CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
The Nigeria
economy has witness a slow pace growth of less 5 percent in the decades. Various reasons have
been advanced to this development but the most apparent have been poor
investment climate in the economy and this has been attributed to the low
available investable funds.
The stimulation of sustained economy
growth requires a balance investment in physical and financial assets human and
social capital as well as natural and environmental capitals.
Nigeria has been classified as low
saving and even lower investment economy (Ajakaiye 2002) one of the principal
objectives of the Nigerian government under the 1999 democratic dispensation is
fostering of sustained economic growth. Over the years, the government has been
in the driver’sseatingrowth the government economy. But lessons of experience
have shown that government cannot regulate the economy effectively. A typical
example has been the shift under the National economic empowerment and
development strategy (NEEDS) which has recommended the need to restructure
and deepen the financial system. Some economist like Mc Kinnon and Shaw (1973)
said that rising investment alone is not sufficient enough to bring about
growth and the role of financial institutions is very vital. In particular the
new express of that the role of capacity fund is very critical to the success
of any endeavor (World Bank 1998). In this regards, it is therefore important
to investment the determinants to investment in economy in the past three
decades.
Banking sub sector in Nigeria has
remained foreign in rural areas. But recently the establishment of community
banks (now micro finance banks) has been, to
Deepen
their operation in rural areas. These banks with government assistance give
loans and mobilize savings from rural areas for further investment in Nigeria. In addition government have tried to provide
necessary infrastructure in rural areas reduce the rate of rural- urban
migration for the purpose of compelling the rural population to take
agriculture to grater height as it was in past 38 years, however, the
diversification of the various sectors of the economy has been the main objective of the government. This is to increase
employment which will increase income and saving for investment.
But the process
so far have not been adequate because of political instability and police
inconsistence which range from corruption of political administrators and
negative effects of transitional government.
Diversification
of different key sectors of the economy like agriculture and industry increase
employment, incomes, consumptions, savings demand and generally, aggregate
investment level that will broaden and Deeping the society standard of living.
But dismissal growth record in most African countries relatives to other region
of the world has been of concern to economist. (World bank, 1998).
This is because
the growth rate registered in most African countries including Nigeria is often
not commensurate with the level of investment. In Nigeria for instance, the
economy witnessed tremendous growth in the early and late 1970(World Bank) as a
result of the oil boom.
This increased
investment especially in the public sector, but with the collapse of the oil
market prices in the early and mid-1980s investment fill,
thereby causing a fall 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 ,where as it decline to 9.5 and 8.7
percent in 1984 and 1985 due to the depression (world bank).
Although the
rise in oil prices during the 1990-1991 periods was supposed to spark off an
investment but that was not the case in Nigeria. The Nigeria military
government for instance was inexperience in formulating economy policies and
thus,left that task to bureaucracy (Idoko 1996). The unit was that investment
decisions which were undertaken with great decline, the government in 1986
adopted IMF World Bank structural adjustment programmer (SAP) with a view in
providing stable macro-economic and investment environment.
To this end
interest rate that were previously fixed and negative in real terms were
replaced by an interest rate regime which is driven by market force. The policy
shift de-emphasized direct investment stimulation through low interest rate and
encourages savings mobilization by decontrolling interest rate (World Bank
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