MATTU UNIVERSITY

Factors Affecting Performance of Micro and Small Enterprises

In Ilu Aba Bora Zone, Oromia, South West Ethiopia

Case of Mettu Town

By: Wondewosen Jemal

Adviser: Zigyale M. (MA)

A Thesis Submitted To Mettu University In Partial Fulfillment of The Requirements For

BA Degree In Accounting and Finance

Sep, 2023

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Factors Affecting Performance of Micro and Small Enterprises

In Ilu Aba Bora Zone, Oromia, South West Ethiopia

Case of Mattu Town

By : Wondewosen Jemal

A Thesis Submitted To Great Land Collage In Partial Fulfillment of The

Requirements For BA Degree In Accounting and Finance.

Mattu Ethiopia

Sep, 2023

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 ABSTRUCT

This research aimed at investigating factors affecting the performance of MSEs with a special
emphasizes on Manufacturing, construction, agriculture, service and trade, in Mettu town of Ilu
Aba Bora Zone. For the sake of achieving the objectives of this study, questionnaires were
analyzed using statistical analysis such as descriptive and inferential analyses. The information
gathered through questionnaire from a sample of 273 operators of MSEs. The respondent
operators were selected using stratified sampling technique. Besides, questions were analyzed
using descriptive narrations through concurrent triangulation strategy. The empirical study
elicited eight major challenges which seem to affect performance of MSEs which include:
inadequate finance, lack of working premises, marketing problems, inadequate infrastructures,
poor management practices, and technological, entrepreneurial and politico-legal problems
including bureaucratic bottle neck system. The findings indicate that, there exists linear and
positive significant ranging from substantial to strong relationship between independent
variables and dependent variable. Moreover, the selected independent variables may
significantly explain the variations in the dependent variable at 1% level of significance. Based
on the findings, conclusions were drawn and recommendations made to government bodies, to
operators of MSEs.

Keywords: micro and small enterprises (MSEs), performance, factors

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 AKNOWLEDGEMENT

This work comes to an end not only by the effort of the researcher but also the support of many
individuals and organizations. To begin with, I would like to thank ZIGYALE M. (BA), my
advisor, for his constructive suggestions throughout my work. Had it been without his support,
this work would not have been come in to reality.

Secondly, my heartfelt thanks goes to my elder brother YOHANNES JEMAL, who showed much
devotion to the success of my thesis especially in translating, distributing and collecting the
questionnaire and for all the positive comments, supports and cooperation he gave me while
doing this research. May God bless you!

Last but not the least, Metu town MSE office should be greatly praised for their zealous efforts
while conducting the research. In addition I want to express my great thanks to Mettu town
administration office for providing me printing services and material support.

Contents

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ABSTRUCT....................................................................................................................................ii
AKNOWLEDGEMENT................................................................................................................iii
List of Tables..................................................................................................................................vi
List of Figures.................................................................................................................................vi
CHAPTER ONE..............................................................................................................................1
1. INTRODUCTION.......................................................................................................................1
1.1 Back ground of the study..................................................................................................1
1.2 Statement of the problem..................................................................................................3
1.3 Objective of the study.......................................................................................................6
1.4 Research hypothesis..........................................................................................................6
1.5 Significance of the study...................................................................................................7
1.6 Limitation and delimitation of the study...........................................................................7
1.6.1 Limitations of the Study............................................................................................7
1.6.2 Delimitation of the Study...........................................................................................8
1.7 Operational definitions of terms.......................................................................................8
CHAPTER TWO.............................................................................................................................9
2 LITERATURE REVIEW........................................................................................................9
2.1 INTRODUCTION............................................................................................................9
2.2 Definition of Micro and Small Enterprises.......................................................................9
2.3 The role of micro and small enterprise in poverty reduction..........................................12
2.3.1 Micro and Small Enterprise for Economic Growth: ‘Pro’ and ‘Contra’ Arguments
14
2.4 The Micro and Small Enterprise Sector In Ethiopia.......................................................15
2.4.1 Micro and Small Enterprise Development Strategy................................................15
2.5 The Concept of Business Performance...........................................................................16
2.6 Empirical Study...............................................................................................................17
2.6.1 Previous Studies on Ethiopian Micro and Small Enterprises..................................19
2.7 Conceptual Framework...................................................................................................21
CHAPTER THREE.......................................................................................................................23
3 RESEARCH METHODOLOGY..........................................................................................23
3.1 Research Design..............................................................................................................23
3.2 Questionnaire Design......................................................................................................24
3.3 Data Collection...............................................................................................................24

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 3.3.1 Primary Sources.......................................................................................................24
3.3.2 Secondary Sources...................................................................................................25
3.4 Target Population, Sample Size and Sampling Techniques...........................................25
3.5 Variables and Measurements..........................................................................................26
3.6 Data Processing and Analysis METHOD.......................................................................27
3.6.1 Data Processing.......................................................................................................27
3.6.2 Data Analysis...........................................................................................................27
3.7 Instrument Development.................................................................................................29
3.7.1 Design of the Instruments........................................................................................30
3.8 Ethical Considerations....................................................................................................30
3.9 The study Area Profile....................................................................................................30
CHAPTER FOUR.........................................................................................................................32
4 DATA PRESENTATION, ANALYSIS AND INTERPRETATION...................................32
4.1 Introduction.....................................................................................................................32
4.2 General Characteristics of Responding MSEs................................................................33
4.2.1 Category of Business Venture.................................................................................33
4.2.2 The Main Source of Finance for Start-up and Expansion.......................................33
4.2.3 The Important Aspects for the Success of Business Venture..................................34
4.3 Factors Affecting the Performance of MSE’s.................................................................35
4.4 Comparison of Factors....................................................................................................41
4.5 Results of Inferential Statistics.......................................................................................42
4.5.1 Pearson's Product Moment Correlation Coefficient................................................42
4.5.2 Regressions Analysis...............................................................................................44
CHAPTER FIVE...........................................................................................................................46
5 CONCLUSIONS AND RECOMMENDATIONS................................................................46
5.1 Introduction.....................................................................................................................46
5.2 Conclusions.....................................................................................................................46
5.3 Recommendations...........................................................................................................47
REFERENCES..............................................................................................................................49
APPENDICES...............................................................................................................................52

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List of Tables

Table -3.1: Sample size of the study……………………………………………………..……27

Table 4.1: Response rate of MSE’s …………………………………………………………....34
Table 4.2: Politico-legal factors …………………………………………………………….....37
Table 4.3: Working place as a factor that affect the performance of MSEs …………………..38
Table 4.4: Technological factors that affect the performance of MSEs………………………..38
Table 4.5: Infrastructural factors that affect the performance of MSEs……………………..…39
Table 4.6: Marketing factors that affect the performance of MSEs…………………………….40
Table 4.7: Financial factors that affect the performance of MSEs……………………………...41
Table 4.8: Management factors that affect the performance of MSEs………………………….42
Table 4.9: Entrepreneurial factors that affect the performance of MSEs……………………….43
Table 4.10: Comparison of the major factors……………………………………………………44
Table 4.11: The relationship between independent variables and performance………………...45
Table 4.12: Regression of performance on the selected variables using multiple regressions….46

List of Figures

Figure 2.1: Conceptual frameworks….......................................................................................23

Figure 4.1 Sectors responding MSE’s engaged in …………………………………………....35
Figure 4.2 Source of finance for startup business ………………………………….…………35
Figure 4.3 important aspect for success of business ventures ……………………………...…36

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 CHAPTER ONE

1. INTRODUCTION

1.1 Back ground of the study

The success of the government and a country, in regard to business development, is related to
small business sustainability (Carrasco-Davila, 2005). Local and federal authorities had been
developing programs that promote the creation of new jobs thru the small business (Plan
Nacional de Desarrollo, 2007). The small and medium business sectors are recognized as an
integral component of economic development and a crucial element in the effort to lift countries
out of purveys. The dynamic role of micro and small enterprises (MSEs) in developing countries
is as engines through which the growth objectives of developing countries can be achieved has
long been recognized. Small businesses play an important role in the development of a country
and serve as a means to sustain and grow economies (Ibrahim, Angelidis, & Parsa, 2008). Due to
the ease in starting and simplicity in operation, small businesses are initiated for various reasons
depending upon entrepreneur motives and traits (Kozan et al., 2006

In developing countries, MSEs by virtue of their size, capital investment and their capacity to
generate greater employment, have demonstrated their powerful propellant effect for rapid
economic growth. The MSE sector has also been instrumental in bringing about economic
transition by providing goods and services, which are of adequate quality and are reasonably
priced, to a large number of people, and by effectively using the skills and talents of a large
number of people without requiring high-level training, large sums of capital or sophisticated
technology (ILO, 2008). Similarly, Lara and Simeon (2009) found that the MSE sector generates
substantial employment and economic output in many countries. Their share of overall
employment tends to be higher in developing countries, which are typically more focused on
small-scale production.

The sector has potential to provide the ideal environment for enabling entrepreneurs to optimally
exercise their talents and to attain their personal and professional goals (MoTI, 1997). In all
successful economies, MSEs are seen as an essential springboard for growth, job creation and

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social progress. The small business sector is also seen as an important force to generate
employment and more equitable income distribution, activate competition, exploit niche markets,
and enhance productivity and technical change and, through the combination of all of these
measures, to stimulate economic development. This is not denying the importance of large
industries and other enterprises for the growth of the Ethiopian economy, there is ample evidence
to suggest that the labor absorptive capacity of the MSE sector is high, the average capital cost
per job created is usually lower than in big business, and its role in technical and other innovative
activities is vital for many of the challenges facing Ethiopia (MoTI, 1997).

In Ethiopia, MSEs sector is the second largest employment-generating sector following

agriculture (CSA, 2005). A national survey conducted by Ethiopian Central Statistical Authority
(CSA) in 2005 in 48 major towns indicates that nearly 585,000 and 3,000 operators engaged in
micro and small scale manufacturing industries respectively, which absorb about 740,000 labor
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forces. Accordingly, the whole labor force engaged in the micro enterprises and small scale
manufacturing industries is more than eight folds (740,000 persons) to that of the medium and
large scale manufacturing industries (90,000 persons). This is a contribution of 3.4% to GDP,
33% of the industrial sector’s contribution and 52% of the manufacturing sector’s contribution to
the GDP of the year 2001 (CSA, 2005).

According to Mulhern (1995), MSEs exert a strong influence on the economies of all countries,
particularly in the developing countries. He reported that the MSEs have been a major engine in
the economic growth, innovation and technological progress. In addition Carrier (2008) stated
that:

The MSEs are more fertile than their larger [enterprises] in terms of innovation and
development. The MSE sector is characterized by highly diversified activities which can create
job opportunities for a substantial segment of the population. This indicates that the sector is a
quick remedy for unemployment problem. To curb unemployment and facilitate the environment
for new job seekers and self-employment a direct intervention and support of the government is
crucial.

In Ethiopia, the current government issued National Micro and Small Enterprises Strategy in
1997 and established Micro and Small Enterprises Development Agency in 1998 at federal level
recognizing the significance of the sector. The primary objective of the national MSE

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development strategy is to create an enabling legal, institutional and other supportive
environment for the growth and development of MSEs. This objective could be achieved through
emphasizing the advancement of the most vulnerable group of the society (the women), the
provision of support services on fee basis, and training support needs. The country’s trade policy
and poverty reduction strategy focused MSEs as major instrument to productive and competitive
private sector and as a path to reduce poverty among urban dwellers (FeMSEDA, 2007).

Assistance and support to strengthen these enterprises can lead to higher profits and employment
levels which in turn can contribute to a bottom-up transition out of poverty for entrepreneurs and
workers (Sievers & Vandenberg, 2007). It is further believed that:

The MSE activities can contribute to increasing tax-incomes for the government and enable the
government in the long run to invest the money. In order to strengthen the position of MSEs, the
access to financial and non-financial services plays a pivotal role in the performance and
expansion of these enterprises. The strengthening and the expansion of existing MSEs and the
support of new enterprises can contribute to fulfill social objectives, attract considerable foreign
reserves into a country and have a clear importance in providing employment, meaning they are
the backbone of the private sectors in developing countries (Mead & Liedholm, 1998).

The aim of MSE development and the provision of MSE services are to enable the entrepreneurs
to take advantage of market opportunities and improve the access to skill development
opportunities that strengthen entrepreneurial capabilities (UNIDO, 2002).

Micro and small enterprise in Ethiopia are, however, confronted with several factors that affect
the performance of MSE. The major factors include financial problems, lack of qualified
employees, lack of proper financial records, marketing problems and lack of work premises, etc.
Besides, environmental factor affects the business which includes social, economic, cultural,
political, legal and technological factors. In addition there are also personal attitudes or internal
factors that affect the performance of MSE, which are related to the person’s individual attitude,
training and technical know-how (Werotew, 2010). Generally, there are external (contextual) and
internal factors which are still affecting the very performance of MSEs.

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1.2 Statement of the problem

In most developing countries, MSEs face constraints both at start up phases and after their
establishment. In Africa, for example, the failure rate of MSEs is 85% out of 100 enterprises due
to lack of skills and access to capital (Fedahunsi, 1997). It is typical of MSEs in Africa to be
lacking in business skills and collateral to meet the existing lending criteria of financial
institutions (World Bank, 2004). This, according to World Bank, has created finance gap in most
markets. The MSEs are able to source and obtain finance mostly from informal sectors like
friends and relatives while medium or large enterprises obtain funds from banks. This unequal
access to finance by MSEs and medium and large enterprises has undermined the role of MSEs
in the economic development in African countries (World Bank, 2004).

The study conducted by Ethiopian CSA discloses that, the contribution of small enterprises in
creating job opportunities and in the development of our economy is vital (FeMSEDA, 2006).
However, their contribution is very low when compared with that of other countries due to
financial problem, lack of qualified employees, lack of proper financial records, marketing
problems, lack of working premises and raw materials. Lack of information about market
opportunities and standards and regulations is one of the underlying factors that hinder their
performance (Mulu Gebreeyesus, 2009).

