CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Policy is the definite course or method of action selected from among alternatives to guide and

determine present and future decisions (Seth, 2020). Policy can also be defined as making

decisions that reflect values and allocating resources based on those values. Government policy

refers to a plan or course of action of a government, political party, or business, intended to

influence and determine decisions, action and other matters. Overtime, government policies have

not been stable as a result of different administration with different ideology and plans. And this

really leads to a major setback in the survival, development and growth of small and medium

scale enterprise in Nigeria. Most of government intervention fails to create a much needed

transformation due to poor coordination, monitoring and policy inconsistency (Seth, 2020).

Government policy refers to a set of principles, guidelines, and actions adopted by a government

to achieve specific objectives and address societal issues. It serves as a framework for decision-

making and governs the actions and direction of a government in various areas, such as the

economy, education, healthcare, environment, foreign affairs, and social welfare. Government

policies are typically developed through a combination of research, analysis, consultation, and

political considerations. The concept of government policy encompasses both the process of

policy formulation and the resulting plans or strategies implemented by the government. It

involves identifying issues and problems within society, setting goals and priorities, and devising

strategies to address them. Policies can take various forms, including laws, regulations,

programs, initiatives, and fiscal measures. (Elthon, 2024).

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Government policies are influenced by a range of factors, including political ideologies, public

opinion, economic conditions, social trends, technological advancements, and international

relations. Policies are designed to shape and guide the behavior of individuals, businesses, and

organizations, as well as to promote the overall well-being of society. Examples of government

policies include: Economic Policy where Governments formulate policies to manage economic

growth, control inflation, promote employment, regulate trade, and stimulate investment.

Education Policy where policies related to education focus on ensuring access to quality

education, improving literacy rates, developing curriculum standards, and enhancing educational

infrastructure. Healthcare Policy where governments develop policies to provide affordable and

accessible healthcare services, regulate healthcare providers, address public health concerns, and

promote research and development in the medical field and lastly Environmental Policy where

Policies aimed at protecting the environment involve measures to reduce pollution, conserve

natural resources, promote renewable energy, and address climate change.

However, the present government has formulate various policies aimed at increasing job

opportunities, development of infrastructure as well as income generation through agric

businesses and improving the performance and competitiveness of the existing enterprise in

Nigeria. Small and medium scale enterprise has been considered as the engine room of economic

growth and for promoting economic growth and for promoting equitable development in Nigeria.

Their contribution to the Nigerian economy is widely acknowledge because they cut across all

sector of the economy and provide many employment opportunities and generate wide spread of

economic benefit (Obasa, 2023).

Therefore, the small and medium scale enterprise are important sector that need to be adequately

factored into policy making and programme implementation in Nigeria because they are widely

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recognize for their role in social, political and economic development in Nigeria through

providing reasonable price goods, services, income and to a number of people.

Key area of government policy that affects small and medium scale enterprise in Nigeria is

Taxation policy. Taxation policies do affect business cost. For example, a rise in corporation tax

(on business profit) has the same effect as increase in costs.

Other major problem facing small and medium scale enterprise in Nigeria are, poor financing,

inadequate infrastructural facilities, low entrepreneur technical skills, poor policy implication,

lack of continuity, poor accounting system, etc. All the problem as stated will be consider in the

research work and adequate solution will be discuss further. However, the researcher will in this

chapter provide an introduction on the impact of various government policies on Small and

medium scale enterprises.

1.2 Statement of the Problem

Governments set out the rules and frameworks in which Small and medium scale enterprises are

able to compete against each other. From time to time, the government change these rules and

frameworks forcing small and medium scale enterprises to change the way they operate (Essien

& Udofia, 2016). Small and medium scale enterprises are thus keenly affected by government

policy. One of the key area of government policy that affects small and medium scale business is

taxation policy. 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. Some of other key areas of

government policy that affects small and medium scale business are highlighted below:

 Poor implementation of government policies

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  Lack of entrepreneurial and technical skills on the part of prospective entrepreneur to

manage her business enterprise

 Frequent changes of government policies affect the growth of small and medium scale

enterprise

 High cost of raw material

 High interest loan change by financial institutions. Inadequate infrastructural facilities

However to look into this situation, the researcher has decided to focus the research work on the

effect of government policies on the growth of small and medium scale enterprises in Nigeria.

1.3 Research Questions

In order to adequately address these issues, the following research questions will be looked into:

i. What is the impact of government policy on the growth of small and medium scale

enterprise?

ii. What kind of government policy can influence the growth of small and medium scale

enterprise?

iii. What are the factors limiting the growth of small and medium scale enterprise?

1.4 Objectives of the Study

The general objective of this study is to examine the effect of government policies on the growth

of small and medium scale enterprise in Nigeria while the following are the specific objectives:

1. To ascertain the impact of government policy on the growth of small and medium scale

enterprise.

2. To determine the nature of government policy that can influence the growth of small and

medium scale enterprise.

3. To identify factors limiting the growth of small and medium scale enterprise.

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1.5 Hypothesis of the Study

The following hypotheses stated in null form were tested in this study:

HO: Government policy does not affect the growth of small and medium scale enterprise

HA: Government policy does affect the growth of small and medium scale enterprise

1.6 Significance of the Study

Entrepreneurs: This study on the effect of government policy on the growth of small and medium

scale enterprises will enlighten the entrepreneurs on how government policy can positively or

negatively affect the growth of small and medium, scale enterprises.

Government: 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.

Scholars and researchers: 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.

Organization: This research will enable organization to establish the legal and regulatory

framework within which organizations operate and these policies define the rules, guidelines,

and standards that organizations must follow, ensuring fair competition, consumer protection,

and environmental sustainability. Compliance with government regulations is vital for

organizations to avoid penalties, fines, and legal consequences.

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1.7 Scope of the Study
This research covers the overview of the different government policies and how they can

influence the growth of small and medium scale enterprises. It also covers investigations into

different kinds of government policies and how they affect the growth of small and medium

scale business. Factors that generally affect the growth of small and medium scale enterprises

will also be considered in this research. However, the scope of the study is limited to Ola-Folabi

and Company, Osogbo, Osun State. Ola-Folabi and Company, Osogbo, Osun State is a medium

scale business that deals with the supply of foams and paints. Its headquarter is situated in

Osogbo, Ila Orangun, Osun State and other three (3) different branches in Osun state.

1.8 Definition of Terms

Government policy: A plan or course of action, as of a government, political party, or business,

intended to influence and determine decisions, actions, and other matters

SMEs: This is an enterprise that has asset base (excluding land) of between N5million –N500

million and labour force of between 11 and 300.

Tax: A compulsory contribution to state revenue, levied by the government on workers' income

and business profits, or added to the cost of some goods, services, and transactions

Subsidies: A sum of money granted by the state or a public body to help an industry or business

keep the price of a commodity or service low.

Economy: the state of a country or region in terms of the production and consumption of goods

and services and the supply of money.

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 CHAPTER TWO

LITERATURE REVIEW

The Impact of Government policy on the growth of small and medium scale businesses has

become a nationwide issue. As a result, it has attracted many reactions from prominent people in

private and public sector including the government. Many developing countries have

consequently becomes increasingly aware of an interested in assessing the role that small and

medium scale enterprises might play in their industrialization process. Hence, this chapter will

examine some vital literature under several topics to shed light on this work. Some other writers

made immense contributions on topic related to this course of study in wider horizon. In the

Nigeria economy, attention have drawn to the fact that small and medium scale enterprise has

very little attention, whereas they provide employment for approximately triple the number

engage in large scale manufacturing as well as playing their roles of crucial importance to the

developing economy. This is why it is important to reconsider the constraints hindering the

growth of their sector.

2.1 Conceptual Review

2.1.1 The Concept of Small and Medium Scale Enterprises

The concept and definition of small and medium scale enterprise is dynamic in character and

varies with time and also varies among institutions and countries. Not with standing, the basic

definitional parameters are not the same. They include numbers of employees, Assets and

turnover. Sule (2016) stated that, it is evidence around the world that small and medium scale

enterprise provide an effective means of stimulating indigenous entrepreneurship, enhancing

greater employment opportunities per unit capital invested and aiding the developing of local

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technology. Small scale enterprise: An enterprises with a labour size of 11-100 workers or a total

cost of not more than 50 million including working capital but excluding cost of land (Sule,

1986:2007) while medium scale enterprises is an industry with a labour size of between 101-300

workers or a total cost of over 50 million, but not more than 200 million including working

capital but excluding cost of land (Clifford, 2020).

Small and Medium Scale Enterprise definitions can also be broadly categorized into two,

“economic” and “statistical” definitions. Under the economic definition, a firm is regarded as

small if it meets the following three criteria “has a relatively small share of their market place”

“is managed by owners, or part owners, in a personalized way and not through the medium of a

formalized management structure; “is independent in that it is not part of a larger enterprise”.

