The Impact of Foreign Direct Inflows on Economic Development of Nigeria
Chapter One
OBJECTIVES OF THE STUDY
The main objectives of this study are to examine the impact of foreign direct inflows on the economic development of Nigeria. The specific objectives are:
- To ascertain the effect of FDI from manufacturing and processing on the Nigerian gross domestic product
- To determine the impact of FDI from transportation and communication on the Nigerian gross domestic product.
- To determine the impact of FDI from building and construction on the Nigerian gross domestic product.
- To determine the impact of FDI from trading and business services on the Nigerian gross domestic product
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
This chapter will focus on reviewing relevant literature about foreign direct investment and its impact in the economic development of Nigeria.
THE CONCEPT OF FOREIGN DIRECT INVESTMENT
Foreign direct investment brings in investible financial resources, modern technology and improves existing ones, provides access to export market, saved manpower and modern management system. This prompts various less developed countries (LDC’s) to desire long sum of FDI in order to increase their national outputs. FDI comprises not only merger and acquisition and new investment but also re-invested earnings and loans and similar transfer between parent companies and affiliates.
Among the efforts made by the government of Nigeria to stimulate FDI was the implementation of the second national development plan (1970 – 1974), the Nigerian Enterprises Promotions Decree (NEPD) which enforced indigenization act 1972 which was introduced in order to increase the level of indigenous participations in various sectors of the economy. The review was further intensified in 1972; this generally reduced the level of foreign ownership in some sectors, leading to a down-ward trend in FDI. But Structural Adjustment Programs (SAP) introduced in 1986 and one of its objectives is to produce the necessary incentives to attracting foreign investment, hence promulgation of NEPD in 1987 and 1989. Other efforts taken in the 1990’s to improve FDI inflow coupled with various strategies and policies adopted by the then civilian government were expected to improve foreign participation and investment in the economy (Olomola and Akinbobola 2004).
Several experts (Economist and Financial Manager) have offered a variety of explanation on the meaning of FDI, Technical Transfer and the mechanisms that linked them together which might lead to economic development of the developing nations.
FDI has been defined as an investment made to acquire a lasting management interest (normally 10% of voting stock) in a business enterprises operating in a country other than that of the investors (where foreign is defined according to residency and not according to nature) (World Bank, 1996).
Todaro (1999) defined FDI as investment by large Multinational Corporations with headquarters in the developed nation. He sees Multinational Corporations as enterprises that conduct and control productive activities in more than one country.
Ijaiya (2001) described FDI has an increment in the book value of the met worth of investments in one country held by investors of another country, where the investment are under the central managerial control of the investors.
He further highlighted the basic reasons for FDI as Saving gap, Foreign exchange gap and Constraints of development arising from the limitation of absorption of the country.
Expanded definition of the meaning of FDI has been offered by Avanwale (2007) as ownership of at least 10% of the ordinary shares or voting stock is the criterion for the existence of the investment relationship. Ownership of less than 10% is recorded as portfolio investment (In conjunction with the World Bank definition of 1996).
In view of the above definition of FDI by different experts, FDI can be defined as an investment made (at least 10% of the owners’ equity) by an investor or enterprise in another enterprise equivalent in voting power with the aim to manage the investment and optimizing cost and benefits. This investment involves not only transfer of funds but also the transfer of physical capital, technology, management and marketing expertise, prudent advertising and business enterprises with the aim of making profit.
CHAPTER THREE
RESEAECH METHODOLOGY
INTRODUCTION
This chapter deals with the methodology that would be used for the purpose of the study. It highlights the research design, sources and methods of data collection, model specification, techniques of data analysis, and justification of the methods and techniques used.
RESEARCH DESIGN
In carrying out this research work, descriptive research is considered to be the most appropriate because it is used to express the casual relationships between some variables.
SOURCES AND METHODS OF DATA COLLECTION
This study rely basically on secondary data sources from Central Bank of Nigeria (CBN) publications, journals, economics text books and Federal Office Of Statistics(FOS) review of the economy for various years..
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
The study covered the period 1980-2009. Adopting the ordinary lease square multiple regression using different sources of foreign direct investment are regressed on gross domestic of product to access the impact of FDI on GDP using SPSS. This chapter deals with data presentation, analysis and the data collected for the purpose of testing empirically.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
In the research study, the extent to which inflows of FDI to manufacturing and process, building and construction, transportation and communication and trade and business service has impacted on Gross Domestic Product has been realized with regard to economic performance between 1980-2009. In the course of measuring the impact of FDI on GDP the ordinary least square method was employed to estimate the model and a better result was yielded.
Summary
FDI being regarded as an engine to the economic development in any developing nation, but has been under some problems for appreciable number of years. The research work has tried to examine the impact of its economic development and some impediment to the inflows to Nigeria economy. Through this, data were collected from secondary sources analyzed with the aim of achieving the stated objectives. From the findings, it was discovered that FDI on transportation and communication, building and construction contribute majorly to economic development and while manufacturing and processing , trade and business services do not contribute much because of some inherent problems such as unhealthy environment for investment, corruption and problem of infrastructural development majorly electricity etc.
Conclusions
From these finding we can assert that:
FDI in Nigeria contributes to the nation’s economic growth and development. Although the overall development of the economy may not be significant but here is need to encourage FDI.
Since FDI on transport and communication has the highest potential for contributing to economic growth. The non significant of FDI on manufacturing and trade and business service is a reflection of poor business environment. There is need to improve the business environment so that manufacturing and trade and business sector will contribute significantly.
Recommendations
On the basis of the above findings and conclusions, the following are recommended in order to improve the economic growth and development through the inflow of FDI.
- There is need to improve business environment through conscious provision of necessary infrastructural which will reduce the cost of doing business in Nigeria. The federal government should not relent its effort through total privatization of power holding company of Nigeria bill with dedicated and better committee that would be in change of the privatization not like that of present BPE that are full of corrupt hand.
- The related issues on the business environment are the importance of consciously curbing corruption. Agencies established to fight corruption such as EFCC (Economic and Financial Crimes Commission) and ICPC (Independent Corrupt Practices Commission) should be seen to do their job to convince local and foreign investor that Nigeria is safe for investment but also to show policies so as to delay them from their responsibility.
- There is a critical need for the integration of the nations human resources through improved education and to enable them contribute significantly to the growth process especially by competing with their foreign counterparts that invest in home country.
- The issues of security in the country should also be addressed especially issues of Niger Delta, armed robbers and majority the common “Boko Harram” set that are waging war against the government. The root course of the problems should be addressed, because once not any step the government might made to encourage FDI may be fruitless.
- Effort should also be made in order to attract more capital inflows through foreign direct investment, there is need to show more commitment to enforcement of contracts, patent and copy right laws etc. With this foreign investors get attracted since adequate returns are guaranteed.
- Despite the recent globalization trend and open economy operation, there is still need for restrictions so as to militate against capital flight, which is reflected in the negative impact of openness on economic growth, There is also need to encourage domestic productivity in order to increase the value of exports in Nigeria so as to generate higher profit.
- Finally domestic savings should be mobilized by the government through tax reduction, creation of employment opportunities and improvement of financial system in order to increase the level of capital accumulation.
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