According to Zeleke Worku (2009) lack of integration between the vocational curriculum taught
at academic institutions and skills required at the workplace in small businesses and enterprises
is a major obstacle to the growth and development of MSEs. The same author continued stating:

The performance of the MSE sector in Ethiopia is poor in comparison with similar sectors in
other African countries such as South Africa, Kenya, Uganda and Tanzania. Small businesses
and enterprises in Ethiopia are generally characterized by an acute shortage of finance, lack of
technical skills, lack of training opportunities and raw materials, poor infrastructure and over-
tax.

It is true that, finance, working place, infrastructural, marketing factors are factors that affect the
performance of MSEs . This does not mean that all factors are equally affect the performance of
the business enterprises. Gemechu and Teklemariam (2016) concluded that technological factors,

4
lack of infrastructural facilities, shortage of working premises and shortage of finances for start-
up and expansion purposes are the top most factors that affect the growth and success of MSEs.

Devereux and Sharp (2006 cited in Zeleke Worku, 2009) identified that lack of access to finance is
the most influential factor from among all adverse factors hindering the growth and development of
the MSE sector in Ethiopia.

MSEs have a problem of finance at the start of the business. Most of the sources of finance are
personal savings and loans acquired from relatives, friends and moneylenders with high amount
of interests (MoTI, 2005). After the business goes operational, the probability of becoming
profitable and paying back debts along with accrued interest is less. Besides, MSEs do not
conduct market research and develop/design a product or service as per the need of customers
(Zeleke Worku, 2009). For MSEs, lack of premises is unquestionably a serious problem in the
city. Most informal operators do not get access to suitable locations where they can get easy
access to markets (HLCLEP, 2006). Further, the problem of technical procedures and
appropriate technology used by the firm are another factor associated with high technology of
equipment and use of new technologies.

Ilu Aba Bora zone is endowed with ample natural resources and a cash crop producing area.
MSEs make productive use of resources and improved the efficiency of domestic markets, thus
facilitating long-term economic growth. MSEs also seem to have advantages over other large
scale competitors in that they are able to adapt more easily to market conditions and utilize the
ample resources. The sector has the potential to contribute towards creating employment
opportunities and reducing poverty. However, even if ample resource is available in the region
they have not performed creditably well and hence have not played the expected vital role in the
economic growth and development of the country. This situation has been of great concern to the
government, citizenry, operators, practitioners and the organized private sector groups.

Therefore, the basis for this study is that the government formulated some policies, and
established many institutions to promote the smooth functioning of SMEs. However, the sector is
not performing up to the expectations of many stakeholders as it has been suffering from several
problems. Therefore, the study aims at identifying the impact of the varied problems on the
performance of MSEs in Mattu town of Ilu Aba Bora Zone.

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To address the above problems, this study therefore aims to provide a holistic view of factors
affecting the performance of MSEs through a comprehensive review of literature and empirical
study available on the area. This will result in the development of a theoretical framework for the
initiation of policies and programs for enterprise development. From the practical point of view,
it serves not only to provide a self-check to current enterprise sector, but also to increase the
involvement in business activities through a better understanding of the determinants of the
performance of the enterprises. Such an understanding of the pre-requisites for MSE to perform
well in their businesses is of critical importance especially in today’s competitive environment.

Thus, this study will assess the different factors that affect the performance of MSEs in Ilu Aba
Bora Zone. In light of this, the study attempts to answer the following basic questions:

 What are the sources of finance or funds available to the MSEs?

 What are the various contextual factors that impeded the performance of the
MSEs?
 What are the internal factors that affect the performance of MSEs?

1.3 Objective of the study

Generally, the study is designed to assess the major factors affecting the performance of MSEs in
Ilu Aba Bora Zone. Specifically, it is intended to:

1) Examine the sources of finance or funds available for the start-up and the expansion of
MSEs.
2) Investigate the contextual factors that affect the performance of MSEs.
3) Assess the internal factors that affect the performance of MSEs.

1.4 Research hypothesis

With the help of sufficient and appropriate empirical data on the factors affecting the
performance of MSEs, this study will test the following hypothesis:

Ha1: The selected independent variables do affect the Performance (Profitability) of MSEs in
Mattu town of Ilu Abba Bora zone.

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Ha2: The selected independent variables do not affect the Performance (Profitability) of MSEs
in Ilu Abba Bora zone.

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1.5 Significance of the study

The findings of this study will be useful to the stakeholders including:

i. Academics/Researchers

Findings from this study will assist academicians in broadening of the prospectus with respect to
this study hence providing a deeper understanding of the critical factors that affect the
performance of MSEs.

ii. Micro and Small Enterprises

The findings of this study will help MSEs in Ilu Aba Bora zone and others, within an insight into
the benefits of using different factors studied in this research to predict the factors that affect the
performance of MSEs.

iii. Government/ Policy Makers

The government can use the findings of this study to assist in policy formulation and
development for a framework for critical finance, marketing, work premises and other factors
that affect the performance of MSE. Moreover, the findings of this study will help the policy
makers and financial institutions how to encourage establishing or expanding MSEs. It also
enables them to know what kind(s) of policies should be framed.

1.6 Limitation and delimitation of the study

1.6.1 Limitations of the Study

Like all research, this study had limitations. The sources of difficulties encountered in this study
were described as follows: most of the documents that are concerned with micro enterprises are
written in Afaan Oromo. Translating this to the thesis language takes longer time and was
tiresome. The other problem faced during the study was reluctance of operator’s to cooperate due
to suspicion of disclosing information may lead to negative effect on their business. It is very
important to note that these limitations did not have any significant interference with the
outcome of the study.

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1.6.2 Delimitation of the Study
The study assessed factors affecting the performance of MSEs in Mattu town of Ilu Aba Bora
zone. Although, there are different issues that can be researched in relation to MSEs, this study
was delimited to the politico-legal, working premises, technological, infrastructural, marketing,
financial, management and entrepreneurial factors.

1.7 Operational definitions of terms

Cooperatives: association of at least 10 individuals who are from the same area.

Enterprise: It refers to a unit of economic organization or activity whether public or private

engaged into the manufacturing of goods.

Factors: A factor is a contributory aspect such as politico-legal, working premises, technologies,

infrastructures, marketing, financial, management and entrepreneurial influences that affect
performance of micro and small enterprises.

Micro enterprise: means commercial enterprise whose capital is not exceeding birr 20,000 other
than high technology and consultancy services.

Performance: in this paper performance defined in terms of profitability of the MSEs.

Partnership: involves two or more individuals who have a partnership agreement to operate a
business and share the earnings and liabilities of the venture.

Respondent: respondents are those individuals who are owner managers or operators of an
enterprise.

Small enterprise: means a business engaged in commercial activities whose capital is exceeding
birr 20,000 and not exceeding 50,000 birr, other than high technology and consultancy service
institutions.

Iqub: A voluntary, informal, and indigenous form of rotating saving and credit scheme.

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 CHAPTER TWO

2 LITERATURE REVIEW

2.1 INTRODUCTION

This chapter reviews works on MSEs in Ethiopia and other countries in general and Addis Ababa
in particular. Works on performance and determinants of performance were also reviewed. This
is of help to understand the state of MSEs and its determinants of the performance. This chapter
comprises of six sections. These are definitions of MSEs, the role of MSEs in poverty reduction,
the MSE sector in Ethiopia, the concept of business performance, empirical studies and the
conceptual framework.

2.2 Definition of Micro and Small Enterprises

There is no clear cut definition of micro and small enterprise as there is no universally accepted
definition of it. Different countries of the world have defined micro and small enterprise in
different ways based on different criteria. The criteria and ways of categorizing enterprises as
micro and small from institution to institution and from country to country depends essentially
on the country’s level of development. Even within the same country, definitions also change
overtime due to changes in price levels, advances in technology or other considerations (Emma I.
et al., 2009). Firms differ in their levels of capitalization, sales and employment. Hence,
definitions that employ measures of size (number of employees, turnover, profitability, net
worth, etc.) when applied to one sector could lead to all firms being classified as small, while the
same size definition when applied to a different sector could lead to a different result. The
absence of such uniform definition of MSEs has created a difficulty. In line with this, Tegegne
and Meheret (2010) argued that the absence of a single or globally applicable definition has
made the task of counting the number of MSEs and assessing their impact extremely difficult
across countries, though the rationale for most governments to make such definition and
categorization is mainly for functional and promotional purposes to achieve the desired levels of
development of the sector.

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United Nations Industrial Development Organizations (UNIDO) gives alternative definition for
developing countries. Accordingly, it defines micro enterprises as the business firms with less
than 5 employees and small enterprises as the business firms with 5-19 employees (UNIDO,
2002).

The United States of America, the Small Business Act issued in 1953 stated that, small business
is one which is independently owned and operated and not dominant in its field of operation. The
act also further stated that, number of employees and sales volume as guideline in defining small
business (Major L. C. & Radwan N. S., 2010). In the same country, a committee for economic
development (CED) has explained that small business is characterized by at least two of the key
features: management is independent (usually the managers are owners), capital is supplied and
an individual or small group holds ownership and the area of operation is mainly local (workers
and owners are in one home country).

In Kenya, by referring the 1999 MSE National Baseline Survey, MSEs defined as those non-
primary enterprises (excluding agricultural production, animal husbandry, fishing, hunting,
gathering and forestry), whether in the formal or informal sector which employ 1-50 people
(Ronge et al., 2002 cited in Mulugeta, 2011). More specifically, according to them, micro
enterprises are those that employ 10 or fewer workers and small-scale enterprises are those that
employ 11-50 workers. The same study argued that the above definitions are based on one of the
three criteria mainly used in literature to define MSEs-number of employees. The second
criterion relies solely on the degree of legal formality and is mainly used to distinguish between
the formal and informal sectors. According to this criterion, MSEs are those enterprises that are
not registered and do not comply with the legal obligations concerning safety, taxes and labor
laws. The last criterion defines MSEs by their limited amounts of capital and skills per worker.
The above indicated writers emphasized highlighted that the degree of informality and size of
employment have perhaps been the two most readily accepted criteria on which classification of
MSEs is based; and lastly they claimed that the term MSE incorporates firms in both the formal
and informal sectors.

Similarly, in Ethiopia there is no uniform definition at the national level to have a common
understanding of the MSE sector. Ministry of Trade and Industry (MoTI) and the Ethiopian
Central Statistics Authority (CSA) have defined MSEs separately. While the definition by MoTI

11
uses capital investment, the CSA uses employment and favors capital intensive technologies as a
yardstick. The definition used by MoTI, which uses capital investment as a yardstick, has been
developed for formulating MSE development strategy in 1997 (MoTI, 1997).

According to the official definitions of MoTI, micro enterprises are businesses enterprises found
in all sectors of Ethiopian economy with a paid up capital (fixed assets) of not more than Birr
20,000, but excluding high technology consultancy firms and other high technology
establishments. Small enterprises are business enterprises with a paid up capital of more than
Birr 20,000 but not exceeding Birr 50,000 and excluding high technology consultancy firms and
other high technology establishments (MoTI, 1997).

The central statistical authority has attached various definitions to enterprises based on capital,
level of technical and technological capacities. In 2003 the CSA based its definition of MSEs on
the size of employment and extent of automation for small scale enterprises and used a
combination of these criteria for defining such enterprises. Accordingly, it has defined small
scale manufacturing enterprises as:

Establishments employing less than ten persons and using motor operated equipment are
considered as small scale manufacturing enterprises. Enterprises in the micro enterprise
category are subdivided into informal sector operations and cottage industries: Cottage and
handicraft industries are those establishments performing their activities by hand and using non-
power driven machines whereas the informal sector is defined as household type establishments
or activities, which are non-registered companies and cooperatives operating with less than 10
persons (CSA, 2003).

According to the regulation, “micro enterprise” means an enterprise having a total capital,
excluding building, not exceeding Birr 50,000 in the case of service sector or not exceeding Birr
100,000 in the case of industrial sector and engages 5 workers including the owner, his family
members and other employees (Art. 2(1)). The same regulation defines “small enterprise” as an
enterprise having a total capital, excluding building, from Birr 50,001 to 500,000 in the case of
service sector or Birr 100,001 to Birr 1,500,000 in the case of industrial sector and engages 6 to
30 workers including the owner his family members and other employees (Art.2(2)).

12
Currently revised definition, define Micro Enterprises as those enterprises having 5 workers
including family members and its total asset not exceeding Birr 100,000 for manufacturing
enterprises and Birr 50,000 for service providing enterprises and small enterprises as those
enterprises having 6-30 workers and its total capital not exceeding Birr 1.5 million for
manufacturing enterprise and Birr 500,000 for service providing enterprises (FeMSEDA, 2011).

As we can understand from the above definitions, there is no universally acceptable definition of
MSEs. Different scholars define MSEs differently based on the level of development of the
country under review. As shown above, it is usual to see that different institutes define MSEs
differently using their own parameters.

2.3 The role of micro and small enterprise in poverty reduction

Being cognizant of the role of the micro and small enterprises in stimulating capital formation,
employment creation and economic development, many developing countries have given a due
attention to the development of micro and small enterprises (Kamunge et al., 2014). There is a
great role of micro and small enterprises on improving the living standards of the entrepreneurial
households enabling them increase basic needs such as food, education and health facilities, as
well as production, investment and income suggesting microenterprises to use local products for
more profitability and more support including awareness raising and training to be given to
sustain the existing ones so that poverty can be reduced through microenterprise development.
However, Micro and Small Enterprises (MSEs) encounter many problems and as a result, many
MSEs perform dismally and fail to contribute as per requirement (Abera, 2012).

