Foreign Investment In Nigeria Under Structural Adjustment Programme (SAP)

Foreign Investment In Nigeria Under Structural Adjustment Programme (SAP)


          The topic of foreign investment in the third countries is among a few sublets from which arouse so much controversy and such a variety of interpretation and valuation and certainly it is a field in which both the reality and the perception of it productivity, inefficiency and generally poor management in the private sector and the business community as well as the public enterprises may continue to affect the development efforts of the nation unless there is reorganization (KOLA 1997).

To this the need for foreign investment has thus been addressed seriously by the government thereby according to the important it deserve. Thus, the extent to which the government is willing to bring about legislation and directives in support of foreign investments have generally been recognized since one of the objective of the structural adjustment programme of the government embattled upon in 1986 in the programme promotion of investments in Nigeria especially foreign investments.

Foreign investment, therefore, is expected to help infect funds from outside the country to boost the economy and the growth of the ailing industrial sector, thus providing of the employment opportunities and the impetus for national development. Foreign investment as part of enlightenment strategy and promotion center under the ministries of industry has been established to sere as a guide and advisory center for Nigeria and foreigners like who are thirsty for information on the industrial chemical in the country.

The former external affairs minister, Major General Ike Nwachukwu, had taken up the baton by embarking on services of bilaterial economic diplomatic shuttles to South East Asia, Latin America, Africa and Europe to advertise Nigerian’s new array of incentives and improved, investment climate.

Furthermore, President Babangida’s trip to the United Kingdom and his visit to France, could be seen in the same light of encouraging British and France investor to come to Nigeria with their capital in view of the liberalized the economy. For instance, Nigeria and France syned an agreement between two countries by providing for preferential treatment in event of nationalization of companies operation in either country, all this strategy in invariably aimed at promoting and protecting relationships.


          One of the problems, which militated against foreign investment in Nigeria, was the restrictive and cumbersome regulatory environment under the economy operated. Recognizing this, the federal military government of Nigeria in its industrial policy, has seriously addressed the issue by the promulgation of degree No 36 of 1988, establishing the industrial development co-ordination committee (IDCC). The committee was set up to improve the investment climate and attract investors y centralizing and simplifying products for granting of all pre-investment approvals. Approval on fiscal concession on industry related increase such as:

  1. Pioneer industries
  2. Local raw material utilization
  • Plant training
  1. Research and development
  2. Investment on infrastructure facilities.


          Sir. D.C. Osuagwu and C.C. Nwabueze (1998) defined investment as ploughing one’s finances or funds into projects or assets (be it tangible or financial assets) with a view to increasing one’s wealth. For an economic unit, investment occurs wherever there is an addition to capital stulk, thus purchase of machinery or factory buildings represents investment for the individual investor, just as the purchase of equity shares, bonds or securities.

From the macroeconomic point of view, however, only addition to real assets can correctly be described as investments. This arises from the fact that most changes in the ownership of financial assets tends to cancel out within an economy, securities, which result in, net addition to the aggregate capital funds of the macro-economies count as part of net national investment. Though actual investment to this the form of additions to real or financial assets, it is usually measured, in term of fund used in the process. Thus when we talk of one’s investment in building fixtures, vehicles and securities, we refer specially to the person’s outlay on those assets over a given period. There is great different between gross replacement and net investment. Gross or total investment represents the outlay on capital items over a period. Replacement represents the outlay necessary for maintaining the present level and efficiency of capital items. Example, are provisions for wear tearing existing assets e.t.c.


          Richard (1982) expressed that foreign investment are those investment that are owned by individuals and co-operate bodies from other countries than the host country. Individuals, firm and government can undertake it. It involves the shifting of assets, capital and manpower from a foreign country into another country. Basically, foreign investments are classified into two categories namely:

  1. Portfolio investment
  2. Direct Investment.



          Nwabah (1995) defined portfolio as a combination of assets. This is an investment in which the investor lacks control over investment. It typically takes from of investing in financial assets such as bonds and stocks, in which the investor dose not have controlling interest. The major motivating factor is favourable interest rate differential. That is, capital flows where it is plentiful to where it is scarce.

Direct Investment: – This s an investment in a foreign country where the investor retains control over the investment. It takes the form of a foreign company starling a subsidiary or taking over control of an existing firm in the country in question.

Indirect Investment and the Investor retain control over the invested capital. Direct investment and management of together. With portfolio investment no such control is order to get a return on it, but his control over the use of that capital.



          A company that undertakes direct foreign investment is called multinational co-operated (MNC). There is no general accepted definition of MNC. However, for a company to be multi-national cooperation, it must satisfy the following criteria:

  1. Its local subsidiaries must be managed by nationals.
  2. It must operate in many countries at different level of economic development
  • It must be multi-national stock ownership.

A firm’s expansion by direct investment can take any of the three forms below:

  1. Vertical expansion whereby a stage is added to the production process that comes before processing activity.
  2. Horizontal expansion whereby the same product are produced.
  3. Conglomerate expansions whereby different goods from those of the domestic market are produced.

The greatest part of direct foreign investment in terms of value and number, involves either horizontal expansion to produce the same or similar line of goods abroad or vertical integration backgrounds into the production of raw materials. The tracts of multinational corporation and their subsidiaries are as follows: –

  1. They are larger in size. They are oligopolistic firm in the home moppet having exhausted all possible economic of scale.
  2. Foreign direct investment originates from differentiation oligopoly in the home markets, which are also oligopolistic with product differentiation.
  • MNC’s tend to populate foreign oligopolistic markets, which are protected by strong borrowers to entry. They do have advantages against sources of entry barriers in the foreign market. This they achieve in the following ways:
    1. MNC’s develop new superior products, which give them a lead over foreign local producers.
    2. Initial capital investments are no barriers since largely the retailed earnings of the percent corporation finance the subsidiaries.
    3. Finally, MNC have substantial lost advantage over local foreign products. Such advantages derive mainly from the lower cost of capital, superior technical know how, and more efficient and skilled managerial talent.



          The 1991 budget is a dream to the productive sector. A secondary beauty of the budget is its utilization of relevant tools to meet what both local and foreign investors has been clamoring for as being necessary to enhance the investment eliminate. It has used tariffs for relevant protection of local industries by raising duties on imported finished equipments and for boosting productive capacities by lowering duties on commonly relevant raw materials.

The budget also not only recognize that role of finance in production, it has done something about it by getting government committee to steering clear of the domestic money market. The central bank of Nigeria as pegged maximum lending rate at 21% and exchange commission is on its foes to further mobilizing savings, which would be largely for the use of the private sector.

All these are aimed at matting more funds available to the private sector at rates certainly much lower than what had obtain in the past eighteen month. A major source of dislocation in the more development money market in particular and less developed capital market to a large extent has been governments hyperactivity in one direction, borrowing. It is hoped that the federal government will effectively police the state to abide by the local budget’s pledge that they and the local government’s should source their funds or capital profits from the capital market. (Federal Republic of Nigeria: Budget 1991).

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