College of Finance Management & Development

Department of Development Economics

The Effect of Electric Power Interruption on the Business of

Micro and Small Enterprises in Ethiopia

By
Micheal Samson Habte

Advisor
Zekarias Minota (MSc.)

A Thesis Proposal Submitted to Ethiopian Civil Service University College of Finance

Management and Development Department of Development Economics Presented in Partial
Fulfillment of the Requirements for the Degree of Master of Development Economics.

February 2020

Addis Ababa, Ethiopia

 Table of Contents

Content Page
Acknowledgement.......................................................................................................................................1
Acronyms and Abbreviations......................................................................................................................2
CHAPTER ONE......................................................................................................................................3
INTRODUCTION.......................................................................................................................................3
1.1. Background of the Study.................................................................................................................3
1.2. Organization of the Paper................................................................................................................4
1.3. Statement of the Problem.................................................................................................................5
1.4 Research question............................................................................................................................7
1.5 Objective of the Study.....................................................................................................................7
1.6 Significance of Study.......................................................................................................................7
1.7 Scope/Delimitation of Study............................................................................................................8
CHAPTER TWO.....................................................................................................................................9
LITERATURE REVIEW........................................................................................................................9
2.1. Introduction..........................................................................................................................................9
2.2. Development of Infrastructure Services in Ethiopia.............................................................................9
2.3. Development and Supply of Electric Power Service in Ethiopia........................................................11
2.3.1 .Concept of Electricity Development and Supply.............................................................................11
2.3.2. History of Electricity Development and Supply in Ethiopia............................................................12
2.3.3 External Conditions for the Development and Supply of Electric Power in Ethiopia.......................13
2.4. Electricity Supply and Access............................................................................................................18
2.4.1. Electricity supply.............................................................................................................................18
2.4.2. Electric access.................................................................................................................................19
2.4.3. Electricity access and socio-economic development.......................................................................20
2.5. Micro and Small enterprises...............................................................................................................22
2.5.1. Definition.........................................................................................................................................22
2.5.1.1. Definition of MSEs in India..........................................................................................................23
2.5.1.2 Definition of MSEs in Kenya........................................................................................................24
2.5.1.3. Definition of MSEs in Ethiopia....................................................................................................24
2.6. Challenges of Micro and Small enterprises.........................................................................................25

1
2.6. MSE policy and strategy in Ethiopia..................................................................................................27
2.7. Roles of Small enterprises on Economic Development......................................................................30
2.6. Empirical Evidence.............................................................................................................................32
3.3. Conceptual frame work.......................................................................................................................34
Factors Source: Author Conceptual frame work (Feb, 2020)..............................................................34
CHAPTER THREE...................................................................................................................................35
RESEARCH METHODOLOGY..............................................................................................................35
3.1. Research Design.................................................................................................................................35
3.2. Econometrical Approach....................................................................................................................36
3.3. Model specification............................................................................................................................37
CHAPTER FOUR....................................................................................................................................39
DATA ANALYSIS AND DISCUSSTION...............................................................................................39
CHAPTER FIVE......................................................................................................................................51
CONCLUSION AND RECOMMENDATION.........................................................................................51

2
Declaration

I hereby declare that the thesis entitled “The Effect of Electric Power Interruption on the
Business of Micro and Small Enterprises in Ethiopia” is original and has not been submitted for
other degrees or the like in this University or any other institutes. It does not contain any
material, partly or wholly, published or written by others, except those references quoted in the
text.

Declared by: Micheal Samson

Signature:

Date:

3
CERTIFICATION
This to certify that Micheal Samson has carried out his thesis work on the topic entitled “ The
Effect of Electric Power Interruption on the Business of Micro and Small Enterprises in
Ethiopia.” under my guidance and supervision. Accordingly, I hereby assure that his work is
appropriate and standard enough to be submitted for the award of Master of Science degree in
Development Economics.

Name of Advisor: Zekarias Minota (MSc.)

Signature and Date_____________________

4
 Ethiopian Civil Service University
School of Graduate Studies
The Effect of Electric Power Interruption on the Business of Micro and Small Enterprises in

Ethiopia.

ADVISOR THESIS SUBMISSION APPROVAL FORM

This is to certify that the thesis entitled “ The Effect of Electric Power Interruption on the Business
of Micro and Small Enterprises in Ethiopia.” submitted in partial fulfillment of the requirements for
the degree of master with specialization in Development Economics the graduate program has been
carried out by Micheal Samson ID No. ECSU1703374. Under my supervision. Therefore I recommend
that the student has fulfilled the requirements and hence hereby can submit the thesis to the School of
Graduate Studies for defense.

Name of Advisor: Zekarias Minota (MSc.)

Signature:

Date:

5
 Ethiopian Civil Service University
School of Graduate Studies

By

Micheal Samson

This is to certify that the thesis prepared by Micheal Samson, titled: “The Effect of Electric
Power Interruption on the Business of Micro and Small Enterprises in Ethiopia” and submitted
in partial fulfillment of the requirements for the degree of Master of Science in Development
Economics complies with the regulations of the Ethiopian Civil Service University and meets
the accepted standards with respect to originality and quality.

Signed by the Examining Committee:

External Examiner Signature Date

Internal Examiner Signature Date

Advisor Signature Date

Dean of Graduate Program Coordinator Signature Date

 Acknowledgement

First of all, I would like to thank the Almighty God, Who gave me the commitment and
tolerance to pass various obstacles and come up to the accomplishment of this thesis. I am
deeply indebted to my advisor, Zekarias Minota (MSc.)), for his understanding, answering my
frequent questions without any hesitation, for his countless suggestions, assistance, kindness
and invaluable advice. Most important, this thesis would not have been possible without the
support of CSA staff and my classmate Yohannes . In addition to this uninterrupted support
from my family has made me strong enough to reach my destiny.
Acronyms and Abbreviations

CSA: Central Statistics Agency

EEU: Ethiopian Electric Utility

EEPC: Ethiopian Electric Power Cooperation

EPRDF: Ethiopian People’s Revolutionary Democratic Front

FEMSEDA: Federal Micro and Small Enterprises Development Agency

MOUDH: Ministry of Urban Development and Housing

MSE: Micro and Small Enterprises

SAIFI: System Average Interruption Frequency Index

SAIDI: System Average Interruption Duration Index

WB: World Bank

WTO : World Trade Organization

 Abstract

This paper examine the effect not only profit but also the indirect effect on wages and
employment .By state two hypothesis ,one finding major factors affect the direct firm
performance ( such as profit ) and indirect firm performance (such as wages and employment )
holding the electric interruptions constant. Second examine affect the direct firm performance
(such as profit) and indirect firm performance (such as wages and employment ) against SAIFI
and SAIDI by using multivariate regression model. The total base data are 1379 and collected
in 2017 by CSA. Holding other factor constant, if we increases SAIFI and SAIDI by one
percent that lead to 0.00075 and 0.00086 percent decreases on profit of Ethiopian MSE.
Second hypothesis single unit change on raw material, market access, and finance access it
will lead 63.3%,32.9 %,88.2% percent change on profit of MSE’s respectively. However, due
to data inconsistency or applied of indirect measures, difficult to draw conclusion on Wages
and Employment condition of Ethiopian MSE based on the country wise CSA cross sectional
data of 2017.And recommend that strong follow up and support should excepted form concern
stakeholder
 CHAPTER ONE
INTRODUCTION

1.1. Background of the Study

Electric interruption is the persistence problem of many part of the world. Its affected the
production and even change the way to operate, for instance in China the firm reacts buying
intermediate inputs to production instead of producing directly to mitigate power outage
problem (Karen Fisher-Vanden, 2015),In India the firms react by switch to less electricity-
intensive production ( (Abeberese, 2016) , In Ethiopia in addition to negatively affected their
productivity, even lead to increases 15% costs of production from 2011 to 2015 (Abdisa, 2015)
.

In Africa power outages/Electric interruption and access of electricity are problematic issues.
Electric access in Sub Saharan African (SSA) country on average below 50%, half of the
citizens leads their life without access of electricity. Even the one who got the access have been
suffered by Electric interruption, 2018 world bank data shows that 77% of Firms are
experiencing power outages in SSA country.

Electric interruption in less developed countries is a common phenomenon, Ethiopia in

particular. It can be expressed in terms of frequency and duration to restore it. In both cases the
effect on destructing operational activities is obvious; even though such effect depend on utility
provider company capability of retain it on time. World Bank data show that, 44.3 % of people
got access of electricity and 80 % of firms are the victim in power outages problem. And its
negatively affected their productivity, even lead to increases 15% costs of production from
2011 to 2015. (Abdisa, 2015)

In the capital city, Addis Ababa the study conducted show that power interruptions, power
drops and poor customer services are major problems in electric power service (Tesfaye,
2015). And study also found out the main reason why this power interruption exits are
infrastructure capacity limitations, poor infrastructure& design, infrastructure management
problem, poor planning & forecasting, exposure of infrastructures for theft & accidents, natural
accident and water shortages (Tesfaye, 2015)are considered the root causes of interruption . In
Ethiopia, studying such phenomena can be important due to most of business in the country
use Hydroelectricity as main source of production. As result of this, this paper interested to test
how poor electric supply can affect Micro and Small enterprises performance and its spill over
effect on the wages and employment by using both CSA and annual substation outage data of
Ethiopia.

In Ethiopia, According to the revised strategic document 2011 the enterprise can be classified
as the micro, small and medium Enterprises based on no employees and Capital they have. So
Micro means the enterprise that have less than 5 employee and 50000 capital for service and
100000 capital for industry , Small means the enterprise that have between 6 to 30
employees and 50000 to 150000 capital for service and 100001 up to 1500000 capital for
industry , and for medium its 31 up to 100 employees and 500001 to 7500000 capital for
service and industry.

MSEs have a role in community development by increasing improving social, financial,

physical, human and natural capital. According to National Bank of Ethiopia annual report
2018 , During 2015 up to 2018 the total no of employment created by newly established MSE’s
is 3,026,140, in 2018 alone 187 thousands of job created. However, this sector have been
hampered by different constraint to move forward, one of the drawback is the poor electric
supply existing the country essential for conducting day to day operation.
1.2. Organization of the Paper

The First chapter of this paper covers the Introduction, Statement of the problem, Research
question, Objective of the study, Significance of the study and Scope or limitation of the study.

The Second chapter of this Paper covers support literatures are available in subject area, mainly
consists theoretical background such as the theoretical relationship between electricity and
development, MSEs and development, background of Ethiopian Electric utility company (its
sole provider of electricity in the country, Challenges on Electricity providing to the citizens
and challenges on MSE’s development. Also see empirical evidence from different scholars
between poor electric supply and MSE’s functioning in Africa and local context. And finally
provide conceptual frame work

The Third chapter of this paper covers the Research design, its includes research Methodology
and Sampling design.

The Fourth chapter has the result discussion and conclusion of the paper and at the end of the
paper I will append all necessary evidence in addition to cited works.

