Business and Economic Research

ISSN 2162-4860
2020, Vol. 10, No. 1

Perception towards Regulatory Burden on Small and

Medium Enterprises Performance: A Case Study in
Shashemene Town, West Arsi Zone, Ethiopia
Ofgaha Alemu Dire (MSc)
Lecturer, Accounting and Finance Department, Bule Hora University, Ethiopia
Email: [email protected]

Wegene Bekele Bekelcha (Msc)

Lecturer, Accounting and Finance Department, Bule Hora University, Ethiopia
Email: [email protected]

Received: January 3, 2020 Accepted: February 21, 2020 Published: March 4, 2020
doi:10.5296/ber.v10i1.16608 URL: https://doi.org/10.5296/ber.v10i1.16608

Abstract
The study focuses on “perception towards regulatory burden on small and medium enterprise
performance” in Shashemene town, west Arsi zone, Oromia regional state, Ethiopia. The
study adopted a qualitative research approach to address broad objective through answering
research questions developed by a researchers. Specifically, this study used questionnaire to
collect data from SMEs business owners, managers and employees and in-depth interview
conducted. Data was analyzed by using descriptive statistics. The information obtained from
a samples of the 140 small and medium enterprise and through face-to-face interview of 10
owners of SMEs business. The respondents were selected using stratified sampling
techniques. The result of the study show that small and medium enterprise challenges from
different factors as they perceived from the challenges of regulatory burden and identifies
mechanisms used to mitigate problems from regulatory burden and how much the regulators
have smooth contact with them and to what extent regulators made inspections. Moreover,
the result indicated the perception of SMEs businesses towards regulatory burden. As a whole,
the study suggests a series of measures should be taken by government policy, makers and
regulators for SMEs performance. Researchers’ conclude and recommend that government
bodies, Small and medium enterprise business owners, managers, employees and policy
makers should focus on regulation to reduce regulatory burden on small and medium

294 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

enterprises.
Keywords: SMEs, Regulators, BERR, Business Development Service
1. Introduction
Currently the major development challenge is the promotion of economic growth and
reduction of poverty. To alleviate poverty and bring economic development government of
different countries under take different development strategies, such as creating an
environment that encourages and support small and medium size enterprise (SMEs) sector
initiatives and enabling them to operate with a system of good regulations, which is necessary
in order to create and sustain an enabling environment for development, with respect to this
area. In developing countries, SMEs by virtues of their size, capital investment and their
capacity to generate greater employment and have demonstrated a powerful propellant effect
for their rapid economic growth. Throughout the world policy makers are turning to small
and medium enterprise to drive economic growth and development of the small and medium
enterprise are regarded as the primary creators of jobs and economic stability. The vital
contribution that small and medium enterprise can make to employments and income
generation is recognized in worldwide particularly African countries (Brink, Cant, & Lightht,
2005).
The Small and medium enterprise sector has also been instrumental in bringing about
economic transaction by providing goods and services, which are adequate quality and
reasonable priced to a large number of people and by effectively using the skill and talents of
large number of people (ILO,2008,PP,56). Similarly, Lara and Simeon, (2009; pp, 1453-1464)
founded that SMEs generates substantial employment and economic out-put in many
countries. Their share of overall employment tends to be higher in developing countries,
which are typically more focused on small and medium enterprise. The sector has potential to
provide the ideal environment for enabling entrepreneurs to optimally exercise their talents
and to attain their personal and professional goals (MoTI, 1999). The small and medium
enterprise sector also seen as an important force to generate employments and more equitable
income distribution, activate computation, exploit markets, and enhance productivity and
technical change to stimulate economic development.
The Ethiopian government now struggle against poverty through adopting a better
development strategy. According to Quartey (2005), SMEs are necessary engines for
achieving the national development goals such as economic growth, poverty alleviation,
democratization and economic participation, employment creation and industrial base and
local production escalation. The role of SMEs as engine of growth, for example by the
postwar recovery in Austria and Germany and by the diverging paths of the central European
and Baltic countries from those of the common wealth of independent states (Brixiova and
Emerta, 2010).
Therefore, this sector is the backbone for development of all developed and developing
nation. To take the advantage of this major role countries strive to adopt better regulation,
because regulation with which small and medium enterprise operate create a burden either

