DETERMINANTS OF INVESTMENT IN NIGERIA.
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DETERMINANTS OF INVESTMENT IN NIGERIA.
Chapter one
INTRODUCTION
1.1 Background of the Study.
The Nigerian economy has seen a slow-paced development of less
5 percent over the decades. Several reasons have been presented for this phenomenon, the most obvious being a poor investment climate in the economy, which has been attributed to a lack of investable money.
To stimulate long-term economic growth, a balanced investment in physical and financial assets, human and social capital, as well as natural and environmental capital, is required.
Nigeria is classed as a low-saving and even lower-investment economy (Ajakaiye 2002), and one of the primary goals of the Nigerian government under the 1999 democratic dispensation is to create long-term economic growth.
Over the years, the government has taken the lead in the development of the government economy. However, experience has demonstrated that the government is incapable of properly regulating the economy. A noteworthy example is the change under the National Economic Empowerment and Development Strategy (NEEDS), which has highlighted the necessity for
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Restructure and deepen the financial system. Some economists, such as Mc Kinnon and Shaw (1973), believe that growing investment alone is insufficient to drive growth, and that financial institutions play an important role.
The new message emphasises the importance of capacity funds to the success of any endeavour (World Bank 1998). In this sense, it is critical to consider the factors that have influenced investment in the economy during the last three decades.
The banking sub-sector in Nigeria has remained alien in rural areas. However, the establishment of community banks (now microfinance banks) has been,
Expand their operation in remote areas. These banks, with government aid, provide loans and mobilise funds from rural communities for future investment in Nigeria.
Furthermore, the government has tried to provide necessary infrastructure in rural areas to reduce the rate of rural-urban migration for the purpose of compelling the rural population to take agriculture to greater heights as it was in the previous 38 years; however, the diversification of the various sectors of the economy has been the
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The primary purpose of the government. This is done to increase employment, which raises income and allows for more savings for investment.
However, the procedure has been inadequate thus far due to political instability and police inconsistency, which range from corruption of political administrators to the detrimental consequences of transitional governments.
Diversification of many vital sectors of the economy, such as agriculture and manufacturing, increases employment, incomes, consumption, savings demand, and overall aggregate investment levels, hence broadening and deepening society’s standard of living.
However, economists are concerned about the weak growth record in most African countries when compared to other regions of the world. (World Bank, 1998).
This is because most African countries, including Nigeria, see growth rates that are not proportional to investment levels.
Nigeria, for example, saw great economic expansion in the early and late 1970s (World Bank) as a result of the oil boom.
This stimulated investment, particularly in the public sector; but, with the collapse of oil market prices in the early and mid-1980s
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Investment fills, resulting in a reduction in economic growth. For example, during the investment boom, gross investment as a percentage of GDP was 16.8% and 31.4% in 1974 and 1976, respectively, but fell to 9.5 and 8.7% in 1984 and 1985 due to the slump (World Bank).
Although the surge in oil prices between 1990 and 1991 was expected to spur investment, this was not the case in Nigeria. The Nigerian military government, for example, was inexperienced in developing economic policy and hence delegated that responsibility to bureaucracy (Idoko 1996).
The issue was that investment decisions were done with significant decline. In 1986, the government adopted the IMF World Bank structural adjustment programming (SAP) with the goal of ensuring a stable macroeconomic and investment climate.
To this goal, historically set and negative real interest rates have been replaced by a market-driven interest rate system. The policy move deemphasized direct investment stimulus through low interest rates and promoted savings mobilisation by deregulating interest rates (World Bank 1996). Consequently, the goal of increased investment and
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Output growth was not realised because the country’s investment failed to return to levels comparable to those seen in the 1970s.
Although successive governments have tried policies and plans to increase savings and investments, this strategy has been unpredictable as a result of recent government changes caused by political instability.
Furthermore, the experience of East Asian countries indicated that an investment rate of 20 to 25 percent may jeopardise a growth rate of 7 to 8 percent.
Strategic data demonstrates that output represented as GDP in Nigeria displays a picture of expansion during the civil war and the 1970 oil boom, with a growth rate of 21.3% in 1971 (Bage 2003).
As a result, for Nigeria to have increased growth and development
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