Challenges and Prospects of Micro and Small Construction Material Producer Enerprises in Yeka and Bole Sub City

Table of contents

Declaration

Approval

Acknowledgment

List of table

List of appendix

List of figure

List of acronym

Abstract

CHAPTER ONE
1.1 Introduction
1.2 Statement of the problem
1.3 Objective
1.3.1 General objective
1.3.2 Specific objective
1.3.3 Research question
1.4 Significance of study
1.5 Scope and Limitations of the study
1.5.1 Scope of the study
1.5.2 Limitations
1.6 Organization of the paper

CHAPTER TWO
2. Literature review
2.1 Theoretical reviews
2.1.1Definitions of Micro and small enterprises
2.1.2 Definitions of MSEs in Ethiopia
2.1.3 Improved definitions of MSE
2.1.4 Theoretical reviews on micro and small enterprises
2.1.5 The firm growth theory
2.1.6 The labor surplus theory
2.1.7 The output-demand theory
2.1.8 Micro and small enterprise in poverty reduction
2.2 Empirical reviews

Challenges & prospect of Micro & small construction material producer enterprise

2.3 Conceptual framework

CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1 Research design
3.2 Sampling technique
3.2.1 Sample size
3.3 Description of variables
3.4 Specification of Econometric Model
3.5 Data nature and collection methods
3.6 Data processing and analysis
3.6.1 Data processing
3.6.2 Data analysis
3.7 Instrument development
3.7.1 Instrument Validity
3.7.2 Instrument Reliability
3.8 Ethical considerations
3.9 Study area profile

CHAPTER FOUR
4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Socio economic characteristics of the Enterprises
4.2 Descriptive statistics
4.3 Inferential analysis

CHAPTER FIVE
5. CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusions
5.2 Recommendation

Appendix A

Appendix B

Appendix C

Appendix D

Appendix E

Challenges & prospect of Micro & small construction material producer enterprise 2016

List of table

Table 4.1 descriptive results of sum variables

Table 4.2 the preferable fields that the firms want to shift

Table 4.3.Form of support MSEs needs from the government to stay in the business

Table 4.4 significance level of variables under the Two-sample t test with equal variance

Table 4.7 the marginal effect of independent variables in the explained variable

Challenges & prospect of Micro & small construction material producer enterprise 2016

List of appendix

Appendix A

Appendix B50 Appendix C52 Appendix D54 Appendix E

Challenges & prospect of Micro & small construction material producer enterprise 2016

List of figure

Figure 2.3: conceptual framework of the study…20 Figure 3.1: Map of the Study Area….29 Figure 4.1: Kernel density estimation for the profitability of MSE

Challenges & prospect of Micro & small construction material producer enterprise 2016

List of acronym

Abbildung in dieser Leseprobe nicht enthalten

Challenges & prospect of Micro & small construction material producer enterprise 2016

Abstract

Micro and small industries have a significant and vital role in the economies of developed countries. Especially in developing countries small scale industries considered as a backbone of their economies. In regard of this, the study intends to examine the challenges and prospects of Micro and Small enterprises in construction sector, specifically on the construction material producer enterprises in Yeka and Bole sub-cities. To satisfy the objectives of this study, descriptive and inferential analyses were used. The information was collected from the sample of 150 MSEs with face to face interviews. The sampled MSEs were selected by simple random sampling technique. Besides that, the study draws out with nine key challenges which seem to influence the profitability of MSEs in both sub-cities. The results point to that, there is a strong relationship between the independent and dependent variable. Furthermore, the selected explanatory variables may significantly explain the variations of the explained variance at 5% and 10% level of significance. Based on the results, financial, managerial, raw material, work premises and technologies are the main challenges of MSEs, those to be profitable and successful. Therefore, recommendations are forwarded to government bodies, micro and small construction material producer enterprise and to other researchers.

Key word - Micro and small construction material enterprise, challenges, prospects, profitability, stay in business, shift to another and switch the business

CHAPTER ONE 1.1 Introduction

The construction sector is promoted as one of the growth oriented sectors in the development plan of Ethiopia (GTP, 2010). Currently this sector is highly financed and supported by different governmental, private construction companies and micro and small construction enterprises in accordance with the higher contribution for development, industrialization, job creation, poverty alleviation and economic growth. In order to satisfy such interests the government establish micro and small enterprises in the federal, regional, zonal and woreda level in focused on construction, trade, manufacturing, agriculture and service sectors by defining them.