1.3. Statement of the Problem

Country like Ethiopia, Hydro Electricity is the major source of power for light and
manufacturing process. And its plays key role in the Economic activity of the country.
Generally, Electric consumption had positive impact on the economic growth, 1% increase in
electric consumption led to 0.33% increases in economic growth (Yilamz, 2014). In other
hand, lack of adequate electricity supply may hamper business activity by reducing output as
well as the wage and employment condition of the firms.

The empirical evidence of electricity supply and firm performance finding mostly have a
negative impacts .Some researcher believe that there is negative relationship between
electricity and firm performance (Selase, 2014) (Abdisa, 2018) (Abeberese, 2016) (Karen
Fisher-Vanden, 2015).And On the other hand, Cissokho and Seck (2013) also believe that there
may not be any relationship between power outages and performance of manufacturing
industries. In their study firms who have adequate electric not efficient, But other adapting the
problem helps them to gain technical and scale efficiency.
Micro and Small scale enterprises are generally regarded as the engine of economic growth,
poverty reduction and equitable income distribution in developing country like Ethiopia. It is
the second largest employment generating sector next to agriculture in Ethiopia (Yaregal,
2018),In Addis Ababa itself, at the year 2018/19 the newly MSEs joined the economy reached
9,564 and the no of job created 6.6 % share of the total of country (National Bank of Ethiopia,
2018/19). However, this sector severe by different constrains to functioning well. One of the
factors affecting the sector is the problem of inadequate electricity supply. (Yaregal and
Tihlahun., 2018, Solomon et al., 2016, EEA, 2015)

Reliable electricity supply for MSEs operation is fundamental. But electricity interruption is
not the only issues for MSEs found in Ethiopia specifically in Addis Ababa. According CSA
there are eight factors are identified and collected data annually to provide information for
policy makers as well as the researcher. The factors identified by agencies are Shortage of raw
material ,Shortage of spare parts , Lack of market access ,Financial constraint, Frequent
damage of machinery, Problem of workers ,Government law and regulation constraint and also
Electric interruption. The aim of this paper unlike other conducted in Ethiopia, Relationship
between Electric interruption and Firm performance from national to regional level (Habtamu
Endris 2010, Lamessa Tarkiu, 2018 and Fredrik Carlsson, Eyoual Demeke, Peter Martinsson,
and Tewodros Tesemma, 2018) instead of evaluating the single effect on firm
performance,Rather to test the precence or the absence of Electric interruption in line with
identified factors impact on the Profitability, Wages and Employment of MSEs from time to
time. The reason behind this first the complexity of the problem mainly the magnitude of
issues are differ among firms, resolving one issues doesn’t yield the expected result. And it’s
difficult to generalize unless once we clearly see with or without electric interruption how the
firm performance affected. The second reason is the availability of the required data to conduct
the research.

Generally only few studies in Ethiopia conducted as stated in the above paragraph , Lamessa
Tarkiu, (2015 ) masured production cost in national level but not able to explain how the
imapct affect regions due to the limtation of world bank survy data(only avalible in country
wise), Habtamu Endris (2010) conducted Based on Addis ababa city but only expalin the
imapct by taking one factory case and the result not genrizable, Fredrik Carlsson, Eyoual
Demeke, Peter Martinsson, and Tewodros Tesemma, (2018) the Method empoyed indirect
meaure of cost in thire study by following Willing To Pay approch. So in Ethiopia limited
studies conducted and adding this study will narrow the research gap in the area. And also
provide full picture for policy maker in how the precence or the absence of Electric
interruption along with other factors impact on the Profitability, Wages and Employment of
MSEs from time to time.

1.4 Research question

According to CSA data, there are nine problems or issues are identified that hampers MSEs
operation but the collective impact differ among the firms. My interest in here to test how the
MSEs profitability, wages and employment are affected in the presence or the absence of
electric interruption along with identified factors(Shortage of raw material ,Shortage of spare
parts , Lack of market access ,Financial constraint, Frequent damage of machinery, Problem of
workers ,Government law and regulation constraint). So this research paper designed to
address the following research question at the end.

I. What is the significant factors that affect MSEs performance given that Electric
interruption?
II. What is the Electric interruption effect on the Profitability of MSEs?
III. What is the Electric interruption effect on the Wages of MSEs?
IV. What is the Electric interruption effect on the Employment of MSEs?

1.5 Objective of the Study

The main Objective of this paper is to analyze effect of electric interruptions on the
performance of Micro and Small enterprises.

To fulfill the above objective, the paper has the following specific objectives

1. To examine the significant factors that affects MSEs performance given that Electric
interruption?
2. To analyze the Electric interruption impact on the profitability of MSE’s
3. To analyze the Electric interruption impact on the wages of MSE’s
4. To analyze the Electric interruption impact on the employment of MSE’s
1.6 Significance of Study

First this study will be conducted in order to fulfill master class thesis of development
economics .and second the finding of this research may help other interested researchers as
reference, more ever it helps policy maker and the EEU will understand the magnitude
influence of electric inequality on micro and small business performance. Also the finding will
adding additional inforamtion on Micro and Small enterprize studies .

1.7 Scope/Delimitation of Study

The scope of this study focuses on sample secondary data of micro and small business, the
main limitation my experience on area of study.
 CHAPTER TWO

LITERATURE REVIEW

2.1. Introduction

In this chapter, the theoretical and empirical literatures from selected sources are presented
and discussed. In final part based on the reviewed literatures, I developed the conceptual frame
work.

2.2. Development of Infrastructure Services in Ethiopia

According to the 2011 Population Statistics Agency of Ethiopia, Ethiopia has a population of
over 110 million, making it the second-most populous country in Africa. Its population is also
growing rapidly, with an annual growth rate of 2.6%. According to the African Development
Bank, Ethiopia is a country with rapid urbanization and impressive economic growth (10.3%)
(ADB, 2015). According to the World Bank's 2019 report, Ethiopia's economic performance in
2016-17 is lower than in previous years, and it shows that it is healthy and as usual has a
positive role to continue to move forward (World Bank, 2019). However, like other developing
countries in Africa and Asia, Ethiopia faces three challenges: high population growth, poverty,
and rapid urbanization. To this end, shortages are being created in three main issues in the
country: job creation, infrastructure and housing shortages (World Bank, 2017).

One of the most important issues for the overall development of countries is the availability of
reliable infrastructure services, and it is not possible to sustain the growth of countries and
create a competitive economy globally, without the quality, value, and cost of being
competitive in the global market. It is clear that in a world of interconnectedness we can be
competitive when there are efficient infrastructure services. Infrastructure services have a vital
role to instantly transmit information to the desired entity, improve productivity, attract and
encourage foreign investment, promote business, create employment and reduce poverty and
protect the environment. In general, infrastructure services have an undeniable role as input for
development and good governance; while on the other hand, they are important resources for
residents' daily use. The expansion of infrastructure services is not only important for the
economic development of a country, but also for developing countries, such as Ethiopia, which
is registering economic growth, in creating jobs for citizens, solving social and economic
problems.

National and other state bodies have been taking various steps to address the problem of
infrastructure development in Ethiopia. Since 1983, Ethiopia has been exploring market
reforms, structural change policies, decentralized government structure and agriculture-led
industrial development to ensure rapid development and to lift the country out of poverty. In
these twenty-five years, as in other fields, the infrastructure sector is at the forefront of the
specialty sector, while the provision of services in the sector remains the sole responsibility of
the government.

It is following the growth path of the "developmental government", which will enable the
Ethiopian government to play a strong role in various economic sectors, making the general
public development approach based on the investment of high-level public sector investments.
As a result, the overall development activity of the country has been associated with significant
economic growth since 2001, and since 2010, the government has been responsible for
infrastructural development. He has set an ambitious program for economic transformation
(World Bank, 2017). Through these processes, significant and tangible successes have been
achieved in terms of access and quality of infrastructure in the country as a sector.

Infrastructure development has been one of the main issues of the country since the first
Growth and Transformation Plan, which has been implemented since 2003. Accordingly, one
of the eight core directions of the plan is to strengthen the country's infrastructure and to
support these as the agriculture and manufacturing sector, the government's infrastructure
sector is the central pillar of the government (REDM, 2003). Yes. In the second phase of the
Growth and Transformation Plan, based on plans, record results, and real-time experience, the
economic transformation and development of an industrial sector with the potential were to
play a leading role in the economy in the years ahead. A plan has been developed and one of
the basic features of the plan remains the special focus on infrastructure. (NPC, 2008) In the
plans, the development of the country's infrastructure and quality assurance is one of the core
directions, and detailed plans for the implementation of large scale energy, transport and
telecom infrastructure programs during the planning period. As discussed in detail in the
Second Growth and Transformation Plan, the economic development of the sector, by
providing a strong and competitive price for energy, transport, and communications services,
and addressing major human and operational shortcomings in the sector prior to the plan, It
describes activities to register progress by implementing infrastructure programs. As a result,
infrastructure has been expanded with the investment of the sector and efforts have been made
to provide the public with access to infrastructure, enhance the competitiveness of the
economy, and create favorable conditions for further development.

2.3. Development and Supply of Electric Power Service in Ethiopia

2.3.1 .Concept of Electricity Development and Supply

Energy is a major input that drives the modern economy. Without power, the basis of industrial
civilization would be modern without modern life. Industrial, agricultural and mineral
production and basic services such as transport, communications and health can only be
undertaken when there is an adequate supply of energy. Therefore, as energy supply is very
important for economic and social development, it is always possible, if at all, to be at a
reasonable cost. Without power, there is no civilization and no progress. The reason for the
industrial revolution is the discovery of energy.

With the advent of the Industrial Revolution in the early 17th century, the presence of steam
power was a major factor, with England taking the lead in the use of the steam engine, taking
the lead in the manufacturing industry. The energy revolution that gave birth to the Industrial
Revolution took the place of expanding the sector and its services. The steam engine, which
began to move the engines of coal using coal, began to operate a freight train, a large fleet. As
a result, in a short time, it was possible to produce large quantities of produce, produce and
transport inputs to areas that were large and fast. The steam power not only moved the engine
itself but also began to be used to create higher power. It was also possible to generate
electricity by moving a steam turbine. Coal and steam started generating electricity. The
development of electric power has not only accelerated the growth of the industry but made life
easier and more convenient. (B. Negash, 2016)

In addition to achieving the country's goals, energy infrastructure development is a key

component of development, which plays a key role in accelerating overall development and
eliminating poverty by documenting broad-based, rapid, sustainable and equitable economic
growth. Power supply development is an important sector of development by providing a wide
range of services required for economic and social development, promoting general
development activities, and thus enabling greater employment and population benefit. As you
can see from this, energy supply development is also a consequence. In general, energy
development is an important issue for economic and human development, and a modern,
reliable and low-cost supply of energy is a prerequisite for poverty reduction, economic
development, and general social change.

Electricity reaches the consumer by entering sub-stations that can deliver electricity generated
by turbines to the user and then to the transmission lines. From the power plants or stations to
the transmission and distribution of power, transformers are a complex system of thousands of
professionals who work together to transform the entire production and distribution of
electricity for 24 hours. The electrical system, like its transmission and distribution lines,
requires a complex and sophisticated manpower and technology that requires manpower to be
considered and should be considered with appropriate institutional arrangements, systems, and
proper management and staff.

