Despite government efforts to boost industrial growth, Ethiopian small and medium-sized enterprises (SMEs) continue to face significant financing constraints, according to the latest figures and statements from the Ethiopian Enterprise Development (EED).

At a press briefing last week, EED Deputy Director General Abdulfatah Yusuf reported that, of the 3,600 new productive enterprises targeted for establishment in the first nine months of the 2024/25 fiscal year, only 2,752 were achieved-a performance rate of 76%. The shortfall, he explained, is largely due to persistent challenges in accessing finance and suitable workspaces.

“Access to financing has become a major problem for small and medium-sized industries,” Abdulfatah said. “Banks have limited access to the loan guarantees they need. Because [enterprises] didn’t have enough money to pay for it, they couldn’t afford it. As a result, they were unable to work because of lack of funding.”

SMEs in Ethiopia typically struggle to meet the high collateral requirements imposed by banks, with some lenders demanding collateral valued at up to twice the loan amount. As a result, less than 1% of Ethiopian SMEs have bank loans, and most rely on personal savings or informal sources for capital5. This “missing middle” phenomenon leaves small businesses more credit-constrained than both micro and large enterprises, a challenge that has persisted despite banking sector reforms and targeted government support7.

Beyond financing, workspace shortages and limited capacity to secure bank loan guarantees further hinder SME growth. “Many enterprises are interested in working but unable to enter the business due to lack of funds,” Abdulfatah noted, also citing coordination gaps between institutions responsible for financing, land allocation, and training.

Nevertheless, EED has reported some progress. Over 6 billion birr in operational loans were disbursed to 1,209 manufacturing enterprises during the period, and machinery worth over 4.3 billion birr was distributed to 889 enterprises through lease financing services. These measures helped create 151,726 new jobs and enabled 1,451 enterprises to produce 902,191 tons of import-substituting products, saving an estimated $1.6 billion in foreign exchange.

Despite these achievements, experts and industry leaders argue that more needs to be done. The total funding gap for Ethiopian SMEs was estimated at $6.1 billion in 2021, with high borrowing costs and limited financial literacy compounding the problem. The lack of tailored financial products, weak coordination among support institutions, and a risk-averse banking sector continue to deter investment in this vital segment of the economy.

Abdulfatah stressed that while the government is working “step by step” to address these issues, a comprehensive approach is needed. “We are not going to be able to do what we can do in a short period of time,” he said, calling for improved collaboration among stakeholders and innovative financing solutions to unlock the full potential of Ethiopia’s SMEs.

In Ethiopia’s competitive job market, recent research by the International Growth Center (IGC) suggests that being well-liked in your community may be more important than qualifications. A study mapping social networks in local kebeles revealed that job opportunities often favor popular individuals over the most skilled candidates, a trend that could be detrimental to productivity.

Tewodros Mekonnen, a senior economist at IGC, explained to Capital that one of their key findings highlighted how social connections dominate hiring practices. “We mapped kebele residents in Addis Ababa who knew each other and created job opportunities,” he noted. “Most recommended candidates were well-liked in their community, not necessarily the most qualified.”

The researcher, who was a PhD candidate at the University of Oxford at the time, found that Ethiopian workers tend to rely more on social networks than on hiring professionals with the necessary skills.

 Consequently, individuals who are popular in their community have a higher chance of securing a job than those who are genuinely qualified. This social network-based recruitment practice often excludes skilled workers, ultimately lowering productivity.

Tewodros mentioned that IGC has conducted around 30 studies related to the labor market.

He pointed out that the establishment of industry parks marked a significant turning point in the nation’s development when IGC began its operations in Ethiopia nearly 13 years ago.

“Labour turnover was one of the main issues at industry parks at the time,” he added, noting that the benefits offered by jobs in these parks were often unsatisfactory for workers.

A study on this issue found that 70% of workers left their jobs within three months, leading to efficiency problems. “One of our studies proposed a retention bonus incentive for employees who stayed longer, which really helped manufacturers and addressed the issue,” he said.

Another intriguing finding from IGC’s research concerns skills mismatch. The main conclusion of this experimental study was that many job seekers are unaware of their greatest strengths.

For instance, someone may believe that language skills are their strongest asset, while in reality, collaboration may be their true strength. Additionally, job seekers often lack knowledge about what employers are looking for during the hiring process.

The report indicated that most job seekers think companies prioritize technical proficiency and intelligence. However, employers tend to favor behavioral traits such as honesty, teamwork, and communication skills.

Tewodros noted that, according to an IGC-backed report, while technological skills and education are highly sought after in the market, the system predominantly produces accountants.

“The key to addressing these two issues lies in closing the information gap. Therefore, a labor market information system has been established to facilitate interaction between employers and job seekers,” he explained, adding that a skill assessment mechanism should also be developed to meet employer demands.

Internships and apprenticeships are crucial components of education. While 40% of candidates possess experience, a staggering 80% of job vacancies require experienced workers.

To bridge the gap between the supply of and demand for experienced labor, internships and apprenticeships have been proposed as viable solutions.

