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
2
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
3
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.
4
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?
5
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
6
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 same thing as Human Resource Accounting.
HUMAN CAPITAL: It is the connection of capabilities of an individual required to provide
solution to customers.
WORKFORCE SKILL: People working in a company having enough ability or knowledge.
INNOVATION: The introduction of new .things, ideas or way of doing things.
7
INTELLECTUAL CAPITAL: The possession of knowledge, applied experience, organization
technology and investment,, customer relationship and professional skills.
BALANCED SCORECARD: A measurement – based strategic management system originated
by Robert Kaplan and David Norton, which provide a method of aligning business act to the
strategy and monitoring performing of strategic goals over time.
ECONOMIC GROWTH: this is a process in which the national income and gross domestic
product of a country is increase in affection to its standard of living of the citizen of the country
and the neighbor country.
DISCLAIMER: All project works, files and documents posted on this website, eProjectTopics.com are the property/copyright of their respective owners. They are for research reference/guidance purposes only and some of the works may be crowd-sourced. Please don’t submit someone’s work as your own to avoid plagiarism and its consequences. Use it as a reference/citation/guidance purpose only and not copy the work word for word (verbatim). The paper should be used as a guide or framework for your own paper. The contents of this paper should be able to help you in generating new ideas and thoughts for your own study. eProjectTopics.com is a repository of research works where works are uploaded for research guidance. Our aim of providing this work is to help you eradicate the stress of going from one school library to another in search of research materials. This is a legal service because all tertiary institutions permit their students to read previous works, projects, books, articles, journals or papers while developing their own works. This is where the need for literature review comes in. “What a good artist understands is that nothing comes from nowhere. The paid subscription on eProjectTopics.com is a means by which the website is maintained to support Open Education. If you see your work posted here by any means, and you want it to be removed/credited, please contact us with the web address link to the work. We will reply to and honour every request. Please notice it may take up to 24 – 48 hours to process your request.
