Impact Of Economic Policy On SMES Performance

Project and Seminar Material for Business Administration and Management BAM
Abstract
This study was carried out on recorded policy on the performance of Small and Medium Enterprises in Nigeria. It is recorded that 99 per cent of the business bodies in Nigeria are SMEs which has been an instrumental component in GDP and hub for work opportunities. Even so the identification of the important roles SMEs play in Nigeria, their evolution is mostly bounded by a number of elements, such as the existence of laws, ordinances, and rules that frustrate the growth of the sector. The study reviews the relationship between government policies and small and medium enterprises (SMEs) performance in Nigeria. The study offered some relevant recommendations to policy makers, entrepreneurs, and SME managers to ensure the appropriate scheme to improve the SME sector in Nigeria.
Keywords; Economy: Economic policy, Performance, Small and Medium Enterprises, Government.
Chapter One
Introduction
1.1 Background of the study
Small and Medium Enterprises play key roles in transition and developing countries (OECD, 2002). These firms typically account for more than 90% of all firms outside the white-collar jobs sector, constituting a major source of employment and generates significant domestic and export earnings. SMEs in both developing and developed countries play important roles in the process of industrialization and economic growth, by significantly contributing to employment generation, income generation and catalyzing development in urban and rural areas according to Williams, (2006).
Policy is defined in the Merriam-Webster Online Dictionary as a definite course or method of action selected from among alternatives to guide and determine present and future decisions. Policy can also be defined as making decisions that reflect values and allocating resources based on those values. Thus, policy represents a particular political, ethical, or programmatic viewpoint. Governmental policy reflects theoretical or experiential assumptions about what is required to resolve a particular issue or problem (Obi, 2001). At the federal and state levels, governmental policy is reflected in multiple venues:
- The federal and state constitutions set the general framework, as interpreted in specific instances through court decisions.
- The chief executive’s agenda is presented through speeches, press releases, “State of the State” and budget messages to the legislature, executive orders, and instructions to department heads.
- Legislative policyis expressed in speeches and press releases by the leadership and formulated in policy and appropriation bills.
It is not generally recognized that budgets, expressed in appropriation acts and taxes, are critical statements of social policy. Budgets distribute resources and determine what government can and cannot do. They may or may not provide stable resources for governmental services (Bacdon, 2004).
Policy can also be found in the determinations and decisions of state department heads and middle management. Their decisions or actions determine how legislative policy and broad governmental mandates are actually translated into services. Policy is reflected in strategic plans and policy memoranda (EKSG, 2014).
It is translated and carried out through rules and regulations, manuals, requests for proposals, contractual agreements, enforcement actions, and so forth. However, many researchers has proved in the past that government policies do influences small and medium scale enterprises. Small and medium enterprises are believed to be the engine room for the development of any economy, because they form the bulk of business activities in a growing economy like that of Nigeria (Basil, 2005). This is manifested in the following ways, Employment generation, rural development, Economic growth and Industrialization, Better Utilization of Indigenous Resources.
Governments create the rules and frameworks in which Small and medium scale enterprises are able to compete against each other. From time to time the government will change these rules and frameworks forcing small and medium scale enterprises to change the way they operate (Essien&Udofia, 2006). Small and medium scale enterprises are thus keenly affected by economic policy. Key area of economic policy that affects business is taxation policy. Taxation policy affects business costs. For example, a rise in corporation tax (on business profits) has the same effect as an increase in costs. Small and medium scale enterprises can pass some of this tax on to consumers in higher prices, but it will also affect the bottom line. Other business taxes are environmental taxes (e.g. landfill tax), and VAT (value added tax). VAT is actually passed down the line to the final consumer but the administration of the VAT system is a cost for business (Ikherehon, 2002). Moreover, the government of the day regularly changes laws in line with its political policies. As a result small and medium scale enterprises continually have to respond to changes in the legal framework (Izedomi, 2011).
SME performance is constrained by internal factors and external factors, such as the carrying capacity of the environment, government policy or competition. The chief importance is that SMEs have the capability to produce sufficient levels of skilled and semi-skilled employment (Bubou, Siyanbola, Ekperiware, &Gumus, 2014; J. O. Okpara&Kumbiadis, 2008). The resource based view of the firm proposes that competitive advantage issue from the assets and an array of resources that are in how superior to those of its competitors. Surveys had shown that Nigeria consists of a huge number of SMEs which are the chief provider of job opportunities for the legal age of the population. However, SMEs face many challenges such as government policy, which affect their performance in Nigeria (Bubou et al., 2014).
