Analysis of Growth Determinants of Micro and Small Scale Enterprises in Urban Areas of West Shoa, Oromia Regional State, Ethiopia

Abstract

In the recent past the growth of Micro and Small Scale Enterprises (MSSEs) has been of great concern. This is mainly due to the need to realization of their contribution to Gross Domestic Product (GDP) and economic growth. Empirical literature on MSSEs growth is scant in Ethiopia and gap is even more evident when it comes to study area as there was no other study before. This study investigates some key determinants of employment expansion among micro and small scale enterprises based on a survey covering 176 randomly selected enterprises. The data was collected by key informant interviews, FGDs and semi structured questionnaires. The model used in this study was binary logistic model. Most enterprises are male owned, fail to diversify their product and limited access to training. The majority of enterprises in the study area are surviving rather than growing. Among the demographic variables sex of the owner significantly affects firms growth whereas owners age and owners marital status effect is insignificant. Similarly among the economic variables firms access to formal credit and firms initial capital or investment, positively and significantly affect their growth while firms’ separation of household expenditures from their business failed to have any significant effect on firms’ growth. Moreover among the human capital variables all of the hypnotized variables namely owners’ educational levels, owners previous experiences and owners on work training access affects firms growth positively and significantly. Among firms related variables except type of the business and firms’ product diversity that have insignificant effect on firms’ growth and firms age and initial size affect firms’ growth negatively and significantly. Firms related variables such as the firms sector type, firms customer handling, firms record keeping ,firms market research before starting operation, firms location have a significant and positive effect on their growth. In the absence of formal source of credit, informal networks such as, credit from relatives and friends, subscription by partners enhance business expansion. Location, capital shortage, overtaxes, and lacks of market center are the key challenges of MSSEs in the study area.  Policies and support programs need to take measures by focusing on the significantly determinants of MSSEs growth via taking the hetereogenity nature of enterprises and entrepreneurs.

Keywords: Employment, Growth, Micro, Small, Scale, Enterprises