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THE IMPACT
OF FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT IN NIGERIA
PROPOSAL
This
research paper looks at foreign direct investment and economic development in
Nigeria (1980 – 2004).
The major
objectives of the study is to identify various policies and incentives
operating in the economy such as the exchange control act of 1962, the Nigerian
Enterprises Promotion Decree of 1972, 1977, 189 and 1993, the structural
adjustment programme and other policies, to find out whether they served their
due purposes.
This paper
also identifies a number of factors that are believed to have hindered
effective inflow of foreign direct investment in Nigeria. Firstly, with seven
military coups after independence and unclean democratization process, the
political history of the nation appears rather insecure for the overseas
capital.
Secondly,
the unnecessary stringent regulations and approval procedures affecting foreign
investors appear frustrating.
Another
factor is the institutional arrangement, problem of external debt service
burden.
The study
recommended that for increased inflow of foreign direct investment into
Nigeria, there is the need for sustainable macro-economic policies. There is
also need for improvement in our political process and an increased efficiency
in Nigeria’s labour force.
TABLE OF
CONTENTS
CHAPTER ONE
Introduction
Background
of the study
1.1 Statement of the problem
1.2 Objectives of the study
1.3 Research questions
1.4 Research hypothesis
1.5 Significance of the study
1.6 Limitations of the study
CHAPTER TWO
Literature Review
2.1 Concept of foreign investment
2.2 Foreign direct investment
2.3 The role of foreign private investment
in economic
growth and
development of Nigeria
2.4 The Nigerian enterprise promotion
decrees it
affects
foreign private investment in Nigeria
2.5 The role of industrial developing
co-ordinating
committee
(IDCC) on foreign private direct
investment
in Nigeria
2.6 Regulations affecting repatriation of
capital
profit and
dividend for foreign investors under
SFEM/SAP
period
Structural
adjustment programme era on
foreign
private investment in Nigeria
2.7 Major problems facing foreign private
investment
in the
Nigeria economy
Incentives
provided by the Nigerian Government
to attract
inflows of foreign private investment
into the
Nigerian economy
2.8 Future prospects for foreign private
investment
in
Nigeria
CHAPTER
THREE
Research
Design and Methodology
3.1 Research Design
3.2 Sources of Data, Primary and Secondary
3.3 Data collection instrument
3.4 Sample size
3.5 Analytical technique
CHAPTER FOUR
4.1 Data Presentation and Analysis
CHAPTER FIVE
Summary of
Findings, Recommendation and Conclusion
5.1 Summary of findings,
5.2 Recommendation
5.3 Conclusion
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Investment according to Bierman et al
(1975) is the commitment of funds in any real property financial assets with
the primary objective of obtaining an income over time. It is a commitment of
resources made in anticipation of realizing benefits that are anticipated to accrue
to the investor over a reasonable long period in the future. By its very
nature, an investment decision is essentially an irreversible commitment and it
cannot be altered without some costs or loss.
Another
feature is that the commitment is made in the anticipation of obtaining
generally uncertain future benefits that are subject to significant element of
risks and uncertainties. Yet another
characteristic is that the effect of decision extends beyond the current
account period, at times, it stretches into the distant future.
Van Horne
(1968) observes that investment adds to the firm’s capital stock and thereby
broaden the base on which benefits (profit) will be earned. Thus, the
investment decisions influence the total amount of assets held by the firm, the
composition of these assets and the business risk complexion of the firm.
Investment
could be real physical assets or financial assets transactions. The former
involves the acquisition of producer goods or equipment that will assist in the
production of future consumable goods. On the other hand, financial
transactions comprise loans of money and similar transactions. Investment
involves additions to real or financial assets.
There is a
basic difference between gross, replacement and net investment. Gross or total
investment represents the outlay necessary for maintaining the present level
and efficiency of capital items. Examples are provisions for wear and tear of
existing assets or replacement or purchase of additional securities to maintain
the market value of a firm.
Okafor
(1983), asserts that net investment is the difference between gross and
replacement of investment.
Nwadikom
(1985), observes that foreign investment is a type of investment whether in
real or financial assets across the national boundaries of the investor, with
the principal objectives of maximizing the objective function of the investor.
Foreign Investment may be undertaking by individuals, firms and the governments.
Fundamentally, foreign investments fall into two broad distinctive categories
portfolio and direct investment.
Direct
investment implies an investment in a foreign country where the investor
retains control over the investment. It typically takes the form of a foreign
firm floating a subsidiary firm or taking over control of an existing firm in
the country in question.
Direct
investments have always attracted a great deal of attention and have given rise
to heated controversies, some economists saw it as a natural consequences of
maturing capitalism.
Chikelezie
(1988: 8) observes that in recent years, direct investment have attracted
renewed interest in both developed and developing nations.
Foreign
direct investment is perceived as a way of filling gaps between the
domestically available supplies of savings (domestic investors), Foreign
exchange, government revenues, skills and planned level of these resources
necessary to achieve economic development.