Small Scale Enterprises are non-subsidiary, independent firms which employ less than a given

number of employees. This number, however, varies across countries. (William, 2015).

Jordan (2017) defines small and medium scale enterprise as firms with less than 100 employees

and less than a turnover of EUR 15 million. In February 1996, the European Commission

adopted the definition for Small Scale Enterprises as firms with less than 250 employees, less

than EUR 40 million turnovers and less than EUR 27 million total assets.

In Nigeria, Small Scale Enterprises is any enterprise with a total capital employed of not less

than N1.5 million, but not exceeding N200 million (including working capital but excluding cost

of land) and with the staff strength of not less than 10 and not more than 300 workers (Obamuyi,

2010). Small Scale Enterprises all over the world play important role in the process of

industrialization, economic growth, and sustainable development of any economy. (Ariyo, 2015).

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According to CBN (2018), small and medium scale enterprise are critical to the development of

any economy, as they possess great potentials for employment generation, improvement of local

technology, output diversification, development of indigenous entrepreneurship and forward

integration with large-scale industries. Kpelai (2013) stressed that, Small Scale Enterprises are

the engine room for economic growth. The major challenges of Small Scale Enterprises in the

country are: unfriendly business environment, poor funding, low managerial skills and lack of

access to modern technology. Among these, shortage of finance occupies a very central position

(CBN, 2011) which may be due to the risky nature of small and medium scale enterprise.

In Australia, the Wiltshire (2015) defines a small business as: a business in which one or two

people are required to make all the critical decisions (such as finance, accounting, personnel,

purchasing, processing or servicing, marketing, selling) without the aid of internal specialists and

with specific knowledge in only one or two functional areas. The Department of Industry,

Technology and Commerce employs a definition of a small and medium scale enterprise that is

based on the following characteristics:

a. Independently owned

b. Closely controlled by owner-managers who have responsibility for principal decisions

c. Owner-managers contribute most, if not all, of the capital

d. Operations are locally based, although its market might not be.

Most definitions are based on size and number of employees, financial position or annual

turnover. The International Accounting Standards Committee Foundation (2017), states that,

small and medium scale enterprise does not have public accountability and do not publish

general purpose financial statements for external users such as banks and insurance entities. It

establishes small and medium scale enterprise as entities which do not have the onerous

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requirement of filing their financial statements with any regulatory body for the purpose of

issuing financial instruments. These entities do not hold assets in any fiduciary capacity for a

group of outside investors but the owners, who usually are also managers.

However, small and medium scale enterprise have been generally acknowledged as the bedrock

of the industrial development of any country. Apart from the numerous goods and services

produced by Small Scale Enterprises, they provide a veritable means of large scale employment,

as they are usually labour intensive. They also provide training grounds, for entrepreneurs even

as they generally rely on the use of local raw materials. If well managed, small and medium scale

enterprise can gradually transform into the giant corporations of tomorrow. These contributions

thus explain why government and international agencies mobilize efforts towards the realization

of sustainable industrial growth and the creation of mass employment through the rapid growth

and development of the small and medium scale enterprise (Nnanna, 2015).

2.1.2 Why Small and Medium Scale Enterprises

The choice of small and medium scale enterprise within the industrial sector is based on the

following propositions: Small and medium scale enterprise

1. SMEs mobilize funds which otherwise would have been idle;

2. They have been recognized as a seed-bed for indigenous entrepreneurship;

3. They are labour intensive, employing more labour per unit of capital than large enterprises;

4. They promote indigenous technological know-how;

5. They are able to compete (but behind protective barriers) – thus has less foreign exchange

requirement.

6. They cater for the need of the poor; and low income earners.

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7. They adapt easily to customer requirement (flexible specialization). Ibik (2019), according to

his book, stated the economic and social need for SMEs as follows;

i. Creation of Employments: Small and medium scale enterprise employ more labour per

unit of capital and less capital per unit of output, therefore, an efficient way of creating

employment. As we can observe in third world countries that are yet to develop,

unemployment should be one of the principle cause that resulted to mass poverty and

there is no real possibility that increases in output in existing agricultural and industrial;

output in existing agricultural and industrial enterprises will absorb the current excess of

e.g in Nigeria today unemployment is on high side which has decrease in labour that is

finally affecting development in the future. In USA today, so many Nigeria over there are

under the employment of small business sector which confirm that small business plays a

very vital role in employment and development of so many countries.

ii. Independence/Self Reliance: small and medium scale enterprise makes people in the

third world countries rely on home made goods and not much on foreign goods. This also

makes goods and services available to the needy at any point in time even in the Western

world.

iii. Acceleration of the Development of both the Urban and Rural Areas: With more

enterprises in the community, more infrastructural facilities are attracted, like good roads,

electricity, mobile phone services etc, more people get employment and they are able to

better their standard of living and save for investment. All these, accelerate development

both in the urban and rural area. For example, if more enterprises are established in the

rural areas people from that area get employed and at the end of the month they are paid,

this means getting more income, they can improve their standard of living and they may

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 also think of improving their lot by embarking on community development like building

hospitals, school and rural electrification etc.

iv. Direct Creation of Wealth by Increasing Contribution to the Gross National

Product (GNP): The Gross national product (GNP) is the total naira value of all the gods

and services produced in the country in a particular year. If the GNP increases each year,

it is a sign that the economy is growing and wealth is being created. For example, if in

1990 the number of enterprises in the country were two hundred and six (206) and by

1998 it has increased to three hundred and forty two (342), it means that more products

and/or services have been introduced or are available in the economy and thus, increasing

the GNP. This increase has been achieved by the establishment of new small and medium

scale enterprise. Anietal (2017).

v. Increase in Revenue base of Government: This occur through various form of taxes,

including persona and company taxes, SMEs contributes to increasing government

revenues.

vi. Utilization of Local Resources: small and medium scale enterprise are know for their

creativity in the utilization of local raw materials that do not require high level

technology to process. In Nigeria, for instance SMEs are concentrated in such enterprise

as food processing, textile wood work, leather product, soap and detergent sub-sector that

require simple technology and the raw material are in abundance. Small enterprises as

recycle discarded by product of large firm as a primary input in their own productive

processes (Sule, 1986, these is why government or many countries show interest in the

promotion of SMEs.

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2.1.3 The Constraints of Small and Medium Scale Enterprises

The economic history of industrial countries points to the obvious fact that surest to an industrial

revolution is through small and medium scale enterprise. We have also come to know the

obvious importance of SMEs and their contributions to the national economy. Experience has

shown that when given proper attention SMEs contributed to the national development

unfortunately, despite the importance of small and medium scale enterprise in the economy of

the nation, the sector is still having some constraints. Following these constraints therefore, many

eminent and ordinary people writing on this issue have been quoted in various circumstances

concerning these constraints and their corresponding solutions.

1. Lack of Fund

One of the main constraints is lack of fund, writing on this Moh, (2021) stated that; “there is

hardly any doubt that the core of the constraints in the business sector is one with a financial

coloration. Most of the sector problems in the areas of production, marketing and indeed general

management can be resolved by a financial solution. Therefore, capital is critical for the efficient

organization of all productive activities. He continued that although various institutions that are

presumably supposed to provide credit to the small business sector exist such as the bank,

ministry of industries loan scheme, World Bank small business loan, NBCI etc, their impact has

remained largely minimal. Unlike large enterprise, lending to small business is thought to be

inherently a more risky understanding principally due to the following:

a. lack of Adequate Data Base and Track Record

b. Insufficient collateral

c. Relative high cost of administering and monitoring small loan portfolios.

d. High rate of default:

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In practice, it would appear that banks prefer to pay stipulated fines rather than comply with

Central bank of Nigeria provisions. Indeed access to loans SMES is really difficult especially in

these days. In support of the above view, Ovuorie (2015) in his article “coping with small size

business” noted that: “small scale businesses in Nigeria have very little or no access to loanable

funds. Lending institutions conspicuously; everybody wants to do business with millionaire. It is

not surprising therefore that SMES operators end up in the ugly trap under investment. This leads

to very low returns on capita which in turn leads to the premature death of the business.

Writing on the same view Jarret, (2017) in this book noted that: “the dilemma of the less

developed countries is that it can provide only very limited capital income of its people is so low,

since this is the case, there is a corresponding limitation upon capital investment and this in turn

means that productivity and therefore income remains low” This is main reason why for so long

par countries have remained poor, they are in the grip of economic situation which is very

difficult indeed to change. Writing on the same view Callaway (2015) a study of 225 businesses

in Ibadan observed that, the majority of the entrepreneurs mentioned capital shortages as the

greatest obstacle to their business expansion. In his contribution, Shanon, (2017) in book under-

developed Area” a book of reading and reach stated that:

“The business man’s lack of capital makes him dependent on his supplier for credit; and upon his

customers, and his financier is one person, his position deteriorates to one compete dependence”

Uzowulu, (2018), mentioned difficulties in obtaining local and foreign finance for the big

projects as one of the major problems of SMEs.

