TITLE PAGE

THE ROLE OF FOREIGN DIRECT INVESTMENTS IN THE

ECONOMIC GROWTH OF NIGERIA

BY

CHIWETALU EMEKA
PG/MBA/06/45792

A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT FOR THE AWARD OF MASTERS
DEGREE (MBA) IN MANAGEMENT

SCHOOL OF POST GRADUATE STUDIES

DEPARTMENT OF MANAGEMENT

UNIVERSITY OF NIGERIA ENUGU CAMPUS

JANUARY, 2010

1
 CERTIFICATION

This research project:

The Role of Foreign Direct Investments in the economic growth of

Nigeria written by Chiwetalu Emeka, PG/MBA/45792, of the department

of management, University of Nigeria Enugu Campus in partial fulfillment

of the requirement for the award of masters degree (MBA) in

management.

………………………… ………………………

(Project Supervisor) Signature

....................................... ……………………..

Head of Department Signature

2
 DEDICATION

This work is dedicated to God for his enablement and grace in course of

carrying out this research work.

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 ABSTRACT

Generally, policies and strategies of Nigerian government towards

Foreign Direct Investments are shaped by two principal objectives of
desire for economic independence and the demand for economic
development. Multinational corporations are expected to bring into
Nigeria, foreign capital in the form of technical skills, entrepreneurship,
technology and investment fund to best economic activities thereby,
rising the standard of living Nigerians.
The main issue in this project relates to understanding the effects and
impacts of Foreign Direct Investment(FDI) on the Nigerian economy as
well as our ability to attract adequate amounts sufficient enough to
accelerate the pace of our economic growth. From related research and
studies, it was revealed that multinational companies are highly adaptive
social agents and therefore, the degree to which they can help in
improving economic activities through Foreign Direct Investment will be
heavily influenced by the policy choice of the host country.
From the analysis through the use of secondary data, it was observed
that the level of FDI in Nigeria is not adequate. The model used was
Internal Gap(Foreign Capital Need).From the analysis of the
questionnaire distributed, it was discovered that FDI has a significant
role in the economic growth of Nigeria.
The research thus suggested that in order for her to improve the
economic climate for foreign direct investment in Nigeria, the
government must appreciate the fact that the basic element in any
successful development strategy should be the encouragement of
domestic investors first before going after foreign investors.

CHAPTER ONE

INTRODUCTION

4
The federal government in recognition of the importance of foreign

investment as an important vehicle for economic growth, in her 2007

budget expressed his readiness to enter into investment protection

agreement with foreign government or private organization wishing to

invest in Nigeria as well as discuss additional incentives. According to

Utomi (2007), “foreign direct investments (FDI) viz transnational

corporations do possess the needed district capabilities which can be

put to the service of growth in any host economy”

A general belief for a country to grow rapidly is for its to industrialize.

However, to industrialize, a country requires substantial capital

investment which is possible through earning of foreign exchange from

export, borrowing in the international financial markets, or allowing

businessmen to invest in her economy.

However, Agbadu (2007), advises that no country should ever rest on

her oars and expect fortune seeking foreign investors to grow her

economy for her. It is up to the recipient economy to „exploit‟ the foreign

investors through the judicious use of macro-economic polices

deliberately designed to take advantage of the available foreign

investment for the national economic benefits.

5
The sustainable economic growth of a developing country like Nigeria

cannot be achieved in isolation. It deserves the existence of substantial

capital to carry out diversification of the economic base.

In Nigeria, the per capital income is low; hence the realization of

substantial savings to effect capital accumulation for investment is

unfeasible. This has rendered the dream of domestic sourcing of finance

for investment unrealistic. This scenario has led to increased desire for

foreign investment in the provision of desired capital that will help in

economic growth.

With the existing democratic governance, another chance is given to

Nigeria to make her economy patronisable by foreign invertors which

consequently will act as a catalyst to the growth of our economy.

STATEMENT OF PROBLEM

Nigeria is like a country in a web on the role of foreign capital in her

economic growth. On the other hand, we are aware that inflow of foreign

capital through foreign direct investment is not a charity. Iwuala (2006)

noted that foreign investors are not santa claus. They invest in an

economy to primarily maximize their returns. In the course of this, the

foreign investors are said to have emasculated and preyed on the

domestic economy, thus retarding real growth. Despite there charges,

6
the foreign investors are not entirely predacious in their operation in the

domestic economy.

Nigeria is therefore in dilemma: she is in dire need of foreign capital for

the on-going internal economic adjustments, yet she fears that foreign

investors may wrest complete control of the national economy and

render it an appendage of the western economic hegemony. This fear

notwithstanding, the need for foreign capital has become indispensables

if the economy must come out of the woods.

OBJECTIVES OF THE STUDY

The objectives of this study are as follows:

1. To ascertain the level of foreign direct investment in Nigeria.

2. To examine the role of FDI in the growth of Nigerian economy.

3. To ascertain the adequacy of the level of fiscal incentives given to

foreign investors by the Nigeria government

SIGNIFICANCE OF STUDY

It is hoped that this study will act as a starting point for policy debate in

the area of FDI in our economy.

