ADAGO COLLEGE

SCHOOL OF POST GRADUATE

STUDIES

FACTORS AFFECTING MICRO AND SMALL BUSINESS

ENTERPRISES PERFORMANCE IN WOLDIA TOWN

BY
AMHA MEKU NIGATU
ADVISOR:
MENGISTU GUILTI (PHD)

MAY 2024
WOLDIA, ETHIOPIA
 FACTORS AFFECTING MICRO AND SMALL BUSINESS
ENTERPRISES PERFORMANCE IN WOLDIA TOWN

A THESIS SUBMITED TO THE SCHOOL OF GRADUATE STUDIES OF

ADAGO COLLEGE

IN PARTIAL FULFILLMENT OF THE REQUIRMENT FOR

THE DEGREE OF MASTER BUSINESS ADMINISTRATION

BY
AMHA MEKU NIGATU

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 DEPARTMENT DEFENCE ANNOUNCEMENT
The final examination of ______________________________ _____________________
Name of student Student Department
For the master’s Degree in _________________________________________ will be held
On________________________________________ in_____________________________

Name and Signature of Members of the Examining Board

_______________________________________ _____________________________
College Dean Signature

_______________________________________ _____________________________
Advisor Signature
_______________________________________ _____________________________
Internal Examiner Signature

Dedication
To the memory of my: ________________________________________________

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 DECLARATION
I, the undersigned declare that this thesis is my original work, prepared under the
guidance of Mengistu Guilty (PhD). All sources of materials used for the thesis have
been dully acknowledged I further confirm that the thesis has not been submitted in
either in part or in full to any other higher learning institution for the purpose of earning
any degree.
Amha Meku _____________________________
Name Signature
Adago College, Woldia, Ethiopia May, 2024

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 ACKNOWLEDGEMENTS

First I would like to thank the Almighty God for all the blessings upon me without his help and
blessing it was not possible.
I would like to express my sincere appreciation to my advisor, Mengistu Guilty (PHD) for his
continuous support, guidance, and assistance, critical comment for each part of the thesis, timely
feedback and in general for his professional support in this thesis.
I am thankful to my wife Waganesh Tigabu and my brother Getachew Meku Sale for their
patience, pray, encouragement and emotional support and always being aside me for advice. I am
grateful to my friends especially Kalkidan Ambaye ,Seid Nurye,Gediyon Molla and Altaseb
Birhan for their provision of necessary & valuable materials and moral encouragement
throughout my study period.
I thank you Almighty God for Your Blessings!

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 ABSTRACT
In Ethiopia, Micro and Small Enterprises is prioritized as important means of economic
development, job opportunity, and income source and equity resource distribution as
indispensable poverty reduction sector since 2006. Notwithstanding the great attention given to
micro and small enterprises, and several researches conducted in the area, no research exists
that examines the impact of armed conflict on MSEs performance. To fill this gap the study set to
determine and analyze the factors affecting the performance of Micro and Small Enterprises in
Woldia town. Accordingly, the study was directed by five research objectives which pursued
answers for the challenges of MSEs performance. The study used descriptive and expanaory
research methods. Under descriptive method frequency, percent and mean were used, while
under explanatory method correlation and regression were used. The target population of the
study is MSEs operators who run their own business in different lines of enterprises working in
Woldia town and using simple random sampling technique 277 Managers and owners of the
enterprises were selected as respondents of the study. Both primary and secondary data were
collected using self administered questionnaire. The collected data was analyzed using
descriptive and inferential statistics analysis. The researcher employed mixed research approach
so as to strengthen the quality of the collected data. The descriptive statistical analysis results
depict that availability of financial resource, armed conflicts, marketing activities,
infrastructural facilities and managerial factors are determinants of MSEs performance. The
regression analysis result also revealed that the most significant factors affecting growth of
MSEs in Woldia town were financial factors, armed conflicts, availability of infrastructure,
marketing competence and managerial systems,. This study concludes that there is a significant
relationship between factors and MSEs performance. Due to these factors the majority
enterprises in the study area were at mare survival condition and only few are in successful
stage due to the above listed challenges. The study recommends that the Government, other
business support organizations and stakeholders should come together to mitigate financial,
marketing, infrastructural and armed conflict threats to win in their business activity.

Key words: Challenges, MSEs performance, multiple linear regressions model, Woldia town.
,

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 ACRONYM AND ABRIVATION
ACSI Amhara credit and Saving Institute
CBE Commercial Bank of Ethiopia
CSA Central Statistic Agency
EC Ethiopian Calendar
ETB Ethiopian birr (Local currency)
FMSEDP Federal Micro and Small Enterprise Development Program
HASIDA Handcraft and Small scale Industries Development Agency
ILO International Labor Organization
MSE Micro and Small Enterprise
MOTI Monitory of Trade and Industry
OECD Organizational for Economic Cooperation and Development
SPSS Statistical Package for social science
SSA Sub Saharan Africa
TVED Technique, Vocational and Enterprise Development
TVET Technical and Vocational Education and training
TVEDO Technique, Vocational and Enterprise Development Office
UNIDO United Nations Industrial Development Organization

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 Table of contents

Contents
Dedication.....................................................................................................................................................iii
DECLARATION..........................................................................................................................................iv
ACKNOWLEDGEMENTS...........................................................................................................................v
ABSTRACT..................................................................................................................................................vi
ACRONYM AND ABRIVATION.............................................................................................................vii
CHAPTER ONE............................................................................................................................................1
1. INTRODUCTION.................................................................................................................................1
1.1. Background of the Study..................................................................................................................1
1.2. Problem Statement............................................................................................................................3
1.3. Research question.............................................................................................................................4
1.4. Objective of the study.......................................................................................................................4
3.1.1. The General Objective........................................................................................................................4
1.4.1. Specific objectives..............................................................................................................................4
1.5. Scope of the study.............................................................................................................................5
1.6. Significance of the study...................................................................................................................5
1.7. Operational Definitions.....................................................................................................................6
1.8. Organization of the Research Paper..................................................................................................6
2. REVIEW OF RELATED LITERATURE.............................................................................................7
1.2. Meaning and concepts of Micro and Small Enterprises...................................................................7
2.2. Definition of MSES’s in Ethiopian context......................................................................................8
2.3. The Role of MSEs in Employment opportunity and Economic growth.........................................10
2.3.1. The Role of MSEs in Employment Opportunity..............................................................................11
2.3.2. The Role of MSEs in Economic Growth..........................................................................................11
2.4. Micro and Small Enterprises Performance Measures.....................................................................12
2.5. Theories on micro and small enterprises........................................................................................13
2.5.1. The Labor surplus theory..................................................................................................................14
2.5.2. The output-demand theory...............................................................................................................14
2.6. Factors affecting the Performance of Micro and Small Enterprises...............................................14
2.6.1. Financial challenges.........................................................................................................................14
2.6.2. Armed Conflict.................................................................................................................................15
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 2.6.3. Causes of armed conflict..................................................................................................................16
2.6.4. Infrastructural challenges.................................................................................................................17
2.6.5. Marketing Challenges.......................................................................................................................18
2.6.6. Managerial Challenges.....................................................................................................................19
2.7. Empirical Literature........................................................................................................................20
2.8. Conceptual Framework...................................................................................................................25
2.6. Research Hypotheses......................................................................................................................25
CHAPTER THREE......................................................................................................................................26
4. RESEARCH METHODOLOGY.........................................................................................................26
4.1. Research Design.............................................................................................................................26
4.2. Research Approach.........................................................................................................................26
4.3. Target population and Sampling techniques...................................................................................26
4.3.1. Target population..............................................................................................................................26
4.3.2. Sampling Technique.........................................................................................................................27
4.3.3. Sample Size Determination..............................................................................................................27
4.4. Measurement of Independent and dependent Variables.................................................................28
4.5. Methods of Data collection.............................................................................................................28
4.5.2. Methods of Data Analysis................................................................................................................29
4.6. Validity and Reliability of the instrument......................................................................................29
4.6.1. Validity of the instrument.................................................................................................................29
4.6.2. Reliability of the Instruments...........................................................................................................30
4.7. Ethical Considerations....................................................................................................................31
CAHPTER FOUR........................................................................................................................................32
5. RESULTANDDISCUSSION..............................................................................................................32
5.1. Introduction:....................................................................................................................................32
5.2. Response Rate.................................................................................................................................32
5.3. Descriptive analysis........................................................................................................................33
5.3.1. General Characteristics Of The Enterprises.....................................................................................33
5.3.2. FACTORS AFFECTING THE PERFO MANCE OF MSEs...........................................................40
5.4. Results of Inferential Statistics.......................................................................................................53
5.4.1. Pearson's Product Moment Correlation Coefficient.........................................................................54
5.4.2. Testing assumptions of multiple linear regression...........................................................................55
5.4.3. Regression Test on the effect of factors on MSEs...........................................................................58

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 5.4.4. Testing ANOVA...............................................................................................................................59
5.4.5. Hypothesis Testing...........................................................................................................................62
CHAPTER FIVE..........................................................................................................................................64
CONCLUSION AND RECOMMENDATIONS.........................................................................................64
5.1Summary of Major Findings................................................................................................................64
5.2Conclusion...........................................................................................................................................66
5.3Recommendation.................................................................................................................................67
REFERENCE...............................................................................................................................................70
APPENDIX A..............................................................................................................................................74

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 List of Tables
Table 2. 1 The Definition of Micro and Small Enterprises......................................................10
Table 3. 1 Total population of the study........................................................................................29
Table 3. 2: Sample size of the study..............................................................................................30
Table 3. 3 Reliability Statistics......................................................................................................32
Table 4. 1 Response rate of questionnaires by respondents..........................................................35
Table 4. 2 Gender composition of respondents and performance.................................................37
Table 4. 3 Age of respondents and the performance level............................................................38
Table 4. 4 Level of Educational respondents and the performance level......................................39
Table 4. 5 age of the firm and enterprise growth...........................................................................40
Table 4. 6: Source of Capital for startup and expansion............................................................41
Table 4. 7 Startup and current employee number..........................................................................42
Table 4. 8 Financial factors that affect the performance of MSEs................................................44
Table 4. 9 Infrastructural factors that affect the performance of MSEs........................................47
Table 4. 10 Marketing factors that affect the performance of MSEs.............................................49
Table 4. 11 Management factors that affect the performance of MSEs........................................52
Table 4. 12 the influence of armed conflict on MSEs performance..............................................54
Table 4. 13: Perceived enterprise performance.............................................................................56
Table 4. 14 Comparison of the major factors................................................................................57
Table 4. 15 The relationship between independent variables and performance............................59
Table 4. 16 multi-collinearity diagnosis........................................................................................62
Table 4. 17 : Regression analysis.................................................................................................63
Table 4. 18 ANOVAb....................................................................................................................64
Table 4. 19 : Coefficient of Independent variables on MSEs Performance..................................65

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 List of Figures
Figure 4. 1 propotion of sectors.....................................................................................................36
Figure 4. 2. Regression Standardized Residual.............................................................................60
Figure 4. 3 Normal P-P Plot of dependent variable employee performance.................................61
Figure 4. 4 Scatter Plot of regression of standardized residual of MSEs Performance.................63

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 CHAPTER ONE

1. INTRODUCTION
1.1. Background of the Study
Micro and small enterprise (MSE) sector is highly diversified sector and is the back bone of
plenty of economies all over the world (Solomon, 2015). The sector is also known as the natural
home of entrepreneurship because it provides fertile ground for enabling entrepreneurs to
optimally use their talents and to achieve their personal and professional goals. In any economic
success, growth, job creation and social progress, MSEs are considered as important
springboards (Lussier and. Halabi, 2018). According to Munir Salah (2019), MSEs are tools in
bringing about economic transition by effectively using the skill and talents of individuals
without requesting high level of training, much capital and sophisticated technology.
Accordingly, MSEs are considered as the natural home of entrepreneurship, breeding ground for
development of industrial skill and they are the primary vehicles by which new entrepreneurs
provide the economy with a continuous supply of ideas, skills, innovations and job opportunity
(Woldegebriel2012).
As empirical studies confirmed the micro and small enterprises employ a large portion of the
labor force and they are the sources of income for the majority peoples across the world (katua,
2014). As Fan (2016), indicated in developed countries MSEs contributed over 55% GDP and
over 65% of total employment. While, in low and middle income countries the contribution of
MSEs on GDP account over 70% and on total employment over 95%.
Based on the above facts, throughout the world MSEs are the major concern of governments
with the objective of reducing unemployment rate, income generation, and fair distribution of
income, import substitution, innovation and poverty alleviation (Munir Salah, 2019).
Accordingly, governments in developing countries have started to take advantage MSEs by
including MSEs in their policy(Anol, 2012). However entrepreneurship and job creation are the
only feasible choices in present world to address rampant unemployment and job scarcity,
findings of various studies depict that entrepreneurial ability in many developing countries is
very low (Okpara, 2011). As Hailemichael (2014), indicated entrepreneurial and management
capability of the owner, mentality skill and motivation in exploring opportunities, access to

1
technology and capital are major factors that inhibit the performance of MSE in Africa. Lafuente
and Rabetino (2011), identified the regulatory and institutional factors as the major obstacles
frequently hampered micro and small enterprises growth.
Feng(1997), identified violent conflict as the most obvious factor that affect the MSEs
performanceon both factors of production, capital and labor: buildings and machinery damage.
Bloom and Van Reenen, (2010), argue that where there is high risk of violence conflict, output
reduce to its lowest level or loss due to looting and stopping business operation.
Like other developing countries MSEs have paramount contribution in Ethiopia’s economy and
employment creation. A survey by CSA (2017) discloses that in 48 major towns indicates that
nearly 585,000 and 3,000 operators engaged in micro and small scale manufacturing industries
respectively, whichabsorbabout740,000laborforces. As a result, the sector is considered as the
second largest employment creating sector beneath to agricultural sector.
With more to respond to unemployment and economic growth, the government in Ethiopia has
introduced and started to implement the federal micro and small enterprise development program
(FMSEDP) in 1997 and Ethiopia’s industrial development strategy focused on creating
productive and dynamic private sector. However, studies conducted in the area proved that the
performance of micro and small enterprise in Ethiopia are affected by several factors such as,
financial problems, lack of qualified employees, lack of proper financial records, marketing
problems and lack of work premises, etc. Besides, environmental and personal related factors
that include social, economic, cultural, political, legal and technological factors as well as
person’s individual attitude, training and technical know-how are also affecting the performance
of MSEs in Ethiopia (Solomon and Siyoum 2012). Due to the above hindering factors, most of
the existing enterprises have become stagnant and they are still at lower level and mere survival
stage. In addition to this, most enterprises are remaining at micro and at start up levels for longer
period of time being unable to climb the ladder and grow from one stage to the other (Zeleke and
Siyoum, 2012). Therefore, the purpose of this study was to examine whether those constraints
explained in the above are really available in Woldia town or not. The researcher is thus, obliged
to identify and analyze the varied problems that are the bottle necks of the performance of micro
and small enterprises in the study area.

