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Factors Affecting Investment In Nigeria by StellaAyomide(f): 5:49pm On Jun 25, 2022 |
Investment is expenditure on capital goods – for example, new machines, offices, new technology. Investment is a component of Aggregate Demand (AD) and also influences the capital stock and productive capacity of the economy (long-run aggregate supply) Summary – Investment levels are influenced by: Interest rates (the cost of borrowing) Economic growth (changes in demand) Confidence/expectations Technological developments (productivity of capital) Availability of finance from banks. Others (depreciation, wage costs, inflation, government policy) Main factors influencing investment by firms 1. Interest rates Investment is financed either out of current savings or by borrowing. Therefore investment is strongly influenced by interest rates. High interest rates make it more expensive to borrow. High interest rates also give a better rate of return from keeping money in the bank. With higher interest rates, investment has a higher opportunity cost because you lose out the interest payments. The marginal efficiency of capital states that for investment to be worthwhile, it needs to give a higher rate of return than the interest rate. If interest rates are 5%, an investment project needs to give a rate of return of at least 5% or more. As interest rates rise, fewer investment projects will be profitable. If interest rates are cut, then more investment projects will be worthwhile. Evaluation Time lags. If a firm has started an investment project, a rise in interest rates will be unlikely to change the decision. The firm will continue to finish the investment. However, it will make them think twice about future investment projects. Therefore changes in interest rates can take time to have an effect. Other factors. Interest rates can be outweighed by economic conditions. For example, in 2009, interest rates were cut from 5% to 0.5% – but investment fell because of the deep recession and the unwillingness of the banks to lend. It was cheap to borrow, but in these circumstances, this wasn’t enough to encourage investmen Accelerator theory The accelerator theory states that investment depends on the rate of change of economic growth. In other words, if the rate of economic growth increases from 1.5% a year to 2.5% a year, then this increase in the growth rate will cause an increase in investment spending as the economy is on an up-turn. The accelerator theory states that investment is highly dependent on the economic cycle. 3. Confidence Investment is riskier than saving. Firms will only invest if they are confident about future costs, demand and economic prospects. Keynes referred to the ‘animal spirits’ of businessmen as a key determinant of investment. Keynes noted that confidence wasn’t always rational. Confidence will be affected by economic growth and interest rates, but also the general economic and political climate. If there is uncertainty (e.g. political turmoil) then firms may cut back on investment decisions as they wait to see how event unfold. Evaluation – Confidence is often driven by economic growth and changes in the rate of economic growth. It is another factor that makes investment cyclical in nature. 4. Inflation In the long-term, inflation rates can have an influence on investment. High and variable inflation tends to create more uncertainty and confusion, with uncertainties over the future cost of investment. If inflation is high and volatile, firms will be uncertain at the final cost of the investment, they may also fear high inflation could lead to economic uncertainty and future downturn. Countries with a prolonged period of low and stable inflation have often experienced higher rates of investment. Evaluation – if low inflation is caused by a fall in demand and economic growth – then this low inflation will not, of itself, be sufficient to boost investment. The ideal is low inflationary and sustainable growth. 5. Productivity of capital Long-term changes in technology can influence the attractiveness of investment. In the late nineteenth century, new technology such as Bessemer steel and improved steam engines meant firms had a strong incentive to invest in this new technology because it was much more efficient than previous technology. If there is a slowdown in the rate of technological progress, firms will cut back investment as there are lower returns on the investment. In the credit crunch of 2008, many banks were short of liquidity so had to cut back lending. Banks were very reluctant to lend to firms for investment. Therefore despite record low-interest rates, firms were unable to borrow for investment – despite firms wishing to do that. Another factor that can influence investment in the long-term is the level of savings. A high level of savings enables more resources to be used for investment. With high deposits – banks are able to lend more out. If the level of savings in the economy falls, then it limits the amounts of funds that can be channelled into investment. 7. Wage costs If wage costs are rising rapidly, it may create an incentive for a firm to try and boost labour productivity, through investing in capital stock. In a period of low wage growth, firms may be more inclined to use more labour-intensive production methods. 8. Depreciation Not all investment is driven by the economic cycle. Some investment is necessary to replace worn out or outdated equipment. Also, investment may be required for the standard growth of a firm. In a recession, investment will fall sharply, but not completely – firms may continue with projects already started, and after a time, they may have to invest in less ambitious projects. Also, even in recessions, some firms may wish to invest or startup. 9. Public sector investment The majority of investment is driven by the private sector. But, investment also includes public sector investment – government spending on infrastructure, schools, hospitals and transport. 10. Government policies Some government regulations can make investment more difficult. For example, strict planning legislation can discourage investment. On the other hand, government subsidies/tax breaks can encourage investment. In China and Korea, the government has often implicitly guaranteed – supported the cost of investment. This has led to greater investment – though it can also affect the quality of investment as there is less incentive to make sure the investment has a strong rate of return.
