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DIIPER
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Economy Research
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Promoting micro, small and
medium Enterprises (MSMEs)
for sustainable rural Livelihood

Eshetu Bekele &
Mammo Muchie

DIIPER RESEARCH SERIES
WORKING PAPER NO. 11

ISSN: 1902-8679

© 2009

Eshetu Bekele & Mammo Muchie
Promoting micro, small and medium Enterprises (MSMEs) for sustainable rural Livelihood
Development, Innovation and International Political Economy Research (DIIPER) Aalborg University
Denmark
DIIPER Research Series
Working Paper No. 11

ISSN 1902-8679

Published by
DIIPER & Department of History, International and Social Studies Aalborg University

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Promoting micro, small and medium Enterprises (MSMEs) for
sustainable rural Livelihood
Eshetu Bekele1 & Mammo Muchie2

Abstract
The landmark Agricultural Development Lead Industrialization (ADLI) policy of the Ethiopian government was introduced in 1994 with a view to alleviate key strategic challenges such as food insecurity, abject poverty, reliance on foreign assistance and unemployment. Although ADLI has been implemented for over 14 years now, it has produced poor results so far. The failure of ADLI is attributed to lack of political commitment and vital resources that are required for the successful implementation of the policy. The country still depends on food charity and handouts from foreign donors as a means of alleviating shortage of food among the poorest of the poor. Food charity does not always solve problems such as decline in agricultural productivity. Neither does it improve the level of income of poorly skilled and under-resourced peasants. This study shows that micro, small and medium enterprises have the potential to fill the gap by alleviating extreme poverty among the masses, and by generating employment opportunities for the poor. The study is based on a 6-year follow-up study of a random sample of 500 small businesses selected from five major cities of Ethiopia, and identifies key predictors of viability and long term survival. Results from binary logistic regression analysis and Kaplan-Meier survival probability curves show that access to credit, innovation, and the presence of an enabling macroeconomic environment are essential for ensuring sustained rural development and livelihood in Ethiopia. The development of thriving agribusiness enterprises is critical for facilitating linkage between the agricultural sector and the rest of the economy.

Keywords: MSME, agriculture, finance, forward and backward linkage, odds ratio

1
2

University of the Western Cape, Bellville.
Coordinator of DIIPER, Aalborg University.

1

1. Introduction
Poverty in Ethiopia is widespread and remains a major challenge of sustainable development and stability (Lutheran World Federation of Ethiopia, 2006; Easterly, 2002). It is estimated that close to half of the population in urban and rural areas of the country live in absolute poverty due to lack of economic opportunities, governance crisis, inadequate basic household income, and poor means of survival (Mammo, 2008; Serneels, 2004; EEA, 2001). A study conducted in 2003 and 2004 by the Ethiopian Economic Association and the report by the Lutheran World Federation of Ethiopia (2006) shows that nearly half of the 71.3 million Ethiopians live below the absolute poverty line, lacking an average income of 1 American dollar per day as a means of acquiring...
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