2.3.2. History of Electricity Development and Supply in Ethiopia

The history of electric power development in Ethiopia has been around since the late 19th
century, but the provision of power to institutions began in the first half of the 20th century.
The first supply of electricity came from a generator and was used only for certain authorized
entities in the palace and surrounding areas. Also, a dam was built on the Akaki River around
1912, and the main purpose of this power was to provide power to many small industries in the
city. (EEPC, 2002 E.C) After some time, there has been a possibility of expanding the scope of
this service to the public through limited public facilities. The development of the power
supply to the homes was also planned, with the development of the power supply to the homes,
but the Italian invasion at the time included other planned development activities, including the
supply of power. He was able to stop them.

In 1941, after the invasion of Italy by the invasion of Elam, an Elamor Property Administration
was established and carried out various development activities, taking over the task of
generating and disseminating power. In 1948, the Institute handed over its power to the Shawa
Electric Power, and although the capacity of the transmitter was low, it was responsible for
distributing power in all states of the country until 1955. The name was changed to the
Ethiopian Electric Light and Power from the part of the country that it was carrying out and the
responsibility it has been given; After eight months of operation, the institute was renamed to
the Ethiopian Electric Power and Power Authority, where its authority and responsibilities
were maintained.

During these times, the primary purpose of the institute was to generate, transmit, distribute
and supply electricity to the community; at this time the power generation capacity of the
institute reached around 35 MW, and the total number of customers was not more than 13,000.
By 1967, the power of Emperor HaileSlassie had collapsed as a result of the political
revolution that brought the military into power, and the whole situation of power generation
and transmission had changed somewhat. Also, the overall power generation, transmission,
distribution, and supply to the community have remained under the control of the central
government, and despite the changes in the service, the supply and utilization of modern
energy continue to below.

Looking at the hydroelectric power plants built from the time of Emperor Haile Selassie to the
end of Derg, the 1945 MW, the 11 MW dam in 1952; 2 In 1963, Awash, which produces 32
MW of power in 1965, generates 100 MW in 1965; in 1981, 153 MW is a solar power
generating 5 MW. In all, the country was able to produce approximately 350 megawatts of
electricity during the 60 years (Bloomberg, 2016).

At the time, various studies indicate that the sector had to reach a modern state-of-the-art
service center, but it was almost impossible to benefit from the sector over the past two
decades, where most of our country's cities had limited access to electricity and were forced to
change their lives. It is undeniable that at this time, the sector, regardless of the size of the
country, has made its contribution to the development of the country, but it has not until
recently been able to build up the required human and technological capacity in the context of
the country's power service. The fact that the country has gone through various structures in
different countries and that there was a systematic consideration of the profitability of the
sector, and that no efforts to improve the quality of the service contributed to the current
problems of the service.

2.3.3 External Conditions for the Development and Supply of Electric Power in Ethiopia

After the Derg government was abolished in 1991 by the Ethiopian People's Revolutionary
Democratic Front (EPRDF), reforms, structural reforms, decentralized government, and
agriculture-led industrial development began to be implemented and the entire power sector.
Generating, transmitting, and disseminating various steps to adapt to the movement has begun
taking steps. As part of this strategy, the policy and other guidelines have been developed and
revised to accelerate the development of the energy and supply sector and to support the
country's foreign exchange needs by ensuring the country's rapid and sustainable economic
growth. Also mentioned at the beginning of this movement was the Transitional Federal
Government (1991-1994) formulated by the Transitional Government of Ethiopia (1991-1994).

According to the policy document, 94% of the country's energy demand at the time was
supplemented with traditional wood and coal, while the remaining 6% was covered by
electricity and oil, which is the source of modern energy. It also shows that the level of power
supply and utilization at the time was also low. The policy outlined some of the key aims to
address these issues, including ensuring timely and cost-effective delivery of reliable energy,
promoting and stabilizing progress from traditional sources of energy, and ensuring that energy
development and use in a safe environment is not harmful. The major policy issues were
addressed in five key areas: energy development, energy supply, energy savings and efficiency,
comprehensive policy measures, and energy institutional issues. The policy also focuses on the
development of renewable sources of energy, such as solar, wind and geothermal, and focuses
mainly on hydroelectric power.

According to various studies on renewable energy sources, Ethiopia has the potential to
produce up to sixty thousand megawatts of electricity, while using only its water resources; it
can generate forty-five thousand MW of electricity. As a result, the country is the second-
largest in Africa with the ability to generate electricity from water. Ethiopia has more than 10
large rivers with enough water to generate electricity, and its geography is conducive to
producing electricity from water. This natural resource has given the country its name as the
East African water tower. The country is capable of producing thirty thousand megawatts of
electricity, which is capable of producing 162 TWh of electricity, but it still does not exceed
5% (Mekuria, 2014).

Table 1: Estimation of the total energy of Ethiopia and the amount of energy produced

Source of energy Measuremen The ability to generate total Selected power level
t energy by%

Hydropower MW 45,000 <5%

Solar/day kWh/m2 Avg. 5.5 <1%
Wind: Power GW 1,350 <1%
Speed m/s > 6.5
Geothermal MW 7000 <1%
Wood Million tons 1120 50%
Agricultural Million tons 15-20 30%
waste
Natural gas Billion m3 113 0%
Coal Million tons 300 0%
Oil shale Million tons 253 0%
Source: Ethiopian Electric Power Corporation

On the other hand, when looking at the energy demand and accessibility of the country,
Ethiopia is one of the countries with the highest access to electricity, followed by the World
Bank's Energy Access Report in 2017, followed by India and Nigeria (World Bank, 2017a).
The report also shows that Ethiopia's per capita electricity consumption rate is 50 kWh, while
the US and Egypt's average consumption rate is about 13200 kWh and 1750 kWh respectively.
This is an indication of the very low level of electricity consumption in the country.

The main problem associated with electricity demand and access is the fact that the growth of
the country's various economies and population growth, particularly in urban areas, and the
increasing demand for electricity have dramatically increased energy demand. To address this
shortage, in addition to bridging the gap between supply and demand, the government is
implementing large-scale electricity generation and distribution programs, recognizing that it is
vital to maximize existing benefits and maximize the country's potential.

Graph 1: Graphic showing the use of power between sectors in 2012 and predicted by 2037

Source: EEU Planning (2012 e.c)

In the last twenty years, nearly eight hydroelectric dams have been built in the last twenty years
alone. As a result, the total power generation capacity of the nation could be increased by
threefold in ten years to 2360 MW in 2015, and when the Renaissance Dam and other power
plants are completed by 2020, this capacity is expected to exceed 17,000 MW. (World Bank,
2016)

In connection with the transmission and distribution of electricity, major projects are
underway, with the major component of the comprehensive electricity access program, which
has been implemented to make access to electricity in all rural towns and villages since 2005.
Through programs that have been developed and implemented consistently under the program,
effects on coverage of electricity in the country have been achieved. In general, various
activities are underway in the electric power generation, power transmission, and transmission
lines, and as a result, the country has been able to increase the coverage of the low electricity
service.

However, work in the sector has had many problems, including major issues in the overall
development of the sector, particularly in project management, generating appropriate
distribution and distribution of electric power, continuously testing and improving the process
and quality, as well as managing existing investments. The major problems associated with this
can be divided into five, one of which is the technical and engineering problems associated
with power generation, transmission and distribution, primarily due to the failure of existing
service and power system technology and the capacity of local institutions. The second
problem is associated with high voltage transmission lines and transformers, which are
associated with the first problem; The fourth cause of power disruption is the impact of seismic
lines on the distribution network system, and the fifth and last is the shortage of manpower in
the way of thinking and managing current technology.

To address these issues, a comprehensive review of the sector is taking place, and the most
important issue is the change in institutional arrangements to make the Ethiopian Electric
Power Corporation more efficient. The organizational change has divided the existing
organization of the corporation into two. Part of this has been developed into a service
management sector focusing on electric power services, and the second part has been set up as
a construction sector focusing on electricity.

The service sector was established by the Council of Ministers, Ethiopian Electric Service, No.
303/2006, and the five major objectives of the institution are outlined in detail. They carry out
construction and maintenance works, work on contractors as needed, manage electricity
distribution lines and carry out wholesale electricity sales to customers; To sell bonds, bail and
negotiate and sign loan agreements with domestic and foreign sources based on guidelines and
policy direction. EC is to perform other related activities that will help to achieve the
objectives.
In addition to addressing the problems of electric service delivery, the Ethiopian Electric
Service has been implementing a new decentralized regional organization in line with the
national governance structure since 2010 and has been designing and implementing various
projects to make technological improvements.

In addition to strengthening financial capacity, the government has planned to facilitate private
sector participation in energy development projects, as it is not possible to fully cover the
sector's development budget and loan grants. The involvement of the private sector in this
regard can be mitigated by the cost of services provided by the government or both or by the
government to pay for the services, and to ensure that the planned work is completed in a short
time and quality and Because of the importance of the partnership in making technology
transparent.

2.4. Electricity Supply and Access

2.4.1. Electricity supply

Electricity supply plays important role on industry and service sector as source of means of
production factor. The availability of reliable power supply at reasonable cost guarantees the
economic growth and development of a country (Singh, 2012).But the reliability stay
destructed more than expect it raises question. .

Providing a reliable supply of electricity requires costly investment as well as skilled control of
the electricity network (David I. Stern, 2016 ). Electric demand and supply should be matched
in order to prevent power lose. Efficient allocation of resources in electricity infrastructure is a
“very challenging task” (Joskow and Tirole, 2007, 83). Due to the complexity and costs of
electricity sector management and investment, power supply is often less reliable in developing
countries than in developed countries (David I. Stern, 2016 ). Technical and commercial lose
of power are the challenging problem of return on investment on Distribution company. The
most common one is electric theft (Khanna and Rao, 2009).

Unreliable power supply can be defined majorly in terms of duration time and frequency of
occurrence. But have the any of the following forms;
A Blackout or Full Outage whereby power is lost completely (Kaseke, 2011, CEIDS, 2001) .
This is a complete or total loss of service arising from causes such as storms, vandalism, car-
pole accidents, etc. (Woo, C. and R.L. Pupp ,1991).

A Brownout whereby the voltage level drops below the normal and permissible limit for the
system [10]. Systems supplied with three-phase electric power suffer brownouts if one or more
phases are absent, or at reduced voltage, or incorrectly phased. Some brownouts, called voltage
reductions, are sometimes allowed to occur in order to avert a full power outage (Kaseke,
2011)

A Dropout describes a momentary (duration of seconds) loss of power (Kaseke, 2011, CEIDS,
2001).

A Load shedding also called rolling blackouts are a way of ensuring that available generation
capacity is rotated among various customers. Load shedding is the rationing of electricity by
the utility company whereby it intentionally reduces the demand for electricity on the system,
usually during periods of peak demand (Kaseke, 2011)

Partial outage is a curtailment of electricity supply due to a utility‟s public appeal for voluntary
load reduction targeted to a particular end-use (e.g. air conditioning or water heating. (Woo, C.
and R.L. Pupp ,1991).