On the whole, it is envisaged that the research findings will be of the

following specific significance.

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1. It will serve as a guide to economic policy makers and planners in

future decisions concerning FDI

2 It is equally hoped that the findings and recommendation of this

study will be of immense benefit not only to the government, but

also to others researchers and students for future research

undertakings

RESEARCH QUESTIONS

Based on the objectives of the study, the following question are

necessary for formulation of hypothesis:

1. Is the level of FDI in Nigeria adequate?

2. What is the exact impact of FDI in the economic growth of Nigeria?

3. Are there enough incentives by the governed to encourage the

flow of FDI

RESEARCH HYPOTHESIS

In orders to find answers to the question raised in the research question,

the following hypothesis are necessary.

HYPOTHESIS 1

Ho: The level of foreign direct investment in Nigeria is not adequate

H1: The level of foreign direct investment in Nigeria is adequate.

8
HYPOTHESIS 2:

Ho: foreign direct investment do not have significant role (impact on

the growth of Nigerian economy.

H1: Foreign direct investments have significant role on the growth of

Nigerian economy.

HYPOTHESIS 3:

Ho: The level of fiscal incentive to foreign investors in

Nigeria is not adequate.

H1: The level of fiscal incentive to foreign investors in Nigeria is

adequate.

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SCOPE AND LIMITATIONS OF STUDY

Since the field of investment is too vast that one can safely say that it

runs through all aspect of human endeavors. This study will focus on FDI

in the manufacturing, processing and telecommunication sectors.

A study of this nature cannot be carried out without difficulties in the

process. Some of the limitations are that. Some of the data are based on

secondary source. The quality of conclusion reached in this study

therefore, cannot be better than the quality of services and materials

upon which the study was based. Also, the analysis covers time period

in which information is already available from both the federal office of

statistics and the central bank of Nigeria and order not portray the

position as they are today. However, the author recognizes the fact that

the past can yield an insight into both the present and the future and this

from a good basis for analysis and decision making.

10
 REFERENCES

Agbachi, (2007), “Nigeria and Foreign Investors”

Business Time, November 14, p.9

Aremu, J.A (2000), “Negotiating Foreign Direct

Investment Under Democratic Avesrare in Nigeria” Financial

Standard, vol 1 No 29 April 24 P.14

Alao S. (2008) “Nigeria Attracts N2 Trilion FDI in one

year” Financial Standard vol 9 No 154, May 26. P.1

VBN Research Department (1994), CBN Economic and

Financial Review, vol. 34. No 3 pp. 12-15.

11
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

INTRODUCTION

Investment generally speaking is the commitment of funds or savings to

a specified project with the primary motive of achieving a primary

objective which could be profit, fame or good will. A foreign investment is

the ownership of property abroad, usually in a company for a financial

return. A foreign direct investment (FDI) is a subset of foreign investment

when control follows the investment. So, an investment is called direct

when the concept of control is introduced to it. In addition, direct

investment possesses some other features such as:

- high commitment of capital, personnel and technology between

countries.

- high access to foreign materials for either resources or

products.

The ownership of a controlling interest in a foreign operation is the

highest type of commitment to foreign operations. For an investment to

be considered direct therefore, there has to be either a minimum of 10 or

25 percent ownership of the voting rights or shares in a foreign

enterprise.

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The concept of control is very important in the operation of foreign direct

investment because in most cases, it is the single most important fact

that motivates investors to be willing to transfer technology and other

competitive assets

This chapter discusses the concept and theory of foreign direct

investment, trend and polices of FDI in Nigeria and finally, the role of FID

in the economic growth of Nigeria.

THE CONCEPT AND THEORY OF FOREIGN INVESTMENT

According to Nwadikwo (2007), foreign investment is a type of

investment whether in real or financial assets across the national

boundaries of the investors. With the aim of maximizing the objective

function of the investors which can be undertaken by individuals, firms or

the government. Basically, foreign investment falls into two broad

categories:

- Portfolio investment

- Direct investment

PORTFOLIO INVESTMENT

This is an investment in which an investor lacks control over the

investment. It typically takes the form of investments in financial assets

13
such as bonds and stocks in which the investor does not have controlling

interest. The major motivating factor is the favorable interest rate

differential i.e. capital flow from where it is plentiful to where it is scarce.

Portfolio investment can equally be called foreign private investment

(FDI) where you do not have to be involved in the management. You just

buy shares, if anything goes wrong you first go to the stock exchange

and sell your shares and go away.

DIRECT INVESTMENT

By direct investment, we mean an investment in a foreign country where

the investors retain control over the investment. According to Arenu

,(2000) foreign direct investment shows that the owner of the money is

coming to direct the affairs. He has an effective voice in the

management.

