The study examined the econometric study of the determinants of private sector investments in Nigeria for the period of 1970-2015. The study aimed at determining the major variables that influence private investments in Nigeria, to know if these determinants have a long run relationship with private investment in Nigeria and to identify policy variables that will influence private investment in Nigeria. The research adopted the econometric method. The study also adopted annual time series data covering a period of forty-six years. The findings from the research study showed that unit test result indicated that credit to the private sector was stationary at levels while other variables were not stationary at first difference, the co-integration test result revealed that the variables were not co-integrated, infrastructural facilities and savings rate exerted a positive significant effect on private domestic investment in Nigeria; there exist a positive and insignificant relationship between private sector credit and private domestic investment  implying that credit to the private sector is not significant variable explaining changes in private domestic investment in Nigeria















Following the slump in the oil prices and insecurity challenges that have plagued Nigeria, research interests in searching for alternative means of driving sustainable long term growth have been rekindled.In the development economics literature, a plethora of factors have been identified and explored as the drivers of economic growth.

Investment has been identified as a key determinant of economic growth in any nation according to many macroeconomic literature and empirical evidences. It has been revealed to be one of the sustainable factors of major long-term economic growth by many empirical researches. Investment is divided into foreign and domestic investment. The foreign component is divided into Greenfield or foreign direct investment and portfolio investment. The domestic component is divided into public investment and private investment.Domestic investment can be harnessed to drive growth especially in developing nations. This is because it increases employment opportunities, attracts foreign investment and increases the new technology in the country.

Nigeria is reputed to be buoyantly blessed with enormous mineral and human resources. Nevertheless, the country has been known to be high risk market for investment (Osmond, 2015).

According to World Bank (2009), the level of domestic saving and investment is inadequate to fuel the growth needed to raise living standards and generate sufficient productive employment. Investment plays a crucial role in models of economic growth. It is an essential component of aggregate demand and fluctuations in investment have considerable effect on economic activity and long-term economic growth.A few basic trends have emerged over the past few years as regards the aggregate domestic investment income. The strong positive correlation which exists between saving, investment and growth is well established in the literature. The dismal growth record in most African countries, relative to other regions of the world has been of concern to economists. This is because the growth rate registered in most African countries is often not commensurate with the level of investment (Tochukwu, 2012; Agu et al, 2013). In Nigeria for instance, the economy witnessed tremendous growth in the 1970s and early 1980s as a result of the oil boom. Following the oil boom, there was investment boom especially in the public sector. However, with the collapse of the oil market in the 1980s, investment fell, thereby resulting in a fall in economic growth.

According to the World Bank (2012), a close examination of the aggregate domestic investment income shows that the collapse of investment which began in the early 1970s was broad-based. With aggregate income levels between N128.6 to N297.8 million in the early 1970s, it fell to as low as -N404.1 and -N334.7 million in the early 1980. Although in 1987 the levels of investment in Nigeria rose to as high as N2452.8 million.This encouraging signs increase consistently, and persisted till 2004, recording its highest income, 258,388.6 million in 2003. But from 2004, domestic investment in Nigeria has witnessed a continuous decline which has fallen below any other level of loss ever recorded in this sector since independence. With as low as N1921.2 million in 2005 to as drastically low as -N114484.4 million in the year 2008, the levels of domestic investment in the Nigeria economy has fallen with over 145 percent below its 2004 position.

Apparently, if private investment remains at the current low level, it will slow down potential growth and reduce long-run levels of per capital consumption and income, thus militating against the sustainability of economic growth and any hopes of meaningful poverty alleviation (Iyoha, 2009). The sharp reduction in aggregate domestic investment was not very obvious until 1989 when it was basically -12.4 but from the year 1999, the economy recorded higher levels of instability which stood at -117.5. In the year 2000, the level of instability became astonishingly high and fell as low as -856.4; this degenerated into unprecedented levels of instability in 2002 when macroeconomic stability was as unstable as -2289.2 (World Bank, 2012). Theoretically, it is expected that positive changes in macroeconomic adjustments are expected to trigger a significant resurgence of private investment resulting from increases in domestic capital performance and acceleration of investment flows (Iyoha, 2008). By and large, these promised benefits of macroeconomic adjustments have not materialized in Nigeria.

Political reforms include incentives to enhance domestic investments.These, notwithstanding a number of problems inhibiting domestic investment in Nigeria are at play. For example, the level of technical know-how is still very low while supply of basic infrastructural facilities remains grossly inadequate with the few available being very epileptic in nature. Telecommunication services, water, electricity, transportation facilities; such as road and rail are basically inefficient thereby constituting serious problems to investment in Nigeria. Investment opportunities in Nigeria are in addition to the foregoing stifled by the increasing levels of uncertainties in the macroeconomic environment of doing business. For example, the shift in economic policies from one of the regulation to that of deregulation and back to that of guided deregulation with a yet possible return to regulation in some sectors of the economy.


The role of political instability in the inhibition of investment opportunities is also worthy of mention. Unstable political climate serve to deter both domestic and foreign investors. Nigeria has experienced unstable political climate since independence. Outright civil hostilities lasted from 1967 to 1970. Thereafter, coups led to political disorder. Unfortunately, the civil administration ought to encourage stability but with increased inconsistencies in socio-economic and political policies, high levels of instability persisted. Relatively, political instability in Nigeria was expected to stabilize with the introduction of the National Economic Empowerment and Development Strategy (NEEDS) program in 2004, and the successful completion of the banking recapitalization and consolidation reform program in 2005. These however, have not been able to return the economy to its previous levels of political stability. Despite the widely propagated positive influences of these policies on investment, macroeconomic condition and financial debt remain unstable. Thus, from the above contending issues, there is need for a comprehensive investigation of the determinants of domestic investment in Nigeria.