Marsha (2016) in his articles “self Reliance and small enterprises” stated that “the problem of

finances is characteristics of small scale industries in both the developed and the developing

countries. Indeed virtually all the other problems confronting small scale industries emanate

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from lack of finance. “Dr. Masha also observed that small scale enterprise often lack knowledge

of the right sources of finance for investment and working capital. In addition, institutional

sources of funds are often unwilling to provide facilities for these enterprises. This made the

SMEs to fact the perennial problem of shortage of working capital which hinders their ability to

produce efficiently. The result is that many SMEs have to depend on alternative sources of

capital in the form of family savings or borrowing from middlemen and money lenders where

interest rate, collaterals and terms of repayment are much more exacting than those of the normal

banking institutions.

2. Lack of Infrastructural Facilities

Inadequate provision of essential services such as telecommunication, access roads, electricity,

water supply constitutes one of the greatest constraints to SMEs development. Most SMEs

resorts to private provisioning of these at great expense. A World Bank study (1989) estimated

that cost accounted for 15-20 percent of the cost of establishing a manufacturing enterprise in

Nigeria. Contemporary evidence has shown that the relative burden of the private provisioning of

infrastructural facilities is such heavier on SMEs than on large scale enterprise.

3. High Rate Enterprise Mortality

The incidence of inadequate working capital, which constraints productive capacities of the

SMEs as well as absence of succession plan in the event of the death of the proprietor, leads in

many cases to frequently early demise of SMEs. Moreover, the persistence of unstable macro

economic environment, arising mainly from fiscal policy excesses has other smothered many

SMEs.

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4. Financial Indiscipline

Some SMEs proprietors deliberately divert loans obtained for project support to ostentatious,

expenditure. Others refuse to pay back as and when due. The interest and the principal;, because

of political involvement and the misconceived notion of sharing the so called national cake.

5. Lack of Experiences And Training

Another serious problem is lack of experience and training. Many apparently successful buiness

owners often neglect the need for experience and training. they rely on their skills and talent,

completely ignoring the need for experience in accounting, personnel, advertising, budgeting,

purchasing and other aspects of management. Again, many business failure results from

situations where people go into business without previous experience, so farmers, civil servants,

lorry drivers etc in the past entered into business because when they saw traders making money,

they felt the business was very easy and profitable profession. They were doomed to fail because

they never had thorough preparation before launching their business. Writing on lack of

experience, Dennis, (2016) stated that: “The ultimate failure of business could be directly

attributed to lack of experience in accounting, purchasing, advertising, budgeting, pricing and

other aspects of management”. To support the above view, Onyemelukwe (2016) in his book

tiled “problems of industrial planning and management in Nigeria” stated that” it is well

accepted that lack of necessary know how is the main cause of the slow rate of industrialization

in Nigeria”.

6. Poor Location

The location of a business plays a major role in overall performance. Business local calls for a

place that suits the particulars business to be located and certain factors are considered. When the

choice of location is poorly made it will surely affect the activities of such business. It is for this

reason that promoted Jorenem (2013) to state that: “A poor location is a serious handicap to any

16
business. Often the reason for a venture’s shrinking sales has been attributed to the declining

quality of the location”. He added that, for a manufaturi1ng enterprise finding the right location

involves the selection of the region or town with low transport cost reasonable amount or

relevant labour, power-supply, accessibility to suppliers and customers, and freedom from

burden – some local regulation and taxation.

To support the above view, Tootelianetal (2016) also observed that a “poor or mediocre location

is a severe handicap to any business whether soap factory, advertising agency or piano store. He

added that often the reason for a firm‟s shrinking sales can be traced directory to the declining

quality of the locative advert.

7. Marketing Constraints

One of the unnoticed grave problem facing small scale entrepreneur is marketing of her products.

The small scale businessman experiences tremendously difficulties finding the appropriate

market for her products, and even when the market is there, the technique of identifying the

proper distribution channels may be another set of problem, this made Jorenem (2013) to

comment that: Small business owners often don‟t see the need for advertising or sales

promotion. Most of them hardly go beyond erecting a signboard which merely indicates their

location. Hardly do they realize that effective advertising wakes prospective customers to

develop strong opinions on their products in particular and the firm in genera; The first concern

of every business is to get and keep customers. The best products, equipments, facilities and

personal avail nothing unless they stimulate sales. Few products are electrifying. However and

rarely is the old myth true about a better mouse trap bringing the world to one‟s door unless

revolutionary inventions or service s are brought to the attention of the public, they have little

chance of being sold. To build customer awareness and demand an organized and vigorous

marketing Champaign is essential. A complete marketing strategy includes not only personal

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salesmanship, but also a saleable line of products or services, appropriate pricing, and a good

business location.

8. Lack of Planning and Budgeting

Without proper planning and budgeting any small scale business is bound to fold up after a year

or two of operation. In Nigeria situation, most SMES do not make proper planning and

budgeting of their scare resources. Most of them do not have any plan for the future, they give

insufficient attention of planning. Take the case of civil servants who jumped into business

during the 1975 purge when they were dismissed from service. They are certainly not prepared

for business and because of this many of them failed. Some are promoted to go into business in

order to make a living to support the family when an attractive job is not at hand such business

owners might lack the necessary managerial skills of planning and budgeting for business

success. Writing of this, Alonge (2012) stated that; “The importance of proper planning and

budgeting cannot be over emphasized. The experience of many thousand of small or newly

started business attests to the need to understand and learn now to perform these essential in the

financial areas”. He added that “entrepreneurs may be excellent sales people and may be able to

superbly market their products, but if they cannot properly plan and budget, their business will

fail”.

9. General State of the Economy

In the heat of ongoing economic recession the collapse of small scale enterprises has created

considerable concern in Nigeria. According to Ifedi (2012) “recent surveys in Nigeria highlight

various symptoms of business failure. Some of the factors mentioned derive from SAP. He added

that companies may come across difficulties caused a downswing of an economic cycle or the

ups and downs of business. On his own part, Boswell (2017) stated that; “General state of the

economy is a key influence very broadly in years of economic „squeeze‟ and slowdown fewer

18
new businesses seem to be set up, also the number of Bankruptcies and liquidations tends to be

high. Conversely in boom years more firms enter the field and relatively few are forced out, as

one world except”.

10. Unwise Competition with the Big Firm

Some of the SMEs not minding their size of operation try to rub shoulders with the bigger firms

in trying to gain share in the market, this often led them to serious problems. Commenting on

this, Tootelianetal (2016) Stated that; “In spite of limited resources, many smaller entrepreneurs

attempt to challenge large, strong concerns for a share of the market. After rude awakenings they

belatedly recognize that the corporate giant with its volume production and massive economies

of scale has greater capacity of offer similar products in broader product line less money.

11. Inaccurate Pricing

Some small SMEs in their bid to complete with large enterprise or because they know nothing

about costing usually mess themselves up financially when they sell at prices that are very low in

order to sell off their products in the competitive market. Tootelianetal (1976) have also

comments that “prices or service fees set too low to recover costs and still finish a reasonable

profit plague many small enterprises. Some operators are forced into this situation by general

prices decline in the market while others are trapped by trying to compete with larger, stronger

enterprises. Frequently this practice, they continued, results from ignorance of actual company

costs and pricing theory”.

12. Unfavourable Government Policies

Obliviously, there are some decrees and polices which the government impose of SMEs which

instead of aiding its growth, scare away investors. The government acts as a secondary and

tertiary party through official control and administration of polices by its use of weapons such as

tariffs, subsides, various taxes and other ordinance. These policies present obstacles to the

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development of private Nigeria centerpieces. Writing on this Ifedi (2012) stated that;

“Government intervention can be disruptive such as price control, new taxes interest rates or

under interference with market forces”

Other reasons for business failure according to Ifedi include; bad corporate communication,

ageing product arising from lack of innovation and inability to keep up with change in

technology, bad luck in which a thriving firm suddenly fall in the face of a misfortune such as an

accident or unforeseen tragic event, massive frauds in which managers misuse their positions to

run down the SMEs tragic event, massive frauds in which managers misuse their position to run

down the SMEs they are supposed to build up, there are occasions in which the SMEs expand

too fast and run short of cash, managers many lose control because the SMEs affairs becomes

too complex for the information system, to cope with some SMEs should not have started in the

first instance as there was no proper feasibility study or market reassert.

