Attracting foreign private investment is crucial as it provides an important source of foreign exchange earnings and raises the investment level. However, the arguments against foreign private investment are that it may cause capital flight which may lead to net capital outflow and thus create balance of payment difficulties; it also creates income distribution problems when it competes with home investment. Foreign Private investments may also be capital intensive, which may not fit in the factor proportions of the recipient country.
The Nigeria capital market provides a local opportunity for borrowing and lending for long term purchases and to enable the authorities to mobilize long term capital for economic development of the country. It was to provide foreign business with facilities to offer their shares and the Nigeria public an opportunity to invest and participate in the share and the share ownership of foreign businesses. On the other hand, financial shocks that result in a sudden reversal of capital flows can lead to a sharp devaluation of the exchange rate. As imports become more expensive, the prices of imported goods (such as medicine and food) rise and weaken the purchasing power of poor households. Thus, a direct negative impact is on poor people’s purchasing power, caused by the sharp increase in the price of imported goods such as food and medicine. A devaluation of the exchange rate can also increase a country’s external debt profile, which could result in the government cutting back public spending—including social expenditure—in order to meet increased debt service obligations.