A power failure is an unscheduled and unanticipated outage (Kaseke, 2011, CEIDS, 2001).

Three categories of impact arise from power outages (Kaseke, 2011): (1) Direct economic
costs e.g. restart costs, loss of production, equipment damage and raw material spoilage. (2)
Indirect economic costs e.g. cost of income postponement and financial cost due to loss of
market share. (3) Social impacts e.g. loss of consumer welfare or discomfort at office/home
arising from lack of electricity to power fans, air conditioners, etc., loss of leisure time, risk of
health and safety.

2.4.2. Electric access

Access to electricity has been defined in different contexts in literature. According to Ana and
Ramy, (2015), traditional electricity access definitions focus on electricity connection however,
this definition fail to capture the amount of energy services that this connection can provide as
well as its adequacy and reliability. Because, the poverty impact that electricity can realize
depend on how much and for what it is used, the amount and quality of the service are crucial
for understanding its poverty reduction potential. IEA (2002) defines electricity access at the
household level, i.e. the number of people that have electricity in their home. It comprises
commercially sold electricity, both on-grid and off-grid. However, to be meaningful for human
and social development, access to electricity must be measured by the quality and range of
usage of electricity via appliances to improve quality of life and workplace productivity
(ShashiB.et.al, 2014).

Electrification is also defined in terms of the level of electricity consumption. It is defined as

the annual consumption of at least 250kWhofelectricityinrural
areasand500kWhinurbanareas,for a household of 5(IEA, 2011).Electricity access in Ethiopia
has been mainly stated as the area where the grid network is extended but the actual electricity
connectivity of households has been very low especially in rural areas.

The per capita electricity consumption in Ethiopia is estimated to be 100Kwh a low level
compared with a Sub –Saharan Africa average of 521Kwh(MOWIE,2015)to be 100KWh,,a
low level ,compared with a Sub-Saharan Africa averageof521kWh(MoWIE,2015).

ESMAP (2015) redefines energy access from the traditional binary count to a multi-
dimensional definition as "the ability to avail energy that is adequate, available when needed,
reliable, of good quality, convenient, affordable, legal, healthy and safe for all required energy
services”. That is, having an electricity connection does not necessarily mean having access to
electricity under the new definition, which also takes into account other aspects, as for example
reliability and affordability. Energy access is measured in the tiered-spectrum, from Tier 0 (no
access) to Tier 5 (the highest level of access).The tier assumptions are based on the electricity
consumption level which ranges from 4.5KWh per year for tier 1, mainly used for lighting and
phone charging to annual electricity consumption level of greater than 3000 KWh, which is a
very high level of consumption associated with higher income.

Lack of electricity access impairs progress in human welfare and quality of life. Directly or
indirectly, electricity access enables transformative progress in education, health care, access to
water, essential communications, and information, and access to financial services and
opportunities for income generation. Power supply inadequacy (shortages in generation and
supply) undercuts the productivity of manufacturing and commerce and reduces overall
economic growth (WB,2014).

2.4.3. Electricity access and socio-economic development

Various studies have shown the direct relationships of electricity access on the socio economic
development of a country. Electricity has become an indispensable prerequisite for enhancing
economic activity and improving human quality of life. Agricultural and industrial production
processes are made more efficient through the use of electricity. Households need electricity
for many purposes, including cooking, lighting, refrigeration, study and home-based economic
activity. Essential facilities, such as hospitals, require electricity for cooling, sterilization and
refrigeration (IRENA, 2012).The lack of access to electricity forms a vicious cycle with
underdevelopment: less developed countries do not have the means to invest in electrification,
and the low levels of electrification limits development.

According Paul(2013), electrification enables livelihoods in several ways in rural areas. By

stimulating employment and income generating activities, where people build assets such as
the expansion of dairy milk production and achieve better cash flows. It also argued that
electrification enables people to use surplus resources made possible through their
entrepreneurship that contribute to the emergence of credit and savings schemes based on the
newly available cash. Extra electric lighting and improved water from better pumping facilities
are likely to reduce women’s workload in fetching water and create opportunities to set up
other businesses.

The study by Ana and Ramy(2015) also states access to different tiers of electricity could have
a direct impact on productivity by lowering costs of production, due to less labor needed, lower
costs of energy, the preservation of products for a longer time, the reduction of information
costs , higher quality of products and services, increased volume of production range of
products ,extension of operating hours, which may translate into higher production or sales of
products which may translate into higher sales volumes and revenues. In addition to these
direct impacts, electricity may
Contribute to indirect impacts, mainly higher profitability and income for the owner of the
businesses, higher employment and higher wages, which may be expected to increases in
income for poor people would contribute to raise them out of poverty reduction.

In addition to the economic benefits electricity access would also have various social benefits
especially in rural areas. According to Ram and Jiwan (2015),improved lighting with better
access to electricity, which replaces kerosene, candles, and other traditional lighting sources in
rural areas and provides brighter and more reliable lighting. Educational benefits mainly
associated with improved lighting due to electricity access, which makes extended hours of
study possible and enables the achievement of better educational outcomes over time. Health
benefits related to improved hygiene as households are better able to store food properly,
indoor air pollution is reduced, and electrified medical facilities and clinics provide better
health care. According to Ana and Ramy (2015), access to electricity supply is not enough to
trigger productive uses. These depend on a number of other enabling factors. The availability
and affordability of suitable equipment for productive uses due to lack of financial resources or
limited access to loans and poor knowledge on how to use the electrical equipment affects the
electricity usage for productive uses in rural areas. A market for the additional production is
also seen as a challenge for the increased productivity in rural areas. A growing local economy
with demand for non-basic goods can provide this market. External markets can provide
further possibilities, but skills are required to access them. Saturation of the market is a key
problem for new enterprises.

Hence, an integrated development program is crucial for the productivity increase resulted due
to electricity access. These include roads that allow access to external markets, access to credit
to purchase end-use technologies, training programs and professional support for enterprise
creation, business promotion and development, demonstration projects of the use of electricity
appliances for irrigation and for industries, technical assistance in converting enterprises to
electricity. Creating awareness and provision of enough time for the end users is also
important. It takes time for users to learn about the different services that electricity can
provide.
2.5. Micro and Small enterprises

2.5.1. Definition

In 1996 small scale enterprises were defined as enterprises which employ fewer than 50
persons and whose annual turnover does not exceed 7 million euro or annual balance sheet
total does not exceed 5 million euro (Kushnir et al, 2010). The Commission developed new
definition of MSEs which took effect on January 1, 2005. The new definition is the result of
wide-ranging discussions between the Commission, member states, business organizations and
experts, and open consultations on the internet. The new definition reflects general economic
developments since 1996, and a growing awareness of the specific hurdles confronting MSEs.
The new definition is more suited to the different categories of MSEs and takes better account
of the various types of relationships between enterprises. It helps to promote innovation and
foster partnerships, while ensuring that only those enterprises which genuinely require support
are targeted by public schemes (Kushnir et al, 2010).

The new definition is developed to update thresholds, promote micro enterprises, improve
access to capital, promote innovation and improve access to Research & Development (R&D),
and to take account of different relationships between enterprises (Kushnir et al, 2010).

The European Commission utilizes three criteria to determine whether an enterprise is a micro
or small sized. These are staff headcount, annual turnover, and annual balance sheet (Kushnir
et al, 2010). Micro enterprises are defined as enterprises which employ fewer than 10 persons
and whose annual turnover or annual balance sheet total does not exceed 2 million euro. Small
enterprises are defined as enterprises which employ fewer than 50 persons and whose annual
turnover or annual balance sheet total does not exceed 10 million euro (Kushnir et al, 2010). It
is necessary to note that while it is compulsory to respect the staff headcount thresholds, a
MSE may choose to meet either the turnover or balance sheet ceiling. It does not need to
satisfy both and may exceed one of them without losing its status. The new definition
developed in 2005 offers this choice since, by their nature, enterprises in the trade and
distribution sectors have higher turnover figures than those in manufacturing. Providing an
option between this criterion and the balance sheet total, which reflects the overall wealth of an
enterprise, ensures that MSEs engaged in different types of economic activities are treated
fairly (Kushnir et al, 2010).

2.5.1.1. Definition of MSEs in India

In the Indian context, micro and small enterprises as per the Micro, Small and Medium
Enterprises (MSME) Development Act, 2006 are defined based on their investment in plant
and machinery (for manufacturing enterprise) and on equipments for enterprises providing or
rendering services. According to the (MSME) Development Act of 2006, (India) a micro
enterprise is where the investment in plant and machinery does not exceed twenty five lakh
rupees. A small enterprise is where the investment in plant and machinery is more than twenty
five lakh rupees but does not exceed five crore rupees. In the case of the enterprises engaged in
providing or rendering of services, as:

(a) a micro enterprise is where the investment in equipment does not exceed ten lakh

rupees.

(b) a small enterprise is where the investment in equipment is more than ten lakh rupees

but does not exceed two crore rupees.

2.5.1.2 Definition of MSEs in Kenya

In Kenya, the Micro, Small and Medium Enterprises (MSME) bill 2009 has used 2 criteria to
define Small and Micro Enterprises (SMEs) in general: Number of people/employees and the
company’s annual turnover. For enterprises in the manufacturing sector, the definition takes
into account the investment in plant and machinery as well as the registered capital.

2.5.1.3. Definition of MSEs in Ethiopia

In the majority of countries, micro, small and medium-sized enterprises (MSMEs) account for
a significant proportion of employment. In both developing and developed countries, such
companies account for around two-thirds of total employment. In developing countries
especially, small firms can be critical vehicles for social inclusion, including by providing
opportunities for women to participate in economic activities (WTO, 2019).

In Ethiopia, According to the revised strategic document 2011 the enterprise can be classified
as the micro, small and medium Enterprises based on no employees and Capital they have. So
Micro means the enterprise that have less than 5 employee and 50000 capital for service and
100000 capital for industry , Small means the enterprise that have between 6 to 30
employees and 50000 to 150000 capital for service and 100001 up to 1500000 capital for
industry , and for medium its 31 up to 100 employees and 500001 to 7500000 capital for
service and industry.

Micro and small enterprise development hold a strategic place within Ethiopia’s Industrial
Development Strategy. All the more so as MSEs are the key instruments of job creation in
urban centers, whilst job creation is the centerpiece of the country’s development plan. The
role of MSEs as the principal job creators is not only promoted in low income countries like
Ethiopia, but also in high income countries including the United States of America.
Accordingly, because MSEs play a pivotal role in employment creation, stimulating and
strengthening MSE development should be one of Ethiopia’s top development priorities.
(MoUDH, 2016)

In order to achieve these goals and objectives, the Federal Micro and Small enterprises
development Agency (FeMSEDA) has been established 17 years ago, and it is the responsible
body to support, coordinate and formulate policies and programs, for the promotion and
development of MSEs sector.