2.1.4 The Role of Central Bank of Nigeria towards SMES Financing

One of the developmental role of the Central Bank of Nigeria as the apex of final institution in

the country is to facilitate the flow of financial to the needy areas of the economy, the section

therefore, is to provide an overview of the role of CBN of Nigeria in SMEs financings, the

objectives of the CBN, highlighting the need for the developmental roles of the bank. The

support of the CBN in the past institutional arrangement for the SMEs will also be considered,

furthermore, an overview of the current financing initiatives and proposal on the way forward

will be discussed. The role of capital in enterprise growth and development has been recognized

over the years and well documented in various literatures. Capital is needed for the establishment

of new businesses as well as the expansion, modernization and diversification of existing ones.

Although, there is evidence that there are many bottlenecks in the growth and development of

20
enterprises in Nigeria such as difficulties in local sourcing of raw materials, capital; inadequacy,

poor managerial and technical know how. In recognition of this and in order to address the

problems, various efforts and polices have been put in place.

Consequently, the CBN has been very active in the establishment and development of the

Nigerian capital market. The Nigeria capital market is a source for raising long-term finance for

project development in both public and private sectors. The capital market deals in both

government securities (which are issue, managed by CBN) and private ones. The volume of

private securities was boasted in 1978, following the implementation of the Nigeria enterprises

promotion scheme which the CBN through it‟s monetary and credit policy effectively facilitated.

Also, in order to endure steady availability of long term finance to enterprises, the CBN

contributed to the establishment of Development Finance Institution (DFIS) in which the CBN

hold substantial equities shares. The CBN also facilitated the setting up of the N100 million

agriculture credit guarantee up to a maximum of 75 percent of commercial and merchant banks

agricultural sector. The fund is currently managed by the CBN, other institutions, which the

CBN facilitated their establishment, include the Nigeria export, import Bank which was

established in 1991, provides expert financing and export related service such as rediscounting

and refinancing facilities and stocking facility to export firm CBN, (2014). These developmental

roles of the Bank have been justified on the following grounds.

 Acute Shortage of capital and Low Rate of Domestic Saving Independence: The

Nigeria economy as at 1960, was characterized by acute shortage of capital and low rate

of savings. There as therefore the need to generate savings within a short time to enhance

economic development.

21
  Need for Requisite Institutional Framework: The traditional functions of the CBN

would be hampered if the bank did not undertake some developmental functions. For

instance, issuance of legal tender currency as well as the execution of monetary policies

would fail in the absence of concomitant development of money and capital markets.

even now, the inquiring problems in these markets still constraints the smooth

transmission of monetary polices.

 Need for a Sustainable of Economic Growth: There is need to have a government

agency capable of carving out a growth path for the economy. This is common to

emerging economies. The CBN therefore is to ensure the development of the economy

through establishment and nurturing of requisite institutions that would facilitate the

allocation of resources for instance both the agricultural and industrial sectors of the

economy needs supportive policies the much needed employment and transformation of

the economy.

This is an appreciation that the achievement of macro economic stability which the bank pursue

would be better facilitated in the performance in the real sector is enhanced and focused, such

that demand pills inflation can be controlled through improved productivity. In a nutshell, an

appreciation that the sources of the traditional functions of the CBN requires an enabling and

conducive productive environment which is a prerequisite for the growth and development of the

economy provides a strong basis for the development roles of CBN(CBN, 2000).

2.1.5 The Contribution of Commercial Bank to the Growth of SMEs

Commercial banking institution in Nigeria can be classified into two. The purely indigenous

bank owned 100% by Nigeria (Government and individuals) and the mixed banks with a

majority indigenous shareholding at least 60% equity and minority foreign interest as Nigeria

22
law does not allow the establishment of foreign bank with a majority foreign interest (Femi,

2016).

Type of Credit Facilities

Commercial banks are more interested in providing short team loan facilities to their customers.

These are:

a. Loan account: The loan is mainly used to supplement what they already have. The amount

granted is generally small and it is repayable in the shortest possible time.

b. Overdraft: Commercial banks also lend funds to their customers on overdraft, and funds

advanced on this basis are in theory repayable on demand, while interest in payable on the

outstanding balance on a daily basis. It is generally granted to business customers large, medium

and small scale enterprise. An overdraft is granted until can be renewed as long as the bank

consider that the customer is still “good risk”.

The Primary Function of Commercial Bank to SMEs:

i. The Extension of Credit to Worthy Borrowers.

a. They are vehicles for implementing government national development plans.

b. They make funds available for general development in all aspect of the economy

ii. Business Advisory Services: The main aim of this advisory services is to assist small

business customers to develop their business in such a way they can attract bank finance.

Entrepreneurs are taught how to introduce simple record keeping and accounting in their

operations. Commercial Banks help SMEs in national and international business transaction for

instance giving letters of credit, bill of exchange etc to facilitate business transaction. Because

government has substantial ownership interest in the commercial bank in Nigeria, they have

served as an indirect means by which the business enterprises operate. In 1980, the Central Bank

23
of Nigeria (CBN) credit policy guideline required the commercial banks to allocate a minimum

of 16% of this total loans and advances to small scale enterprise and since then, the commercial

banks has increased their loan portfolio to the private sector enterprise because of government

policy of the development of the development of the nation economy through the private sector.

2.1.6 Role of Small Scale Enterprises in Economic Development

Small Scale Enterprises have a number of significant contributions to the economic growth and

development of Nigeria. Ariyo (2018) affirms that SMEs account for 97% of all businesses in

Nigeria employs 50% of Nigeria’s workforce and produce 50% of Nigeria’s industrial output.

Moreso, Small Scale Enterprises enhance the distribution of economic growth in a decentralized

and more equitable manner, eliminating concentrated areas of population and enable equitable

distribution of wealth in an emerging economy (Nowduri, 2012). Small Scale Enterprises also

participate actively in the mobilization of the natural resources and reduce supply in the labour

market (Ogechukwu, 2011). The role of Small Scale Enterprises in an economy is enormous.

The following are some contributions of Small Scale Enterprises to Nigerian economic growth:

a. Small Scale Enterprises are sources of employment generation; this is because more jobs per

unit of investment capital and per unit of energy consumed are created worldwide by Small

Scale Enterprises than large scale enterprises, providing employment to a lot of unemployed

Nigerians.

b. Small Scale Enterprises provide a training avenue for the creation of local entrepreneurs in

several areas of Economic activities. They are regarded as training ground for developing

human capital and potential entrepreneurs who are well equipped to establish and

successfully manage business organizations regardless of size.

24
c. Small Scale Enterprises proliferation has increased the level of economic and social

development particularly in the rural areas. They are easily located in rural areas because

they can survive on rudimentary industrial infrastructures. Consequently, they serve as major

facilitators for industrial dispersal and rural development and thus help in mitigating the

rural-urban drift.

d. When Small Scale Enterprises are cited in rural areas, they help to improve rural

infrastructure and the living standard of the people. Social amenities such as: road,

electricity, pipe-borne water, telecommunication facilities, etc, are attracted to the area as a

result of the presence of SMEs.

e. Also, existence of Small Scale Enterprises has minimized the pressure and dependence on

government and large companies by job seekers for salaried employment. They provide

opportunities for the development of local skills and technological acquisition. The "Aba

made" syndrome is a clear example of such technological acquisition.

f. Further encouragement in this regard will give rise to rapid economic development.

g. Small Scale Enterprises act as catalysts to large enterprises through the supply of raw

materials and goods to them. They also engage in the distribution of finished products from

such big firms to the final consumers.

h. Sound development of Small Scale Enterprises has positive implications for improved

standard of living of the people. In addition, it generates foreign exchange for further

development of the economy.

25
2.1.7 Contributions of SMEs to Economic Development

There is a general consensus that the performance of SMEs is important for both economic and

social development of developing countries.

a. These enterprises have been recognized as the engines through which the growth

objectives of developing countries can be achieved.

b. They are potential sources of employment and income in many developing countries.

c. They perform useful roles in ensuring income stability, growth and employment. Since

SMEs are labour intensive, they are more likely to succeed in smaller urban centers and

rural areas, where they can contribute to a more even distribution of economic activity in

a region and can help to slow the flow of migration to large cities.

d. Due to their regional dispersion and their labour intensity, they promote a more equitable

distribution of income than large firms.

e. They also improve the efficiency of domestic markets and make productive use of scarce

resources, thus facilitating long-term economic growth (Kayanula 2012).

2.1.8 Government Policies and the Growth of SMES:

Over the years, the Federal Government has taken various steps, including monetary, fiscal and

industrial policy measures to promote the development of small and medium scale enterprise

(SMEs). Specially, the government has been active in the following areas.

i. Funding and setting up of industrial estates to reduce overhead cost.

ii. Establishing specialized financial institutions, including the small scale Industry Credit

Scheme (SSICSs), Nigerian Industrial Development Bank (NIDB), Nigerian Bank for

Commerce and Industry (NBCI) to provide long-term credit.

