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The rationale for this study is rooted in the recognition that Micro, Small, and Medium Enterprises (MSEs) are vital to Ethiopia's economic growth and job creation. The government has established numerous institutions to facilitate the smooth functioning of MSEs, and non- governmental organizations (NGOs) are also playing a significant role in promoting their development. However, despite these efforts, the performance of the sector has not met the expectations of many stakeholders due to persistent problems.One of the main reasons for this study is to delve deeper into the mechanisms that influence the development of Micro and Small Enterprises (MSEs) in Ethiopia. The primary objective is to investigate and identify the relationships between the performance of these enterprises and various selected influencing factors. Additionally, the study aims to determine the impact of these factors on the performance of small and micro businesses.Ethiopia has long acknowledged the critical role that MSEs play in fostering economic growth and generating employment. This acknowledgment is evident in the government's efforts to create a supportive ecosystem for these enterprises. Various institutions have been established with the specific mandate to support MSEs, addressing their needs and challenges to ensure their sustainable development. These institutions provide essential services such as access to finance, training, market linkage, and policy advocacy. In parallel, NGOs are also actively engaged in promoting the development of MSEs. They offer complementary support by providing training, facilitating access to markets, and advocating for policies that favor the growth of these enterprises. The combined efforts of government institutions and NGOs have created a robust support system aimed at fostering the growth and development of MSEs.Despite these efforts, the performance of the MSE sector has not fully met the expectations of various stakeholders. Several persistent problems continue to hinder the sector's potential. These problems may include limited access to finance, inadequate infrastructure, lack of market access, insufficient managerial skills, and regulatory challenges. These issues contribute to the suboptimal performance of MSEs, preventing them from achieving their full potential and significantly impacting their contribution to the economy. Given this context, the study's main objective is to investigate the mechanisms that influence the development of MSEs in Ethiopia. By identifying the relationships between the performance of these enterprises and various influencing factors, the study aims to provide a comprehensive understanding of what drives or hinders their success. This understanding is crucial for developing targeted interventions and policies that can effectively address the sector's challenges.The study focuses on several key influencing factors that are believed to impact the performance of MSEs. These factors include access to finance, infrastructure, market access, managerial skills, and regulatory environment. By examining these factors, the study aims to determine their specific impact on the performance of small and micro businesses. This analysis will provide valuable insights into which areas require the most attention and intervention to improve the overall performance of the MSE sector. Access to finance is a critical factor for the growth and development of MSEs. Limited access to financial resources can severely constrain the ability of these enterprises to invest in their operations, expand their businesses, and compete effectively in the market. The study aims to explore the extent to which access to finance influences the performance of MSEs and identify potential solutions to address this challenge.Infrastructure is another crucial factor that can significantly impact the performance of MSEs. Inadequate infrastructure, such as poor transportation networks, unreliable power supply, and limited access to communication technology, can create substantial barriers for businesses. The study seeks to understand the role of infrastructure in supporting or hindering the development of MSEs and provide recommendations for improving infrastructure to enhance their performance.Market access is essential for the growth and sustainability of MSEs. Limited access to markets can restrict the ability of these enterprises to reach customers, generate sales, and expand their operations. The study aims to investigate the extent to which market access influences the performance of MSEs and identify strategies to improve market linkage and access for these enterprises.Managerial skills are also critical for the success of MSEs. Lack of managerial expertise and business acumen can hinder the ability of these enterprises to effectively plan, manage resources, and make informed decisions. The study seeks to assess the impact of managerial skills on the performance of MSEs and provide recommendations for enhancing managerial capacity through training and development programs.Lastly, the regulatory environment plays a significant role in shaping the performance of MSEs. Complex and burdensome regulations can create barriers to entry, increase compliance costs, and limit the growth potential of these enterprises. The study aims to examine the impact of the regulatory environment on the performance of MSEs and identify opportunities for regulatory reforms to create a more enabling environment for their development. In conclusion, this study is motivated by the need to address the persistent problems that hinder the performance of MSEs in Ethiopia. By investigating the mechanisms that influence the development of MSEs and identifying the relationships