Business Development Services Ethiopia

Micro & Small Enterprises play a vital role in poverty reduction, employment generation as well as economic development in poor countries like Ethiopia. The Ethiopian micro & small enterprise sector has a wide range of operators: petty traders to small restaurant owners; a shoeshine boy to a small shoe factory owner; a peddler in the streets to a grocery business operator, etc.

A vibrant private sector has never dropped from the blue but is a product of a relentless effort of governments, private sector promotional institutions and the general public at large. Doors and NGOs also play significant roles in private sector development. In developing countries MSEs take the lion share of private business operations in terms of number, specialisation and product diversifications. MSEs work with relatively smaller capital, are labour intensive and create more jobs per unit of investment as compared to larger firms. MSEs can serve as business incubation centres and can be considered as homemade schools of entrepreneurship. As there are few medium and large businesses in economies that have relatively poor performance, it sounds reasonable to streamline more and more supports to operators in the MSE sector. This however does not imply that one has to relegate bigger firms.

According to CSA's survey of May 1997, the Ethiopian informal sector along with the small scale manufacturing sector comprises of a labour force which is eight fold compared to the medium and large scale manufacturing sector. The MSE sector (CSA, 1997), based on 1992, 1993 data constitutes 3.4% to GDP, 33% of the industrial sector's contribution and 52% of the manufacturing sector's contribution to GDP.

Like any developing country, the Ethiopian Private sector in General and the MSEs in particular face a number of constraining variables that hamper their growth. Among the factors that reflect the poor performance of the Ethiopian MSE sector, the following can be cited as the main ones.

Limited and for some complete lack of access to funds
Lack of or poor skills of operators and/or the work force in the economy due to underdeveloped Technical and Vocational Education & Training (TVET) system
Underdeveloped Business Development Services (BDS) market
Poor infrastructure
Weak private sector promotional institutions
Weak public sector support system

For the MSE sector to be vibrant and serve as a springboard for the growth of a strong private sector in Ethiopia, a TVET system that supplies disciplined and quality workforce can be considered as one of the necessary conditions. A country with poor human capital has the least chance to develop even if huge capital outlays are invested in all other productive sectors. The production of trained workforce is as important or even may be more important than the production of goods and services. What ever is produced in the economy to be competitive, both in the domestic and international markets, depends on the quality of the productive workforce the country has. This obviously calls for a TVET system that supplies the business sector and/or the whole economic system with a quality workforce that efficiently uses and produces resources.

Facilitating the development of a BDS market that supplies demand-driven products to MSE operators is also important as it makes businesses profit from low transactions costs and high interlinkages. Business development services capture all ranges of services that make businesses work efficiently and induce start-ups as well. All non-financial services like training, marketing, legal, business advisory and consulting services are captured within the horizon of what is termed as BDS. In order for a BDS market that positively impacts on private sector development to get realised, government, private sector promotional institutions donor assisted programs have to play facilitating roles in terms building the capacity of BDS providers (supply side intervention) and helping MSE operators articulate their needs.

Other than efficient BDS facilitators/providers, a financial system with attractive terms and multiple instruments is required in order for operators in the MSE sector to make sensible investment decisions. As it appears in Ethiopia now, loan size and terms do not particularly suit the needs of micro enterprise operators. The fact that more and more micro finance institutions are established as of recent is quite encouraging. However, as long as the legal framework and the financial resources of MFIs do not allow access to relatively bigger credit sizes and longer terms to maturity, operators will have the incentive to choose hand-to mouth business opportunities rather than better and sensible ventures. Very low loan size and short loan maturity might have proved important in surmounting house-hold food insecurity; but this does not sound so good when viewed from the perspective of private sector development. It thus seems that the current microfinance practice needs some improvements that take the long-term objective of private sector development in to account.

The supply of good infrastructure, like power, telephone, working premises, etc. is absolutely essential for the private business sector to operate efficiently. The supply of such services is essentially the responsibility of public institutions. For public institutions to avail the required infrastructure for the business sector resources have to be mobilised from tax revenue, domestic and foreign loans as well as grants. Mobilising these resources is quite demanding for the government. Government efforts remaining constant, the business sector has also a part to play in the development of the infrastructure that it makes use of. This can be realised when business operators abide by existing tax rules & regulations.