Poverty in Ethiopia is widespread and remains a major challenge of sustainable development and
stability (Lutheran World Federation of Ethiopia, 2006 cited in Eshetu & Mammo, 2009). By
now, it is clear and agreeable that poverty, both in urban and/or rural areas, is all about lack of
basic needs, low or inadequate level of income and consumption, poor command over resources,
and high level of social exclusion, inequality and vulnerability. The role played by MSEs,
through the various socio-economic benefits emanating from the sector was found to be eminent
in the overall development effort and process of nations. In other words, by generating larger
volumes of employment as well as higher levels of income, the MSEs will not only have

13
contributed towards poverty reduction, but they will also have enhanced the welfare and standard
of living of the many in the society (Mukras,2003).

Current international thinking is in tune with a view that acknowledges MSEs as a tool to fight
poverty in the long run. The UNIDO approach to this is worth mentioning here:

Poverty reduction is simply not going to happen by government fiat but only through private
sector dynamism. The evidence directly linking MSEs and poverty reduction is considerably less
robust than that linking them to economic vitality, even in the most developed economies. There
are suggestions of greater employment opportunities for poor, low skilled workers, increased
skills development and broader social impacts. The movement to support MSE development
internationally reflects a return to promoting poverty reduction by investing in private sector-
driven strategies by all of the major multilateral agencies. Poverty Reduction Strategies (PRSs)
currently being formulated in many developing countries places a more pronounced emphasis
on the contribution that the private sector will have to make – compared to the over-reliance on
the social agenda that characterized earlier PRSs (Perumal K. & Prasad, n.d)).

In conformity with the above view advanced by UNIDO and as an organization concerned to the
condition of labor, the ILO’s approach to poverty reduction is through small enterprise
development. This strategy focuses on the needs of poor people who are part of the MSE
economy, as owners/operators and workers, as their dependents, as the unemployed who may
benefit from job creation and as customers. While further strengthening the above shown
approach, Vandenberg (2006:18) suggested that:

The ILO’s existing strategy for poverty reduction through small enterprises must emphasize the
fact that small enterprises make a positive contribution to poverty reduction when they provide
employment, adequate levels of job quality, and low-cost goods and services used by the poor;
entrepreneurship, combined with productivity increase, is a key ingredient for poverty reduction
through small enterprise development; and vibrant enterprises, competitive markets and a fair
globalization can make a significant impact on poverty reduction.

Drawing on a study conducted in the urban centers of four Western African countries namely
Benin, Burkina Faso, Niger and Togo to identify key factors shaping the micro enterprise sector,
explores the needs, characteristics, motivations, and success factors for micro entrepreneurship in

14
the region, together with some of the impediments to the growth and success of micro enterprise
ventures (Roy and Wheeler, 2006:452- 464). Roy and Wheeler indicated that MSE provide a
substantial source of employment, thereby contributing to get rid of poverty to the urban poor.
According to them, the main reason for the urban poor to be absorbed in the MSE is due to the
fact that the formal sector does not have the capacity to absorb this growing demand for jobs, and
for this reason many have had to look for alternative means to generate a livelihood. Hence,
participation in the informal sector is often the only option available as a source of income, and
so the sector has absorbed many of the unemployed who have been neglected by the formal
sector in the region. They pointed that the income generated from being engaged in MSEs
primarily used to satisfy the poor’s own physiological needs and those of their family, and then
to provide a home and security for the household. They specifically claimed that MSEs help the
urban poor by making them financially secure which in turn limits or reduces the misery,
vulnerability and material and non-material hardships that come with poverty.

2.3.1 Micro and Small Enterprise for Economic Growth: ‘Pro’ and
‘Contra’ Arguments
There are two polarized thoughts, according to (Agyapong, 2010:196-205; Anderson et al.,
1994:129-133 and Staley & Morse, 1965:31) the role and contribution of MSE to economic
growth and poverty reduction: ‘Pro’ and ‘Contra’ arguments. Their works often classified as the
classical and modern theories on MSEs’ development. The contra argument predict that
advantages of MSEs will diminish over time and large enterprises (LEs) will eventually
predominate in the course of economic development marked by the increase in income. In line
with these shortcomings and pessimism Admassie and Matambalya (2002:1-29), for instance,
concluded that high level of technical inefficiency, which reduce their potential output levels
significantly. Research carried out by Biggs (2002 cited in Tegegne and Meheret, 2010:14)
strongly question the role played by MSEs to minimize the incidence of high level poverty in
most developing economies through employment creation, income generation and multiplier
effects on other sectors of the economy.

While, the pro argument views based on showing experiences from many countries, the ‘contra’
arguments seem to get less supports from many international aid agencies, including the World
Bank (2004:41). The World Bank gives three core arguments in supporting MSEs in LDCs,

15
which in line with the arguments of the ‘modern’ (pro) paradigm on the importance of MSEs in
the economy (World Bank, 2002 and 2004 cited in Tulus T., 2006:5).

First, MSEs enhance competition and entrepreneurship and hence have external benefits on
economy wide efficiency, innovation and aggregate productivity growth. Second, MSEs are
generally more productive than LEs but financial market and other institutional failures and not
conducive macroeconomic environment impede MSE development. Third, MSEs expansion
boosts employment more than LEs growth because MSEs are more labor intensive.

In other words, the World Bank believes that direct government support for MSEs in LDCs help
these countries exploit the social benefits from their greater competition and entrepreneurship,
and their MSEs can boost economic growth and development.

The above arguments do not mean, however, that LEs are not important, or MSEs can fully
substitute the role of LEs in the economy. Even, there are skeptical views from many authors
about this World Bank’s pro-MSE policy. Some authors stress the advantages of LEs and
challenge the assumptions underlying this pro-MSE policy. Specifically, LEs may exploit
economies of scale and more easily undertake the fixed costs associated with research and
development (R and D) with positive productivity effects (Tulus Tabunan, 2006:5).

2.4 The Micro and Small Enterprise Sector In Ethiopia

The five-year Growth and Transformation Plan (GTP) has given particular attention to the
expansion and strengthening of micro and small-scale enterprises (MoWUD, 2007:17-28).

According to MoWUD (2007:17-28)

The sector is believed to be the major source of employment and income generation for a wider
group of the society. The major objective of this program, which is creating and promoting
MSEs in urban areas, envisages reducing urban unemployment rate. A total of 176,543 MSEs
were established in 2009/10 employing 666,192 people. The number of established and total
employment created went up 141.6 and 25.6 percent, respectively, compared to a year ago. The
total amount of loan received from micro finance institutions was Birr 814.1 million under the
review period, 22.8 % higher than last fiscal year.

16
2.4.1 Micro and Small Enterprise Development Strategy

Enterprise promotion efforts in Ethiopia have traditionally focused on urban based and MSEs. In
the 1960s and early 1970s, a department within the Ministry of Industry and Tourism was
responsible for coordinating promotion activities which basically consisted of providing training
on business management (United Nations, 2002:101-103).

As stated by United Nations report (2002:101-103):

In 1977, the Handicraft and Small Scale Industries Development Agency (HASIDA) was
establish to provide training mainly in management and technical skills and to serve as
coordinating agency for Government policy on small enterprises. Shortage of funds and
unfavorable government policy toward the private sector in the 1980s made it extremely difficult
for HASIDA to have an impact on the development of local small enterprises. Since mid-1999,
the government has revisited the whole issue of small and medium enterprise promotion in
Ethiopia but with more focus on micro and small enterprises. A major study was conducted with
the support of a donor agency which resulted in the preparation of a National Micro and Small
Enterprises Development Promotion Strategy (NMSEDPS).

2.5 The Concept of Business Performance

According to Martin (2010:67) performance is defined simply in terms of output terms such as
quantified objectives or profitability. Performance has been the subject of extensive and
increasing empirical and conceptual investigation in the small business literature (Bidzakin K.J.,
2009:31). The issues that remain unresolved are the goals against which performance should be
assessed and from whose perspective the goals should be established (Etzioni, n.d:128).

Rami Alasadi and Ahmed Abdelrahim (2007:6-13) on their study defined performance as
follows:

The most commonly adopted definition of success [good performance] is financial growth with
adequate profits. Other definitions of success [good performance] are equally applicable. For
example, some entrepreneurs regard success [good performance] as the job satisfaction they
derive from achieving desired goals. However, financial growth due to increasing profits has
been widely adopted by most researchers and practitioners in business performance models.

17
Global Entrepreneurship Monitor (GEM) defined Performance as the act of performing; of doing
something successfully; using knowledge as distinguished from merely possessing it (GEM,
2004:10). However, performance seems to be conceptualized, operationalized and measured in
different ways thus, making cross- comparison is difficult (Srinivasan et al., 1994:22). Among
the most frequently used operationalization are survival, growth in employees and profitability.

A business enterprise could measure its performance using the financial and non- financial
measures. The financial measures include profit before tax and turnover while the non-financial
measures focus on issues pertaining to customers’ satisfaction and customers’ referral rates,
delivery time, waiting time and employees’ turnover. Recognizing the limitations of relying
solely on either the financial or non-financial measures, owners-managers of the modern small
business has adopted a hybrid approach of using both the financial and non-financial measures
(H Gin Chong, 2008:13).

2.6 Empirical Study

According to Mead & Liedholm (1998:69) and Swierczek and Ha (2003:46-58), the main factors
that affect the performance of MSEs in developing countries is not their small size but their
isolation, which hinders access to markets, as well as to information, finance and institutional
support. The argument that small businesses in Africa are crucial in the role they play in
employment creation and general contribution to economic growth is not new. Although this
may be true, the vast majority of new enterprises tend to be one-person establishments (Mwega,
1991:33-36). This has tended to ensure that the journey of the MSE entrepreneur in many
instances is short-lived, with the statistic of MSE failure rate in Africa being put at 99 per cent
(Rogerson, 2000:41). Various reasons for these failures have been proposed by scholars
including lack of supportive policies for MSE development (McCormick 1998:26-27), intense
competition with replication of micro-businesses (Manning & Mashego, 1993:59-61); manager
characteristics including lack of skills and experience (Katwalo & Madichie, 2008:337-348 and
Verhees, F. M., & Meulenberg, M. G., 2004:134-154).

Enock Nkonoki,( 2010) categorized the main factors/problems that limits small firm’s
success/growth into two groups; the first is the factors that originate from within the firm (in
other words they are internal to the firm) and the second group is factors that originate from

18
outside the firm (these are external to the firm). The Internal factors limiting small firm growth
are the characteristics and attitude of the entrepreneur(s) and the firm as a whole. These factors
can be impacted by the decisions made in the firm either by the entrepreneur(s) or the staff in the
firm. These factors are, Lack of motivation and drive, Lack of background and experience in the
business, Capital constraint, Lack of a proper business plan/vision, Theft/cheating and lack of
trust in doing business, Poor management, Running informal/unregistered businesses, Lack of
proper record keeping, Inadequate education and training, People factor/lack of needed talent and
Improper professional advice and consultation. The External factors limiting small firm growth
are the factors have to do with decisions, rules and policies that affect a small firm directly, and
in response the firm has not really control over the decisions made but an influence to a change
of their existence is possible. These factors originate from outside the firm, these are, Corruption,
Competition, Government policy, Technological barrier, in access to finances/funding,
Bureaucratic processes and Unfavorable economic factors.

A study by Hall (1992:237-250) has identified two primary causes of small business failure
appear to be a lack of appropriate management skills and inadequate capital (both at start-up and
on a continuing basis). The research undertaken in Tanzania by surveying 160 micro enterprises
showed that high tax rates, corruption, and regulation in the form of licenses and permits, are
found to be the most important constraints to business operations of micro enterprises (Fjeldstad
et al, 2006 cited in Mulugeta, 2011: 22).

A view expressed by Fredland and Morris (2009:8) argued that the causes of failure cannot be
isolated and that ‘any attempt to do so is, at bottom, a futile exercise’. However, they suggested
that:

The issue of causation is clarified somewhat by classifying causes as endogenous (internal to the
firm and presumably within its control) and exogenous (external to the firm and beyond its
control). Such a classification has the merit of providing a somewhat better policy handle since
if causes are endogenous, appropriate policy ‘helps firms help themselves'; if exogenous,
appropriate policy may seek to change the economic environment.

Previous evidence suggests that, although endogenous factors were the main cause of failure,
exogenous factors had a significant effect in approximately one third of small business failures
(Peterson et al., 1983:15-19).

19
Roy and Wheeler (2006:452-464) identified that the level of training of micro entrepreneurs
(both formal and informal); experience and number of years in operation; knowledge of the
market; level of differentiation (in terms of price, quality or other) and diversification of
products; access to the necessary resources and/or technologies; level of planning; vision for the
future; and the entrepreneur’s level of poverty are among the factors contributing to success of
MSEs while lack of market knowledge and training, limited access to capital, and lack of co-
operation among possible business partners are some of the factors inhibiting the growth and
development of the micro enterprise sector.

2.6.1 Previous Studies on Ethiopian Micro and Small Enterprises

Ethiopia, being one of the fastest developing economies in Africa, identified the development of
micro and small manufacturing enterprises as key strategic sector to reduce poverty and
unemployment and also to transform the economy from agriculture based one to manufacturing
based one. The country has been investing large amount of money in Small and Medium
enterprises, especially for manufacturing sectors with a view to improve the socio-economic
condition of the people. Small and micro enterprise plays a vital role in the improvement of the
country gross domestic product (GDP), generating additional capitals, for ensuring flow of goods
to the nations and reduce unemployment rate (FMSEDA, 2006).

A study conducted by Gemechu and Teklemariam (2016), to asses factors affecting performance
of micro and small enterprises in South West Ethiopia ( Bench Maji, Sheka, and Kefa Zones )
showed that, there exists linear and positive significance ranging from substantial to strong
relationship between independent (management and entrepreneurial skills), and dependent
(politico-legal, social, working premises, technology, infrastructure, marketing and finance)
variables. Moreover, the selected independent variables were significantly explaining the
variations in the dependent variable at 5% level of significance.

