FOREIGN DIRECT INVESTMENT AS A VERITABLE BOOSTER KICK START AN ECONOMY

FOREIGN DIRECT INVESTMENT AS A VERITABLE BOOSTER KICK START AN ECONOMY

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CHAPTER ONE

INTRODUCTION

1.1        BACKGROUND OF THE STUDY

Economic Performance and economic growth of a country is influenced by multiple factors. For economies in general and developing economies in particular, Foreign Direct Investment (FDI) has been observed and argued as a significant determinant. However there remain two contrasting views. Esther & Folorunso (2011) have investigated the impact of FDI flows on economic growth in Nigeria. Their study found that FDI had a beneficial impact on the economic growth. However, they also report that the extent to which FDI influences the economic growth positively could be limited by human capital. With the environment of domestic and foreign policies narrowing towards a common international economic order induced globalization, foreign direct investment and now represent a major form of cross border resources flow among countries. More than before, more firms, in numerous industries and in many countries are expanding abroad through foreign direct investment (either private or portfolio). The magnitude of foreign direct investment (FDI) with the past few years has compelled discussions as to the desirability of a multinational investments agreement (MIA). Developing countries in Africa, Asia, and Latin America has come increasingly to see that foreign Direct Investment is a source of economic development, modernization, income growth and employment and poverty reduction. These countries are successfully developing their economies under outward oriented

policies, albeit in varying degrees. Globally, economist tends to favour the free flow of capital across national borders because; it allows capital to seek out the highest rate of returns. Nigeria is reputed to be buoyantly blessed with an enormous minerals and human resources, but believed to be at high risk market for investment. Foreign direct investment can also be a veritable booster to kick starts an economy. Nigeria in the past and present, have a large population and enlightened market; a real potential market, an investment conscious society, as well as a conducive sustainable environment for foreign private investment to thrive in the development of the economy. Over the past two decades, Nigeria have implemented broad ranging economic reforms, including the liberalization of foreign trade and investment regimes domestic market and privatization of state companies which has had an effect on the flow and nature of foreign investment. Nigeria especially since the African financial crisis has become much more liberal in its‟ economic policies to attract more foreign direct investment to increase its economic growth and development. Hence (though not mentioned explicitly in official policy statement) alleviating poverty in the country. Foreign direct investment can be described as investment made so as to acquire a lasting management interest ( for instance, 10% of voting stocks) and at least 10% of equity shares in an enterprise operating in another country other than that of investors‟ country (Mr.Williams 2003; World Bank 2007). Policy makers believe that foreign direct investment (FDI) produces positive effect on host economies. Some of these benefits are in the form of externalities and adoption of foreign technology. Externalities here can be, in form of licensing agreement, limitation, employee training and the introduction of new processes by the foreign firms. (Alfaro 2006). According to Tang, Selvanathan and Selvanathan (2008), Multinational Enterprises (MNES) diffuse technology and management know –how to domestic firms. When foreign direct investment (FDI) is undertaken in high risk areas or new industries


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economic rents are created accruing to old technologies and traditional management styles. These are highly beneficial to recipient countries or economy. In addition (FDI) help in bridging the capital shortage gap and complement domestic investment especially when it flows to a high risk areas of new firms where domestics‟ resources are limited. (Noorzoy, 2007). Nigeria is one of the economies with great demand for goods and services and has attracted some foreign direct investment over the years. The amount of foreign direct investment inflow in to Nigeria has reached US $ 2.23 billion in 2003 and it rose to US $ 5.31 billion in 2004 (a 138 % increase), this figure rose again to US $ 9.92 billion (an 87% increase) in 2005. The figure however declined slightly to US $ 9.44 in 2006 (Loco Monitor.com). The question that comes to mind is, do these for actually contribute to economic growth in Nigeria? If foreign direct investments actually contribute to growth, then, the sustainability of foreign direct investment is a worthwhile activity and a way of achieving this sustainability is by identifying the factors contributing to its growth with a view to ensuring its enhancement. However, foreign direct investment and growth debates are country specific. Foreign direct investment (FDI) can have a spill over on all firms thereby boost the productivity of the entire economy. Smith .M (2002), however argued to the contrary. According to them, (FDI) can affect resource allocation and growth negatively where there is price distortion, financial, trade and other distortions existing prior to foreign direct investment injection. Wheeler and Mody (2010) also supports the view of Boyd and Smith (2008). According to wheeler and Mody (2011), infrastructures enhance foreign direct investment is contributions by reducing their operating costs and increasing the productivity of investments. In other words, the growth impact of (FDI) is not automatic but tied to certain levels of infrastructure and economic performance.

