FACTORS INFLUENCING PRIVATE INVESTMENT IN NIGERIA

ABSTRACT

The study set out to make empirical analysis on factors influencing private investment decisions in Nigeria. In doing that, the study collected primary data from TIC Registered Private Investment in Dar es Salaam in year 2014 through administering a questionnaire to respondents. The study used both qualitative and quantitative approaches and covered both foreign and domestic private investment. The theoretical model of FDI by Dunning (1988) was modified to include domestic investors’ and used in this studywhereby logit model was applied in estimations. The application of modified FDI model based on the fact that prior literature review and researcher own study on the variables identified by Dunning’s model affects both domestic and foreign investors. Thus, modification only intended to expand the horizon of the variables to be covered. The study reveals that the variables:  political factors, location factors and market factors were significant with positive correlation with private investment in Nigeria. Hence, have predictive powers over private investment in Nigeria. Their probabilities are 0.088, 0.062 and 0.012 and hence significance level of 10, 10 and 5 percent respectively. This signifies that sustaining political stability and effective utilization of location factors together with market factors have higher chances of increasing private investment levels in Nigeria. The study also revealed existence of positive correlation between good investment facilitation services and willingness to reinvest. This is portrayed by the probability of 0.029, which is significant at 5 per cent level. Therefore, study recommends to the government to sustain political stability, location factors, market factors and investment facilitation servicesin order to remain competitive and stand the world competition in attracting private investment.

CHAPTER ONE

INTRODUCTION

Background to the Problem

Factors influencing private investments differ worldwide from one country to the other. However the importance attached to private investment is common across the universe.  Thus, over recent years, the private investment has been labeled the engine of economic growth in a country. Every country prefers to have as much private investment as possible in order to enhance economic growth and development. This means that, private investment is one of the most important sources of economic growth and employment. It supplements the government investment efforts in enhancing proper functioning of the economy.

There is no one single definition of what constitutes private investment.However the act of investing would entail laying out money or capital in an enterprise with the expectation of profit. It can also refer to those investment with private sector interest in a particular country, from both domestic sources (domestic private investment) and multinational enterprises/corporation (international-foreign private investment). It is important to note that investment does not only involve laying out money, other dimensions can also be involved. Investment may also be defined as the commitment of something other than money (time, energy, or effort) to a project with the expectation of future reward.

The importance of private investment stands on the fact that, it has both short-and long-term effects for any economy. In short term, private investment determines the path of business cycle while in long term it depicts the direction of economy by setting steady state growth rate. In short run, private investment is vital because it is the most sensitive and volatile component of aggregate demand; which is primarily responsible for business fluctuations. Long term importance of private investment comes from its role in physical and human capital formation which is the eventual source of growth and productivity.

Statement of the Problem

Nigeria has undertaken a number of economic reforms for the sake of improving business and investment climate so as to make it attractive to private investments. Establishment of Nigeria Investment Centre as One Stop Centre to promote and facilitate all investors is part of these efforts. Despite various reforms being undertaken; Nigeria’s private investment levels still do not impress as indictors shows private investments in Nigeria are increasing at the decreasing rate since 2007. Thus, current investment policy reforms in Nigeria faces major challenges in ensuring private investment levels are increasing and remain attractive to private investors to reinvest their proceeds.

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