Analyzing and Profiling Micro, Small and Medium Enterprises (MSMEs) in Generating Income, Job, Igniting Entrepreneurship and Contributions to GDP: Evidence from Northern Ethiopia

The pillar goals of this study is to examine the status of MSMEs, their contribution to employment creation, income generation, poverty alleviation, to the local, regional and national GDP, stimulating entrepreneurial climate and the challenges and opportunities in the design, implementations, marketing opportunities, linkage (horizontal and vertical), financial sources, dynamics, survival and policy landscape.Exploring the status and prospects of MSMEs in Tigrai, as any part of the world, is a broad concept and engulf multifaceted issues. This study employs many-sided methods of data collection, analysis and presentation in order to address immense issues pertinent to MSMEs. Falling back on the 2011 survey datasets, this study overviews the status and prospects of MSMEs in the region.Sample MSMEs selected for the study was derived from the 2001 E.C. census. They were selected from 18 towns (12 big and 6 emerging towns) of the region applying probabilistic and non-probabilistic sampling techniques.We conducted a pilot survey in order to check the effectiveness of the research methodology. Then, a cross-sectional stratified random survey was conducted to obtain data on basic household information (age, gender, and education level), household and group members’ income, business establishment information, enterprise characteristics, group formation, MSMEs performance, sources of finance, BDS and Need-Based Training, markets and market linkages, women empowerment, MSMEs constraints and issues of raw material, industrial growth and business closure and determinants. To achieve the stated objectives both primary and secondary data were obtained through questionnaire and focus group discussions respectively. The collected data were analyzed using various statistical soft wares. Based on the findings of the study, conclusions are made and recommendations are also forwarded. In this context, a contribution of MSMEs to the macroeconomy of the region in terms of (employment generation, income distribution and output), prevailing market and industrial linkage, and determinants of MSMEs’ growth and sustainability are thoroughly discussed.We employed descriptive and econometric statistical analysis to fully discuss the objectives under consideration. It is strongly believed that the methodologies we executed, and the models employed allowed us to successfully address the objectives of the study.Although MSMEs make the smallest total proportion of assets (17%), their contribution to employment creation is much higher (99%) that of medium and large enterprises (1%). Despite their small size, Micro-enterprises make up about two third of all enterprises. Thus, the smaller the enterprise, the larger the employment it creates, unlike assets. Sector-wise, manufacturing and construction have built large assets (10%) and more employment (35%) as compared to petty trade, urban agriculture and service.Notwithstanding some drawbacks cropping up from measurement and non-response errors of potentially essential income and output indicator variables; the contribution of microenterprises in terms of employment creation is higher as compared to small, medium and large enterprises. Sector-wise, construction and service sectors, most of which are relatively younger, are huge sponges absorbing a large number of employees. Considering business ownership, cooperatives and sole proprietorship take the leading share in creating employment opportunities.On top of that, MSMEs are important means to empower women. Most of the surveyed female entrepreneurs reported that they have experienced significant empowerment in terms of access to resources, decision-making, gender perception, and overall living conditions. There has been a great increment in the construction (68%), petty trade (70%) and service sectors (82%) which are not more than three years old. In terms of actual numbers, construction is the highest (157) as compared to petty trade (130) and service (97) in the last three years. Considering financial sources of MSMEs, the two most important sources of finance during their start-up are personal saving and microfinance.They have a significant contribution of value added per person engaged. It is because of this the sector absorbs much labour force and it can be operational with low startup capital and skill. Moreover, MSMEs play a momentous role in poverty reduction and it may be taken as a good tool in poverty reduction endeavours. In the log-linear regression, we found that MSMEs initial capital, BDS, access to credit facility are the key determinants of MSMEs performance. Though females are expected to account for about 50% of the entrepreneurs, they make up only one third(less involved in construction and manufacturing). About MSMEs linkages, there are weak institutional and sectoral linkages. Majority of the MSMEs produce for local and regional markets; very few for national markets and none for international markets. In the logistic regression, it is found that sex of MSEs owner/manager, BDS, access to credit and capital size strongly determine the survival of MSMEs.