Tekalign and Venkata (2020) conducted a study which focused on assessing key determinant
factors affecting small- and medium scale manufacturing enterprise by using a random sample of
153 MSEs from 18 districts of West Showa zone of Oromia regional state. In their study they
considered seven independent variables namely: labor and personal factors, material factors,
equipment and machinery factors, marketing ingredient, production techniques, product quality

20
factors, productivity factors; and dependent variables organizational performance. They found in
their study that seven of the independent variables accounted 78.7% for the performance of the
enterprise. Four factors showed positive effect and found to be statistically significant
determinants for the performance of the firm except production techniques, equipment and
machinery factors.

Eshetu and Zeleke (2008) conducted a longitudinal study to assess the impact of influential
factors that affect the long-term survival and viability of small enterprises by using a random
sample of 500 MSMEs from 5 major cities in Ethiopia. According to this research, that lasted
from 1996-2001, the factors that affect the long term survival of MSMEs in Ethiopia are found to
be adequacy of finance, level of education, level of managerial skills, level of technical skills,
and ability to convert part of their profit to investment. This is so because the findings of the
study revealed that businesses that failed, during the study period were characterized by
inadequate finance (61%), low level of education (55%), poor managerial skills (54%), shortage
of technical skills (49%), and inability to convert part of their profit to investment (46%). The
study further indicated that participation in social capital and networking schemes such as Iqub
was critically helpful for long-term survival of the enterprises. Businesses that did not participate
in Iqub schemes regularly were found to be 3.25 times more likely to fail in comparison with
businesses that did, according to the study.

According to Commission on Legal Empowerment of the Poor (2006), most MSEs in Ethiopia
faces 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.

Based on a sample survey of 557 operators and 200 MSEs chosen from four major cities of
Ethiopia, namely: Adama, Hawassa, Bahirdar and Mekelle, Tegegne and Meheret (2010)

conducted a research with the intention of assessing the contribution of the MSE strategy to
poverty reduction, job creation and business development. And they found that the raised causes
for this gloomy prospect of business were not growing (33%), lack of finance (13%), lack of
market (11%), and lack of working space (4%).

21
In his research, Dereje (2008) studied the nature, characteristics, economic performance,
opportunities and challenges of MSEs in the construction sector based on 125 sample enterprises.
The results of the study revealed that the main constraints of the MSEs were shortage of capital,
lack of raw materials, absence of government support, lack of market, lack of credit facilities and
high interest rate.

Financial problem, lack of qualified employees, lack of proper financial records, marketing
challenges, lack of working premises and raw materials, lack of information about market
opportunities and standards and regulations are identified as the factors that hinder the
performance of MSEs (Mulu, 2009).

Mulugeta (2011) had identified and categorized the critical problems of MSEs in to market-
related problems, which are caused by poor market linkage and poor promotional efforts;
institution-related problems including bureaucratic bottlenecks, weak institutional capacity, lack
of awareness, failure to abide policies, regulations, rules, directives, absence of training to
executives, and poor monitoring and follow-up; operator-related shortcomings like developing a
dependency tradition, extravagant and wasting behavior, and lack of vision and commitment
from the side of the operators; MSE-related challenges including lack of selling place, weak
accounting and record keeping, lack of experience sharing, and lack of cooperation within and
among the MSEs and finally society-related problems such as its distorted attitude about the
operators themselves and their products.

In reality, literature on MSEs in Ethiopia is scanty and most of the available studies were not
conducted in line with performance aspects of micro enterprises. However, this research tried to
assess factors affecting the performance of MSEs in a holistic way by targeting and deeply
investigating those operators engaged in construction, manufacturing, agriculture, trade and
services in Ilu Aba Bora Zone.

2.7 Conceptual Framework

Based on the literature reviews, the following conceptual frame work is developed for
identifying and evaluating factors affecting performance of micro and small enterprises. This
conceptual frame work is described in figure 1. It considers the relationships between eight input
factors, namely: politico-legal, working premises, technological, infra-structural, marketing,
financial, management and entrepreneurial with Performance of MSEs (Profitability).

22
23
 Politico-legal

Working premises
Factors Affecting The Performance of MSEs

Technological
Factors

Infra structural
Factors
Performance of
MSEs
Marketing Factors

Financial Factors

Management
Factors

Entrepreneurial
Factors

Figure 2.1: Conceptual frameworks

24
 CHAPTER THREE

3 RESEARCH METHODOLOGY

In order to analyze the potential impacts of factors on performance of MSEs, this study made use
of a research methodology. This section provides an overview of the study’s research approach
which lays within the mixed methods strategies. The chapter discusses procedures and activities
under taken, focusing on namely the study’s research design, questionnaire design, data
collection, sampling strategy, data processing and analysis and instrument development. Besides,
the section deals with a discussion on the ethical issues and the study area profile.

3.1 Research Design

Research design is the blueprint for fulfilling research objectives and answering research
questions (John A.H. et al., 2007). In other words, it is a master plan specifying the methods and
procedures for collecting and analyzing the information needed. It ensures that the study would
be relevant to the problem and that it uses economical procedures. The same authors discusses
three types of research design, namely exploratory (emphasizes discovery of ideas and insights),
descriptive (concerned with determining the frequency with which an event occurs or
relationship between variables) and explanatory (concerned with determining the cause and
effect relationships). The types of research employed under this study were descriptive and
explanatory research. The major purpose of descriptive research is description of the state of
affairs as it exists at present. Hence this study describes and critically assesses the factors
affecting the performance of MSEs in Ilu Aba Bora Zone, particularly in Mettu town. In
addition, the study is explanatory in that the relationship between variables is correlated with an
aim of estimating the integrated influence of the factors on performance of MSEs.

Moreover, the study utilized cross-sectional study method in a sense that all relevant data was
collected at a single point in time. The reason for preferring a cross-sectional study was due to
the vast nature of the study and the limitation of time. And obtaining information from a cross-

25
section of a population at a single point in time is a reasonable strategy for pursuing many
descriptive researches (Janet M. Ruane, 2006). According to Mark et al. (2009) mixing
qualitative and quantitative approaches gives the potential to cover each method’s weaknesses
with strengths from the other method. This study employed a combination of qualitative and
quantitative approach, which has been practiced, as recommended by Creswell (2009).

3.2 Questionnaire Design

The layout of the questionnaire was kept very simple to encourage meaningful participation by
the respondents. The questions were kept as concise as possible with care taken to the actual
wording and phrasing of the questions. The reason for the appearance and layout of the
questionnaire are of great importance in any survey where the questionnaire is to be completed
by the respondent (John A. et al., 2007:128-42). The literature in the study was used as a
guideline for the development of the questions in the questionnaire. Besides, some questions in
the questionnaire were adopted from other sources (Habtamu, n.d.:72-75 and Mulugeta, 2010:74-
79). The questions that were used in the questionnaire are multiple-choice questions and five-
point likert scale type questions. The type of scales used to measure the items on the instrument
is continuous scales (strongly agree to strongly disagree).

3.3 Data Collection

The study employed both primary and secondary sources of data collection.

3.3.1 Primary Sources

In order to realize the target, the study used a pre prepared structured questionnaire as best
instrument. The questionnaire was filled by the owner/managers or operators of the enterprises.

In order to answer the basic questions raised, a questionnaire having 2 parts was prepared. The
first part consisted of questions that provide the general information of business enterprises in the
form of multiple choices. And the second Part of it was designed in such a way that the
respondents able to evaluate ‘factors affecting the performance of MSEs’ using likert scale.

26
The Likert scale ranges from ‘strongly agree’ to ‘strongly disagree’ (5=strongly agree 4=agree
3=undecided 2=disagree 1=strongly disagree,(see appendix A) so as to not limit the response of
respondents to some limited ranges

3.3.2 Secondary Sources

Secondary data from files, pamphlets, office manuals, circulars and policy papers will be used to
gain additional information where appropriate. Besides, variety of books, published and/or
unpublished government documents, websites, reports and newsletters were reviewed to make
the study fruitful.

3.4 Target Population, Sample Size and Sampling Techniques

Ilu Aba Bora Zone composed of 13 Woredas (districts) and 1 administrative town. Among this
the administrative town, Mettu, were purposely selected for this study as they have larger
number of MSEs and center of business for the zone.

All MSEs formally registered and functionally operating within the purposely selected area
( Mettu town) before June 2022 were considered as a target population for this study. According
to MSEs office of Mattu Town, 1115 MSEs are operating in the study area.

Stratified simple random sampling was used to get information from different sectors of the
MSEs. This technique was preferred because it is used to assist in minimizing bias when dealing
with the population. With this technique, the sampling frame can be organized into relatively
homogeneous groups (strata) before selecting elements for the sample. According to Janet
(2006), this step increases the probability that the final sample is representative in terms of the
stratified groups. Construction, manufacturing, agriculture, trade and service sectors were
considered as the strata for this particular study. According to Catherine Dawson (2009), the
correct sample size in a study is dependent on the nature of the population and the purpose of the
study. Although there are no general rules, the sample size usually depends on the population to
be sampled. In this study to select sample size, a list of formally registered MSEs until June 30
2014 E.c by MSEs office of Mattu town was obtained as a population. The total population of
the study was 1115 enterprises that included manufacturing (114), construction (71) agriculture
(447), service (237) and trade (246). The sample size selected here is considered as

27
representative of manufacturing, construction, agriculture, service and trade and also large
enough to allow for precision, confidence and reliability of the research findings.

In order to determine the sample size, Yemane’s (1967) finite and large population sample size
formula with 95% confidence level is employed.

N
n= 2
1+ N ( e )

Where:

n= Number of sample taken

N= Population size

e = sampling error /level of precision/ (5%)

Accordingly the target population results, the following samples.

1115
n= 2
=294.39 ≈ 295
1+1193 ( 0.05 )

Based on this the total sample size is 295 and the respondents were proportionally contacted
from each sector and districts as shown in table 1.

Table -3.1: Sample size of the study

MSEs Sector
Manufacturing Construction Agriculture service Trade Total
30 19 118 63 65 295

3.5 Variables and Measurements

The selection of performance measures that reflect the true situation of small businesses with
some degree of certainty and reliability is indeed a crucial process (Rami and Ahmed, 2007). The
lack of universally accepted standard performance measures left the door open to business
organizations to decide and choose its own performance measures that might not truly reflect
their performance. Such performance measures include but not limited to: market share, sales
volume, company reputation, return-on-investment (ROI), profitability, and established corporate

28
identity. While some might argue that most of these performance measures are appropriate for
large corporations, they are not always perfectly applicable to small businesses.

In this study, change in profit is used as a dependent variable to measure the performance of
MSEs. Here the change in profit ratio data is used as the measure of the dependent variable,
performance of the enterprises, involved in the survey. This is mainly because of two reasons.
First, MSEs are more focuses on profitability than other modes of performance measures.
Second, as recommended by Rami and Ahmed (2007) change in profit has been widely adopted
by most researchers and practitioners in business performance models. The independent
variables include politico-legal, working premises, technological, infrastructural, marketing,
financial, management and entrepreneurial variables.

3.6 Data Processing and Analysis METHOD

3.6.1 Data Processing

The study utilized both manual and computerized system of data processing. Collected raw data
was edited, coded, classified and tabulated prior to analysis. The data processing has two phases
namely: data clean-up and data reduction. Data clean-up involves edition of the collected raw
data to detect abnormalities, errors and omissions in responses and checking up the questions are
answered accurately and uniformly. Data reduction is the process of assigning numerical or letter
codes to variables understudy to reduce responses into categories or classes. Data having
common characteristics were collected together. Finally, the data was tabulated and checked for
completeness and internal consistency. Tabulation and pie charts were used to summarize the
raw data and displayed in the form of tabulation for further analysis.

3.6.2 Data Analysis

This is the further transformation of the processed data to look for patterns and relationship
between and/or among data groups by using descriptive and inferential (statistical) analysis.
Specifically, descriptive statistics (mean standard deviation and charts) and inferential statistics
(correlation and regression) were taken from this tool.

29
3.6.2.1 Descriptive Analysis

Descriptive analysis was used to reduce the data in to a summary format by tabulation (the data
arranged in a table format) and measure of central tendency (mean and standard deviation) and
measure of central tendency (mean and standard deviation). Moreover, pie charts were used to
describe the general characteristics of enterprises. The reason for using descriptive statistics was
to compare the different factors. Besides, the interview questions were analyzed using
descriptive narrations through concurrent triangulation strategy.

3.6.2.1.1 Inferential Analysis

3.6.2.1.2 The Pearson Product Moment Correlation Coefficient

This research is investigating the strength of relationships between the studied variables. The
study employs the Pearson correlation which “measures the linear association between two
metric variables” (Hair et al., 2008). The Pearson correlations were calculated as measures of
relationships between the independent variables and dependent variables. This test gives an
indication of both directions, positive (when one variable increases and so does the other one), or
negative (when one variable increases and the other one decreases (Pallant, 2010). The test also
indicates the strength of a relationship between variables by a value that can range from -1.00 to
1.00; when 0 indicates no relationship, -1.00 indicates a perfect negative correlation, and 1.00
indicates a perfect positive correlation. For the rest of the values is used the following guideline
is used

 small correlation for value 0.1 to 0.29

 medium correlation for 0.3 to 0.49
 Large correlation for 0.50 to 1.0 (Pallant, 2010).

3.6.2.1.3 Linear Regression Analysis

Linear regression is a method of estimating or predicting a value on some dependent variable

given the values of one or more independent variables. Like correlations, statistical regression
examines the association or relationship between variables. Unlike correlations, however, the
primary purpose of regression is prediction (Geoffrey M. et al., 2005:224-225). In this study

30
multiple regressions analysis was employed. Multiple regression analysis takes into account the
inter-correlations among all variables involved. This method also takes into account the
correlations among the predictor scores (John Adams, et al., 2007:198). They added multiple
regression analysis, which means more than one predictor is jointly regressed against the
criterion variable. This method is used to determine if the independent variables will explain the
variance in dependent variable.