2.6. Challenges of Micro and Small enterprises

MSEs in Ethiopia have also been confronted with a number of challenges that obstructed their
success. MSE played the significant role in economic development, poverty alleviation,
employment opportunity, even if they are critically challenged by certain impeding factors to
sustain within the sector. Mekonnen et al. (2013) had pinpointed that inadequate infrastructure
facilities, inadequate finance, poor managerial and technical skills, and inadequate working
premises were the major challenges to MSEs’ successful operations followed by marketing
problems, low support from respective institutions, inadequate supply of raw materials, and
regulatory issues. According to Commission on Legal Empowerment of the Poor (2013) study,
most MSEs in Ethiopia face critical constraints both at the operation and start-up level. Some
of these constraints include lack of access to finance, access to premise, infrastructure, training
in entrepreneurial and management skills, information on business opportunities, and social
and cultural factors particularly related to deficient entrepreneurial culture and excessive
corruption.

The problem confronting MSE’s appears to be similar in least developed or developing

countries. However, the extent of the problems varies from country to country and industry to
industry; and it depends on firms’ characteristics (Aremu & Adeyemi, 2011). Currently, there
are many internal and external challenges face MSE’s in their operations and hinder their
growth in Ethiopia (MUDC, 2013). A hard look at various studies has revealed a number of
deterrents to the growth and survival of the MSEs. These are summarized as under.

a) Lack of Adequate Finance: - Financial constraints such as inadequate investment capital,

insufficient loan, and inefficient financial market are the major obstacles in doing business, and
most MSE’s are highly risky ventures involving excessive administrative costs and lack of
experience in dealing with financial institutions . According to Habtamu et al. (2013), financial
institutions such as microfinance and the banking systems in Africa are not in a position in
providing enough financial support to the expansion of micro and small businesses. MUDC
(2013) also identified that financing has become a principal challenge to micro and small scale
enterprises in Ethiopia; except City administrations and regional microfinance institutions,
their savings and family supports, banks in Ethiopia do not provide finance in the form of loan
to MSE’s due to collateral obligations and other requirement.

b) Lack of Working Premises: - Working premises with least leasing price adjustment is the
first requirement and taken as mandatory to the government (GFDRE, 1997 and 2011).
According to the three years performance report of FMSEA (2013), the government has
supplied 23,263,938 Sq. kilometers land to buildings, sheds and displaying places. Although
these efforts have been made, it is the second ranked challenges in regional towns and the
major ones in Addis Ababa (Habtamu, et al., 2013; MUDC, 2013). Thus, the problem requires
attention to gain MSE’s expected benefit.
c) Lack of Managerial and Technical Skills: - the problems of MSE’s management arises
from the limited knowledge and ability of the owner or shortage of competent staff to advice
the owner on management policies (Stephen & Wasiu, 2013). Decision-making skill
management and accounting practices are very low for MSE operators in developing countries
(Aremu & Adeyemi, 2011). In addition, lack of managerial skills leads to problems in
production due to lack of coordination of production process, and inability to troubleshoot
failures on machinery and/or equipment’s and they cannot afford to employ specialists in the
fields of planning, finance and administration .

d) Lack of Adequate Market:- marketing knowledge is important for the promotion, growth
and development of Micro and small enterprises. In this regard, the Ethiopian government has
formulated MSE’s strategies to ease marketing challenges by creating inter-linkage
mechanisms with other institutions, providing training on marketing, developing export
support programs and marketing information center . However, inability to sell the products
and services; lack of adequate marketing channels, and lack of marketing skills are the
problems to the starting of business and further growth of the sector (MUDC, 2013; MoFED,
2011).

e) Inadequacy of Infrastructure Facilities:- A research conducted by Daniel (2012) stated that

unfavorable roads, power interruption, shortage of water, and inaccessible telecommunications
are the major challenges and without which primary, secondary and tertiary production cannot
function. Furthermore, Habtamu et al. (2013) indicated that MSE’s operating with available
infrastructure facilities has higher probability of long lasting existence and growth as compared
to those MSEs that are operating without adequate infrastructures; and electric power
interruption and inadequate water supply in Ethiopia was highly affected the growth of the
business. Therefore, emphasis should be given since the success or failures of MSE’s
business growth and development depend on the availability and efficiency of infrastructure
utilization.

f) Erratic Supply of Raw Materials:- Linking MSEs to production input suppliers, improving
suppliers’ capacity and regular supply of quality information on input supply sources have
positive effects on the success of MSE’s . As MUDC (2013) has pointed out one of the major
problems constraining the MSE’s development in Ethiopia was found to be erratic supply of
raw materials. To ameliorate such a problem, an aggressive strategy needs to be crafted to
promote business ventures which supply inputs by local and international investors.

g) Regulatory Constraints:- registration and licensing, and the extent of government official
involvement and accessibility of rules and regulations have impacts on MSE’s. high start-up
costs for licensing and registration requirements, cost of settling legal claims and excessive
delays in court proceedings can impose excessive and unnecessary burdens on MSE’s
operations. Even though registration and licensing helps MSE’s to have legality rights, and to
reduce the prevalence of informality, more than 12% of MSE’s in Addis Ababa didn’t have
registration license (MUDC, 2013).

2.6. MSE policy and strategy in Ethiopia

Designing and implementing appropriate economic policies, strategies, and legal and
regulatory framework are prerequisites for creating an enabling environment to promote MSEs.
Gebrehiwot Ageba and Wolday Amha (2006) In Ethiopia it could be argued that deliberate
effort to promote MSEs is relatively recent. In line with its ideology, policies and regulations
of the Derg regime aimed at curtailing (if not eliminating) the private sector. Restrictive
policies such as fixing a ceiling on industrial capital, introducing one man–one license rule,
favouring state/parastatal organizations in availing foreign exchange and bank loans, limits on
single borrower loans3, restrictions on license and investments, absolute priority given to the
public sector in access to trained qualified manpower, etc. were in place. In general, the legal
requirements to obtain licenses during the Derg were bureaucratic which discouraged the
participation of micro and small enterprise operators. The tight foreign exchange control and
heavy import restrictions (bothinputs and other commodities) had created scarcity of imported
commodities and corrupt and rent seeking business community .
Following the regime change in 1992, drastic measures, intended to transform the command
economy to a market-led one, many of which are bound to affect MSEs, were taken. The main
macro economic reforms and restructuring that, directly or indirectly, affect the development
of MSEs include: adoption of market economic policy; deregulation of domestic prices;
devaluation of the local currency; privatisation of public enterprises; decentralization and
devolution of power and the formation of regional states; formulation of a new labour law;
financial sector reforms including the opening of private banks, insurance companies and
microfinance institutions. The reforms also included the monetary management and
liberalization of interest rates and foreign exchange market; fiscal policy reform including tax
reform, budgetary restructuring and reduction of government deficits; introduction of
investment laws to encourage private (both domestic and foreign) investment; liberalization
and promotion of foreign trade; and promotion of favourable economic environment and
bilateral, regional and multilateral international relations. There are also MSEfocussed
measures including the issuance of the National Micro and Small Enterprises Strategy (1997)
and establishment of the Federal Micro and Small Enterprises Development Agency.

The strategy stresses that “various policy, structural and institutional related problems and
bottlenecks” have constrained the role of the MSE sector in and contribution to the national
economy. It thus primarily aims at creating enabling legal, institutional and other supportive
environments for the development of MSEs. The specific objectives of the strategy include:
facilitating economic growth and bring about equitable development; creating long-term jobs;
strengthening cooperation between MSEs; providing the basis for medium and large scale
enterprises; promoting exports; and balancing preferential treatment between MSE and bigger
enterprises. The intended MSE support include creating legal framework; improving access to
finance; introducing different incentive schemes; encouraging partnerships; providing training
in entrepreneurship, skills, and management; improving access to appropriate technology,
information, advice and markets; and developing infrastructure. The strategy also states its
intention to strengthen private sectorinputs and other commodities) had created scarcity of
imported commodities and corrupt and rent seeking business community.

Following the regime change in 1992, drastic measures, intended to transform the command
economy to a market-led one, many of which are bound to affect MSEs, were taken. The main
macro economic reforms and restructuring that, directly or indirectly, affect the development
of MSEs include: adoption of market economic policy; deregulation of domestic prices;
devaluation of the local currency; privatisation of public enterprises; decentralization and
devolution of power and the formation of regional states; formulation of a new labour law;
financial sector reforms including the opening of private banks, insurance companies and
microfinance institutions. The reforms also included the monetary management and
liberalization of interest rates and foreign exchange market; fiscal policy reform including tax
reform, budgetary restructuring and reduction of government deficits; introduction of
investment laws to encourage private (both domestic and foreign) investment; liberalization
and promotion of foreign trade; and promotion of favourable economic environment and
bilateral, regional and multilateral international relations. There are also MSEfocussed
measures including the issuance of the National Micro and Small Enterprises Strategy (1997)
and establishment of the Federal Micro and Small Enterprises Development Agency.

The strategy stresses that “various policy, structural and institutional related problems and
bottlenecks” have constrained the role of the MSE sector in and contribution to the national
economy. It thus primarily aims at creating enabling legal, institutional and other supportive
environments for the development of MSEs. The specific objectives of the strategy include:
facilitating economic growth and bring about equitable development; creating long-term jobs;
strengthening cooperation between MSEs; providing the basis for medium and large scale
enterprises; promoting exports; and balancing preferential treatment between MSE and bigger
enterprises. The intended MSE support include creating legal framework; improving access to
finance; introducing different incentive schemes; encouraging partnerships; providing training
in entrepreneurship, skills, and management; improving access to appropriate technology,
information, advice and markets; and developing infrastructure. The strategy also states its
intention to strengthen private sectorassociations and chambers. A number of institutions are
expected to be involved in providing support to the MSEs.

The strategy is based on the new approach to MSE development. As stated in the strategy, the
fundamental principles guiding interventions by stakeholders (government, private sector,
NGOs, Associations, Chambers and others) include: that support to the MSE operators will be
based on private sector development; that all support to the MSE sector should be designed to
be all-round; that support services should, as much as possible, be based on fees; that
addressing marketing problems of MSE operators will be given due consideration; that
emphasis will be given to the advancement of women; that supporting institutions should
provide solid services to the MSE operators using adequately skilled and trained staff; that the
private sector will be involved in the supply of commercial BDS to MSE operators; and that
cooperative ventures should be facilitated.

The industrial development strategy, issued in 2006, recognises the promotion of MSEs as an
important instrument to create productive private sector and entrepreneurship, hence accords it
due emphasis and priority. It promises to make every effort to support this sector through
provision of infrastructure (working premises and land), financial facilities, supply of raw
materials, training, etc. Federal and regional governments are expected to coordinate the
support services.

