BST COLLEGE

Graduate Program
ASSESSMENTS OF FACTORS AFFECTING THE
PERFORMANCE OF MICRO AND SMALL ENTERPRISES
(THE CASE OF KOLFE KERANIYO SUB-CITY, ADDIS ABABA)

Prepared by:

 Mahider Tesfaye BSTKL/MBAW/024/11

Under the Supervision of: Moti Mosissa (Ass.Prof)

August, 2020

Addis Ababa- Ethiopia

 OUTLINE
INTRODUCTION
 Background of the study
 Statement of the problem
 Objectives
 Significance of the Study
 Scope of Study
RESEARCH METHODOLOGY
 Research Design
 Research Approach
 Data Source
 Population, Sampling Techniques and Sample Size
 Data Collection Instrument
 Data analysis.
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
 Demographic Data Analysis
 Business Related characteristics
 Factors affecting the performance of micro and small enterprises
SUMMARY, CONCLUSION AND RECOMMENDATION
 Summary of the finding
 Conclusion
 Recommendations
CHAPTER ONE
INTRODUCTION
 1.1. Background of the study
 Small and Medium sized enterprises (SMEs) is a driving force for the future economy.
 SMEs are necessary for the achievement of wider development objectives, including
 poverty eradication,
 job creation
 economic development, and
 promotion of more democratic societies
 According to United Nations, relevant evidence suggests that SMEs are responsible for the success of main economies all over the
world.
 In Ethiopia, MSEs sector is the second largest employment-generating sector following agriculture.

 A national survey conducted by Ethiopian Central Statistical Authority (CSA) in 2005 in 48 major towns indicates that nearly:-

 585,000 operators engaged in micro and this absorb about 740,000 labor forces
 3,000 in small-scale manufacturing industries
 This is a contribution of
o 3.4% to GDP,
o 33% of the industrial sector’s contribution and
o 52% of the manufacturing sector’s contribution to the GDP of the year 2001
 1.2. Statement of the problem
♠ MSEs in the Ethiopian economy, face several challenges and this has had a negative impact on their development and also
limited their potential to drive the national economy as expected.
♠ MSEs confronted with several external & internal factors that affect the performance, such as :
• financial problems,
• lack of qualified employees,
• lack of proper financial records,
• marketing problems and
• lack of work premises
• Lak of raw materials
• cultural, political, legal and technological factors
• person’s individual attitude,
• training and technical know-how etc.…
♠ To address above problems, this study conducted on the assessment of Factors affecting the performance of small and
micro Enterprise in kolfe keranyo sub city.
Research questions:
 What are the challenging factors that affect performance of MSEs in Kolfie Keranyo sub city?
 What are the contributions of MSEs to the economy of Addis Ababa specifically kolfe keranyo Sub city?
 What are the possible solutions towards factors affecting the performance of MSEs in Kolfie Keranyo sub city?
 1.3. Objectives
1.3.1 General objectives

The main objective of the study is to assess Factors affecting the performance of small
and micro Enterprise in kolfe keranyo sub city.

1.3.2. Specific objectives

To assess the factors affecting performance of MSEs in Kolfie Keranyo Sub City.
To examine the contribution of MSEs to the economy of Kolfie Keranyo Sub City.
To suggest possible solutions towards such factors affecting the performance of MSEs
in Kolfie Keranyo Sub City.
 1.4. Significance of the Study
• For sub city administration፡ to create conducive environment for improving the performance of the
enterprises
• For small enterprises: to predict the factors that affect the performance of small enterprises.
• Academics/Researchers: a basis for further study

1.5. Scope of Study

 this study is confined to assessment of Factors affecting the performance of MSEs in Addis Ababa,
specifically in Kolfie Keranyo sub city.
 CHAPTER THREE
RESEARCH METHODOLOGY
 3.1. Research Design
In this study, a descriptive research design was used; to present quantitative descriptions in manageable
form

3.2. Research Approach

Quantitative research approach is adopted to carry out this study. Because the findings are generalized and
the data are objective” (Blanche et al., 2006)