26
 iii. Facilitating and guaranteeing finance by the World Bank, African Development Bank and

other international financial institutions.

iv. Facilitating the establishment or the National Directorate of Employment (NDE), which

also initiated the setting up of new SMEs.

v. Establishment of the National Economic Reconstruction Fund (NERFUND) to provide

medium to long-term local and foreign loans for small, and medium scales businesses,

particularly those located in the rural areas.

vi. Provision of technical training and advisory services through the industrial development

Centre (Chibundu, 2016).

Although Government has been showing some concern to this sub-sector. Evidence still show

inadequate to the overall effort of the government to lessen the problem of this enterprise.

Concerning this, Ovuorie (2020) stated that “the establishment of the people’s Bank and

NERFUND has not solved the financial problem of small companies in Nigeria. What the

people’s Bank provide is not enough to do any serious business. And the technical details

required by NERFUND are beyond the scope of most small companies. Above all, the more fact

that the commercial banks are the executing organ of the FUND is enough to scare many small

scale businessmen away.

2.1.9 The effects of Government Policy on performance of SMEs

In every country, the existing governmental policies have the potential to affect the operation as

well as performance of every business. Such impacts can be explained from the technical point

of view. Base on this perspective, the specific governmental policies that can have direct or

indirect effects on businesses include taxation, subsidies, interest rates and exchange rates. The

27
government taxation policy has been widely recognized as one factor that can affect the

performance of every business. For instance, the imposition of high taxes on specific imported

products will ultimately encourage local businesses to produce more of such goods. But if the

taxation on raw materials required for local production is high, then the local entrepreneurs may

be discourage to commence or continue production. Any increase on corporation tax will have

the same impact as rising production cost. In order to cover such costs, business owners may be

forced to increase the price of their finished products. Other taxes that can have the same effects

include: value added tax (VAT) and environmental taxes. Even though VATs are specifically for

the final consumers, the business may incur considerable costs when administering the VAT

system.

The government’s financial policy and banks’ interest rates can also have considerable effects on

economy as well as the business environment (Okojie, 2013). For instance, if the bank’s lending

rate is high, then businesses will be discouraged to borrow from the financial institution.

Unfortunately, such trend will result to a considerable fall in the rate of investments, as

companies will not have enough money for more investments. It is important to note that the

government is primarily responsible for the creation of frameworks and rules that guide business

operations in the country. Such rules are not always constant, and may change from time to time,

thereby forcing entrepreneurs to change how they operate their businesses. Thus, government

policy can have huge effects on the operations as well as performance of business establishments

In every country, the government’s contribution to the nation’s economy remains the most

essential aspect of its economic policy. After the Second World War, several governments of the

world became increasingly involved in the economy, through the establishment of state run

industries. Many of these industries exist in form of public corporations. But the 1999 saw an era

28
of massive privatization, as many private investors took over the government owned

corporations. Nigeria is not left out in this trend. However, these private acquisitions make the

business environment to become even more competitive (Okojie, 2013).

2.2 Conceptual Framework

GOVERNMENT POLICIES

Funding and setting up of industrial

estates to reduce overhead cost.
SMALL AND MEDIUM SCALE ENTERP
Establishing specialized financial
institutions, including (SSICSs),

Establishment of the National Economic

Reconstruction Fund (NERFUND)

Provision of technical training and

advisory services

Source: Researchers' View (2023)

29
2.3 Empirical Review

Universally, there is no generally accepted definition of a small scale business because the

classification of businesses into large-scale or small-scale is a subjective term and has qualitative

judgment. In countries such as the USA, Britain, and Canada, small-scale business is defined in

terms of annual income and employment level by the businesses. This definition also varies with

what is obtainable in Britain (Ekpenyong and Nyong, 1992). In Japan, small-scale industry is

defined according to the type of industry, start-up capital and number of business employees.

Accordingly, small and medium-scale enterprises are defined as: those in manufacturing with at

least 100 million yen paid-up capital and at least 300 employees, those in wholesale trade with at

least 30 million yen paid-up capital and 100 employees, and those in the retail and service trades

with at least 10 million yen paid-up capital and at least 50 employees (Ekpenyong and Nyong,

1992). In Nigeria, the Central Bank of Nigeria (CBN), for the purpose of credit guideline to

financial institutions classifies as small scale enterprises those enterprises with an annual

turnover between the range of N100, 000.00 to N150, 000.00; with less than 50 employees; with

asset base (excluding real estate) of not less than 1 million (CBN, 1989). This almost coincide

with the report of the Federal Government Small Scale Business Development Programme

(SBDP) sees a small scale enterprise as any manufacturing, process or service firm with

investment a capital not exceeding N150, 000.00 in machinery and equipment and employing not

more than 50 workers (Osuala, 2004). Recognizing the beneficial effect of SSEs, emerging

economies across the world , put in policies that are made to favor small scale enterprises as

springboard for sustainable economic development (Osadebe, 2007). Driven by this, government

in Nigeria put in many policies which favoured among others the establishment of a Small

Industries Development Programme, in 1971, to provide technical and financial support for

30
SMEs. This led to the setting up of the Small Industries Credit Committee (SICC) to manage the

Small lndustries Credit Fund (SICF) throughout the nation. The scheme, which operated as a

matching grant between the federal and state governments was designed to make credit available

in liberal terms to SMEs and was managed by the states' ministries of Industry, Trade and Co-

operatives through the loan management committees (LMCs)(CBN, 2003). The Nigeria Bank for

Commerce and Industry (NBCI) on its part was set up in 1973 to provide among other financial

services to the indigenous business community, particularly SMEs The NBCl operated as a head

financial body for the SMEs and also administers their Loan Scheme. The NBCI however

suffered from operational problems, terminating in a state of insolvency from 1989. It is now

part of the newly established Bank of Industry (CBN, 2003). However, the establishment of the

Rural Banking Scheme (RBS) in 1977 seems to mark new era in the history of SMEs in Nigeria.

The Scheme was fundamentally designed to confront the problems of inadequacy of credit to the

agricultural sector and underdevelopment of the rural based small-scale enterprises. For objective

impact the scheme mandated establishment of commercial banks branches in the rural areas in

Nigeria. And by 1989, there were about 756 new rural bank branches across the country with

total deposits in all the rural branches amounting to about N5.7 billion (that is, about N7.5

million per branch) (CBN, 2003). In addition, the introduction of Structural Adjustment

Programme (SAP) in 1986 was part of Government effort, to come up with policies that would

enhance industrialization in the country, which lead to even opening up of doors for foreign

investors to inject fund to SMEs and other investment opportunities in the country (FMST,

1992). This effort also saw the formal commissioning of the Peoples Bank of Nigeria (PBN in

October 1989 with the objective of meeting the credit needs of the SMEs. And by 1993, in the

attempt to attain a target of 170 branches, the activities of the bank which administered groups

31
loans to beneficiaries had extended to all the states in the country (CBN, 2003). However, the

resulting devaluation of naira associated with the implementation of SAP, force many small and

medium scale enterprises fall short of finance. This in turn, had force the federal government set

up the National Economic Reconstruction Fund (NERFUND), in January, 1990, aimed at

providing relatively long term loans to small and medium scale enterprises operators that would

span for five to ten years at low interest rates, so as to smooth their development process.

However, the credit extension activities of NERFUND was not free from setback emanated from

devaluation of the national currency that inevitable affects loan servicing by the beneficiaries.

This force merger of NERFUND merged with some other Financial institutions meant for

SMEsdevelopment to form the Bank of Industry in 2001 The establishment of National

Directorate of Employment (NDE) in 1986 to generate self-employment in Agriculture, Youth

Employment and Vocational skills Development, and small scale business among others was

another commitment by the national government to enhance the exploitation of small scale

enterprises to their full potential (FGN, 2003). Covet, (1980), observed that several small scale

enterprises operators are highly proficient in their technical field but are less well experienced in

managerial competence. This may be part of the reasons for the longevity in their backwardness.

It has however been observe that insufficient capital is still the bottle neck face by the small scale

operators in Nigeria (Ogechukwu, 2011). Others, argued that SMEs failure in the country is

partly caused by inability of the SMEs operators to lending rules (SMEDA, 2004) and deliberate

divert of loans to ostentatious spending and refusal to pay back the capital and interest when time

is due because of the financial indiscipline (Ogujiuba (2004; Osadebe, 2007) as well as

inconsistency of government policies directed to enhancing business environment in the country

(Njoku, 2002). It has also been argued an inaccessible collateral requirement by SMEs operators

32
was also responsible for their ill performances (Isern, et al, 2009). In order to obstruct further

setback on the development of SMEs in Nigeria, the Small and Medium Enterprises

Development Agency (SMEDA) was established by the SMEDAN act of 2003 to promote the

development of Micro, Small and Medium Enterprises (MSME) sector of the economy. An

important objective of SMEDAN is to establish a structured and efficient MSME sector that will

enhance sustainable economic development of the country through stimulating, monitoring and

coordinating the development MSME (SMEDA, 2005).