1.2         STATEMENT OF THE PROBLEM

In recent times, the government of Nigeria has embarked on economic policies to check the flow of foreign private investment in certain sectors of the economy. Admittedly, how to achieve rapid economic development through foreign investment has proved to be one of the economic problems facing Nigeria. Therefore, this work tends to analyse critically the following; the determinants of Foreign Direct Investment (FDI) in the Nigerian economy, the impact of foreign investment on the growth of the Nigeria economy.

1.3         RESEARCH QUESTIONS

The research questions of this study seek to provide solution to include:

i.                    Is foreign investment having any relevant preparation to determine the economic growth?

ii.                  To what extent can foreign investment be best applicable in enhancing the economics of Nigeria as a whole?

iii.                Why should foreign investment be included in financial and the government target tool for economic growth?

iv.                How can the monetary value of foreign investment service be determined?

v.                  Can these monetary values serve as an aid to management in internal control problems of the Nigerian economy?

vi.                What are the possible effects of the monetary worth of employee‟s services to the profitability of an organization and the economic?


1.4         OBJECTIVES OF THE STUDY

Foreign Direct Investment as a veritable booster kick start an economy, this research work aims to ascertain the role of foreign direct investment from 1993– 2013 as an important engine for economic growth and development in Nigeria. The main objectives of the study are; To discover the determinants of foreign direct investment (FDI) in the Nigerian economy, To determine the impact of foreign direct investment (FDI) on economic growth in Nigeria, To examine the case for FDI in Nigeria, To make recommendations on measures to put in place to attract capital inflow, To examine the effect of globalization on Nigeria‟s foreign direct investment.

1.5         SIGNIFICANCE OF THE STUDY

The purpose of this study is to elucidate the most salient features of Foreign Direct Investment in Nigeria. On the other hand, it sought to highlight its presence in the economy. It is thereby hoped this work and its findings, provide policy makers, economic planners and entrepreneur who wish to invest in Nigeria, a tool of appraisal of the implication of foreign direct investment in Nigeria. The work also provides an analytical data base for future research work to students and others alike.

1.6       SCOPE AND LIMITATION

This work covers the period 1993-2013. This is the period when government sought for measures to enhance economic development and inflow of Foreign Direct Investment into the country to reach its peak. It is pertinent to mention at this juncture that all did not go well with the method adopted. For instance, a number of problems were encountered in carrying out this


work. These include the non-availability and accurate data. Time constraint posed the problem of inadequate research into various areas; that are relevant to the work. There was also lack of finance to carryout Primary data collection. The attitude of interviewers, officials of government ministries and corporation as regard information constituted another major constraint to this work. However, on balance, it is satisfactory to say that the information and data gathered from secondary sources were sufficient to arrive at the presentation and conclusion.

1.7         RESEARCH METHODOLOGY

The research methodology of this study aims to deal with the use of secondary means of gathering information which includes mainly library research and discourse with some informed individuals on the subject matter. A further material was sourced through articles posted online by U.S journalists. The secondary sources of data collection were obtained through scholars‟ works on foreign direct investment and journals and other documents of historical and economic significance.

1.8         DEFINITIONS OF TERMS

HUMAN RESOURCES CAPITAL: It is the assigning, budgeting and reporting the cost of human resource incurred in an organization, including wages and salaries and training expenses. It is -also used interchangeably to mean the sam


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