Yinebeb Bahru
Small and Medium-size Enterprises (SMEs) have been widely credited for being an indispensable part of economic development. Its strength is gauged by the dexterity to create jobs, contribute to industrialization and boost national economic output. SMEs can play a vital role in a country’s development, they contribute hugely to the national economy by creating employment opportunities for many citizens. In economically developed countries such as the USA, SMEs were creating 1/5 or 20% of employment opportunities, and SMEs can contribute in some measure to 60% of the targets established in the SDGs. In Ethiopia, micro-enterprises account for a staggering 97% of manufacturing sector employment. As a developing country, Ethiopia stands to gain by tapping into this sector. However, SMEs face challenges in Ethiopia, in this article, I will try to address the major challenges small medium-size enterprises face in Ethiopia, and also I suggest policy recommendations:
Poor managerial skill
Small and medium-sized enterprises are not able to fully utilize, the majority of small and medium-sized enterprises in Ethiopia are promoted and operated by a single or few numbers of persons and those team members may not possess all the necessary skills required to run the business efficiently. Many small business entrepreneurs do have sound technical knowledge about the latest change in technology but they may not be successful in applying the trend in their business. They don’t have much to take care of all the activities of the business and due to lack of capital, they are also not able to afford the professional managers that could help them run their business effectively and efficiently.
Political instability
Political instability inevitably disrupts the smooth running of the business and the free flow of goods and services. Even in countries perceived as politically stable, political change can have a significant impact on business. This may simply be because the government changes the legal framework, which as we have seen in the previous section is wide-ranging, but it could also be that a change of government changes the political attitudes towards business. This may result in less ‘business-friendly’ policies, changes in business taxation and regulations, or, perhaps, political changes that affect the firm’s marketing.
Lack of finance
50% of the small businesses established every year fail within five years, and SMEs often have a limited track record in raising investment and providing suitable returns to their investors, Many banks prefer to allocate their resources to large enterprises rather than to SMEs. The reason is that large enterprises have a lower risk of default and their financial statements are clear. However, SMEs are riskier mainly from the point of view of major Ethiopian banks and they have clear trust in SMEs.
Shortage of skilled manpower
Labour shortages can have many negative effects on SMEs, including, Slowing down the pace of corporate growth, Difficulties in maintaining processes and maintenance, Purchase of affordable consumer goods, Hiring insufficiently skilled workers, and Quality control suffers.
While mitigating the labour shortage is not an easy solution, there are strategies employers can implement to attract workers to their companies. Lack of skilled labour can slow a company’s growth, Small businesses are owned and operated by one person or a small group of owners who do all the administration, often with a little help from others. Most of the micro and small businesses in Ethiopia started their work without a feasibility report. Furthermore, wherever such reports were produced, the purpose was to use them as advice for obtaining institutional funding rather than as a plan to make the unit successful.
Insufficient Use of Technology in SMEs
ICT is evolving rapidly. People are interested in buying mobile phones, tablets, computers and other electronic devices. The demand for electronic devices has increased rapidly in recent years. As a result, many consumers prefer to order online, and the e-commerce market continues to grow in our daily life. However, SMEs have not been able to take full advantage of these opportunities in Ethiopia. Because of poorly developed telecommunication infrastructure, and also, Most small businesses don’t have their website even if they haven’t company social media pages. SMEs sell products and receive orders on their websites, also SMEs promote their products and services on social media, it’s difficult to get detailed statistics however the majority of small and medium-sized enterprises in Ethiopia haven’t online stores.
Lack of machinery and spare parts
SMEs face a financial and knowledge gap to install modern machines and equipment in the production process to compete with large industries. majority of SMEs use outdated and traditional technology and equipment. The lack of proper technology and equipment poses a major obstacle to the development of small-scale industries. In addition, small businesses that use better technology do not have access to skilled technicians and spare parts at affordable prices when their machines break down. This has made the growth of small businesses very slow.
Conclusion
Ethiopia has immense potential for expanding SMEs and promoting innovations. Raising per capita income is necessary for economic growth. Small-scale industries will help bridge the gaps in per capital income and reduce the urban and rural disparities. Achieving economic resurgence through SMEs industries is the most recommendable solution for developing countries like Ethiopia. However, SMEs face challenges from lack of finance, poor managerial skill, political instability, insufficient use of technology, lack of machinery and spare parts and shortage of skilled manpower, which are some of the reasons behind the slow growth of SMEs in Ethiopia.
Policymakers should prioritize inclusive financing schemes for vulnerable and marginalized entrepreneurs and enterprises that support business recovery during the crisis and development of SMEs. strong intervention to infrastructure development particularly electricity and telecommunication, working premise that increase ease of doing business and sustainable development of the country.