2.4 Theoretical Review

Two Gap Model

This study recognized that one major feature of investment in developing countries of sub-

Saharan Africa (SSA) is the high import content of capital goods. This buttresses the contention

in the two gap model (Chenery, 2012), that the lack of foreign exchange may constitute a major

constraint to sustain high rates of investment and growth in developing economies. Therefore in

countries like Nigeria where both private and public sectors are highly complementary, the lack

of government in economic activities will always constitute an impediment to growth. In other

word, government intervention is a crucial determinant factor in the growth of Small Scale

enterprises in Nigeria. This is a serious issue when viewed from the perspective of this study.

Therefore, the Keynesian theory is considered to be more appropriate in this study. This theory

offers useful insight to the understanding of the effect of government interventions on small scale

enterprises. The major advantage of this theory is its ability to provide the important of

government involvement in economic activities. The Keynesian economics argues that private

sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates

active policy responses by the public sector. Keynesian economics advocates a mixed economy,

predominantly private sector, but with a large role of government and public sector.

33
Contingency Theory

Resource-based theorists have developed certain characteristics of assets that generate sustained

competitive advantage, naming them as strategic assets. Also, The RBV of the firm predicts that

certain types of resources, SMEs firm owns and controls have the potential and promise to

generate competitive advantage, which eventually leads to superior firm performance. Resource-

based view viewpoint, different cases of companies functioning in different situations require

different government policy. SMEs need to research and use their knowledge resources in

society to enhance their organizational performance in a competitive environment. The

performance of SMEs can vary with the selection of state policy adopted. The Government

policy is usually effective for companies involved in high volume products. This study tries to

examine the influence of government policy variable on the performances of SMEs. More

specifically, the primary purpose of the survey is to critique the influence of government policy

on the SME firm performance in Nigeria. In order to exam the proposed relationships between

Government policy and SME firm performance, the current study developed the following

proposition.

2.5 Theoretical Framework

Small and Medium Scale Enterprise in Nigeria are seen as the backbone of the economy and a

key source of economic growth, dynamism and flexibility. A study done by the Federal Office of

Statistics shows that 97% of all businesses in Nigeria employs less than 100 employees,

implying that 97% of all businesses in Nigeria are "small businesses". The Small Scale

Enterprises sector provides, on average, 50% of Nigeria’s employment and 50% of its industrial

output. Indeed, there appears to be an agreement that the development of small and medium

scale enterprise in Nigeria is a step towards building a vibrant and diversified economy.

34
The definition of Small Scale Enterprises depends mainly on the level of development of the

country. In most developed market economies like the United States of America (USA), U.K.

and Canada the definition criterion adopted a mixture of annual turnover and employment levels.

In Nigeria, the Small and Medium Industries Enterprises Investment Scheme (SMIEIS) defines

Small Scale Enterprises as any enterprise with a maximum asset base of N200 million excluding

land and working capital and with a number of staff employed not less than or more than 300.

Nwokoye defines Small and Medium-Scale business as “any enterprise employing between five

and one hundred workers with an annual turnover of about four hundred thousand Naira (N400,

000). The Federal Ministry of Commerce and Industry defines Small Scale Enterprises as firms

with a total investment (excluding cost of land but including capital) of up to N750, 000, and

paid employment of up to fifty (50) persons. Small Scale Enterprises exist in the form of sole

proprietorship and partnership, though some could be registered as limited liability companies

and characterized by: simple management structure, informal employer/employee relationship,

labour intensive operation, simple technology, fusion of ownership and management and limited

access to capital. The seven major sources of funding available to Small Scale Enterprises in

Nigeria include: personal resources, family and friends, partners or business associates, informal

financial markets, banks, specialized funding facilities e.g. NERFUND and specialized financial

institutions e.g. NBCI, BOI, NIDB etc. Their role in economic development includes:

technological/industrial development, employment generation, technology acquisition, capacity

building, promotion of economic growth, increased standard of living, industrial dispersal or

spread, servicing of large-scale industries, export promotion, structural transformation of rural

areas, flexibility and low take-off requirements.

35
 CHAPTER THREE

METHODOLOGY

3.0 Introduction
This chapter is concerned with the methodology used in achieving the objectives of the study. It
covers research design, study area, population of the study, sample size, sampling techniques,
instrument for data collection, sources of data collection, validity of research instrument,
reliability of the instrument, administration of the instrument, method of data analysis and
decision rule.
3.1 Area of the Study
The area of study for this research work will be Ola-folabi and company, Osogbo. OLAFOLABI
& CO was incorporated in Nigeria with Registration Number OS1254. It was registered on 13
Jun 2011 and its current status is well known. Company's registered office address is 37,
Gbongan Road Osogbo, Osun. The area will be considered due to proximity, cost consideration
and access to information.

3.2 Research Design

This study employed the use of survey research design. The choice of this research design was
considered appropriate because of its advantages of identifying attributes of a large population
from a group of individuals. The design was suitable for the study as the study sought to examine
subject matters using the selected organization as a case study.
3.3 Population, Sample Size and Sampling Techniques

Population of the Study

Population refers to the entire group of individuals or objects to which a research is conducted

on. The population of this study will be restricted to and derived from staff of Ola-folabi and

company, Osogbo. The population of Ola-folabi and company, Osogbo consist of sixty (60) staff

of the company working currently as full and part-time in the organization.

36
The Table below shows the Staff Strength of Ola-folabi and company, Osogbo:
Business Name Staff Strength
Owner 1
Management 25
Skilled Workers 24
Unskilled Workers 20
Total 60

Sample Size and Sampling Techniques

As a result of the inability of the researcher to effectively study the whole staff strength

(population) of the organisations under study, a representative number was chosen as the sample

size population. Fifty-Two (52) staff was used as the sample size. The sample size was

calculated using the Taro Yamen scientific formula which is given as:

n= N
_______
K + N(e)^2
60
____________
1 + 60(0.05)^2

60
_______________
1 + 60(0.0025)

60
_____________________
1 +0.150

60
______________
1.15

n = 52.17

Therefore, the sample size adopted for this study is 52.

37
3.4 Sources of Data and Data Collection Method

Data were collected from primary and secondary sources. Primary data were obtained through

questionnaire and personal interviews with both management and senior staff of the commission.

This method was adopted to enable detailed and independent information not covered by the

questionnaire to be expressed by the respondents. Secondary data were obtained from published

reports, books, internet, journals, newspapers and magazines. For analytical comparison of facts

and proper compilation of facts and figures, survey of existing documents was deemed

necessary.

3.5 Research Instruments

Data were collected through questionnaire carefully designed and administered to the

respondents, as well as through personal interviews. On the whole, the questionnaire constituted

the major instrument for data collection. The questionnaire contains sections A and B. Section A

contains personal information about the respondents. Section B is the main body of the

questionnaire. This section contains close ended questions using a five (5) point scale instrument

through which the opinions of the respondents were expressed. Their responses were measured

by means of a five category rating system:

SA - Strongly agree 5

A - Agree 4

U - Undecided 3

D - Disagree 2

SD - Strongly disagree 1

38
3.5.1 Reliability of the Instrument

Reliability in this context refers to the measure of consistency of the instrument used in eliciting

relevant and desirable responses from respondents so that the objectives can be reliably and

meaningfully achieved. In order to determine the reliability of the instrument used in the study,

the corrected questionnaire was administered randomly on selected staff of the Selected SME’s.

This approach was repeated with the same group after a two – month’s period and the results

obtained from the first and second pre-test were consistent, therefore, the instrument is reliable.

3.5.2 Validity of Research Instrument

The validity of the research instrument was assessed by the supervisor and other experts in the

department of Business Administration, Federal Polytechnic Ede. These experts assessed the

relevance of each item in relation to the objectives of the study, the hypotheses to be tested as

well as the comprehensibility of each item in relation to the cognitive level of the respondents.

They validated the instrument by effecting necessary corrections, examining the contents and

ascertaining clarification of ideas as well as appropriateness of the items.

3.6 Re-statement of Hypothesis

HO: Government policy does not affect the growth of small and medium scale enterprise

HA: Government policy does affect the growth of small and medium scale enterprise

3.7 Method of Data Analysis

Tables and simple percentage was used as technique of analyzing the research questions while

chi-square was used to test the research hypotheses. All the tests were conducted at 0.05 level of

significance. The formula for the chi-square used is stated below The Chi-Square is denoted by

χ2. The chi-square formula is:

39
χ2 = ∑(Oi – Ei)2/Ei

where

 Oi = observed value (actual value)

 Ei = expected value.