Cognizant to this, the Ethiopian federal micro and small enterprises strategy is established to assist MSE which are thought to be used to as a vehicle for employment opportunity, urban development and serves as a catalyst for socio economic development, increase saving culture, improve human capital, technology development, institutional development, experience sharing, industrialization, knowledge and skill developing, innovation , increase homogeneity and export oriented products, decrease exchange rate of foreign currency and utilize the local resources for production (FeMSE, 2011, Apulu and Latham, 2010).

The definition of micro and small scale industry may fluctuate from country to country and from period to period according to the level of economic development reached in a country (Rajan, 2015, cited in Mohamed, 2016).therefore the contribution also different from country to country. For instance, the sector creates 6.2% employment opportunity in the United States, 70% in European countries, 80% in India, 67% in Japan, 65% in Asia, 51% in Latin America, 23.3% in China, 48% in North Africa,72% sub-Saharan Africa (ILO, 2002).In Ethiopia the majority urban labor force involved in micro and small enterprise sector. For instance, in Addis Ababa almost 40%of the populations participate on MSEs (Endalsasa, 2012).

Challenges & prospect of Micro & small construction material producer enterprise 2016

However, the contribution of the sector is very low in compared to other countries. The reason behind for that of financial problem, lack of qualified employees, improper financial records, marketing problems, low accessibility of working premises and raw materials, shortage of adequate information about market opportunities and standards and regulations are the fundamental factors that hinder their performance (Mulu, 2009).

This thesis tried to analyze the challenge and prospects of micro and small construction material producer enterprises.

1.2 Statement of the problem

The Ethiopian government acknowledges the provision of micro and small enterprises and gives high attention to their promotion and development. To this result, the government establishes the National Micro and small enterprise agency in 2004/2005 G.C, which works by developing a systematic approach to alleviate the problems and promote the growth of MSEs that supported by policies, strategies and different incentive schemes (CSA, 2004 cited in woldegebriel, 2012). Within the last ten years more than 10,072 enterprises engaged in five growths oriented sectors in Yeka and Bole sub city. Even though the government tries to assist or support MSE in a different way, more than 270 enterprises leave or switch their business or they cannot sustain on their business due to lack of profitability. Currently 1,200 active construction material producer enterprises exist in both sub city( Yeka and Bole enterprise office).The sustainability of micro and small enterprises depend on profitability, but the above numerical figure shows that many micro and small construction enterprises couldn’t be successful or they encounter loss and gets different challenges to survive.

Rather the construction sector was highly growing up in Addis Ababa. The main reason for the rising of the construction sector is the global influence on spread out of infrastructure to fulfill the living standard of the society, to solve the serious housing problem of the citizens, reformation of the city and constructing power plants. As compared with the construction booming in the city, those enterprises would have more profitable but not.

Challenges & prospect of Micro & small construction material producer enterprise 2016

The study have shown that the major challenges which influence the long term existence, profitability, business performance of MSEs due to lack of financial resource, poor infrastructure, management experience, low demand of the product and service, corruption and a scarce of raw materials (Akabueze, 2002).

Furthermore, several researches indicated that different challenges confront MSEs throughout the country. which are inadequate startup and working capital, lack of working premises for production and sales, infrastructure, shortage of managerial and leadership skill, inadequate raw materials supply and marketing problems, pricing problems and product diversification, shortage of awareness how to compete in the market, limited capacity to promotional activities and market related knowledge, collateral requirement are also hindering for the development of MSEs. Especially, in Addis Ababa (FeMSEDA, (2004), Assegedech (2004), Hanna (2010), MUDC (2013).

