CHAPTER ONE INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Business performance is the effort expended by a business firm in achieving its objectives of customer satisfaction, employee satisfaction, societal satisfaction, and ultimately profitability. Several studies such as Richard, Devinney, George and Johnson (2009), and Ibeto (2011), have shown that the effort expended by small and medium scale enterprises business managers in actualizing their goal in Nigeria has not been much achieved. Richards et al (2009), assert that the splendid performance of small and medium scale business depends to a high extent on the political environment of the country. According to these scholars, political environment has to do with forces and issues arising from the political decisions of government, which has the capability of altering the desired outcome and value of a given economic action, by distorting the probability of achieving business goals. Ibeto (2011) explained the political environment as factors emanating from innovations in government policies and programs, which affects the ability of economic entities in actualizing their goal. The small and medium scale business managers in Nigeria operates in a fluctuating political environment made up of risks of multiple taxation, currency devaluation, inflation, repatriation, expropriation, confiscation, campaigns against foreign goods, mandatory labor benefit legislation, kidnapping, terrorism, and civil wars (Grien, 2013). Actions executed by government such as regulatory, legal framework, and political changes may reduce business profits and pose as barriers to foreign investment. Though it has been ascertained that the political environment has a connection with business performance, there are inadequate literature and empirical evidence in Nigeria that link the political environment to the performance of small and medium scale business. The political environment in Nigeria affects businesses and could bring about a risk factor that could warrant them to suffer a loss. The political environment could deviate as a result of the actions and policies of governments at all levels, from the lowest level to the federal level. Businesses must plan for the variability of government policy and regulations. The political environment in a country affects its economic environment. The economic environment, in turn, affects the performance of a business organization. One way to curb political risk is to procure political risk insurance. Businesses that have international affiliation use this type of insurance to reduce their risk exposure as a result of political instability. There are indices that give an idea of the risk incident an organization has in some countries. For instance, an index of economic freedom grades countries based on how political interference influences business decisions in each country. The political environment can influence business establishments in many ways.
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