FDI typically takes the form of a foreigner setting up a subsidiary or

taking over/control of an existing firm in the country in question. Usman

(2008), asserted that foreign direct investment involves the

internationalization of product in order to service markets which were

formally served by expert.

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Also, foreign direct investment in distinguished from other forms of

foreign investment by the fact that it involves not only foreign investment

ownership but also foreign control. In other words, foreign direct

investment occurs only if an individual or organization in a foreign

country gains sufficient interest in an operation to acquire control.

Therefore, FDI as a concept differs from international or foreign

investment which is a much wide concept.

From these definition, a direct investment can be recognized as an

incorporated or unincorporated enterprise in which a single foreign

investor either controls 10 percent or more of the ordinary shares or

voting powers of an incorporated enterprise or; the equivalent of an

unincorporated enterprise or controls less than 10 percent/or non of the

enterprise but has an effective voice in the management of the

enterprise.

An effective voice in the management means that the foreign investor

has the potential to influence or participate in the management of an

enterprise. It does not mean that he must have absolute control

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THE THEORY OF FOREIGN DIRECT INVESTMENT

Foreign direct investment plays a large role in international economy.

Since the world has become a global village where factors of production

are mobile, the issue of FDI has equally been globalize with investors

switching investment from one country to another with relative ease. The

major forms of entry or ownership includes:

1. Wholly Foreign Owned: A wholly foreign owned enterprise

usually takes the form of either a branch or locally incorporated

company. In the case of a branch, such an enterprise conducts the

local activities of its parent company without having in separate

legal entity. When a foreign owned company is not a branch as

defined above, but locally incorporated, it has a separate legal

entity from its foreign shareholders, parties or members. Such as

enterprise is a distinct legal entity formed under the applicable

business organization municipal law of the host country. When a

foreign investor owns or have controlling share of locally

incorporated company, it is a subsidiary. However, it is equally

possible for a subsidiary to have a number of other owners in

addition to the controlling foreign enterprise.

2. Joint Ventures: A joint venture is a form of partnership between

foreign investors and the host economy‟s investors in carrying out

a business activity. The jointness involves varying degrees, the

16
 sharing of control and decision making, risks and profits

proportionally to the respective contribution of each party (Unless

otherwise stated) under a joint venture, it could be of corporate or

contractual type. In the corporate joint venture, sharing of

ownership is through a separate legal entity as the association of

both parties is based purely on contract. The right and obligation

will be governed by whatever in agreed upon in the contract as

well as the sharing of profit, risk ownership of assets, control and

decision making provided of course that the agreed terms are not

in conflict with any laws of the host country). Joint ventures are

and remain the most common form used in developing countries of

Asia, Africa and Latin America.

3. Special Contractual Arrangements: Though special contractual

arrangements are similar to contractual joint ventures described

above, they differ slightly because a foreign investors” share of

benefit in determined by the negotiation of a fair return for his

contribution, liability and risk rather than in strict proportion of his

contribution.

4. Technology, Management and Marketing Agreement: This

involves the host country‟s enterprise entering into a contract for

the purchase of technology, management or marketing from a

foreign enterprise for an agreed price. A kind of buyer-seller

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 relationship is thus evolved. There is no sharing of control,

decision making, liability, risk and profit although the foreign

partners runs the risk of non- payment in case of non-performance

of the enterprise.

DIRECT FOREIGN INVESTMENT IN NIGERIA: TREND AND POLICES

Historical Background:

After Berlin conference in 1884 and the consequent consolidation of

British rule in the country, the imperative of colonial economic hegemony

was put in place. Lucky enough, the time coincided with the industrial

revolution in Europe when most companies were looking for raw material

sources. Activities of alien entrepreneurs were therefore concentrated in

export oriented mineral and agricultural production as well as in public

utilities (like railway services) that will facilitate the British commercial

activities.

The large internal market of Nigeria economy soon attracted foreign

investors from France who now compete with the British firms and this

development led to sharing of the market with price understanding (or

cartel) under the auspices of Participants Association of West African

Merchants (PAWAM).

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Despite the existence of PAWAM, the continued entry of new firm from

other parts of the world and the emergence of indigenous

entrepreneurial class led to great competition in the country‟s

commercial activities. By 1950, pioneer manufacturing establishment

started emerging because of the increasing competition as well as in

response to the demand of the nationalist movement. The immediate

post independence period witnessed considerable legislation aimed at

promoting industrial development of the country. The first national

development plan (1962-1968) was launched with the objectives of

providing the framework for industrial take-off of the economy. They plan

was thus called an “open door” plan which actually saw many foreign

investors choosing Nigeria as their site. However, about five years later

when the rest of the world was still assessing the policy direction of the

relatively newly in dependent Nigeria economy, the economy plunged

herself into the first military coup which was followed by a civil war. To

crown it all, the company Act of 1968 was promulgated to replace the

United Kingdom companies‟ act of 1980. The Act made it compulsory for

all companies operating in Nigeria to secure incorporation and this was

seen as unnecessary burden by both alien investors, as well as other

observers. The “Bomb shell” which made all the companies in the

economy to be subjected to Nigeria municipal law, (by compulsory in

19
corporation) was expected to discourage not only existing private foreign

investment but as dis-incentive to future in bound overseas capital.