The study that has been conducted to identify the bottlenecks of the growth of MSEs in Ethiopia reveals that, finance, collateral and procedure, marketing service and targeted training are the main factors that shrink the growth of MSE (Mulu, 2007). There are some studies that have been conducted in different parts of Ethiopia. For instance, the main challenges of MSE in Bahirdar are finance, market problem, training and advisory service, skill, infrastructure (Bizusew, 2015). Challenges and prospects of women oriented MSE in Aksum and the study found that, the major challenges of MSE are initial capital, work premise, whole seller involvement in parallel work of retailing (Tsega, 2013). Absence of continuous improvement product, marketing problem have been sorted out as the main problems of MSE in kolfie, kirkos and yeka sub city (woldegebriel, 2012). In the same pattern, finance, marketing and infrastructure had effect the performance of manufacturing MSE in Arada and Lideta sub city (Admasu, 2012). However, up to my knowledge, to date, there is not a particular study which is conducted on micro and small construction material producer enterprises. Therefore, this research aims to assess the challenges and prospects of construction material producer enterprises in Yeka and Bole sub city.

Challenges & prospect of Micro & small construction material producer enterprise 2016

1.3 Objective

1.3.1 General objective

The general objective of this study is to analyze the challenges and prospects of micro and small construction material producer enterprises in Yeka and Bole sub city.

1.3.2 Specific objective

- To identify factors that make the SMEs stay in this business
- To identify factors that affect the profitability of enterprises
- To assess the preferable fields by MSEs to shift their business
- To analyze the special expectation of MSEs from government to be successful on their business

1.3.3 Research question

To achieve the objectives of the study, this research investigates the following questions: Do the micro and small construction material producer are profitable? What are the major challenges of construction material producer enterprises? What the factors should have the MSEs to stay in this sector or business?

1.4 Significance of study

The government has a high position or believed on micro and small enterprises for the sustainability of growth, poverty alleviation and job creation. Moreover, they have a great contribution to enlargement the capital of MSEs and also they have an excessive role in the urban development as well as the national economy.

Therefore, the study identified the prospects and challenges to sustain their business. Thus, this study suggest for give attention to the concerned executive and management bodies, what the MSEs faced and forward some recommendations to the policy and strategy makers.

Challenges & prospect of Micro & small construction material producer enterprise 2016

In addition to that, the study gives further information about the construction material producer enterprise to interested researchers.

1.5 Scope and Limitations of the study

1.5.1 Scope of the study

The study is in analyzing limited to micro and small construction material producer enterprises in Addis Ababa, Yeka and Bole sub city. Conceptually that focused on the challenge and prospects of this sector.

1.5.2 Limitations

The researchers had different limitations based on the nature of what they study, the same as to that, this study had faced some limitations. The sources of difficulties encountered in this study were described as follows: the main problem that happened in the study, the operator’s unwillingness to cooperate due to suspicion that release information that might lead to negative consequence on their business. The second difficulty things were unable to get updates and reliable document about MSEs with government institute. And the third and the last limitation was a financial and time limitation to collect the data and related cost. Even though the limitations are there as such, they did not have any substantial intervention with the result of the study.

1.6 Organization of the paper

The next part of the paper is structured as follows: chapter two presents the literature review of theoretical and empirical related to the study, while chapter three provides research methodology and definition of variables are described, the fourth chapter discusses the descriptive and inferential statistics result. And the last chapters illustrate conclusions and recommendation.

Challenges & prospect of Micro & small construction material producer enterprise 2016

CHAPTER TWO 2. Literature review

This section has three parts that discusses and summarizes the theoretical reviews. The first section were discussed about the definition of MSE in the context of different countries including Ethiopia and the theoretical reviews that discussed by different authors, the second part present the empirical review and at last the conceptual framework.

2.1 Theoretical reviews

2.1.1 Definitions of Micro and small enterprises

The definition and characteristics of micro and small enterprises differ from country to country and there is no common or universal definition stated about micro and small enterprises (Storey, 1995, Kayanula and Quartey, 2000 and Lepi, 2005 cited in Demis and Mulugeta, 2011). Even if, within the same country, the definitions of micro and small enterprise also change overtime due to changes in price levels, advances in technology or other considerations (Emma I et al, 2009). Firms differ in their levels of capitalization, sales and employment. Hence, mainly the definitions consider the number of employee, net worth, profitability, annual turnover, etc.

A European commission in 1996 small scale enterprises was defined as enterprises which employee less than 50 persons and whose annual turnover does not more than 7 million euro or an annual balance sheet total does not more than 5 million euro (Kushnir et al, 2010). The new definition reflects general economic developments since 1996, and a growing consciousness of the particular problems confronting MSEs. The new definition is more suitable for the different classification of MSEs and takes better explanation of the various types of interaction among enterprises.

