Macroeconomic Variables on the Performance of Small Medium Enterprises; The Financing Decision in Nigeria

The purpose of this study was to look into how macroeconomic factors affected small and medium-sized businesses’ (SMEs’) performance and financing choices. The study employed a quantitative approach, utilizing a series of diagnostic checks, cointegration results, and unit root tests and ARDL as methods to scrutinize the interrelationships among these variables. Findings highlighted the exchange rate’s negative and significant impact on SME performance. SMEs were seen to be particularly vulnerable to rapid exchange rate fluctuations, which in turn affected their operational costs and competitiveness. Conversely, the interest rate showed no significant positive impact on SMEs, suggesting that monetary policy may not be optimally supportive of this business segment. Similarly, the inflation rate’s role was found to have negative and insignificant effect on SME performance. In a more positive light, foreign direct investment (FDI) displayed a clear positive and significant effect on SMEs, indicating its potential as a catalyst for growth and technological transfer. Lastly, the degree of economic openness was found to have a robust positive influence on SMEs, with open markets facilitating greater trade and access to international markets. Specific recommendations were then drawn from these findings. Among these, stabilizing the exchange rate and creating an investor-friendly environment to attract more FDI were paramount. Furthermore, the country’s apex bank was advised to consider revisiting its interest rate benchmarks and anti-inflationary strategies to create a more conducive atmosphere for SMEs. Lastly, the importance of tapping into the benefits of economic openness through revisited trade policies and enhancing local SMEs’ export potential was underscored.