The equation of regressions on this study is generally built around two sets of variables, namely
dependent variable (performance) and independent variables (politico-legal, working premises,
technology, infrastructure, marketing, finance, management and entrepreneurial). The basic
objective of using regression equation on this study is to make the study more effective at
describing, understanding and predicting the stated variables.

Regress Performance on Selected Variables

Y I =β 0 + β 1 X 1 + β 2 X 2 + β 3 X 3 + β 4 X 4 + β 5 X 5+ β6 X 6+ β7 X 7 + β 8 X 8

Where:

Y- is the response or dependent variable- performance

X 1- politico-legal, X 2 - working premises, X 3 = technology, X 4= infrastructure, X 5 = marketing, X 6

= finance, X 7 = management and X 8= entrepreneurial skills are the explanatory variables.

β 0 is the intercept term- constant which would be equal to the mean if all slope coefficients are 0.

β 1, β 2, β 3, … β 8 are the coefficients associated with each independent variable which measures
the change in the mean value of Y, per unit change in their respective independent variables.

3.7 Instrument Development

Basically, the instruments were developed based on the objectives of the study and research
questions. The principles of questionnaires such as, use simple and clear languages, statements
should not be too long and use of appropriate punctuations is also considered when developing
the instrument. In addition, interviews can be taken as an instrument to strength the investigation.

31
3.7.1 Design of the Instruments
The instruments were designed in such a way that strengthens the viability of the study. The
questionnaires were designed both in English and Afaan Oromo languages. The purpose of
translating to Afaan Oromo was to utilize those who cannot clearly understand English, so that
they respond easily.

3.8 Ethical Considerations

All the research participants included in this study were appropriately informed about the
purpose of the research and their willingness and consent is secured before distributing the
questionnaire. Regarding the right to privacy of the respondents, the study maintained the
confidentiality of the identity of each participant. In all cases, names are kept confidential thus
collective names like ‘respondents’ were used.

3.9 The study Area Profile

Ilu Aba Bora (Oromo: Illuu Abbaa Booraa) is a zone in Oromia Region of Ethiopia. Ilu Aba
Bora is named for the former province Illubabor. It is bordered on the south by the Southern
Nations, Nationalities and Peoples Region, on the southwest by the Gambela Region, on the west
by Kelem Welega Zone, on the north by West Welega Zone, and Benishangul-Gumuz Region,
on the northwest by East Welega Zone, and on the east by Buno-Bedele. It consists of 13
districts/woredas/ and one administrative town, Mettu, is the capital of the zone.
Southwestern Ethiopia in general, Iluu Abba Bora zone, in particular is well known for their
natural resource endowment. With a variety of vegetation, soil types and wild animals, the zone
also primarily known for his vast natural forests that form the major part of “Yayo National
Forest Priority Area (NFPA)”. It incorporates forests from the other four adjacent districts. The
natural forest has wild coffee grown under it.
Based on the 2007 Census conducted by the CSA, this Zone has a total population of 1,271,609,
an increase of 50.12% over the 1994 census, of whom 636,986 are men and 634,623 women;
with an area of 15,135.33 square kilometers, Illubabor has a population density of 84.02. While
124,428 or 12.16% are urban inhabitants, a further 68 persons are pastoralists. A total of 272,555
households were counted in this Zone, which results in an average of 4.67 persons to a
household, and 263,731 housing units. The two largest ethnic groups reported in Illubabor were
the Oromo (89.67%) and the Amhara (7.37%); all other ethnic groups made up 2.96% of the
population. Oromiffa was spoken as a first language by 90.68% and 7.08% spoke Amharic; the
remaining 2.24% spoke all other primary languages reported. The majority of the inhabitants
were Muslim, with 50.6% of the population having reported they practiced that belief, while

32
26.51% of the population practiced Ethiopian Orthodox Christianity and 22.51% professed
Protestantism.
The Central Statistical Agency (CSA) reported that 14,855 tons of coffee was produced in this
zone in the year ending in 2005, based on inspection records from the Ethiopian Coffee and Tea
authority. This represents 12.9% of the Region's output and 6.5% of Ethiopia's total output.

33
 CHAPTER FOUR

4 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 Introduction

This study is expected to investigate factors affecting the performance of MSEs in Mattu town of
Ilu Aba Bora zone. The study used a descriptive and inferential statics in data analysis. The data
used to conduct this study were the primary data obtained through the five-point Likert scale
questionnaires. The questionnaire contained close-ended questions. The questionnaires are
distributed and collected by the researcher by direct contact.
Two hundred ninety five questionnaires were distributed across the five sectors in the selected
administrative town, out of which 273 were completed and retrieved successfully, representing
93% response rate. Considering response rate by sector of MSEs, manufacturing has the lowest
(90%) response rate, while construction has the highest (100%) response rate as shown in table
4.1.
Table 4.1: Response rate of MSE’s

Sample
Target Responded response
No MSEs Sector Population
Population MSE's Rate
(proportional)

1 Manufacturing 114 30 27 90.0%

2 Construction 71 19 19 100.0%
3 Agriculture 447 118 110 93.2%
4 service 237 63 58 92.1%
5 Trade 246 65 60 92.3%
Total 1115 295 274 92.9%

Generally, this section is organized in the following manner: First, the general information about
MSEs were presented and analyzed. Second, data collected through questionnaires and
interviews were analyzed concurrently. Moreover, the results of Pearson’s Product Moment
Correlation Coefficient and regressions were analyzed.

34
4.2 General Characteristics of Responding MSEs

4.2.1 Category of Business Venture

As shown in figure 4.1, the sample firms were operating in five sectors of the economy. Most of
them are engaged in agriculture (40%) followed by trade (22%), service (21%), manufacturing
(10%) and construction (7%).It is important to study each sector separately to get a reliable
result. This is because firms in different sectors of the economy face different types of problems.
Meaning the degree of those critical factors in agriculture sector may differ from the factors that
are critical to the construction or manufacturing sector.

Manufacturing
10%
Trade Con-
22% struc-
tion
7%

service Agriculture
21% 40%

Figure 4.1 Sectors responding MSE’s engaged in (Source: Own field survey, 2022)

4.2.2 The Main Source of Finance for Start-up and Expansion

Starting own business requires a starting capital rather than mere existence of ideas. To get
information regarding the relative importance of the various sources of finance, enterprises were
asked whether they ever received credit from each of a given list of sources of finance or not.
As it can be seen from figure 4.2 below, personal saving (35%) is the most frequently used
source of finance for startup, followed by family (18%), iqub/idir (16%), friends/relatives (14%),
and micro finance (11%) in descending order. And the remaining sources of finance came from
NGOs (5%) and banks (1%). This shows that the main source of finance for the startup of MSEs
in selected area of Ilu Aba Bora zone is personal saving. Other traditional sources of finance like
iqub/idir, family supports and lending of friends / relatives played the greatest role in MSEs in
the study area. From this it can be concluded that informal source of finance contribute the
greatest role in establishment of MSEs than the formal sources like microfinance and banks.

35
 Friends/
Relatives
14% Ikub/Idir
NGOs 16%
Micro
5% finance
Banks 11%
1%
Family
18%

Personal Saving
35%

Figure 4.2 Source of finance for startup business (Source: Own field survey, 2022)

4.2.3 The Important Aspects for the Success of Business Venture

As it can be seen from the figure 4.3 below, 35.16% of the respondents indicated that a business
plan is important for the success of their business ventures, 31.87% of the respondents felt that
the availability of business opportunities is important for the success of their business ventures,
17.95% of respondents alluded to the fact that an entrepreneurial team is essential for the success
of their business ventures and 15.02% of the respondents responded that training in business
skills is a key for the success of their business ventures.
35.16% 31.87%
30.0% 17.95% 15.02%
15.0%
0.0%

Figure 4.3 important aspect for success of business ventures (Source: Own field survey, 2022)

The closer analysis of the result leads to the conclusion that a business plan is the major
important aspects for the success of any business venture. According to Renee (2007):

A sound business plan may make a difference between a business that succeeds and a business
that fails. Approximately 90% of small businesses fail before two years, according to the Small

36
Business Association. And even after that two year mark has been passed, there are no
guarantees. This is mainly due to lack of business plan knowledge and the absence of a business
plan.

Moreover, the result showed that the availability of business opportunities and having an
entrepreneurial team has significant role in the success of business venture. Because an
entrepreneurial team is necessary to implement the businesses’ objectives as outlined in the
business plan. The business plan is a framework which a business must operate within. It will
ultimately determine whether the business performance is good or bad. For management or
entrepreneurs seeking external support, the plan is the most important sales document that they
are ever likely to produce.

4.3 Factors Affecting the Performance of MSE’s

Respondents were asked to evaluate factors affecting the performance of MSEs based on a five-
point likert scale questionnaires. Their responses are organized in the following manner. There
are a number of challenges that affect performance of MSEs associated with different factors.
This part explains the descriptive statistics calculated on the basis of the factors that affect the
performance of MSEs.
Table 4.2: Politico-legal factors

Item Manuf. Const. Agric. Service Trade Grand

M M M M M M
Politico-Legal Factors SD SD SD SD SD SD
N N N N N N
The tax levied on my 0.9 1.1
3.17 3.84 0.95 2.80 0.99 3.17 3.14 0.58 3.22 0.97
business is not reasonable 3 8

Bureaucracy in company 0.7 0.8

3.53 4.37 0.7 2.97 0.7 3.06 3.03 0.85 3.39 0.73
registration and licensing 6 9

Lack of government 1.2 0.8

2.30 4.11 0.87 2.89 0.8 3.27 3.29 0.93 3.17 1.1
support 2 7
0.9 0.8
Political intervention 3.27
9
3.05 0.93 2.77 1.1 2.83
6
2.97 0.83 2.98 1.1

Lack of accessible
information on
0.8 0.7
government regulations 3.53
9
3.79 0.95 3.66 0.91 3.71
6
3.62 0.93 3.66 0.91
that are relevant to my
business
3.2 1.0
Grand mean for politico-legal factor
9 1
Source: Field survey, 2022 MN=Mean, SD=Standard deviation

37
As it is indicated in the table 4.2 above, the mean and standard deviation for the politico-legal
factors were calculated. The table shows the lack of accessible information on regulations has a
mean score of 3.66 with a standard deviation of 0.91, followed by bureaucracy in company
registration and licensing which has a mean score of 3.39 with a standard deviation of 0.73.
political intervention has the least mean score (2.98) and standard deviation (1.1) among politico
legal factors. In addition it can be seen from table 4.2 above that, politico legal factor has an
average mean of 3.29 and a standard deviation of 1.01.
Table 4.3: Working place as a factor that affect the performance of MSEs
Agricultur
Item Manufac Const’n Service Trade Grand
e
Working
MN SD MN SD MN SD MN SD MN SD MN SD
place factors
Absence of 0.9
4.57 0.96 3.26 0.92 4.70 0.65 4.68 4.66 0.63 4.38 1.18
own premises 8
Current
1.1
working place 3.53 1.18 3.58 1.19 3.54 1.07 3.11 3.08 0.99 3.37 0.89
5
is not
The rent of
0.8
house is too 4.23 0.92 3.47 0.88 3.04 0.83 3.67 3.82 0.7 3.65 0.87
5
high
3.8 1.0
Grand for Working place Factor
0 5
Source: Own Field survey, 2022
The mean scores and standard deviations in table 4.3 above shows, absence of own premises are
the most factors that hindered the performance MSE’s with a mean score and standard deviation
of 4.38 and 1.18 respectively. While ‘the rent of house is too high’ scored the least mean (3.65)
and standard deviation (0.87).
Table 4.4: Technological factors that affect the performance of MSEs
Manufac
Items Const’n. Agric. Service Trade Grand
.
Technologica M M M M
SD MN SD SD SD MN SD SD
l factors N N N N
Lack of
appropriate 3.7 0.9 4.6 0.6 3.9 1.1 3.4 1.1 3.1 0.6 3.7 1.0
machinery and 7 5 8 3 1 8 8 3 2 5 9 8
equipment
Lack of skills
3.4 0.9 3.1 0.9 3.1 0.8 2.8 0.9 2.9 1.0 3.1 0.9
to handle new
0 1 6 9 4 9 7 6 1 7 0 5
technology
Lack of money
4.5 0.8 4.6 4.6 0.8 4.3 1.1 4.0 0.8 4.4 0.7
to acquire new 0.7
3 3 8 6 7 5 8 9 3 6 9
technology

38
 Unable to
3.2 0.9 3.1 0.9 3.6 0.8 3.1 0.9 3.0 0.9 3.2 0.9
select proper
7 3 5 5 2 6 0 2 9 1 4 2
technology
3.6 0.9
Grand for Technological Factor
5 8
Source: Field survey, 2022
As it can be seen in table above, lack of lack of money to acquire new technology is the main
problem of MSEs in the study area (mean=4.46, Sd=0.79) followed by lack of appropriate
machinery and equipment (mean=3.79, Sd=1.08).
Table 4.5: Infrastructural factors that affect the performance of MSEs

Item Manufac. Const’n Agric. Service Trade Grand

Infrastructura
MN SD MN SD MN SD MN SD MN SD MN SD
l factors
Power 4.6 0.9 3.1 1.1 2.8 1.0 4.4 0.9 4.2 3.8 0.5
0.59
interruptions 0 5 1 4 7 9 8 9 8 7 7
Insufficient and
2.4 0.9 3.3 0.8 2.1 0.8 3.8 3.8 3.1 1.3
interrupted 0.7 1.01
3 1 7 1 3 5 7 2 2 9
water supply
Lack of
business 3.3 0.8 3.6 3.4 0.6 3.5 3.5 3.4 0.8
0.7 0.8 0.81
development 7 3 3 0 6 4 2 9 8
services
Lack of
sufficient and
4.2 0.9 3.8 0.8 3.5 3.7 3.6 3.8 0.7
quick 0.7 1.1 0.8
3 3 9 6 3 1 6 1 1
transportation
service
Lack of
appropriate dry
2.8 3.0 2.9 0.9 3.8 0.9 3.7 0. 3.2 1.0
waste and
3 5 6 5 7 1 1 9 8 3
sewerage
system
3.5 1.0
Grand for Infra structural factor
1 8
Source: Own Field survey, 2022
The result presented in table 4.5 shows that power interruption (mean=3.87, Sd=0.57) is the main
problem followed by lack of sufficient and quick transportation service (mean=3.81, Sd=0.71) in
hindering the business performance of MSE’s of the study area. On the other hand, insufficient
and interrupted water supply (mean=3.12, Sd=1.39), and lack of appropriate dry waste and

