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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

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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