It is well recognized that Small and Micro Enterprises (SMEs) are typically owned, run and managed by proprietors sometimes in the form of sole or joint ownership. The involvement of SMEs and support institution in the formulation of policy and development program has also allowed policy makers to understand the problem of the sector and help them increase appropriate policy, strategy and various incentive schemes.
Keeping this in mind, The Ethiopian Herald had a stay with Samson Tesfahunegn, an economist graduated from Hawasa University, to have ample information about the contribution MSEs have been making to the national economic advancement and job creation for a number of citizens using local raw materials and indigenous technology.
Samson said, “Micro- and small scale enterprises (MSEs) have emerged as one of the most important tools for addressing economic and social issues and achieving a range of socio-economic development goals. MSEs in Ethiopia have indeed been acknowledged as critical components of national development. Their contribution to sustainable community livelihood is attested crucial, too.”
Yes, MSEs have made immense contribution to economic growth, employment formation, and income generation for the local community. Though they have been significantly affected by different determinant factors such as infrastructures, raw material, working premises, and human capital, situations are now given due attention to solve these problems though a lot remains to be done, he opined.
He further stated that small-scale enterprises are most of the time utilizing local resources, and the centrality of them in charting the development trajectory of an economy has been well recognized. However, the full potential of SMEs has not been adequately utilized in Ethiopia. Yes, they have been widely credited for being an indispensable part of economic development, and their strength is gauged by the dexterity to create jobs, contribute to industrialization, and boost national economic output. As a developing country, Ethiopia stands to gain by tapping into this sector.
The dint of MSEs’ inherent potential to create jobs, unleashing the entrepreneurial spirits, laying the foundational structures for industrialization amongst many others, the Ethiopian government is increasingly motivated to channel development momentum towards the promotion of SMEs at all levels, he added.
As to him, as many sectors which can employ more people are still managed by men, the role of women needs to be taken into account and they have to be given appropriate place such as the MSE Development Offices, Bureau of Cooperatives, and Bureau of Works and Social Affairs, among others. Besides, greater efforts should be made to consider both female- and male-owned businesses, of course.
Moreover, he said as the old economic structures of central planning give way to freer markets in developing and transition economies, SMES are by and large viewed as the bedrocks upon which the goals of the freemarket can be realized.
Government policy on MSEs has prioritized the agriculture sector, with the perceived goal of bolstering the production of primary commodities as way of promoting economic development. It is worth acknowledging at this juncture that the process of economic development is largely a work in-progress, revolving around the fulcrum of innovation, improvement and commitment to best practices at different levels. The nation has been moving from poverty to industrialization within a shortest time possible, he added.
As a result of appropriate policies and special programs SMEs in the country have been operating in a functional business environment, they are given ample opportunity to have strong capacity in terms of innovation, new product and technology development as well as reaching distant and foreign markets, too.
Therefore, said Samson it is imperative for policymakers in Ethiopia to become abreast with best practices from successful countries with a view to effectively replicating such policies bylaying focus on reforming the regulatory dispensation, incorporating dynamic strategic policies as well as offering support services for the development and expansion of endogenous Ethiopian SMEs. To this end, the government, be it federal or regional governments, have been working to facilitate the competitiveness and capacity of the sector thereby laying the building blocks for sustainable economic development of the country leading to reductions in poverty through improved living conditions and recording remarkable socio-economic trajectories.
As to Samson, SMEs cannot thrive in an economy that is dogged with other more pressing development challenges such as the case of the national economy.
Ethiopia’s quest for industrialization will be bolstered by promoting even growth in ways that shifts focus from the current state of agro-dependence that characterizes the economy, he said.
As a sector, its collective impact is judged by offering salient employment for both skilled and unskilled labor. With this in mind, the government policy should take keen interest in incorporating this facet of development to drive the quest for national development bycrafting the policies to facilitate a favorable business environment suitable and attractive not only for the development and expansion of SMEs but also for large scale enterprises in a way to attract domestic and foreign investors.
“Frankly speaking, even though SMEs are a potential source for economic development of Ethiopia the sector has not received a commensurate policy attention thereby hamstringing its capacity to access to finance as well as a poorly regulated dispensation. It is now possible to create permanent and temporary employment opportunities for a number of community members by promoting and expanding micro- and small businesses. True, the MSEs’ key constraints including finance credit issues, lack of workplace, business challenges, lack of managerial skills, fee, and rent money have to be well dealt with,” he opined.
He further stated that the government should ensure access forcredit service from banks and other financial institutions to overcome the financial problem of SMEs. Through using the monetary policy that governs banks, the government can enforce public and private banks to extend loanquotas to SMEs.
According to Samson, simultaneously the government should give practical assistant and consultancy for banks and financial institutions in order to create an effective mechanism that reduces the cost and associated risk of lending to SMEs to create mutual benefit. In addition, one powerful mechanism to alleviate the financial problem of the sector is establishing a formal financial institution or bank to facilitate and provide loans at lower interest rate, flexible and affordable collateral, and long repayment period to secure the financial needs of SMEs.
He said, “To encourage innovation and new product development in SMEs, the government and support agencies should focus on providing appropriate training to improve technical and managerial skill of enterprises owners. Provide support for R&D activities, establish business development centers, and create inter-firm linkage through various business premises.”
Moreover, to accelerate innovation and entrepreneurial activities of SMEs the government should support and facilitate the acquisition of new technology and skill required to operate machinery. Support services for the acquisition of new technology and skill development will lead SMEs to acquire the necessary tools for innovation, where as this can increase the capacity and productivity of SMEs, he opined.
As to Samson, the very important thing that needs to be taken into account is the Ethiopian government should learn and implement best practices and special programs from other countries to alleviate the problem of SMEs and ensure their development because such best practices are already implemented and become effective.
Ethiopia should learn from South Korea and Taiwanese legal, policy, and developmentstrategy for SMEs because the two countries implement diverse policies and special programs in that regard. The credit guarantee system, incubator centers for innovation and development, market supports, and enforcement of banks to lend their credits to SMEs are important practices. In addition, African countries such as South Africa and Mauritius develop and implement effective policies and programs which ensure access to market, technology, and infrastructural facilities.
He wrapped his opinion up saying MSEs have become one of the most important tools for dealing with economic and social issues and achieving development goals in both developed and developing nations, and the sector is seen as a key catalyst for jobs, tackling unemployment, and social development as a whole since the lion share of rapidly increasing workforce worldwide. The best practices should be adopted to overcome the problems and constraints that emerge from lack of appropriate policy and development plan. The Ethiopian government has additional resources for MSEs that have yet to be utilized, and it can improve the quality of MSE operations in order to expand geographically and serve a larger community. As a result, the Ethiopian government should reduce political interest, increase socioeconomic development programs, and replace MSE operators and community leaders.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD THURSDAY 27 JUNE 2024