39
sewerage system (mean=3.28, Sd=0.) are the least challenges that hinder the performance of
MSE’s among infrastructural factors.
Accessibility of a location is the ease with which it can be accessed by different modes of
transport (Brown and Lloyd, 2002:188-204). Divergent from these aspects, however, most of the
studied area is situated far from the main asphalt road and the condition of the road leading to the
cluster from the main road is extremely poor. This poor state of the road condition of locality has
culminated in high transportation service costs to the MSEs, in addition to making the sector
difficult for accessibility by the existing and potential customers.
Concerning transport facilities, access to affordable and appropriate public transport is of
paramount vitality in expanding the employment opportunities of the urban poor who need
inexpensive access to areas of economic and commercial activity. Equally, the importance of
physical capital especially infrastructure in enabling people to access, and directly support,
income-generating activities is well recognized by writers on urban livelihoods such as Rakodi
(2002:22). Housing which is close to employment opportunities or markets will improve
residents’ access to income-generating work and will reduce transport costs, which can be a
significant expenditure and time-drain for the urban poor (Farrington et al., 2002:57).
Table 4.6: Marketing factors that affect the performance of MSEs

Item Manufac. Const’n Agricult. Service Trade Grand

Marketing
MN SD MN SD MN SD MN SD MN SD MN SD
factors
Inadequate
4.5 3.4
market for my 4.23 0.69 4.37 0.52 0.66 3.49 1.25 0.89 4.00 0.64
2 0
product
Searching
4.8 3.6
new market is 4.17 0.72 4.26 0.52 0.68 3.43 0.82 0.97 4.06 0.67
2 0
so difficult
Lack of
3.6 3.1
demand 4.10 0.85 4.16 0.66 0.67 3.11 0.65 0.86 3.62 0.78
0 4
forecasting
Lack of
4.9 4.6
market 4.00 0.79 3.67 0.59 0.89 4.59 0.75 0.922 4.36 0.78
1 2
information
Absence of
relationship
with an
4.2 3.8
organization 4.13 0.87 3.79 0.68 0.75 3.89 0.77 0.87 3.99 0.81
3 9
that conduct
marketing
research
Lack of
promotion to 3.77 0.66 3.63 1.1 3.48 1.22 3.38 0.92 3.25 0.99 3.50 1.06
attract potential

40
 users
Poor customer
relationship 3.43 1.18 3.68 1.23 3.62 1.03 3.11 0.63 3.08 0.53 3.38 1.15
and handling
Grand mean/standard deviation 3.84 0.96
Source: Own Field survey, 2022
As indicated in the table 4.6, seven marketing factors were listed in order to be evaluated by the
respondents. Of those, Lack of market information (mean=4.36,Sd=0.78), difficulty of searching
new market (mean=4.06,Sd=0.67), inadequacy of market(mean=4.0,Sd=0.64) are the top three
marketing factors ranked by the respondents. Poor customer relationship and handling
(mean=3.38,Sd=1.15) is the least evaluated item among marketing factors.
Table 4.7: Financial factors that affect the performance of MSEs
Agricultur
Item Manufac. Const’n Service Trade Grand
e
Financial
MN SD MN SD MN SD MN SD MN SD MN SD
factors
Inadequacy
of credit 2.73 1.09 2.87 1.09 3.09 0.66 2.95 0.89 3.08 1.25 2.95 1.14
institutions
Lack of cash
management 3.70 0.85 4.13 0.85 3.35 0.68 3.00 0.97 3.15 0.82 3.47 0.81
skills
Shortage of
working 4.40 0.66 4.83 0.66 4.87 0.67 4.84 0.86 4.72 0.65 4.73 0.7
capital
High
collateral
requirement
from banks 4.47 0.7 4.53 0.7 3.14 0.89 3.35 0.922 3.66 0.75 3.83 0.86
and other
lending
institutions
High interest
rate charged 4.30 0.82 4.4 0.82 4.05 0.75 3.81 0.87 4.09 0.77 4.13 0.99
by banks
Loan
application
procedures
of banks and
4.10 0.97 4.3 0.97 4.19 1.22 3.81 0.99 3.91 0.92 4.06 0.87
other lending
institutions
are too
complicated

41
 3.8 1.0
Grand mean/standard deviation
6 1
Source: Own Field survey, 2022
The data in table 4.7 above confirmed that shortage of working capital, high interest rate charged
by banks and complication in loan application procedure in banks are the most ranked items in
hindering organizational performance of MSE’s in the selected study area. And inadequacy of
credit institutions is the least ranked item of marketing factor. Table 4.6 also showed that
although there are adequate micro finance institutions’, MSE’s are facing shortage of working
capital which is the main factor retarding their performance.
The presence of affordable credit is essential for enterprise growth. With regard to credit access
and availability, there are both formal and informal sources serving the operators in the studied
area. The informal sources are consisted of loan from other fellow operators, family, relatives
and friends. According to responses from the operators, the credit generated from such sources,
along with a loan secured from micro finance institution (MFI) and own savings constitutes a
portion of the start-up capital of the MSEs. Addis MFI is the formal source of credit used by
operators, though there are other financial service providers like state-owned and private
commercial banks.
Table 4.8: Management factors that affect the performance of MSEs
Manufact Agricultur
Item Const’n Service Trade Grand
. e
Managerial
MN SD MN SD MN SD MN SD MN SD MN SD
factors
Lack of clear
division of duties
3.23 0.92 4.13 0.72 3.47 0.52 3.78 0.89 3.75 1.09 3.67 0.97
and responsibility
among employees
Poor organization
and ineffective 2.80 1.09 3.2 0.85 3.12 0.66 3.30 0.99 3.32 0.85 3.15 1.04
communication
Poor selection of
associates in 4.23 0.79 4.43 0.79 3.37 0.59 3.62 0.81 3.63 0.66 3.86 0.78
business
Lack of well
trained and
3.70 1.11 4.3 0.87 3.64 0.68 3.46 0.75 3.65 0.7 3.75 1.03
experienced
employees
Lack of low cost
and accessible 3.90 0.81 3.9 0.66 4.16 1.1 3.81 0.86 3.82 0.82 3.92 0.81
training facilities
Lack of strategic
4.17 0.78 3.93 1.18 4.00 1.23 3.81 0.81 3.78 0.97 3.94 0.76
business planning

42
 3.7 1.0
Grand mean/standard deviation
1 2
Source: Own Field survey, 2022
As shown in table 4.8 above, lack of strategic business planning (mean=3.94, Sd=0.76), lack of
low cost and accessible training center (mean=3.92,Sd=0.81), poor selection of associates in
business(mean=3.86,Sd=0.78), are the top three main problems that hinder the performance of
MSEs. Poor organization and ineffective communication is the least evaluated (mean=3.15,
Sd=1.04), as marketing factor that hinders the performance of MSE’s.
Table 4.9: Entrepreneurial factors that affect the performance of MSEs
Manufac
Item Const’n Agriculture Service Trade Grand
.
Entrepreneurial
MN SD MN SD MN SD MN SD MN SD MN SD
factors
Lack of motivation
2.40 0.78 2.7 0.96 2.40 0.89 2.84 0.85 2.82 0.91 2.63 0.89
and drive
Lack of tolerance
2.90 0.86 3.1 0.74 3.09 0.97 2.92 0.94 2.95 0.92 2.99 0.88
to work hard
Lack of persistence
and courage to take
4.11 0.7 3.86 0.74 3.95 0.86 3.81 0.75 3.81 0.89 3.91 0.76
responsibility for
one’s failure`
Absence of
initiative to assess
4.03 0.97 3.53 0.91 3.59 0.922 3.27 0.87 3.26 0.96 3.54 0.94
ones strengths and
weakness
Lack of
entrepreneurship 3.90 0.75 4.1 0.92 3.70 0.87 3.95 0.78 3.95 0.74 3.92 0.82
training
Lack of
information to 0.92
3.70 0.9 3.97 0.89 3.49 0.99 3.64 0.68 3.57 0.74 3.67
exploit business
opportunities
3.4 1.0
Grand mean/standard deviation
4 8

Source: Own Field Survey, 2022

Among the entrepreneurial factors, lack of entrepreneurship training is the leading factor
identified as entrepreneurial factors that affect the performance of MSEs with mean score 3.92
and standard deviation 0.82. Lack of persistence and courage to take responsibility for one’s
failure (mean=3.91,Sd=0.76) and lack of information to exploit business opportunities
(mean=3.67,Sd=0.92) takes the 2nd and 3rd place respectively. Lack of motivation and derive
(mean=2.63,Sd=0.89) the least ranked as entrepreneurial factor affecting performance of MSE’s.

43
4.4 Comparison of Factors

Even though, all the politico-legal, infrastructure, working premises, technology, marketing,
financial, management and entrepreneurial factors affect the performance of MSEs, this does not
necessarily mean that all factors have equal impact. The following table clearly compares the
overall impact of all key factors discussed above.

44
Table 4.10. Comparison of the major factors

Grand Grand Rank of

S. No. Factors
Mean Standard severity
1 Politico-legal factors 3.29 1.01 8th
2 Working premises factors 3.8 1.05 3rd
3 Technological factors 3.65 0.98 5th
4 Infrastructural factors 3.51 1.08 6th
5 Marketing factors 3.84 0.96 2nd
6 Financial factors 4.06 1.01 1st
7 Management factors 3.71 1.02 4th
8 Entrepreneurial factors 3.44 1.08 7th

Source: Field survey, 2012

One can clearly see that financial and marketing factors has the biggest potential to contribute
to the performance of MSE’s, followed by working premises, management, technological, infra
structural, entrepreneurial and politico-legal factors. In another words, the result shows that
financial and working premises factors are the two topmost factors that affect the performance of
MSE in the selected area. This result is supported by Haftu Berihun et al. (2009:84-86) who
found that lack of finance and working space rank on top being reported as the major constraints
by a large proportion of the enterprises. It can, therefore, be concluded that finance and working
premises factors do largely affect the performance of MSEs.

4.5 Results of Inferential Statistics

In this section, the results of inferential statistics are presented. For the purpose of assessing the
objectives of the study, Pearson’s Product Moment Correlation Coefficient and regression
analyses were performed. With the aid of these statistical techniques, conclusions are drawn with
regard to the sample and decisions are made with respect to the research hypothesis.

4.5.1 Pearson's Product Moment Correlation Coefficient

In this study Pearson’s Product Moment Correlation Coefficient was used to determine whether
there is significant relationship between politico-legal, working premises, technological,
infrastructural, marketing, financial, management and entrepreneurial variable with performance.
The following section presents the results of Pearson’s Product Moment Correlation on the
relationship between independent variables and dependent variable. The table below indicates
that the correlation coefficients for the relationships between performance and its independent
variables are linear and positive ranging from substantial to strong correlation coefficients.

45
Table 4.11: The relationship between independent variables and performance

S.N Independent Factors Performance

Pearson correlation 0.736**
1 Politico- legal factors p-value 0.000
N 273
Pearson correlation 0.815**
2 Working premises p-value 0.000
N 273
Pearson correlation 0.637**
3 Technological factors p-value 0.000
N 273
Pearson correlation 0.791**
4 Infrastructural factors p-value 0.000
N 273
Pearson correlation 0.809**
5 Marketing factors p-value 0.000
N 273
Pearson correlation .802**
6 Financial factors p-value 0.000
N 273
Pearson correlation 0.692**
7 Management factors p-value 0.000
N 273
Pearson correlation 0.719**
8 Entrepreneurial factors p-value 0.000
N 273
**Correlation is significant at the 0.01 level (2-tailed).
Source: Own field survey, 2022
As it is clearly indicated in the table 4.10 above, a strong positive relationship was found
between working premises and performance (r =.815, p < .01), marketing and performance (r
= .809, p < .01), and finance and performance (r = .802, p < 0.01), which are statistically
significant at 99% confidence level. This implies that at a 1% level of significance it was
discovered that the working premises, marketing and finance plays a significant role in
determining the performance of MSEs in the selected districts and administrative town.
Moreover, the table indicates that the association between the selected variables and performance
of MSEs for a sample of 273 operators in selected districts and administrative town of Ilu Aba
Bora zone. There is substantial and statistically significant relationship between infrastructures
and performance (r = 0.791, p <0.01). This would imply that, the more infrastructures the better

46
performance of MSEs would be. The result on table above further indicates that, there is a
substantial positive correlation between entrepreneurial factors and business performance (r =
0.719), which is statistically significant at 99% confidence level. This implies that MSEs with
entrepreneurial skills performed considerably better. There also exists a positive relationship
between politico - legal factors and performance (r =0 .736, p < 0.01), and management and
performance (r = 0.692, p < 0.01), and technological factor and performance of MSEs (r = 0.637,
p < 0.01), which are statistically significant at 99% confidence level.

