Page 35 - Azerbaijan State University of Economics

A.M.Gebreselassie: The Impact of Economic Integration on SME

Competitiveness in Ethiopia, Tigray

INTRODUCTION
The Government of Ethiopia has set several national and international development
goals to be achieved by 2025. This includes, among others, attaining lower-middle-
income status; diversifying and doubling the country’s export capacity; lifting the
contribution of the manufacturing sector from its current level of 5% to 17%; turning
Ethiopia into a leading manufacturing hub in Africa and creating decent jobs and
dynamic private sector that contribute to the growth and structural transformation
(Tsegay,2018). The industrial sector in general, and the manufacturing sector are
one of the economic strategic areas in attaining these goals and paving the way
toward successful economic transformation. In a developing country like Ethiopia
where capital and foreign exchange are scarce, and labor is relatively abundant, the
most realistic and viable approach to kick-start industrialization and structural
transformation is to initiate investment in small and medium enterprises (SMEs),
especially those that rely on labor-intensive production technology. Thus, the
development of MSEs in the manufacturing sector has been a big agenda for the
Ethiopian Government to generate employment and reduce poverty through
integrated competitive light manufacturing industries.

Considering this, the Government established the Small Enterprises Development
Agency, a strategy formulated in 2004 to address the problem of MSEs (FDRE,
2012) at the Federal level in 2005/6 Proclamation 33/98) and Regional States level
in 2001 2008 to coordinate the sector at the federal (Belay 2000: CSA 2003; Mulatu
2005; Adil 2007; Mesfin,2015) However, the strategies do not mention the medium
level enterprises which are a very important factor for the promotion of the
enterprises since Small and medium Enterprises are as an engine of economic
growth (Charles,2008;Tsegay,20 15; Amentie et al.,2016), contribute for jobs
creation and poverty alleviation (World Bank, 2007; MoUDH, 2012; Cibela, 2016;
Dawit 2017; Yared, 2018), seed and backbone of the private sector (Biru, Vugar et
al., 2017), and lay a fundamental foundation for the industrialized economy
(MoUDH, 2012; Yared, 2018). Vakharia &Yenipazarli (2009) suggested that the
process of economic integration has opened opportunities and increased pressure for
SMEs to expand their value chain and to form a strategic alliance with local or
foreign firms to facilitate production and distribute their products in the global
market. Eshetu and Mammo (2009) argue that “Ethiopia has failed to benefit from
the phenomenal growth in the SMEs sector”. This emerges from the fact that the
sector lacks appropriate policy, to integrate into microfinance institutions,
Agriculture, and infrastructure sectors which lag behind the growth of SMEs (report,
2015).

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