major towns’’ by the Central
Statistical Authority
Batra, B.S. (2013), “Development of Entrepreneurship” Deep and Deep Publications
Pvt. Ltd, New Delhi, India.
Bhatia,B.S & Batra, B.S (2013), “Entrepreneurship and Small Business Management
” ,Deep and Deep Publications Pvt. Ltd , New Delhi, India
Dawit Arega & Dawit Ayalew (2005), “Entrepreneurship: A Challenging Expedition to
Success” Brana Printing Enterprise, Addis Ababa, Ethiopia.
Debraj Ray (2018), “Development Economics”, Princeton University Press, Princeton,
Newjersy, USA.
Hailay Gebretinsay, (2013), “Entrepreneurship and Small Business Management”, Ethio
General Press, Mekelle, Ethiopia.
Haile Hagos Beyene, (2015), “Sectoral Analysis of the Ethiopian Economy”, Mega
Printing Press, Addis Ababa, Ethiopia.
Hisrich, Robert .D & Peters, Michael .P, (2012), “Entrepreneurship” 5 th edition Tata
McGraw Hill edition, New Delhi, India.
Kinfe Abraham, (2011), “The Dynamics of Economic Reforms”, Ethiopian International
Institution for Peace and Development,EIIPD Press ,
Todaro, (2013) “Economic Development in Third World Countries”, Longman ice,
London.

28
29