Economic Environmental Factors and Productivity of Small and Medium Scale Enterprises (SMEs) in the Manufacturing Sector of Oyo State

Small and Medium Enterprises (SMEs) play a critical role in the economy, particularly in providing employment opportunities and promoting economic growth. However, a significant number of Small and Medium Enterprises (SMEs) fail within the first few years of operation due to various factors. The study aims to investigate the influence of the economic environmental factors on the productivity of small and medium enterprises (SMEs) in the manufacturing sector in Oyo State. An ex-post facto research design was employed in this study. The CBN Statistical bulletin provided quarterly secondary data for the study, spanning from 2001 to 2023. The research hypotheses were tested in the study using econometric techniques. Specifically, SPSS version 27.0 was used to conduct a multiple regression analysis. The findings revealed that economic environment, measured by exchange rate, inflation rate, money supply growth rate interest rate have significant impact on SMEs productivity in Oyo State with R-Square (0.709) which indicates that 71% variations in SMEs productivity in Oyo State can be explained by the considered economic environmental factors. Also, the F-statistic (2.179) at P-value (0.02) indicates that the general model was statistically significant. This means the independent variables (exchange rate, inflation rate, money supply growth rate and interest rate) are the good predictors of level of SMEs’ productivity in Oyo State. This study concluded that SMEs productivity in Oyo State is significantly influenced by economic environmental factors. Based on these findings, it is recommended that the Central Bank of Nigeria should keep the currency rate at an investment-friendly level. Also, policies that would improve business conditions and the business climate, thus encouraging SMEs to obtain funding from the capital market should be developed by the federal government and its agencies.