2.7. Roles of Small enterprises on Economic Development

The role of micro-enterprises in the world economy especially in developing countries has
become very significant. It can be expressed in terms of their contribution to poverty
alleviation, employment generation, local economic development and formalization of
informal sector activities. (MoTI, 1997)

Micro and small enterprises to the development process of economies through their role in
enhancing self confidence and women empowerment, initiating social change, political
stability and democracy and providing new opportunities for the poor, women in both urban
and rural areas. (Lidholm and Mead, 1999)

According to Zewde (2002), in successful developing countries, Medium and Small

enterprises by virtue of their size, location, capital investment and their capacity to generate
greater employment, have demonstrated their powerful propellant effect for rapid economic
growth. The micro enterprises sector has been instrumental in bringing about economic
transition by providing goods and services that are of adequate quality, and affordable cost to a
large number of people in rural areas, and by effectively using the skills and talents of these
people, without requiring high-level training, large sums of capital or sophisticated
technology.

In assess of Global Entrepreneurship Monitor (GEM) studied the impact of micro enterprises
activity on economic growth significant in various countries. From a global perspective; we
can also conclude that micro enterprises play an important role in a country’s economic growth
(Coulter, 2003). Following are some contribution s of the micro enterprises to the society as
well as the economy:

 Creation of job opportunities

 Better production methods and products
 Identification of business opportunities and markets
 Conservation of natural resources
 Abolition of monopoly and enhancement of competition
 Development of complementary goods producers
 Better utilization of resources
 Improvement of business policies and procedures
 Positive externalities
 Role to rapid economic growth
 As an instrument to economic transition using low capital and technology
 requirement
 and to ensure empowerment of poor women
 Source of entrepreneurial activity
 Source of employment and income distribution (MoTI, 1997).

Micro and small enterprises are also considered to contribute to the development process of
economies through their role in enhancing self confidence and empowerment, Initiating social
change, political stability and democracy and Providing new opportunities for the poor, women
etc… ( Lidholm and Mead 1999).

The role of micro and small enterprises to employment is one of the prominent ones. Charmes
(1999) argues that micro and small enterprises have a high potential for job creation and hence
attract policy makers and donors. In Ethiopia the employment generation capacity of micro and
small enterprises is based on the industry development strategy of the country.

The strategy considers micro and small enterprises as a quick solution to the unemployment
problem (Gebrehiwot, 2004).In addition to the above listed roles, the role of micro and small
enterprises in utilizing local resources and knowledge as well as their contribution to the
formalization of the informal sector in developing countries is significant. (Woldeamanuel,
1996). As discussed in the above in detail , one can understand that micro and small enterprises
have a number of diverse contributions to the developmental endeavors of countries.

2.6. Empirical Evidence

Most of empirical studies conducted in this area focus on single effect of interruption
production ,sales and profit .

In Pakistan , finds that a 10 percent increase in the duration of outages on average leads to a
0.14 percent decrease in a firm’s total revenue and a 0.36 percent decrease in the value added,
all else being equal. There is heterogeneity in the impacts of shortages across sectors: the
industries that are most energy-intensive, such as manufacturers of metal, wood, and paper, are
affected the most severely by shortages (Corbett, 2017).

In Ghana, The study found that without reliable energy supply, SMEs are unable to produce in
increased quantities and quality leading to poor sales hence low levels of profitability (Doe
Frederick, 2014)

In Senegal, Different result is found compare to the above two researches, Power outage
duration has a positive significant effect on cost and technical efficiencies, and SMEs were
more successful in doing so than larger ones. Because outages stimulated better management
practices to mitigate the negative impact of power cuts and less efficient, lower productivity
firms had gone out of business (Cissokho and Seck, 2013).

The finding from on 15 Sub-Saharan African countries, show that percentage increase in
outage intensity is associated with a decline in firm level productivity by between 0.6% and

1.5%.( Justice ,2019)

Power outages found In Ethiopia, study conducted in Amhara region Furniture enterprises,
found that more than 25% work time losses due to power interruption daily and around 65%
work premises problems challenged MSEs (Tomas,2017).
In Addis Ababa On average, micro enterprises lose about 17% of their annual sale due to
power outage, while the figure for small enterprises is 20% because of power shortage.
(Solomon et al., 2015)

3.3. Conceptual frame work

The reviewed literatures show that there is a negative relationship between power outage and
firms productivity. In this frame, the dependent variable is the firm profit and the independent
variable are Electricity shortage and control variable(market and finance) .The figure below
postulate that, the firm performance depend on the Electricity shortage and other factor.
Electric shortage have increases cost of production which lead to decreases firm profitability
and hence affect the wages and employment conditions.

Interruption
Frequency

Firm
 Raw material
Yes
 Market Access

+ Finance How?
Electr
 Capital + icity
Short Interruption
 Human Capital age Duration

 Institution

No

How?

Factors Source: Author Conceptual frame work (Feb, 2020)

CHAPTER THREE

RESEARCH METHODOLOGY

In this chapter the paper outlined as Research method, Population of study and Sampling
technique, sampling type and source of data, Hypothesis test, Model specification and
Estimation technique and procedures will deployed on test of reliability and validity of data.

3.1. Research Design

The research approach will be used in this paper is quantitative research design to test the
research hypothesis formulated based on research objective. The objective of quantitative
research is to develop and employ mathematical models, theories and or hypotheses pertaining
to phenomena. Quantitative methods are frequently described as deductive in nature consisting
of the fact that inferences can be generated about the attribute of a given population through
testing of statistical hypotheses. Creswell, (1994) conceptualizes quantitative research as type
of research that is best suited to analyzing and explaining a phenomenon by collecting
numerical data that are analyzed using mathematically based methods in particular those drawn
from statistical fields. this paper research objectives are examining the relationship between
dependent variable (firm profitability , Wages and employment ) and Independent variable
(Electricity interruptions, firm access to the market ,Finance access, Government supports and
Raw material) are Random and quantitative in nature therefore applying these method suitable
for the outcome of this paper.

3.1.1. Population

The Target Population of this paper is all Micro and Small enterprises located in Ethiopia. All
MSEs Enterprises formally registered and monitored by government are used as target
population by CSA survey.

3.1.2. Sample and sampling procedure

Sample and sampling procedure are based on Central Statistics agency (CSA) MSEs
enterprises survey. CSA annually collected data from Micro, Small, Medium and Large
enterprises. The data covers basic information up to their operational challenges. And stratified
random sampling method employed by Agency to draw the sample from the target population.
Due to the scope of the study the sample data restricted by capital and no of employees that
defined the service and industry of Micro and small enterprises. for estimation purpose , I used
cross sectional data of 4373 MSE’s collected from all over Ethiopia in 2017.Smillarly the
same year data of interruption will be used from Ethiopian Electric Utility Company (EEU).

3.1.3. Type and Source of Data

All the data will be used in this paper are obtained from Secondary data source. The type of
data will be Cross sectional in nature and collecting from CSA and Ethiopian Electric Utility
Company (EEU)
3.2. Econometrical Approach

The empirical study conducted in this area tried to estimate the direct impact of electric
interruption on firm production by using Cost of electricity as the only determinant variable
and the spillover impact not assessed. Specifically in Ethiopia different methods are employed
to estimate the impact mainly Case studies, Survey and willing to pay all this methods its own
advantage and disadvantage which depend on the purpose of the study. Therefore for
estimation purpose I used country Cross sectional survey data collected by CSA.

The aim this paper to test two main cases:

Case One: No Electric interruption; In this case the dependent variable profit, wages and
employment are analyzed against the independent variables access to the market ,Finance
access, Government supports and Raw material by holding electric interruptions constant.

Ho : All independent variables have no significant impact on profit, wages and employment of
MSE’s holding electric interruptions and other factor constant

H1: The independent variable have significant effect on profit, wages and employment of
MSE’s holding electric interruptions and other factor constant

Case Two: With Electric interruption; In this case the dependent variable profit, wages and
employment are analyzed against the independent variables access to the market, Finance
access, Electric interruption frequency, Electric interruption duration, Government supports
and Raw material. In here Electric interruption split into frequency and duration.

Ho : All independent variables have no significant impact on profit, wages and employment of
MSE’s holding other factor constant

H1: The independent variable have significant effect on profit, wages and employment of
MSE’s holding other factor constant.

3.3. Model specification

Based on the relation mentioned in conceptual frame, there are two cases plan to estimate in
both cases I used Multivariate Regression (MR),MR useful when estimated more than one out
come(profit, wages and employment) and again IV access to the market ,Finance access,
Electric interruption frequency ,Electric interruption duration ,Government supports and Raw
material) also greater than one .the first case in absence of electricity,

P= a + β1rw+β2ma+β3f+β4glr +ϵ ( 1)

W= a + β1rw+β2ma+β3f+β4glr +ϵ (2)

E = a + β1rw+β2ma+β3f+β4glr +ϵ (3)

Where. Pit, Wit and E it are the dependent variable profit, wage and employment respectively for
firm i at 2017.In equation 1 profit measures the difference between revenue and cost of
production, continues variable whereas rwi,mai,fi, and glri are raw material , market
access ,Financial access, Government law and regulation respectively for firm i and the value
of IV variables are dummy its take 1 or 0 depend on the respondents. β1, β2, β3, β4, are
coefficient of estimation, a and ϵi are intercept and error term .

Equation 2, Wi is a continues variable whereas rw i,mai,fi, and glri are raw material , market
access ,Financial access, Government law and regulation respectively for firm i and the value
of IV variables are dummy its take 1 or 0 depend on the respondents . β 1, β2, β3, β4, are
coefficient of estimation, a and ϵi are intercept and error term.

Equation 3,Ei is the no of employee/worker whereas rw i,mai,fi, and glri are raw material ,
market access ,Financial access, Government law and regulation respectively for firm i and the
value of IV variables are dummy its take 1 or 0 depend on the respondents . β 1, β2, β3, β4, are
coefficient of estimation, a and ϵi are intercept and error term .

Case Two: Model with Electric interruption

P= a + β1rw+β2ma+β3f+β4glr + β5saifi+β6 saidi+ϵ ( 4)

W= a + β1rw+β2ma+β3f+β4glr + β5saifi+β6 saidi +ϵ (5)

E = a + β1rw+β2ma+β3f+β4glr + β5saifi+β6 saidi +ϵ (6)

Where. Pi, Wi and E Where. Pit, Wit and E it are the dependent variable profit, wage and
employment respectively for firm i at 2017.

Equation 4 profit measures the difference between revenue and cost of production, continues
variable whereas rwi,mai,fi, saifi , saidi and glri are raw material , market access ,Financial
access, System average interruption frequency index (SAIFI), System average interruption
duration index (SAIDI),Government law and regulation respectively for firm i and the value of
IV variables are dummy its take 1 or 0 depend on the respondents except Frequency of
interruption and Duration of interruption measures in terms of no and hours. β 1, β2, β3, β4, β5, β6
are coefficient of estimation, a and ϵi are intercept and error term for equation.

Equation 5, Wi is a continues variable whereas rw i,mai,fi, saifi , saidi and glri are raw material ,
market access ,Financial access, System average interruption frequency index (SAIFI), System
average interruption duration index (SAIDI),Government law and regulation respectively for
firm i and the value of IV variables are dummy its take 1 or 0 depend on the respondents
except Frequency of interruption and Duration of interruption measures in terms of no and
hours. β1, β2, β3, β4, β5, β6 are coefficient of estimation, a and ϵi are intercept and error term for
equation.

