Ethiopia’s Small and Medium Sized Business Performance: An Investigation from Gindeberet District of Oromia Region

The contribution of Small and Medium-sized Enterprises either directly or indirectly impact the metrics of growth of developing countries by lowering the unemployment factor with minimal capital investments. To witness the small and medium business model as a development model in the implementation of Ethiopia’s Growth and transformation plan, is given top priority and recognized as one among the core pillars of development. It was observed that SMBMs located in rural districts of the Oromia region are not transforming to the next levels within the stipulated period as per MSE plan. Hence, the investigation was aimed to analyze key factors which lead to SMBMs performance in the Gendered District of Oromia region, Ethiopia. To get more insight into this investigation, we have considered almost 133 business models from different sectors chosen from three Gendered district kebeles using multistage random sampling technique. The effect of internal factors such as entrepreneur characteristics, enterprise characteristics, the firm innovations within the enterprises as well as external factors viz. social platforms, and business environment regarding the efficiency of the enterprises were studied using bivariate and ordered Probit regression models. Overall, two third of the enterprises were observed in the middle performance category in terms of performance index constructed on economic and social indicators. Compared to other sectors, SMBMs in manufacturing and construction were performing at higher levels. Though, education is one of driving forces for better performance, the study revealed that highly performing entrepreneurs were having only an average education of 8.6 years against around 11 years for the low performers. It was due to the reality that less educated people want to be in the business for the long run and highly educated people want to shift to formal employment. The study concluded that motivation and risk taking, years of enterprise operation, vocational training, market innovation, and social network were significantly determining the variations in the performance of SMBMs. But an entrepreneur's age, sex, previous experience, creativity, enterprise’s location, product and process innovation, business environment, and business network were insignificant in explaining the variation in performance while considering the multiple effects. It was suggested that at policy level there is a need for linking the process of Registration and Licensing of SMBMs with the Administrative Training Programmed as a measure to increase the performance. Initiatives are needed to recognize the best business practices, experience sharing and exposure deliberations at district, regional and national levels.