Abstract
The research work became necessary because of the huge sum experided as
well as the incentive avarible to foreign investors and yet we have not
experienced the much needed to influx of FDI.
FDI being the catalyst for industrial and economic development is needed to
develop every fact of the Nigeria n policy. Moreover, the tenets of traditional
economic theory stated that capital moves from developed economy to under
developed economy where labour is cheap and abundant un-tapped resources.
This work seeks to find out why FDI remain low in Nigeria and hence prefer
solution. The review of related literature was carried out with emphasis on
Nigeria incentives towards attracting FDI and the determinants of FDI; which
include market size, openness, political risk etc.
Research Methodology was used which highlighted the approach to the
solving of the problems, methods of data collections, research instruments and
sources of data. The data collected through questionnaire administ
CHAPTER ONE
INTRODUCTION
The traditional economic theory teaches that capital starved, but
generally labour surplus developing countries, should be the net
importers of financial resources from advanced countries. This
pattern o movement will be informed by the returns on new
investment opportunities, which are considered higher where
capital is limited (Oyeranti 2003:10). Flows of funds in the
opposite direction from individuals and business organizations
are considered perverse and exceptionable.
Financial resources enter into a country through any of the
followings:
ï‚· Foreign direct investment, official flows from bilateral
sources (eg. OPEC, Organisation for Economic Co
operation and Development-OECD) and multilateral
sources (such as the World Bank, International
Development Association-IDA, International Monetary
Fund-IMF, International Financial Corporation-IFC) on
concessional and non-concessional terms.
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ï‚· Commercial Bank Loans (excluding export credits)
All of these come in form of investment, loans, grants or aids.
According to World Bank (1997), Foreign Direct Investment is
the investment made to acquire a lasting management interest,
usually at least 10% of voting stock, in an enterprise operating in
a country other than that of the investor.
International Monetary Fund‟s Balance of Payments Manual
defines foreign direct investment (FDI) “investment made to
acquire a lasting interest in foreign enterprises with the purpose
of having an effective voice in its managementâ€Â. The World
Trade Organisation (1996) also observes that foreign direct
investment occurs when an investor based in one country (the
home country) acquires an asset in another country (the host
country) with the intent to manage that asset. The resultant
capital relocation will boost investment in the recipient country
and according to Summers (2000:16) brings enormous social
benefits. It is the process of investing, by foreigners, in the
economy of another country. These funds are generated outside
the investment recipient country. FDI can be in form of build,
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operate and transfer (BOT), turn-key, leveraged buy out, venture
capital or starting a new company from the scratch.
Foreign direct investment is viewed as a major stimulus to
economic growth in developing countries. Its ability to deal with
major obstacles, namely, shortages of financial resources and
technology, skills acquisition and training, as well as contribution
to corporate tax revenue in the host country, has made it the
centre of attention for policy-makers in low-income countries in
particular. However, only a few of these countries have been
successful in attracting significant FDI flows.
1.1 BACKGROUND OF THE STUDY
Nigeria, like other African countries, recognizes the contribution
of FDI to economic development and integration into the world
economy. Nigeria since pre-independence era till date has being
making considerable efforts to improve its investment climate
through liberation, deregulation, privatization and enabling laws
and incentives. Among these are:
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1. The Aid to Pioneer Industries Ordinance and the Income
Tax (Amendment) Ordinance Act of 1952
2. Industrial Development (Income Tax Releif) Act of 1958
3. Companies Act of 1968, Banking Act of 1969, Petroleum
Act of 1969, etc
4. National Office of Industrial Property Act 90 of 1979
5. Nigerian Enterprises Promotion (Issues of Non-voting
Shares) Act 1987
6. The Nigerian Enterprises Promotion Act No. 54 1989
7. Nigerian Investment Promotion Commission, etc
However, the much-expected surge in FDI into Nigeria has not
occurred. This is particularly worrisome, as Nigeria possesses
almost all the attributes of a good FDI destination. These
include size of market, availability of natural resources, low
labour cost and high productivity, incentives, high level of human
capital development, major markets proximity, etc.
Nigeria needs FDI because it is favoured over other forms of
private capital flows. Portfolio equity and debt are subject to
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reversals in financial crises period, while FDI is more resilient.
