Tesfaye Hora, a former Bajaj (three-wheeled vehicle) driver from Gebre Guracha in Oromia Regional State, once led a stable life. Earning between 700 Br and 900 Br daily, he provided comfortably for his wife and daughter. Determined to build a better future, he sold his Bajaj for 160,000 Br and borrowed 40,000 Br from his sister to move to Addis Abeba in July 2019, hoping to follow in her footsteps in the suit fabric trade.
At first, Tesfaye’s business flourished. For seven months, he navigated the trade successfully, building connections and securing decent profits. He dreamed of relocating his family to the capital city, seeing a future of stability and opportunity. But his ambitions were soon derailed by a series of crises.
The COVID-19 pandemic, followed by the armed conflict that broke out in November 2020 in the Tigray Regional State and escalating conflicts with armed groups, destabilised the country. His key customers could no longer travel to Addis Abeba, severely impacting his sales. The final blow came with the sharp devaluation of the Birr. The soaring cost of imported fabrics wiped out his profit margins, leaving him unable to sustain his business.
With his capital depleted and no options left, Tesfaye returned to Gebre Guracha. Today, he struggles to support his growing family, including his wife, two children, elderly mother, and cousin, by working at a bingo lottery.
An economic slowdown and galloping inflation have been severely affecting small businesses. Business registration across the country has steadily declined over the past five years, according to data from the Ministry of Trade and Regional Integration (MoTRI). In 2021, there were 3,898,081 registered businesses, but by 2023, this number had dropped to 3,166,513. This reflects the growing hurdles businesses face.
Esmael Zeynu, a 28-year-old entrepreneur, embodies the struggles of small business owners. His journey, which began in 2021, has been marked by repeated failures.
He first launched an employment agency, successfully placing over 600 people in jobs within a year. However, high taxes and a mismatch between job seekers’ skills and employers' needs crippled the business, forcing its closure.
Determined to succeed, Esmael pivoted to a shoe retail shop in 2022. Despite aggressive discounts and promotions, he could not attract enough customers to cover expenses. The venture collapsed. In 2023, he tried again, opening a game zone. But high rent and operating costs outweighed earnings, leading to yet another failure.
In 2024, Esmael finally found what seemed like a winning formula: a betting house franchise. After ten months of profitability, the government abruptly banned betting houses without warning or consultation, shutting down his legally registered business. The sudden closure left him financially devastated.
“The system is not fair,” he said.
Now unemployed and relying on his family, Esmael’s entrepreneurial spirit has been crushed by unstable market conditions and sudden policy changes.
He feels disillusioned, believing that returning a business licence is as difficult as changing oneself. Esmael described the arduous process of returning his trade licence. He began by collecting the necessary form from the revenue office, but was directed to the customer service office to start the process.
He was sent to the audit office, which then referred him to the Woreda to confirm whether he was still operating his business. The Woreda, in turn, sent someone to inspect his old shop, and asked him to provide a rent agreement between the current tenant and the property owner to prove he was no longer operating at that location.
Esmael struggled to get the necessary documents. "These processes took more than two weeks," he said. He had to pay 9,000 Br. "I didn’t agree with this amount," he said, still frustrated by the unfair demand. He was told he could either pay immediately and provide proof of payment from the bank, or pay half and file a complaint. Exhausted, he stopped there. "I was tired of the process," he said.
Esmael realised that the process would continue if the complaint was approved, as he would be sent back to the audit office for a new pricing decision.
Wondimu Filate, public relations and communication executive at the Ministry of Trade & Regional Integration (MoTRI), stated that the government has been pushing for digital trade processes to address bureaucratic hurdles and ease the processes.
According to Wondimu, over two million people have used digital platforms for registrations and licences in the first six months of the current fiscal year, matching the total from the previous year.
“We have doubled the number of people served through digital platforms,” he told Fortune. He added that cashless transactions have generated 14 million Br in revenue, a 16pc increase from the same period last year.
Elsabet Alehegn, an engineer who launched a contracting business in 2021 with 30 employees, echoed similar frustrations, citing systemic corruption and inefficiency.
Government tenders were rigged, and accessing allocated funds required bribes due to bureaucratic delays, according to Elsabet.