The promulgation of the Nigeria enterprise promotion Decree (NEPD) of

1972, as well as NEPD of 1977 gave forced boost to the development of

Nigerian capital market as many of the foreign owned firms were

compelled into listing on the Nigerian stock exchange. Because of these

decrees, existing foreign investors were mandated to transfer their

interest to reflect the provision of the decree while fresh investors were

forced to be engaged in joint ventures. It is difficult to ignore the degree

of apathy which the NEPD generated in the minds of foreign inventors.

These developments limit the willingness and of foreign investors to

continue investing in Nigeria.

That notwithstanding, the Nigeria investment climate has seriously

remained unattractive. First, with military coups after independence and

unclear democratization process, the political history of the nation

appear rather insecure for overseas capital.

Secondly the unnecessary straight regulation and approval procedures

affecting foreign investors appear frustrating as the usual complaint from

20
most of them cause‟s discrepancy between the actual contents of the

law and the multiplicity of administrative regulation to be observed.

Thirdly, too many changes in polices and regulations altered the rule of

the game so frequently that investors kept away from projects with long

gestation period to the extent that trading and importation of

consumables became the most reliable and profitable business under

undertaking.

Besides, according to Aremu J.A (1992) one needed no authority to

express that corruption is widespread in many government and public

agencies as foreign investors believe that business operations may

come to a stand still if officials hands are not wet.

Lastly, the absence of qualified personnel particularly in manufacturing

and processing sector to service imported complex machineries

increased the operational cost of the affected companies since

expatriates have to be brought by most of them to augument the

domestic short fall at additional cost.

With Nigeria adopting democratic governance and democratic polity, the

country has quickly regained goodwill and foreign investors are

beginning to look at it in a serious way.

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The involvement of Multilateral investment Guarantees Agency (MLGA)

in the country‟s industrialization programme, would give impetus to

current efforts by president Yaradua‟l to woo foreign investors. MLGA

would give confidence to foreign investors on the security of their

investment in the country because it mitigates risks and guarantees for

investors in an environment devoid of risks such as political instability,

currency transfer restrictions, and breach of contracts, war and civil

disturbances.

DEVELOPMENTS TO BOOST FOREIGN DIRECT INVESTMENTS IN

NIGERIA

1. Industrial development coordinating committee (IDCC): for over

three and a half decades after independence, the inflow of foreign

private capital was not very substantial compared with the flow of such

investment in countries of similar political history (malagisa, sin gapore

and Thailand). The IDDC was established in 1938 and was to act as one

stop agency for facilitating and attracting foreign private investment

inflow into the country. According to a nationwide study carried out by

Ahmed S. (1991), the committee (IDCC) had performed below

expectation when compared to similar institutions of concurrent

jurisdiction in the south East Asian countries. Out of the 407 IDCC

approved enterprises in the entire economy an at July 1991, only 277

companies could be identified, as the remaining 130 were either non

22
existence or were move round tripping” arising from multiple applications

for different kinds of approval from IDCC. The short coming of this

committee necessitated its replacement by the new decrees; Nigerian

investment promotion Decree 16 of 1995 and the foreign exchange

(monitoring and miscellaneous provision) Decree 17 of 1995.

Nigerian investment promotion commission Decree 16 and the foreign

exchange decree in of 1995. The intention of the decrees is to create a

conducive environment for foreign investors.

2. The Nigeria investment promotion Decree 16 of 1995. in spite of

coming into effect of IDCC, many aspects of Nigerian economy

remained incompatible with the high spread operational characteristics

of modern international capital mobility. It includes lack of efficiency and

rigid operating mechanism that plague Nigeria‟s existing administrative

system in addition to the absence of a unified, highly authoritative

leading body for administering foreign investment regulation.

Thus, the NIPD established Nigeria investment promotion commission to

co-ordinate and monitor all investment promotion such as:

- The initiation and fostering of measures to enhance the nations

investment climate for all investors.

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 - The identification of specific projects and invitation of interested

investors to participate.

- The provision of advice to federal government on policy matter,

including fiscal measures designed to promote industrialization

of Nigeria or the general growth of the economy.

 According to the Decree, a non-Nigerian can invest in or

participate in the investment of any enterprise in Nigeria with

few exceptions such as arms, dangerous drugs and military

wears.

3. The foreign exchange (monitoring and miscellaneous provisional)

Decree 17 of 1995.

The Decree authorized any person (including non Nigerian) to deal in,

invest in, acquire or dispose of, create or transfer any interest in

securities and others money market instruments whether denominated in

foreign currencies in Nigeria or not. This implies that any person may

invest in securities traded on the Nigerian capital market.

PRIVATIZATION PROGRAMME

The privatization of public enterprise which began in December 1999,

which was completed in 2006, was an important plan in the

administration‟s effort in making private sector the engine of growth for

24
the economy. It is hoped that foreign investors will take advantage of the

privatization programme to begin the process of investing in this country.