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 1.2. Problem Statement
Regardless of their location and size Micro and Small Enterprises (MSEs) sector are described as
the natural home of entrepreneurship and the springboard for economic growth, job creation, and
social progress (Munir Salah, 2019). Moreover, MSEs sector is believed to create suitable
environment for entrepreneurs to fully exercise their talents and to carry out their personal and
professional goals successfully (Alemu&Tizazu, 2017).
Despite the fact that MSEs have been in Ethiopia for a long time, policy makers, academics, and
researchers have only lately become aware of them. For the first time MSEs were designed in
Addis Ababa city Administration in 2010developed a business plan for the first time in garment,
dry food, metal and woodworks sub sectors(Girma, 2013). Following this fact, in 2005 the
general MSEs Development program was developed for the country. Apart its business
opportunity and reduction of poverty and unemployment rate of youths, Small and micro
Enterprise hampered their performance through several variables such as, lack of finance for
projects, lack of qualified employees, marketing problems, etc. Moreover, environmental factor
which includes social, economic, cultural, political, legal and technological factors influence the
business. Personal attitudes, which are connected to the person's individual attitude, training and
technical know-how challenges, and so on, also have an impact on MSE performance (CSA,
2007). There are a lot of factors that affect the performance of MSEs either positively or
negatively which in turn will determine their fate in the competitive business environment. These
factors which contribute to the success of the enterprises are mainly related with the personal
attribute of the owners’ and attributes related to the enterprises. Given the economic importance
of small businesses, their survival, development, and performance in this area is a constant
source of worry. Policymakers, owners/managers, and their advisers are all interested in research
that can lead to the identification of variables linked to small company performance (Alasadi and
Aveh, Krah&Dadzie, 2013). Understanding of why some firms performed well and others not is
crucial to the stability and health of the economy. However, it has not been fully explored
empirically which elements are the most critical determinants determining the performance of
MSEs in Ethiopia. In this regard the study were assessed several published and unpublished
academic researches to reduced area of similarity, accordingly, there were a study took place by
Dagmawit(2016), on determinants of Micro and Small Enterprises Growth: The Case of Durame
Town, Ethiopia, in 2016 and the finding implied, that out of the total sample 40% of Micro and
3
Small Enterprises are growing and 60% of Micro and Small Enterprises are non-growing in
terms of employment. In terms of capital 69% of Micro and Small Enterprises are growing and
31% are non-growing. The study was simply indicated Progress of MSEs interims of
employment creation, and capital development, but ignoring specific factors that influence MSE
performance. There were also a study conducted by Alemayehu (2010) on factor affecting
performance of MSEs in the Construction Sector of Addis Ababa; the finding identified major
factors affecting construction sectors of MSEs of Addis Ababa. One of the research gaps of this
is that, the study consider only constriction sector. Zeleke (2009) performed a research on
management efficiency as a driver of long-term survival in micro, small, and medium
enterprises, and his findings confirmed that good management abilities help small businesses
survive and thrive in the long run. The research focused only one variable.
Therefore, this study tried to fill the above mentioned gaps by examining five major factors
namely, financial, marketing, infrastructural, management and armed conflict factors in the case
of major MSEs sectors in Woldia town.
1.3. Research question
The study on the factors affecting MSEs performance in Woldia town tried to answer the
following questions:
How Financial Constraints affect performance of MSEs in Woldia town?
To what extent current armed conflict influence the performance of MSEs in Woldia
town?
To what extent infrastructural factors affect MSEs performance in Woldia town?
How do the Marketing factors influence MSEs performance in Woldia town?
How management systems of operators affect the performance of MSEs in Woldia town?

1.4. Objective of the study

3.1.1. The General Objective

The overall objective of the study is assessing factors affecting micro and small business
enterprises performance in Woldia town.
1.4.1. Specific objectives
1. To investigate the effect of financial factor on MSEs performance in Woldia town.
2. To examine the impact of current armed conflict on MSEs performance in woldia town.

4
3. To investigate infrastructural factors that affects the performance of MSEs in woldia town.
4. To examine the effect of marketing factor on MSEs performance in woldia town.
5. To examine the effect MSEs Management system on enterprises performance in Woldia town

1.5. Scope of the study

The study population was limited to Micro and small business enterprises legally registered and
working in the geographic boundary of Woldia town administration having more than one year
business life or business experience. The location is chosen because it is a center of collection of
large number of small and medium business activities and Woldia is the only capital town of
zonal administrations in the region that stayed under enemy’s control for over 5 months. The
study assessed financial, current conflict, infrastructural, management and marketing factors
affecting small and medium enterprises in the town because these factors are new for the study.
The justification towards selection of micro and small business sectors for this particular study
was because of the fact that the government has confirmed in its micro and small enterprises
strategy giving top priority to these sectors as growth oriented sector.

1.6. Significance of the study

The findings of this study support for the following bodies:
For the micro and small enterprises development office and the owners: This study has a
great importance of such enterprises may be able to know the real problems and then to seek
solutions for these problems.
For other researchers:the findings and methodologies can be reference for other researchers
who are interested to conduct study related to this problem. It also helps to provide a deeper
understanding of the critical factors that affect the performance of MSEs.
The finding of this study also used MSEs in Woldia towns, within an insight into the benefits of
using different factors studied in this research to predict the factors that affect the performance of
MSEs.
For 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 help the
financial institutions how to encourage establishing or expanding MSEs. It also enables them to
know what kind(s) of policies should be framed.
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 1.7. Operational Definitions
Armed conflict: conflict arises whenever there is fighting between government authorities and
organized armed groups.
Financial factors: factors related with accessibility of financial related and affect the
performance of MSEs
Infrastructural factors: Infrastructure that facilitates operations has a favorable influence on
lowering operating costs and the absence of efficient, dependable, safe, and inexpensive
infrastructure is harming the performance of MSEs.
Management Factors: Entrepreneurial and management skills, as well as marketing experience
and Lack of such skill leads to production problems coordination of production processes, and
inability to troubleshoot failures.
Marketing factors: seeking new possibilities and opportunities within or outside the local
markets. And it is the presence of competition among MSEs operators.
Performance: in this paper performance defined in terms of sustainable operation of business
activities (success) of the MSEs.
1.8. Organization of the Research Paper
The research paper organized under five chapters. The first chapter discussed about introduction
and it encompasses background of the study, statement of the problem, research objectives,
scope and significance of the study and organization of the research report. The second chapter is
devoted to the review of related literature. It also conveyed conceptual frame work as well as
hypothesis. Chapter three covered research methodology, design of the research and data
collection, sampling, sample size determination and primary data analysis techniques. Chapter
four analyzed and discussed the collected data and presented the findings of the study using
tables, and figures. Thus, descriptive as well as inferential analysis discussed in detail. The last
chapter included summary, conclusion and recommendations. Finally, all the reference materials
used in the study process are listed under bibliography part.

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 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

1.2. Meaning and concepts of Micro and Small Enterprises
Different scholars define the term Micro and small enterprises in different way. This makes the
sector to not have single and universally common definition. Accordingly, various countries use
different ways to define the term micro and small enterprises (Aveh, Krah&Dadzie, 2013).
Besides, countries based on their situation, they tried to use a range of terms to name MSEs for
instance, some countries names small businesses, small manufacturing enterprises, small firms,
small enterprises, small scale industries and micro enterprises but other countries name MSEs as
the informal sector, cottage and handicrafts, tiny businesses, other income generating activities
and so on (Munir Salah, 2019). Countries around the globe use different measures and factors to
define and distinguish Micro and small enterprises. These criteria can be broadly grouped in to
three major classifications namely, quantitative, qualitative and both quantitative and qualitative
factors. number of employees work in the enterprise, total revenue the enterprise earn per year,
total asset the enterprise own are among the common quantitative criteria used to define the
MSEs. Accordingly, the quantitative criterion helps to demarcate clear boundary between micro,
small, medium and large enterprises. Some writers also use net asset, initial capital, invested
capital, total produced quantity, values added as additional criteria to define MSEs (Buculescu,
2013).
The qualitative criteria also use ownership style or range of responsibility, independence of the
enterprise, firm industrial type, size of the enterprise, activity the enterprise engaged to define the
term MSEs in different countries. According to International journal of technology (2017), stage
of a country’s economic development and industry within which the MSE is competing are the
major factors countries use to define the term Micro and Small enterprises. Some others depend
on the level of development, culture, and the size of economy to define the term micro and small
enterprise. Due to the above measures and factors the definition given to micro in developed
country may be the definition of small enterprises in less developed countries. An enterprise
classified as micro enterprise in USA may be considered as small enterprise in Africa for the fact
that the definition of MSE is relative to economic development. For example, in USA the official
7
definition of micro enterprise satisfies the average annual gross revenues for the previous three
years not to greater than $3million, and small enterprises needs to have the average annual gross
revenues for the last three years not to exceed $15 million. Whereas in Malawi accepted
definition of small scale enterprise is that the enterprise should have a capital investment of USD
2,000 - USD 55,000, employing 5-20 people and with revenue of up to USD 110,000 (Africa
development Bank, 2019)
According to World Bank (2016), definition an enterprise which have less than $100,000 total
assets & sales and less than 10 employees as Micro enterprises. Whereas Enterprises with total
assets and annual sales between $100,000 up to3 million and employee 10 to 15 persons are
categorized as medium enterprises. The EU also classifies enterprises as Micro and small based
on their employment creation capacity and annual income level. Thus, according to EU
definition, medium enterprises as those entities that have fewer than 50 persons and whose
annual turnover does not exceed EURO 10 million. Whereas, an enterprise with less than 10
persons and with annual turnover 2 or less EURO million.
In Ethiopia the definition of Micro and small enterprises is based on their firm type, number of
employees, annual turnover. Accordingly, micro enterprises their firm type categorizes under
industry sector are enterprises which operate with <5 people including the owner and/or their
total asset is not exceeding 100,000birr but Small enterprises under industrial sector are those
business entities operating with 6-30 persons and with total asset above 100,000 and not more
than Birr 1.5 million (Ethiopian Federal Micro and Small Enterprises Development Agency
strategy 2011). In other hand the agency also define micro and small enterprises belonged under
service sector as the following. Micro enterprises under service sector defined as entities that
have 5 employees including the owner and total asset that is not more than fifty thousand birr.
Small enterprise under service sector in Ethiopian context defined as enterprises with 6-30
persons and total asset between Birr 50,000 and Birr 500,000.

2.2. Definition of MSES’s in Ethiopian context

The definition of micro and small enterprise in Ethiopia has two different meanings, two
different definitions of micro and small enterprises were adopted. The definition used in 2005
micro and small enterprises development strategy and the definition used by the Central
Statistics Authority.

8
The Definition provided in the 2012 Micro and Small Enterprise Development Strategy took into
account the experiences of South Africa and other countries. During that time, the use of a single
criterion, namely paid up capital, was preferred as it was thought that there were difficulties in
obtaining information on the numbers employed in MSEs as most of the enterprises were
operated by family members.
The Central Statistics Agency's Definition GoE’s Central Statistics Agency definition of MSEs is
based on the type of technology adopted and the size of workers:
Handicraft and cottage industries in which a single person or family members perform their
activities mainly by hand and using non-power driven machineries; and Small scale
manufacturing enterprises engaging less than 10 persons and using motor driven machinery. A
new set of definitions is offered that considers the number of employed employees, total assets,
and two broad sector categories (industrial and service), as well as inflation and exchange rate
changes that may occur in the following five years.
The revised definition of Micro Enterprises For the industrial sector(including manufacturing,
construction and mining): Enterprises employing a maximum of five persons, including the
enterprise owners and family members, with a total asset of not more than ETB 100,000 (USD
3540); and for the service sector (retail trade, transport, hotel, tourism, and information
technology and maintenance services): Enterprises employing a maximum of five persons,
including the enterprise owners and family members, with a total asset of not more than ETB
50,000 (USD 1,769). The Revised Definition of Small Enterprises for the industrial sector
(manufacturing, construction and mining) employing 6-30 persons and with a total asset of from
ETB 100,0 01 up to ETB 1,500,000 (USD 3540 up to USD 53097); and for the service sector
(retail trade, transport, hotel, tourism, and information technology and maintenance services)
enterprises that are employing 6-30 persons, and with total as set of at least ETB 50,001 and up
to ETB 500,000 (USD 1769 up to USD 17,699).
Table 2.1The Definition of Micro and Small Enterprises

Level of enterprise Sector Head count Total asset Total asset

staff ETB USD
Micro enterprise Industry ≤5 ≤ 100,000 ≤ 3,540
Service ≤5 ≤ 50,000 ≤ 1,770
Small enterprise Industry 6-30 101,000-1,500,000 3,575-53,097
Service 6-30 50,001-500,000 1,769-17699
9
USD 1.00 = ETB 53.25 as at 11 October 2024 (XE Currency Converter)
(Source: micro and small enterprise development strategy, 2012)
In the event of a conflict between the usage of total assets and the number of employees, total
assets will be used as the primary criterion. The Legal establishment of Micro and Small
Enterprises it is imperative to ensure the legal status of MSEs so that they are eligible for
enterprise development support services. The legal status of the enterprises shall be defined
based on their preference (registration) either as per the Commercial Law (Business Licensing
and Registration Laws or as per the Cooperative Societies Proclamation). The collection of
countrywide data and information on MSEs shall be harmonized taking into account the new
definitions adopted for micro and small enterprises and as per the procedures to be established by
the Central Statistics Agency and in accordance with the standard categories of business licenses.
The definition given by MoTI states the difference between micro and small enterprises based on
paid up capital .Micro enterprises are those businesses enterprises, in the formal and informal
sector, with a paid up capital not exceeding Birr 20,000 and excluding high-tech consultancy
firms and other high tech establishments whereas, small enterprises are those business
enterprises with a paid up capital of above Birr 20,000 and not exceeding Birr500,000 and
excluding high tech consultancy firms and other high tech establishments (Commission on Legal
Empowerment of the Poor, 2006).

2.3. The Role of MSEs in Employment opportunity and Economic

growth
The importance of MSEs is well recognized in academic and policy literature. Both developed
and developing countries have realized the importance of MSEs in the economic and social
development. Regarding the contribution of MSEs on sustainable development, the contribution
of Micro and Small enterprises for economy and employment creation increase is proportionate
with the levels of development. Studies across the world confirmed that there is a strong positive
correlation between the contribution of MSEs to employment opportunity and economic
development of the country. The development of Small enterprises is thus an indicator of
development (Central Statistical Agency. (2011).This study reviewed several literatures that
discuss the contribution of MSEs on employment creation and economic development.

10
 2.3.1. The Role of MSEs in Employment Opportunity
For several writers, the MSEs sector is regarded as the home of highly diversified economic
activities that can enhance employment opportunities for a large section of the society. Thus, for
the quick solution of joblessness and entrepreneurship problem the sector plays the key role
through facilitating the environment for new job seekers and self-employees. As compared with
large enterprises, the Micro and Small Enterprise sectors engage large number of labor per unit
of capital (Munyori&Ngugi, 2014). In emphasizing the role of MSEs employment creation,
Mbonyane (2011), discussed that Micro and small enterprises in many countries serve as
entrepreneurial training centre and labor incentive sectors that can enhance the capacity building
and create more employment opportunities per unit of investment. According to UNIDO (2014),
in the past two decades in several countries across the world the MSE sector is the major engine
of employment growth accountable for the majority of jobs created in various countries.
Accordingly, MSEs all over the world share one-third to two-thirds of employment opportunity
of the private sector. International journal of technology (2017), announced that in developed as
well as developing countries the contribution of micro and small enterprises in employment
creation account over 65% and over 70% respectively. According to Munyori&Ngugi, (2014), in
developing countries, the micro and small enterprises is the major source of employment to the
total non-agricultural employment accounts for nearly half or more and about 72% in sub-
Saharan Africa. Mead and Liedholm (1998), conducted a research in five eastern and southern
African countries such as, Botswana, Kenya, Malawi, Switzerland& Zimbabwe on the role of
MSEs in employment opportunity. Accordingly, the research finding confirmed that MSEs
constitute nearly two fold of employment opportunity created in large scale enterprises and in the
public sectors.
To investigate the role of MSES in Ethiopia, in 2003 the CSA conducted a study. Accordingly,
the study confirmed that 50% of the labor forces of the country are involved in the informal
sector that can generate low income.

2.3.2. The Role of MSEs in Economic Growth

Micro and small enterprises are the means for fastest economic growth and quick
industrialization. As a result MSEs are considered as the starting point of development in the
economies towards industrialization. As Olawale and Garwe (2010), confirmed a large number
11
of enterprises in world are at Micro and small levels and they play a vital role in the economy of
both developed and low income countries. As many writers agree, the MSE sectors have positive
impact on a national economy through providing fertile grounds for processing activities which
can enhance the development process, poverty reduction, in the transition of agriculture-led
economies to industrial ones, tax revenue and efficient utilization of resources in general and the
MSEs can have significant effect on individuals income generation and stability, particular.
As MSEs are very flexible and quickly accustomed with the changing market conditions, the
sector help the promotion of private ownership and entrepreneurial skills and enable to widen
and vary economic activity. Besides, the sector can play vital role in exports and trade (UNECE
2003). According to Taiwo (2012), the MSE sector is highly dependent on local raw materials
and this makes the sector as the sole actors in saving, investment and entrepreneurship
development both in rural and urban areas. In addition to this, MSEs can also play as the major
providers of intermediary goods and components and as the major agents for the distribution of
final products for large industries.
Currently, in many developing countries the role of MSEs in economic development process has
been acknowledged. As a result, the success or failure of economic growth in these countries is
determined by the performance of MSEs (Jasra, 2011). Mahmoud,(2011), added that when MSEs
become successful, they can create income for their entrepreneurs and employees that can enable
them to change their life and leading to a bottom-up transition. The European Commission
(2011), annual report confirmed that during global economic crisis, the MSE sectors in Europe
could become the economic backbone of the continent. The commission also explained in
developed countries the contribution of MSEs in their economy is too high. Accordingly, MSEs
add over 55% of GPD and over 60% of GDP in low-income countries. In the recognition of the
socio-economic roles of the sector and its potential contribution to Ethiopian economic
development, the CSA(2015), conducted a survey across the country. As the study confirmed the
MSEs in Ethiopia contribute 3.4% the national GDP and among the total contribution of the
industrial and manufacturing sectors MSEs share 33% and 52% contributions respectively.