295 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

directly and indirectly. The relationship between regulation and business is complex, because
regulation has also both positive and negative relationship on the performance of business.
Those regulations that influence the performance of business sector requires firms to impose
cost that impede startup, investment innovation, employment growth, and ultimately, weaken
national economic performance (Nicolette and scarpetta, 2005). Even though no society can
exist without state providing some kind of order regulation, excessive regulation on society
especially on business entity hinders to achieve their objective or business success. In this
regard, British chambers of commerce (2002) state that excessive regulation is an emerging
barriers to the survival and growth of the business.
The burden of regulation and SMEs performance insist on policy makers and representatives
of all the business sector in all countries to undertake assessment of regulatory burden on
SMEs and ensure that the extent that regulation affect Small and medium enterprise. SMEs
severely affected directly or indirectly by red tape that may emanate from inappropriate
adoption, implementation and adverse administration of regulations. Because they are less
proficient in dealing with aspects of regulation that affect their performance mostly they
exposed for business failure than larger businesses (Sievers and Vandenberg, 2007).In
Ethiopia, the small and medium enterprise and the informal sector are the pre dominant
income generating activities.
2. Statement of the Problem
Since the late 1960s it has been thought that the target to promote small enterprise has been
changed with donors emphasizing on the role of SMEs in encouraging industrialization
(sievers and Vandenberg, 2007). As a result, studies showed that in developed countries like,
United Kingdom SMEs became the focus of the government, consequently, Even if limited
studies are there in Ethiopia but, most studies in other countries showed that SMEs play an
important role in the economic development of countries. More specifically past studies
indicate that in developing countries of south Asia SMEs constitutes over 97% and contribute
between 40-60%of the total output to their national economies (Fan, 2005; Kamesam, 2007,
Nepal, etal.2005; Shretha.2005, cited in Syedel, al.2008).
In addition, as stated in the World Business Council for Sustainable development
(WBCSD)”in organization for economic co-operation and development (OECD) economies
SMEs and micro enterprise account for over 95% of firms, 60-70% of employment, 55% of
GDP and generate the lion share of new jobs. In developing countries more than 90% of all
firms outside the agricultural sector are SMEs and micro enterprise is generating a significant
portion of GDP.
The SMEs play an important role in the development of the national economy of any
country .In Indonesia SMEs have been the main players in domestic economic activities as
they account for more than 90% of all firms and 96.2% of total work force, especially women
and youth .On average the GDP growth share of SMEs was above 2%, where as that of large
enterprise was under 2% (Tambunan, 2011). Ahmed et al (2011) presented about the system
approach for the effective adaptation of rapid prototyping for SMEs and they pointed out the

296 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

role of SMEs in the economy for instance in the UK out of the total of 48% million UK
business about 99% were SMEs while less than 1%were large corporation.
Well regulated SMEs are particularly important in developing countries like Ethiopia for
poverty reduction strategy because they are seedbed for the development of large enterprise
and because they absorb agriculturally under employed labor and diversify the source of
income for farming families so government should set better regulation and good business
environment to scale up the growth and performance of SMEs to take the advantage of
economic growth.
Ethiopia is not unique in this regard, considering the degree of unemployment as well as
realizing the role of SMEs toward sustainable employment generation. The government has
to give due attention in terms of promoting favorable business environment to take advantage
of their contribution for economic development. But, burden of administration work and high
amount of resource to comply with the regulation are some of the problems of regulation and
government look through and assure all the above aspects not to become an obstacle for the
success of the business. Many of the traditional problems of SMEs such as lack of financing,
low- product, difficulties in exploring technology, constrained managerial capabilities are the
regulatory burden that became more acute in a globalized technology driven environment
(OECD, 2011).
The regulation and its burden upon business are major topic of public debates among the
politician, median, commentators, academic groups and practitioners because the regulatory
frame work create and enforce state organization profoundly shapes all economic activities.
Therefore before setting policies and regulations Policymakers and regulators themselves
should assess regulatory burden that influence the startup, growth and expansion of business
enterprise. SMEs and their contribution for the development of the economy, regulation and
effects on SMEs performance and growth and the researcher inquiring aiming to enhance
understanding and to address the burden of regulation and its problem on SMEs performance
and growth. To assure the effect of regulation on business success there should be a serious
assessment of those regulation whether they are effective or not. As to the researcher’s
knowledge regulatory burden assessment taskforce has been organized in Ethiopia, as a result
their appears to be lack of sufficient research and empirical evidence on this issue. To fill this
gap the study assesses perception towards regulatory burden on the performance of SMEs
based on evidence from as perceived by owners, managers, and employers.
3. Research Questions
The research questions has been developed as follows
1. Do SMEs consider existing regulations as burden? If so which ones?
2. Which area of regulation creates a major burden on SMEs performance?
3. How do SMEs mitigate problems arising from the burden of regulations?
4. Which aspects of regulation have a major burden on SMEs success?
5. Does the government consult with SMEs prior to regulating to lesson problems
related with regulations?