THE ROLE OF FOREIGN DIRECT INVESTMENT IN THE GROWTH

OF NIGERIA ECONOMY.

Foreign direct investment can assist chiefly by establishing new

companies, banks or other consumption oriented industries or it may

deal in primary goods for export or set up enterprises of heavy industrial

processing of local raw materials or producing capital goods for the local

markets.

The belief has thus spread across the glob that any less developed

country (LDC) that is serious about raising the standard of living of her

citizens must open its economy and avail itself to the benefits of greater

access to capital, technology, high level of employment and others. In

other words, the benefits derivable from FDI have made many countries

to desire integrating their economies into the increasingly globalize

economy of the transnational corporations.

Put together, the impacts of foreign direct investment in the economic

growth of the Nigerian economy are thus:

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1. Capital: The economic argument for encouraging an inflow of

foreign capital is that, the investment generates income and other

economic benefits to both the investor and the host country. The first

obvious contribution of FDI is to increase the cross Domestic product

(GDP) of the recipient countries. This increased productivity benefits

local income groups through higher wages and expanded employment,

lower prices and improved products for consumers, rent to local

resource owners, and higher tax revenue to the government. In some

case, the expanded production leads to penetration into export market

and thus increasing the level of available foreign exchange fund. By the

same token, the expanded production form the import substitution effect,

lead to conservation of foreign exchange. Furthermore, forward and

backward linkages occur as production in one operation requires

production and services from other areas of the economy. In addition to

demand creation (from the vertical integration), in other industries,

existing domestic investment and (new ones also) may be stimulated in

the development of country‟s infrastructure particularly transportation,

communication, financial markets and industrial structure.

2. Technology: The most significant contribution associated with

foreign investors often lies in the external economies which accompany

the inflow of capital. These external economies feature in terms of

improved managerial ability, technical personnel, technological

26
knowledge, administrative organization and new production technique.

This access to foreign knowledge (technology transfer) is one of the

greatest benefits that foreign investment can bring to the host countries

growth. The presence of FDI can improve productivity and international

competitiveness because the consequent technology transferred to the

host economies permit both immediate access to advanced means of

production and control over the means of production.

3. Employment: The effects of the external economies are equally

visible in the employment area, where in addition to providing

employment opportunities, good salaries and fringe benefits, the quality

of the local labour force in improved through expensive formal and

informal training. As labour specification and management experience

grows, the need to import expertise diminishes and host country

participation in projects can increase (thus leading to conservation of

foreign exchange which could have been used to employ exchange

which could have been used to employ expatriates). In addition, FDI can

stimulate local entrepreneurship by providing increase competition and

opportunities for subcontracting to local suppliers.

Basically, FDI assists in economic growth in two major ways:

i. It provides the capital necessary for establishment of industries

ii. It brings with it foreign technical and management experience

which is scarce and needed in capital importing countries like Nigeria.

27
With this, it makes possible the operation of the industry and training of

local manpower‟s.

For Nigeria to achieve sustainable growth and meet her external

obligations, a lot depends on adequate inflow of foreign investments. At

the current level of external debt service obligation, little or nothing is

available for new investments. Consequently, in our presents

circumstances, the injection of foreign capital for initiating growth is

absolutely necessary to complement local indigenous efforts.

Table 2.3

List of some multinational companies in Nigeria countrys of origin.

S/N NAME OF MNC COUNTRY OF

ORIGIN

1. Texaco Nig. ltd USA

Pfizer ltd USA

IBM Nig Ltd USA

Cadbury Nig ltd UK

Shell BP Netherland/Uk

Peugeot automobile Nig. Ltd France

MTN South Africa

28
REFERENCES

Agene C.E (2000). The Principles of Modern Banking Abuja: Gene

Publication Iin P.G

Alexander. G J et al, (1986): Fundamentals of Investments, New York:

Prentince Hall International Co. Ltd P. J

Anyaoku E. (2000), a Speech Presented During the Common Wealth-

Nigeria Investment Conference Held at Abuja on March.

Aremu, A. (2000), “Negotiating Foreign Direct Investment under

Democratic Governance in Nigeria‟s Financial Standard

Vol.1 No. 29 April 24,P.14

Aremu, J.A. (1992), Marketing Nigeria Investment to Alien Entrepreneurs

CBN Research Suniar Paper July.

29
 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

The aim of this research is to examine the roles of foreign direct

investments in the growth of the Nigerian economy. This chapter is

therefore designed to highlight on types of data the researcher used in

the study, how they were gathered and where they were obtained from.

This chapter equally reveals the research approach or method that was

applied while gathering the data the research instrument used and how

they were designed.

3.1 SOURCES OF DATA

The researcher utilized both primary and secondary data source

extensively in the course of carry out this study.

3.1.1 PRIMARY DATA

Primary data source was collected through personal interviews,

questionnaire and surveys.

