# **1. Introduction**

Whether or not programs which promote small and medium scale (SME) enterprises can stimulate job creation and contribute to poverty reduction in developing countries is an important question. The motivation for such support is often predicated on the view that small firms create more jobs per unit of investment by virtue of being more labor intensive and that the jobs so created are concentrated among the low-skilled and hence the poor. In spite of the policy prominence of SME support programs, the empirical evidence for these propositions is weak. In a recent review of the literature Betcherman et al. (2004, p51) conclude: _The evaluation literature on the labor market impacts of ALMPs [Active Labor Market Programs] is thinnest in the case of micro-enterprise development and self-employment assistance programs. There are relatively few studies and of those that do exist, many are concerned with the program's effect on business development rather than on the future employment and earnings of participants._ The sparse available empirical evidence is entirely based on the experiences of developed and transition economies and suggests that micro-enterprise development programs typically have a positive impact on the employment prospects of participants, while their impact on earnings is mixed (see e.g. Fretwell et al, 1999, Tzannatos & Dar, 1999, and Betcherman et al. 2004).

This paper provides an analysis of the Addis Ababa Integrated Housing Program (AAIHDP) which is an active labor market program that attempts to tackle the severe housing shortages and high unemployment that prevail in Addis Ababa by deploying and supporting labor-intensive SMEs to construct low-cost condominium housing using technologies novel for Ethiopia. To assess whether the program has succeeded in biasing technology adoption in favor of labor and thereby contributed to poverty reduction, the impact of the program on technology usage, labor intensity and earnings of participants is investigated using a unique matched workers-firms dataset, the Addis Ababa Construction Enterprise Survey (AACES), which is representative of all registered construction firms in Addis, and was designed specifically for the purpose of analyzing the impact of the program.<sup>1</sup> The paper is organized as follows. The next section describes the program and its rationale. The data collected to analyze it is presented in section 3, which also presents descriptive statistics on the characteristics of program and non-program firms. In section 4 we assess the impact of the program on technology adoption. Section 5 describes the differences between program participants and non-participants and assesses the program’s impact on earnings A final section concludes.

# **2. The Addis Ababa Integrated Housing Program (AAIHDP)**

By creating and supporting SMEs the AAIHDP aims to tackle simultaneously the problems of a housing shortage and unemployment. The specific objectives of the program include ` _promotion of micro and small-scale enterprises, which can absorb more labor force and operate at a lower overhead cost'_ as well as ` _promotion of cost efficient housing construction technology_ ' (HDPO, 2004, p1). To achieve these objectives, the AAIHDP aims to construct 192,500 houses, generate 80,000 job opportunities, support 1,300 existing SMEs and create another 1,000 new ones.

To construct housing affordable by low-income dwellers, the IHDP designed a production process that deviates from the one conventionally used in the construction sector. The low-cost aspect of the program consists in building a less luxurious, homogeneous type of housing using novel lowcost construction technologies such as pre-cast beams and ribslabs, fixed-price contracts and standardized production procedures permitting greater specialization. To implement this production process, the IHDP intervenes in the construction sector by both creating new SMEs and providing support for firms in the program.

Participation in the program is conditional on passing a test. Anybody who has either

> 1 This paper focuses on these aspects of SMEs and does not consider other possible benefits, such as their contributions to competition, entrepreneurship and innovation, creation of products which are more suitable for the poor as well as social and political dividends. See e.g. Biggs (2002) and Halberg (2001) for reviews of the empirical evidence regarding such benefits.

-2-