CHAPTER ONE

INTRODUCTION

1.1 Background of the Studies

In all economies, both industrial and developing, it has been argued that one of the major
propelling factor for economic growth and development is a well empower small and medium
enterprises (Ameh et, al., 2020). Based on this fact, i will be looking at the effect which can
define as a particular change which is as a result or consequence of an action or other cause, that
is causing something to happen. According to Britannica Dictionary definition, effect is a change
that results when something is done, or an event, condition, or state of affairs that is produced by
a cause. It is also to as consequence, or outcome of something.

However, policies can be defining as a set of ideas or a plan of what to do in particular situations
that has been agreed to officially by a group of people, a business organization, a government, or
a political party. It is a set of rules, guildlines, standard, statement of intent and is implemented
as a procedure or protocol in order to achieve a specific goal. One of the key of an effective
policies is that it answers the questions about the directions, limits, principles and the reason why
is it done. Policies act as focal points for organized activity because they provide interest groups
with resources and incentives to organize (Pierson, 2014)

Government policy refers to the actions taken or not taken by governments in addressing societal
issues, influenced by ideas, institutions, and interests within the political arena. These issues
include issues bothering on business, public health, criminal justice, gun rights, immigration,
reproductive rights, drug use, education, and have experienced several growths. (Fernández-i-
Marín et. Al., 2022). It is made at all levels of such as local, state, and federal and are developed
on behalf of the public. Small and medium enterprises (SMEs) are businesses that maintain
revenues, assets, or a number of employees below a certain threshold. Each country has its own
definition of what constitutes a small and medium enterprise.

In developing countries such as Nigeria, small and medium enterprises are categorized as any
enterprise employing between five and one hundred workers with an annual turnover of about
four hundred thousand Naira (N400,000), while, the Small and Medium Industries Enterprises
Investment Scheme (SMIEIS) defines SME as any enterprise with a maximum asset base of
N200 million, excluding land and working capital, with at least ten or more than 300 staff
(SMIEIS,2009). They are also referred to as micro, small, and medium-size enterprises, going by
the acronym MSME. Regardless of criteria, developing countries share the commonality of
separating businesses according to size or structure. In developing counties, SMEs contribute
roughly 70% of total employment (7 out of 10 jobs) and 40% of GDP, according to the
Organization for Economic Co-operation and Development (OCED). However, the Central Bank
Nigeria (CBN) defined SME's as an enterprise that has asset base (excluding land) of between
N5million -N500 million and labour force of between 11 and 300' (CBN, 2010:2).

Performance is a measurement of how well a mechanism or process achieves its purpose.

Moullin (2003) defines an organizations performance as how well the organization is managed
and the value the organization delivers for customers and other stakeholders‟. It is also the
measurement of the effectiveness and efficiency of both the organization and the workers The
performance and growth of small and medium enterprises (SMEs) is a major driver and indices
for the level of industrialization; modernization; urbanization, gainful and meaningful
employment for all those who are able and willing to work, equitable distribution of income, the
welfare, income per capital and quality of life enjoyed by the citizen. One of the most notable
ways of accomplishing such objective is by enhancing the sustainability and performance of
SMEs, since SMEs is key for economic growth and an instrument in poverty reduction ;
therefore, SME obviously contributes to social development, economic and poverty reduction
(Utomi, 2017)

1.2 Statement of The Problem.

In recent years, small and medium enterprises (SMEs) have been recognized as crucial drivers
and instrumental in triggering economic growth, lifting the citizens out of extreme poverty,
hunger, poor standard of living, create employment and impact positively on national
development and in the FCT, being the nation capital. SMEs face a unique set of challenges and
opportunities that are heavily influenced by government policies. However, the effectiveness of
these policies in fostering a conducive environment for SME growth remains unclear.

The inability of Small and Medium Enterprises (SMEs) in the FCT to effectively and efficiently
contribute to the nation’s economic growth and development may be responsible for
government’s continuous intervention in the sector through government’s budgetary allocations,
fiscal incentives, grants including government support agencies have all been deliberate attempt
to foster the growth of SMEs in the country (Obananya, 2022). Government policies, including
taxation, access to finance, regulatory frameworks, and support programs, can significantly
impact the operational capabilities and overall performance of SMEs. Despite their potential,
many SMEs in Abuja continue to struggle with issues such as inadequate access to credit,
complex regulatory requirements, poor infrastructural facilities such as power supply, good road,
water supply, high cost of living, multiple taxation and inconsistent policy implementation.
These challenges raise concerns about the extent to which government initiatives are effectively
supporting or hindering the performance of SMEs.

SMEs in the FCT being a cosmopolitan city have not achieved it projected objectives, but have
to vital position in the expansion of the economy of the nation. But the truth remains that the
FCT has huge potentials for SMEs with it extensive land, surrounded by states with abundant
natural resources and a very productive farmland, it’s increasing population. But the failure of
successive FCT administration to maximize its huge potential means that its problem still
remains on the increase. The exponential rise of the FCT population as well as its already high
and rising unemployment and poverty levels are in clear contrast to its level of infrastructural,
technological and communication development.