3.1.2 SECONDARY DATA

The secondary data sources that was used in this research work was

information that has been in existence before this study. The data was

gathered from magazines journals, news papers and government

publications and internet.

30
3.2 DATA COLLECTION METHOD/RESEARCH DESIGN

The survey method was chosen among the various research methods

since it appeared to be the most suitable for this study due to its

descriptive nature. This method was specifically chosen to enable the

researcher study the phenomenon in their natural setting making the use

of sampling feasible and reliable.

3.2.1 RESEARCH INSTRUMENTS

Since the research approach employed in this study was survey method,

questionnaire was found the most suitable and applicable instrument for

collecting relevant data needed for the study.

3.2.2 QUESTIONNAIRE DESIGN

The set of questionnaire was carefully designed to reveal the hypothesis

to be tested. It was equally aimed at eliciting responses from the officials

of the selected companies. To elicit there responses, various forms of

questionnaire were used. As such, the questionnaire contained closed-

ended and open-ended questions. This will allow the use of statistical

method to analyze the data collected which is turn will and the

researcher in testing hypothesis.

31
3.3 POPULATION AND SAMPLE

3.3.1 POPULATION OF STUDY

The researcher will cover three companies. The population will comprise

of those in the top management cadre of the various companies. On the

whole, the numerical strength of the stated population is about 40 for the

three companies.

3.3.2 SAMPLE SELECTION

A sample is a group of objective selected from a population of study for

the purpose of making generalization about the population from which

the sample was drawn. To this effect, a total of Fourty questionnaire will

be distributed to the respondents. This number was got thus:

N = N

1+N (e)2

Where N = sample size

N = population size = 40

e = margin of error = 1% or 0.01 (assumed)

Hence, 40 40 =39.8 = 40

1+40 (0.01)2 1.004

3.4 METHOD OF DATA ANALYSIS

The statistical method is used in analyzing and presenting data

generated from this study. As such, statically tools such as tables are

32
extensively used for analyzing and presenting data generated in this

study.

3.5 METHOD OF TESTING HYPOTHESIS

Since the research will be comparing observed and expected

frequencies, the chi-square technique is used in testing some of the

hypothesis formulated in this study. The chi-square is a sample statistic

and is computed using the formaluar

X2 = ∑ (0- ∑)2
∑
Where x2 = chi-square

0 = observed frequency

∑ = expected frequency

∑ = summation sum

The computed X2 will then be compared with the critical value

(theoretical X2) at 95% confidence level and appropriate degree of

freedom which is (R-1) (C-1)

Where R = number of rows

C = number of colums

Also, the internal tap (foreign capital needs) model is used to verify the

adequacy of foreign capital flow in Nigeria. The model is expressed

thus:
33
 FK = 1r – sd

Where FK = foreign capital needs

1r = total investment to achieve output target

Sd = potential domestic savings

Percentages will equally be used to analyze response from interviews

and questionnaire.

It is therefore hoped that based on the methodology stated above, the

finding in this research are given scientific backing.

34
 REFERENCES

Okeke, C.P (1992): Research methodology, Nigeria 4th Dimension

Publishing co. ltd, P. 12

Orji, J (1999), Business Research Methodology, enugu. Meteion publicit

Company, P. 202

35
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

The aim of this chapter is to present and analyze the data collected

during the research survey followed by findings resulting from the data.

The presentation and analysis will take the form of tabulation followed by

analysis and explanation of the data collected from questionnaire. It is in

this chapter that the objective of the study will be looked into and the

research questions will be answered.

4.1 FLOW OF FOREIGN DIRECT INVESTMENT IN NIGERIA.

The first objective of this study is to ascertain the level of foreign direct

investment in Nigeria. This is presented thus:

Table 2:Nigeria:Foreign Direct Investment 1990-2002

YEAR NOMINAL FDI REAL FDI
=N=MILL =N=MILLION
1990 4686.0 1,598.23
1991 6,916.1 20,090.09
1992 14,463.1 3,023.22
1993 29,660.3 3,944.71
1994 22,229.2 1,882.71
1995 75,940.6 3,721.85
1996 1,112,995.0 42,189.27
1997 110,452.7 3,857.62
1998 80,758.4 2,564.16

36
YEAR NOMINAL FDI REAL FDI
=N=MILL =N=MILLION
1999 92,792.5 2,763.66
2000 132,433.7 2,955.09
2001 225,036.5 3,102.90
2002 4,368.37
Source:CBN statistical bulletin(various years)

ADEQUACY OF FOREIGN DIRECT INVESTMENT IN NIGERIA

Having analyzed the flow of foreign direct investment in Nigeria, a test of
the adequacy of such investment which is the purpose of the first
hypothesis will be made.
As earlier mentioned in chapter three, a model known as internal
gap(foreign capital needs) will be used to test the hypothesis.

HYPOTHESIS 1
Ho:The level of foreign direct investment in Nigeria is adequate
H1:The level of foreign direct investment in Nigeria is inadequate.

