The small and medium size manufacturing enterprises have played significant role in the country by transitioning the economy from agriculture led to the industry one. This sector not only contributes to the country’s economy but also improves financing for small and medium enterprises through the provision of business development services, project preparation, and training in financial management. There are initiatives aim to increase their production, productivity, and overall contribution to the economy.
One such project that has made a positive impact is the Small and Medium size Enterprises Finance Project, which was established in 2017. Over the past six years, the project has facilitated loans, training, and other support for enterprises in Ethiopia. The project coordinator, Yemenzwerk Grafen, has provided us an overview of its performance.
The project has been divided into two phases, as suggested by Yemenzwerk, the first phase started in 2017 and concluded in August 2022. It received a total fund of $276 million, with $200 million from the World Bank and $76 million from the European Investment Bank. Out of this amount, $269 million was transferred through the Development Bank of Ethiopia to provide machinery rental (capital goods lease finance) and working capital loans for small and medium size enterprises. The remaining $7 million was allocated for various project activities and coordination by the National Bank of Ethiopia.
The World Bank evaluated the project’s financial utilization and confirmed that the funds were utilized appropriately, presenting the project with the “World Bank Vice Governor/ WB vice Governor Award” in recognition of its successful evaluation. This affirmation led to additional support from the World Bank for the second phase of the project.
The second phase, which spans from August 2022 to August 2025, has received a loan of $200 million solely from the World Bank. This phase aims to support enterprises that have been affected by the COVID-19 pandemic, particularly in terms of production and marketing challenges. Out of the $200 million, $180 million is allocated for loans through the Development Bank of Ethiopia for machinery rental and operating loans, while $20 million is dedicated to business development services, including training to enhance production, export, and e-commerce activities during the pandemic. The remaining funds are allocated for project management.
Overall, the two phases of the project amount to a total of $476 million, out of which $449 million has been disbursed and put into operation.
From the beginning of the project until today total of 6,153 enterprises have received loans worth $449 million. Among them, 939 enterprises have obtained direct loans from the Development Bank for machinery purchase, and 1,169 enterprises have obtained loans indirectly through regional machine rental purchase loan supplier organizations. Additionally, 4,045 enterprises have received loans for operational purposes.
Yemenzwerk emphasizes the importance of addressing the gaps and challenges faced by enterprises through research and training. The project collaborates with the Institute of Entrepreneurship Development and other institutions to provide regular training sessions on financial management, market strategies, human resources development, sales management, and business plan preparation. Technical and professional training is also provided in collaboration with technical training colleges and industrial development institutions, focusing on various sectors such as leather, textiles, wood, metallurgy, agriculture, and chemical production.
The project’s target was to train 1,500 small and medium enterprises members by 2025, but the performance has exceeded expectations. So far, 2,220 enterprises have received training through coordination with the aforementioned institutions. Additionally, 268 technical and vocational training instructors have been recruited and trained to further support enterprise development.
Furthermore, the Development Bank of Ethiopia has provided financial support to make training more accessible to loan seekers in the third and fourth rounds. In regions affected by the war, such as Amhara and Tigray, efforts have been made to support affected enterprises and raise awareness through promotional training.
The Small and Medium Size Enterprises Finance Project has been instrumental in providing loans, training, and support to small and medium size enterprises in Ethiopia. By addressing the challenges faced by these enterprises will provide them with financial resources and knowledge, the project has made a significant contribution to their growth and development.
Small and medium enterprises (SMEs) are the backbone of Ethiopia’s economy, playing a vital role in driving economic growth, fostering innovation, creating employment opportunities, and reducing poverty. In a country where agriculture has historically been the dominant sector, the rise of SMEs has brought about a transformative shift towards industrialization and economic diversification.
SMEs are a major source of employment in Ethiopia, particularly in urban areas where they play a critical role in reducing unemployment rates and alleviating poverty. These enterprises offer opportunities for self-employment and job creation, absorbing the growing labor force and providing income for individuals and their families. By generating employment, SMEs contribute to poverty reduction, improve living standards, and enhance socio-economic well-being.
Ethiopia’s economy has undergone a significant transformation, with SMEs at the forefront of driving industrialization and economic growth. These enterprises contribute to the country’s GDP by diversifying the economic landscape beyond the traditional agricultural sector. SMEs operate in various sectors such as manufacturing, textiles, construction, services, and technology, fostering innovation and productivity. Their entrepreneurial spirit and ability to adapt quickly to market demands have propelled Ethiopia to stride to industrialization.
SMEs in Ethiopia have also attracted foreign direct investment (FDI) and opened up avenues for export opportunities. International investors recognize the potential of Ethiopia’s growing domestic market and the advantages of establishing partnerships with local SMEs. These collaborations lead to technology transfer, knowledge sharing, and access to global markets. SMEs engaged in export-oriented activities contribute to foreign exchange earnings and enhance Ethiopia’s competitiveness in international trade.
SMEs play crucial role in promoting rural development and inclusive growth. In Ethiopia, where a significant portion of the population resides in rural areas, SMEs provide opportunities for entrepreneurship and income generation outside of agriculture. By supporting rural SMEs, the government aims to reduce migration to urban centers, improve infrastructure, and create sustainable livelihoods in rural communities. This balanced development approach helps bridge the urban-rural divide and promotes equitable growth across the country.
SMEs are hubs of innovation and technology adoption in Ethiopia. These enterprises embrace new ideas, technologies, and business models to enhance their competitiveness and efficiency. By adopting modern technologies, SMEs can improve production processes, reduce costs, and deliver high-quality products and services. The government and various organizations provide support through capacity building programs, training, and access to finance to encourage SMEs to embrace innovation and technology.
Small and medium enterprises are vital to Ethiopia’s economic development, serving as catalysts for growth, poverty reduction, and industrialization. These enterprises contribute to the country’s GDP, diversify the economy, attract foreign investment, and open up avenues for export opportunities. Moreover, SMEs play a crucial role in rural development, inclusive growth, and the adoption of innovation and technology. As Ethiopia continues to prioritize the growth and development of SMEs, it creates a enabling environment for entrepreneurship, economic empowerment, and long-term sustainable development in the country.
In strengthening small and medium size enterprises engaged in wood and metal works, construction, urban agriculture, poultry, food catering, municipal work and other works the, National Bank of Ethiopia introduced new directives to both the public and private banks to allocate 5 percent of their loaned money to the enterprises. So far, they obtained the loan and enabled to expand their production and employing capacity. There are also many small scale financial institutions engaged in providing loan to the enterprises with average interest rate and according to the small scale finance and credit associations, the small and medium size enterprises have good reputations in refunding the loaned money. However, there is also undeniable fact that the enterprises faced various challenges and among others absence of value chain, limited size of working places which hampers expansion and some unfair taxes can be mentioned here. Therefore, by considering, the enterprises role in creating employment opportunity, supply their products to the market and import substitution, the government should stand beside them in tackling their chronic problems.
BY LAKACHEW ATINAFU
THE ETHIOPIAN HERALD SUNDAY EDITION 4 FEBRUARY 2024
