Transformability of cottage industries in Ethiopia

Despite its longevity, the cottage industry has failed to transition in Ethiopia. This study, thus, aims to examine the transformability of cottage industries and main challenges that impeded its ability to sustain its growth and transformation. The study implemented SFM and SEM models to estimate efficiencies and estimate indexes. Findings from the research indicate the absence of economies of scale in cottage industry of Ethiopia. The investment in overhead capital improves cost efficiency of the cottagers, however, the type of technology (obsolete) used in the production system is the main source of its inefficiency. In Ethiopia, where cottage is largely perceived as women’s job, gender difference matters most on efficiency, with female cottagers relatively more efficient than males. The cottage industry as a whole is cost inefficient. With average monthly income of ETB 9600 (USD 175), the industry is largely abandoned for the marginalized groups and remained one of the lowest income generating business venture in the country. The industry failed to transition to medium scale mainly because of operating technology (cost inefficiency), limited access to capital, lack of incentive and poor market linkage. The study recommends improved technology adoption, market integration and government incentives for cost efficiency improvement and transition.