Challenges & prospect of Micro & small construction material producer enterprise 2016

It helps to endorse innovation and encourage partnerships, while ensuring that only those MSEs which genuinely require support are targeted by public system (Kushnir et al, 2010). Micro enterprises to define as a micro level, which those employees or members should be less than 10 persons and total annual income of enterprises do not more than 2 million euro. Small enterprises are defined as enterprises which employ less than 50 persons and whose annual income or annual balance sheet total do not more than 10 million euro (Kushnir et al, 2010).

MSE in Britain characterize as a business with an annual turnover less than or equal €2 million with less than 200 paid employees (Osotimehin, Jegede, Akinlabi & Olajide (2012). Japan defined Micro and small enterprises, small enterprises also having capital not exceeding Y50 million or having not greater than 300 employees in the manufacturing industry and also having capital not more than Y10 million or having not greater than 50 employees in trade and service sectors (Stanley & Morse, 1965 cited in Mekonen and Tilaye, 2013).

Micro enterprises define in India, where the investment in plant and machinery do not more than 25 lakh rupees (US$ 50,000. A small enterprise is where the investment in machinery and plant is greater than twenty five lakh rupees but do not more than 5 core rupees (US$ 1 million). In the case of the enterprises to engaged in offering services, as micro enterprise is where the investment in equipment does not more than 10 lakh rupees (US$ 2,000).Small enterprise is where the investment in equipment is more than 10 lakh rupees but does not more than 2 rupees (US$ 400,000) woldegebriel, (2012)

Kenya also characterized MSEs Constructs in reference on the two criteria. The statement of 2009 has two standards to characterize Small and Micro Enterprises in general: Number of people/employees and the company’s annual turnover. MSEs, in the manufacturing sector, the classification regard as the investment in plant and machinery along with considered as a capital. Further More micro enterprises the number of employee 1-10 and annual turnover less than or equal to 500,000 ksh. Small enterprises number of employee 11-50 and annual turnover registered 500,000-5,000,000 ksh and considered their plant and equipment investment plus registered capital (woldwgebriel, (2012).

Challenges & prospect of Micro & small construction material producer enterprise 2016

2.1.2 Definitions of MSEs in Ethiopia

In a similar manner, there are no general or uniform consensuses on the definition of micro and small enterprises in Ethiopia as a national level. Ministry of Trade and Industry (MoTI) and the CSA classified and defined MSEs by their own standard. While the CSA definition uses employment and capital intensive technologies as a measurement or standard. According to (CSA, 2004) MSEs characterized and classified by cottage industries and informal sector operations. Cottage and handicraft industry performs by manpower and also their activities carryout through traditional and local equipment. The informal sector is described as a household type business or activities, which are illegal or none licensed companies and cooperatives in operation with less than 10 persons.

The business run or operating by less than 10 persons and using machinery, equipment take into account as small scale manufacturing enterprises (CSA, 2004)

Due to the explanation that given by the CSA was appear or crop up the following shortcomings.

It more focused on manufacturing ignoring other sectors. Breakdown in using size of the capital For the reason that the absence of comparable definition the MSEs Sector, the agency doesn't succeed in meeting data and the essential information about the handicraft and cottage industries. Thus, the information or the data that gathered from the MSE and the perpetual strategy and support structure become unlike to assess, evaluate and to explain in scientific approach.

To avoid the complication the minister of trade and industry(MOTI) try to consider or adopts the other countries practice and experience, especially South Africa practice was taken to formulate the development strategy in 1998 and that used to define MSE (MSEDS, 2011). The explanation believes and taken to account only based on paid capital or assets as most businesses were limited to family man power base and the need for accessibility of manpower information of the sector. Hence, the following are differentiate as short comings/gaps of the 1998 definition (MSEDS, 2011).

Challenges & prospect of Micro & small construction material producer enterprise 2016

While the main purpose of MSE is to generate job opportunity, it was not easy to contrast the activities or the practices in job creation with the explanation. And it doesn’t show the size of capital /amount/ of enterprises to compare with the experience of other counties.