4.5.2 Regressions Analysis

For the purposes of determining the extent to which the explanatory variables explain the
variance in the explained variable, regression analysis was employed and its results of are
presented below.
Table 4.12: Regression of performance (as dependent variable) on the selected variables (as
independent variables) using multiple regressions.
Std. Error of the
R Estimate10
Model Square
Adjusted
R Sig.
summar R square
y
0.941a 0.885 0.881 0.255 0
Unstandardized Standardized
Model
Coefficients Coefficients t
Sig.
Variables B Std. Error Beta
Constant -0.351 0.116 -3.033 .003**
Coefficients

Politico-legal (X1) 0.09 0.031 0.101 2.966 .003**

Working premises (X2) 0.234 0.036 0.238 6.519 .000**
Technological (X3) 0.078 0.026 0.086 2.981 .003**
Infrastructures (X4) 0.15 0.034 0.159 4.422 .000**
Marketing (X5) 0.157 0.038 0.163 4.098 .000**
Finance (X6) 0.2 0.036 0.2 5.513 .000**
Management (X7) 0.102 0.029 0.11 3.543 .000**
Entrepreneurial (X8) 0.086 0.03 0.094 2.879 .004**
** P < .01 Source: Own Field survey, 2012
a – is Predictor: (Constant), entrepreneurial factors, technological factors, management factors,
politico - legal factors, financial factors, Infrastructural factors, working premises, marketing
factors.
By looking at the Sig.-value in table 4.11, it is possible to interpret whether or not the particular
independent variable has a significant impact on the dependent variable. The relationship is
significant if the Sig.-value is not larger than 0.05. The results show that there is a significant
relationship for Politico-Legal (0.003), Working Premises (0.000), Technological factor (0.003),
Infrastructural factor (0.000), Marketing factors (0.000), financial factor (0.000), management

47
factor (0.000) and entrepreneurial factor (0.004). This means that all the variables are good
predictors of the dependent variable.
Table 4.11 also revealed that, the correlation between the observed value of performance and the
optimal linear combination of the independent variables (politico-legal, working premises,
technological, infrastructures, marketing, finance, management and entrepreneurial factors) is
0.941, as indicated by multiple R. Besides, given the R Square value of 0.885 and adjusted R
square value of 0.881, it may be realized that 88.5% of the variation in performance can be
explained by the independent variables. The remaining 11.5 % of the variance is explained by
other variables not included in this study. The unstandardized coefficients B column, gives us the
coefficients of the independent variables in the regression equation including all the predictor
variables as indicated below.
Predicted Performance Score =
−0.351+.090( X 1)+ 0.234( X 2)+0.078( X 3 )+ 0.150(X 4)+ 0.157( X 5 )+0.200( X 6 )+ 0.102( X 7 )+0.086 ( X 8 )

Table 4.11 further shows that, all the explanatory variables included in this study can
significantly explain at 99% confidence level to the variation on the dependent variable. The
standardized beta coefficient column shows the contribution that an individual variable makes to
the model. The beta weight is the average amount the dependent variable increases when the
independent variable increases by one standard deviation (all other independent variables are
held constant). As these are standardized we can compare them. Thus, the largest influence on
the performance of MSEs is from the working premises factor (0.238) and the next is financial
factor (0.200). On the other hand technology with the beta value of .086 and entrepreneurial with
the beta value of 0.094 are the poorest predictor of performance when it is compared with the
other explanatory variables under study.
This shows that the hypothesis which states ‘the selected independent variables do affect the
Performance (Profitability) of MSEs in Mattu town of Ilu Abba Bora zone’ is tested at a 1%
level of significance and found to be accepted and the null hypothesis should be rejected.

48
 CHAPTER FIVE

5 CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This research was conducted in Mettu administrative town with the prime intent of critically
assessing the factors affecting the performance of MSE operators engaged in manufacturing,
construction, agriculture, trade and service sectors. Specifically, the study attempted to examine
the internal and external factors that affect the performance of MSEs, to describe the
characteristics of MSEs operating in the study area and to recommend possible solution to
alleviate the problem of MSEs. Conclusions and recommendations are presented below. The
conclusions are drawn based on the research objectives of the study and on the findings of the
study. In addition recommendations are forwarded to stake holders (government bodies,
operators of MSEs) and further studies are suggested for other researchers.

5.2 Conclusions

According to (Enock Nkonoki, 2010), the main factors/problems that limits small firm’s
success/growth into two groups; first is the factors that originate from within the firm (in other
words they are internal to the firm) and the second group is factors that originate from outside
the firm (these are external to the firm). Lack of a proper business plan/vision, Poor
management, and lack of needed talent are among the internal factors. The external factors
limiting small firm growth are Corruption, Competition, Government policy, Technological
barrier, in access to finances/funding, bureaucratic processes and unfavorable economic factors.
In line with the Enock, 2010 findings, the regression result of this particular study showed, all
the internal and external variables (factors) included in this particular study were statistically
significant and therefore, affects the performance of SMEs in the study area was affected by both
variables.
The finding of this research shows that, most of the MSEs operators have no efficient experience
and management know how to perform their activities effectively and efficiently. These lead to
them unsuccessful because they run their business activities without having adequate knowledge
about the business environment. Lack of managerial know-how places significant constraints on
SME development.
Regarding infrastructural facilities, most of MSEs operators had no adequate infrastructural
facilities at the given study area, specially insufficient and interrupted electric power and water
supply. These will made them, unable to generate adequate profit by satisfying the needs of the
customers. Infrastructural problem is not only the problem of the study area problem it is a

49
country wide problem, therefore this problem is not solved by the MSEs operators rather than by
the government of the country.
The result of the finding showed that majority of MSEs operators in the study area does not have
enough working premises. Because of this, the MSEs operators are not perform their business
related activities effectively and efficiently. And also, the location of the working premises is not
suitable for attracting the new customers that means, the working premises have no access to
market.
Regarding other external environmental factors, majority of MSEs operators activities are
affected by external related problem such as technological related problems i.e. the MSEs
operators are did not have the opportunity to get modernized technology at the given study area
which made them unsuccessful. And the other external problem is, there was a problem of
market linkage with the external parties such as vendor, suppliers and customers. Because of
there was a problem of marketing linkage through external parties, most of the time the MSEs
operators are kept their products in the store. It is true that finance, working premises,
infrastructural, marketing factors are also among factors that affect the performance of MSEs.
But this does not mean that all factors are equally affect the performance of the business
enterprises. As compared with the other factors, technological factors, lack of infrastructural
facilities, shortage of working premises and shortage of finances for start-up and expansion
purposes are the top most factors that affect the growth and success of MSEs activities at Mettu
administrative town of Ilu Aba Bora Zone.

5.3 Recommendations

Suggestions for corrective and complementary measures to enhance the potential performance of
MSEs are essential. Such recommendations demand an in-depth analysis of the influence of
different factors regarding the sector. Based on the findings and conclusions of the study, the
following recommendations are forwarded.
As one can easily observe from this study, both internal and external factors determine MSEs
performance in Ilu Abba Bora Zone of Oromia regional State, South-West Ethiopia. Thus,
MSE’s managers, directors, governmental bodies and all stakeholders should not only be
concerned about internal structures and policies, but also must consider the external environment
together in designing out strategies to improve their performance.
Regarding the internal factors (management and entrepreneurial skills), enterprises owned by
individuals with previous management experience have better performance as compared with
those MSEs operators who have no previous management experience. Therefore, Ilu Aba Bora
Zone MSE Office incorporation with Mettu University, and other government bodies are better
to work on preparing training programs on management issues and creating experience sharing
opportunities especially to those enter into the sector without any previous business background.
In relation to the external factors (politico-legal, working premises, technology, infrastructure,
marketing and finance) the following possible recommendations were forwarded;

50
 The MSEs operators are better to enhance their marketing skills through proper training
and experience sharing with other successful medium and large scale enterprises. In
addition to this marketing skills, such as setting competitive price for their products,
creating good interpersonal relationship with customers and the way of promoting their
outputs to the customers in an effective manner. Moreover, the government bodies such
as Mattu town MSE agency and the other stakeholders are better to assist them by
searching market for their products which is produced by the MSEs operators, by doing
this, they are try to save them from losses.
 To overcome the problems related to establishing and starting the MSEs businesses, it is
needed primarily to conduct market assessment. This can identify and prioritize the type
of MSE business, to pin point the sources of inputs to identify the working place and
other premises to establish and to start the type of business. Moreover, it is required to
train and council the MSEs in developing saving culture and to generating initial capital
by themselves.
 Concerning to the source of finance, the major sources of finance or funds for most of
MSEs operators at the study area are by borrowing money from microfinance institutions.
The reason for emphasizing on informal sector is that the requirement of
collateral/guaranty is relatively rare as compared with formal sectors like banks but the
informal sectors like MFIs are unable to provide/supply enough credit to them as they
want. Therefore, Mattu town MSEs office, in cooperation with other government bodies
have to develop comfortable source of finance for MSEs by organizing and supporting
the performance of Micro Finance Institutions and other source of finance. This can be
done by communicating with the banks and other credit institutions to minimize their
requirements to provide fund. By doing so, the MSEs can get enough access to finance
for their business activities.
 There are infrastructural facility problems in the study area, like power interruption,
inadequate supply of water, and transportation problems. Therefore, the government and
the other concerned body have to give attention to minimize such kind of problems to
improve the performance of MSEs.
 Finally, the study sought to investigate the internal and external factors that influence
performance of SMEs that operates in Mattu town of Ilu Aba Bora Zone. However, the
variables used in the statistical analysis did not include all factors that can affect MSEs
performance in the area. Thus, future researchers could incorporate external factors such
as corruption, size of the enterprise and inflation rate.

51
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 APPENDICES

APPENDIX-A

QUESTIONNAIRE

MATTU UNIVERSITY
UNDER-GRADUATE PROGRAM IN ACCOUNTING AMD FINANCE

SECTION 1: INTRODUCTION
Dear respondent,
This questionnaire is designed to investigate ‘Factors Affecting the Performance of Micro and
Small Enterprises in MATTU town, Ilu Aba Bora Zone.’ You are one of the respondents
selected to participate on this study. Please assist me in giving correct and complete information
to present a representative finding on the current status of the factors affecting the performance
of Micro and Small enterprises in Mettu town of Ilu Aba Bora Zone. Your participation is
entirely voluntary and the questionnaire is completely anonymous.
Finally, I confirm you that the information that you share me will be kept confidential and only
used for the academic purpose. No individual’s responses will be identified as such and the
identity of persons responding will not be published or released to anyone. All information will
be used for academic purposes only. Thank you in advance for your kind cooperation and
dedicating your time.
Sincerely,
Wondewosen Jemal
Note
 No need of writing your name
 For Likert scale type statements and multiple choice questions indicate your

55
SECTION 2: GENERAL INFORMATION ON BUSINESS ENTERPRISES
1. What is the main activity of the enterprise?
A. Manufacturing B. Construction C. Agriculture
D. Trade E. Service
2. How did you raise funds to start-up your business?
A. Personal saving D. NGOs G. Micro finance institutions
B. Family E. Friends/Relatives H. Others (specify)-----------
C. Banks F. Iqub/Idir
3. Which one of the following aspect is the most important for the success of your business
venture?
A. A business plan C. An entrepreneurial team
B. Business opportunities D. Training in business skills

SECTION 3: FACTORS AFFECTING THE PERFORMANCE OF MICRO AND SMALL

ENTERPRISES
The major factors that affect performance of MSEs are listed below. Please indicate the degree to
which these factors are affecting the performance of your business enterprise. After you read
each of the factors, evaluate them in relation to your business and then put a tick mark (√) under
the choices below. Where, 5 = strongly agree, 4 = agree, 3 = undecided, 2 = disagree and 1=
strongly disagree.
4. Please indicate the degree to which you agree with the following statements concerning
politico-legal factors.
S. No. Politico-Legal Factors 5 4 3 2 1
4.1 The tax levied on my business is not reasonable
4.2 Bureaucracy in company registration and licensing
4.3 Lack of government support
4.4 Political intervention
4.5 Lack of accessible information on government
regulations that are relevant to my business

56
5. Please indicate the degree to which you agree with the following statements
concerning working place factors.

S. No. Working Place Factors 5 4 3 2 1

5.1 Absence of own premises
5.2 Current working place is not convenient
5.3 The rent of house is too high
6. Please indicate the degree to which you agree with the following statements concerning
technology factors.
S. No. Technological Factors 5 4 3 2 1
6.1 Lack of appropriate machinery and equipment
6.2 Lack of skills to handle new technology
6.3 Lack of money to acquire new technology
6.4 Unable to select proper technology

7. Please indicate the degree to which you agree with the following statements concerning
infrastructural factors.
S. No. Infrastructural factors 5 4 3 2 1
7.1 Power interruptions
7.2 Insufficient and interrupted water supply
7.3 Lack of business development services
7.4 Lack of sufficient and quick transportation service
7.5 Lack of appropriate dry waste and sewerage system

8. Please indicate the degree to which you agree with the following statements concerning
marketing factors.
S. No. Marketing Factors 5 4 3 2 1
8.1 Inadequate market for my product
8.2 Searching new market is so difficult
8.3 Lack of demand forecasting
8.4 Lack of market information
8.5 Absence of relationship with an organizationthat conduct
marketing research
8.6 Lack of promotion to attract potential users
8.7 Poor customer relationship and handling

57
9. Please indicate the degree to which you agree with the following statements concerning
financial factors.
S. No. Financial Factors 5 4 3 2 1
9.1 Inadequacy of credit institutions
9.2 Lack of cash management skills
9.3 Shortage of working capital
9.4 High collateral requirement from banks and other lending
institutions
9.5 High interest rate charged by banks and
other lending institutions
9.6 Loan application procedures of banks and other lending
institutions are too complicated

10. Please indicate the degree to which you agree with the following statements concerning
management factors.
S. No. Management Factors 5 4 3 2 1
10.1 Lack of clear division of duties and responsibility
among employees
10.2 Poor organization and ineffective communication
10.3 Poor selection of associates in business
10.4 Lack of well trained and experienced employees
10.5 Lack of low cost and accessible training facilities
10.6 Lack of strategic business planning

11. Please indicate the degree to which you agree with the following statements concerning
entrepreneurship factors

S. No. Entrepreneurial Factors 5 4 3 2 1

11.1 Lack of motivation and drive
11.2 Lack of tolerance to work hard
11.3 Lack of persistence and courage to take responsibility
for ones failure
11.4 Absence of initiative to assess ones strengths
and weakness
11.5 Lack of entrepreneurship training
11.6 Lack of information to exploit business opportunities