3.3. Data Source

The study was focus on primary and secondary data.
3.4. Population, Sampling Techniques and Sample Size
♣Population: 3467 MSEs businesses registered by Kolfe Keranyo sub city micro and small enterprise
development office.
Sampling Techniques: first the total population of MSEs categorized in to five strata such as:
oConstruction, Manufacturing, Service provider, urban agriculture, and trade which are commonly
available in all sub cities of Addis Ababa.
•Then from each strata’s (sectors) simple random sampling method was applied from a complete list of enterprises
operated
 Population, Sampling Techniques and Sample Size (cont.………..)
Sample size: The sample size is 98 enterprise, determined based on Yamane’s formula (Glenn D. Israel, IFAS);
n=N/ (1+Ne^2)
n= 3467
1+3467∗0.12
n= 98

Sector No. of MSEs Proportion of population in Sample size from each

stratum (%) stratum (n)
Manufacturing 1937 55.9 55
Constriction 711 20.5 20
Service 245 7 7
Trade 353 10.2 10
Urban Agriculture 221 6.4 6
Total 3467   98
Source: Kolfe Keranyo Sub City Micro and Small Enterprises Development office MSE’s registrar book, May 2012 E.c.

3.5. Data Collection Instrument

•data was collected through questionnaires, interviews
3.6. Data analysis.
•Data was analyzed by using descriptive and inferential statistics. .
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND

INTERPRETATION
 4.1 Demographic Data Analysis
Table 4.1 Demographic characteristics of respondents

Variables Frequency Percent Valid Percent Cumulative Percent

Respondent Sex Male 73 76.8 76.8 76.8
Female 22 23.2 23.2 100.0
Total 95 100.0 100.0  
Respondent Age 18-25 12 12.6 12.6 12.6
26-30 30 31.6 31.6 44.2
31-40 45 47.4 47.4 91.6
above 41years old 8 8.4 8.4 100.0
Total 95 100.0 100.0  
Respondent ≤8th Grade 20 21.1 21.1 21.1
Education 8 to 10th grade 29 30.5 30.5 51.6

TVET graduate 35 36.8 36.8 88.4

Bachelor Degree 8 8.4 8.4 96.8

Master’s Degree 3 3.2 3.2 100.0

Total 95 100.0 100.0  

Source: - Own survey, 2020

 4.2. Business Related characteristics
Table 4.2: Frequency and percentage of the respondents’ (MSEs) business related data of enterprise
Variables Frequency Percent Valid Percent Cumulative Percent

motivation for starting this business Unemployment 33 34.7 34.7 34.7

Governmental motivation 41 43.2 43.2 77.9
Interested in the activity 2 2.1 2.1 80.0
To get high income 4 4.2 4.2 84.2
Family 12 12.6 12.6 96.8
Believing to create new jobs to other 3 3.2 3.2 100.0
Total 95 100.0 100.0  
Form of ownership Sole proprietorship 21 22.1 22.1 22.1
Partnership 61 64.2 64.2 86.3
Corporation 13 13.7 13.7 100.0
Total 95 100.0 100.0  
Business type Manufacturing 53 55.8 55.8 55.8
Construction 19 20.0 20.0 75.8
Service 7 7.4 7.4 83.2
Trade 10 10.5 10.5 93.7
Urban Agriculture 6 6.3 6.3 100.0
Total 95 100.0 100.0  
prepare Yes 65 68.4 68.4 68.4
future plan No 30 31.6 31.6 100.0
Total 95 100.0 100.0  
time span your plan covers Below1year 43 45.3 66.2 66.2
1 to 2 years 12 12.6 18.5 84.6
3 to 5 years 10 10.5 15.4 100.0
 Business Related characteristics (cont.….)
Variables Frequency Percent Valid Percent Cumulative Percent
Participate during business plan preparationYes 23 24.2 35.4 35.4
No 42 44.2 64.6 100.0
Total 65 68.4 100.0  
Do you have a record keeping and financial Yes 37 38.9 38.9 38.9
control system No 58 61.1 61.1 100.0
Total 95 100.0 100.0  
record keeping and financial control system by single entry
29 30.5 78.4 78.4
accounting system
by double entry
8 8.4 21.6 100.0
accounting system
Total 37 38.9 100.0  
Management experience before establishing Yes 23 24.2 24.2 24.2
this business No 72 75.8 75.8 100.0
Total 95 100.0 100.0  
Years of management experience 1– 3 years 15 15.8 65.2 65.2
3 – 5 years 8 8.4 34.8 100.0
Total 23 24.2 100.0  
Marketingrelated skill of the principal Yes 62 65.3 65.3 65.3
No 33 34.7 34.7 100.0
Total 95 100.0 100.0  
Source: - Own survey, 2020
 4.3. Factors affecting the performance of micro and small enterprises
Table 4.9 ranking of the major factors that affect the financial performance of MSEs