297 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

4. Objectives of the Study

The main objective of the study is to assess the perception of small and medium enterprise
owners, managers and employees towards the regulatory burden on the SMEs performance
particularly in private limited and sole proprietorship business in West Arsi zone, Ethiopia.
Specifically, the study
1. Identify the area of regulation that creates major burden on SMEs performance.
2. Know how SMEs mitigate problems that arise from the burden of regulation.
3. determine how regulations became burden for SMEs business success
4. Assess whether government consult with SMEs prior to regulating to lesson problems
related to regulation.
5. Literature Review
Small and medium enterprise are increasingly seen as playing an important role in the
economies of many countries in terms of poverty alleviation, democratization and economic
participation, employment creation and industrial base and local production escalation. Thus,
governments through the world focus on the development of the SMEs sector to promote
economic growth and at the same time regulate this business sector, because regulations
shape their activities and outcomes. Even regulation effluence business performance by
enabling and motivating small and medium enterprise to achieve their objective but, it also
constrain them. As OECD (2004) showed, the notion of SMEs and entrepreneurship
development was introduced in to the growth and development landscape as early as the late
of 1940’s with the introduction of targeted policies (grants, subsidized credits, special tax
treatments etc). And the establishment of small business or SMEs support agencies by
governments. (E.g. publically founded SMEs agencies were set up in 1948 in Japan, 1953 in
USA, 1954 in India, 1966 in Tanzania, and 1976 in Turkey.
SMEs sector carries great hope and great burdens in the evolution of all of the transitional
economies. SMEs get serious concern because of its contribution for countries ability to
withstand completion in the global economy, to create jobs, and to continue to develop
economically. The sustained and healthy growth of this sector is obviously necessary, since it
is difficult to imagine rising over all living standard social peace without such a development.
For instance, as recently as the 1980s, the ability of the United states to withstand completion
in global economy was in question, as a result scholars began the difficult tasks of
documenting the crucial role played by SMEs as a driving engine of growth, job creation and
competitiveness in global markets and policy makers responded with a supporter emphasis on
policies to promote SMEs (Audretsc, 2006).
Further the economic significance of the small business sector in generating income and
sustaining employment has been recognized by successive UK governments since the 1960’s
(Dilani, 2005).Therefore the SMEs evolution and adaptability increase from time to time and
government regulated SMEs within the economy, since this regulatory frame work created
and enforced by governments profoundly shapes all economic activities including SMEs.
Regulations play an important role in enabling or restricting the progress of businesses

298 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

depending on how well they are prepared and implemented. No one doubts that production
and market require regulations in order to operate fairly and competitively for the goods of
the society as a whole. As the concern of governments, regulatory practitioners and
commentators have developed a corresponding changes that has taken place in prospective to
provide foundation for the study of regulation. However the evidence indicated that the
regulatory burden is increasing and that there are a number of areas of concern for the SMEs
community policy makers need to take Account of areas where the regulatory burden is
significant and be careful not to add to the regulatory burden, unless the benefits clearly
outweigh costs.
SMEs play significant contribution especially in the transaction of agriculture lead economies
to industrial ones furnishing plain opportunity for processing activities which can generate
sustainable source of revenue and enhance the development process. SMEs hold up the
explanation expansion of systematic productivity capability. They help to observe productive
resources at all levels of the economy and add to the formation of flexible economic systems
in which small and large firms are interlinked such linkages are very crucial for the attraction
of foreign investment. SMEs are the major growing force behind the fastest growing
economy of developed countries like china, in terms of contribution to the national GDP,
scale of assets, diversification of products, creation of employment and reducing poverty and
as a whole increasing the welfare of the society (Ahmed, Javiad &Said, 2008).
There are a number of factors responsible for the importance of SMEs in developing
countries. First, SMEs strengthen an entrepreneurial spirit and put forward flexibility in the
economy. Second, SMEs emanates the fastest growing export sub-sector, third, they can
support the poverty alleviation endeavors through employment generation process. Above all,
SMEs are more efficient in resource allocation as compared to that of a large scale industry
from a social point of view and they also provide and facilitate employment opportunity from
more number of people as compare to that of large-scale industry. The significant roles of
SMEs were indicated by research and statistics from many developed countries, however,
effort had remained restricted focusing on large enterprise, and neglecting small and medium
enterprises which are the backbone of the economy. SMEs use mainly local resource and
those have less foreign exchange requirements will adapting easily to customer requirements.
Due to their small and perceived flexible nature of SMEs are expected to be able to with
stand adverse economic conditions and survive where many large businesses would collapse
(Aryeetet & Ahene, 2002).
SMEs have been of increasing interest for academics and policy makers in recent years since
their role in both developed and developing economies have been established as a being
major. This contribution from small and medium size for the overall economic development
is currently acknowledged by severs countries. For instance, evidence is available for the
major role of SMEs in the growth and development of all leading economies in Asia (United
Nations).However, the availability of SMEs to release this economic and social objective
depend on the regulatory and policy environment with in which they operate (ILO, 2000 cited
in quarterly, 2001).Despite the importance of SMEs businesses in developing countries
particularly in Africa face many obstacles. Among those obstacles policy and regulatory