2.4. Micro and Small Enterprises Performance Measures

One of the basic elements to evaluate the MSEs Performance is firms growth/success level and
the measure of firm’s growth/success is considered as the most reliable and easily accessible
measure (Delmar, 1997). Thus, the two major dimensions of firm’s success/ growth measures are
12
financial Vs other success criteria and short-term Vs long-term success (Davidsson 1991). The
two major dimensions can be explained by survival, profit, return on investment, sales growth,
market shares number of employed, owner’s happiness, reputation, and so on. In other hand,
Murphy, (1996) argue that the performance of MSEs can also be measured by both objective and
subjective measures. According to Delmar (1996), the performance of business enterprises in
sales and employment creation indicate both short and long term changes and they are easily
accessible.
In addition to this the author argued that firm performance indicators such as market shares, sales
and employment are more objective measures and among other measures of firm performance,
employment growth measure is considered as the most reliable and easily attainable measure as
compared with other firm performance measures because other dimensions of success indicators
are more complicated for example, mostly micro and small business entrepreneurs do not keep
complete books of records Bigsten and Gebreeyesus (2007) And, firms can easily answer
question about past and present size of employment, to measure the performance of MSEs.
However, other studies disclose that the use of employment growth as the sole measure of MSEs
performance instead of alternative indicators such as changes in sales, outputs, or assets (USAID
2015) is the bias and ignoring other important MSEs performance. Some of the critics of using
employment as exclusive measure of firm performance is that due to seasonal nature of much
small enterprise employment, from the occurrence of part time work and from the extensive use
of unpaid family labor including children as well as the slowly growing nature of employment,
which appears to increase with a lag after a sizeable growth in real sales.
The measure of performance of MSEs though analyzing the profit level of the firms is the most
commonly used dimension in many countries however Taiwo (2012)has argued that the use of
profit as the measure is difficult by small enterprise owners due to several reasons. Among such
reasons Mashenene (2014), stated absence of complete keep of business book accounts, inability
to figure out the true financial values. Moreover, income from the business supports household
consumption thereby complicating computation of revenues and costs increasing to the business.

2.5. Theories on micro and small enterprises

Following the recognition of MSE’s importance in all over the world, different thoughts and
theories regarding the function and the role of MSEs have been evolved. Among theories

13
developed regarding MSEs role and discussed in this study are Labor surplus theory and Output
demand theory. Accordingly, in this section the previously mentioned theories are discussed in
detail.

2.5.1. The Labor surplus theory

The labor surplus theory was developed by Lewis (1955), and the theory focuses on labor related
factors. This theory argues that the availability of excess labor supply in the market, which is
beyond the absorbing capacity of public as well as large private sector, is the driving force
behind MSE development in both developed and developing countries. Alemayehu (2010),
confirmed that in many countries the development of MSE is due to rapid growth of
unemployment, poor availability of employment opportunity in a formal sectors. Abdi (2010),
argue that the MSEs and the formal sector have ant-cyclical relationship. Which implies that
during the economic crisis the formal sectors grow very slowly MSEs expected to grow whereas
during economic booming the formal sectors grow Micro and absorbs very low employment
while MSE sectors began absorb surplus labor force.
2.5.2. The output-demand theory
The second theory developed for MSEs is the output-demand theory. In This theory the MSEs
and the economy as a whole have a cyclical relationship. As a result, for MSEs development
access to the market for their products and services is the prerequisite. The competition between
MSEs and large enterprises is also the factor for MSEs development. When large enterprises
began to monopolize the market, the MSEs development will be constrained by formal sectors
monopoly. Thus for the growth of MSEs, governments should take actions such as, enacting
policies and adopting structural adjustments that can limit the monopoly of large enterprises
(Girma, 2014).
2.6. Factors affecting the Performance of Micro and Small Enterprises
2.6.1. Financial challenges
As a result, the vast majority of micro and small businesses begin with personal resources,
supplemented by borrowing from friends and family. In the absence of a formal source of credit,
MSEs tend to prefer informal networks. As a result, businesses with a greater network of
informal sources of credit, such as relatives, friends, and suppliers, are able to ease credit

14
limitations and develop quicker. As a result of these issues, the majority of operators/owners
begin their businesses with insufficient funding (Aveh, Krah&Dadzie, 2013).
As a result, the great majority of micro and small firms start with personal funds, which are
augmented with loans from friends and family. MSEs prefer informal networks in the absence of
a formal source of credit. As a result, companies with a larger network of informal credit
sources, such as relatives, friends, and suppliers, are able to overcome credit constraints and
grow more quickly. As a result of these challenges, the majority of operators/owners start their
enterprises with inadequate capital (Aveh, Krah&Dadzie, 2013).Furthermore, because most
micro finance institutes charge a higher interest rate than traditional banks, they are less
successful in meeting the demands of tiny businesses (Aveh, Krah&Dadzie, 2013). According to
Gebremedhin (2012), more than 93 percent of MSEs said they did not apply for bank loans for
the following reasons: they need credit but are discouraged from applying because of the
perceived or real high collateral requirement, high cost of borrowing, difficulty of processes,
ineligibility, or concern about their repayment ability, and they are uninformed (i.e. not aware of
the facility, or where and how to apply, etc.).Girma (2015) found that banks and MFIs do not
appear to be supportive to MSE expansion. As a result, 85 percent of those polled have never
gotten credit from these official sources. Other informal sources of money, on the other hand,
have a positive and considerable impact on growth. This demonstrates that, in the absence of a
formal source of credit, MSEs find informal networks more alluring. As a result, enterprises with
a greater network of informal sources of credit, such as family, friends, and suppliers, are able to
ease credit limitations and develop more quickly. Many research, such as Rolfe et al (2010) and
Mbonyane&Ladzani(2011), have identified a lack of money as a crucial success factor for MSEs
2.6.2. Armed Conflict
According to the literature, there are numerous definitions of what armed conflict is and what the
concept actually included. There are several definitions of armed conflict offered by different
scholars based on their researches. IOM (2011) gave several aspects and a comprehensive
description of armed conflict by categorizing it into two broad groups. As a result, non-
international armed conflict is defined as a long-term armed struggle between governmental
armed forces and one or more armed organizations, or between such groups forming on the
state's territory. Amnesty international (2015), established the definition of armed conflict as a
conflict due to various reasons and has negative impact on social, political, and economic
15
institutions. Based on international committee of the Red Cross (2012), illustrated that armed
conflict is a political conflict in which armed combat involves the armed forces of at least one
state and in which at least 1000 people have been killed by the fighting during the course of the
conflict.
There is a scanty of research that has been performed on impact of armed conflicts on small and
medium enterprises performance, however, that which has been done thoroughly validates the
impact of armed conflict on achievement and performances of SMEs.
2.6.3. Causes of armed conflict
Collier and Hoeffler (2002) dichotomized the two principal categories of causes of conflict as the
greed (opportunity, such as finance or natural resource rent, for building rebel organization) and
grievance (such as pronounced inequality, lack of political right or ethnic or religious repressions
in the society). Armed conflicts are complicated events that arise from a confluence of factors
such as political, economic, historical, and psychological factors, and they are rarely described
by a single cause (Barbieri, Katherine, 2002).
According to Hirshcman (1995), social conflict is unavoidable, every change brings new
conflicts, and successful societies are defined by their ability to manage conflicts rather than by
their lack of them. Policies for conflict and post-conflict societies are multifaceted (Addision
2001). Collier and Hoeffler (1998) identified three social related pre-conflict risks and related
structural risk factors such as population size and geographic concentration. The policy related
risks are, in the order of their importance, the extent of dependence on rent extracted from
natural resource, lack of alternative economic opportunities, especially for young men, and
existence of ethnic dominance (Collier and Hoffler, 2000).
Gebre-Hiwot (1917) The major internal constraint to development banditry. He ranked banditry
over and above natural or environmental challenges. For him, the source of banditry is the
capacity of certain individuals to unleash violence so as to ensure a regular flow of income
without directly engaging themselves in the production process. This is exasperated by the
dispersed settlement of peasants, which limits their capacity to organize and defend their wealth
as well as themselves. As he state social stratification as it creates a situation in which the
number of people engaged in consumption will be far larger than those engaged in production.
This in turn leads to a decline in the capacity to create wealth as well as low rate of population

16
growth, both of which adversely affect development. This is the fundamental problem of 20th
century Ethiopia (Alemayehu 2000a).
Inter and intra-ethnic/linguistic/cultural group conflict is also some of socio-political factors
which provoke conflict. He noted peasants in each of such groups are squeezed through tax levy
and surplus extraction by their own group ruling class. This process drives peasants out from
their previous settlement (allegedly fertile land) and into marginal land, forcing them to interact
with various ethnic/linguistic/cultural groupings of peasants. This will result in disagreement,
which will continue to exacerbate the internal constraint (Alemayehu, 2000).
Political instability can be considered as a critical bottleneck for the innovation and overall
economic development of many countries (Gayle et al., 2012; Hammed, 2018; Leydesdorff&
Meyer, 2006; Varsakelis, 2006). Innovation prone political systems tend to be highly suitable for
industrialization and Entrepreneurship and it strongly support institutional and technological
advancement (Carlsson, 2006). In contrast, frequent occurrence of large-scale shocks and social
unrest, civil war, and violence deters enterprises’ innovativeness (Feng, 1997). In politically
unstable countries, it can hardly be possible to attract foreign direct investments, which is the key
for enterprises’ innovativeness (Globerman& Shapiro, 2003). The frequent happening of political
instability accompanied with massive corruption result into deep-rooted underdevelopment and
poverty (Hammed, 2018).
Research findings consistently reveal that political instability deters countries from supporting
fundamental economic and innovative activities of their enterprises. It is evident that political
instability harms the quality of scientific institutions and hampers enterprises’ innovativeness. It
is obvious that political instability has a negative impact on the quality of scientific institutions
and the ability of businesses to innovate. Political instability, according to Gayle (2012), results
in a budget shortfall for research and development activities at the national and local levels, as
well as weakened collaborations between academics and practicing businesses, reduced
government spending on technology, and a decline in educational quality.
2.6.4. Infrastructural challenges
Infrastructure that facilitates operations has a favorable influence on lowering operating costs.
The absence of efficient, dependable, safe, and inexpensive infrastructure is harming the
performance of MSEs in Ethiopia, according to their owners. Ethiopia's physical infrastructure
facilities are not sufficiently developed or upgraded to satisfy the rising demand for MSE
17
operations. As a result, most MSEs have issues with their company premises, such as rising
housing rents and a lack of essential facilities like telephone lines, electricity, sewage, and water
(Eshetu& Mammon, 2009).

Though not directly connected, lack of infrastructure (roads, financial services, energy,
telecommunications, and other services) in supporting effective operation of private investment
are important hurdles, according to the Commission on Legal Empowerment of the Poor (2006).
Lack of access to water and lack of understanding about the benefits of telephones and media,
according to Rahel and Paul (2010), has a negative or inconsequential influence on company
growth, even if infrastructure access is not perceived as a serious barrier. According to the same
study's findings, most MSEs have convenient access to transportation. However, the number of
businesses with access to other infrastructures like telephone, television, radio, and water is
restricted.
2.6.5. Marketing Challenges
Marketing problem is the main constraint for the growth of enterprises (Rahel& Paul, 2010).
Micro and small enterprises in Ethiopia faced various marketing problems. There is lack of
product diversity and as a result similar products are over crowding the market. In addition to
this certain micro and small enterprises lack the skill to modify their products and they have lack
of sufficient range of product designs (Assegedech, 2004).
Ethiopian micro and small enterprises have different pricing problems such as lack of costing
knowledge, did not include over head costs, salary or wage of family members involved in the
production process are not considered, and do not know the exact earning From sales
( Assegedech, 2004 ).Many MSEs Plan to promote their products, however, their budget is
mostly limited. In addition to this, such MSEs have lack of awareness how to compete in the
market.
Due to this, the local markets crowded with similar products or services and the level of
competition among local producers of goods and services is intense. As result, the returns are
fairly low In addition, presence of illegal traders around their market place leads to unbalanced
competition and low demand for merchants who are legal. This results in lack of demands which
is another problem for the enterprises. The establishment of markets in residential areas also
limits the demands. The change in Demand and being unable to modify their products with the
18
demand is the other marketing problem. Because of such collective factors (stiff competition
from local and foreign products), most of the MSEs are claimed that they are at a disadvantage.
There are no sufficient institutional facilities that nurture the promotion, growth and
development of MSEs. Marketing their products effectively as well as accessing and acquiring
information on business opportunities are the major bottlenecks that small and micro
entrepreneurs face all over the country. As a result, the design and quality of products of MSEs
are below standard. In addition, lack of marketing skills and weak infrastructural facilities
renders small businesses to be uncompetitive (Commission on Legal Empowerment of the Poor,
2006). Mbonyane and Ladzani, 2011, Olawale and Garwe, 2010 Bowen et al, 2009 also found
that lack of appropriate marketing practices are among the major constraints that hinder the
smooth function of MSEs. Bowen et al (2009) found that there is fierce competition in the small
business sector which leads to price competition and small margin of profit.
Robert, (2014), also shows that high competition is among the major factors that hinder the
growth of micro and small enterprises. This is due to the reason that most of MSEs tend to
congregate in dense markets and overcrowded cities. Small business owners do no long find it
easy in competing with their own goods which is mostly perceived by consumers as low quality
ones when compared with those of the multinational companies. Due to the aggressive
competition small business enterprises are facing from companies that operate with greater
capital outlay, companies with better and modern equipment’s for production, companies with
better manpower and companies with marketing capabilities have resulted to low level of
business and at times outright closure by small business owners (Etumeahu, 2009).
2.6.6. Managerial Challenges
There is a paucity of entrepreneurial and management skills, as well as marketing experience.
Lack of skill leads to production problems due to workers' unfamiliarity with rapidly changing
technology, lack of coordination of production processes, and inability to troubleshoot failures
on machinery and/or equipment is a critical problem that MSEs face because they cannot afford
to hire specialists in the fields of planning, finance and administration, quality control, and those
with technical knowledge (Commission on Legal Empowerment of the Poor, 2006).
Furthermore, MSEs lack the resources needed for research and development, as well as technical
and entrepreneurial abilities (Commission on Legal Empowerment of the Poor, 2006). MSE
operators have a lack of formal education and training. Apprenticeships are the most frequent
19
method of learning skills in the MSEs industry. Though formal education prepares students for
paid jobs, there are very few vocational schools that focus on skill development. As a result,
practically all sectors of the economy have low levels of innovation, and there is a serious
scarcity of training options for future entrepreneurs (Gebrehiwot and Wolday, 2004). Mbonyane
and Ladzani (2011) discovered that more than half of micro-enterprises lack basic business
management training. As a result, there is a scarcity of technology available to micro and small
firms. According to the findings of this study, the government does not have adequate support
mechanisms in place to ensure that small company owners and their staff acquire the necessary
training.Though the formal education system prepares pupils for paid jobs, there are extremely
few vocational schools. Mbonyane and Ladzani (2011) discovered that more than half of that
would be sufficient to operate the firm successfully. Most entrepreneurs lack managerial
experience as well as the necessary training and abilities to run a firm (Okpara, 2011). Olawale
and Garwe (2010) discovered that a lack of business skills and a paucity of skilled workers as a
result of inadequate training are severely affecting micro and small businesses. Furthermore,
research has shown that organizations that got training in their respective fields claimed that their
operations were successful. However, businesses that did not acquire training in their respective
fields fare worse.
This suggests that suitable training can have a favorable impact on corporate operations (Robert
& Joel, 2014). One of the essential pillars of corporate development is management. Most small
company owners do not have adequate education before starting their own businesses, and they
are still oblivious to the value of formal learning or developing management skills in doing
business, although claiming to be successful with their obtained expertise. As a result, they pay
little attention to their employees' well-being. As a result, it is critical for small business owners
to learn effective management skills (Etumeahu, 2009).
2.7. Empirical Literature
Micro and Small Enterprises in developing countries are confronted with several drawbacks and
challenges and only very few enterprises are seen to grow while most of them stagnating. This
could be due to various internal and external factors inhibiting their growth. Therefore, they have
to overcome in order to operate successfully. Based on the findings of earlier research by several
researchers showed that the factors affecting MSE business growth were classified into the
following categories: an entrepreneur Characteristics & characteristic of MSE (Kristiansen et.al.
20
2003); management and know-how, resources and finance (Swierczek& Ha, 2003); customers
and markets (William et.al.,2005); products and services , the way of doing business and
cooperation (Hitt& Ireland 2000); strategy (McMahon, 2001) and external environment (Nurul I.
&Marja L., 2005). Many previous studies have identified a number of constraints hampering the
development of this sector to include: unfavorable legal and regulatory framework, undeveloped
infrastructure, poor business development services, limited access of SMEs to finance, low
quality of products, inadequate business training, anti-entrepreneurial culture, ineffective and
poorly coordinated institutional support framework (Masheneneet al., 2014). However, such
multiple business constraints identified could be difficult to address them collectively given the
fact of limited available resources in any country , as the result, such constraints have tended to
persist. As stated by USAID (2001), The new start rates for female owned MSEs are
substantially higher as compared to male headed MSEs but women owned Micro and small
enterprise grow less rapidly than those male owned MSEs .The studies made by Gebreyesus
(2007) show that male owned MSEs grow more than double as compared to WMSEs..According
to Goedhuys (2002), the gender of the entrepreneur has been cited to be an important
determinant of enterprise growth. Liedholm and Mead (1999) posit that female entrepreneurs in
Africa are more risk averse and are less likely to grow in comparison with their male
counterparts. He also indicated that, In addition to labor inputs, firms access to industrial land
and good infrastructure such as power, water, telecommunications, and so forth have been
argued to be major factors in firm growth. Some other Literatures on the success of MSES have
identified several factors with regard to the Internal and external environment of the fir m. In
terms of internal factors, several researchers have attempted to investigate the characteristics of
MSEs and characteristics of the entrepreneur as the internal factors that influence MSEs
performance (Storey, 1994). For the firm characteristics, several studies have revealed that size,
age, and location of the firm could be related to business performance (Liedholm, 2002). As for
the external factors, According to Miller &Dess (1996), the external environment of the
enterprise can be classified into two, namely, general and competitive environments. The general
environment consists of the political-legal, macroeconomic, socio-cultural, technological,
demographic and global factors that might affect the organizations activities. On the other hand,
the competitive environment consists of other specific organizations that are likely to influence
the profitability of the enterprise, such as customers, suppliers and competitors. About 80% of

