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THE IMPACT OF FOREIGN PRIVATE INVESTMENT ON NIGERIAN ECONOMY

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Foreign private investment, which includes private direct inventory and foreign private portfolio investment, is an important component of aggregate investment especially in developing countries. In a country like Nigeria where domestic saving is low, increase in foreign increasing in macro significant sequence of private foreign investment resulting from increase in domestic saving and acceleration of foreign capital inflows.

Like the Nigeria economy, which up to the late 1970's enjoyed considerable boom result of its oil wealth, as form 1981, thrown into an unprecedented economic recession. Private investment is an important channel for aggregate investment. That is to say progress economic adjustment is expected to trigger.

The cause of this had ironically been the oil itself. By 1981, the global prices of oil fall an all-time low have about $12.00 a barrel, as against us $40.00 per barrel in foreign previous year. This leads to significant fall in the foreign exchange earning acid serious distribution of the economic development process. It because difficult for government to implement already approved national projects the foreign exchange problem could not be every by the exports from the Agricultural sector has suffered major neglect in the years of the oil boom. Consequently, productivity declined in the industries, unemployment increased as factories produced below capacities or were shut down. Also the rate of inflation increased because of shortages industrial output and the restriction in the effort to conserve foreign exchange. Attempt to resolve the economy was done by virus regimes - Shagari, Babangida, Buhari (SAP), in the 80' s by 1987, it was clear to the government that the oil boom years were gone for good. The development as may be noted was further aggravated by the failure to raise funds for investment domestically and the decline in the flow of foreign capital into the country.

Hence, the emphasis of the Babangida administration on the need for new foreign investments into the economy. The government had in this context strongly upheld the several benefits assumed to accrue to the host country from foreign investment help to reduce the shortage of domestic saving and increase the supply of foreign exchange thereby permitting rapid expansion in real income. It is assumed that direct foreign investment could result in higher direct taxes to be paid by foreign afflicts.

However, G.L. REUBER et al have expressed some reservation on this since the amount of benefits here would be conditioned by the substantial subsidies, which the host countries have to provide. It is envisaged that direct foreign investment may lead to lower product prices especially when investment are cost producing foreign investment is assumed to be associated with certain external economics. Apart from bringing physical capital to the host country, they also in their own way bring technological knowledge, market information, managerial and supervision, personal organizational experience and innovation in products all that are in short supply in many developing countries. In this connection foreign investment may be vital to the portion of private technical assistance and the demonstrative efforts that could be beneficial elsewhere in the economy, new techniques accompany the inflow of private capital by promoting the diffusion of technological advancement in the economy.

It is further envisaged that foreign investment In Nigeria encouraged domestic investment through the reduction of cost in other industries; profits could rise and result in the expansion other industries. Moreover, initial foreign investment in Nigeria has contributed to the creation of external investment incentives by raising the demand for the output of other industries.

1.2   STATEMENT OF THE PROBLEM

The private foreign investment is described to help reduce the shortage of domestic saving and increase the supply of foreign exchange thereby permitting rapid expansion in real income. It is assumed that direct foreign investment could result in higher direct states to be paid by substantial subside which the host countries have to provide.

Similarly, it is envisaged that direct foreign investment may lead to large employment of labour force. Beyond this, foreign investment was seen to be associated with external economics.

The critical questions are on the magnitude of the inflow given the political and social economic arrangements of the country.

The external relation of the country and the economic, situation in the developed countries and their incentives to investor's significant inflows.

The inflow of the private foreign investment had also tended to be dictated by changing political and economic situation of a country.

Their situation may either improve or moved the potential growth of foreign private investment and the benefits of foreign private investment to Nigeria economy.

1.3     AIM AND OBJECTIVES OF THE STUDY

Foreign investments have contributed substantial solution to the fundamental problems In Nigeria's economic recession and growth. Also the stimulation of private foreign.