Todaro
(1977) noted that few developments have of played a critical role in the extra
– ordinary growth of international trade and capital flow during the past two
decades as the rise of the multinational corporations (MNCs). These huge
business firms with their far reaching network of subsidiaries in dozens of
world countries all match to the drum of centralized global output maximization
and decisions of parent companies located in North America, Europe and Japan.
However, they present unique opportunities and a host of critical problems for
these many less developed nations in which they conduct their business. Direct
foreign investment involves much more than the simple transfer of capital or
the establishment of a local factory in the third world nations. MNCs carry
with them technologies of production, tastes, and styles of living, managerial
services, diverse business practices, including cooperative arrangement, market
restriction, advertising and the phenomenon of pricing. Unlike certain types of
foreign aids, the purpose of the MNCs activities is fair from charitable. In
many instances, they have little to do with the development aspirations of the
countries in which they operate.
Few areas in
the economics of development arouse so much controversy and are subject to such
varying degree of interpretations, as the questions of the benefits and costs
of private foreign investment in the economies of the third-world nations.
The
controversy about the role and impact of foreign private investment in
developing economies often has its underlying fundamental disagreement about
the nature, style and character of a desirable development process.
The real
debate ultimately lies on different ideological and value judgment about the
nature and meaning of economic development and the principal sources from which
it springs.
The
advocates of foreign private investment tend to be free market, private
enterprises and laissez-fare doctrinalists, who firmly believe in the
efficiency of the free market mechanism, where this is defined as a hand-off
policy by the host government. The actual operations of MNCs tend to be
monopolistic and oligopolistic in nature and practice. Price settings are
achieved more through international bargaining and collusion than as natural
outgrowth of free market supply and demand.
Those who
argue against the activities of MNCs, are often motivated more by a sense of
the importance of natural control over domestic economic activities and
minimization of dominance/ dependence relationship between powerful MNCs and
third-world governments.
They see
giant corporations not as need agents of economic change but more as vehicle of
anti – development.
MNCs, they
argue, reinforce dualistic economic structures and propagate domestic
inequalities with wrong products and inappropriate technologies. Some opponents
therefore call for outright confiscation (without compensation) of foreign
owned enterprises. Others advocate a more stringent regulation of foreign
investment.
On the other
hand, a strengthening of the relative bargaining powers of host country
government through their coordinated activities while reducing the overall
magnitude and growth of private foreign investments in the third world, may
make the investment better suited to the real long-run development needs and
priorities of poor nations. The net social benefit of this trade – off between
quantity and relevance is likely to have a positive impact on national
development.
1.2 STATEMENT OF THE PROBLEM
Developing
countries in their attempt to attract innovative technology seek foreign
resources. The inadequate of these external resources is frequently a critical
constraint on economic development of such countries. External resources in the
form of foreign capital inflow may facilitate increased domestic savings.
In her attempt
to attempt to attract direct foreign investment, Nigeria is facing a number of
problems:
a) Problems of declined level of foreign investments in recent times
as a result of some stringent operating economic polices and an unfavorable political
climate existing in the country.
b) The problems of formulating suitable
policy and incentive package that will help stimulate foreign participation in
domestic economic activities.
c) The problem of lack of adequate
infrastructures in the country, forces the investors to supplement government
efforts by providing the infrastructure at additional costs.
d) The problems of making the sectors
of the economy potentially viable to attract direct foreign investment.
1.3 OBJECTIVES OF THE STUDY
This research paper has a number of
objectives:
i. To ascertain the nature and
volume of inflow of foreign direct investment in Nigeria.
ii. To identify various policies and
incentive packages operating in the economy such as the exchange control act of
1962, the Nigerian enterprises promotion decree of 1972, 1977, 1989 and 1993,
the Structural Adjustment Programme (SAP) and other current fiscal policies,
and to find out whether they have served their due purpose.
iii. To evaluate these policies in terms
of performance and to identify the impacts or changes made by these policies on
the Nigerian economy, particularly towards the attraction of direct foreign
investment.
iv. To examine other factors which
affect the inflow of direct foreign investment in Nigeria
v. To draw a reasonable conclusion and
other recommendation based on information gathered for the research.
1.4 RESEARCH QUESTIONS
The critical appraisal seeks to
give answers to the following questions:
a) What is the volume of direct
foreign investment into the Nigerian economy
b) What is the change in the gross
domestic products from the impact of
direct foreign investment,
c) Assess the performance of the
incentive policies on economic development of Nigeria.
1.5 RESEARCH HYPOTHESIS
For carrying
out this research, the following hypotheses were formulated;
i. There is a relationship between
the inflow of direct foreign investment and economic development of Nigeria.
ii. There is a correlation between
gross domestic products and inflow of direct foreign investment.
1.6 SIGNIFICANCE OF THE STUDY
This
research work will extensively examine direct foreign investment and the
economic development of Nigeria. It will try to establish the trends of inflow
into the country, so that we shall flow the trend of the flow and be able to
identify when there is an increase or a decrease in the level of capital flow.
Suggestions
and recommendations made in this research paper will assist policy makers in
formulating new strategies, maintaining or modifying the existing policies with
a view of attracting foreign investors into the country.
Furthermore,
it will also serve as a useful research material to those interested in further
research into the area of the study.
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