58
12. Please indicate the degree to which you agree with the following factors that have a direct
influence on the performance of your business?
S. No. General Factors 5 4 3 2 1
12.1 Politico-legal factors
12.2 Working space factors
12.3 Technological factors
12.4 Infrastructural factors
12.5 Marketing factors
12.6 Financial factors
12.7 Managerial factors
12.8 Entrepreneurial factors

QUESTIONNAIRE

59
 GREAT LAND COLLEGE
GRADUATE PROGRAM IN BUSINESS ADMINISTRATION

Kutaa1ffaa : Seensa

Kabajamtoota hirmattoota waraqaa qo’annoo kanaa,

Gaaffiiwwan armaan gaditti dhiyaattan hundi gaaffii waraqaa qo’annoo ‘Factors Affecting the
Performance of Micro and Small Enterprises in Ilu Aba Bora Zone’ jedhu deebisuuf gargaaran
dha.Carraa baheen isin hirmaataa qabxii qo’annoo kanaa taatanii nama filatamtanidha. Kanaafis
odeefannoo sirrii fi guutuu ta’ee kennuun gaaffiin ijoo waraqaa qo’annoo kanaa deebii sirrii
argatee akka mika’uu akka taasiftaniif kabajaa guddaan isin gaafadha.dabalataan hirmaannaan
keessan gutummaa guutuutti kan fedha keessaan irratti hunda’ee fi eenyummaan keessan
(maqaa,teessoo kkf.) waraqaa qo’annoo kanaaf kan hin barbaachifne ta’uu isaa isin
beeksia.Galtee waraqaa kanaaf akka ta’uu samuudni waldalee IMX carraan fiilataman magaalaa
mattuu fi anaalee Buree fi dariimurraa irraa kan hirmaatan ta’a.
Dhumarrattis odeefannoon isin naaf laattan kamuu kan qaama sadffaaf dabarfamanii hin
laatamnee fi hojii waraqaa qo’annoo kanaaf qofa kan oolan ta’uu isin hubachiisaa hirmaannaa
milka’ina waraqaa qorannoo kanaaf taasiftan hundaaf galatni koo dursee isin haa ga’uun jedha.
dha.hirmaannaa

Galata waliin,

Wonduwasan Jamaal
Kaadhimamaa MA
Hubachiisa
 Maqaa keessan barreessuun hin barbaachisu
 Gaaffiiwwan filanoo dhiyaatanii fi lakkoofsa sdarkaa madaala keessan agarsiisu jalatti
jalatti mal’attoo (√) ka’aa.

Kutaa 2ffaa : Odeefannoo waligalaa waldichaa / IMX

60
13. Gosti hojii IMXn keessan irratti bobba’ee argamu kami dha?
A) Maanfacturing B) Ijaarsa C) Qonna
D) Daldala E) Tajaajila
14. Maallaqa/Qarshii hojii itti jalqabdan eessaa argatttan?
A) Qusannoo dhunfaaa E) hiriyaa
B) Kennaa Maatii F) Iqubii/Iddirii
C. Liqaa Baankii G) walda liqii fi qusannoo
D) Dhaabbata mit-mootummaa
H) kan biroo (haa
ibsamu)_________________________________________________________
15. Kanneen armaan gadii keessaa bu’a qabessummaa dhaabbata keessaniif baayyee murteessaa
kan ta’ee isa kami?
A) Bisinaas pilaanii C) garee hojii dandeettii kalaqaa qabu qabaachuu
B) carraa bisinasaa D. leenjii dandeetti /skill/ hojii daladalaa irratti argachuu
Kutaa 3ffaa Haaloota milka’ina/ buqabeessummaa/ waldaalee IMX irraan dhiibbaa
geesisan
Haalootni gurguddoon milka’ina (bu’a qabeessummaa) Walddalee IMX irratti dhibbaa geesisuu
danda’aan armaan gaditti tarreefamanii jiru.Qabxiiwwan kunneen sadarkaa kamitti dhiibbaa
waldaa/IMX/ keessan irraan akka gahan madaalu.Tokkoon tokkoon qabxiiwwanii erga dubbiftan
booda sadarkaa dhiibbaan isaan waldaa/IMX keessaan irraan gahan madaaluun filannoo keessan
jalatti mal’attoo (√) ka’aa.
5 = Siritti waliingala, 4 = waliingala 3 = yaada hin kennu
2 = wali hin galu 1= baayyee walii hingalu
16. Sadarkaa haalli siyaasaa fi hojmaatni seera biyyattii waldaa IMX keessan irraan dhiibbaa
geesise madaalaati lakkoofsa madaallii keessan agarsiisu filadhaa.
T.Lakk Haala Siyaasaa fi Hojmaata Seeraa 5 4 3 2 1
4.1 Kaffaltiin qaraxa / tax/ waldaa keenya irratti gatame
madaalawaa miti.
4.2 Hojmaatni galmeessa daldalaa fi heyyama baasuu bayyee
dadhabsiisaa fi nuffisiisaa ta’uu
4.3 Deggersi gara motummaan jiru laafaa ta’uu
4.4 Dhiibbaan siyaasaa jiraachuu
4.5 Seerootaa fi qajeelfamoota motummaa hojii keenyan
walqabatanii jiran irratti beekumsaa fi odeefannoo gaha dhabuu
17. Haala bakka/iddoo hojii

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T.Lakk Haala iddoo hojii 5 4 3 2 1
5.1 Bakka/iddoo hojii mataa keenyaa dhabuu
5.2 Bakki/iddoon hojii keenya hojichaaf kan hin mijanne ta’uu
5.3 Kaffaltiin kiraa lafaa/manaa ulfaataa ta’uu

18. Haala itti fayyadama teknoolojiin walqabatu

T.Lakk. Haala Teknoolojii 5 4 3 2 1
6.1 Hanqina meshaalee fi maashinoota gara garaa jiraachuu
6.2 Hanqina beekumsaa fi dandeettii teknoolojii haaraa
fayyadamuu jiraachuu
6.3 Teknooloojii haaraa fayyadamuu irratti hanqinni mal’aqaa
jiraachuu.
6.4 Hanqina teknoolojii madaalawaa ta’ee filachuu dadhabuu

19. Haloota bu’uraalee misoomaan wal qabatan

T.Lakk Haala Bu’uraalee Misoomaa 5 4 3 2 1
7.1 Walirraa Ciccituu dhiyeessi humna eletrikaa jira
7.2 Hanqina dhiyeesssa bishaanii jira
7.3 Hanqina dhiyeessi tajaajila misooma daldalaa jira
7.4 Hanqina tajaajila geejjibaa jira
7.5 Hanqina dhiyeessii tajaajila balfa gogaa fi dhangala’oo
maqsuu

20. Haloota gabaa waliin walqabatan

T.Lakk. Haala Gabaa 5 4 3 2 1
8.1 Oomisha keenyaaf gabaa gahaan dhabamuu
8.2 Oomishaaf gabaa haaraa barbaaduun hedduu nuffisiisaa
dha.
8.3 Hanqinni dandeettii fedhii gabaa haalaan tilmaamuu irratti
jirachuu
8.4 Hanqina odeeffannoo gabaa wayitaawaa argachuu
8.5 Dhabbilee qo’annoo gabaa gaggeessan faana walitti
hidhamiinsa dhabuu
8.6 Oomisha ofii beeksifachuun maamila horachuu irratti
hanqinni jiraachuu
8.7 Qabiinsii fi walitti hidhaminsi maamila waliin qabnu laafaa
ta’uu
21. Haloota Madda Maallaqaan Walqabatan

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T. Lakk Haala Madda Maallaqaa 5 4 3 2 1
9.1 Dhabbileen liqii kennan gaha ta’uu dhabuu
9.2 Hanqina qabiinsa maallaqaa
9.3 Hanqina kapitaala hojichaaf barbaachisuu
9.4 Dhabbilee mallaqa liqeessan liqa tajajila liqaaa
dhiyeessaniif kollaataraala guddaa gaafachuu
9.5 Baankiiwwan fi dhaabbileen tajajila liqaa dhiyyeessan
maallaqa liqeessaniif dhala guddaa gaafachuu
9.6 Adeemsi tajaajila liqaa argachuuf taasisamu nuffisisaa fi
walxaxaa ta’uu

22. Haaloota hoggansaaa fi bulchiinsaan wal qabatan

T.Lakk Haala bulchiinsaa fi Hoggansaa 5 4 3 2 1
10.1 Gahee fi itti gaafatamummaan tokkoon tokkoon
hojjetaa/raawwataa ifatti adda bahee ta’uu dhabuu
10.2 Gurma’insi hojii dadhabaa ta’uu fi halli walqunnamtii
laafffatuu
10.3 Rakkoo filannoo dhaabbilee waliin dalaganii
10.4 Hanqina ogeessa gahuumsaa, dandeettii fi muxxannoo
gahaa qabu
10.5 Dhaabile leenjii gahuumsaa kennaan dhabamuu
10.6 karoora daldalaa istraateejik ta’e karorsuu dadhabuu

23. Haaloota dandeettii kalaqaa / intrepreneural factors /

T.Lakk Entrepreneurial Factors 5 4 3 2 1

11.1 Hojjettoota onnachiisuu fi kakasuu
11.2 Cichoomina hojii dhabuu
11.3 Kufaatiin dahabina hojii nam tokkoon dhufu kuufatii hojii
waligala waldichaa akka ta’etti amanuu dhabuu fi itti
gaafatamummaa fudhachuu dhabuu
11.4 Hanqinaa fi cimina hojjetaa adda baasuun deggeruu irratti
hanqinni jirachuu

11.5 Intarpirinarshiippii irratti leenjii gahaaa dhabuu

11.6 Carraa daldalaa fi gabaa jiru siriitti adda baasanii beekuuf
hanqinni odeeefannoo jiraachuu

24. Sadarkaa dhiibaa haalootni waligalaa gurguddoon armaan gadii milka’ina (bu’a
qabeessummaa) Walddaa IMX keessan irratti qaban sirriitti madaalaa. (Hubachiisa
lakkoofsi guddaan dhiibbaa guddaa, lakkoofsi xiqqaachuun ammo dhiibbaan xiqaachuu
agarsiisa)

63
T.Lakk General Factors 5 4 3 2 1
12.1 Haala siyaasaa fi hojmaata seeraa
12.2 Haala iddoo/bakka hojii
12.3 Haala Teeknoolojiii
12.4 Haala Bu’uuraalee mmisoomaa
12.5 Haala gabaa
12.6 Haala Madda maallaqaa
12.7 Haala hoggansaa fi bulchiinsaa
12.8 Haaloota dandeettii kalaqaa / intrepreneural factors /

64
 APPENDIX B
Correlations Matrix
Politico – Entrepre
Perform Working Technologic Infrastructural Marketing Financial Management
legal neurial
a nce factors al factors factors factors factors factors
factors factors
Pearson
1
Correlation
Performance
Sig. (2-tailed)
N 273
Pearson
.736** 1
Politico-legal Correlation
factors Sig. (2-tailed) 0
N 273 273
Pearson
.815** .645** 1
Correlation
Working factors
Sig. (2-tailed) 0 0
N 273 273 237
Pearson ** **
.637 .490 .490** .490**
Technologic al Correlation
factors Sig. (2-tailed) 0 0 0
N 273 273 273 273
Pearson
.791** .607** .664** .533** 1
Infrastructur al Correlation
factors Sig. (2-tailed) 0 0 0 0
N 273 273 273 273 273
Pearson ** ** ** **
.809 .691 .647 .499 .673** 1
Marketing Correlation
factors Sig. (2-tailed) 0 0 0 0 0
N 273 273 273 273 273 273
Pearson
.802** .611** .641** .515** .676** .716** 1
Correlation
Financial factors
Sig. (2-tailed) 0 0 0 0 0 0
N 237 237 237 237 237 237 237
Pearson ** ** ** ** ** **
.692 .498 .596 .453 .579 .627 .554** 1
Managemen t Correlation
factors Sig. (2-tailed) 0 0 0 0 0 0 0
N 273 273 273 273 273 273 273 273
Pearson ** ** ** ** ** ** **
.719 .566 .611 .486 .621 .639 .619 .488** 1
Entrepreneu rial Correlation
factors Sig. (2-tailed) 0 0 0 0 0 0 0 0
N 273 273 273 273 273 273 273 273 273
.
**. Correlation is significant at the 0.01 level (2-tailed)

65
Note that: As we are producing multiple correlations and regression model we need to be aware
of certain features of the multi-collinearity. That means, when two or more independent
predictors are highly correlated with each other this is known as multicollinearity. As a general
rule of thumb, predictor variables can be correlated with each other as much as 0.8 before there
is cause for concern about multicollinearity (PerryR. et al., 2004: 323). But, here a pair wise
correlation is below 80%, which indicates the absence of series problem of multicollinearity in
the regression equation as indicated in the above correlation matrix.

Model Summary
Std.
Adjusted
R Error of
Model R R
Square the
Square
Estimate
1 .941a 0.885 0.881 0.255
a. Predictors: (Constant), Entrepreneurial factors, Technological factors, Management factors,
politico legal factors, financial factors, Infrastructural factors, working premises factors,
marketing factor

Coefficientsa
Unstandardized Standardized
Coefficients Coefficients
Model t Sig.
B Std. Error Beta
(Constant) -0.351 0.116 -3.033 0.003
politico - legal
0.09 0.031 0.101 2.966 0.003
factors
Working premises
0.234 0.036 0.238 6.519 0.000
factors
Technological
0.078 0.026 0.086 2.981 0.003
factors
Infrastructural
0.15 0.034 0.159 4.422 0.000
factors
Marketing factors 0.157 0.038 0.163 4.098 0.000
Financial factors 0.2 0.036 0.2 5.513 0.000
Management factors 0.102 0.029 0.11 3.543 0.000
Entrepreneurial
0.086 0.03 0.094 2.879 0.004
factors

66