SMEs and urban development

Bereket Gebru

Small and Micro Enterprises are defined based on the capital and labor they muster. Accordingly, micro enterprises are those that hire less than or equal to five people with a capital of less than or equal to a hundred thousand Birr in the industrial sector and fifty thousand Birr in the service sector. Small enterprises, on the other hand, hire between six to thirty people with capital of less than or equal to 1.5 million Birr in the industry sector and 500 thousand Birr in the service sector.   

Small and micro enterprises have a direct market linkage with government development programs like housing program. A 2011 report by the Micro and Small Enterprises Development Bureau states that 12,000 SMEs were involved in the construction of 80,245 houses in the housing project.

Another source indicates that there were an estimated hundreds of thousands (300-500 thousand) of small and micro enterprises in the country six years ago. If we take an average employment of four people in every small and micro enterprise, the sector supports the livelihood of 1.2 million to 2 million people.

Strengthening the capacity of these enterprises would definitely create more room for employment increasing their significance in changing the lives of Ethiopian and urban dwellers in particular. These enterprises are established with limited capital but still manage to have pivotal roles in fighting unemployment and poverty through the wide use of labor. These enterprises are the urban version of what agriculture is to rural development.

As small and micro enterprises can be established with limited capital while employing a large amount of labor, they can be easily organized in cities and rural areas alike. Medium and large enterprises, on the other hand, are much more capital intensive and thus even fewer in number. They also tend to form chains among themselves as they use each other’s products as inputs leading to their presence in large clusters within a limited area. For instance, these enterprises are found in large numbers in and around Addis Ababa.

Therefore, it is through micro and small enterprises that small and medium level cities can be developed. Large cities also benefit a lot from these enterprises. Generally, the use of small and micro enterprises allows us to use our limited capital and abundant labor to ensure development. By taking up a large number of people to participate in it, it also contributes to a more just developmental process in which large number of people benefit.

Fast rural development increases the purchasing power of farmers. That entails increased use of inputs to production. As those inputs are either produced or distributed by small and micro enterprises, their relevance increases with rural development. With increased income and increased use of urban commodities by farmers, these enterprises assume the distribution of these commodities. They also help farmers get their products to small and medium level urban areas where they will be sold, stored or set for consumption. Therefore, they act as bridges connecting rural and urban areas in the agricultural development led industrialization strategy of the country.

As mentioned earlier, the organization of medium and large enterprises calls for a large amount of capital, skill and experience. Since that package is not easy to come by in the present condition, the growth and strengthening of small and micro enterprises sows the seed for tomorrow’s medium and large enterprises.     

Though their contribution to urban development is critical, small and micro enterprises have until recently been accorded a negative connotation by the majority of urban people. Most people associate the development with medium and large enterprises. Small enterprises come in the form of shops and small restaurants in neighborhoods, small garages and internet cafes, small wood and metal workshops, etc. Therefore, they are considered to have less worth and their significance as sources of development is covered. Therefore, different levels of governmental and party structures should work hard to create the awareness in urban developmental forces.

Now that people have a positive attitude towards SMES, the number of people who want to get in on the act has increased tremendously. Although the general awareness on the role of SMEs seems to have matured over time, the increased interest in the program is not always innocent. The access to finance and a business place attracts people with intent to profit from the scheme. The report by the SME development bureau sights the sale/lease of limited government support such as working premises as one of the major challenges in the sector. The transfer of working premises to a third party and reluctance to pay the loans on time are other challenges pointed out by the report.

There have also been growing trends of organizing groups just to access the governmental support. The recent developments to empower the youth and the large bulk of money allocated for the program have especially drawn a lot of attention with people forming groups with the hopes of taking part of the pie.

There is also a sense of dependency that develops within some of the groups. Instead of making the most out of the kick start provided to them by the government, some groups always look out for governmental support to overcome obstacles they face along their way. There is a tendency to consider themselves as the favorite sons of the government and expect special treatment. That kind of attitude sows the seeds of dependency on them.  

Therefore, the relevant authorities need to stay vigilant in selecting eligible groups for support. By providing assistance to groups that only look as far as accessing the support, the authorities would deny honest groups that want to change their lives through the opportunity provided to them.