between performance and various influencing factors, the study aims to provide valuable insights and recommendations for improving the sector's performance. These insights will be crucial for policymakers, government institutions, NGOs, and other stakeholders in designing targeted interventions and policies to support the growth and development of MSEs in Ethiopia This study adopted a descriptive and explanatory research design to analyze, interpret and to commend some solutions on the influencing Mechanism of the development of Small and Micro Enterprises in Ethiopia. The descriptive research is a study designed to describe the characteristics of a phenomena and it was used to collect data concerning a certain phenomenon in respect to the conditions of Mechanism of the Development of Small and Micro Enterprises. The explanatory research design was used to analyze the effect influencing Mechanism of the Development on micro and small scale enterprise and to explain the relationship between performance of micro and small scale enterprise and some selected influencing Mechanism of the Development. A mixed research methodology was used and a mixed research approach use of both qualitative and quantitative working since it permits to get adequate information for a better understanding of the topic under investigation. Quantitative Data is structured questionnaire will be administered to a sample of 106 MSE owners/firms in Addis Ababa. This will involve a five-point Likert scale to gather information on various aspects of business operations and perceived impacts of influencing factors. Qualitative Data is Semi-structured interviews will be conducted with key informants, including senior municipal administrators, Micro and Small Enterprises Bureau officials, and MSE heads/upper management. This allows for in-depth exploration of experiences and insights beyond pre-defined questions in the questionnaire. The population of this study is MSEs in Ethiopia. The target populations of the study were composed of business owners who are involved in micro and small enterprise at Addis Ababa. The target population of this study was the business owners/firms of MSEs in Addis Ababa. A total of 106 respondents were selected from wood and metal products, textiles and clothing, food preparation and processing, and leather products companies through simple random sampling technique. The study used both primary and secondary data types. To collect primary data, questionnaires and key informant interviews were conducted with senior municipal and Micro and Small Enterprises Bureau administrators. Key informant interviews included heads of enterprise and upper management. The researcher used this technique because semi-structured interviews enable the researcher to urge or prod the respondent to disclose more details. Secondary data was gathered from a range of sources, including journals, books, websites, electronic papers, and policy documents. The data was analyzed using both inferential and descriptive statistics. Descriptive statistics were used to describe the many factors affecting MSE performance. Descriptive and inferential statistical analyses were performed on the questionnaire data from this sample. The mean and standard deviation provided an explanation for the descriptive statistics, even if multiple regression and the Pearson Product Moment Correlation Coefficient were employed. A five-point Likert scale questionnaire was utilized to gather information from 106 small and micro firms. This sequential explanatory design ensures that the study builds upon a solid foundation of quantitative data before delving deeper into the complexities of the influencing mechanisms through qualitative analysis. This approach leads to more robust recommendations and actionable insights for stakeholders invested in fostering a thriving MSE sector in Ethiopia. The results showed a weak but statistically significant link (r = 0.270*, p =.0.035) between management parameters and the performance of small and micro enterprises. Due to the fact that the p-value was smaller than.05. This demonstrates that there was a marginally favorable but statistically significant association between management and small- and microbusiness performance. Correlation study, on the other hand, reveals that there is a weakly significant and positive association between the financial and marketing aspects and the performance of small and micro organizations, with varying probability values.The result study showed a substantial and robust link (r = 0.802*, p =.0.000) between the infrastructure components and the performance of small and micro enterprises. Due to the fact that the p-value was smaller than.05. This demonstrates that there was a substantial and highly positive correlation between small and micro business performance and infrastructure. The aforementioned shows displays a favorable and statistically significant correlation (r = 0.794* p = 000) between the performance of small and micro enterprises and the political and legal regulation. This leads one to the conclusion that there was a highly significant and favorable relationship between the performance of small and micro enterprises and the political and legal regulation.According to the result, there is a substantial and robust link (r = 0.789*, p =.000) between technical characteristics and the performance of small and micro enterprises. As a result of the p-value being.000, which was below.05. This demonstrates that there was a substantial and favorable correlation between technology-related parameters and small- and micro business performance. According to the study, working place characteristics and the success of small and micro enterprises had a moderately and significantly positive link (r = 0.592*, p =.000). As a result of the p-value being.000, which was below.05. This demonstrates that there was a favorable moderate and significant association between small and micro enterprises' performance and their working environment. The results of multiple regressions, result revealed that marketing have a positive and insignificant impact on the firms performance of small and micro enterprises in Ethiopia with beta coefficient value (0.103) and p value .421 at 95% confidence level. Marketing has statistically insignificant impact on the firms performance of small and micro enterprises and marketing coefficient is meaningless to the small and micro enterprises performance.The results of multiple regressions, led that Finance has statistically significant impact on the firms performance of small and micro enterprises in Ethiopia with beta coefficient value (0.125) and p value .043 at 95% confidence level. Therefore, the researcher accept the null hypothesis. Since, finance has statistically significant impact on the firms performance of small and micro enterprises. The results of multiple regressions , revealed that Management has statistically significant impact on the firms performance of small and micro enterprises in Ethiopia with beta coefficient value (0.171) and p value .051 at 95% confidence level. Therefore, the researcher accept the null hypothesis. Since, management has statistically significant impact on the firms performance of small and micro enterprises.The variable Infrastructure has statistically significant impact on the firms performance of small and micro enterprises in Ethiopia with beta coefficient value (0.313) and p value 049 at 95% confidence level. Therefore, the researcher accept the null hypothesis. Since, infrastructure has statistically significant impact on the firms performance of small and micro enterprises.The variable Political and legal regulation has statistically significant impact on the firms performance of small and micro enterprises in Ethiopia with beta coefficient value (0.434) and p value .042 at 95% confidence level. Therefore, the researcher accept the null hypothesis. Since, Political and legal regulation has statistically significant impact on the firms performance of small and micro enterprises.The variable Technology has statistically significant impact on the firms performance of small and micro enterprises in Ethiopia with beta coefficient value (1.287) and p value .000 at 95% confidence level. Therefore, the researcher accept the null hypothesis. Since, Technology has statistically significant impact on the firms performance of small and micro enterprises. The independent variables (political and legal regulation, marketing, finance, working environment, management, technological and infrastructure elements) account for 80.30% of the variance in performance. Other factors not covered in this study account for the remaining 19.7% of the variation. The infrastructure, political and legal, and technological aspects were found to be the main determinants of SMEs' success. These elements were shown to have a high positive link with SMEs' performance in Ethiopia. Infrastructure elements have the most impact on MSE performance (0.802), followed by political and legal variables (0.794). Conversely, technology considerations impacting MSE performance have a beta value of 0.789.The study found that the performance of small and micro companies and management parameters had a weak but significant association (0.270).Similarly, the study demonstrates that, with varying probability values, there is a weakly positive and significant association between marketing and financial aspects and the success of small and micro organizations. However, the study found that, with a probability value of (r=0.592), there was a moderate and substantial association between working environment variables and the performance of small and micro organizations. The study came to the conclusion that the following factors had a statistically significant influence on the performance of Ethiopia's small and micro enterprises: finance, management, infrastructure, political and legal regulation, technology, and working environment. These findings were based on the results of multiple regression analysis. The findings highlight the critical role of infrastructure, a stable political and legal environment, and technology adoption in driving MSE success. These areas warrant prioritized attention from policymakers and stakeholders. However, the study also reveals the importance of management skills, access to finance, and a positive working environment, even though their impact might be statistically weaker. Neglecting these factors can still hinder MSE growth and overall performance. The limitations of this study, particularly the pre-determined set of independent variables, open doors for further exploration. Examining social and cultural influences, entrepreneurial characteristics, and access to business networks can provide a more nuanced understanding of the Ethiopian MSE landscape. Additionally, incorporating alternative performance measures beyond just profitability can capture the broader impact of MSEs on job creation, social progress, and long-term sustainability. By acknowledging these limitations and pursuing further research along the suggested avenues, stakeholders can refine their understanding and design more effective interventions. The proposed policy and intervention recommendations, targeting infrastructure development, political and legal frameworks, technology adoption, management skills development, access to finance, and a positive working environment, offer a starting point for creating a more supportive ecosystem for MSEs in Ethiopia. Investing in these areas can empower