In an interview with Capital, Tewodros remarked, “We have provided studies that will contribute to policy-making.”

The International Growth Centre (IGC) is an international research initiative that delivers evidence-based policy recommendations to developing countries to foster sustainable economic growth. Founded in 2008 through a collaboration between the University of Oxford and the London School of Economics, the IGC has formed a significant partnership with Ethiopia.

To address key economic challenges—such as industrialization, export competitiveness, agricultural productivity, rural transformation, urban infrastructure, housing affordability, fiscal policy, and domestic revenue mobilization—the center collaborates with Ethiopian institutions, researchers, and policymakers.

Recently, the IGC has focused on macroeconomic policy research, providing essential insights for the government’s macroeconomic reform efforts.

Heineken Ethiopia has announced a new 33 million birr initiative aimed at improving the livelihoods of vulnerable households in Kilinto and Koye Feche through animal fattening and food processing activities. The project, implemented in partnership with Mahibere Hiwot for Social Development (MSD), will directly benefit 75 households-30 in Kilinto and 45 in Koye Feche-by promoting sustainable income generation and small-scale agribusiness.

The beneficiaries will engage in various activities including animal fattening, dairy farming, cattle rearing, poultry farming, and food processing-sectors critical to local food security and economic resilience. The project provides livestock, feed, veterinary services, and technical training to equip participants with the skills needed to build sustainable businesses.

Speaking at the launch ceremony, Bart de Keninck, Managing Director of Heineken Ethiopia, emphasized the transformative potential of livestock farming for rural and peri-urban communities. “This project will significantly improve the living conditions of these households,” he said, pledging continued support through technical training, market linkages, and sustainable management practices to ensure long-term success.

Special attention has been given to empowering women, female-headed households, and people with disabilities, identified through a collaborative selection process involving Heineken, MSD, community members, and local government officials.

The initiative also aims to strengthen social cohesion and nurture local entrepreneurship. By fostering economic empowerment at the grassroots level, Heineken Ethiopia demonstrates its commitment to sustainable and inclusive community development, aligning with its global “Brewing a Better World” sustainability agenda.

Key stakeholders present at the handover included MSD Founder and Executive Director Tilaye Gizachew, Heineken Ethiopia’s Sustainability and Government Affairs Manager Fekadu Bashah, and Kenean Gezahige, CEO of Akaki Kality Woreda 09.

Experts in Ethiopia’s livestock sector have raised serious concerns over the rising prevalence of counterfeit letters of credit (LCs) and the lack of adequate insurance coverage, warning that these issues threaten the country’s rapidly growing livestock export industry. The sector, which contributes 19 percent to Ethiopia’s GDP and 45 percent of its agricultural GDP, faces significant challenges in sustaining export growth due to financial insecurity and operational risks.

Industry leaders point to an increasing number of dubious LCs in importing countries, particularly in the Middle East-Ethiopia’s key livestock market-and the absence of affordable, comprehensive insurance for live animals during transit. These problems, they say, could undermine the sector’s long-term stability and economic potential.

The Ethiopian government aims to generate $127 million from livestock exports this fiscal year, having already achieved about $63 million in the first nine months. While this reflects progress compared to previous years, experts argue that the current earnings fall short of Ethiopia’s vast livestock potential.

The Ethiopian Livestock Exporters Association (ELEA) has been vocal about the mounting financial and operational pressures on exporters. Hayder Kemal, a board member of ELEA, expressed frustration with shifting payment terms, noting that many buyers now prefer cash against documents (CAD) over letters of credit, which traditionally offer more secure payment guarantees.

“More buyers insist on CAD payments, and we are also seeing an increase in fake letters of credit that lack proper verification or contain misleading assurances,” Hayder said. These fraudulent LCs, which mimic legitimate financial instruments issued by reputable international banks, pose serious risks to exporters.

Regarding insurance, Hayder highlighted the persistent shortage of affordable insurance options tailored for live animal exports. He called for sustained government support and resources to develop accessible insurance schemes that can protect exporters and animals alike.

These concerns were voiced at the 2nd COMESA Institutions Awareness Forum and the 6th COMESA Business Fair and Conference held in Addis Ababa on May 6, 2025. The event brought together government officials, private sector representatives, export agencies, development partners, and other stakeholders.

Hope Murera, Managing Director and CEO of ZEP-RE, a regional reinsurer, reinforced the importance of insurance in safeguarding livestock trade. She noted positive developments in shifting from national to regional livestock insurance programs, which aim to spread risk more broadly. However, she stressed that ongoing government backing and collaboration with regional bodies like COMESA are essential to address challenges, including illegal cross-border trade activities.

Ethiopia’s livestock export sector remains a vital economic driver, involving farmers, traders, cooperatives, and exporters. Yet, experts warn that poor coordination and communication among these actors hinder the sector’s effectiveness and growth.

According to recent data, Ethiopia has exported 12,500 metric tons of livestock this year, with the United Arab Emirates accounting for 45 percent of sales. Notably, Ethiopia began transporting livestock by freight train to Djibouti last year, marking a significant logistical advancement.