The definition that had to be on the sector care about a paid up capital indifference the experience in fact on the ground. It also does not show the full image of MSE as they recognize the sources on self-paid up capital and credit from banks. The earlier definition which that implemented or used for more than 13 years, that doesn’t show the animate situation due to currency variation and inflation. Such as, the existing paid up capital ETB20, 000 or 3000 USD for MEs, but the previous was1200 USD or 900 Euro. In the same way the paid up capital accepted to SEs, i.e., ETB 500,000 or 76,000 USD what was 30,000. In to be clear that, the paid up capital existed the prior 13 years was improved by 2.5 fold, as an outcome of currency variation.

The transformation processes from micro to small and from small to middle on the bases of total asset, though the explanation highlight a paid up capital. Since the explanations of small enterprise do not consist higher technology and consultancy/advice/ services, it should be modified or amended from the context of technology and construction services.

According to the above reference the existing definitions of the sector was amended on the international experience and current progression of the sector basis (MSEDS, 2011, P.28)

2.1.3 Improved definitions of MSE

The improved definition of micro and small enterprises is based on the collected experience, by identifying the gap of the current explanation, doesn’t consider the number of employees and the total asset as standard and by classified it in the industry and service sector. Based on the amended explanation or definition and classification of MSEs

Challenges & prospect of Micro & small construction material producer enterprise 2016

Micro enterprises

Industrial sector (construction, manufacturing and mining) the businesses run by 5 members or an owner that includes their total asset do not more than Birr 100,000 (one hundred thousand).

Service sector (transport, hotel and Tourism retailer, ICT and maintenance service),the businesses run with 5 persons including the owner and the total asset worth not more than Birr 50,000(fifty thousand)

Small enterprises

Industrial sectors (construction, mining and manufacturing).the business runs with 6- 30 members and/or with a paid up capital of total asset Birr 100,000(one hundred thousand) but not more than or does not exceed Birr 1.5 million. Service sector (transport, hotel and Tourism, retailer, ICT and maintenance service), the business run with 6-30 members, owners or/and total asset, or a paid up capital are with Birr 50,001 but not greater than or does not exceed Birr 500,000.

2.1.4 Theoretical reviews on micro and small enterprises

MSEs discussed by several authors and they developed different theories and views based on the role and functions of MSEs. For instance, firm growth theories, output demand theory, labor surplus theory are the major theories and discussed those below.

2.1.5 The firm growth theory

The firm growth theory states that MSEs are more anticipated to dissolve and be interchanged by modern large-scale industry. This theory has, been exposed to be imprecise in the perception that MSEs do not usually measure up or compete directly with large enterprises, somewhat, they often manage to continue micro and small enterprises, coexisting with large international companies, which phenomenon the World Bank (1989) has isolated as the missing middle (Ryan, 2005).

Challenges & prospect of Micro & small construction material producer enterprise 2016

The most comprehensible activity where the functions of occur in allocation to areas or income groups where their costs would have high for large enterprises. According to Liedholm and Mead (1993) in the literature survey on macro analyses of MSEs in developing countries, shows that, as total income increases per head, there is a logical pattern of growth of MSEs with regard to the large firms based in larger areas, manufacturing more updated products. On the other hand, Murinde (2006) critics of this view claim that the investigation of MSE developments has to take some justification or explanation of differences in their efficiency.

For instance, in the form of convince of MSEs applies in society, nexuses between small and large enterprises, the moderating roles of women entrepreneurs, variations of educational level on the labor force and other socioeconomic relation differences. Furthermore, World Bank (2004) suggests three fundamental opinions to supporting MSEs within the advice of the modern paradigm at the significance of micro and small enterprises in the economy. First, MSEs Increase the competition and entrepreneurship and so have external advantage on economy extensive capability, innovation and cumulative productivity growth. Second, MSEs are more productive than large enterprises. Third, MSEs enhance the growth and employment more than large enterprise because MSEs are more labor intensive than large enterprises.

2.1.6 The labor surplus theory

Labor surplus theory developed for MSEs and it gives attention to the labor related problem. Labor surplus theory is one of the most important theories. Lewis (1955) debates that the dynamic force at the back of MSE development is an extreme labor source or supply, which cannot be engaged in the excessive labors in public or large private companies/ enterprises / and is forced into MSEs in spite of inadequate pay and low productivity. Perhaps, the MSE sector has immediate reaction or response to the growth in unemployment, working as last opportunity for people who are incompetent to find employment in the formal sectors.