MSE owners to overcome challenges, unlock their full potential, and contribute meaningfully to the country's economic and social development. As MSEs flourish, they can generate jobs, create innovative solutions, and drive inclusive growth, propelling Ethiopia towards a brighter future. This study does not contain all of the elements impacting the development of SMEs since it included independent variables that were only presumed to be universal to all operators operating in the Ethiopian business environment. These include the areas of politics, law, marketing, infrastructure, finance, technology, and management. The majority of SMEs are profit-focused, so the study looked at profitability as a gauge of their development. This is because the majority of operators don't keep records, and their businesses are survival-based, so they gauge their performance by meeting their household expenses and ensuring the continuing existence of their businesses. Create a micro and small business revolving fund in each Addis Ababa woreda by assigning a fixed amount of money, allowing operators to use the funds for startup and monthly repayment. The process will be closely watched, with extension workers providing technical help as well. An alternate approach would be to offer a guarantee of work for a predetermined duration, all the while encouraging savings by establishing connections with credit and savings organizations.In Addis Ababa City, there need to be a methodical and well-run entrepreneurial training facility that offers MSE officials, extension agents, and company owners ongoing training. It evaluates current market data via extension agents, studies emerging and established business sectors, pinpoints opportunities and risks, and most importantly, talks to MSE operators about how to have a broad vision that can lead to smaller and medium-sized businesses.The FMSEs office should set up well-organized marketing sites where all producers can provide their goods for sale, with their prices and markings tagged on them and promoted jointly. This gives MSEs' products access to the market and makes it simple to promote goods through a well-organized marketing structure. Equal access to the market is possible for all operators, and it also eliminates unjust housing rent and gives them the option to focus solely on production while their goods are offered at a common market. According to the researcher, more studies might look at other industries like retail, urban agriculture, and construction and provide particular results that could have a significant impact on the growth of the nation as a whole. In addition to the previously mentioned strategies, creating a more supportive business environment is crucial for MSE development in Ethiopia. Here are some additional recommendations. Simplifying business registration processes can reduce administrative burdens and encourage formalization among MSEs. This could involve utilizing online registration platforms or one-stop shops for obtaining necessary licenses and permits. Implementing targeted tax breaks or tax holidays for newly established MSEs can incentivize business creation and reinvestment of profits into growth. Encouraging research and development (R&D) activities and facilitating access to technology can help MSEs improve efficiency, develop new products and services, and compete more effectively in the market. This could involve establishing innovation hubs, providing tax breaks for R&D investments, and offering training programs on digital marketing and e-commerce. Providing centralized access to relevant information on business regulations, market trends, funding opportunities, and best practices can empower MSE operators to make informed decisions. This could involve establishing online portals or collaborating with chambers of commerce to disseminate crucial business information. Public-private partnerships can facilitate collaboration between government institutions, training providers, and established businesses. This can lead to the development of more targeted training programs and mentorship opportunities for MSE owners.Joint Investment in Infrastructure Development Public-private partnerships can also play a key role in accelerating infrastructure development projects critical for MSE growth, such as improving transportation networks, electricity grids, and access to communication technology in rural areas. Introducing entrepreneurship education into the school curriculum can foster a culture of innovation and self-employment among younger generations. This can equip students with the skills and mindset necessary to become future business leaders. Highlighting and celebrating the success stories of Ethiopian entrepreneurs can inspire and motivate aspiring business owners. This can be done through awards programs, media coverage, and mentorship initiatives. By implementing a combination of these strategies, stakeholders can create a more supportive and enabling environment for MSEs to thrive in Ethiopia. This will contribute to a flourishing entrepreneurial ecosystem, driving economic growth, job creation, and overall national development. Building a thriving MSE ecosystem in Ethiopia requires a comprehensive and collaborative approach. The research findings provide valuable insights into the key influencing factors, but true progress necessitates addressing both the foundational elements and the practical considerations of financial empowerment, market access, skills development, supportive business environment, and a culture of entrepreneurship. Through a commitment to implementing the proposed policy and intervention strategies, stakeholders can empower Ethiopian MSEs to unlock their full potential and propel the nation towards a brighter future.