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Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 6:52pm On Jun 25, 2022 |
Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth. – Robert Kiyosaki |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 6:52pm On Jun 25, 2022 |
There’s no shortage of remarkable ideas, what’s missing is the will to execute them.” – Seth Godin Writer and former dotcom businessman, Godin is saying that talk is cheap, but in a nicer way. Yes, ideas are a dime a dozen, but the real meat on those bones comes from trying to realize them. It is only then that the problems show up and the real work of resolving them starts. |
Re: Factors Affecting Investment In Nigeria by Ezlynn: 7:03pm On Jun 25, 2022 |
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Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 7:06pm On Jun 25, 2022 |
Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy. – Marshall Field41 |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 11:06pm On Jun 25, 2022 |
“Your body will be around a lot longer than that expensive handbag. Invest in yourself.” Anonymous |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 10:46am On Jun 26, 2022 |
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results. – Warren Buffet |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 4:58pm On Jun 26, 2022 |
Risk comes from not knowing what you’re doing. – Warren Buffett |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 4:58pm On Jun 26, 2022 |
You can never solve a problem with the same kind of thinking that created the problem in the first place. – Albert Einstein |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 9:36pm On Jun 26, 2022 |
There have been few things in my life which have had a more genial effect on my mind than the possession of a piece of land. – Harriet Martineau |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 9:36pm On Jun 26, 2022 |
“The real test is not whether you avoid this failure, because you won’t. It’s whether you let it harden or shame you into inaction, or whether you learn from it; whether you choose to persevere.” – Barack Obama The president knows a lot about failure and success. The Affordable Healthcare Act was more than once dead in the water, but the president didn’t give up. He compromised, he convinced and he labored, but not once did he allow himself to become embittered. |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 8:02am On Jun 27, 2022 |
Good morning Have a lovely and blessed week ahead |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 11:42pm On Jun 27, 2022 |
Don’t wait to buy real estate, buy real estate and wait. – T. Harv Eker |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 7:46am On Jun 28, 2022 |
“And the day came when the risk to remain tight in a bud was more painful than the risk it took to blossom.” – Anaïs Nin Nin was no stranger to the creative act. As a writer, she had to take pen to paper or her stories would remain phantoms in her mind. It is safer to keep these ideas to oneself. There’s no rejection or criticism that way, but there’s also no way to hone one’s skills and produce something of value. |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 10:32am On Jun 30, 2022 |
The house you looked at today and wanted to think about until tomorrow may be the same house someone looked at yesterday and will buy today. – Koki Adasi |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 7:21am On Jul 01, 2022 |
Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth. – Theodore Roosevelt |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 6:22am On Jul 02, 2022 |
Find out where the people are going and buy the land before they get there. – William Penn Adair |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 2:36pm On Jul 07, 2022 |
Risk comes from not knowing what you’re doing. – Warren Buffett |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 6:35pm On Jul 07, 2022 |
“In any investment, you expect to have fun and make money.” Michael Jordan |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 7:46am On Jul 08, 2022 |
Know what you own, and know why you own it. – Peter Lynch |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 8:20pm On Jul 08, 2022 |
Find out where the people are going and buy the land before they get there. – William Penn Adair |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 6:28am On Jul 09, 2022 |
Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy. – Marshall Field41 |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 3:29pm On Jul 09, 2022 |
“You only have to do a few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett The idea of right and wrong is a construct, of course, and it might feel overly simplistic to suggest that making the right choices will smooth the path forward. But the famous investor is merely noting with this business quote that avoiding a wrong decision is as important as making the right one. Avoiding bad decisions is aided, of course, with careful planning. |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 7:37pm On Jul 09, 2022 |
Buy real estate in areas where the path exists…and buy more real estate where there is no path, but you can create your own. – David Waronker |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 12:31pm On Jul 11, 2022 |
Risk comes from not knowing what you’re doing. – Warren Buffett |
Re: Factors Affecting Investment In Nigeria by StellaAyomide(f): 7:42pm On Jul 12, 2022 |
“The rich invest in time, the poor invest in money.” Warren Buffet |
Re: Factors Affecting Investment In Nigeria by WVanna: 9:13pm On Jul 12, 2022 |
Re: Factors Affecting Investment In Nigeria by Niswayne19: 9:17pm On Jul 17, 2022 |
Crypto investment is a good way to make profit. The first profit made from crypto was with Yellow card.? |
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