No. Factors Grand Mean Rank of

Problems
1 Politico-Legal Factors 4.07 4th

2 Working Place Factors 4.14 2nd

3 Financial Factors 4.21 1st
4 Access to market Factors 4.10 3rd

5 Technological Factors 3.97 6th

6 Entrepreneurial readiness 4.05 5th
Source: - Own survey, 2020
 CHAPTER FIVE

SUMMARY, CONCLUSION AND

RECOMMENDATION
 5.1. SUMMARY OF THE FINDING
• majority of the respondents 76.8% were males and the rest 23.2 % were females.
• Most of the respondents were found in the age interval of 31-40 years
• majority of respondents are motivated by Government (43.2%), followed by Unemployment (34.7%) for
starting a business
• majority of respondents 61(64.2%) MSEs are owned and operated by more than one person as partnership
• Most of the respondents prepare business plan for less than a year & doesn’t Participate during preparation.
• majority 58 (61.1%) enterprise has no financial record keeping for their day to day business operation.
• 72 (75.8%) of respondents have no managerial experience and they lack most managerial skills.
• This research shows that factors affect the performance of MSE are:
financial factors
working place factors
Markets Access factors
politico-legal factors,
Entrepreneurial readiness and
technological Factors respectively
 5.2. CONCLUSION
most of the MSEs operators have no efficient experience and management knowhow
majority of them are prepare less than one year & don’t participate during business plan
preparation.
most the enterprise has poor record keeping and financial control system.
The main internal factors identified were:
Entrepreneurial readiness factors which include :
o Lack of motivation and drive,
o lack of persistence and courage to take responsibility for one’s failure and
o absence of initiative to assess one’s strengths and weakness
The most important External (contextual) factors identified are
financial factors which include
• high collateral requirement
• shortage of working capital,
• high interest rate, and
• too complicated loan application procedures of banks and other lending institutions.
 External (contextual) factors (cont.….)
Work place related factors
◊ Doesn`t have enough working premises
◊ the working premises have no access to market
◊ The rent of house is Expensive
marketing factors
● inadequacy of market,
● difficulty of searching new market,
● lack of demand forecasting,
● lack of market information,
● Poor customer relationship, and
● Lack of Promotion to attract potential users
face politico-legal challenges
o Political intervention (use enterprise for winning election rather than economic development),
o not reasonable tax levied,
o Bureaucracy in company registration and licensing,
o Lack of government support, and
o Lack of accessible information on government regulations
 External (contextual) factors (cont.….)
Technological related problems;
 did not have the opportunity to get modernized technology,
 Lack of money to acquire new technology,
 Lack of skills to handle new technology, &
 Unable to select proper technology at the given study area which made
them unsuccessful.
♣Finally all factors aren't equally affect the performance of the business
enterprises. As compared with the other factors,
† shortage of finances and shortage of working premises for start-up and
expansion purposes,
† lack of Markets are the top most factors that affect the growth and success
of MSEs activities at Kolfe keranyo sub city.
Because of this, the MSEs operators are not perform their business-related
activities effectively and efficiently.
 5.3. Recommendations
MSE & Kolfe keranyo sub city micro and small enterprise office with stakeholders are
better to prepare trainings & experience sharing’s about management, record keepings &
marketing techniques
 to solve financial problem:
o MSEs owners use savings as habit
o government bodies have to develop comfortable source of finance for MSEs
o before lending loans to MSEs owners, provide enough and appropriate training on how to utilize these funds.
 to solve marketing problem:
 Providing selling and display places close to working area.
 Linking the MSEs with other private & government sectors
 Changing the perception of the general public through extensive awareness
 participate in biddings
 government and the other concerned body have to work infrastructural facilities
To solve technological problem Kolfe keranyo sub city micro and small enterprise office hire machine
leas purchase program & rendering advise about machines.
Government bodies should simplify bureaucracy.
 future researchers could incorporate external factors such as corruption, size of the enterprise, Availability of raw
materials and inflation rate.
Thank you!!!