Determinants of Private Investment in Nigeria: An Empirical Exploration

Abstract

In recent years, private investment has been accorded renewed emphasis and important place as engine of economic growth and development. This paper examines issues on and determinants of private investment in Nigeria. The findings show that, among other things, from the colonial government era up to the Nigeria’s First Development Plan of 1964, there was commitment to the promotion of private investment. The relative non-performance of the private sector in general and the disappointing inflow of expected foreign capital during the First National Development Plan in particular, spurred the need for greater public sector involvement in the economic activities. The unprecedented increase in crude oil earnings from the 1970s through the early 1980 gave the public sector further impetus to move in and dominated the scene in the Nigerian economy. Consequently, private sector was reduced drastically and forced into becoming an appendage of public sector. This resulted in the preponderance of public investment and very low level of private investment. Prompted by the global wind of change on the role of the government in economic development process and domestic realities of dwindling government revenue caused by a fall in crude oil prices in the international market, many economic policies such as privatization and deregulation as well as sectoral reforms aimed at restructuring the economy, down-sizing the public sector and enhance private investment had been formulated and implemented. This work establishes that the expected sustained improvement in the level of private investment has been greatly constrained by the adverse impacts exerted by most of the determinants of private investment. The study has identified determinants of private investment in Nigeria to include domestic inflation rate, size and growth rate of market, availability and access to bank credit, interest rate, fiscal deficits, public investment rate, poor provision of infrastructure, political and economic stability, investment climate and institutional factors. The study recommends proper mobilization of investible fund in the economy by the banking sector through high saving deposits rates and accessibility of such fund by private investors through low lending rate, avoidance of excessive deficit financing and drastic reduction of government borrowing from the banking sector, provision of adequate and efficient internal security, political stability, sustained democratic government and good governance. Public investment should therefore, concentrate on the provision of critical economic and social infrastructure like road, electricity supply, education and health services which enter private sector production directly.

Keywords: Investment determinants, Private investment, Nigeria.