Challenges & prospect of Micro & small construction material producer enterprise 2016

Corresponding to this theory, micro and small enterprises are anticipated to develop in the stage of economic catastrophe, when the formal or recognized sector shrinks or grows too slowly to engage the labor force.

In spite of this, when the formal number of employment increases, the MSEs sector is considered to shrink again and thus improves an anti-cyclical correlation with the formal economy.

In spite of this, there are some empirical problems among the unemployment theory of the development of MSEs. There are three main reasons.

The first reason is the absence adequate and reliable data for researchers or investigator to test the theories and assumptions that MSEs engaged excess labor from public or large private enterprises or companies and the assumptions or hypothesis that enhance in labor require by MSEs has taken place in advance or after operational or structural change. The Second one also, for the MSE sector to function as a circumstance of last alternative, it must be simply accessible. However, different studies reveal and indicated that this is only the circumstance for a few of MSE operations or activities.

(Murinde, 2006) Moreover, at a times argued that MSEs focused on the trade. Because, the sector needs less capital and knowledge than, production sector. Whereas it may be acceptable because, that production sector need more capital investment than trade, micro and small scale trade is probable to require high working capital than micro and small-scale production in order to assure a certain income.

This is somewhat for the reason that value added is substandard for the trader than for the producer, and somewhat given that, in micro and small-scale production, the client will often be needed to pay for the materials in advance or early payment, but the micro and small-scale trader will have to provide credit. Hence, there are a number of constraints to the level to which the MSE sector can perform as a place of the end alternative throughout any economic crises.

Challenges & prospect of Micro & small construction material producer enterprise 2016

2.1.7 The output-demand theory

The output demand theory undertakes that a requirement for the growth of MSEs is that there is a market for their services and products. Hence, the MSE sector will have a tendency to develop a repeated correlation with the economy as a whole. Thus, MSEs will similarly develop in a highly competitive with large public and private enterprises in the formal sector and their growth will be forced by formal sector dominations. Organizational or structural modification and policies may limit such dominations, and make an effort to create more competition.

Therefore the MSEs will be beneficial. Because it can may give an opportunity to gain market shares from the large enterprises. Advocates of structural change and stabilization policies have a tendency to base their arguments on this theory.

The experimental researches created on the output-demand theory tends to emphasis on the upper end of the MSE sector, essentially the manufacturing enterprises and the bigger, those more resourceful and profitable MSEs, which have a competence to grow up into the formal economy(Murinde et al, 2006).

Overall the above three theories have been adopted into some alternatives; even so one of the significant elements universal to all the theories and alternatives is the determination that the growth of MSEs can subsidize to poverty reduction or it can improve the local economy and also create high job opportunity.

2.1.8 Micro and small enterprise in poverty reduction

Poverty in Ethiopia is widespread and remains a major challenge of sustainable development and stability, in this way both the rural and urban areas affected. thereby all about lack of basic needs, low or inadequate level of income and consumption, poor command over resources, and high level of social exclusion, inequality and vulnerability (Lutheran World Federation of Ethiopia, 2006, Eshetu & Mammo, 2009 cited in Admasu, 2012).

Challenges & prospect of Micro & small construction material producer enterprise 2016

The function of MSEs, through the various socio-economic advantage creating from the sector was establish to be recognized in the general development action of nations (Mukras, 2003).

The UNIDO, (2002) method to this worth declaring here:

Poverty reduction is never solving or eliminating only by the government rather, through private sector contributions or participation. The evidences show that MSEs have the direct or significant relation through poverty reduction is significantly less robust than that involving them to economic drive, at the same time in the highly developed economies. Currently Poverty Reduction Strategies (PRSs) formulated in many developing countries adopt and more declared the importance of the influence that the private sector contribution compared to the over requirement on the social agenda that described earlier PRSs (Perumal & Prasad, Vandenberg 2006 cited in Admasu, 2012).