But the rather poor performance despite government’s laudable policies for all sector has
remained a source of concern to citizens and all operators in the light of what other economies
including the central government since researches have proved what some developing countries
have been able to achieve through the sector. These countries have been able to sustain
development through a well-developed SMEs sub-sector that has seen to the reduction of hunger
and poverty, unemployment and underemployment as well as improved the general well-being of
the citizenry (Alabi et al, 2019)

Moreover, there is a lack of comprehensive research analyzing the specific effects of various
government policies on SMEs in Abuja. Understanding this relationship is critical for
policymakers to design interventions that promote sustainable business growth and contribute to
the broader economic landscape. Therefore, this study aims to investigate the effects of
government policies on the performance of SMEs in Abuja, focusing on identifying which
policies are most beneficial and which may need reform or reevaluation.

1.3 Aim of the Study

The aim of this study is to evaluate the effects of government policies on the performance of
small and medium scale enterprises in FCT.

1.4 Objective of the Study

i. Determine the effect of government tax laws on the performance of SMEs in the
FCT.
ii. Determine the extent to which the floatation of the naira affects the performance of
SMEs in the FCT
iii. Determine the effect of removal of subsidy on fuel and power on performance of
SME in the FCT

iv Determine the effect of Interest rate on performance of SMEs in the FCT.

1.5 Research Questions and Hypotheses

What are the key government policies impacting the performance of small and medium scale
enterprises in Abuja and how do these policies influence the operational efficiency and growth
potential of SMEs in the region?

i. H1: Government tax laws has no significant effects on the growth of small and
medium enterprises in Abuja.
ii. H2: The floatation of the naira has no significant effects on the operation of the small
and medium enterprises in Abuja.
iii. H3: The removal of subsidy on fuel and power has no significant effects on the small
and medium enterprises in Abuja.
iv. H4: The recent change in the interest rate has no significant effects on small and
medium industry output in Abuja.
 1.6 Justification of the Study

The significance of small and medium scale enterprises (SMEs) in the economic landscape of
FCT cannot be overstated. They play a vital role in job creation, innovation, and economic
diversification, particularly in urban areas like Abuja. However, the performance of SMEs is
heavily influenced by government policies, making it essential to understand this relationship.
SMEs contribute significantly to the GDP and employment in Nigeria. Thus, analyzing the
effects of government policies on their performance can provide insights into enhancing their
contributions to economic growth.

With the Nigerian government implementing various policies aimed at supporting SMEs, it is
crucial to evaluate the effectiveness of these initiatives. This study will help identify which
policies are beneficial and which may require modification or reevaluation. However, many
SMEs face challenges such as access to financing, regulatory compliance, and market
competition. Understanding how government policies can mitigate these challenges will inform
better support mechanisms for these enterprises.

The findings of this research will be valuable for policymakers, business owners, and
development agencies. By highlighting the impact of specific policies, stakeholders can make
informed decisions to foster a more conducive environment for SMEs. Furthermore, identifying
and promoting effective government policies can lead to sustainable growth in the SME sector,
ultimately contributing to broader economic stability and resilience. This study will fill existing
gaps in academic literature regarding the impact of government policies on SMEs in Abuja,
providing a foundation for future research and policy formulation.

In summary, this study is justified by the urgent need to enhance the performance of SMEs
through effective government policies, thereby supporting economic development in the FCT
and beyond.

1.7 Scope of the Study

This study focuses on examining the effects of government policies on the performance of small
and medium scale enterprises (SMEs) in the FCT. The scope includes the following key aspects:
 i. Geographical Focus: The research will be limited to SMEs operating within the Federal
Capital Territory (FCT) of Abuja. This allows for a concentrated analysis of the unique
business environment and policy landscape in the capital.
ii. Policy Areas: The study will investigate various government policies affecting SMEs,
including:

o Financial policies.

o Taxation policies

o Regulatory frameworks

iii. Performance Metrics: The analysis will focus on specific performance indicators such as:

o Operational efficiency

o Revenue growth, profits, return on assets, return on investment.

o Job creation

o Sustainability and market competitiveness, improve sales, market share.

o Shareholders returns (total shareholders return, economic value added) .

iv. Target Population: The research will target a diverse range of SMEs across different
sectors, including retail, services, manufacturing, and technology,
v. Time Frame: The study will examine the impact of policies implemented in the last five
years to understand their relevance and effectiveness in the current business climate.

By focusing on these areas, the study aims to provide valuable insights into how government
policies influence the performance of SMEs in Abuja, ultimately contributing to the development
of effective policy recommendations.

1.8 Definition of term

i. Regulatory compliance- is the process of adhering to the laws, regulations, standards

and other rules set forth by governments and other regulatory bodies.

ii Market competition-A market where there is large number of buyers and sellers
where no single buyer or seller can affect the price of good s sold
 Iii Gross Domestic Product: Measures the value of the total output of goods and services
produced by the economy in a certain period of time.