21
Small and medium enterprises are stifled because of poor financing and other associated
problems (Fatai, 2011) according to him, the problem of financing MSEs is not so much the
sources of funds but its accessibility. Gibbs and Davies (2014) said that most of the research
work and academic text have identified the factors which are influencing the performance of the
small firms can be classified into the four titles: the personal characteristics of entrepreneur/
owner- manager of firms , Organization development, Functional management skills and Micro
& Macro Economical issues. From these four major factors functional management skills is the
major factor of the failure of MSEs. In Canada, the failures of small business 96% were due to
management. Similarly, in Australia 76% reasons of the small business closure were
management skills (Berryman, 1983). In the SMEs, lack of experience and lack of competent
management is the responsible of 90% business failure .As studied by Yusuf (1995), in
developing areas, satisfactory government support has been shown to be important for small firm
success. On the other hand, a large and growing body of literature has investigated the customer
relationship management as a key factor in business performance (Dwyer et al., 1987; Morgan &
Hunt, 1994). Okpara J.,( 2011) &Fatai (2011 ), have identified such factors as lack of financial
support, poor management, corruption, poor infrastructure and low demand for products and
services hindering business success . Ivy (1997) has also grouped problems of MSEs into five
including finance, government, marketing, equipment and infrastructure and labor and finally
found that finance was the most crucial problem. Poor banking services, with high interest rates,
high cost of premises and tax, difficulty in obtaining loans for start-ups all were cited but
stringent loan repayment terms was mentioned as jeopardizing the viability of MSEs. Ivy also
found government bureaucracy and perceived corruption as major problems.
In a study made by Liedlholm (2002), it is described that “Market linkages amongst small firms
are quite limited. The majority of small firms sell directly to final consumers although
some use contracting and clustering. The study also suggests that those MSEs that sell to traders
and manufacturing firms are more likely to grow than other MSEs sells to final consumers. A
study by Robert G. & Joel R.,(2014) among several factors considered in the study inadequate
business training (80.0%), insufficient capital (53.3%) and anti entrepreneurial culture (53.3%)
were identified as critical constraints affecting potential growth of MSEs in Tanzania.
Additionally, high taxes paid by MSEs to the government (26.7%) were found to be marginally
significant constraint affecting the potential growth of MSEs in Tanzania. On the other hand,

22
competition, bureaucratic procedures in business registration, technological backwardness,
theft /lack of trust, poor infrastructure and corruption were found to be insignificant constraints
affecting potential growth of MSEs in Tanzania. Hornsby and Kuratko (1990) have also
developed a long list of major problems of MSEs. The list includes - lack of planning, lack of
management experience, general management problems, problem of training and development,
inability to attract skilled staff, employee performance problems, lack of advice on employment
conditions, Owners lack of management and business planning skills, inability to manage
growth, lack of advice , lack of understanding of the importance personnel management. As
studied by Onugu (2005), the factors affecting MSEs in Africa in decreasing order of intensity
include: management, access to finance, infrastructure, government policy inconsistencies and
bureaucracy, environmental factors, multiple taxes and levies, access to modern technology,
unfair competition, marketing problems and non-availability of raw materials locally. Monk R.
(2000) also found that lack of working capital, poor market selection, and rapidly changing
external market conditions the major reasons for failures in MSEs. He argues that these are
results of the inabilities of MSEs to make adequate use of essential business and management
practices. He further argues that many MSEs fail to develop an initial plan, those that do
establish a plan fail to continuously adjust and use it as a benchmarking tool. In a study in
Australia, McMahon (2001) discovered that greater dependence upon external finance associated
with better business growth. In a more recent study, in Indonesia, Kristiansen, Furuholt, &
Wahid (2003) found that financial flexibility was significantly correlated to business success.
The MSEs that took advantage of family and third-party investment experienced higher level of
growth.
A research conducted by Cacciolatti et.al. (2011) indicated that MSEs that make good use of
structured marketing information presented a higher probability of growth. Further, the research
of Mahmoud (2011) concluded that the higher the level of market orientation, the greater the
level of performance. Kristiansen etal.,(2003) and (Yusuf 1995) found that length of time in
operation was significantly linked to business success. Prior experience in business like that of
Education has been seen as critical success factors for small firms. Such work experience proves
to be highly important for developing capabilities within MSEs, as entrepreneurs with more
years of work experience typically have faster-growing MSEs. For example, one empirical study
found that Kenyan entrepreneurs with at least seven years of work experience expanded their

23
firms more rapidly than those without such experience (Mead and Liedholm, 1998; Parker,
1995). In general, a number of previous studies as well as international worldwide organizations
reports have focused on the underlying internal and external critical success factors for MSEs,
and have attempted to develop a model that contains an exhaustive list of factors discussed
below : many factors that have been identified contributing to the premature death of MSEs
include: insufficient capital, irregular power supply, infrastructural inadequacies (water, roads
etc.), lack of focus, inadequate market research, over-concentration on one or two markets for
finished products, lack of succession plan, inexperience, lack of proper book keeping, lack of
proper records or lack of any records at all, inability to separate business and family or personal
finances, lack of business strategy, inability to distinguish between revenue and profit, inability
to engage or employ the right quality of staff.
Institutional and governmental restrictions, a lack of innovation and quality goods, a lack of
adequate technology, a lack of access to capital, and a lack of working space are some of the
causes to blame for the lack of success, according to Antenane (2017).
As stated in Woldegebriel (2012), other problems such as marketing problems such as lack of
product diversity, pricing problems, lack of awareness how to compete in the market, limited
business management and salesmanship ability, limited capacity to promotional activities, and
lack of market related knowledge are also impeding the development of MSEs (2012).
According to Gemechu (2016), surveyed over 11,000 MSEs and found that about 5% of them
had major constraints such as a lack of working space for production and marketing, a lack of
credit and finance, regulatory issues (licensing, organizing, illegal business), poor production
techniques, input access constraints, a lack of information, inadequate management and business
skill, and a lack of appropriate strategy. These restraints are shared by other developing
countries, including bad management, corruption, a lack of knowledge and expertise, inadequate
infrastructure development, insufficient profitability, and a low demand for products and
services.
As can be seen from the preceding paragraphs, there are numerous constraints that affect the
performance of MSEs in various locations, particularly infrastructure as it relates to the provision
of access roads, adequate power, water, sewerage, and telecommunication. These constraints are
particularly severe in the study area, which is located in North Wollo, Woldia Town.

24
 2.8. Conceptual Framework
3. Fig 2.1: conceptual framework adapted from various prior studies
4.
Financial factors
5.

6.Armed conflicts
7.
8. MSEs
Infrastructural
factors Performance

Marketing factors

Management
system

Independent Variables Dependent Variables

Source: The model above is developed by the study based on the literature reviewed. The model
shows that the performance of MSEs is determined by various factors.
2.6. Research Hypotheses
Based on the review of different research outcomes the following hypotheses are developed to be
the major factors that affect MSEs performance in the study area.

H1: Financial factors have significance effect on MSEs performance in woldia town.
H2: Current armed conflict has significant effect on MSEs performance in Woldia town.
H3: Infrastructure factors have significant effect on MSEs performance in Woldia town.
H4: Management systems have significant effect on MSEs performance in Woldia town.
H5:Marketing factors MSEs operators influence the performance of MSEs in Woldia town.

25
 CHAPTER THREE

4. RESEARCH METHODOLOGY
4.1. Research Design
The research design for this study both descriptive and explanatory research method. The
descriptive research is used to find the current practical and theoretical truths by collecting data
from different MSEs owners through self administered questions. Moreover, descriptive research
was used to access data about respondents’ behaviors, attitudes, and opinions. In addition this,
explanatory research was employed to examine what relationship exists between two or more
variables. Thus, explanatory research was used to examine the direction and magnitude of the
relationship between variables and used to decide whether financial, infrastructural,
management, armed conflict and marketing factors affect Micro and small enterprises
performance in the study area. Thus, explanatory research design was used to evaluate the impact
of independent variables on the dependent variable.

4.2. Research Approach

The research used mixed research approach. The mixed method approach was adopted by the
researcher for purposes of triangulation. The researcher believed this is a good way of
approaching the research as it enables to overcome the weaknesses in both quantitative and
qualitative types of research. Accordingly, the researcher used both qualitative and quantitative
approaches. The reason to use both approaches was that quantitative gives breadth and
qualitative gives an opportunity to the researcher to come up with the in-depth findings.

4.3. Target population and Sampling techniques

4.3.1. Target population

The target population for this particular study comprised of all small and micro enterprises under
the support of TVED office having more than one year business life and those formally
registered until October 2024 and still existing in 14 Kebeles of Woldia town. Therefore, the
target population of the study comprised of 904 enterprise operators engaged in various sectors
of MSEs. This number reflected the sampling frame as list of target population from which
representative samples were drawn .The organized list of micro and small enterprises available in

26
each kebele from Woldia town technique, vocational and enterprise development office planning
department. Table3.1 below shows total population of Micro and small businesses enterprises in
Woldia town.
Table 3.1Total population of the study

No Name of the sectors Number of employees Remark

M F T
1 Service sector 163 106 269
2 Trade Activities 131 86 217
3 Urban agriculture 66 47 113
4 Manufacturing 120 76 196
5 Construction sector 66 43 109
Total 546 358 904
Source: Woldia town Trade and market development office 2024

4.3.2. Sampling Technique

The sample was drawn from the sampling frame, which in this case the micro and small
enterprises in all the kebeles of Woldia town. The sampling technique employed in this research
was using various sampling approaches by which the representative respondents were selected.
Before all, the researcher used MSEs sectors as stratification and 5 business administrative
clusters were used to group operators based on their homogeneity. Then, individual business
owner/managers from each category were selected using a simple random sampling method as
respondents in each sector. The respondents participating in providing the required data were the
five broad categories of MSEs. The main reason to take all sectors purposively in the town is to
make the study more inclusive and to make genuine generalization about the study population.
4.3.3. Sample Size Determination
As much as possible to avoid or at worst minimize sampling errors or biases, by keeping the
sample size to an adequate size after considering issues such as population, sampling error, non-
response bias and the extent to which subgroups in the sample the researcher adopted the 95%
level of certainty to produce results among variables that are significantly different and it
broadened the range of possible data and formed a better picture for analysis. To determine the

27
sample size and representative of the target population, the study used statistical instrument
formula adopted from Yamane (1997)
N
n= 2
1+ N (e)
Where N=is the population size i.e. 904
n = is the sample size to be calculated
e= is the margin of error i.e. 5% (0.05)
N 904 904
n¿ , n= , n¿ = 277
1+ N ( e ) 2 1+ 904(0.05)2 2.2
Applying a 5% error margin, the sample size of employees for the study were 277 members of
the target population. Therefore, the study’s sample size of 277 is fair enough to represent the
target population of the study area. Using the above statistical formula, the sample size of the
study was determined as follows.
Table 3.2: Sample size of the study

No Name of the sector Number of owners Proportion of Sample size

sample
1 Service sector 269 269/904*277 82
2 Trade Activities 217 217/904*277 66
3 Manufacturing 113 113/904*277 36
4 Urban agriculture 196 196/904*277 60
5 Construction 109 109/904*277 33
Total 904 277
Source: Woldia town TVED office, 2024
4.4. Measurement of Independent and dependent Variables
This study has two variables; Independent variables and dependent variable. The independent
variables of this study were financial factors, armed conflicts, marketing factors, infrastructural
facilities and management system factors and the dependent variable of this study is Micro and
Small enterprises performance. MSEs Performance was measured using the entrepreneurs
perception of change in annual return, sales growth, capital budgeting, credit access, number of
employed, and increase in the number of customers.

4.5. Methods of Data collection

28
As it is common in every basic research, the researcher used the necessarily data gathering tools
for the study. In this study the researcher used structured questionnaire.

4.5.1. Questionnaire
To gather adequate and relevant data from sample respondents, (MSE operators) the researcher
prepared close ended and five point Linkert scale questionnaire. The researcher also adopted
these questionnaires from others sources like (Habtamu, and Mulugeta, 2010). The
questionnaires were also translated in to Amharic (local language) in order to be easily
understood for the respondents.

4.5.2. Methods of Data Analysis

Here data analysis techniques were chosen on the base of nature of the data and the kind of
research questions that was addressed. Research findings were analyzed to enable the researcher
to understand what the findings from the data collected meant and this was done with the help of
the statistical packages for social sciences for descriptive statistics, correlation, multiple
regressions was used to trace out the significant differences between the independent variable
and dependent variables. Descriptive statistics and Pearson’s Correlation coefficient was
employed to analyze the data. A multiple regression model was applied to determine the effects
of the major factors on micro and small enterprises. The multiple regression models treated
micro and small enterprises performance as the dependent variable and financial, infrastructural,
violent conflict, management system and marketing factors as independent variables. Finally, the
response on the effects of the above factors on micro and small enterprises was measured by
computing indices based on the information derived from the Likert scale. The relationship of
the equation is a linear equation as shown below;
Y = B0 + B1x + B2x + B3x+ B4x + B5X +e
Where Y = micro and small enterprises performance, B0= Constant (Regression coefficient), B1x
= financial factors, B2x = infrastructural factors, B3x = armed conlict, B4x = marketing factors,
B5x = management system and e = the margin of error
Data of the micro and small enterprises performance score was analyzed based on each factor
competency.