Decision Rule

The decision to either reject or accept the null hypothesis (Ho) was reached using the following

rules:

If the calculated value (t-cal) is greater than the table value (t-tab), the null hypothesis (Ho) will

be rejected in favor of the alternative hypothesis (Hi) and if the table value (t-tab) is greater than

the calculated value (t-cal) the alternative hypothesis (Hi) will be rejected in favor of the null

hypothesis.

40
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS

4.0 Introduction

This section presents the results of the field study; it shows the descriptive information of the
respondents, the results of each of the research questions and the test of hypothesis.

4.1 Data Presentation and Analysis

Table 4.1: Distribution of the Respondents based on their
Gender
Frequency Percent Valid Cumulative
Percent Percent
Male 16 30.0 30.0 30.0
Valid Female 36 70.0 70.0 100.0
Total 52 100.0 100.0
Source: Field Survey, 2023.

Based on the result on table 4.1 above, it can be observed that about 30 percent of the
respondents for this study are male, while, a majority of 70 percent is female. Showing that
randomly female are selected more than male probably because the majority of the respondents
are female.

Table 4.2: Distribution of the Respondents based on their Marital

Status
Frequency Percent Valid Cumulative
Percent Percent
Married 7 14.0 14.0 14.0
Valid Single 45 86.0 86.0 100.0
Total 52 100.0 100.0
Source: Field Survey, 2023.

Based on the distribution of the respondent on their marital status, it is observed that about 7 of

the respondents making up of about 14 percent of the total respondents are married; while 86

percent of the respondents are single.

41
Table 4.3: Distribution of the Respondents based on their Age
Frequency Percent Valid Cumulative
Percent Percent
Below 20 years 46 88.0 88.0 88.0
21-30 years 4 8.0 8.0 96.0
Valid 31-40 years 2 4.0 4.0 100.0
41 years above - - -
Total 52 100.0 100.0
Source: Field Survey, 2023.

From the responses on the age distribution of the respondents presented on table 4.3 above, it can
be deduced that about 88 percent of the respondents are below the age of 20, while the rest are in
between the ages of 21 and 40.

Table 4.4: Distribution of the Respondents based on their Academic Qualification

Frequency Percent Valid Cumulative
Percent Percent
SSCE 46 88.0 88.0 88.0
NCE/ND 4 8.0 8.0 96.0
Valid [Link]/HND 2 4.0 4.0 100.0
[Link]/[Link] - - -
Total 52 100.0 100.0
Source: Field Survey, 2023.

From the responses on the academic qualification of the respondents presented on table 4.4
above, it can be deduced that about 88 percent of the respondents are having SSCE certificate, 4
people which represents 8% are having NCE/ND while are [Link]/HND graduates. This shows
that all the respondents had formal education.

42
Table 4.5: Distribution of the Respondents based on their Religion
Frequency Percent Valid Cumulative
Percent Percent
Christianity 30 58.0 58.0 58.0
Islam 13 24.0 24.0 82.0
Valid
Others 9 18.0 18.0 100.0
Total 52 100.0 100.0
Source: Field Survey, 2023.

From the result above, about 29 of the respondents making up of about 58 percent of the

respondents are Christians, while just 24 percent of the respondents are Muslims. This is an

indication that most of the respondents are Christians.

Table 4.6: Distribution of the Respondents based on their Work experience

Frequency Percent Valid Cumulative
Percent Percent
1-5years 30 58.0 58.0 58.0
6-10years 13 24.0 24.0 82.0
Valid 11-15years 9 18.0 18.0 100.0
16years above - - -
Total 52 100.0 100.0
Source: Field Survey, 2023.

Table 4.6 shows that respondents with 5 years of employment are 30(58%), 6-10 years of
employment are 13(24%), 11-15 years of employment are 9(18%), while there is no respondents
with 16 years and above of employment experience. It is concluded that majority of the
respondents are 1-5 years and 6-10 years.

43
Section B: Answer to the Research Questions
Research Question One: What are the impacts of government policy on the growth of small and
medium scale enterprises?

Table 4.7 Responses of the respondents on the impact of government policy on the growth of
small and medium scale enterprises
S/N Statement N Mean Std. Decision
Deviation
1 Government policy such as monetary and fiscal 52 2.8000 .75593 Accepted
promote the development of small and medium scale
enterprise
2 Government policy helps provide technical 52 2.5000 .98974 Accepted
training and advisory services through the industrial
development
3 Government helps funding and setting up of 52 1.2343 1.17803 Rejected
industrial estates to reduce overhead cost.

4 Policy that has direct or indirect effects on 52 2.0000 .90351 Rejected

businesses include taxation, subsidies and
interest rates
5 The government’s financial policy can have 52 3.0000 .90351 Accepted
considerable effects on SMEs
Valid N (listwise) 52

Frequency Percent Valid Cumulative Percent

Percent
Increases the growth of
7 14.0 14.0 14.0
SMEs
Valid Decrease the growth of
43 86.0 86.0 100.0
SMEs
Total 50 100.0 100.0
Source: Field Survey, 2023.

From the responses of the respondents as indicated on the table above, we can infer that
government policy decreases the growth of small and medium scale enterprises in Nigeria. That
is as about 86 percent of the respondents attests to this

44
Research Question Two: What is the nature of government policy that can influence the growth
of small and medium scale enterprises?

Table 4.8: Responses of the respondents on the nature of government policy that can influence
the growth of small and medium scale enterprises

S/N Statement N Mean Std. Decision

Deviation
1 Government policy on multiple taxation can 52 2.8000 .75593 Accepted
influence the growth of small and medium scale
enterprises
2 Government policy on interest rate can influence 52 2.5000 .98974 Accepted
the growth of small and medium scale enterprises
3 Government policy on infrastructure can 52 2.8000 1.17803 Accepted
influence the growth of small and medium scale
enterprises
4 Government policy on minimum wage can 52 2.0000 .90351 Rejected
influence the growth of small and medium scale
enterprises
5 Government policy on business location can 52 3.0000 .90351 Accepted
influence the growth of small and medium scale
enterprises
Valid N (listwise) 52
Source: Field Survey, 2023.

From the responses of the respondents as presented on table 4.8 above, it can be inferred based
on the based on the 2.5 mean score acceptance standard, that the nature of government policy
that can influence the growth of small and medium scale enterprises include but not limited to
government policy on multiple taxation; government policy on taxation; government policy on
infrastructure; and government policy on business locations. All these are as agreed by the
respondents with mean scores of over 2.5

45
Research Question three: What are the factors limiting the growth of small and medium scale
enterprise?

Table 4.9 Responses of the respondents on the factors limiting the growth of small and medium
scale enterprises

S/N Statement N Mean Std. Decision

Deviation
1 Multiple taxation affect the growth of small and 52 2.8000 .75593 Accepted
medium scale enterprise
2 Poor infrastructure affect the growth of small 52 2.5000 .98974 Accepted
and medium scale enterprise
3 Lack of constant power supply affect the 52 1.2343 1.17803 Rejected
growth of small and medium scale enterprise
4 Lack of finance affect the growth of small and 52 2.0000 .90351 Rejected
medium scale enterprise
5 Unfavourable government policies affect the 52 3.0000 .90351 Accepted
growth of small and medium scale enterprise
Valid N (listwise) 52
Source: Field Survey, 2023.

From the responses above, we can infer that the factors limiting the growth of SMEs include
multiple taxation; poor infrastructure; unfavourable government policies; lack of qualified
manpower and poor governance. All these are as agreed by the majority of the respondents.

46
4.2 Test of Hypothesis:

Ho1: Government policy does not affect the growth of small and medium scale enterprise

Decision rule: Reject the null hypothesis if the Asymp level of significant is less than 0.05.

Otherwise, do not reject the null hypothesis.

Table 4.10 Test of hypothesis table two

Test Statistics
Government policy does not affect the growth of small and medium
scale enterprise
14.8
Chi-Square
31a
df
3
Asymp. .0
Sig. 00
a. 0 cells (0.0%) have expected frequencies less than 5. The minimum expected
cell frequency is 25.0.

Since the Asymp Sig. level of this the test is 0.000 which is far much less than the 0.05

acceptance region, we therefore reject the null hypothesis and conclude that government policy

does affect the growth of small and medium scale enterprise.

