Analysis of the Main Cause for the Entrepreneurs Drop Out in Micro and Small Enterprises: Evidences from Nekemte Town, Eastern Wollega Zone, Oromia Regional State, Ethiopia

Abstract

In Ethiopia, Micro and small enterprises (MSE) are recognized as important vehicles of economic growth, employment creation, and income generation. As a result, MSE occupy a prominent position in the development agenda of Ethiopia. The main objective of this study is to examine and analysis different major factors that cause for entrepreneur’s dropout from MSE business in Nekemte town. The total population of the study was 3,070 MSEs operating in five sectors (construction, manufacturing, urban agriculture, trade and service) which is used as a stratum. Proportional stratified sampling technique was used for the selection of 172 MSEs from the strata. Only primary data was employed and it was collected by using structured questionnaire from the selected respondents. The study shows that that 58.7% of entrepreneurs face members drop out from their business whereas the remaining of them does not. From the descriptive statistics analysis the study finding show that the most contributing factor for members drop out from the business has three dimensions. First, individual dimensional factor (like lack of need for achievement of the business and risk taking propensity of members, personal background and individual competence are the most in decreasing order). Second, business dimensional factor(the most serious factor that contributes for entrepreneur drop out from MSE business is slow growth of the business followed by supply and demand related factors) and the third external business environmental factors(are lack of work premises followed by access to credit, and tax system, societal attitude towards MSE product/services in decreasing order). The econometric analysis reveals that 10 of the 18 variables used for the binary logistic regression analysis are highly influential over the drop out of entrepreneurs from their business. The 10 significantly contributing factors are at 1 and 5% level of significance are sex of the entrepreneurs; age of the entrepreneurs; educational status; sector of the business; source of finance; form of the business; possessing business plan; existence of sufficient market for the product/services; networking capacity of the entrepreneurs; and corruption from MSE support institutions. The multivariate regression results shows that individual dimensional affects positively the drop out of entrepreneurs from MSE business significantly at one percent level of significance indicating that individual dimensional factors contribute the most to the drop out of entrepreneurs from their business in the study area.