Equation 6, Ei is the no of employee/worker whereas rw i,mai,fi, saifi , saidi and glr i are raw
material , market access ,Financial access, System average interruption frequency index
(SAIFI), System average interruption duration index (SAIDI),Government law and regulation
respectively for firm i and the value of IV variables are dummy its take 1 or 0 depend on the
respondents except Frequency of interruption and Duration of interruption measures in terms
of no and hours. β1, β2, β3, β4, β5, β6 are coefficient of estimation, a and ϵi are intercept and error
term for equation.

CHAPTER FOUR

DATA ANALYSIS AND DISCUSSTION

4.1 . Introduction

On this chapter presented both the descriptive and inferential statistics with reference to the
research objectives based on the secondary national cross sectional survey data collected by
CSA in 2017.The analysis aimed both to examine the effect of electricity interruption and also
determine the significant factor on the performance of Ethiopian the MSE’s measured by
outcomes of Profit, Wages and employment altogether on the objective as outlined in chapter
one in subsection 1.6. The chapter commences with the descriptive analysis including bar
graphs, pie chart and frequency tables to present the study results. The secondary survey data is
utilized multiple regression (MR) analysis by presenting analytical findings.

4.2 . Descriptive Statistics

Descriptive analysis is used to describe or give the general information of the survey data in
this paper. Its measure and present the data in the forms of table and charts.

IV.2.1. General information of the survey

The survey collected by CSA has information about region, type of industry, type of
ownership, initial paid capital, employment, loan amount, wages, operational cost and
problems hindered their day to day activities .

A. Region wise information

Total Survey data collected from the regions are 4373.

Table 1. No of Sample Enterprises in region (Data by CSA,2017)

Region Frequency Percentage

TIGRAY 227 5.19
AFAR 13 0.3
AMHARA 1,412 32.29
OROMIA 1,422 32.52
 SOMALIE 1 0.02
BENSHANGUL 8 0.18

S.N.N.P.R. 732 16.73

GAMBELA 6 0.14
HARARI 7 0.16

ADDIS ABABA 532 12.17

DIRE DAWA 13 0.3

Total 4373 100

As outlined in tabel1,The highest percent of data covered or 32.29 % from Amhara and
Oromia region and the least data are collected from Afar and Somali regions . in graphs
presented as follows;
Pie chart

1. TIGRAY 2. AFAR
3. AMHARA 4. OROMIA
5. SOMALIE 6. BENSHANGUL
7. S.N.N.P.R. 12.GAMBELA
13.HARARI 14.ADDIS ABABA
15.DIRE DAWA

Fig1. No of Sample Enterprises in region(Data by CSA,2017)

B. Category of Enterprise

Table 2. Category of Enterprise (Data by CSA,2017)

 Percentag
Type of Enterpizes Frequency e
Manufacture of vegetable and animal 29 0.66
Manufacture of Grain mill services 1,473 33.68
Manufacture of bakery products 244 5.58
Manufacture of other food product n. 50 0.66
Preparation and spinning of textile 8 0.18
Manufacture of made-up textile artic 6 0.14
Manufacture of knitted and crocheted 3 0.07
Manufacture of wearing apparel, exce 652 14.89
Manufacture of luggage, Handbag 2 0.02
Manufacture of footwear 5 0.11
Sawmilling and planning of wood 69 1.39
Publishing, printing and reproduction 5 0.11
Manufacture of soap and detergents, 3 0.07
Manufacture of glass and glass produ 2 0.05
Manufacture of structural non-refrac 4 0.02
Manufacture of articles of concrete, 166 3.8
Manufacture of structural metal prod 627 0.05
Treatment and coating of metals 8 0.18
Manufacture of cutlery, hand tools 1 0.02
Manufacture of machinery for food 18 0.41
Manufacture of parts and accessories 2 0.05
Manufacture of furniture 989 22.62
Manufacture of jewelry 6 0.14
Total 4372 100
The above table shows that the different micro and small manufacturer captured in the survey .

C. Type of ownership

Table 3. Type of ownership(Data by CSA,2017)

Type of Ownership Frequency Percentage

Individual 3,555 81.29
Partnership 449 10.27
Share Company 27 0.62
Private Limited Company 25 0.57
Cooperative 289 6.61
Others 28 0.64
Total 4,373 100
As outlined in tabel3,The highest percent of data covered or 81.29% individuals own the
enterprises .

D. Enterprises who received loan

Table 4. Enterprises who received loan(Data by CSA,2017)

The Establishment received any

loan Frequency Percentage
Yes 586 13.4
No 3,787 86.6
Total 4373 100

4.3 Inferential Statistics

Inferential statistics involves generating from a sample to make estimates and inference
about the wider population .in this paper this explained by using multivariate regression
analysis.

4.2.1. Hypothesis testing and regression

Case One: No Electric interruption; In this case the dependent variable profit, wages and
employment are analyzed against the independent variables access to the market ,Finance
access, Government supports and Raw material by holding electric interruptions constant.

Ho : All independent variables have no significant impact on profit, wages and employment of
MSE’s holding electric interruptions and other factor constant

H1: The independent variable have significant effect on profit, wages and employment of
MSE’s holding electric interruptions and other factor constant

Multiple regression is used to analysis and test hypothesis .The hypothesis where tested at 0.05
significance level with 95% confidence, which is acceptable non clinical research works. Due
to inconsistency, outlier and missing data in base data, I adjusted the base observation into
1379 observation out of 4337 and also applied log on all out come data to bring linearity .the
result presented as follows;

Table 6. Regression analysis result for case one

mvreg lanprofit lanwage Temploye = Market GOVERNMENT Finance Raw material

Equation Obs Parms RMSE "R-sq" F P

--------------------------------------------------------------------------

lanprofit 1,379 5 1.605696 0.0296 10.47786 0.0000

lanwage 1,379 5 .9453279 0.0213 7.48523 0.0000

Temploye 1,379 5 1.509377 0.0141 4.927011 0.0006

------------------------------------------------------------------------------

| Coef. Std. Err. t P>|t| [95% Conf. Interval]

-------------+----------------------------------------------------------------

lanprofit |

Market | -.4295785 .1134474 -3.79 0.000 -.6521273 -.2070296

GOVERNMENT | -.0275678 .3133859 -0.09 0.930 -.6423345 .5871989

Finance | -.970954 .2930688 -3.31 0.001 -1.545865 -.3960433

Raw material | -.7719326 .1561593 -4.94 0.000 -1.078269

-.4655961

_cons | 10.6257 .0521506 203.75 0.000 10.52339 10.728

-------------+----------------------------------------------------------------

lanwage |

Market | .1091498 .0667903 1.63 0.102 -.0218723 .2401719

GOVERNMENT | .3725393 .184501 2.02 0.044 .0106051 .7344734

Finance | .3810238 .1725396 2.21 0.027 .0425542 .7194933

 Raw material | .4397952 .0919363 4.78
0.000 .2594444 .6201459

_cons | 9.445254 .0307028 307.63 0.000 9.385025 9.505484

-------------+----------------------------------------------------------------

Temploye |

Market | -.0426177 .1066422 -0.40 0.689 -.2518168 .1665814

GOVERNMENT | .6644398 .2945873 2.26 0.024 .0865503 1.242329

Finance | -.3630393 .2754889 -1.32 0.188 -.9034636 .177385

Raw material | .5081995 .146792 3.46

0.001 .2202389 .7961601

_cons | 3.298523 .0490223 67.29 0.000 3.202357 3.39469

------------------------------------------------------------------------------

1. Profit

I applied log on profit data in order to covert to linear. Table 6 shows that raw material, market
access, Government and finance access have negative coefficients, implying that these
independent variables negatively predict the profit of MSE’s. The P-value of raw material,
market access and finance access are 0.00 which is less than 5% and it means statically
significant or have significant effect on the profit of MSE but the P-value of Government
constraint has P-value higher than 5% which is insignificant. As result, taking all independent
variables constant at zero and profit of MSE will be at 10.625.Therefor, holding other factor
constant one unit increases on that raw material, market access and finance access will lead to
77%,42.9 %,97% percent decreases in the profit of MSE respectively.

Profit = 10.70 + -.77rw+-0.429ma+-.970f+ϵ

2. Wages

Similarly, to convert to linear I applied to log to wages data. Table 6 shows that raw material,
market access, Government and finance have positive coefficients, implying that these
independent variables positively predict the wages of MSE’s. The P-value of that raw material,
Government and finance are 0.00,0.044 and 0.027 respectively which is less than 5% and it
means statically significant or have significant effect on the wages of MSE. but the P-value of
market access is 0.102 which is higher than 5% and insignificant. As result, taking all
independent variables constant at zero and Wages of MSE will be at 9.45.Therefor, holding
other factor constant one unit increase on that raw material, Government and finance access
will lead to 43.9%,37.2 %,38.1% percent increases in the wages of MSE respectively.

Wage = 9.45 + 0.43rw+0.37gov+0.381f+ϵ

3. Employment

Table 6 shows that raw material and Government have positive coefficients, implying
that these independent variables positively predict the employment of MSE’s. The P-
value of that raw material and Government are 0.001 and 0.024 respectively which is
less than 5% and it means statically significant or have significant effect on the
employment of MSE. But the P-value of market access and finance are higher than 5%
and insignificant. As result, taking all independent variables constant at zero and
employment of MSE will be at 3.29.Therefor, holding other factor constant one unit
increase on that raw material and Government will lead to 50.8% and 66.4% percent
increases in the employment of MSE respectively.

Employment = 3.29 + 0.50rw+0.0.66gov+ϵ

Case Two: With Electric interruption; In this case the dependent variable profit, wages and
employment are analyzed against the independent variables access to the market, Finance
access, Electric interruption frequency, Electric interruption duration, Government supports
and Raw material. In here Electric interruption split into frequency and duration.

Ho : All independent variables have no significant impact on profit, wages and employment of
MSE’s holding other factor constant

H1: The independent variable have significant effect on profit, wages and employment of
MSE’s holding other factor constant.
Definition of SAIFI and SAIDI

System Average Interruption Frequency Index (SAIFI)

SAIFI is the average number of sustained interruptions per consumer during the year. It is the
ratio of the annual number of interruptions to the number of consumers.
SAIFI = (Total number of sustained interruptions in a year) / (Total number of consumers)
System Average Interruption Duration Index (SAIDI)
SAIDI is the average duration of interruptions per consumers during the year. It is the ratio of
the annual duration of interruptions (sustained) to the number of consumers. If duration is
specified in minutes, SAIDI is given as consumer minutes.
SAIDI = Total duration of sustained interruptions in a year / total number of consumers
SAIFI & SAIDI are the most used pair of reliability indices.