Thus, SMEs which lacked government support policies have restricted access to improving their performance. Studies related to performance of SMEs do not provide all inclusive expression for the performance of these firms. Specifically, studies have been centred on factors affecting the performance of established SMEs (Harvie, C, Narjoko, &Oum, 2010). In Nigeria, a methodical and empirical work regarding the cognition of how the government policies impact the functioning of the SMEs sector is few and this is worthy of review. Therefore, this study is carried out on the impact of economic policy on SMEs performance in Nigeria.
1.2 Statement of Problem
The term government policy can be used to describe any course of action which intends to change a certain situation. Think of policies as a starting point for government to take a course of action that makes a real life change (Ekezie, 1995). Government uses policy to tackle a wide range of issues. In fact, it can make policies that could change how much tax you pay, parking fines, import and export duties, immigration laws and pensions (Ireghan, 2009). However in Nigeria, government has come up with various policies aimed at investing in and boosting the Small and medium scale enterprises to generate employment and reduction of poverty but there has been issues of poor implementation.
Policies can also be changed by government when is not effective, also when they create a policy it can be made to affect specific groups of people or everyone in society. Other government policies concerning issues such as subsidies, interest rates, exchange rates and public-private partnerships also influence the growth of small and medium scale enterprises (Iromaka, 2006). However, the researcher is seeking to examine the impact of government policies on the performance of small and medium scale enterprises in Nigeria.
1.3 Objectives of the study
The general objective of this study is to examine the impact of economic policy on the performance of small and medium scale enterprise while the following are the specific objectives
- To ascertain the impact of economic policy on the performance of small and medium scale enterprise.
- To determine the nature of economic policy that can influence the performance of small and medium scale enterprise.
- To identify factors limiting the growth of small and medium scale enterprise.
1.4 Research questions
- What is the impact of economic policy on the performance of small and medium scale enterprise?
- What kind of economic policy can influence the performance of small and medium scale enterprise?
- What are the factors limiting the growth of small and medium scale enterprise?
1.5 Significance of the study
This study on the impact of economic policy on the performance of small and medium scale enterprises will enlighten the entrepreneurs and the general public on how economic policy can positively or negatively affect the growth of small and medium, scale enterprises. It will as well be a useful guide for the government in formulating policies that will contribute to the nation’s GDP through the growth of small and medium scale enterprises. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.
Chapter Five
Conclusion And Recommendation
5.1 Conclusion
SME firm was selected because they hold an important position in the economy, especially from the point of persuasion of the growth of local and regional economic systems. This is important for at least three parties, clients, companies, and the relevant authorities’ bodies, to strategize on continuing the existence of the effect in SMEs by accordingly controlling the selected elements. This study found the relationship between economic policy and SME firm performance. Likewise, economic policy has a major impact on the competitiveness of SMEs. Conceptually, the study indicates that SME firm performance varies with the choice of the economic policy they adopted.
Conceptually, the survey shows that the performance of SME varies with the choice of the economic policy, spatial relations and guidelines of government, schemes and incentives and support arrangements for the individual sector.
5.2 Recommendation
The government has to take the lead by extending their reforms to the educational and industrial sectors especially as regards policy formulation and implementation, port reforms, transportation sector reforms, revamping the infrastructural facilities, value re-orientation and reduction of bribery and corruption to the barest minimum if not totally eradicated. Given efficient and effective execution of these as well as the political will and good leadership and followership, the SME sector will certainly be an effective tool for rapid industrialization of the Nigerian Economy.
Hence, this study recommends that Government should as matter of urgency assist prospective entrepreneurs to have access to finance and necessary information relating to business opportunities, modern technology, raw materials, market, plant and machinery which would enable them to reduce their operating cost and be more efficient to meet the market competitions. In the light of policy implication, understanding the factors hindering the growth and survival of SMEs in Nigeria will help policy makers – governments (federal, state, and local), NGOs, and other stakeholders to design targeted policies and programs that will actively stimulate innovation, as well as helping those policy makers to support, encourage, and promote SMEs for poverty alleviation in Nigeria.


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Frequently Asked Questions
What is the impact of SMEs on economic development?
Impact of SMES on Economic Development. Many economies, developed and developing have come to appreciate the value of small businesses. This is because small businesses are characterised by dynamism, innovations, efficiency, and their small size allows for faster decision-making process.
What are the external and internal factors that affect the performance of SMEs?
There are external and internal factors that determine the poor performance of SMEs, consequently affecting the economic growth, leading to fewer outcomes. External factors are those that belong to the macro-environment that is; the political, economic, social, technological, environmental, and legal and can not be controlled.
