Introduction

A fundamental requirement for economic development in any economy is an adequate rate of capital formation relative to that of population growth. Adequate capital formation is essential because it helps accomplish the following economic goals, among others: to build up capital equipment needed for purposes of development; to enhance capital progress, which in turn helps to ensure sustained production on a large scale; to ensure expansion of the market; to remove market imperfections by creating economic and social overhead capital; and to break the vicious circle of poverty from both the demand and the supply side.

The process of capital formation involves three distinct phases: first, the volume of savings increases; next, savings are mobilized by financial and credit institutions; and lastly, those savings are invested. Savings can be mobilized in an economy from two distinct sources, domestic and foreign. Domestic sources include but are not limited to an increase in national income, a reduction in consumption, and fiscal and monetary measures to encourage savings. However, foreign sources involve attracting capital from abroad, which may take the form of private investment, official loans, or grants. Private capital may be direct or indirect investment. Direct investment means that foreign investors exercise de facto or de jure control over the assets created in the capital-importing country by means of their investments; this typically involves setting up a company or subsidiary of a company hitherto operating in the capital-importing country in which the foreign investor maintains majority control. It may also involve acquiring fixed assets in the target countries by nationals from the investing country. Such companies are called multinational corporations (MNCs) or transnational corporations (TNCs).

Nigeria’s economy is a monocultural oil-rich economy that, in spite of the massive revenues realized from crude oil export over the last three and a half decades, still lags in terms of poor development in all ramifications of development. The oil boom of the 1970s brought with it fundamental changes in the Nigerian economy such that, prior to July 1986, the country witnessed a traumatic economic crisis. Nigeria suffered a dip in foreign exchange earnings and government revenues due to the global economic recession of the early 1980s that resulted in the collapse of the world oil market, erosion of competitiveness of its agricultural sector and that sector’s ultimate neglect, as well as from the effects of inappropriate policies of the past such as economic stabilization and economic emergency measures in 1982 and 1985, respectively, and the structural adjustment program in 1986.