Private sector promotional institutions like chambers, associations of industrialists, women entrepreneurs, exporters, etc play significant roles to private sector development. These institutions facilitate the supply of BDS, play a role of advocacy, can contribute positively to Public-Private-Partnership initiatives, etc. With the exception of few private sector promotional institutions, most are weak both in terms of capacity and members’ commitment. First and foremost, these institutions, contribute to private sector development in this country, if and only, they have committed members who spare a bit of their profit for the objectives they are set up for. In fact, government has also a role to play in terms of building the capacity of theses institutions and preparing enabling framework conditions, etc.

Last but not least, public sector institutions play vital roles in private sector development. Such institutions, among others, include the Federal Micro & small Enterprise Development Agency (FeMSEDA), Regional MSE Development Agencies (ReMSEDAs), Technical and Vocational Training & Education providers, Skill Development Centres (SDCs). On the policy side, it is encouraging that an MSE development strategy has been formulated since 1997. The implementation of the MSE development strategy no doubt contributes to the profitability and efficiency of existing MSE operators and the realisation of start-ups. On the other hand, the TVET strategy formulated in 1994 enables the supply of diversified TVET in terms of occupations and trades. As the TVET strategy, integrates entrepreneurial and business management skills into the curricula, it undoubtedly stimulates private sector development. Beyond, policy design, however, public institutions responsible for private sector development need to provide capacity building support as well as avail R & D products to private business operators and TVET providers. Taking such initiatives enable MSE operators to enjoy commercial viability and evolve into strong private business sector in the economy.

GTZ-TVET and GTZ-MSE Network

Among development cooperation initiatives that are pursued by the GTZ in Ethiopia, private sector development is one. Since private sector development and employment promotion is one of the priority areas of intervention for GTZ in Ethiopia, a number of development programs have already been propelled in this connection. The objective of the Ethio-German cooperation in the priority area is to initiate economic development by stimulating income and employment generation through coordinated intervention in the fields of TVET and MSE development as well as privatisation. The approach of the Ethio-German Cooperation in the priority areas comprises of the following strategic aims (TVET and Economic Development, 2001 P.8 -unpublished):

Diversify and increase the relevance and quality of TVET in order to make TVET responsive to the development needs of all economic sectors in Ethiopia; in particular the private industry, urban and rural MSE sector.
Provide access to adequate TVET for all target groups in need of training, in order to improve the capabilities of these target groups to make use of existing income and employment opportunities.
Create a dynamic entrepreneur group as a partner in the economic development process thereby enhancing the contribution of the private sector to sustainable economic growth
Ensure ownership of all relevant stakeholders in the planning and implementation of major policy fields, in particular TVET, the privatisation policy and MSE promotion
Relieve tied resources and enable the Government re-deploy its scarce resources and the privatisation proceeds to higher priority sectors and poverty reduction programs

The TVET and MSE projects have been cooperating for the fulfilment of certain objectives in the Ethio-German Cooperation of priority areas. In this connection, it can be cited that the MSE project which is involved in BDS facilitation, networking and the provision of capacity building support to public and private MSE promotional institutions is working in close collaboration with the GTZ-TVET program which is involved in system development, vocational school teachers training and assistance to the newly established 25 Skills Development Centres (SDCs).

The unemployed youth that benefits from the program intervention of TVET is finally expected to join the private sector. Thus, there are various strings that connect the GTZ-MSE Project and the TVET Program. The two programs collaborate in the inclusion of CEFE training into the curriculum of the Skill Development Centres, and in the areas of labour market information to prospective graduates of the Skill Development Centres. While the GTZ-TVET program operates in the areas of skilled labour supply, the MSE Project works with those institutions that promote MSE sector operators. Hence TVET intervenes on the skilled labour supply side while the MSE Project works with the potential employers (private business operators).

The two programs have started some local network initiatives in some parts of the country, notably in Amhara and Tigray regions. The objective of the network is to enable the skill trainees enter the private sector workforce. By so doing, additional employment and incomes would be gained for the trained youth. On the other hand the private business sector would enjoy more profit from the skilled labour input produced from the TVET system. The strategy adopted by the TVET and the MSE Projects is to bring all stakeholders that work in collaboration with the two Ethio-German Programs together and devise viable ways of linking skill training to employment in the MSE sector. The interest and good will shown for networking in the two Ethio-German programs is apparently encouraging and expected to produce a synergy effect in the pursuit of economic development and employment promotion.

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