4.6. Validity and Reliability of the instrument

29
 4.6.1. Validity of the instrument
The measure is considered valid when it actually measures what it is intended to measure.
Validity ensures the ability of a scale to measure the intended concept (Sekaran, 2003 and Anol
B., 2012). Testing validity reveals vague questions and unclear instructions. It also captures
important comments and suggestions from the respondents that enable the researcher to improve
efficiency of instruments, to adjust strategies and approaches to maximize response rate.
Accordingly, the already prepared questionnaire will be exposed for evaluation by
the help of researcher’s advisor and other professional and non professional participants for
correction purpose. Amendments were made incorporating additional variables and proxies
taking from several literatures and based on the practical situation in order to go well with the
current research context.
4.6.2. Reliability of the Instruments
Reliability is the extent to which measurements are repeatable when different persons perform
the measurements, on different occasions, under different conditions, with supposedly alternative
instruments which measure the same thing (Ellen drost, 2008). It is consistency of measurement
(Bollen, 1989 as cited by Ellen drost, 2008) or stability of measurement over a variety of
conditions in which basically the same results should be obtained (nunnally, 1978).
Thus, the inter-item consistency reliability of measurements was tested using a popular method
suggested by Cronbach. The data was tested for correlation and regression using SPSS ver.22 to
check the value of each item less or greater than 0.7 since it is the recommended and acceptable
value that indicates the stability of test results over time. Its value varies from 0 to 1 but a
satisfactory value is required to be higher than 0.7 for the scale to be reliable/acceptable
(Cronbach, 1951 and Nunnally, 1967). In view of that, the researcher has applied the Cronbach’s
alpha scale as a measure of reliability of the instrument of this particular study.
Table 3.3Reliability Statistics

Dimensions No. of Items Cronbach's Alpha

Financial Factors 5 .742
Armed Conflicts 5 .822
Infrastructural factors 5 .787
Marketing factors 5 .814
Management factors 5 .866

30
Total 25 .806
MSEs performance 7 .871
Total 32 .873
Source: SPSS computation

4.7. Ethical Considerations

The research conducted based on the ethical considerations of not to plagiarize, not to construct
or falsify data, research techniques, or data analysis, keep the rights of research subjects, mainly
their rights to information confidentiality, and to being learned about the nature of the research
and the kinds of actions in which they are requested to involve, and not to use or take published
data of others deprived of acknowledgment, or unpublished data without both consent and
acknowledgment. Prior to the distribution of the questionnaire, the researcher will give briefings
to the sample participants in regards to the research and will receive their consent.

31
 CAHPTER FOUR

5. RESULTANDDISCUSSION

5.1. Introduction:
This chapter presents the results of the analysis of the responses made to the questionnaire
administered to the sampled manufacturing MSE owners operating businesses in Woldia town.
The overall objective of the study was to examine factors affecting the performance of micro and
small enterprises and to measure the degree of importance of various factors among micro and
small enterprises in Woldia town. This chapter deals with four sections. Section one and two
contains a summarized descriptive analysis for categorical variables like personal characteristics
of respondents and enterprise characteristics. The third section includes descriptive analysis for
continuous variables included in this study as predictor variables and the last part conveys
inferential analysis which statistically proves significance of the effect of each explanatory
variable considered in the descriptive analysis part.

5.2. Response Rate

For this study two hundred seventy seven (277) questionnaires were distributed for MSEs
entrepreneurs that operate in different sectors at Woldia town by using simple random sampling
mechanism. So, out of 277 questioners distributed two hundred seventy two (272) that account
(97.9%) were collected. But four (4) (1.4%) have been rejected because they doesn’t filled
appropriately and incomplete questionnaires and the remaining one (1) (0.7%) were uncollected
questionnaires. Therefore, 272(two hundred seventy two) that account 97.9% questionnaires
were employed for this study.
Table 4.1Response rate of questionnaires by respondents
Questionnaires Frequency of Valid Percent
the respondents
Collected and used 272 97.9%

32
Collected but rejected 4 1.4%
Uncollected 1 0.7%
Total distributed 277 100%

33
 5.3. Descriptive analysis
Descriptive statistics were used to describe the basic features of the data collected from
respondents. Accordingly, Frequency distributions, and percentage were used to describe
demographic features of respondents and the mean and standard deviation were provided for
factors as determinants of performance of MSEs based on their response. The descriptive
analysis was made separately for demographic characteristics and factors of MSEs performance
using frequency count and mean (standard deviation) respectively.
5.3.1. General Characteristics Of The Enterprises
Based on sampling procedure that is described in the methodology of the study, 277
questionnaires were distributed for the sample proportionally taken from the five major sub-
sectors of MSEs i.e. Service sector, Trade sector, Manufacturing sector, urban agriculture and
construction sector. Thus, the data collected from the respondents regarding their basic
characteristics is discussed as the following:
5.3.1.1. Category of Business Venture
Figure 4.1propotion of sectors

8.30%
16.30%

9.10%
Manufacturing
Construction
Service
41.10% Trade
Urbanagriculture

25.20%

Source: Field survey, 2024

As it is depicted in the above figure, the sample businesses were engaged in five different
economic sectors. The majority of them work in the trade sector (41.1%), which is followed by
the service sector (25.2%), the manufacturing sector (16.3%), the construction sector (9.1%), and
urban agriculture (8.3%). It was thought that grouping MSEs according to sector type would
make it easier to study the vital aspects of each sector that influence MSE performance. This is

34
so because businesses in various economic sectors deal with various issues. As a result, the
importance of those factors in the trade and service sectors may differ from that of the
manufacturing, construction, and urban agriculture sectors.
5.3.1.2. Gender composition
Regarding gender proportion of respondents, Descriptive analysis shows that out of 206
respondents 63.5% are male, while 36.5% were female respondents. The figure indicated that
male are dominant than female in owning own business.
Table 4.2 Gender composition of respondents and performance

No Gender Total Doing business

Mare survival Declining
frequency well
Frequ. % Frequ. % Frequ % Frequ. %

1 Male 173 63.5 65 38.9 74 45.8 34 15.3

2 Female 99 36.5 29 38.9
28 51 57 19 15
Total 272 100 94 35 125 50 53 155
Doing Business Not doing business Well
Source field survey, 2024 well
As shown in table 4.2 above, among the total number of respondents participated in this study,
only 35.5% perceived that their enterprise has shown moderate and high performance in doing
business activities, while the majority respondents that account 133(65%) perceive that their
enterprises is not doing business well. This implies that the majority business enterprises in the
study area are at mere survival and declining stages without showing improvement in doing
business in most of the performance measurement parameters. When we compare the MSEs
performance that owned by male and female entrepreneurs, 72% female owned and61.1% male
owned business enterprises are at mare survival and declining stage.

5.3.1.3. Age composition of Respondents

35
Table 4.3 Age of respondents and the performance level

No Age Total Doing business Mare

Declining
Frequency well survival
Freq % Freq % Freq % Fre %
1 <30years 173 63.5 64 37 62 36 q
46 27
2 31-39years 84 31 31 37 26 31 27 32
3 40-49years 15 5.5 1 9 8 53 6 38
4 50years and Above - - - - - - - -
Total 272 100 96 35 96 35. 79 29
Doing Business well 3 business Well
Not doing
Source: field survey, 2024
When we observe table 4.3 above, the age distribution of respondents in the study area indicates
among 272 respondents 257 that share 94.5% were aged between 30 and 39 years old, while the
remaining 5.5% respondents were 40 and above years old. This shows that most micro and small
enterprises are owned and mainly run by people in their young age. The data obtained from 272
respondents participated in the study also reveals a range of ages from minimum 19 to 49 years,
with an average age of 29 years.
In addition to this, the descriptive result in table 4.3 shows, among business enterprises owned by
individuals whose age is bellow 30years old and between 30 and 39years old, 37% each
perceived to be successful in doing business, while the majority63% perceived not doing
business successfully. Accordingly, they are at mere survival and declining stage.
Respondents whose age is between 40 and 41years old only 9% perceived they are successful in
their business while, 91% of them perceived they do not do their business successfully. Thus the
data descriptive result in the above indicates that as an increase in age of the business owner has
showed an increase in the proportion of mere survival businesses depicting better successful
enterprise proportion at the lower ages.
5.3.1.4. Educational Background of Respondents
As research finding confirm basic education is key to a nation's ability to develop and achieve
sustainability targets and it is necessary to create jobs and industries. In countries where basic
education is too low development options and plans for a sustainable future is to low (UNESCO,
2006). In relation to this, educational background of the respondents and its impact on

36
individuals’ performance in doing their business has been assessed. Table 4.4 bellow discusses
the educational level of respondents, the level of their performance in doing their business.
Table 4.4Level of Educational respondents and the performance level

No Level of Total Doing business

Mare survival Declining
Educational Frequency well
Freq % Freq % Freq % Freq %
Primary school
1 170 62.5 46 27 99 58 26 15
complete
2 High school and
83 30.5 36 43 40 48 7 9
complete
3 Technique and
15 5.5 14 91 1 9 - -
vocational /diploma
4 University degree
4 1.5 3 66.6 1 33.3 - -
and above
Total 272 100 74 3633635. 107 52 25 12
5
Doing Business well Not doing business Well
Source: field survey, 2024
Regarding level of education, Table 4.4 below shows that among the total respondents, There are
170 (62.5%) respondents from primary schools most of them being 9th and 10th grade complete,
83(30.5%) were from secondary School, 15(5.5%) were from technique and vocational and other
diploma school and the rest only 4(1.5%) were having Bachelors Degree and above. This
indicates that Majority of the respondents (62.5 percent) were those who have completed primary
school. This shows that overall educational level of entrepreneurs in selected study area was
found to be low. This is probably due to the fact that more number of professional graduates is
not yet embraced in the micro and small enterprise development programs.
In relation to level of education and performance in doing business, the descriptive result in table
4.4 depicts that among business enterprises owned by those who completed primary school 27%
perceived they are successful in doing their business activity, while the majority respondents that
account 73% perceive that their enterprises is not doing business well. However, among high
school completed, Technique and vocational /diploma and university degree and above graduates

37
43%, 91% and 66.6%perceived their enterprise is doing well. This implies that the majority
business enterprises performance is highly dependent on educational level of entrepreneurs. And
this figure indicates that as an increase in level of education the business owner has showed an
increase in performance of doing business activities well.
5.3.1.5. The Duration of Organization Operated (age of the firm)
Assessing enterprises’ operating age since start up enables to realize the performance of the firm
in doing business. Accordingly, the following table discusses the age of the firm and its relation
with the success of the business.
Table 4.5 age of the firm and enterprise growth

No Firm age Total

Doing well Mare survival Declining
Frequency
Freq % Freq % freq % freq %
1 < 6 years 195 71 60 31 105 54 29 15
2 6 - 10years 58 27.5 27 47 27 43 6 10
3 >10 years 4 1.5 1 33 2 67 - -
Total 272 100 88 32.35 134 49.3 35 13
Doing Business well Not doing business Well
Source: field survey, 2024
Regarding the Duration of firm Operated from start up establishment up to the current study,
71% was with less than 6 years after establishment, 27.4% were between 6 and 10 years and only
1.5% were more than 10 years stayed as business organization. As the age of the enterprise
increases the proportion of successful enterprises 58 has been improved from 31% to 47%
showing that an increase in age means having better experience in leading the business.
5.3.1.6. Source of Capital for startup and expansion
Starting and diversifying own business requires capital from external source. The mere existence
of ideas without ample money will no more improve productivity and profitability (Girma,
2010). Thus, in this study the source of startup and expansion capital of business owners in the
study area has been discussed in the following table.

Table 4.6: Source of Capital for startup and expansion

38
No Source of capital Total
Doing business well Mare survival Declining
Frequency
Fre
% Freq % Freq % freq %
q

1 Personal saving 151 55.6 17 11 104 69 30 20

2 Borrowed from 43 15.9
20 47 19 43 4 10
financial institutions
3 Family and friends 78 28.5
26 33 52 67 - -
assistance
Total 272 100 98 36 141 52 33 12
Doing Business Well Not doing business Well
Source: field survey, 2024
As it is clearly noticed from table 4.6 above, out of 272respondents 230 (84.5%) respondents
replied that they got the seed capital from either personal saving or friends/relatives or by own
equity through saving or sale of personal assets but only 43 entrepreneurs were funded by
financial institutions to start and expand their businesses. According to data from the above table,
Majority (55.6%) of the respondents use personal saving as their main source of funding
followed by 28.5% obtaining from family and friends and only 15.9% of the micro and small
enterprises have used financial institutions as main source of funding in financing their
enterprises. In relation to the contribution of financial sources for firm’s performance in doing
business well, among those who accessed financial resource from family and relatives and their
personal saving 67% and 89% perceived their enterprise is performing poorly respectively.
This implies that the majority business enterprises that access financial resources from relatives
or own saving are at mere survival stage without showing improvement in doing business in
most of the performance measurement parameters.

5.3.1.7. The number of hired employees (permanent plus temporary)

39
Entrepreneurs in MSEs are expected to provide a large numbers of employment opportunities to
the society. the result of this study showed that the average number hired employees at start up
were 2.44 employees ( with minimum 1 employee and maximum 9 employees) while the
average number of employees currently during the study period is 4.02 ranging from minimum
of 1 to the maximum of 9 employees per individual firm.
Table 4.7 Startup and current employee number

Enterprises Member Decrease

Character
frequency %
Construction Startup 221
40 18
Currently 181
Manufacturing Startup 123
47 38
Currently 76
Urban agriculture Startup 124
17 36
Currently 107
Trade Startup 98
58 56
Currently 40
Service Startup 201
Currently 100 101 51
Total Startup 767 263 34.3
Currently 504
Source: field survey, 2024
The aim of this information is to determine whether the numbers of members are Increased or
decreased. As it can be observed from table above the numbers of members when the business is
started are greater than the current numbers of members, that means the current numbers of
members are decreased by totally, by 40.75% while at individual level it can be observed that
high percentage of decrease observed in trade (56%), service (51%), manufacturing (38%),urban
agriculture (36%) as well as Construction (18%) respectively. With regard to this interview was
conducted to identify the reason for the enterprises that have high percentage of decrease in
members. The problems of enterprises in the textile and garment are related to absence of market
place to sale their products. The enterprises get production place from the government at rent. As
per the understanding of the researcher from the respondents answer the individuals prefer to

40
produce a small amount of output at their home and hence leave their production site. The
absence of the habit of working in group was also another factor.

5.3.2. FACTORS AFFECTING THE PERFO MANCE OF MSEs

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. The results for measures of central tendency and dispersion
were obtain from the sample of respondents of manufacturing, construction, service, trade and
urban agriculture sectors are shown in the following tables.
5.3.2.1. Financial factors that affect the performance of MSEs
In this sub topic financial related factor such as adequacy of credit institutions, collateral
requirement, adequacy of working capital, fairness of tax levied, interest rate charged by Loan
application procedures effect on MSEs performance was assessed.
Table 4.8Financial factors that affect the performance of MSEs

Financial factors Manufact Constructi Service Trade Urban GM D

uring on sector sector agriculture C
MN SD MN SD MN SD MN SD MN SD
Inadequacy of credit 2.97 0.89 3.01 0.85 2.92 .91 3.05 0.96 3.4 0.64 3.07 .67
Institutions
Fairness of tax levied 3.82 0.97 3.83 0.86 4.2 .71 3.16 0.74 3.21 0.67 3.64 .65
High collateral 4.2 0.92 4.1 0.97 4.03 .88 3.81 0.91 3.21 0.78 3.87 .72
Requirement of
lending institutions
High interest rate 3.71 0.87 3.65 0.75 4.12 . 78 3.4 0.92 3.28 0.81 3.63 .67
charged by lending
institutions
Loan application 3.54 0.99 3.82 0.9 4.07 .89 3.57 0.89 3.7 0.92 3.74 .74
procedures lending
institutions are too
complex
Grand mean/standard deviation 3.59 .69
Source: field survey, 2024
Respondents were questioned to rate their agreement level on the question Inadequacy of credit
Institutions in the study area is the challenge of their performance of doing business activity.
Accordingly, the average value (GMN=3.59 GSD=.69) in the above table shows the majority

41
respondents are undecided on the effect of inadequacy of credit institutions on the performance
of business enterprises. The results show that the means ranged between 2.92 and 3.4 and it
indicates respondents of all sectors are in dilemma to say that the credit institutions are
adequately available or not.
In relation to the fairness of tax levied by government, the result in the above table under item
No2, depicts that with the GM= 3.64 and GSD= 0.65 the majority enterprises believe the tax
levied by the government is unfair and it affects their business performance. The mean scores of
4.2, 3.83 and 3.82 with standard deviation of 0.71, 0.86,and 0.97 depicts the influence of fairness
of the tax for operators who engaged in service, construction and manufacturing sectors is higher.
Whether high collateral requirement is the challenge of enterprises business performance or not,
the study result in table 4.8under item No. 3 (GM=3.87 and SD= 0.72 reveals that collateral
requirement is the challenge is the challenge of all MSEs sectors in the study area. However, the
mean scores of 4.2, 4.1, 4.03 and 3.81 with standard deviation of 0.92, 0.97, 0.88 and .91 reveals
the intense of influence of shortage of capital is high for those operators engaged in
manufacturing, construction, service and trade sectors respectively.

