Policy and regulatory challenges militating against the development of youth-owned micro- and small-enterprises in Ethiopia

Abstract

The study investigated the policy and business constraints influencing the growth and expansion of youth-owned Micro- and Small-Enterprises (MSEs) using mainly descriptive statistics and the econometrics framework of the Logit model on 909 youth-owned sample MSEs in Ethiopia. The findings showed that high collateral requirement of finance providers was a very severe problem constraining the growth of youth-owned MSEs, followed by limited access to credit, lack of business premise, lack of business support services, frequent interruption of infrastructure services (such as, telecom, power, and water), and lack of raw material inputs. However, since the youth-owned MSEs have heterogeneous characteristics, they are affected differently by the policy and business constraints. As per the econometric results, tax rate and administration, corruption, labour law, and licensing were found to be insignificant constraints influencing the growth of youth-owned MSEs. Although lack of access to finance and shortage of capital were identified as key challenges, they were found to be insignificant variables in influencing the growth of youth-owned MSEs. Policy predictability was found to have a positive and significant effect on growth of youth-owned MSEs. On the other hand, lack of marketing space for products and lack of business support services were found to have negative and significant effects on growth and expansion of MSEs. Owners attributes (household size, age and education), type of ownership structure and the sector the respondents engaged in were found to have a strong positive effect on the growth of youth-owned MSEs. Moreover, sole owners of MSEs were found to have higher likelihood of growth in employments. Contrary to the researchers’ expectation, type of enterprise (micro or small enterprises) was found to have negative effect on the growth of MSEs. From the results of the study, it can be concluded that the growth of youth-owned MSEs was affected more by owner and firm attributes than by policy and regulatory constraints.

Keywords: policy and regulatory challenges, development of youth-owned MSEs,Ethiopia