According to Roy and Wheeler (2006) indicated that MSE deliver a significant center of employment, thus MSEs have a great contributing to reduce of poverty to the urban poor. According to the author, the important points for that reason the urban poor to be engaged in the MSE, due to the fact on the ground that, the formal sectors do not have the capability to engage this increasing demand for jobs.

2.1.9 Lack of machinery and equipment

Micro and Small enterprises units are striving hard to employ modern machineries and equipment in their process of production in order to compete with large private sectors. Most of the small units employ out-dated and traditional technology and equipment. Lack of appropriate technology and equipment create a major stumbling block for the growth and successfulness of micro and small scale industries (Mohamed G, 2016).

2.1.10 Absence of adequate infrastructure

Ethiopian economy is characterized by inadequate infrastructure which is a major problem for small units to grow. Most of micro and small enterprises are found in towns and cities are having one or more problems like lack of power supply, water and drainage problem, poor roads, marketing problem, Inadequate transportation system and work premises.

Challenges & prospect of Micro & small construction material producer enterprise 2016

Thus absences of adequate infrastructure adversely affect the quality, quantity and production schedule of the enterprises which ultimately results in under-utilization of capacity (Agwu and Emeti 2014, Mohamed G, 2016).

2.1.11 Inadequate of finance

Most of the micro and small enterprises depend on external finance or non-institution. Financial assistance by the various agencies, like micro financial institutions, often falls much short of their requirements. In order to supplement the institutional finance micro and small enterprises have to approach the unorganized money market at terrible heavy rates of interest or on suppliers credit on exceedingly unfavorable terms Private finance, ultimately spoil the unit and cause for sickness in the small business (Agwu and Emeti 2014, Mohamed G, 2016).

2.1.12 Lack of managerial skills

Small business are owned by one person or small group of people and managed by their owners, who with all management usually with the other little help. Most of the time, MSEs have inefficiency in overall business management due to lack of managerial experience, competence and poor record keeping, technical problems and lack of essential and required expertise in production, procurement, maintenance, marketing and finances have always led to funds misapplication, wrong and costly decision making (Agwu and Emeti, 2014).

In Ethiopia most of micro and small enterprises started their business without a feasibility report. Moreover, wherever such reports were prepared, the purpose was to use them as advice to obtain institutional finance than to serve as a plan to make the unit a success (Mohamed G, 2016).

2.1.13 Shortage of raw material

The required quality of raw materials, competitive price, availability, distances to obtain the required inputs and transportation costs are the most serious problems of this sector. Though the institutional arrangements regard to the allocation mechanism often work against the interest of these. This is more pronounced in the case of scare raw materials that have to be obtained. Besides, frequent interruptions in the availability of essential raw materials prevent fuller and economic utilization of productive capacity of small units (Mohamed G, 2016).

Challenges & prospect of Micro & small construction material producer enterprise 2016

2.2 Empirical reviews

A study conducted by Okechukwa & Izunwanne(2014) to identify the challenges and prospects of micro and small enterprises in Port-Harcourt city, Nigeria. The investigator adopted a cross sectional survey research design and 120 MSE operators incorporated by using the random selection method in Port-Harcourt city. The result showed that poor financing institute, inadequate social infrastructure, lack of managerial skill and multiple taxes are the major challenges in the performance of micro and small enterprises in PortHarcourt City.

Roy and Wheeler (2006) the survey conducted on micro and small enterprises in urban west Africa drives shaping the sector and identify that the training level of micro and small enterprises involvement and number of years in operation, market information, level of differentiation and products diversification, access to resources and technologies, knowledge of planning; vision for the future and the enterprises level of poverty and between the factors that contributing to achievement of MSEs in spite of this, inadequate of market information and targeted training, limited access to finance, and lack of collaborations among potential business partners are the factors of restricting the growth and development of the micro enterprise sector.

Esetu and Zeleke (2008) behaved to assess the impact of the dominant factors that influence on the long term survival and the capability of MSEs that taken from 1996-2001 in five major cities in Ethiopia. The study used a proportional hazard model combined with the random sampling technique applied to select 500 micro and small enterprises. The study indicated, the factors that the long term existence of micro and small enterprises in Ethiopia are realized 61% of insufficient of finance, 55% of low education level, 54% of low managerial skill, 49% of lack of technical skill and 46% of incapability to induce their profit to investment.

[...]