In relation to item No.4, respondents were asked to answer the question of high interest rate is
charged by lending institutions. Accordingly, the mean value (M= 3.63, SD= 0.67) indicates
most of the enterprises are charged higher interest rate by lending institutions and it is the factor
for their poor performance. The mean scores of high interest rate are 4.12, 3.71, and 3.65 with
standard deviation of 0.78, 0.87 and.75, Service, manufacturing and Construction sectors
respectively.
Under item No.5 of the above table respondents were asked whether loan application procedures
of lending institutions are very complex or not. Accordingly, most respondents with the average
value (GMN=3.74 and SD= .74) agreed loan application procedures of lending institutions is
very complex. However, the mean scores of 4.07, 3.82 and 3.7 with standard deviation of .89, .90
and 0.92 reveals for respondents who engaged in service, construction and urban agriculture loan
application procedures of lending institutions is highly the challenge of their business
performance.
Even if many writers including Vandenberg support the already established opinion on micro-
finance that holds a view that micro-finance is a useful way of channeling finance to the poor
and overcoming the difficulties they face in securing credit from formal financial institutions

42
such as banks (Vandenberg, 2006). It was reported that the terms of credit of ACSMFI are not
suitable to the operators as the MFI fixes short repayment period with higher interest rate that
is9% in comparison with the interest rate of 6% charged by the banks. Majority of respondents
indicated that, MFI charges themtotally12%of the extended credit, of which 9% is paid as
interest on the loan, 3% as service charge. This high loan cost puts the affordability of the loan of
the MFI demanding by the users. Obviously, such high loan cost further damages the already low
meager revenue of the enterprises. On the other hand, the interviewees’ pointed that the short
repayment period scheduled by the MFI put the min worrisome state as they face shortage of
market resulting in their inability to repay the loan within the period stipulated by the MFI.
Given the market problem of the MSEs, it is fair to suggest the MFI to effectuate a ‘grace period
policy’.
Inconsistence with this finding, Currie (2009)stated that in developing countries such as Ethiopia
due to lack of credit service and over regulation, the majority MSEs operate at under capacity.
This problem has been worsening by the requirement for collateral by commercial banks as a
prerequisite for the approval of loan applications. Woldehanna (2008) also added that formal
money lending institutions have so far failed to produce innovative, affordable and user friendly
financial services with a particular view to assist the struggling MSE sector in Ethiopia.

5.3.2.2. Infrastructural Factors that Affect the Performance of

MSEs
As mentioned in several literatures, availability of infrastructural facilities are one of
determinates of performance and sources of challenges of MSEs. In view of that, attempts were
made to examine major challenging areas particularly considering the nature of MSEs in study
area, such as, Power interruptions, Insufficient and interrupted Water, Lack of business
development services, lack of sufficient and quick transportation service, lack of appropriate dry
waste and sewerage system.

43
Table 4.9 Infrastructural factors that affect the performance of MSEs

Infrastructural factors Manufacturi Construct service Trade urban Grand

ng ion Agricultur
MN SD MN SD M SD MN SD M
e SD M SD
Power interruptions 4.68 0.47 4.59 0.58 4.5
N .53 4.32 0.59 4.46
N 0.65 4.51
N 0.82
Insufficient and 3.02 1.01 3.1 0.85 3.7 0.76 3.2 1.39 4.2 0.85 3.43 0.8
interrupted water
supply
Lack of shop for easy 3.95 0.81 3.62 0.93 3.48 0.8 2.93 .88 3.22 0.93 3.44 0.91
access of finished
products
Lack of sufficient and 4.17 0.8 4.03 0.83 3.67 0.67 4.11 .8 3. 01 1.4 3.79 0.93
quick transportation
service
Lack of appropriate dry 3.22 0.9 3.19 0.93 3.88 0.96 3.27 1.03 3.89 0.93 3.49 0.93
waste and sewerage
system
Grand mean/standard deviation 3.73 .87
Source: Field survey, 2024
The result presented in table 4.9 shows that power interruption is the main problem followed by
lack of sufficient and quick transportation service that hinders the business performance of all
sectors. The mean scores of power interruption 4.68, 4.59 and 4.5 with standard deviations
of .47, .58 and .53 is the major challenge of performance of manufacturing, construction and
service sectors in the town. Besides, the mean scores 4.17,4.11 and 4.03with standard Deviation
of .80,.80 and.83under item No.4 reveals lack of sufficient and quick transportation service in the
study area is the major challenge of Manufacturing, trade and construction sectors respectively.
However operators in urban agriculture sector couldn’t decide whether lack of transportation
service is the challenge for their performance and justified by MN= 3.01and SD=1.4
Respondents were questioned that insufficient and interrupted water supply is the challenge of
enterprises business performance. However, the study result in table 4.9 under item No. 2
(GM=3.43and SD=.8) reveals the majority respondents are moderately decided on the effect of
insufficient and interrupted water supply on the performance of business enterprises. and the

44
mean results 4.2,and 3.7 with standard deviation .0.85 and .76indicate those operators engaged in
urban agriculture and service sectors perceived insufficient and interrupted water supply affect
their business performance, while operators engaged in manufacturing, construction and trade
sectors are in dilemma to say that insufficient and interrupted water supply services are
challenges of their business or not.
Whether Lack of shop for easy access of finished products is the challenge of enterprises
business performance or not, the study result in table 4.9 under item No. 3 (GM=3.44 and SD=
0.91 reveals lack of shop for easily access of finished products is moderately affect the
performance of all MSEs sectors in the study area. However, the mean scores of 3.95 and 3.62
with standard deviation of 0.81 and 0.93 lack of shops for easy access of finished products is the
major factor of poor performance for operators those who engaged in manufacturing and
construction sectors respectively. On the other hand, the table above shows that, lack of
appropriate dry waste and sewerage system (M=3.49 and SD=.93) moderately affects the
performance of MSEs in the study area. Whereas, the challenge of lack of appropriate dry and
waste and sewerage system for operators those who engaged in service and urban agriculture
sectors is sever. The agreement on the variables is justified by the mean score of 3.88 and 3.89
with standard deviation of 0.96 and .93 for MSEs engaged in Service and urban agricultural
sectors respectively.
In general, the infrastructural facilities availability in the study area as responded by business
owners depicted a grand mean value ranging from 3.43-4.51 and standard deviation of 0.8-.82
implying that the infrastructural issue is very serious and the government should focus on
improving the accessibility of such basic requirements so that MSEs can be profitable without
entangled with any external challenges.

This finding is similar with the research results obtained by Munir Salah (2019) and Girma
(2010) conducted on metalwork, wood work and textile & garment small enterprises in Addis
Ababa and Bahirdar.

5.3.2.3. Marketing Factors that Affect the Performance of MSES

In this sub topic how marketing related factors affect Micro and small Enterprises performance
in the study area. Regarding marketing related challenges in this particular study some of the
major challenges that were observed in the environment of micro and small enterprises such as,

45
Inadequacy of market, difficulty of searching new market, Lack of demand forecasting, Lack of
market information, absence of relationship with an organization that conduct marketing research,
Lack of promotion to attract potential users and Poor customer relationship and Handling. In this
regards respondents view were analyzed as follow:
Table 4.10 Marketing factors that affect the performance of MSEs

Marketing factors Urban

Manufac Construct agricultur
turing ion Service Trade e Grand
MN SD MN SD MN SD MN SD MN SD MN SD
Inadequate market for my 4.38 .66 4..35 .69 4.56 .52 4.48 .66 4.29 .69 4.4 .64
Product
Searching new market is so 4.12 .68 4.04 .72 4.01 .52 4 .76 4.15 .70 4.06 .676
Difficult
Lack of demand forecasting 4.02 .67 3.98 .85 3.37 .66 3.81 .85 3.82 .67 3.8 .74
Lack of market information 4.03 .89 4.15 .79 4.28 .59 3.94 .80 3.77 .87 4.03 .78

Absence of relationship with 3.62 .75 3.44 .87 3.28 .68 3.37 .93 3.29 .95 3.4 .84
an organization that conduct
marketing research
Lack of promotion to attract 3.2 .68 3.46 .66 3.52 .98 3.61 .96 3.73 .65 3.50 .78
potential users
Poor customer relationship 4.1 .75 3.86 .86 3.1 1.23 3.07 1.15 2.96 1.18 3.42 1.03
and Handling
Grand mean/standard deviation 3.80 0.78
Source: field survey, 2024
As shown in the table above, marketing factor is consisted of seven items. From these factors
inadequacy of market, difficulty of searching new market, lack of demand forecasting, lack of
market information and absence of relationship with an organization/association that conduct
marketing research are critical factors that affect the performance of MSEs engaged in all
sectors. This is justified by the mean scores 3.80 and standard deviation 0.78 and clearly show
respondents agreement on the variables.
That is mean scores of market inadequacy (MN=4.4 and SD=.64) is the challenge for MSEs
engaged in Manufacturing, construction, service sectors, Trade and urban agriculture sectors.

46
 For item No. 2 with the mean score (MN=4.06 and SD=.67) operators who engage in
respondents service sector, urban agriculture sector, trade sector, construction and manufacturing
sectors agree that there is difficulty of searching new market for their product respectively.
As it is clearly indicated in table 4.8 lack of demand forecasting is another marketing factor that
affects the performance of MSEs in the study area. The arithmetic mean of 4.02, 3.98, 3.82 and
3.81, with standard deviation of 0.67, 0.85,0.67 and .85 indicated MSEs engaged in
manufacturing, construction, urban agriculture, and trade sector demand forecasting is the
challenge of their performance respectively.
Respondents were also asked about the impact of lack of market information on their business
performance. Accordingly, the table above reveals that the majority operators those who engaged
in different MSE sectors agreed that lack of marketing information affect enterprises
performance. This is justified by GMN=4.03 and SD=.78). When we compare the impact of lack
market information on enterprises performance business enterprises such as service,
construction, manufacturing, trade and urban agriculture sectors with the mean value of 4.28,
4.15, 4.03,3.94 and 3.77 and standard deviation of .59, .79, .89, .80 and .87 are severely affected
respectively.
Likewise, respondents from all sectors were moderately agree with they have no relationship
with an organization and/association that conduct marketing research and it affects their
performance. This agreement is justified by the grand mean scores of 3.4 with SD=.84 for
operators engaged in all MSE Sectors.
For the question poor customer relationship and handling affect enterprises performance.
Accordingly, majority operators engaged in service, trade and urban agriculture sectors with
mean of 3.10, 3.07 and 2.96 and standard deviation of 1.23, 1.15 and 1.18 are in doubt of
deciding whether poor customer relationship and handling is the factor for their enterprise
performance, however for operators who engaged in manufacturing and construction sectors
poor customer relation and handling is the challenge of their business performance. The
agreement is justified by the mean value of 4.1 and 3.86 and standard deviation of .75 and .86
respectively.
Respondents were questioned whether lack of promotion to attract potential users affect their
business performance or not. Accordingly, with the grand mean of 3.50 and grand standard
deviation of .78 respondents of all sectors agree with poor promotional effort is done to attract

47
potential customers. When we compare the effect of lack of promotion in individual sector, the
descriptive result in the above table outlines urban agriculture, trade and service, sectors are
highly affected (with the mean score of 3.73, 3.61, and 3.52, with standard deviation of 0.65,
0.96 and 0.98) while the impact of lack of promotion for manufacturing and construction sectors
was medium. This is justified by the mean score of 3.20 and 3.46 with standard deviation of .68
and .66.
In align to this, researches conducted by Rahel& Paul (2010), assegedech(2004) and Eshetu and
Mammo (2009) ascertain that lack of product diversity, lack of awareness how to compete in the
market, the engagement of MSEs in similar products and that overcrowding the market, lack of
skill to modify their products, pricing problem, lack of promotion of their products, and other
challenges are the major challenges for the growth of enterprises.
5.3.2.4. Management Factors that Affect the Performance of MSEs
Business and financial management is an internal factor to any firm’s managers and employees
and is can be easily be managed and corrected if the gap is known vividly. Under this dimension,
the researcher has incorporated 6 items as an indicator of internal management performance
including Lack of clear division of duties and responsibility among employees, Poor organization
and Ineffective Communication, poor selection of associates in Business, Lack of well trained and
experienced employees, Lack of strategic business planning and Lack of low cost and accessible
training facilities.

48
Table 4.11Management factors that affect the performance of MSEs

Item ManufacturiConstructionService Trade Urban Grand

ng Agriculture MN SD
Managerial factors MN SD MN SD MN SD MN SD MN SD
Lack of clear division of4.16 0.86 4.21 0.7 4.3 0.74 3.56 0.76 3.88 0.85 4.02 0.64
duties and responsibility
among employees
Poor organization and2.46 1.03 2.49 0.95 2.48 1.2 2.42 0.97 2.92 0.86 2.55 1.15
Ineffective
Communication
Poor selection of 4.18 0.81 4.28 0.79 4.33 0.75 4.13 0.87 3.96 0.75 4.18 0.78
associates
Lack of well trained and 3.85 0.75 3.91 0.81 2.98 0.87 3.22 1.1 3.61 0.85 3.51 0.81
experienced
Employees
Lack of low cost and 4.02 . 87 4.1 0.81 3.2 0.68 2.46 0.89 3.78 0.85 3.51 0.92
accessible training
facilities
Lack of strategic business 3.98 0.81 4.07 0.78 4.02 0.68 4.08 0.86 3.97 0.92 4.02 0.78
planning
Grand mean/standard deviation 3.64 .99
Source: field survey, 2024
As shown in table 4.11 above, poor selection of associates in business is the main problems that
hinder the performance of MSEs in the study area. Therefore, the average scores of the
respondents with regard to poor selection of associate agreement with little deviations among
them. It shows a mean score of 4.33,4.28, 4.18, 4.13 and 3.96 with a standard deviation
of .75, .79, .81, .87 and .75 for MSEs engaged in service, construction, manufacturing, Trade,
and urban agriculture sectors, respectively.
With regard to strategic business planning the mean scores are 4.08, 4.07, 4.02 and 3.98, 3.97
with standard deviation of 0.86, 0.78, .68, .81 and 0.92for operators engaged in Trade,
construction, service, manufacturing and urban agriculture respectively. This shows that MSEs
have a problem with developing and implementing the strategic planning activities successfully.
Similarly, in relation to costly and inaccessible training facilities, the table above shows that, the
mean score of 4.1, 4.02 and 3.78with standard deviation of .81, .87 and .85 for MSEs engaged in
construction, manufacturing and urban agriculture sectors, respectively.

49
The table also shows lack of well trained and experienced employees is the problem of operators
engaged in construction and manufacturing with mean score of 3.91 and 3.85 with standard
deviations of .81 and .75 respectively. But as the table above shows, the problem of well trained
and experienced employees for operators engaged in service and trade sector is moderate with a
mean of 2.98 and 3.22 and standard deviation of 0.87 and 1.1.
To the contrary, the respondent of all sectors are neither ‘agree’ nor ‘disagree’ with the issue of
poor organization and ineffective communication. The mean scores and standard deviations
vividly show that they are almost disagreeing. That is means of 2.46, 2.49, 2.48 and 2.42 with
standard deviations of 1.03, .95 1.2 and .97 for MSEs engaged in manufacturing, construction,
service and trade sectors, respectively.
Similarly, the mean scores and standard deviations of 4.30, 4.21, 4.16 and 4.21 and 3.88 with
standard deviation of .74, .7, .86 and .85 lack of clear division of duties among employees are
major problems for MSEs employed in service, manufacturing construction and urban
agriculture sectors respectively.
It isargued from a theoretical perspective that management experience and continuous training
provide a particular entrepreneur with the necessary skills and competences needed for
successful entrepreneurship (Enock N., 2010). With adequate education mixed with management
experience and training puts a manager in a better position to make tough decisions and
forecasting under conditions of uncertainty which in turn with those competencies making these
particular managers perform better than untrained individuals.

