Change or Chaos: Small Businesses in Addis Ababa

By Shumete G/medhin

Any one doubting the effect of small local businesses needs only to look at Addis Ababa’s current scene. In addition to a major infrastructure improvement and economic growth, the city  is owning to its leadership in business, trade and investment destination in Ethiopia and beyond. More and more shops, all types of stores and pushcarts are taking over the road sides and streets of Addis Ababa. All in all, the small business sector is more in chaos, now than ever before.

Currently, small businesses are identified as one of the main economic activities contributing massively in terms of capital, profit and employment generation in Ethiopia currently. These businesses include diverse economic activities, such as small industries and services, as well as local trading activities that include informal trade.  The small businesses, especially the local trading activities, have got very little attention from all corners despite their contributions. It is a daily scene to pass by trading actions on the road sides, in the corners of houses and each open space that is vacant in the city. But it’s difficult to say to what extent the small businesses, especially the small trades, are acknowledged and developed in Addis Ababa through time.

To commence with, what is small business? In bold definition, small businesses are business that are independently owned and operated.  The term “small business” varies from country to country, as well as by sectors, and type of the business. But in this case, we are using the Ethiopian perspective and the case of local business activities that are common in Addis Ababa. According to Ethiopian commercial registration and business licensing proclamation No. 686/ 2010, business person means any individual or professional who carries out activities of domestic code, such as retail of goods or dispensing of services.  Moreover, small businesses are grouped as enterprise between microenterprises and small enterprises by the previous Ministry of Trade and Industry. However, there is a small base to identify and group the shoe shiners, the street vendors and all road side shop owners, as well as home and small scale industries.

As micro and small enterprise include both small industries and trade activities, it is difficult to generalize and address the challenges facing all small businesses. In the ministerial level, two different ministries were restructured for trade and industry. But this has not been the case in the city and regional level until now. It is not easy to know how the structure, capacity and institutional framework of different government departments translate existing policies to efficiently support small businesses at the grass root. The Addis Ababa City Trade and Industry Development Bureau is mainly responsible for planning, implementing projects and regulating issues related with small businesses in the city. According to proclamation Number 15/2009, the bureau has the power to facilitate ways for the provision of trade development services to assist growth and sustainability in the sector. 

New laws, policies, regulations and orders are passed now and then to clean up, to organize and improve, or to control small businesses in Addis Ababa. On many occasions, it is common to see the shoe shiners and street vendors being chased out of the street as they are considered informal or for causing traffic jam.  Small shop owners and other service providers are also usually forced to move their items from side walk and other public space, or to close their business completely for different reasons. But, these processes of control and regulation were neither convincing nor consistent in their nature.

It is undeniable that there are policies, initiatives, systems and projects that are put in place by the government, and they are a major driving force behind economic boom that benefited small businesses in Addis Ababa. Stakeholders, including Addis Ababa Chamber of Commerce and Sectoral Association (AACCSA), NGOs and other entities, contributed a lot in organizing, capacitating and supporting small local businesses. As there are many problems related to businesses, one cannot disagree with some major improvements made, such as the improvement in tax collection, including the use of cash register machines.

However, over time and with the recent economic growth of Ethiopia, it is hard to say there is significant improvement and real development in small business sector. Moreover, most small businesses, which are considered to be within the informal sector, got scarce support. There is little interest to discuss how much the sector is contributing to the people who depend on it, the business community, the vast majority of the people living in the city, and to the economy of Ethiopia. There are many successful business people, who started their life from small businesses, including shoe shining; and they were able to improve their life and transformed many others. Nevertheless, the question one should ask is: why has the nature of doing small businesses improved and changed over time?

There are many problems related to small business. The problems mostly begins with the usually way and purpose of establishing business in Ethiopia. Here, one can point a finger on small business owners as well. Few business people have a clear goal and business plan. Most, never even thought of market research for their business before starting it. The main objective for many businesses is to make profit, at least to earn the initial cost of starting it, and then to support their family. Even though it is encouraging to see people have less fear of business failure, there is lack of start-up skills, management and creativity to do business with long term goals. In addition, many small businesses in Addis Ababa are not organized in an effective manner, and lack consistent support from other stakeholders.

The main limitations and challenges facing small business is more complicated and relates with other issues. There are gaps to improve in the areas of license, registration, credit availability, taxations, price regulation, and infrastructure to conduct business. Besides, for long time little is known about the financial capacity, labor skill and assets that are owned by small business in Ethiopia. There are many research studies and publications that point out the drawbacks related to trade and business in the country. But, they are not sufficient to identify the root problems, and suggest ways to develop and modernize the small businesses.

 In the informal sector, more and more people are engaging in small business. More shoe shiners and street vendors without a proper space, tools, sites or tables operating in the city. For most, especially migrants coming to the city and individuals that saved some money, small business are new means of income. What is more interesting is according to research and a survey done by Central Statistical Authority (CSA) of Ethiopia, micro and small enterprise sector, which include small businesses, is the second largest employment generating sector following agriculture in the country.

There is less denial that the profit or number of small shops and street vendors has increased over the past few years in Addis Ababa. But, few can say there is a big difference between local small businesses a decade more years ago and the business as it stands today. Thus, it is vital to ask some pertinent questions, such as:

•     Does the customer get better service from small businesses?

•     Would small businesses survive if big foreign companies start to take over the market?

•     Are small businesses using modern marketing and management methods?

•     Do the businesses sale their goods and services in competitive market price?

•     How much creativity and innovation is involved in doing business?

•     Does the government have all the necessary policies, structures, strategies and capacity to effectively implement the new and existing initiatives to change small businesses for the better?

•     How can small businesses be linked with global trade, find financial resources and get the support they need from different stakeholders?

After looking at the chaotic business chaos in Addis Ababa, one can ask these and other questions. Most economists agree with the growth of small businesses in high growth economy in countries like in Ethiopia case. But economists also warn especially on the downside, if fast growing economy starts to stall resulting in massive consumers fear to spend. Small businesses have to dream big, and situations have to change fast for them. The usually and traditional way of doing business has to change with the times and with the rest of the world. 

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