4.3 Discussion of Findings

The hypothesis states that there is no significant relationship between government policy and

business growth of Small and Medium Enterprises (SMEs). The result of this research shows that

there is a significant relationship between government policy and business growth of Small and

Medium Enterprises (SMEs). This finding is quite similar to what have been observed in other

studies. For instance, Kinyua (2018) in his study of factors that affect the performance of SMEs

in Nakuru town discovered that infrastructural development, management skills, finance, macro-

47
environment factors are the major determinant of SMEs’ ability to perform optimally. In another

similar study, Olugbenga (2022) investigate the effects of financial supports, technological and

infrastructural development on the performance of Nigerian-based SMEs. The results like in the

previous case showed that the performances of SMEs are positively influenced by technological

development and financial support. However, the author observed that infrastructural support

impact negatively on SMEs’ performance. This prompted the authors to argue that finance,

technology and infrastructures can have considerable effects on the overall performance of

SMEs. Similar results were also obtained by Agarwal (2018), who in his investigation of the

relationship between technological activity and firm survival discovered technology can either

enhance or prevent the survival of any business organization. Thus, just as confirmed by the

result of this academic research, growth and survival of an SMEs is determined to a considerable

extent by the various polices implemented by the government.

48
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

This study focused on the effect of government policy on small and medium scale enterprises in

Nigeria. The study was set to address three objectives and one research hypothesis. The

objectives which include:

i. To ascertain the impact of government policy on the growth of small and medium scale

enterprise

ii. To determine the nature of government policy that can influence the growth of small and

medium scale enterprise

iii. To identify factors limiting the growth of small and medium scale enterprise

Based on the above stated objective and the study carried out, the following findings were made:

i. that government policy decreases the growth of small and medium scale enterprises in

Nigeria

ii. that the nature of government policy that can influence the growth of small and

medium scale enterprises include but not limited to government policy on multiple

taxation; government policy on taxation; government policy on infrastructure; and

government policy on business locations

iii. that the factors limiting the growth of SMEs include multiple taxation; poor

infrastructure; unfavourable government policies; lack of qualified manpower and

poor governance

49
5.2 Conclusion

The main purpose of this study is to assess the effect of government policy on small and medium

scale enterprises in Nigeria. Three research questions and one research hypothesis guided the

study

In this study, a survey research design was adopted, the population comprises all the employees

of Ola-Folabi and Company, Osogbo, Osun State, a simple random sampling technique was used

to select 52 respondents of the organization for the study and a questionnaire was the instrument

for data collection. Relevant literature were reviewed which guided the objectives and

methodology of this study. As result of the field study and analysis of results, the following

findings were made:

i. that government policy decreases the growth of small and medium scale enterprises in

Nigeria

ii. that the nature of government policy that can influence the growth of small and

medium scale enterprises include but not limited to government policy on multiple

taxation; government policy on taxation; government policy on infrastructure; and

government policy on business locations

iii. that the factors limiting the growth of SMEs include multiple taxation; poor

infrastructure; unfavorable government policies; lack of qualified manpower and poor

governance

5.3 Recommendations

Based on the findings of this study, the following recommendations are made:

i. that the government should reduce the burden on SMEs so as to ensure the speedy

growth of Small business in Nigeria

50
 ii. Government should improve on infrastructural provision for the state. This will create

conducive environment for businesses to thrive in the state in particular

iii. The SMEs should be trained on resource management to boost their productivity

iv. It is also recommendable for Nigerian government to enact and implement laws,

regulations and policies that will link institutional development to entrepreneurial

growth and survival.

v. The Nigerian government should also create a business environment that is highly

conducive to owners of SMEs. Such approach will help to boost their rate of survival.

vi. The various s levels of government in the country should embark on the massive

infrastructural development. Such projects should concentrate on power generation,

power distribution, security and good transport network. All these strategies will help to

enhance the economic development of Nigeria.

5.4 Contribution to Knowledge

This project has contributed a lot in the area of developing small scale business in

Nigeria. Various factors that have been a limitation and success to small scale business have

been studied. Also, causes and way of reducing unemployment in Nigeria have also been known

and shown. It has also been shown in this work that when there is more establishment of small

scale business, there will be reduction of unemployment in Nigeria.

5.5 Limitation of the Study

In carrying out this research work, the following problems were faced by the researchers.

Financial Constraint: Given that this project was carried out by student one of the challenges

faced was financial in nature. The cost needed for executing this research work was exorbitant,

therefore there was not enough fund to finance the research work.

51
Time Constraint: The duration which this project work was carried out is short due to the fact

that this research work was done along with classroom lecture. Hence, little time was allotted

specifically for the research work.

5.6 Suggestion for Further Studies

Having written on the topic effect of government policies on small and medium scale

enterprise in Nigeria, it will be worthwhile to render suggestion for further research to students,

researchers, and individual or organization who might want to carryout research on small

business to delve into the areas of “Small scale Business as a means of survival to many

Nigeria”. However, it was discovered base on the discussion so far that small scale business

plays a vital role in the economic development of our country. As a result of this, the researcher

suggested that further studies should be carry out in Nigeria to investigate the problems facing

small scale business in Nigeria, the ways by which these problems can be tackled in order to

improve the financial condition of the small scale business, and the role government policies

play in small and medium scale enterprise in Nigeria

52
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55
 APPENDIX

THE FEDRAL POLYTECHNIC

P.M.B. 231, EDE,
OSUN STATE.

THE DEPARTMENT OF BUSINESS ADMINISTRATION AND MGT

SCHOOL OF BUSINESS AND MANAGEMENT STUDIES

QUESTIONNAIRE ON THE EFFECT OF GOVERNMENT POLICIES ON SMALL

AND MEDIUM SCALE BUSINESS IN NIGERIA

Dear sir/ma

I am Olawuni Azeez Abiodun, studying the impact of government policy on small and medium
scale business in Nigeria. This study will be of help to the government in economic reforms in
Nigeria. I hope to have a few minutes of your time to fill out this questionnaire as all information
you provided on this questionnaire is highly confidential and can only be used for this research
purpose. Your identity is not needed in any way.

The research project is part of the requirements for the academic pursuit for the award of Higher
National Diploma (HND) in the Business Administration and Management of the above
institution. Therefore, you are requested to kindly give honest responses and answer the
questions to the best of your ability and knowledge. All information given will be treated with
utmost confidentiality. Thanks for your co-operation.

There are different sections in this questionnaire with each question to be answered with
Strongly Agree, Agree, Undecided, Disagree and Strongly Disagree response. Please place a tick
(“√”) mark on the box for your response.

Thanks for your anticipated corporation.

Yours faithfully,

Olawuni Azeez Abiodun.

Researcher.

56
Section A: Background Information

1. Gender
a. Male [ ]
b. Female [ ]

2. Marital status
a. Married [ ]
b. Single [ ]
c. Widow [ ]
d. Separated [ ]
e. Divorced [ ]

3. Age
a. Below 20 years [ ]
b. 21-30 years [ ]
c. 31-40 years [ ]
d. 41 years and above [ ]

4. Highest Academic Qualification

a. FSLC [ ]
b. SSCE [ ]
c. NCE/ND [ ]
d. [Link]/HND [ ]
e. [Link]/[Link] [ ]

5. Religion
a. Christianity [ ]
b. Islam [ ]
c. Others [ ]

6. Work Experience
a. 1-5years [ ]
b. 6-10 years [ ]
c. 11-15years [ ]
d. 16 years and above [ ]

57
Section B:

Research question 1:
What are the impacts of government policy on the growth of small and medium scale
enterprises?
S/N Statement SA D U A SD
1 Government policy such as monetary and fiscal
promote the development of small and medium
scale enterprise
2 Government policy helps provide technical
training and advisory services through the industrial
development
3 Government helps funding and setting up of
industrial estates to reduce overhead cost.

4 Policy that has direct or indirect effects on

businesses include taxation, subsidies and
interest rates
5. The government’s financial policy can have
considerable effects on SMEs

Research question 2:
What kind of government policy that can influence the growth of small and medium scale
enterprises?
S/N Statement SA D U A SD
1 Government policy on multiple taxation can
influence the growth of small and medium scale
enterprises
2 Government policy on interest rate can
influence the growth of small and medium scale
enterprises
3 Government policy on infrastructure can
influence the growth of small and medium scale
enterprises
4 Government policy on minimum wage can
influence the growth of small and medium scale
enterprises
5 Government policy on business location can
influence the growth of small and medium scale
enterprises

58
Research question 3:

What are the factors limiting the growth of small and medium scale enterprise?

S/N Statement SA D U A SD
1 Multiple taxation affect the growth of small and
medium scale enterprise
2 Poor infrastructure affect the growth of small
and medium scale enterprise
3 Lack of constant power supply affect the
growth of small and medium scale enterprise
4 Lack of finance affect the growth of small and
medium scale enterprise
5 Unfavourable government policies affect the
growth of small and medium scale enterprise

Thanks

59