Why are SMEs important?
Small and Medium scale Enterprises (SMEs) are important for successful economic growth and social development. SMEs, properly supported, foster Entrepreneurship – a proven pre-requisite for national economic success. Public and private policy support of SMEs is most effective when SMEs are part of the formal sector.
How much do SMEs contribute to Zimbabwe’s economy?
The recent statistics as per the Ministry of Small and Medium Enterprises of Zimbabwe show that SMEs presently contribute about 12% of the GDP as well as 27% of employment. This is a much better economic scenario than the past, promising better economic stability.
What is the importance of SMEs to the global economy?
Nowadays, the importance of SMEs has been recognised worldwide and their immense involvement to economic growth, community organisation, employment, catalysts of growth, innovation and skills and development.
What is the role of SMEs in the development of Africa?
SMEs account for over 95% of enterprise and 60%-70% of employment, and generate a large share of new jobs in Organisation for economic Co-operation and development economies. (OECD Africa).
What are the macroeconomic variables that affect SMEs?
Various macroeconomic variables play an important role in an economy in relation to SMEs, including Unemployment, inflation, and economic output. These macroeconomic variables mostly and usually have a key role in the economic development of many countries.
What is the contribution of SME to the generation of employment?
Generation of Employment, Studies show that SMEs account for a large proportion of employment in many countries. In Nigeria, SMEs contribution is about 30% to global GDP. SMEs play a critical role of principal safety net for the bulk of the population in developing economies.
What is the most influential factor affecting the internationalization of SMEs?
The influential factors were identified as external factors, internal factors and networking factors which considerably affect the decision of SME’s regarding internationalization. Other than that, it also aims at assessing the most influential factor affecting internationalization of SMEs.
Which factors inside or outside a business organization have a profound influence?
It is absolutely that every factor inside or outside a business organization has a profound influence on business activities. In other words, internal and external environment create a business environment.
Why do Malaysian SMEs continue to struggle in the global market?
The study finds that, despite various supports offered by the government, Malaysian SMEs continue to struggle in the global market due various factors including market knowledge, technological and skills capabilities, and products quality.
Do SMEs contribute to the global export growth?
They have now grown to be the largest cluster of industry. SMEs also have the chance to be the dominant driver of export growth and suggest that SMEs actively participate in the export efforts, but the contribution diverge between countries.
What is the importance of SMEs in the modern economy?
SMEs are particularly important nowadays in any economy. They are the source of a significant share of job creation in any modern day economy. It has been seen that a large share of the unemployment reduction in many countries around the world in recent times, has been due to SMEs.
What do SMEs stand for?
SME finance solutions What do SMEs stand for? Why are SMEs important? How many SMEs are in the world? How can government support SMEs? What Does the World Bank Do? Who World Bank Works With? What do SMEs stand for? SMEs represent Small and Medium Enterprises that imply organizations that size between the home office and the larger enterprise.
What are the advantages and disadvantages of SMEs?
The biggest advantage of SMEs is that it provides employment to a whole host of people, who otherwise may not have got employed. SMEs will however thrive more when the economy does better as a whole. In case the economy is volatile, then SMEs face a risk of going under, as they all survive on a small budget.
Why small and medium sized enterprise (SME) is important in import/export?
Why Small And Medium Sized Enterprise (SME) Is Important In Import/Export? SMEs are particularly important nowadays in any economy. They are the source of a significant share of job creation in any modern day economy.
What is the role of SMEs in Zimbabwe’s economic development?
The revitalisation of the small to medium enterprises (SMEs) sector will greatly contribute to the socio-economic development of Zimbabwe if all stakeholders work towards creating an enabling environment for growth. SMEs in both developing and developed economies have proved to be engines for economic growth.
How big are SMEs in Zimbabwe?
SMALL-to-medium enterprises (SMEs) in Zimbabwe are now making up about 70% of registered taxpayers and contributing close to 20% to tax revenue following the collapse of the formal sector in recent years, an official has said.
How much do SMEs contribute to the global economy?
For example, in the US and EU countries it is estimated that SMEs contribute over 60 percent in employment, 40-60 percent to Gross Domestic Product (GDP) and 30-60 percent to exports.
Does the SME legend provide a sufficient economic contribution in Turkey?
These data show that the SME legend does not provide a sufficient economic contribution in Turkey. In medium-sized enterprises, the added value is $ 1,860,013 per facility and $ 10,274 per person. These values increase in large enterprises.


