(a) What is indigenization? (b) Explain four advantages anc four disadvantages of indigenization.

Answer Details

(a) What is indigenization?

Indigenization is a government policy that transfers the ownership and control of certain businesses and enterprises from foreigners to the citizens (indigenes) of a country. It reserves some businesses wholly for nationals and requires that citizens hold a stated share of the ownership in others, so that the economy is controlled mainly by the country's own people.

(b) Four advantages of indigenization

1. Local control of the economy. It places ownership of key businesses in the hands of citizens, reducing foreign domination of the economy.
2. Retention of profits at home. Profits are enjoyed by nationals and reinvested locally instead of being repatriated abroad.
3. Employment and managerial experience for citizens. Nationals gain ownership, top management posts and business skills previously held by foreigners.
4. Encourages local investment and entrepreneurship. It stimulates indigenous people to invest and develop entrepreneurial ability.

Four disadvantages of indigenization

1. Shortage of local capital. Citizens may lack enough funds to buy over and run the large businesses effectively.
2. Loss of foreign investment and expertise. It may discourage foreign investors and lead to loss of technical and managerial know-how.
3. Concentration of ownership in few rich hands. Only wealthy citizens can afford the shares, widening income inequality.
4. Fall in efficiency and productivity. Inexperienced indigenous owners and managers may run the businesses poorly, reducing output and quality.

(Also acceptable: capital flight and reduced access to foreign technology.)