THE IMPACT OF FOREIGN DIRECT INVESTMENT ON NIGERIAN ECONOMIC DEVELOPMENT

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through; incorporating a wholly owned subsidiary or company, acquiring shares in an associated enterprise, through merger or an unrelated enterprise and, participating in an equity joint venture with another investor. Foreign direct investment incentives may be in form of low corporate and income tax rates, tax holidays, other types of tax concessions, preferential tariffs, special economic zones, investment financial subsidies, soft loan or loan

guarantees, free land or land subsidies, relocation and expatriation subsidies, job training and employment subsidies, infrastructure subsidies, research and development support and derogation from regulations, usually for very large projects (Obadan, 2004).

Attempts at attracting FDI into Nigerian economy have been based on the need to maximize the potential benefits derived from them; and to minimize the negative effects their operations could impose on the country. As a result of the persistent global panic, unemployment has been on the rise, jobs are being lost, there is shortage of liquidity and acute scarcity of credit has remained visible in the financial institutions. For Nigeria to generate more foreign direct investment, efforts should be made at solving problems of government involvement in business; relative closed economy; corruption; weak public institutions; and poor external image.

Nigeria is one of the economies with great demand for goods and services and has attracted some FDI over the years. According to CBN (2006), the amount of FDI inflow into Nigeria reached US$2.3 billion in 2003 and it rose to US$5.31 billion in 2004 (138% increase) this figure rose again to US$9.92 billion (87% increase)

in 2005. The banking reform engendered the interest of foreign banks in the Nigerian market making foreign direct investment (FDI) into Nigeria grew by 134% to N1.123 trillion (US$9.6 billion) in 2007. Out of a total US$36 billion of FDI that went into Africa, Nigeria received 26.66% of the inflow. The Vanguard Newspaper of May 19, 2008, reported that a total of US$12.5 billion of foreign investment inflow was recorded in the economy at the end of 2007, and that this was an indication that “Nigeria is a beautiful bride for foreign investors”. This has not also been so, however.

In Nigeria, FDI is defined as an investment undertaken by an enterprise that is either wholly or partly foreign-owned. The Investment Code that created the Nigerian Investment Promotion Commission (NIPC) (Decree No. 16 of 1995) and the Foreign Exchange (Monitoring and Miscellaneous Provision) Decree, also enacted in 1995, gives full backing for FDI in Nigeria. Nigeria has a high potential to attract significant foreign private investment inflow. Most countries strive to attract FDI because of its acknowledged advantages as a tool of economic development. Africa and Nigeria in particular, joined the rest of the world in seeking FDI as evidenced by the formation of the New Partnership for Africa’s Development (NEPAD), which has the attraction of foreign investment to Africa as a major component. Openness to trade and available human capital, however, are not FDI inducing. FDI in Nigeria contributes positively to economic growth. Although the overall effect of FDI on economic growth may not be significant, the components of FDI do have a positive impact. The FDI in the ICT sector has the highest potential to grow the economy and is in multiples of that of the oil sector.

Foreign Direct Investment (FDI) refers to a movement of capital that involves ownership and control of a firm inanother country for instance, the purchase of common chores in a Nigerian incorporated company by a French citizen involves ownership and an element of control.  This is because all shares in an organization have same voting rights.

1.2        STATEMENT OF PROBLEM

The undeveloped countries like Nigeria suffer not only from low income and unstable growth, but also from regional disequilibrium, economic instability unemployment, depending on foreign countries, specialization in the production of raw materials and economic, social, political and cultural marginality.

Underdevelopment is an element in the process of development of the international system underdevelopment and developments are two facts of a single process of which both internal and international structures are causes. International treacle brings about polarization because the low income countries are assigned the production of primary production (raw materials) which are processed in the home countries because of worsening and unstable terms of trade, because the economics of the low income countries lack the force work force, the entrepreneurship and physical/institutional infrastructure to seize export opportunities and because of generally monopolistic arrangement by which profits flow out from the underdeveloped countries to the developed.

In Nigeria for unsnarl, there is that popular and commonly held view that manufacturing multinationals have done greater lower than good to the host communities as a result of their operations in these communities wheel has led to loss of economic and social quality and environmental degradation.  It is not out of place for one to say that these MNC’s have threatenical the health of the indigenes by the use of dangerous chemical, pollutants etc.  These and more are the problems that will be looked into which necessitated this research work.  It will try to examine the nature and pattern of foreign direct investment that is International Corporation in Nigeria manufacturing rector with a particular reference to Nigerian Bottling Company Plc as a case study.

1.3 OBJECTIVE OF THE STUDY

1.    To determine the Nigerians drive benefit from multinational corporation in term of transaction and entrepreneurial.

2.    To determine if multinational corporation contribute to the growth of gross domestic product (GDP) in the Nigeria economy.

3.    To determine of Multinational Corporation help in solving balance of payment problem in the Nigerian Economy.

4.    To determine if multinational corporation maintains cordial relationship with in the host society.

1.4    RESEARCH QUESTIONS

1.    Do Nigerians derive benefit from multinational corporation in term of transaction and entrepreneurial?

2.    Does multinational corporations contribute to the growth of gross domestic product (GDP) in the Nigeria economy?

3.    Can Multinational Corporation help in solving balance of payment problem in the Nigerian Economy?

4.    What impact does entrepreneurial make in the economy?

5.    How did Multinational Corporation maintain cordial relationship with in the host society?

1.5 RESEARCH HYPOTHESIS

HYPOTHESIS I

Ho: Multinational corporations do not contribute to the growth of gross domestic product (GDP) in the Nigeria economy.