50
 5.3.2.5. The Influence of Armed Conflict on MSEs performance
Table 4.12the influence of armed conflict on MSEs performance

Item Manufactu Constructi Service Trade Urban

ring on agriculture
MN SD MN SD MN SD MN SD MN SD GM GSD
Financial Capital 3.94 0.74 3.84 0.58 3.83 0.59 3.86 0.63 3.88 0.65 3.87 0.64
Damage
Human capital Damage 3.82 0.92 3.99 0.91 3.05 0.99 2.31 1.6 2.02 1.25 3.04 1.13
Basic infrastructures 4.18 0.76 4.1 0.78 4.2 0.59 3.99 0.63 3.8 0.88 4.05 0.73
Damage
Insecurity and low 4.03 0.67 3.83 0.83 3.61 0.91 4.03 0.83 3.7 1.4 3.84 0.93
confidence to invest
more
Lack of peace and order 4.2 0.73 3.6 0.82 3.8 0.91 4.01 0.94 4.01 0.92 3.9 0.72
to run business safely
Grand MN/SD 3.7 0.78
Source: field survey, 2024
Respondents were questioned to rate their agreement level on the question Financial Capital
Damage due to the armed conflict in the study area is the challenge of their performance of doing
business activity. Accordingly, the average value (GMN=3.87 GSD=.64) in the above table
shows the majority respondents agreed that the armed conflict was devastating their financial
resources and it affected their business performance. The results in table 4.12show that the
means ranged between 3.04 and 4.05 and it indicates the armed conflict in the study area was
highly affect enterprises financial capability.
Likewise respondents were questioned whether human capital damages due to armed conflict
affect their enterprises performance or not. The result in table above with the GM= 3.04 and
GSD= 1.13depicts human capital damaged by the armed conflict has moderate impact on their
business performance. Whereas, the mean scores of 3.82and 3.99with standard deviation of 0.92
and 0.91, the influence of human capital damage for operators who engaged in manufacturing
and construction sectors was very high respectively. On the other hand human capital damage due
to armed conflict for trade and urban agriculture sectors was too low and it has no impact on their
business performance. This is justified by the mean score of 2.31 and 2.02 with standard
deviation of 1.6 and 1.25.

51
Whether Damage of basic infrastructures due to armed conflicts affect enterprises performance
or not, the study result in table 4.10 under item No. 3 (GM=405 and SD= 0.73 reveals that
damage of basic infrastructures due to war is the challenge of all MSEs sectors performance in
the study area. However, the mean scores of 4.2, 4.18, 4.1, 3.99 and 3.88 with standard deviation
of , 0.59, .76, .78, .63 and.88 reveals the intense of influence of basic infrastructure damage due
to war is high for those operators engaged in service, manufacturing, Construction, trade and
urban agriculture sectors respectively.
Under item No.4 of the table above respondents were asked whether the recurrent outbreak of
war in the study area insecure and lower ingtheir confidence to invest or not,the majority
respondents with the average value (GMN=3.84 and SD= .93) agreed the recurrent outbreak of
war and turmoil in the study area worsen the security and confidence of firms’ to invest in
different businesses. In addition to this entrepreneurs engaged in manufacturing, Trade, service
and construction sectors agreed that lack of peace and order in the study area affected them to
not run their business safely and it ruined their business performance. This is justified by the
mean scores between 4.2, 4.01, 3.8, 3.6 with a deviation of .83, .94, .91 and.82 for operators
engaged in all sectors.
5.3.2.6. Entrepreneurs Perceptions of Enterprise Performance
Taking seven indicators of performance of micro and small enterprises, the researcher has
collected subjective opinions from the respondents as to their perception on the performance of
their business in relation to the experience they have had in the past. Accordingly, the result
depicted an average overall growth level mean and standard deviation value of 3.80 and
0.78respectively indicating that most of the business enterprises under consideration do not
perform successful and have stayed at mare survival stage. This poor performance and stagnation
might be due to the existence of several internal and external factors encountering business
owners in their day to day business activities. In this particular study the researcher tried to
examine seven performance indicators of enterprises and the result is discussed in the following
table as the following.

52
Table 4.13: Perceived enterprise performance

Item Manufact Constructi Urban

uring on Service Trade agriculture Grand
MN SD MN SD MN SD MN SD MN SD MN SD
In terms of employment 4.38 .66 4..35 .69 4.56 .52 4.48 .66 4.29 .69 4.4 .64
creation the enterprise Showed
In terms of Sales and market 4.12 .68 4.04 .72 4.01 .52 4 .76 4.15 .70 4.06 .676
share of the enterprises showed
not improvement
In terms of number of 4.02 .67 3.98 .85 3.37 .66 3.81 .85 3.82 .67 3.8 .74
customers the enterprise
showed
In terms of financial time
not improved and non 4.03 .89 4.15 .79 4.28 .59 3.94 .80 3.77 .87 4.03 .78
financial resource utilization
the enterprise is ineffective
In terms of Customer retention 3.62 .75 3.44 .87 3.28 .68 3.37 .93 3.29 .95 3.4 .84
capability the enterprise
showed not improvement
In terms of amount capital 3.2 .68 3.46 .66 3.52 .98 3.61 .96 3.73 .65 3.5 .78
budgeting, enterprises showed
not improvement
Credit accessing capability of 4.1 .75 3.86 .86 3.1 1.2 3.0 1. 2.9 1.18 3.42 1.03
the enterprise showed not
3 7 1 6
improvement
5
Grand mean/standard deviation 3.80 0.78
Source field survey, 2024
When the raw data of performance perception was computed using SPSS to observe the level of
enterprises performance and success in terms of employment contribution, growth in sales
volume and market share, customer retention capability, effectiveness in using financial and non
financial resources, amount of capital budgeting, and capability in accessing required credit the
grand mean value 4.4, 4.06, 4.03, and 3.8 grand standard deviation .64, .67, .78 and .74, of the
descriptive result, indicated most business enterprises are found at survival and declining stage.
The research results obtained by Habitamu Tefera (2013) and MunicSlah (2019) also confirmed
that most small enterprises in Ethiopia are found to be at survival and the remaining and
declining stage in terms of the five growth parameters.
In general, based on the above result we can conclude that poor performance and stagnation of
MSEs might be due to the availability of several external and internal challenges that business
enterprise managers’ face in their day to day activities while doing their business.

53
 5.3.2.7. Comparison of factors
In this particular research all the independent factors such as, financial, marketing, armed
conflict, infrastructural and management factors have been found to be critical challenges of
MSEs performance in the study area, but, this does not necessarily mean that all the above listed
independent variables have equal level of impact and severity on the performance of the
entrepreneurs. Accordingly, attempt was made to compare the difference of each variable in
terms of level of its severity on the MSEs performance. Accordingly, the following table clearly
compares the overall impact of all key factors discussed in detail above.
Table 4.14Comparisonofthemajor factors

No. Factors Grand Mean Grand Standard Rank of Severity

Deviation
1 Infrastructural factors 3.73 .87 2nd
2 Armed conflict 3.70 .78 3rd
3 Marketing factors 3.83 .78 1st
4 Financial factors 3.59 .69 5st
5 Management factors 3.65 .99 4th
Source: field survey, 2024
It can now be seen that marketing and infrastructural factors have the biggest potential to
contribute to the performance, followed by armed conflict and management factors. In another
words, the result shows that marketing and infrastructural factors are the two top most factors
that affect the performance of MSEs in the selected area. This result is supported by Admasu
Abera (2012), Okpara (2011), HafituBerihun (2009) and Fatai (2011) who found that lack of
finance and marketing rank on top being reported as the major constraints by a large proportion
of the enterprises. However, unlike the above research findings, this study discovered armed
conflict is the major challenge of MSEs enterprises next to financial challenges. It can therefore,
be concluded that finance and armed conflict factors do largely affect the performance of MSEs
in the study area and this can contribute large in filling literature gap concerning the impact of
armed conflict on MSEs performance.
5.4. 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

54
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.

5.4.1. Pearson's Product Moment Correlation Coefficient

To determine whether there is significance relationship between the predictor (financial, armed
conflicts, infrastructural, marketing, and management) variables with dependent variable
(enterprises performance), the study used Pearson’s Product Moment Correlation Coefficient.
Accordingly, the following section presents the results of Pearson’s Product Moment Correlation
on the relationship between independent variables and dependent variables and it indicates the
relationships between performance and its independent variables are linear and positive ranging
from substantial to strong correlation coefficients.
Table 4.15The relationship between independent variables and performance

MSEs Performance
Infrastructural factors Pearson correlation .698**
p-value .000
N 272
Armed conflict Pearson correlation .719**.
p-value .000
N 272
Marketing factors Pearson correlation .717**
p-value .000
N 272
Financial factors Pearson correlation p-value .621**
N .000
272
Pearson correlation .630**
Management factors p-value .000
N 272
**
Correlationissignificantatthe0.01level (2-tailed).
Source: field survey, 2024

As we can observe intable 4.15 above, the Pearson’s Product Moment Correlation Coefficient
result identify a strong positive relationship was found between armed conflict and performance

55
(r=.719,p<.01), marketing and performance(r=.717,p<0.01),which are statistically significant at
99% confidence level. This implies that at a 1% level of significance it was discovered that
marketing and armed conflict plays a significant role in determining the performance of MSEs in
the study area. Moreover, the table presents the association between the selected variables and
performance of MSEs for a sample of 272 operators in Woldia town. There is substantial,
however statistically significant relationship between infrastructures and performance (r=.698,
p<.01), finance and performance(r=.621, P<.01) and management and performance(r=.630,
P<.01). This would imply that, the more infrastructures, management and financial accessibility
the better performance of MSEs would be.
5.4.2. Testing assumptions of multiple linear regression
Before testing the acceptability of the regression results, the researcher tested and proved the
fulfillment of most common assumptions. For this reason the following tests were conducted to
check whether the assumptions were violated or not.
5.4.2.1. Normality Test
Regression considers that variables have normal distributions and they do not describe which
variables, in particular, they are talking about but the inference seems to be that multiple
regressions need that the predictor or feedback variables be normally distributed. In certainty,
merely the assumption of normally distributed errors is pertinent to multiple regressions.
Specifically, considering that errors are normally distributed for any arrangement of values on
the predictor variables (Osborne and Waters, 2002).When histograms are close to zero it is
assumed that the data is normally distributed for the dependent variable. However, when
skewness and kurtosis are not close to zero and the histogram does not appear to have a normal
distribution. According to the information in figure 4.4 below indicated that the skewness and
kurtosis are not far from zero or between them the zero value is indicated. Thus, the result
assured that the distribution is normal for this study.
Figure 4.2. Regression Standardized Residual

56
 5.4.2.2. P-P Plot
To say the Normality assumption of this study is met, the Histogram should be symmetric along
the center 0 and the dots at the P-P Plot should be closer to the diagonal line; Normal P-P plot –
points should lie in a reasonably straight diagonal line from bottom left to top right. When we
look at P-P is symmetric and the P-P plot of the dots is drawn closer to the diagonal line,
indicating that the assumption of normality is met.
Figure 4.3Normal P-P Plot of dependent variable employee performance

57
 5.4.2.3. Multi-collinearity test
Multi-coliniarity test is one of the assumptions of multiple linear regressions. The assumption
states the independent variables should not have very high association or correlation. If the
independent variables are highly correlated, there is problem in the model and this problem is
called multi-collinearity. Hence, the existence of multi-collinearity can be identified by
analyzing the values of tolerance and Variance Inflation Factors (VIF) (Gujarat and porter 2010).
As many authors have recommended, a tolerance of < 0.10 and/or a VIF <10 indicates multi-
collinearity problem. The regression analysis result of this study shows the mean VIF and
tolerance is 5.51 and 0.22 respectively. Thus, the result of multi-coliniarity test shows that there
is no multi-collineality problem in the regression model used for this study. Because, Variance
Inflation Factors (VIF) and tolerance all fall within the acceptance range (VIF = 1 - 10, or
tolerance = 0.1 – 1.0). Table below depicts the multi-colliniarity analysis.
Table 4.16 multi-collinearity diagnosis

Cronbach's Alpha
No. Variables Tolerance VIF
1 financial factors .469 2.134
2 Marketing factor .406 2.462
3 Armed conflict factors .263 3.796
4 Management factors .393 2.544
5 infrastructural factors .544 1.837
Source: field survey, 2024

The other option for multi -collinearity problem test is running the correlation test between two
variables and the results obtained by running the correlation test. The correlation result between
two variables showing less than 0.9 (in absolute terms) is an indicator of that the variables is not
highly correlated. Accordingly, the multi-coliniarity diagnosis results indicated in table below
manifest that there is no problem of multi-colinearity in the model.
Linearity Assumptions
The model that shares the response Y to the predictors X 1, X2, X3... XN is assumed to be linear in
the regression parameters. This means that standard multiple regressions can only precisely
estimate the relationship between dependent and independent variables if the relationships are
linear in nature. As in the equation: Y=B0 + B1X + B2X +B3X + B4X. This regression equation is

58
still a linear regression equation because Y is modeled as a linear function of the parameters.
According to the information in figure 4.5 below indicated Normal P-P Plots show that this
assumption had been met for this study.
Figure 4.4Scatter Plot of regression of standardized residual of MSEs Performance

5.4.3. Regression Test on the effect of factors on MSEs

Table 4.17: Regression analysis

Model Summaryb
Adjusted R Std. Error of Durbin-
Model R R Square Square the Estimate Watson
1 .821a .674 .667 .719 .368
a) Predictors: (Constant), infrastructural factors, Management
factors, Marketing factor, financial factors, Armed conflict
factors.
b) Dependent Variable: MSEs performance

The regression analysis was used to measure the effects of predictive variables on MSEs
performance. Regression test is used to recognize the ability of each individual independent
variables (financial, armed conflict, marketing, infrastructural and Managerial) to predict the

59
dependent variable (MSEs performance), where each of the individual factor components is
examined and clarified.
As indicated in table 4.12 above, the adjusted R Square value represents the correlation
coefficient between the dependent variable (MSEs performance) and the independent variable
(financial resources, marketing activities, infrastructural facilities, managerial systems and armed
conflicts) that taken together. The regression effect between the dependent variable and the five
independent variables together were the strong one in this study, and have a positive regression.
From the model summary, the adjusted R square from the table above showed 0.667 which
means that the independent variables (financial resources, marketing activities, armed conflict,
infrastructural facilities, and managerial factors)can explain the dependent variable(MSEs
performance) by 66.7%.However, there are33.3% of the variance remained unexplained in this
study.
As we saw from the model summary box, the Durbin Watson (DW) statistic is .368 which shows
a good autocorrelation in the residuals from a statistical regression analysis table. The Durbin-
Watson statistic will permanently have a value between 0 and 4. The value of 2.0 means there is
no autocorrelation detected in the sample. Values from 0 to less than 2 shows positive
autocorrelation and values from 2 to 4 designate negative autocorrelation (James and Geoffrey,
1950). In this case, the value is 0.368, confirmed that there is a positive autocorrelation hence we
can conclude this analysis is valid.

5.4.4. Testing ANOVA

Today researchers are using ANOVA to see whether any difference exists between the groups on
variables and to estimates the amount of variation due to assignable causes or due to chance
causes. According to David (1996), in testing ANOVA, the significance value should be p <
0.05, but any value which is greater than this will be defined as non-significance effects and the
F value is measurement of how different the means are relative to variability within the variables.