Unpredictable material price hikes made private contracts unviable, halting projects and pushing Elsabet into debt. The combined pressures including heavy tax burden forced her to shut down her business, and now she works at a print house.
Lack of demand has impacted the sales and incomes of many businesses, forcing them to close down doors or pivot to other areas. Netsanet Dawit had thrived in the cosmetics trade, running a small shop in the Rebeka building near Hayahulet for the past three years. On average, she earned 1,200 Br to 1,400 Br a day, sometimes even 3,000 Br to 4,000 Br. But now, her income has plummeted to just 400 Br, down by 300pc.
The shop was often empty, and customers who used to visit regularly now stayed away. Rent became a constant worry. After three months of inconsistent work, Netsanet made the difficult decision to close her shop and seek employment elsewhere.
The domestic business sector is experiencing a sharp slowdown, with recent data showing a sharp decline in economic activity.
The data reflects these hurdles. Business registration and licensing activities in Addis Abeba have declined between 2021 and 2024. New registrations dropped by 39pc, from 68,287 to 41,935. New licenses fell by 26pc, from 108,668 to 79,966. License renewals dipped by 28pc, from 459,927 to 331,571.
Fasikaw Sisay, former board member at the Addis Abeba Chamber of Commerce & Sectoral Associations (AACCSA), says that the government should support small businesses to withstand the economic instabilities. “Small businesses need a supportive environment, especially in their early stages,” he said. “They need breathing room to survive.”
Fasikaw says that there is an unfair power dynamic in the market, where small businesses compete with large enterprises that have superior resources and connections.
“Small businesses are competing with big enterprises that hold more power," he said. "This is not fair.” He believes regulations should be in place to protect smaller businesses.
Fasikaw suggests a more collaborative approach, where SMEs act as raw material suppliers for larger enterprises. He also stresses the need for a strong and proactive Chamber of Commerce to advocate for small businesses.
“I don’t think the Chamber is doing enough to support the sector,” he told Fortune. He argues that the institution is failing in its role as an intermediary between the government and businesses.
Fasikaw urges the government to improve communication with business owners. “Policies and government actions should be communicated to traders ahead of time,” he said.
He also calls for reducing bureaucratic inefficiencies, which he sees as a major obstacle to progress. “The bureaucracy in government offices must be reduced,” he said.
Additionally, he states that Technical and Vocational Education and Training (TVET) institutions have a vital role in producing skilled graduates who can contribute to the business sector.
Sewenet Ayele, communication director for the Addis Abeba City Administration Bureau of Revenue, says the administration has been raising tax awareness. He claims efforts have been made to educate merchants on their tax obligations. Acknowledging corruption in the system, he states that action has been taken against 77 employees. He also notes that the bureau’s revenue has increased by 26 billion Br compared to the same period last year.
Million Kibret, managing partner at BDO Ethiopia, argues that limited access to credit is a major barrier for small businesses.
Credit is often directed to large businesses, leaving little opportunity for smaller ones. Access to finance is crucial for economic growth, allowing individuals to secure loans and start businesses. However, banks have traditionally focused their lending on a small, powerful segment of the population, leaving most without financial resources.
The National Bank of Ethiopia’s (NBE) Financial Stability Report, published on April 11, 2024, shows that loans and advances are increasingly concentrated in the hands of a few large borrowers. As of June 2023, the top ten borrowers alone controlled 23.5pc of the total loans, a sharp rise from 18.7pc the previous year. Despite making up just 0.5pc of all borrowers, those with loans over 10 million Br hold nearly 74pc of total loans issued by banks.
"It's very difficult for these businesses to start or expand without financial resources," Million said. He also criticised the unpredictability of the tax system.
"While tax is important, businessmen should not have to fear it. Taxes should be predictable, but in Ethiopia, they are not," he added.
Million stresses that peace and stability are essential for business growth. "Businesses need peace, and these issues must be solved," he said.
He also advocates for tax breaks to support small businesses in their early stages. "Tax breaks are crucial until businesses can stand on their own," he argues.
While he supports major economic shifts, such as transitioning to a free market, he believes the government must address the resulting problems.
Million says that the few businesses that work legally are overburdened with high tax bills. He suggests that lowering tax rates would encourage more illegal traders to enter the formal economy.
PUBLISHED ON
Feb 02,2025 [ VOL
25 , NO
1292]
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