299 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

burden can make a considerable difference to how well the SMEs sector fulfills its potential
role in contributing to a healthy economy. In, SMEs are a distinctive foundation of the
economy that requires owing attentiveness by the government. Therefore, failure to develop
SMEs may slow down the restructuring process of the economy increase the volume of an
employment, early retirement and other and discourage investment and other employment
creating opportunity. The environment for SMEs is continually, especially in the scenario of
globalization and openness’ of the economies. Therefore, the course of action for SMEs
should be set for long run period keeping in mind to put in a sustainable regulatory
environment.
Complex regulatory environment requires more business resource for understanding,
handling and complying with the given regulation. Small and medium enterprise find more
costly and difficult to cope up about regulation whether they apply and how best to comply
with them, particularly those regulations which are complex or badly drafted (OECD 2001).
According Keter (2004), Regulations may have unintended or unforeseen negative
consequences, such as causing damage to particular markets or employment and training
opportunities. The actions of regulators may further create burdens for business. For example,
a regulator’s inconsistent application (or interpretation) of regulatory requirements may
necessitate a number of changes in the operations of a business in order to achieve
compliance, despite the underlying regulatory requirements remaining unchanged. Even
where a business does not need to undertake such changes, the uncertainty caused by the
inconsistent approach of regulators can, in itself, cause a regulatory burden. The partial
enforcement, or non-enforcement, of regulations may also create a regulatory burden by
placing businesses complying with the regulations at a competitive disadvantage when
compared to non-complying businesses. All these potential burdens can be exacerbated for
enterprises doing business across. They are likely to have their compliance costs compounded
because of differing or duplicated regulatory requirements, even if those regulations have the
same policy objectives
Documents reveals what people do or did what they value. This behavior occurred in a
natural setting, so the data has strongly validity. Commercial registration and business
licensing proclamation no.686/2010 is released through the Federal Negarit Gazeta and also
accessible on website to read and comply with it. It started that any person shall register in
commercial register only once even though he carries on different commercial activities in
different regions. Moreover, any person who open branch office where his branch office
where is situated that any person who open branches office in many places shall inform the
registering office where his branch office is situated, the address of branch office and his
special identification number of registration by completing appropriate application form and
attaching photocopies of his commercial registration certificate and business lenience before
commencing operation. Business licensing regulation No.14/1917 stated that any person
engaged in a commercial activity whose capital is more than ETB 5000 shall obtain a
business license by applying through a relevant bureau in his/her region.
With regarding to registration and licensing Business Development Service (BDS) forum