60
Table 4. 18ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 283.592 5 56.718 109.797 .000a
Residual 137.408 266 .517

Total 421.000 271

a) Predictors: (Constant), infrastructural factors, Management factors, Marketing

factor, financial factors, Armed conflict factors.
b) Dependent Variable: MSEs performance
In line with table 4.17 above, indicated that ANOVA of the results from the data gathered from
the respondents showed a strong positive significant regression for the reason that F result for
this study model is 109.797 at significance value level 0.000, which is p < 0.05. This meant that
the independent variables (financial resources, marketing activities, infrastructural facilities,
Armed conflict factors and management factors), have a strong significant influence on MSE’s
performance in the study. The test statistic reveals that the null hypothesis that all of the
coefficients are jointly zero and should be rejected. Thus, we can conclude that financial,
marketing, infrastructural, armed conflict and management factors have variable relationship or
variable significant effect towards their contribution to enterprises performance.
Regression Coefficient

61
Table 4.19: Coefficient of Independent variables on MSEs Performance

Coefficientsa
Unstandardized Standardized Collinearity
Coefficients Coefficients Statistics
Std. Toleranc
Model B Error Beta t Sig. e VIF
1 (Constant) -.011 .168 -.065 .948

financial factors .091 .049 .096 1.875 .0062 .469 2.134

Marketing factor .298 .057 .287 5.224 .000 .406 2.462
Armed conflict
.141 .067 .143 2.089 .038 .263 3.796
factors
Management factors .130 .056 .130 2.334 .020 .393 2.544
infrastructural
.343 .051 .321 6.755 .000 .544 1.837
factors
a) Dependent Variable: MSEs
performance
Table 4.17 above is a coefficient table that showed the degree of relationship between each
independent with the constant at (-0.011) while Financial resources (0.091), armed conflict
(.141), marketing activities (.298), infrastructural facilities (0.343) and managerial system
(0.130) were statistically significant since all of them had (p<0.05). In the regression analysis
using the coefficient of determination (Y= B o+B1x+B2x +B3x +B4x+ B5x), the researcher arrived
at the following conclusions; Bo =-0.011, B1=, B2=.141, B3= .298, B4= .343 and B5=.130.
Therefore, Y= -0.011+ .091 x + 0.141x + .298+.343x + 0.130x meaning the constant (-0.612)
refers to the intercept in “Y” axis were the regression line cross the axis. Whereas, when the

62
MSEs performance increase by one unit each of the aspect under the independent variables do
affect dependent variable by one times each predicator values of 0.091, 0.141, 0.298, 0.343 and
0.130 changes respectively.
From the table 4.17 above infrastructural factors is the predictor variable contributes the highest
to the variation of the dependent variable (MSEs performance) because the Beta value for this
predictor variable is the highest (0.343) if compared to other predictive variables. This implies
that infrastructural factors create the strongest distinct contribution to clarify the variation of the
independent variable (MSEs performance) when the variance explained by all other predictor
variables in the model is controlled.
5.4.5. Hypothesis Testing
According to the standardized coefficient of beta and p-value, the hypotheses of the study were
tested and the results of the study presented as the following.
Hypothesis One
Financial resource has a significant effect on the performance of MSEs in Woldia town.
The findings of this study confirmed that, the effect of financial resource accessibility on MSE’s
performance. Financial resource accessibility has a positive and significant effect on MSE’s
performance (β=0.96, p= .0062). Hence, the hypothesis is fully supported.
Hypothesis Two
Armed conflict has a significant effect on the performance of MSEs in Woldia town.
The findings of the analysis stated that, the results of the effect of armed conflict on MSE’s
performance. Armed conflict has significant effect on MSEs performance (β=.143, p=
.038).Therefore, the hypothesis is fully supported.
Hypothesis Three
Marketing activities has a significant positive effect on the performance of MSEs in Woldia
town.
The findings of the analysis stated that, the results of the effect of marketing activities on MSE’s
performance. Marketing activities has a positive and strong significant effect on employee’s
performance (β=.287, p= 0.000).Therefore, the hypothesis is fully supported.
Hypothesis four
Infrastructural facility has a significant positive effect on the performance of the MSEs in Woldia
town

63
The findings of this study approved that the effect of infrastructural facility on MSE’s
performance. Infrastructural facility has a positive and strong significant effect on MSE’s
performance (β=0.321, p= 0.000). Therefore, the hypothesis is fully supported.
Hypothesis Five
Management factor has a significant positive effect on the performance of the MSEs in Woldia
town.
The obtained result indicated the findings of the effect of policy and procedural factors on
MSE’s performance. Policy and procedural factors has a positive and strong significant effect on
MSE’s performance (β=.130, p= 0.020). Therefore, this hypothesis is fully supported.
In general based on the hypothesis testing result, we can say that all variables already included in
the regression equation have significant unique and combined effect on the dependent variable.

64
 CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Major Findings

The major objective of the study was to examine factors affecting the micro and small enterprise
(MSEs) performance in Woldia town. The analysis of the data was undertaken using the
descriptive and inferential approaches. The major findings of the study are summarized as
follow:
Regarding the share of each sector in total MSEs, trade sector (41.1%), service sector (25.2%),
manufacturing sector (16.3%), construction sector (9.1%), and urban agriculture (8.3%)
constitute respectively.
Gender background of respondents also reveals that 206 (63.5%) were male, 66(36.5%) were
female. In addition to this the descriptive result shows that female engaged in service(56%) and
trade sectors 49%, in manufacturing(27%), and urban agriculture sub-sectors (38%),
respectively.
The study were assessed the source finance for startup business of the studied micro and small
enterprises, large proportion of respondents 55.6% accessed the startup finance from personal
saving and followed by Family and friends assistance 28.5%. Aiming to determine increment of
number of employees, respondents were asked the numbers of members at start up and the study
period. The descriptive result depicts that in aggregate the number of members from all of the
studied enterprises decreased by 40.75%. at individual level high percentage of decrease
observed in trade (56%), service (51%), manufacturing (38%), urban agriculture (36%) as well
as Construction (18%) respectively.
In addition to the above background information assessment, the study attempted to identify
major factors of MSEs growth in the study area. Accordingly, the descriptive analysis result
shows financial challenges that affect MSEs growth were inadequacy of credit Institutions,

65
Fairness of tax levied, High collateral Requirement of lending institutions, High interest rate
charged by lending institutions and complexity of loan application procedures of lending
institutions.
Regarding to marketing factors, respondents implied there is inadequate market for their Product
(4.4),Searching new market is so Difficult (4.06), Lack of demand forecasting (3.8), Lack of
market information(4.03 ), Absence of relationship with an organization that conduct marketing
research ( 3.4), Lack of promotion to attract potential users (3.50) and Poor customer
relationship and Handling (3.42).
The study regarding the infrastructural facility provision, the majority respondents with the grand
mean value of 3.73 and grand standard deviation of .87 which reflects that the majority
respondents believe that the availability of necessary infrastructures around their business
ventures is very poor and it is the challenge of their business. They confirmed that Power
interruptions, insufficient and interrupted water supply, Lack of shop for easy access of finished
products, Lack of sufficient and quick transportation service, Lack of appropriate dry waste and
sewerage system are some of infrastructural factors affecting their business performance in the
study area.
Regarding management factors, the descriptive analysis result shows the majority respondents
with the grand mean value of 3.64 and grand standard deviation of .99 which reflects that the
majority respondents believe that the management system in their business ventures is very poor
and it is the challenge of their business. They confirmed that Lack of clear division of duties and
responsibility among employees, Poor organization and Ineffective Communication, Poor
selection of associates, lack of well trained and experienced employees, lack of low cost and
accessible training facilities are some of infrastructural factors affecting their business
performance in the study area.
Regarding armed conflict factors, the descriptive analysis result shows the majority respondents
with grand mean value 3.80 and standard deviation of 0.78which reflects that the majority
believe that the armed conflict affected the performance of MSEs in the study area. Accordingly,
Financial Capital Damage, Human capital Damage, Basic infrastructures Damage, Insecurity
and low confidence to invest more and lack of peace and order to run business safely are some of
the effects the armed conflict on MSEs performance.

66
The inferential analysis result of the study confirmed that with correlation result of (r =.621**,
p<0.01), (r = .717** p<0.01), (r = .719**, p<0.01), (r =.698****, p<0.01) and (r =.630****, p<0.01)
financial factors, marketing factors, armed factors, infrastructural factors, management factors
have positive and strong correlation with the dependent variable (MSEs growth).
Adjusted R-square value of 0.667 of the study suggesting financial factors; marketing factor;
infrastructural factors, armed conflicts and management factors were able to explain 66.7 percent
variations in the business growth of MSEs in Woldia town. The remaining 33.3% of the variance
is explained by other variables not included in this study.
The F value is 109.79 at 0.000 significance level suggests a linear relationship among the
variables.
The regression result also confirms that armed conflict factors, financial factors, marketing,
management and infrastructural factors have statistically significant positive effects on growth of
the MSEs in the study area. Accordingly, financial factors (Beta = 0.091, P< 0.05); marketing
factors (Beta = 0. 298, P< 0.05), armed conflict (Beta = 0.141, P < 0.0); management factors
(Beta = 0.130, P < 0.0) and Infrastructural factors (Beta = 0.343, P < 0.0). infrastructural and
Marketing factors showed the highest regression coefficient of .343, and .298 having highly
significant positive effects on MSEs performance followed by armed conflicts and management
factors as second most important factors that affect the performance of MSEs with regression
coefficient value of .141 and .130 respectively.
The overall effect of mentioned predictor variables was also seen to be significant to influence
business growth with 66.9% predictive ability. Based on this the inferential statistics, the Result
supported the proposed hypothesis H1, H2, H3, H4 and H5. Thus, the inferential analysis result
obtained from sample respondent data can be inferred to the population in that those predictor
variables do have significant influence on the performance of micro and small enterprise in
Woldia town.

5.2 Conclusion
The result of the study in relation between marketing of enterprises and its impact on enterprises
growth has identified poor market networking, in ability to compute with large company,
absence of promotion, poor product quality and inconvenience of location for the business as the
critical marketing management practice strategies challenges common in the MSEs in the study
area.

67
Regarding the availability infrastructural facility, the finding of the study identified shortage of
electric and water supply, transportation facilities and poor site of wastage disposal as constraints
of MSEs projects. The contribution of MFIs has shown an increase, however, there are still
problems related to financial resources such as high interest rate, collateral problems, small loan
size, bureaucracy, and lack of awareness. The finding of the study vividly showed the
contribution of banks in empowering MSEs has shown a decreased, and majority of the
enterprises do not apply to take loans from banks. In relation with management system such as,
Bureaucracy during registration and Licensing, high Political Intervention, society’s negative
view and low government support were the major challenges affecting of MSEs growth. Finally,
the study has further identified entrepreneurs’ perception of their business performance.
Accordingly the majority perceived that their businesses are at mare survival stage.

5.3 Recommendation
The factors of MSEs performance are identified and discussed in the study. The problems that
MSEs face touch MSEs owners and managers in particular and the government, stakeholders and
the society in general. Based on the identified challenges facing MSEs in Woldia town, the
researcher set some strategies that the government and its agencies responsible for MSEs, and
MSEs themselves may adopt.
 The research result obtained in this study has significant implications for individuals and
groups who are interested to succeed MSEs growth and expansion either in the study area
or in similar cities with in Ethiopia. Accordingly, the researcher is willing future
researchers to use the findings of this study as a source for their researches.
 Since creation of new jobs is the major goal of MSEs and the achievement is highly
dependent on the growth of enterprises, due attention should be given to those factors that
influence performance of enterprises.
 To make their enterprises good competitors, MSEs They should develop good strategies
that can make them competent over their competitors and they should be guided by the
marketing principles and business science in general.
 As the study area is prone to frequent armed conflicts and it devastate individual firms as
well as communal resources of the area, the federal, regional and local political leaders
should plan for sustainable peace. In addition to this, the local government should

68
 provide special treatment for low income entrepreneurs. The treatment can be either
financial or providing necessary material.
 The development of MSEs in the study area needs various improvements in general and
the working areas of the operators in particular. The working areas are located far from
administration offices and market. The working area lacks basic infrastructure such as
road so that potential customers cannot easily be able to access them. Governmental and
non-
governmental organizations should facilitate sustainable market linkage between the
producer and potential customers.
 The officers entitled to support the operators also fail to reach them due to lack of
transportation or necessary allowance or any motivational mechanism to provide them
with the necessary advices. Due to these factors, officers are not able to follow up how
the operators are doing their job in terms of the training provided to the entrepreneurs.
Responsible bodies should act to tackle such problems by providing transportation or
motivational mechanism for the officers who provide necessary advice and follow up.
 One of the findings in this research is a very limited participation of women in the MSEs
Sector in the study area. Though different affirmative actions are applied to motivate
women to participate in MSEs, due consideration should be given to increase their
participation. Though enough is stated at the policy level to encourage women to
participate in the MSEs, aggressive awareness raising mechanism, provision of special
credit window and women focused special training is mandatory to increase their
number. This will create a better conducive environment for women to play a major role
in local economy development.
 The government should arrange incentive programs for those enterprise owners having a
good record of improvement in their business so that it will create competitive
environment among them.
 Regional TVED bureau and other government concerned body should clearly know the
reason of stagnation of MSEs and use it to take action on the problems.
 The government body should assist these enterprises in creating strong and sustainable
forward market linkage with big manufacturers and retailers to create sustainable market

69
 for these micro and small manufacturing enterprises. MSE‟s attitude should be changed
from producing for end users to production and selling to retailers and manufacturers.
 Government should arrange new programs to enhance financial and other support for
micro and small manufacturing business using easy loan application procedures which
most enterprise owners can afford. In general, it needs much effort from the government
to improve the business environment in Woldia town in particular and at the region at
large. Finally, the society also should gear its mind towards using locally made products
rather than relying on foreign non durable products.
In general, All stakeholders and local government body including the Woldia town municipality,
should attempt to alleviate all identified constraints in this research as having significant
influence on the growth/success of micro and small enterprises in the studied town.

70
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 APPENDIX A
QUESTIONNAIRE
ADAGO POST GRADUATE COLLEGEFACULITY OF BUSINESS AND ECONOMICE
DEPARTMENT OF BUSINESS ADMINISTRATIONMBA PROGRAM

SECTION 1: INTRODUCTION:
Dear respondent, I am a graduate student in the department of business administration, Adago
Post Graduate College. Currently, I am undertaking a research entitled ‘Factors Affecting the
Performance of Micro and Small Enterprises in WoldiaTown’. 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 Woldia town. Your participation is entirely voluntary and the
questionnaire is completely anonymous.
Thank you for your cooperation.
Please be sure that the information you provided will be kept confidential and will be used only
for the academic purpose.
Instruction:
No need of writing your name.
Where alternative answers are given, answer by circling the letter of your choice.
For the open-ended questions, please be as brief as possible in answering the questions.

Part one: back ground information of respondents

Your sex

75
Male
Female

2. AGE
<30years
31-39years
40-49years
50years and Above

3. Educational Background of Respondents

A. University degree and above
B. High school and complete
C. Technique and vocational /diploma
D. Primary school and complete
4. Age of your firm
A. < 6 years
B. 6 - 10years
C. >10 years
5. Source of Capital for startup and expansion
A. Personal saving
B. Borrowed from
C. financial institutions
D. Family and friend assistance
6. Number of employees working in your organization
A. Before the conflict _____________________________
After the conflict(currently _____________________________
7. Can you specify the current business performance status of your enterprise?
A. Doing business well
B. Mare survival
C. Declining
Part three: Factors affecting MSEs performance

76
The following questions are dealing about challenges of MSEs progress. Thus, indicate your
motivated level of agreement or disagreement by putting tick (√) mark with the corresponding
score value

Financial factors
Item 1 2 3 4
InadequacyofcreditInstitutions
fairness of tax levied
Shortageofworkingcapital
HighcollateralRequirement
of lendinginstitutions
Highinterestratechargedbylending
institutions
Loanapplication procedures are of
lendinginstitutions too complex
Complicated

II. Infrastructural Factors that Affect the Performance of MSEs

Infrastructuralfactors 1 2 3 4 5
Power interruptions
Insufficient
andinterrupted
Lackof business
developmentservices
Lackofsufficient&
quicktransportation
sservice
Lack ofappropriate

77
 dry
wasteandsewerage
system
III Marketing Factors that Affect the Performance of MSES
Marketingfactors 1 2 3 4 5

Inadequate market formy

Product
Searchingnewmarket is so
Difficult
Lackofdemandforecasting
Lackofmarketinformation
Absenceofrelationshipwith an
organizationthatconduct
marketingresearch
Lackofpromotiontoattract
potential users
PoorcustomerrelationshipandH
andling
IV. ManagementFactorsthatAffectthePerformanceofMSEs
Item 1 2 3 4 5

Lackofcleardivisionofdutiesand
responsibilityamongemployees
Poor organizationandIneffective
Communication
Poorselectionofassociates
in Business
Lackof well trained
andexperienced employees
Lackoflowcostandaccessible
trainingfacilities
Lackofstrategicbusinessplanning

V. The influence of Armed Conflict on MSEs performance

78
Infrastructuralfactors 1 2 3 4 5

Damage of capital
because of armed
Threat of provoke of
war affects investment
Damage
town of basic
infrastructures affected
my business
Poor support from
donating organizations
Lack of sustainable
peace and order affects
the business
Absence of rule of law
and accountability
Thank You!!!

79