The government has over time structured different policies (principles or rules to guide decisions and achieve rational outcomes) to control the operations of the SMEs within some legal and economic frameworks, as SMEs are key to national economic growth. As a result the government controls the way businesses compete in the market. Some of the government policies are as below:
Legal policies imply that the government periodically changes laws in tandem with its political policies. Consequently enterprises have to counter and respond to the changes to stay in the market. Some of the legal changes include.
Know your land rights limitations
The government limits the amount of land that any individual or enterprise can own to some specific acres. This as a result, reduces the ability of the SMEs to provide necessary collateral for loan requests.
The dichotomous policy
Small and medium size enterprises are categorized in terms of formal and informal. This categorization creates superiority of formal enterprises over the informal ones, which results in unfair resource distribution amongst the SMEs, thus reducing chances of growth of potential informal businesses.
National minimum wage
The government on a yearly basis dictates the minimum wage that every operating SME should use as guidelines in paying their employees. This is irrespective of the income generated by the enterprises, and therefore forces the enterprises to counter.
The requirement for businesses to cater for disabled and HIV/AIDS people
The government has provided a requirement for every enterprise to employ disabled people and HIV/AIDS infected people and also build ramps etc. for the disabled and the sick. However with the labour-salary ratio it may not be beneficial to the SMEs to have in their team, employees who cannot perform to the expectations of their clients.
The government has as set a number of economic policies that affect the enterprises directly. Few examples are:
Taxation policy has an effect on and business costs directly, for example, an increase in corporation tax (on business profits) has the same influence as a rise in costs. Enterprises can pass some of this tax on to consumers in higher prices, but it will also have an effect on the bottom line. Other business taxes include VAT (value added tax). VAT is actually passed down the line to the end user but the administration of the VAT system is a cost for business.
The areas of economic policies relate to interest rates. The level of interest rates is determined by a government appointed group. A rise in interest rates raises the costs to business of borrowing money, and also causes consumers to lower their expenditure (leading to a fall in business sales).
Government Spending Policy
Government spending policy also influences business. For example, if the government use more on schools, this will amplify the income of businesses that provide schools with books, equipment etc.
Small Business Subsidies
Government also avails subsidies (fiscal assistance offered by a government to a person or group to prop up an enterprise regarded as being in the public interest) for some business activity – e.g., an employment subsidy to take on the long-term unemployed.
Price-controls are monitored by the government for most basic necessities, which eventually may affect the income generated by SMEs negatively leading to their collapse.
Although it may seem like a rosy path for an SME start-up, one has to know the hurdles and the limitations in terms of legal and economic constraints. While conforming to the policies is expected, one may want to recognise the niche areas where you might be benefited.