300 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

prepared a module for SMEs. As the report of this BDS the registration fee needed for small
business is low and the total fee shall not exceed ETB 100 and summary registration the fee
is ETB 10 (Gagel, 2008).
Further, BDS indicated that total fee and time required for business registration adapted for
medium enterprises is a total of ETB 645 within 16 days. Concerning tax proclamation and
regulations, taxable business income shall be determined per tax period on the basis of profit
and loss account on income statement. which shall be drawn on compliance with Generally
Accepted Accounting Standards subject to the provision of this proclamation and the
directives issued by the tax authority, but if any amount of tax is not paid by due date, tax
payers is obliged to pay interest on such amount for the period from the date the tax is due to
the date its paid (Income tax proclamation No.286/2002). Moreover VAT returns and payment
of liability amended VAT proclamation No.609/2008 stated, every registered person shall
be required to file a VAT return with the authority by appearing in person or through
electronic filing or through a third delegated by the authority for each accounting period
concerning the conduct of tax authority employees income tax proclamation No.286/2002
stated that each employees of tax authority shall be honest and fair, treating each tax payers
with courtesy and respect apply with laws, regulation and ruling to each case on the basis of
the objective.
The proclamation under article 48 under sub article 1 stated about recording and keeping i.e.
all person who are engaged in a business or a business or who own building held all or in part
for rental except for category “C ’’ tax payers shall keep books and records. That is record of
all daily income and expenses related to the business activity and the matter to which they
relate and a record of all purchases and sales of goods and service relate to the business
activity.
Pertaining to product quality, the enforcement of some Ethiopian standard is made mandatory
by the government in view of health, safety, fair trade and related considerations and their
enforcement is carried out by Quality standard authority of Ethiopia (QSAE). Ethiopian
standard provide industry and users with the frame work for economies of design, greater
product and services quality and better production and delivery efficiency. At the same time,
Ethiopian standard also promote an improved quality of life by contributing to safety human
health and the protection of environment (EBDSN, 2004).
The small and medium enterprises performance relies mostly on perception towards different
regulations like complexity of regulations, rate of changes of regulations, volume/number of
regulations and inspections of regulations. The researchers is therefore obliged to research on
the Perception towards regulatory burden on SMEs.

301 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

Figure 1. Conceptual Model

Source: Researchers Model from literature, 2017
6. Research Methodology
This study was used descriptive research Design to describe state of affairs as it exist at
present and quantitative research methods particularly survey methods and qualitative
methods particularly in depth interview to assess opinions of SMEs owners or managers
towards regulatory burden on performance of small and medium business .the researchers
used qualitative approach because this approach is concerned with subjective assessments of
small and medium enterprise business owner’s perceptions towards regulatory burdens.
the sampling frame were the 216 registered SMEs operate in the Shashemene Town
particularly private limited companies and sole proprietorship form of business because large
numbers of entrepreneurs are involved in such types of legal status. Moreover, survey method
were also applied to generalize the population from the sample. Therefore, to draw sample
the following procedures were applied i.e. firstly the list of SMEs from the office of trade and
industry were assessed and grouped based on their activity by using stratified sampling
method to corporate all sectors in the target population. Finally, to draw sample respondents
for the questionnaires from the given stratum simple random samplings were used.
Researchers was used stratified sampling techniques because there were different businesses
activities exist in the population. Those business activities are manufacturing, constructions,
trading hotels and restaurants service and professional service were intend to used simple
random sampling from each stratum. Data were collected from head managers of the
enterprises, members (owner) entrepreneur and others hired employees of these Small and
Medium Enterprises operating in the town. Here, at 95% confidence level and 5% margin of

302 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

error or significance level; the following formula was used to determine the sample size for
finite population.
The following formula developed by Taro (1967) was used for the sample size.

Where, n = sample size, N = number of population, δ = acceptable error

At acceptable error (sample error) 5%
N - Number population which was 216 MSEs in Shashemene town.

SMEs had included in the study by using random sampling techniques. The formula is used
to determine the sample size when the population is believed to be large enough and difficult
to study it as a whole.
To determine the proportionate sample size which is taken from each SMEs sector, the
following formula will be used.
No.of SMEs in Trade (78)
For example trade sector = Sample size (140)= 50
Total No.of SMEs in Shashemene town (216)

Table 1. Sample size taken from the five business sectors of SMEs in Shashemene town

Business Sectors No. of SMEs Proportionate sample

in each strata Size of each SMEs
Trade 78 50
Manufacturing 14 9
Hotels and restaurant service 68 44
Construction 32 21
Professional service 24 16
Total 216 140

7. Result and Discussion

To address the research problem using a survey method the researchers used
self-administered structured questionnaire. As the main sources of information the
respondents of this study were SMEs owners, managers and employees in Shashemene town,
west Arsi zone, Ethiopia.