Hi: Multinational corporations contribute to the growth of gross domestic product (GDP) in the Nigeria economy.

HYPOTHESIS II

Ho: Multinational Corporation do not help in solving balance of payment problem in the Nigerian Economy.

Hi: Multinational Corporation help in solving balance of payment problem in the Nigerian Economy.

1.6 SCOPE OF THE STUDY

Foreign Direct Investment (FDI) analysis is clouded by a lot of controversy, variety of interpretation and numerous emotive value judgments.  This recreant opinion about the activities of MNC’s in the developing countries is as typical as the topic itself.  Owing to the divergent opinions that exist, it would be practically impossible to give a total survey of the current debate on the topic.

However, this work will make positive efforts to extract in favour of or against MNC’s in developing nations.  Furthermore, it is outside the scope of this work to discuss the consequences of Foreign Direct Investment (FDI) for the investor nations.  The study area in which data were collected for the study is limited to Nigerian Bottling Company, Benin City.

1.7             SIGNIFICANCE OF THE STUDY

The research will be beneficial to all organizations especially Nigerian Bottling Company and their staff as it emphasized on the impact of Foreign Direct Investment and its impact on the economy in which it operates.

It will help useful the government in way of encouraging foreign investment in the economy.

It will equally be useful to small scale business, large corporations, and universities, college of education and to the researchers.

1.8 LIMITATION OF THE STUDY

There is no gain saying that there are no limitations in research work generally. Any shortcoming that arises in this study is as a result of factors which are beyond the researcher’s control.

Therefore, it will be of more importance to highlight certain militating factors that tend to narrow or limit my scope of study. This project research would have been easier if not for these limitating factors:

1.     Time factor: time was not on the researchers to consult various sectors of the economy to review employees or given out questionnaire to various institutions on the effect of government revenue policies.
As we all know, time is never our friend. The time scheduled for the completion of this research thesis was too short. As a result, generating information/data was strenuous as it coincides with final year examination period, which needed attention.

2.     Finance: this is another barrier that limited the researcher’s work.

3.     Available resources: was unavailable for the research work.

1.9 DEFINITION OF TERMS

VARIABLE: A variable is anything that can take on differing or varying variables. The values can differ at various times for the same object or person, or at same time for different object or person.

ECONOMIC GROWTH: Economic growth is the increase of per capita gross domestic product (GDP) or   other measure of aggregate income. Economic growth is concerned with the long run. The business cycle is the short-run variation of economic growth.

GOVERNMENT EXPENDITURE: Government expenditure is the government spending. Government expenditure is financed through a variety of methods. Governments use taxes to fund programs and expenditures. Governments engage in deficit spending where government may borrow based on future projected budgets in order to fund programs. Governments may also choose to take loans from foreign countries to finance expenditure. The main component in a government’s fiscal policy are how money is spent and from what source.

FOREIGN DIRECT INVESTMENT: Foreign direct investment is the long term participation by one country into another country. It involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI. There are outward FDIs and inward FDIs.

INFLATION RATE: Inflation rate is a measure of inflation. It is also as the rate of increase of a price index for consumer price index. Inflation is a rise in consumer prices and increasing the cost of living. It is also the percentage rate of change in price level over time. The inflation rate is one of the most important economic forces consistently weighing on the value of a nation’s currency.

1.10 HISTORICAL PROFILE OF THE COMPANY UNDER STUDY

The Nigeria Bottling Company Plc (NBC) was incorporated in November 1951, as a subsidiary of the A.G Levant’s Group with the franchise to bottle and sell coca-cola products in Nigeria. From a humble beginning as a family business, the company has grown to become predominant bottler of non-alcoholic beverages in Nigeria, responsible for the manufacture and sale of over 33 different coca-cola brands. Other popular brands of beverage produce by the company are Eva water, Five Alive fruit juice and the newly introduced Burn energy drink. The company presently has 13 bottling facilities and over 80 distribution warehouses located across the country. Since production started, NBC Plc has remained the largest bottle of nonalcoholic beverages in the country in terms of sales volume, with about 1.8 bottles sold per year, marking it the second largest market in Africa. Today, the company is part of the coca-cola Hellenic Bottling Company (CCHBC). One of coca-cola company’s largest anchor bottlers worldwide CCHBE operates in 28 countries, serving 540 million consumers and selling over 1.3 billion unit cases of beverage annually. The company recently embarked on restructuring exercise to expand further it market share and growth profit. It invested in a new state of the art can filling packing line at the Apapa plant.

This is in addition to a new bottling plant in Abuja, investment in the upgrade of other manufacturing infrastructure, distribution and delivery facilities.

Nigerian Bottling company Plc (NBC) Company and a sole franchise of the coca-cola Inc. spanning over six decades of operation, NBC is a market leader in the production of non-alcoholic drink.

A softer than expected macroeconomic posed challenges to the manufacturing sector of which NBC, as an integral part has to come to grips with to stay ahead of the pack. Major challenges facing the industry include weak infrastructural support facilities (especially power), Unfair Competition from cheaper imported products and rising cost of fund among others, an analysis of the financial strength of NBC reveals an above-per performance in 2007.

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