1.      To examine the contribution of private foreign investment to the Gross Domestic Product of the Nigeria economy.

ii.      To show the growth and development rate by private foreign investments in the economy.

iii.     To highlight to the government that either sector of the economy could be developed very well with the participation of foreign investment into the country without depending solely on the oil sector of the economy.

iv.     To determine the cover all performance of private foreign investments in Nigeria from1980 - 2002.

v.      To exploit the various areas of private foreign investment say the usual economic sectors, mining and quarrying, manufacturing and processing, agriculture, forestry, fishing, transportation and communication. Others are construction building, trading and business, services and miscellaneous.

vi.     To examine the prospects for increasing participation of foreign private investment into Nigeria over the years.

1.4    SIGNIFICANCE THE STUDY

The study is significance for following reasons. The study will examine the contribution of foreign private investment to the Nigeria economy, (negatively or positively) as regard to some sector of the economy.

Furthermore, the study will also serve as source of information for an individual governments and investors etc. on various effect of foreign private investment to the economy.

Hence, serve as a basis for decision making and policy development.

Conclusively, the study is also significant panting out the fact that foreign private investment could serve as a means of stability i.e. taking aggregate problems, unemployment, inflation, balance of payment e.t.c.

1.5     RESEARCH QUESTIONS

The following are the research questions in the course of this study. They are meant in order to find out solution to the problem the confront foreign private investment in carrying out their contribution (5) to the devolvement of the economy they include:

1.      What is the impact of foreign private investment on the G.D.P?

2.      How does foreign private investment affect employment in Nigeria?

3.      What is the effect of foreign private investment on balance of payment?

4.      What is the effect of foreign private- investment the development of technology in Nigeria?

1.6     RESEARCH HYPOTHESIS

The following hypothesis was formulated to be stated In the course of the study.

Hypothesis 1

Ho:-   Foreign private investment has no significant effect on Gross Domestic Product in Nigeria.

HA:-   Foreign private investment has significant effect on Gross Domestic Product in Nigeria.

Hypothesis II

Ho:-   Foreign private investment does not create employment opportunities in Nigeria.

HA:- Foreign private investment create employment opportunities in Nigeria.

Hypothesis III

Ho:-   Foreign private investment has no significant effect on balance of payment in Nigeria.

HA:-   Foreign private investment has significant effect on balance of payment in Nigeria.

1.7     SCOPE AND DELIMITATION OF STUDY

This research study will cover only the rate of foreign private investment in the Nigeria economic growth.

However, reference would made in the contribution of foreign private investment could have on the economy of the host country.

The scope of the study shall cover foreign private investment policy during first military dictatorship down to the present's democratic era (i.e. 1985-2008).

1.8    DEFINITION OF TERMS

INVESTMENT:  Is. the act of producing goods that IS not for immediate consumption.

FOREIGN DIRECT INVESTMENT:- Non- resided investment in the form of a takeover or capital investment in a domestic branch plant or subsidiary has voting control.

GROSS DOMESTIC PRODUCT:-The value of total product output actually produced in the whole economy over some period, usually a year.

ECONOMIC DEVELOPMENT: The positive trend in most of the macro                                   economic variables over the long run.

ECONOMIC GROWTH:- The positive trend in the nation’s total output over                           the long term.

RECESSION:-    A sustained drop in the level of economic activity.

BOOM:-              Period of high output and high employment.

PEAK:                 A level of highest economic activity.

PER CAPITAL INCOME:-   The average income of an individual in an economy. G.D.P divided by population member.

PORT FOLIO INVESTMENT:-         Investment in bonds and other debt instruments that not establish legal control.

FOREIGN EXCHANGE:- Foreign ardencies and claims to them in such          forms bank deposits, cheques, promissory not payable in the currently.

1.9     ORGANIZATION OF THE STUDY

The project study plan is fashioned in the following ways:

Chapter one focused on the background of the study, statement of the problem, aim and objectives of the study, justification of the study research hypothesis, research methodology, and organization of the study. Chapter two deals with the literature review of the study. Chapter three comprises of the foreign aid and development. Chapter four consists of the research methodology and empirical analysis and the interpretation of the results. Chapter five consists of the summary, conclusion and recommendations followed by the bibliography.

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