303 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

Table 2. Gender of respondents

Frequency Percent
Valid Male 112 84.8
Female 20 15.2
Total 132 100.0
Source: Survey result, 2017

As per the above (table 4.1): The result shows that more of the respondents were show male
i.e. which accounts 84.8% and 15.2% were females. This indicates that most of the
respondents are male. Besides to this the result of interview shows that the majority of the
respondents were males according to this study.
Table 3. The main business activity of SMEs business
Frequency Percent
Manufacturing 19 14.4
Construction 29 22.0
Trade 38 28.8
Valid Hotel and restaurants 27 20.5
Professional service 15 11.4
Other 4 3.0
Total 132 100.0
Source: survey result, 2017

As per the table 4.6, the result of the respondents were shows that most of the activities of the
enterprises were participated in merchandising inventories (trading activities) that is 28.8%
and 22.0% of the responses were shows the activities of the construction. Hotels and
restaurants, Manufacturing, professional service and other were 20.5%, 14.4%, 11.3% and 3.0%
respectively.
The result of the study confirmed that most of the enterprises provided the activities of the
trade and constructions.

304 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

Table 4. Regulatory burden as an obstacle of SMEs business performance

Regulation Regulation Regulation Regulation Regulation are
are are obstacles are obstacles are obstacles obstacles because of
obstacle because of because of because of there is
because of inappropriat rate of volume of inappropriate
complexity e change is regulation inspections’
enforcement high are high
Strongly count 45 12 14 10 53
agree
percent 34.1 9.1 10.6 7.6 40.2
Agree Count 36 15 23 28 31
percent 27.3 11.4 17.4 21.2 23.5
Neutral count 25 26 36 29 14
percent 18.9 19.7 27.3 22 10.6
Dis agree Count 12 35 27 35 20
percent 9.1 26.5 20.3 26.5 15.2
Strongly Count 14 44 32 30 14
disagree
percent 10.6 33.3 24.2 22.7 10.6
mean 2.35 3.63 3.3 3.35 2.32
sd 1.32 1.23 1.3 1.254 1.406
min 1 1 1 1 1
max 5 5 5 5 5
total 132 132 132 132 132

Source: survey result, 2017

According to table 4, Businesses were asked to express their agreement or disagreement with
statement of different aspects of regulation. As showed in the above table (4.9) majority of
the respondents which is about 53 (40.2%) and 31 (23.5% of respondents were strongly
agreed and agreed with the statement of Regulation are obstacle because of its
inappropriate inspections’ and about 15.2% and 10.6% of respondents disagree and strongly
disagree the statements. About 34.1% and 27.7% of respondents were also strongly agreed
and agree with the statement of regulation are obstacles because of its complexity. The
respondents that respond regulation are obstacles because of its inappropriate enforcement
and regulation are obstacles because of rate of change is high accounts about 11.4% and 17.4%
respectively and its mean (x=3.63 and 3.3, N=132) .Regarding to the statement of regulation
are obstacles because of volume of regulation are high accounts about 21.2% of respondents
agreed and26.5% of respondents disagreed on the statement. Further with regarding to
Aspects of regulation, regulations are obstacles because of its complexity and regulations are
obstacles because of its inappropriate inspections are the two statements that are strongly
agreed and agreed by the majority of respondents. Besides the result of interview also shows
that as as majority of the respondents agreed on the statement of regulation are obstacles

305 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

because of its complexity and regulations are obstacles because of its inappropriate
inspections.

frquency of regulation regarding tax related regulation like VAT

Frequency
never once a year twice a year more than twice a year Total

9%

17%
50%

19%

5%

Figure 2. Frequency of regulation regarding Tax related regulation like VAT

Source: survey result, 2017

As showed in the above figure the result identify about 75% of respondents prepare tax report
annually, where as 18.2% of respondents indicate their firms prepared report 2-3 times in a
year and about 6.1% and 0.8% of respondents were respond as they made 4-6 times and more
than six time in a year respectively. Further the above result showed that the majority of the
businesses made their report annually.

306 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

120

100

80

60

40

20

0
yes no don't know

Frequency Percent

Figure 3. Survey on SMEs regulatory burden in case of reporting requirement

Source: survey result, 2017

As showed in the above Figure 3. Small and medium enterprise survey respondents on
regulatory burden in case of reporting requirement about 15.2% of respondents agreed as
there is no burden in terms of cost and time to comply with regulation as a result of reporting
requirement, whereas about 77.3% of respondents believe that it causes high burden in terms
of cost and time to comply with regulation and about 7.6% of respondents responds respond
as they don’t know.

