Review of USAID report on Ethiopia’s Micro enterprise Sector

Hi Team,

I thought I’d share some insights from a report I read recently….while most of the report focuses on rural populations and agricultural strategies for micro enterprise (85% of the Ethiopian population is rural), it also offers insights relevant to our work in Addis. Some of USAID’s key recommendations involve: 1) insuring that new businesses are “market led” (meaning demand-driven) and 2) encouraging MFIs to charge appropriate (higher) fees for loans and training. Both of these recommendations seek to move new enterprises and MFIs toward more sustainable practices.

According the report, all levels of enterprise (non-agricultural products and services) have been slow to develop for a number of reasons, including Ethiopia’s “traditional insularity,” the government’s belief that agricultural production should drive the economy, high risk-aversion among impoverished populations, and the minimal amount of income available for consumption that exists in local markets. For these reasons, USAID also suggests that linkages need to be made between Ethiopian producers and non-Ethiopian/global markets.

In addition to highlighting the importance of “pursuing markets,” the report also highlights the importance of business training. The report notes that there are currently five key players in this arena – Bureau of Education (BOE), Bureau of Labor and Social Affairs (BOLSA), Federal Micro and Small Enterprise Development Agency (FEMSEDA), Polytechnic Institutes and NGOs (ADA, Lutheran World Relief, possibly EOC, Worldvision, FHI).

The report suggests a particular organization, Women’s Enterprise Promotion Center (WEPC) that could provide a useful partnership for our team, especially in regards to provision of training. Apparently WEPC, which is based in Addis, has been focused on craft training and marketing, but has somehow fallen into the typical pattern of producing without clear indications of demand (thus, build-up of inventory). However, the group is cognizant of this pitfall and is exploring more “order-based” production. FEMSEDA’s CEFE training (competency-based economic training and education) is also highly regarded and is certainly worth exploring.

USAID advises that, like production, training should also be demand-driven. In short, the report suggests that Ethiopian enterprises need to “go where the money is” and tap into external markets (ex; flies for flyfishing – made with local products but sold to western markets). This shift in focus to external markets will catalyze “economic priming” necessary for further development. In short, this report offers a useful discussion of the MFI landscape in Ethiopia (albeit in 2000) and provides some interesting strategic recommendations.