The Role of Micro and Small Enterprises on Local Economic Development: The case of Nifas Silk Lafto Sub- city

Abstract

Local economies often get developed with the participation of government, non-government organizations, and the community at large. Among the community, micro and small enterprises managers have the capability to strengthen the local economy through mobilizing local resources. This research explores the role of Micro and Small Enterprises (MSEs) in enhancing local economic development in Nifas Silk Lafto Sub-City, Addis Ababa. The analysis was based on primary and secondary data collected through administrative type of questionnaires and key informant interviews from selected managers, government officials and enterprise representatives. The paper used both descriptive and econometrics analysis. The explorative analysis tried to investigate the contribution of MSEs in terms of the enterprises’ performance using their capital, profit, and employment creation as an indicators. To see their impact, the study also reviewed contribution of MSEs in light of economic improvement of the managers through household income and saving habit, household’s expenditure on food, education, health, durable and non-durable assets. The econometrics analysis used logit model and Heckiman selection model. The result from the Heckman selection model shows that, lack of sufficient capital, high price of raw materials, lack of access to market, high tax rate and lack of technical skills were found to be the major challenges in the performance of MSEs. Besides, the logit model showed that access to working place, access to bank loan, technical training to the operator, better access to raw materials, appropriate customer and assistance with marketing were found to be the major components which contributed for the improvement of MSEs performance. The study revealed that, MSEs represent a vital component of the local economic development process in Nifas Silk Lafto Sub- City, and their contribution in terms of employment, income and poverty reduction is well acknowledged. Construction and manufacturing sub- sectors need high initial capital, they are labor intensive and have higher profit margin than the service sub- sector. Hence, this shows their contribution to local economic development is encouraging. Most of the managers were performing with at least one type of training which is insufficient. Nonetheless, the operator’s living standard, income, food consumption, education, health, durable, and non-durable household assets are increasing. Most of the managers have a plan to expand the business either in the same line or to have a branch and diversify the business which has a greater impact to the local economic development. However, there is still much untapped potential for improvements in this respect beyond what has been achieved so far. Major constraining factors for realizing such potential include lack of sufficient capital, limited access to market and high price of raw materials. Hence the government, non government organizations and other concerned bodies should give support in making MSEs successful attaining their goal in particular and to contribute to national economic development in general