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Lesson Note

Subject: Economics

Topic: Indigenization of Industries
Lesson Objectives: by the end of the lesson, the learners should be able to:

  1. Define the term indigenization;
  2. State the Advantages of Indigenization;
  3. State the disadvantages of indigenization;
  4. Suggest how west African countries can promote indigenous industries

LESSON Summary


Indigenization is the transfer of ownership and control of business enterprises from foreigners to the indigenes. It is a policy designed to ensure greater participation of indigenes in the ownership, control and management of business enterprises. The major aim is to reduce foreign domination of the economy and ensure indigenous participation.
In 1972, the Federal Government of Nigeria promulgated the Nigerian Enterprises Promotion Decree. The decree reserves the right to own and participate in some enterprises exclusively or partially for the government and the people of Nigeria. The decree was divided into two schedules

1. Schedule I: Under this schedule, some business enterprises that do not require much capital to set up are reserved exclusively for the indigenes. They are mainly small scale enterprises such as cinemas, pool betting, candle and block manufacturing, rice milling, garment sewing etc.

2. Schedule II: Under this schedule, foreigners can participate but must reserve 40% equity participation for Nigerians. Some of the businesses under this schedule include beer brewing, cement, soap, bicycle manufacturing, shipping, furniture making, etc.
As a result of the shortcomings of the decree, it was revised in 1977. The decree this time classified enterprises into three schedules:

  • Schedule I: This schedule was increased by the inclusion of some businesses like clock and jewellery manufacturing, etc. The decree reserved 100% equity participation for indigenes.
  • Schedule II: Under this schedule, the equity participation of indigenes was increased from 40% to 60%.
  • Schedule III: This schedule introduced the equity participation of indigenes which must not be less than 40%.

Reasons for the promulgation of the Nigerian Enterprises Promotion Decree are as follows;
i. To ensure that the means of production and distribution are controlled by Nigerians and not foreigners.
ii. To be able to control business enterprises in the country.
iii. To ensure that the country is self-reliant
iv. For industrial development of the country.
v. So that the indigenes will have control over their resources.

Advantages of Indigenization

i. Ensures Indigenous participation: Indigenization ensures greater participation of indigenes in the control and running of business enterprises in the country.
ii. Development of local technology: It leads to the development of local skills and technology.
iii. Acceleration of industrial development: It leads to the promotion and acceleration of industrial development.
iv. Reduces foreign control of the economy: Indigenization can reduce foreign control and domination of the nation’s economy.
v. Leads to local retention of profit: It leads to local retention of profits which otherwise would have been taken to other countries as capital flight.
vi. Ensures self-reliance: Indigenization eliminates the problem of dependence on foreign goods by ensuring self-reliance.
vii. Industrial development: Indigenization will bring about rapid Industrialisation of the economy.

Disadvantages of Indigenization

i. Discouragement of foreign investment: Indigenization can discourage foreign investment in a country.
ii. It can lead to disharmony between countries: Indigenization can lead to disharmony among countries of the world as friendship will be discouraged.
iii. It can lead to capital flight: It can lead to capital flight as foreign investors will be forced to relocate to other countries.
iv. Inexperience and incompetence can destroy business: Due to Indigenization, business can be transferred to people who are not experienced and competent enough to handle such business.
v. Rich people can hijack the economy: Few rich people can use their financial wealth to buy and take over all such business enterprises.

How West African Countries can Promote Indigenous Industries

West African countries can promote indigenous industries by:
1. Greater reliance on domestic raw materials: West African countries should have a greater reliance in sourcing domestic raw materials for their industries.
2. Research and application of research results: They should also embark on intensive research works and the results should be applied for industrial growth.
3. Availability of finance: Finance or capital should be made available for indigenous industrial promoters.
4. Development of skills: There should be more development of entrepreneurial and management skills for efficient industrial development.
5. Political stability: There should be relative political stability to ensure continuous growth of industries.
6. Better work attitude: Labour or workers should put on a better work attitude aimed at achieving better results.
7. Development and expansion of market: There should be proper development and expansion of market for locally made products.
8. High level of productivity: There should be a high level of productivity that will lead to higher level of savings and greater capital formation.

9. Improved social and economic infrastructures: There should be improved social and economic infrastructures, e.g electricity, seaport, airport, telecommunications, etc such that can boost industrial growth.

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Take quick test for this lessonn

  1. What is indigenization?
  2. State the Advantages of Indigenization.
  3. State the disadvantages of indigenization.
  4. In what ways can west African countries can promote indigenous industries?

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