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Impact Of
Foreign Private Investment On Economic Growth In Nigeria
ABSTRACT
One of the
most important changes that have taken place in economic policies in Nigeria in
the last few years was the shift to analysis of the impact of foreign private
investment. It was recently, the main stream of policy making directed
attention on the foreign private investors as a provider of capital, technology
and other expansionary measures from the rich metropolis to Nigeria. Currently,
the management of foreign enterprises in Nigeria was faced with the challenges
of re-orienting its business to make it acceptable to the new economic
policies. By implication, the Nigerian government is more concerned with the
quality of foreign investment, that is the impact of a given unit of foreign
investment on factor of productivity. This will enable it to achieve a rapid
and sustained economic development and growth.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
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), to alleviate 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
(M.Willima 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 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, 1979).
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 investment
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 spillover on all firms thereby boost the
productivity of the entire economy. Boy and Smith (1992), 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 (1992) also supports the view of Boyd and Smith (1992). According to
wheeler and Mody (1992), 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 analyze
critically the following
A: The
determinants of Foreign Direct Investment (FDI) in the
Nigerian economy.
B. The impact of foreign investment on the
growth of the Nigerian
economy.
1.3 OBJECTIVES OF THE STUDY
Foreign
Direct Investment as a veritable booster kick start an economy, this study aims
at ascertaining the role of foreign direct investment from 1979 – 2008 as an
important engine for economic growth and
development in Nigeria. The main objectives of the study are;
a. To discover the determinants of foreign
direct investment (FDI) in the Nigerian economy
b. To determine the impact of foreign direct
investment (FDI) on economic growth in Nigeria
1.4 HYPOTHESIS
The
following hypotheses are tested in this study;
1. Foreign Direct Investment has no significant
determinants in the Nigerian economy.
2. Foreign Direct Investment has no significant
impact on the economic growth in Nigeria
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 1979-2008). 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 includes
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 in formation 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.
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