307 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

80
70
60
50
Frequency
40
Percent
30
20
10
0
yes no don't know

Figure 4. Timing and arrangement of payment as challenges of SMEs business.

Source: survey result, 2017

Regarding timing and arrangement of payment as a challenges for small and medium
enterprises businesses about 53.8% of respondents did not perceived the statements and 38.6%
of respondents agreed with timing and arrangement of payment has not challenge for their
business and followed by 7.6% of respond that do not have no idea on statement.

Figure 5. Survey of regulation on opportunity to new market

Source: survey result, 2017

308 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

As it’s presented in the above Figure 5 about 62.9 % of respondents stated that regulation did
not provide opportunity to inter in to new market and 35% of respondents respond a
regulation provide opportunity to enter in to new market and 1.5% of respondents have no
idea on statements.
8. Conclusions and Recommendation
Among the given challenges business regulatory burden was ranked as the first and followed
by access to finance it implies that regulatory burden is perceived as an obstacle for the
business performance. The next finding is concerned with different areas of regulation
(employment, environment and Tax regulation) tax related issues imposed as a major burden
on SMEs business performance. The reason that makes each areas of regulation burden for
businesses is a factor of different aspects of regulations. With regard to this the study
identified that regulations are obstacles because of its complexity and inappropriate
inspections. At the same manner frequency of reporting is one part of regulatory requirements
considered as a burden by majority of the sectors registered for VAT.
Level of compliance of SMEs with regulation was one of the issues raised under the survey
instruments to know their opinion and the findings was majority of respondents are in the
state of medium level compliance. Concerning a measure taken by business providing
additional training for employees to comply with regulation was viewed by SMEs positively
and contribute its part for minimizing burden from regulation.
Inspections of businesses by regulators are varied in different areas of regulation. i.e tax
related areas of regulation inspected in yearly base and contribution of regulation relating
with market opportunity with new markets viewed negative by the respondents. Finally,
perception of small and medium enterprise businesses owners, managers and employees was
responded by majority of respondents as its negative impact.
Policy makers and enterprise should give focuses for regulations not to become a burden for
business enterprise success. It means with the side of enterprise there should be ready to with
regulation through different mechanism and also with the side of regulators to reduce
regulatory burden they should try to implement, Enforce and inspect properly. More over
policy makers need to take account of areas where the regulatory burden is significant and
gives focus not to add the regulatory burden, unless the benefits clearly outweigh the cost.
Both regulators and SMEs should understand how regulation enables and constraints for the
business performance. Failure to understand how regulation affect business performance
means that policy intervention is likely to produce unwanted consequences.
Government should undertake an assessment on regulatory burden on small and medium
enterprise performance and to reduce the regulatory burden from the existing or newly
introduced regulation on SMEs.
Policy makers should need to look through on aspects of regulation i.e. they should try to
make regulations simple to understand ,less in number to manage and minimize rate of
changes of regulation in order to reduce the possible burden in terms of time and effort and

309 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

compliance cost.
During contacts with enterprise as much as possible regulators should be clear, flexible,
reduce unnecessary bureaucracy and give respect for enterprise. These all enables enterprise
to understand easily and adapt regulatory requirements. Government should commit to
continuing to lessen the business to understand why they comply about regulation.
The frequency of reporting brought administrative burden and extra cost as identified in the
study therefore to reduce administrative burden and extra compliance cost, policy makers
should adopt mechanism to reduce reporting requirement burden.
Reference
Ahmed, A., Mazhar, M. I., & Howards, I. (2011). A system Approach for the effective
Adoption of rapid prototyping for (SMES). [Online] Available:
https://www.researchgate.net/publication/266586153
Anydike, D. M., Athyde, R., Blackburn, R., Harta, M., Kitching, J., Smallbone, D., & Wilson,
N. (2008). The impact of regulation on small business performance; Report for enterprise
directorate of BERR. (Project Report) London, U.K.: Department of Business, Enterprise and
Regulatory Reform. pp. 138. [Online] Available: http://eprints.kingston.ac.uk/id/eprint/11954
Aryetey, E., & Ahene, A. (2008). Changing regulatory environment for small and medium
size enterprises and their performance in Ghana. Institutes of statistical, social and economic
research, university of Ghana. [Online] Available:
https://www.researchgate.net/publication/23512124
Ayyagari, M., Demirgüç-Kunt, A., & Beck, T. (2003). Small and medium enterprise across
the globe: A New Database. Policy Research Working Papers.
https://doi.org/10.1596/1813-9450-3127
Atkinson, J., Tuohy, S., & Williams, C. (2008). Annual survey of small business UK. Small
Business Service. [Online] Available:
https://www.employment-studies.co.uk/resource/annual-survey-small-businesses-uk-2005
Muchie, M., & Bekele, E. (2009). Promoting micro, small and medium Enterprises (MSMEs)
for sustainable rural Livelihood. Aalborg: Institut for Historie, Internationale Studier og
Samfundsforhold, Aalborg Universitet. [Online] Available:
https://vbn.aau.dk/ws/portalfiles/portal/17023673/DIIPER_wp_11.pdf
Brixiova, Z., & Asaminew, E. (2011). SME Start Ups in Ethiopia: Which Incentives Matter?.
http://conference.iza.org/conference_files/worldb2010/brixiova_z6063.pdf
Creswell, W. (2007). Research design qualitative, quantities and mixed methods
approaches 3rd edition.
Creswell, W. (2009). Research design qualitative, quantities and mixed methods approaches
(3rd edition). Dobbs, M. & Hamilton, R., (2006). Small business growth: recent evidence and
new directions. Department of Management, University of Canterbury, Christchurch, New