Regression analysis result presented on the next pages;

Table7. Regression result for case two

. mvreg lanprofit lanwage Temploye = lanSAIFI lanSAIDI Market GOVERNMENT

Finance Raw material

Equation Obs Parms RMSE "R-sq" F P

--------------------------------------------------------------------------

lanprofit 1,379 7 1.599478 0.0385 9.156966 0.0000

lanwage 1,379 7 .9281591 0.0579 14.06012 0.0000

Temploye 1,379 7 1.506338 0.0195 4.556254 0.0001

------------------------------------------------------------------------------

| Coef. Std. Err. t P>|t| [95% Conf. Interval]

-------------+----------------------------------------------------------------

lanprofit |
 lanSAIFI | -.0753186 .2235441 3.36 0.001 .3117933
1.188844

lanSAIDI | -.0865636 .0289733 -2.99 0.003 -.1434004 -.0297268

Market | -.3295552 .1165079 -2.83 0.005 -.558108 -.1010023

GOVERNMENT | .0902908 .3141243 0.29 0.774 -.5259251 .7065068

Finance | -.8820472 .2931338 -3.01 0.003 -1.457086 -.3070082

Raw material | -.6337104 .1603342 -3.95 0.000 -.9482371

-.3191837

_cons | 7.456441 .9835424 7.58 0.000 5.527031 9.38585

-------------+----------------------------------------------------------------

lanwage |

lanSAIFI | -.8407457 .1297202 -6.48 0.100 -1.095217 .5862743

lanSAIDI | -.110978 .0168129 6.60 0.065

-.0779962 .1439597

Market | -.0109214 .0676082 -0.16 0.872 -.1435481 .1217053

GOVERNMENT | .2402188 .1822829 1.32 0.188 -.1173645 .5978021

Finance | .2712074 .1701023 1.59 0.111 -.0624813 .6048961

Raw material | .2783908 .0930401 2.99

0.003 .0958744 .4609071

_cons | 12.93964 .5707387 22.67 0.000 11.82002 14.05925

-------------+----------------------------------------------------------------

Temploye |

lanSAIFI | -.3363915 .2105269 -1.60 0.110 -.7493809 .0765979

lanSAIDI | -.0221048 .0272862 -0.81 0.418 -.0756319 .0314223

Market | -.0526373 .1097235 -0.48 0.631 -.2678812 .1626066

GOVERNMENT | .6127227 .2958324 2.07 0.039 .0323899 1.193056

Finance | -.3584846 .2760642 -1.30 0.194 -.9000382 .1830691

Raw material | .4746526 .1509977 3.14

0.002 .1784413 .770864

_cons | 4.966974 .9262694 5.36 0.000 3.149916 6.784031

------------------------------------------------------------------------------
 .

The above result show that all the model in multivariate analysis are significant and P-
value is 0 (less than 0.05)

1. Profit

I applied log on profit data in order to covert to linear. Table 7 shows that raw material,
market access, Government, SAIFI,SAIDI and finance access have negative coefficients,
implying that these independent variables negatively predict the profit of MSE’s. The P-
value of raw material, market access, Government, SAIFI,SAIDI and finance access are
less than 5% and it means statically significant or have significant effect on the profit of
MSE. As result, taking all independent variables constant at zero and profit of MSE will be
at 7.45.Therefor, holding other factor constant one unit increases on that raw material,
market access and finance access will lead to 63.3%,32.9 %,88.2% percent decreases in
the profit of MSE respectively. For the focus variable if we increases SAIFI and SAIDI
by one percent that lead to 0.00075 and 0.00086 percent decreases on profit of MSE.

Profit = 7.45 + -.77rw+-0.429ma+-.970f+-0.075saifi + - 0.0865saidi + ϵ

2. Wages

Similarly, to convert to linear I applied to log to wages data. Table 7 shows market access,
Government, SAIFI,SAIDI and finance access have negative coefficients, implying that these
independent variables negatively predict the wages of MSE’s. But The P-value of that raw
material, market access, Government, SAIFI,SAIDI and finance access are greater than 5%
and it means statically insignificant or have no significant effect on the wages of MSE or reject
Ho. this conclude that indirect measures on wages are difficult due to there are many factors
that directly affects of wages than electric interruption .

3. Employment

Similarly, Table 7 shows market access, Government, SAIFI,SAIDI and finance access
have negative coefficients, implying that these independent variables negatively predict
 the employment of MSE’s. But The P-value of that raw material, market access,
Government, SAIFI,SAIDI and finance access are greater than 5% and it means statically
insignificant or have no significant effect on the employment of MSE or reject Ho. this
conclude that indirect measures on employment are difficult due to there are many
factors that directly affects of wages than electric interruption .

4.4 . Discussion

The study examined the determinate factors of MSE performance and the relationship
between electric power interruption vie MSE profit, wages and employment .the finding show
that raw material, market access, Government, SAIFI,SAIDI and finance access are the
determinants of MSE profit based on CSA cross sectional data of 2017 as of Mekonnen et al.
(2013) had pinpointed that inadequate infrastructure facilities, inadequate finance, were the
major challenges to MSEs’ successful operations followed by marketing problems, ,
inadequate supply of raw materials .However , that indirect measures on wages and
employment are gives different results which is difficult to draw the conclusion. The reasons
behind this there are many factors that directly affects of wages and employment than electric
interruption and need to examine separately.

The empirical evidence from literature review suggests that reliable electric energy have effect
on MSE performance (Doe Frederick, 2014, Corbett, 2017, Solomon et al., 2015). and the
findings of this research regarded to the relationship between electric interruptions and on
Ethiopian MSE performances are; holding other factor constant , if we increases SAIFI and
SAIDI by one percent that lead to 0.00075 and 0.00086 percent decreases on profit of
Ethiopian MSE. For data inconsistency or applied of indirect measures, difficult to draw
conclusion on Wages and Employment of Ethiopian MSE based on the country wise CSA
cross sectional data of 2017.
Generally , when compared of the two cases ( as outlined in section 3.2 econometrical
approach ) the effect of raw material, market access, and finance access are higher than those
of SAIFI and SAIDI on the profit of MSE’s in both with and without electric interruption . for
single unit change on raw material, market access, and finance access it will lead 63.3%,32.9
%,88.2% percent change on profit of MSE’s respectively.

CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1. Introduction

The purpose of this chapter is to draw conclusions and recommendations on the findings of the
main objective, which was to examine the determinate factors of MSE performance and the
relationship between electric power interruption vie MSE profit, wages and employment . The
analysis was based on objectives outlined in section 1.5 chapter one.

5.2. Conclusion
Many empirical studies conducted outside Ethiopia are suggested that there is a negative
relationship between electric interruption and firm performance (Doe Frederick, 2014, Corbett,
2017, Solomon et al., 2015).as outlined in section 1.5 this paper examine the effect not only
profit but also the indirect effect on wages and employment .By state two hypothesis ,one
finding major factors affect the direct firm performance ( such as profit ) and indirect firm
performance (such as wages and employment ) holding the electric interruptions constant.
Second examine affect the direct firm performance (such as profit) and indirect firm
performance (such as wages and employment ) against SAIFI and SAIDI by using multivariate
regression model. The total base data are 1379 and collected in 2017 by CSA.

The main challenge of the analysis are both difficult to get consecutive year data and getting
assurance on the quality of secondary data from the agency .the second challenge is collecting
primary MSE data by nature its time and cost consuming task ,it’s difficult to carry out by
single individual. Therefore all the finding stated below are reflecting the challenges the
researcher going through.

The empirical evidence from literature review suggests that reliable electric energy have effect
on MSE performance (Doe Frederick, 2014, Corbett, 2017, Solomon et al., 2015). and the
findings of this research regarded to the relationship between electric interruptions and on
Ethiopian MSE performances are; holding other factor constant , if we increases SAIFI and
SAIDI by one percent that lead to 0.00075 and 0.00086 percent decreases on profit of
Ethiopian MSE. For data inconsistency or applied of indirect measures, difficult to draw
conclusion on Wages and Employment of Ethiopian MSE based on the country wise CSA
cross sectional data of 2017.

Generally , when compared of the two cases ( as outlined in section 3.2 econometrical
approach ) the effect of raw material, market access, and finance access are higher than those
of SAIFI and SAIDI on the profit of MSE’s in both with and without electric interruption . For
single unit change on raw material, market access, and finance access it will lead 63.3%,32.9
%,88.2% percent change on profit of MSE’s respectively.

5.3. Recommendation
The studies implies that in Ethiopia micro and small enterprises raw material , market access
and finance in addition to electric interruption are the major challenge to operate successfully
based the base data. And dependency of this factor is high due to most of MSE owner 81.29%
are individuals. Studies considers micro and small enterprises as a quick solution to the
unemployment problem (Gebrehiwot, 2004).therefore need to conduct further and detail
studies by stakeholders , follow-up and necessary support should give to owners .

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Annex
1. Profit regression
regress lanprofit Market GOVERNMENT Finance Rawmaterial

Source | SS df MS Number of obs = 1,379

-------------+---------------------------------- F(4, 1374) = 10.48
Model | 108.058522 4 27.0146304 Prob > F = 0.0000
Residual | 3542.5273 1,374 2.57825858 R-squared = 0.0296
-------------+---------------------------------- Adj R-squared = 0.0268
Total | 3650.58582 1,378 2.64919145 Root MSE = 1.6057
------------------------------------------------------------------------------
lanprofit | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
Market | -.4295785 .1134474 -3.79 0.000 -.6521273 -.2070296
GOVERNMENT | -.0275678 .3133859 -0.09 0.930 -.6423345 .5871989
Finance | -.970954 .2930688 -3.31 0.001 -1.545865 -.3960433
Rawmaterial | -.7719326 .1561593 -4.94 0.000 -1.078269 -.4655961
_cons | 10.6257 .0521506 203.75 0.000 10.52339 10.728
------------------------------------------------------------------------------

Test
1. Correlation between independent variable
Syntax pwcorr Market GOVERNMENT Finance Raw material ,sig

| Market GOVERN~T Finance Rawmat~l

-------------+------------------------------------
Market | 1.0000
|
|
GOVERNMENT | -0.0689 1.0000
| 0.0049
|
Finance | -0.0803 -0.0256 1.0000
| 0.0012 0.3013
|
Rawmaterial | -0.1537 -0.0491 -0.0572 1.0000
| 0.0000 0.0446 0.0209

2. Multi collinerity
estat vif

Variable | VIF 1/VIF

-------------+----------------------
Market | 1.03 0.966753
Raw material | 1.03 0.972384
Finance | 1.01 0.990604
GOVERNMENT | 1.01 0.991725
-------------+----------------------
Mean VIF | 1.02
VIF < 10

General comment
1. The work is good but require great
modification
2. First, send me the raw and processed data
3. Second, strengthen the problem statement
4. Third, redevelop the literature review
5. Take fundamental modification of the
methodology
a.Data and variable definition
b.Model specification and validation
6. Modify result presentation, analysis and
discuss
a.Use proper tool to present issues
b.Make adequate analysis and interpretation
c.Make discussion with valid empirical
evidence
7. Make concrete conclusion and recommendations
on the study findings and relevant literature.
8. Go through the entire work in terms of grammar
and usage (font style, size, indentation,
etc.), wordings, titles, sentences, citations,
reference. For example, simple but critical
issues; title of the file you sent (Msc
research proposal?) incomplete cover page, no
 page number, mixed font, etc. must get
attention.
9. Finally, try to modify the draft based on the
comments given and beyond (if any).