Research Stresses Need for Functional, Operational Readiness of SMEs

Addis Ababa, November 25, 2025 (ENA) —  Even if the policy and regulatory frameworks of Ethiopia demonstrate a strong alignment with the African Continental Free Trade Area (AfCFTA) commitment and protocols, functional and operational readiness is low, leaving Small and Medium Enterprises (SMEs) unprepared to exploit continental opportunities, according to a research released today.

A session, which discussed Ethiopia's progress towards AfCFTA and the role of SMEs in regional integration, was held at the Sky Light Hotel this morning.

The research entitled "Policy and Regulatory Harmonization of SME Competitiveness: Ethiopia's Journey towards AfCFTA Implementation" revealed that the policy and regulatory frameworks of Ethiopia demonstrate a strong alignment with AfCFTA commitment and protocols across trade in goods and services, digital trade, competition, empowerment and dispute settlement.

However, functional and operational readiness is low, leaving Small and Medium Enterprises (SMEs) unprepared to exploit continental opportunities.

 

 

According to the research, the policy alignment is not yet matched by institutional capacity, regulatory implementation, and SME-focused operationalization.

It pointed out that the main readiness gaps directly affecting SME competitiveness are consumer protection rules; lack of legal protection against dominant regional firms; lack of regional integrated SME, women and youth policies; and absence of domestic continental dispute settlement linkages.

The findings stated that SMEs readiness and awareness for participating in intra-continental trade under the AfCFTA remain limited.

Out of 355 surveyed SMEs, only 11.4 percent are currently involved in trade within Africa, 60 percent doing so informally while the vast majority (88 percent) continues to focus solely on domestic markets.

Furthermore, the findings stated that just 13.99 percent of SMEs consider themselves fully prepared to engage under the AfCFTA, whereas 17.78 percent have no knowledge of the agreement at all.

The findings also underscored the urgent need for targeted capacity building, stronger policy coordination and enhanced awareness initiatives.

Speaking on the occasion, Foreign Affairs State Minister Hadera Abera emphasized the importance of continuous research, policy engagement, and stakeholder dialogue to effectively guide both national actions and continental initiatives. 

 

 

Hadera said intra-African trade stands at around 17 percent but with full AfCFTA implementation, this figure is expected to exceed 50 percent, noting that Ethiopia has commenced trading goods as part of this initiative and is making headway in negotiations regarding its services tariff offer.

The State Minister, who praised the joint efforts of the Institute of Foreign Affairs and UNDP in conducting the research, called for continued collaboration with UNDP and other stakeholders to bolster capacity building efforts and informed policy decisions.

On his part, Trade and Regional Integration State Minister Abdulhakim Mulu noted that the gathering represents a strategic milestone for Ethiopia, particularly in recognizing SMEs as pivotal to our economic transformation.

 

 

To maximize the opportunity AfCFTA offers to access a market with a combined GDP exceeding 3.4 trillion USD, the State Minister emphasized the need to modernize and harmonize SME policies and regulatory frameworks in line with continental standards.

Institute of Foreign Affairs Executive Director Jafar Bedru said the readiness for AfCFTA implementation is not solely the responsibility of one ministry or sector; it necessitates collective engagement from policymakers, researchers, practitioners, and partners.

The Executive Director stated that while Ethiopia has ratified the agreement, political commitment must be matched with institutional strength, regulatory clarity, and logistical efficiency for effective implementation.

 

 

He pointed out that the launch of the research marks a critical step in Ethiopia’s approach to enhance its integration into the AfCFTA framework, emphasizing that rigorous, country-level research is crucial to identify gaps and develop actionable strategies that facilitate effective participation in the Continental Free Trade Area Agreement.

On his part, UNDP Ethiopia Resident Representative Samuel Doe emphasized the pivotal role that SMEs play in fostering inclusive growth, job creation, and the Sustainable Development Goals, noting that SMEs globally account for approximately 90 percent of all businesses and contribute to more than half of employment in Africa.

With Ethiopia's significant youth population and ambitious industrialization agenda, he said supporting SMEs is not merely an option but a strategic imperative.

Although AfCFTA represents an unprecedented opportunity for Africa to strengthen intra-continental trade and create a unified economic voice in a rapidly evolving global landscape, opportunities alone are insufficient for realizing the potential benefits of the AfCFTA.

 

 

Doe stressed that Ethiopian entrepreneurs face ongoing challenges, including limited access to funding, inadequate logistics and infrastructure, and fragmented regulatory frameworks, which could hinder many SMEs from benefiting from the AfCFTA.

In this respect, UNDP is prepared to assist Ethiopia in translating its political will into actionable outcomes for SMEs, he pledged, outlining the three-pillar approach focused on entrepreneurship, access to funding, and enhanced business management.

This includes targeted training, incubation, and mentorship programs aimed at empowering women and youth, alongside initiatives to build digital skills and foster product innovation.

Doe underscored the importance of these interventions in helping SMEs transition from informal to competitive enterprises, ultimately increasing their survival rates and facilitating access to funding.