The Role of Micro and Small Scale Enterprises in the Ethiopian Economy, Government Intervention and Alternative Strategies: A CGE Analysis

Abstract

Given the fact that Micro and Small scale enterprises (MSEs) are high on the Ethiopian government’s agenda for mid-term growth and transformation plan (GTP), this study aims to investigate the major contributions and the potential of this sector to the Ethiopian economy. Using a CGE modeling approach, we assess the role of MSEs towards the major development goals of the government: unemployment and poverty reduction. Three simulation scenarios were designed based on the current MSE development plan but with different implementation strategies. The strategy that the government is currently following to implement the MSE development plan was found to be performing the best on expanding overall production, but failed to tackle the critical issues of poverty and unemployment reduction. However, other alternative strategies were found to give the country the best solutions to these development concerns as well as investment. Female unemployment also reduced the most in these alternative scenarios. This shows that the MSE sector has the potential to meet the envisaged developmental goals in Ethiopia, but strategy adjustment is needed.