Determinants of Profit Variability among Micro and Small Enterprises (MSEs) in Zambia

Abstract

Micro and Small Enterprises (MSEs) in developing economies like Zambia are major contributors of livelihood, job creation, poverty reduction, production and distribution of goods and services, and foreign exchange earnings. All these benefits could be realized if firms are profitable. This paper tried to envisage sources of variations in profitability among micro and small enterprises. By conducting an empirical study using 187 micro and small sized firms selected from four sectors: Trading, Services, Manufacturing, and Agriculture, the paper analyzed the sources of variations in firm profit across time. The study was made with selected firm-level characteristics like sales, cost, market coverage and perception about the level of competition. The analysis is done by using both descriptive statistics and an Ordered Probit Regression Model. Although measuring profit directly is difficult, alternative variables like changes in sales, revenue, cost, competition and market coverage are used. The estimation result revealed that, among firm effects, variations in sales and market coverage over time are the significant variables that explain variations in firm’s profitability.