From the aforementioned we can see that Investment is an essential component of aggregate demand and fluctuations in investment have considerable effect on economic activities and long-term economic growth. The view that capital formation is a key to growth is reflected in the development strategies and plans of many countries (Solinanoet. al.,2008). With a view from government’s positive reactions to promote the levels of investment in Nigeria, in light of the prevailing barriers hindering the levels of investment in the economy and despite all the strategies adopted. I deduce that a lot of factors are contributing to the fluctuation in private investment in Nigeria. Hence, using aggregate data, this study aims at explaining these trends in close collaboration with some key determinants and their implications for investment in the Nigerian economy. A clear understanding of these determinants is essential in order to find the major sources of fluctuations in private investment in the Nigerian economy.

Nigeria like other African countries was faced with a series of economic problem. Some of these werehigh inflation and unemployment, increasing poverty, low economic growth, high fiscal deficits, and highbalance of payment deficits, financial sector repression and worsening terms of trade. The necessary conditionsfor growth and efficient economic management prompted the need for adoption of a consistent, appropriatemacroeconomic policy framework and the existence of high quality institutions.

The private sector has undergone significant changes, in recent time, in terms of the policy environment,number of institutions, ownership structure, size and scope of markets, as well as in the regulatory framework.However, in spite of the far-reaching reforms of the past two decades, the Nigerian financial system is yet to bein a position to fulfil its potential as an engine of economic growth and development. The financial system isrelatively superficial and the apparent diversified nature of the financial system is suspicious. This is becausealthough a wide variety of financial institutions and markets exist, deposit money banks overwhelminglydominate the financial sector and traditional bank deposits represent the major forms of financial saving. Moreso, challenges are still prevalent in both capital market and money market as policy environment is still plaguedby incessant reversals.

1.2       Statement of Problem

The success of any programme in bringing about a sustainable recovery in economic activity in an economy depends crucially on the behaviour of investment in the aftermath of the reform process. In Nigeria, many reform programmes have been undertaken with little or no impact on the investment behaviour. The behaviour of private investment has been identified as a factor for assessing the reform outcome. This study is undertaken to know the determinants of private investment that have a statistically significant impact on private investment in Nigeria so that policy makers can concentrate on manipulating such policies to boost private investment in Nigeria.The existing evidence in Nigeria, points to a decline or stagnation of private investment during the immediate past reform years (World Bank, 2008; Harriggen and Mosley, 2005; Green Way and Morrissey, 2002; Gunning, 2004;Dehn, 2007; Lomi and Sisay, 2011).

Econometric evidence (Beddies, 2009;Ghura and Hadjimicheal, 2006;Ghura, 2007) indicates that private investment has a stronger, more favourable effect on growth rather than government investment; probably because private investment is more efficient and less closely associated with corruption. The trends of private investment in the country have been worrisome. The much awaited impact of the private sector as an engine of growth has not yet materialized. Most researchers have focused on the impact of governance, credit availability, exchange rate and interest rate on private investment in Nigeria, without much emphasis on the infrastructural facilities in the country. Empirical studies (Blejer and Khan, 2004; Greene and Villanueva, 2003) on 23 countries have shown that public investment in physical infrastructure is complementary to private investment. The private investors will flourish only in a supportive environment of cost reductions in power, transport and communications. The huge money spent on the generation of power by the private domestic investors in Nigeria, would escalate the prices of their products. Many private domestic investors have closed down and many have relocated to other investment friendly areas, because of the high cost of generating power in the country.

1.3       Research Objectives

The general research objective is to investigate the determinants of private investment in Nigeria. The specific objectives are

  1. To determine the major variables that influence private investment in Nigeria;
  2. To know if these determinants have a long run relationship with private investment in Nigeria;
  • To identify policy variables that will estimate private investment in Nigeria

1.4    Research Hypothesis

H0:       There is no significant relationship between private domestic investment and          determinants of private sector investments (interest rate, infrastructural facilities (proxy       by electricity), public investment, credit to the private sector, and savings rate).

Hi:       There is a significant relationship between private domestic investment and determinants of private sector investments (interest rate, infrastructural facilities (proxy by electricity),       public investment, credit to the private sector, and savings rate).

1.5       Justification of the Study

This research work will be very indispensable to students and researchers because it will increase the body of existing literature and thus will serve as reference material to students and researchers who are researching on related topics. Furthermore, it will be important to policy makers as it will give them a direction on the steps to take to boost the economy. This research will identify private investment determinants that have statistically significant impact on private investment in Nigeria and thus give recommendations on how to manipulate those significant determinants to boost private investment in Nigeria. They are few empirical studies on determinants of private investments that evaluated most of the independent variables employed in this work. This project therefore attempts to contribute to knowledge in this direction.


1.6       Scope and Coverage

The geographical scope is Nigeria whilethe time coverage of data will start from 1970 and end in 2015. The content scope will be limited to the determinants of private investment in Nigeria. The variables of interest are private domestic investment, interest rate, infrastructural facilities (proxy by electricity), public investment, credit to the private sector, and savings rate.

1.7       Organization of work

For a systematic and scientific approach, this research paper is divided into six chapters.The chapters are further subdivided into sections. The introductory section presents the general introduction; the statement of problem; the objectives of study; the justification of study; scope and limitations of study; and organization of work, as shown in chapter one. In section two, private sector investment n the Nigeria Economy were presented. In section three, relevant literature is reviewed (theoretical literature, empirical literature and theoretical framework) and the working hypotheses stated. The methodology of the research is presented in section four. Section five concentrates on the presentation and analysis of regression results. The policy implications of such analysis or results are also identified. Section six concludes the researchwith some important policy recommendations.