(Lipsey: 2001).2
FDI is critical to the country as it is the key source of large pool
of capital necessary for the development of the country.
However, despite several fiscal incentives by the government,
foreign direct investment has remained dismal (The Punch 2002)
The cost of not having foreign direct investment is high. A
decline in investment reduces the expansion of output, variety
and quality, leading to a reduced market share and potentially
declining non-price competitiveness.
1.2 STATEMENT OF PROBLEMS
The dream of any nation is to attract investment to help it
develop its economy through efficient manufacturing of goods
and provision of services. Nigeria has been unable to attract
enough FDI to develop its economy and reduce unemployment.
The reasons for this include:
1. Perceived political instability;
2. Low Gross Domestic Product (GDP);
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3. Bad image of the country overseas due to high financial
crime rate;
4. Persistent political and religious crises;
5. Micro-economic instability;
6. High rate of crime in the country;
7. Adverse operating conditions;
8. Erratic power supply and poor infrastructures;
9. High corruption especially in the government;
10. Attendant high cost of doing business in the country; and
11. Inefficient judicial system and general insecurity
1.3 OBJECTIVES OF THE STUDY
This study will among other things, try to:
1. Appraise and find solutions to how to increase the GDP.
2. Look into ways of curbing the menace of high financial crime
rate in Nigeria.
3. Examine ways of attracting foreign direct investment in
Nigeria.
4. Investigate and analyse the causes of adverse operating
conditions in the country.
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5. Proffer solutions to the high cost of doing business in Nigeria.
6. Find ways of boosting export of local goods.
7. Analyse the effect of political and religious crises in Nigeria.
1.4 HYPOTHESIS
This study is carried out with certain underlying assumptions
upon which observations, findings, comments and suggestions
are based.
These assumptions are:
a. (i) General Hypothesis:
FDI in Nigeria has no direct link to the state of
infrastructures in Nigeria.
(ii) Null Hypothesis:
FDI has direct link to the state of infrastructures in Nigeria.
b. (i) General Hypothesis:
Size of the market has no impact on the attraction of FDI.
(ii) Null Hypothesis:
Size of the market has an impact on the attraction of FDI.
c. (i) General Hypothesis:
Open economies do not encourage FDI.
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(ii) Null Hypothesis:
Open economies encourage FDI.
d. (i) General Hypothesis:
There is no relationship between incentives/operating
conditions and FDI.
(ii) Null Hypothesis:
There is relationship between incentives/operating
conditions and FDI.
e (i) General Hypothesis:
Political risk does not affect flow of FDI.
(ii) Null Hypothesis:
Political risk affects the flow of FDI1.5 SIGNIFICANCE OF THE STUDY
This study is very important as it will contribute immensely
towards establishing a viable and vibrant economy that will
attract the much needed FDI. The inflow of investments from
abroad offers a lot of advantages, which include reduction of
risk, faced by investors, enthronement of best practices in
corporate governance, accounting rules, legal traditions among
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others (Fieldstein: 2000). It leads to economic growth and
development.
As such, it is important because:
1. It will bring into focus ways of attracting FDI
2. It will reveal the impact of financial crime on FDI and
our economy.
3. This study will identify ways of improving the
operating environment in the country.
4. It will offer solutions on how to reduce political risks.
5. It will highlight the importance of infrastructures in
attracting FDI.
6. It will find ways of producing export-oriented goods.
1.6 SCOPE AND LIMITATIONS
This study was conducted out within Lagos metropolis.
Some of the respondents interviewed gave their sincere
opinion; however, others were uncooperative, probably
due to ignorance.
The major problem experienced during the study was lack
of up-to-date data and reliability of the ones got
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eventually. There was also the problem of getting the
interviewees on seat for personal interviews despite
previous appointments by them.
1.7 RESEARCH QUESTIONS
a. What is responsible for poor infrastructures despite the
huge amount purportedly invested in it?
b. Why is foreign Direct Investment in the real sector still
very low irrespective of the present regimes concerted
effort to wow investors to Nigeria?
c. How does privatisation affect FDI?
d. What are the possible impact(s) of openness to FDI and
the flow of goods and services?
e. What are the reasons why FDI has remained low
despite the incentives given by the government to
attract FDI?