FK=Ir-Sd
Where FK=Foreign capital need
Ir=total investment required to achieve the output target
Sd=potential domestic savings.
Decision rule: Reject Ho if Ir-Sd is less or equal to 0 otherwise accept.
Computation:
Output target=installed capacity
Installed capacity utilized in Nigeria from 1994-2006
1994-43%
1995-29.3%
37
1996-35%
1997-32%
1998-30%
1999-37%
2000-36%
2001-40%
2002-45%
2006-47%
Sources:CBN bullion 1997-2006
Since Investment=Savings
Potential domestic savings=domestic private sector investment and
Govt.capital expenditure
Domestic private sector= =N=11.12b
Govt.capital expenditure= =N=567b
=N=578.12b (2006 data)
Since output target =100%
Capacity utilization in 2006=47%
Deficiency=53%
This means that at the capacity utilization of 47%,Nigeria had an
investment of =N=578.12b.
Therefore, output target=Total domestic investment
% of capacity utilization

Output target=578.12
0.47
=1,230.79
Thus, output target=Ir
And FK=Ir-Sd
FK=1,230.79-578.12
38
 FK==N=652.67b
Therefore, the amount that will be needed from foregners in 2006 would
be foreign capital needs(FK) less investment by foreigners
FK=652.67-4.37
FK=648.3b
From the above computation, it could be seen that Nigeria needed about
=N=648.3billion of foreign capital to achieve output target using 2006
data.
Since Ir-Sd is greater than 0,we thus reject Ho accept H1 which states
that foreign investment inflow in Nigeria is inadequate.

The tale below shows the responses received from the questionnaire
administered.
Table 3
Name of company Questionnaire Questionnaire % response
Administered returned
Shell DPC 15 12 37.5
MTN 13 10 31.25
Standard chartered 12 10 31.25
bank plc
40 32 100

THE ROLE OF FOREIGN DIRECT INVESTMENTIN THE GROWTH OF

NIGERIA.
In the second objective which was to examine the role of FDI in the
overall growth of Nigeria, we are going to analyze this based on the
questionnaire distributed and received.

39
Table 4
Response on the role of FDI in the growth of Nigeria.
Response Shell MTN SCB PLC Total %
Very significant role 8 7 8 23 71.9
Significant role 4 2 2 8 25
No significant role - 1 - 1 3.1
12 10 10 32 100

From the above table,23(71.9%) of the respondents believe that FDI

plays a very significant role in the growth of Nigeria.8(25%) just see it
role as significant while 1(3.1%) see it to contribute nothing.
To further analyze this,chi-square will be used to test hypothesis 2.

HYPOTHESIS 2
Ho:Foreign Direct Investments do not play significant role on the growth
of Nigeria economy.
H1:Foreign Direct Investments play significant role on the growth of
Nigeria economy.
Test Statistic: Chi-square(X2)
Formula: X2=∑ (O- E)2
E

Assumptions:
Level of significance0.05
Decision rule:
Accept Ho if calculated value of is X2 less than the critical value
otherwise reject Ho.
Table 5:Chi-square Table

40
Response O E O-E (O- E)2 (O- E)2
E

Very significant role 23 10.67 12.33 152.03 14.25

Significant role 8 10.67 -2.67 7.13 0.67
No significant role 1 10.67 -9.67 93.51 8.76
32 32 23.68

Degree of freedom(DF):
DF=(R-1)(C-1)
DF=(3-1)(2-1)
DF=2
Determination of critical value
X2 critical value-5.991
Compare the two values.
X2 calculated> X2 critical
23.68>5.99
Decision: reject Ho
Inference: Since the calculated value of X2 is greater than the critical
value, it means that Foreign Direct Investment has a significant role in
the growth of Nigeria.

41
 CHAPTER FIVE
FINDINGS, CONCLUSION AND RECOMMENDATIONS

FINDINGS

In analyzing this phenomenon, the researcher made some observations.

To this end, the findings will be presented based on the objectives of this

study.

The first objective of the study was to ascertain the level of foreign direct

investment in Nigeria. In the course of this work, it was discovered that

the flow of FDI in Nigeria has been on the increase since

democratization.

It was equally discovered that the foreign investment made so far in

Nigeria is not adequate. This disproved the null of the first hypothesis

which states that the level of foreign direct investment in Nigeria is

adequate.

The second objective was to examine the impact of FDI in the overall

growth and development of the banking sector. It was discovered that

FDI assist in economic growth and development in two major ways:

i. It provides the capital necessary fort he diversification of the

economic base.

ii. It brings with it foreign technical and managerial experience

which is scarce and needed in capital importing country like

Nigeria.

42
Bearing in mind that in Nigeria, the per capital income is low, hence the

realization of substantial saving to effect capital accumulation for

investment is unfeasible. This has rendered the dream of domestic

sourcing of finance for investment unrealistic. This scenario has led to

increased desire for foreign investments in the provision of needed

capital for the development of the country‟s financial system and thus the

economy.

