The impact of the regulatory framework on small, medium and micro enterprises in Lesotho.

Abstract

In various economies, businesses operate in a macro-environment influenced by uncontrollable external forces, namely political, economic, social, technological, environmental and legal. For businesses to succeed in a macro-environment all external forces have to be identified and analysed carefully by the business and adaptability to the environment is also very important. Governments intervene by setting up regulatory frameworks that govern all businesses. For instance, for every business to start or grow, there are a numerous legal requirements involved. Businesses have no control over these requirements, but to adapt and comply. These requirements affect the performance of business activities either positively or negatively. However, failure to comply with these requirements could lead to the business’ reputation being destroyed, and loss of customers. The aim of this research is to analyse the perceptions of Small, Medium and Micro Enterprises (SMMEs) owners and managers about the impact of Lesotho government intervention on SMMEs start-up and growth. It also determines whether there is a need for government intervention in these phases. It further determines the extent to which the Lesotho government intervention supports or hinders SMMEs in their quest for start-up assistance and sustainable growth. The White Paper which proposes strategies for development of SMMEs in Lesotho was studied to find out if its intentions have been accomplished. The primary data for this study were gathered through surveys sent out to SMMEs in Lesotho. The questionnaire was designed to be hand-delivered to a sample population of 370. The sample size was calculated using online survey system. At a confidence level of 95 percent and confidence interval of 5, a population value of 10,341 resulted in a sample size of 370 respondents. A list of registered SMMEs with the Ministry of Trade & Industry, Cooperatives & Marketing (MTICM) was accessed. To select respondents from this list, the researcher used a probability sampling method called stratified random sampling, to represent all the key subgroups of the population. The Statistical Package for the Social Sciences (SPSS) for Windows Version 18 was used to analyse the responses obtained from structured and unstructured questions. To facilitate the smooth operation of businesses, governments also create a conducive environment. There are quite a number of initiatives taken by the Lesotho government in an attempt to improve the country’s overall economic environment. The government has used functional and selective interventions just like other developing and developed countries. Functional interventions include the improvement of infrastructure, education and health. Selective interventions include regulations focused on the development of SMMEs and institutional infrastructure aimed at skills training. The viii focus of this study is on selective interventions. Some SMMEs have benefitted from these initiatives, however, other SMMEs still encounter challenges within the regulatory framework which hinder their establishment and growth. Due to the perceived pitfalls, such as high costs of doing business, some businesses decide to operate informally. This means among others, formal tax losses for the government and SMMEs not receiving incentives designed for them. If the Lesotho government could reform and simplify business regulations, this could reduce the increasing number of informal sector businesses and encourage them to grow and operate formally.