Survival Analysis of Small Scale Manufacturing Enterprises in Eastern Ethiopia

Abstract

Small manufacturing enterprises (SMEs) are important because they provide the majority of new jobs created especially in developing counties like Ethiopia. In Ethiopia, despite the enormous potential of vibrant small manufacturing enterprises to contribute to job creation, income generation and poverty alleviation, the high failure rate of small enterprises is a subject of much concern. The main purpose of conducting this study was to critically analyse likelihood of SMEs long survival in a competitive market. Descriptive and survival analysis methods were employed to analyze panel data between the period 2001 and 2006 E.C in the eastern part of Ethiopia. About 86.4% of total failed firms ceased operation during the first two years of operation, and only 9.1% of all failed firms ceased operation after their fifth birth day. Hazard function showed that probability of failure decreases as the age of the enterprise increase. Kaplan-Meier survival probability plots were used to compare the survival probabilities of SMEs with regard to manufacturing type showed that leather product and textile manufacturing enterprises have higher probability of survival whereas wood and metal work and food item producing enterprises have the least survival probabilities.  This study has policy implications for Government and other stakeholders to understand that newly emerging manufacturing enterprises face difficulty in their first three years of establishment. Therefore, since the creation of new jobs depends on the new entry rates and growth of enterprises, a concerted attention should be given to support them financially as well as technically to reduce the failure rate.