Furthermore, on the issue of adequacy of fiscal incentives which was

one – of the objectives, it was discovered that the federal government

has taken bold steps in the right direction by providing some incentives.

However, a test of adequacy of those incentives provided shows that

they are inadequate.

CONCLUSION

Foreign capital and its role in global economy as well as in the economic

development of nations have remained significantly dominant and

controversial. It has not only been requires as a supplement to the

available internal resources of the nation for growth and development,

but its utility has also continued to be the catalyst for rapid

industrialization. In a developing and changing economy with low capital

43
base such as ours therefore, foreign direct investment of sufficient

magnitude and relevance becomes a valid complementary option.

In Nigeria, unnecessary delays and administrative bottlenecks, the

persistent poor macroeconomic policy and performance, the political

instability among others have all combined to frustrate many recent

foreign investment policies put in place to woo foreign investors. Though

we cannot ignore the lack of patience on the part of the international

community to understand the peculiarity of the country at managing her

own affairs, excessive reliance on Nigerian‟s peculiar way of getting

things done makes Nigeria appear like a nuisance among community of

nations. Since we do not have differences in the way we hear, see,

taste, smell and touch we must be ready to allow some implantation of

tested good ideas embraced by other countries.

RECOMMENDATIONS

Having evaluated the flow of FDI in Nigeria and its impact in the Nigerian

economy, the following recommendation are necessary;

- The Nigerian government should encourage the inflows of

foreign direct investment and contact policy institutions that can

ensure the transparency of the operations of foreign companies

within the economy.

44
- In evaluating FDI, the screening process should be simplified

and improved upon. For example, exports investments projects

that consistently generate positive contribution to national

income can be screened separately and swiftly, while projects

in imports computing industries should be screened separately.

- The Nigerian government needs to come up with more friendly

economic policies and business environment, which will attract

FDI into all the sectors of the economy.

- The Nigerian government needs to embark on capital projects

,which will enhance the infrastructural facilities in which foreign

investors can build on.

- The Nigerian government should carry out the liberalization of

all the sectors of the economy so as to attract foreign investors,

so that current efficiency and growth noticed in the

telecommunication sector can also be enjoyed there.

- For Nigeria to generate more foreign direct investments, efforts

should be made at solving the problems of government

involvement in business; relative close economy, corruption,

weak public institutions and poor external image. It is therefore

advised that the government continues with its privatization

programme, external image laundry, seriousness and openness

45
in the fight against corruption and signing of more trade

agreements.

46
 BIBLIOGRAPHY

Agbachi, E. (2007), “Nigeria and Foreign Investment” Business

Times Nov 14, p.9

Agene C. E. (2000). The Principles of Modern Banking. Abuja Ene

Publication Ltd, P.17.

Alexander, G. J. et al, (1986): Fundamentals of Investments, New

York: Prentince Hall International Co. Ltd P.5.

Anyaoku E. (2000), A Speech Presented During the Common Wealth

– Nigeria Investment Conference Held at Abuja on Newly 8.

Arewu J. A. (2000) “Negotiating Foreign direct investment under

Democratic Governance in Nigeria” Financial Standard, vol 1
No 29 April 24

Armu J.A (1992), Marketing Nigerian Investment Environment to

Allven Enterprise, CBN research seminar paper July.

Algos. (2008) “Nigeria Attracts N2 Billion for in one Year” financial

Standard Vol 9 No 154, may 26 R.l

CBN Research Department (1994), CBN Economic and financial

Review. Vol 34 No 3 PP 12-15
Okeke, CP (1992) Research Methodology, Nigeria: 4th Dimension
Publicity Co Ltd P.12

Oriji, J (1999), Business Research Methodology, Enugu Melteson

Publicity Company, P.202
47
 RESEAARCH QUESTIONNAIRE

University Of Nigeria,
Faculty Of Administration,
Department Of Management.

10th November,2009.
Dear Respondent,

I am a Management student of the above institution carrying out a research work on the role
of Foreign Direct Investment on the growth of Nigeria.
This project work is in partial fulfillment of the requirement for the award of Masters Of
Business Administration(MBA) in Management.
Kindly provide appropriate answer to the questions below. All provided information will be
treated with utmost good faith and will be used only for this research.
Thanks for your co-operation.
Yours faithfully,

Emeka Chiwetalu

48
Instruction:
Please, tick ( ) in the boxes provided.

1. How long has your organization been operating in Nigeria?

……………………………………………………………..
2 .Is your organization fully owned by foreigners?
(a) Yes ……… (b) No…………….
3.If no, what is the equity participation?
…………………………………………
4. In your opinion, what is the level of significance or otherwise of foreign direct
investments
In the growth of Nigeria?
(a) Very significant role………..
(b) Significant role…………
(c) No significant role…………
5. How would you consider the adequacy of fiscal incentives given by Nigerian government
To foreign investors?
(a) Very adequate…………….
(b) Not so adequate……………
(c) Not adequate…………….

49