310 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

Zealand
Djankov, S., McLiesh, C., & Ramalho, R. M. (2006). Regulation and growth. The World
Bank. https://doi.org/10.2139/ssrn.893321
Enkpenyong, N. (2008) Small and medium enterprise and their characteristics, problems and
finance.
Gagel, D. (2008). Business registration and legal issue training module. [Online] Available:
www.bds-forum.net/training module
Hudson, J. (2003). Why regulation matter: A small business perspective. [Online] Available:
https://ideas.repec.org/h/elg/eechap/3926_10.html
John, A. H. (2007). Qualitative and quantitative research design.
Keter, V. (2004). Small firms red tape, business and transport section accessed march.
Kitching, J. (2006). A burden on business reviewing the evidence base on regulation and
small business performance. London, Kingston university research repository accessed.
Leung, P., & Raar, J. (2008). Accounting services and SME An Australian study.
Matthew, W. M., & Cowling, M., (2009). Annual business survey (2007/08): institute for
Nuno, S., Financing small, medium and micro enterprises in post-conflict situations
Microfinance opportunities in the Democratic Republic of the Congo.
Olawale, F., & Garwe, D. (2010). Obstacles to the growth of new small and medium in South
Africa.
OECE, (2002). High-growth Small and medium Enterprise and employment accessed.
Quartey, P. (2001). Regulation, competition and small and medium enterprises in developing
countries, University of Manchester.
Regulatory Burden in Thailand, (2004). Findings from the Thailand Investment Climate
Assessment (ICA).
Review of the Literature, Kingston university Small business survey, (2006). Annual Report
and Resource Accounts.
Ruffing, L. (2006). Development through business linkages, UN conference.
Tambunan, N . D. (2011). Development of Small and Medium Enterprises in a Developing
Country: The Indonesian Case, centre for Industry and SME Studies.
The Federal Democratic Republic of Ethiopa (FDRE), (2010). Proclamation No. 686/2010
(6:3 and 4), Commercial Registration and Business Licensing’ Federal Negarit Gazet, Addis
Ababa Ethiopia.
The Federal Democratic Republic of Ethiopia (FDRE), (2002). Proclamation (No. 286/2002),
Income tax proclamation, Federal Negarit Gazet, Addis Ababa Ethiopia.

311 http://ber.macrothink.org
 Business and Economic Research
ISSN 2162-4860
2020, Vol. 10, No. 1

The Impact of Regulation on Small Business Performance Report for the Enterprise
Directorate of BERR (2008). [Online] Available: http://eprints.kingston.ac.uk/11954/
Yesegat, W. (2009). Value added tax in Ethiopia: A study of operating costs and compliance,
PhD thesis, University of New South Wales. [Online] Available:
www.atax.unsw.edu.au/news/taxmatters/>

Copyright Disclaimer
Copyright for this article is retained by the author(s), with first publication rights granted to
the journal.
This is an open-access article distributed under the terms and conditions of the Creative
Commons Attribution license (http://creativecommons.org/licenses/by/3.0/).

312 http://ber.macrothink.org