Determinants of Investment Behaviour in Nigeria 1970 to 2000

NIGERIA‘S INVESTMENT PROFILE

3.1       Introduction

            This chapter provides an analysis of the character, trend and general features of investment in Nigeria. First, the chapter presents an overview of the macroeconomic background and its effects on investment during the study period. Second, the chapter explains the types of investment that ate relevant to this study. Third, the trend in public and private sector investment is discussed. Firth, a study of the sources of financing private investment is also contained in the chapter. Fifth, an account of the sectoral distribution and ownership structure of private sector investment in Nigeria is also undertaken in the chapter. A discussion of fiscal incentives to private investors concludes the chapter.

3.2              Overview of the Macroeconomic Background

Since Nigeria’s independence in 1960, the economy has witnessed rapid transformation from a subsistence agrarian economy into a modern monetized, though, dualistic one. The march-forward of the economy was facilitated by the discovery and production of crude petroleum oil. As an oil exporter Nigeria witnessed three major crude oil export price booms: 1974 – 77, 1979 – 82 and in 1991. under the clear recognition that oil money was a temporary blessing, government policy in Nigeria was directed towards using the oil revenues to stimulate investment in all the sectors of the economy so as to assure sustained growth after the oil become depleted. Specifically, government policy aimed at diversifying the economy away from agriculture.

Nigeria’s new and sudden wealth radically affected the scope and content of investment, production and consumption patterns. Federal expenditures increased rapidly, doubling between 1973 and 1974 and again between 1974 and 1975 (Faruque, 1994). Though government policies encouraged the development of the private sector, the state became the main driving force in capital accumulation. Measured at 1984 prices, the share of public investment in Gross Domestic Product (GDP) increased from less than 12 percent in 1971 to more than 25 percent in 1977 (Faruque, 1984). The public sector accounted for a larger share of the total investment during the boom years (Ekpo, 2003, p. 200). The rising levels of public investment went largely to reconstructing the structures that were damaged during the 1967 – 1970 civil wars. Transportation facilities such as roads, sea and airports were expanded. Facilities were expanded in the educational sector to cater for the rising level of school enrolment at the primary, secondary and tertiary institutions. While recognizing the important role of the private sector, government desire was to have a firm control over the structure and pace of the growth of the economy. This desire was made manifest in the indigenization of public enterprises in the early 170s. the enabling decree in 1972 and 1977, enabled government to participate through equity holdings, in the affairs of directly productive, distributive, financial and other commercial enterprises in the country. The phenomenal growth of the public sector and its domineering posture over economic activities soon altered the prevailing pattern of relative prices and wages in that sector which led to agitations for wage reviews even in the public sector. The granting of upward wage reviews by government in 1973 fuelled inflation and higher costs. The policy of government then to allow the naira to appreciate with rising oil revenue, together with rising domestic costs, meant a sharp deterioration in international competitiveness. The massive investment which was undertaken by both government and the private sector suffered a set back due to lack of competitiveness. This arose from the claim that the naira was over-valued and the subsides enjoyed by the government corporations. Nigeria’s trade and industrial policies became basically protectionist and were primarily implemented through a detailed licensing system. The trade and industrial policies together with the cheap – credit policy helped to create a few dominant economic groups or conglomerates, which prospered because of their ability to make use of the administrative allocation systems. Government Corporations and parastatals were supported through annual budgetary allocations. These policies and supports weakened the competitiveness of the productive structure further creating a stimulus, for dumping and smuggling of manufactured goods into the country as exports were placed at a disadvantage.