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PROJECT TOPIC AND MATERIAL ON THE IMPACT OF FOREIGN DIRECT INVESTMENT ON INDUSTRIAL PRODUCTIVITY IN NIGERIA
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- Name:THE IMPACT OF FOREIGN DIRECT INVESTMENT ON INDUSTRIAL PRODUCTIVITY IN NIGERIA
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The study examines the impact of foreign direct investment on industrial productivity in Nigeria. The study adopted an ex-post-facto research design in which secondary source of data was used. The study also adopted a linear regression model, econometric criteria, evaluation estimate statistical criteria and ordinary least square regression for data analysis. Findings of the study showed that foreign direct investment(FDI) contribute just little to industrial output in Nigeria. Findings of the study also showed that the level of high exchange rate also affect industrial output while trade openness does not have any real effect on industrial output. The finding further indicated that foreign direct investment and exchange rate is directly related to industrial outputs. Based on the findings, the study therefore recommended that government of Nigeria should make policies that will effectively regulate exchange rate in Nigeria in other to encourage industrial output which in turn will contribute to economic growth. It is also recommended that the level of trade openness should be effectively controlled by government to favour the rate of industrial output in Nigeria and foreign direct investment(FDI) should be encourage by the government to ensure adequate industrial growth.
1.1 Background to the study
The underdeveloped nature of the Nigerian economy that essentially hindered the pace of her economic developmenthas necessitated the demand for Foreign Direct Investment into the country. Aremu (2010), noted that Nigeria as oneof the developing countries of the world, has adopted a number of measures aimed at accelerating growth anddevelopment in the domestic economy, one of which is attracting foreign direct investment (FDI) into the country.
According to World Bank (2014), FDI is an investment made to acquire a lasting management interest (normally10% of voting stock) in a firm or an enterprise operating in a country other than that of the investor definedaccording to residency. However, Foreign Direct Investment (FDI) is often seen as an important catalyst foreconomic growth in the developing countries because it affects the economic growth by stimulating domesticinvestment, increase in capital formation and also, facilitating the technology transfer in the host countries. (Falki,2009).
Khan (2011) asserts that Foreign Direct Investment (FDI) has emerged as the most important source of externalresource flows to developing countries over the years and has become a significant part of capital formation in thesecountries, though their share in the global distribution of FDI continued to remain small or even declining. The roleof Foreign Direct Investment (FDI) has been widely recognized as a growth-enhancing factor in the developingcountries. Falki (2012), speaking on the effects and advantages of FDI to the host economy, noted that the effects ofFDI on the host economy are normally believed to be: increase in employment, augmenting the productivity, boost inexports and amplified pace of transfer of technology. The potential advantages of the Foreign Direct Investment to the host economy are: itfacilitates the utilization and exploitation of local raw materials, introduces modern techniques of management andmarketing, eases the access to new technologies,foreign inflows can be used for financing current account deficits,finance inflows form FDI do not generate repayment of principal or interests (as opposed to external debt) and increases the stock of human capital via on-the-job training. The realization of the importance of FDI had informedthe radical and pragmatic economic reforms introduced since the mid-1980s by the Nigerian government. Thereforms were designed to increase the attractiveness of Nigeria’s investment opportunities and foster the growingconfidence in the economy so as to encourage foreign investors to invest in the economy(Ojo,2013).
According to Umah (2014), the reforms resulted in the adoption of liberal and market-oriented economic policies,the stimulation of increased private sector participation and elimination of bureaucratic obstacles which hindersprivate sector investments and long-term profitable business operations in Nigeria. This, for instance, is to encouragethe existence of foreign Multinational and other private investors in some strategic sectors of the Nigeria economylike the oil industry, banking industry, communication industry, and others. Reacting to this, Shiro (2009) noted thatsince the enthronement of democracy in 1999, the government of Nigeria has taken a number of measures necessaryto woo foreign investors into Nigeria. These measures, he noted, include the repeal of laws that are inimical toforeign investment growth, promulgation of investment laws, various over sea trips for image laundry by thePresident among others.
Continuing on this, Umah (2013) asserts that the Nigerian government has instituted various institutions, policies andlaws aimed at encouraging foreign direct investment. For instance, in 1995, the Nigeria Investment PromotionCommission (NIPC) was established through Decree No 16 of 1995. The Law provides for a foreign investor to setup a business with 100% ownership which must be registered with the Corporate Affairs Commission (CAC) inaccordance with the provisions of the Companies and Allied Matters Decree of 1990. The registration is finalizedwith the NIPC. To ensure adequate protection, the NIPC Decree guarantees foreign investments againstNationalization and expropriation by the government. The NIPC Decree repealed the Industrial DevelopmentCoordination Committee (IDCC) Decree No 36 of 1988 and the Nigeria Enterprise Promotion Decree (NEPD) of1972 as amended in 1977 and 1989 which, hitherto, reserved for Nigerians the ownership of certain business. Theoperation of the Autonomous Foreign Exchange Market (AFEM) as provided for in the decree liberalized the FEMoperation. The Decree replaced the Exchange control Act No 16 of 1962 in its entirety. Dunning (2010), however,noted that FDI is attracted to serve as a means of augmenting Nigeria’s domestic resources in order to effectivelycarryout her development programmes and raise the standard of living of her people. According to Bello (2011),privatization was also adopted, among other measures, to encourage foreign investments in Nigeria. This involvedtransfer of state-owned enterprise (manufacturing, agricultural production, public utility services such astelecommunication, transportation, electricity and water supply) companies that are completely or partly owned by ormanaged by private individuals or companies. Qualified foreign firms were given open arms to take over most ofthese establishments to enhance efficiency. This is because such foreign firms are reported to possess the managerialacumen and technical prowess needed to resuscitate and sustain the weak industries in Nigeria (Umah:2013).
Based on this, this study evaluate the impact of foreign direct investment on industrial productivity in Nigeria.
1.2 Statement of the Problem
Most developing African countries like Nigeria have reformed their economic policy, investment laws and also improved their financial system. Market size is also growing in terms of purchasing power in the region with vast population; but problems like political instability, internal conflict and poor governance still pose significant problems to many countries in Africa like Nigeria. It has also been observed that in most African nations such as Nigeria, foreignDirect Investment inflow rose mainly in the primary sector because of the existence of vast natural resource. So, the common perception is that the Foreign Direct Investment(FDI) is largely driven by market size and natural resources. This perception is also consistent with the UNCTAD (2009) data with respect to the three largest recipients of FDI which are South Africa, Nigeria and Angola respectively who are all natural resource rich nations. In term of sectorial growth rate, telecommunication sector recorded the highest real growth rate of 33.74%, manufacturing having 7.31%,, agriculture 5.84% etc. it is opined by Malik, Teal and Baptist (2006) and ADB (2010) that if Nigeria can succeed in strategic transformation of its manufacturing sector as suggested by many experts and recent policy initiatives, growth rate of the manufacturing sector may reach double-digit in the next five years; and this will put Nigeria’s growth rate ahead of other emerging economies. Although problem like diversification into the manufacturing sector in recent years byforeign direct investment(FDI)in Nigeria has traditionally been concentrated in the extractive industries principally oil and gas and this has impacted negatively in Nigeria. Most especially now that there is a fall in cost of Nigeria curdle oil price . Data reveals a diminishing attention to the mining and quarrying sector, from about 51% in 1970–1974 to 30.7% in 2000/20001. According to Olusanya(2010) there is a causality relationship betweenFDI and the growth of gross domestic product inthe pre and post-deregulationin economic growth of Nigeria. Against this back drop, this study examines the impact of foreign direct investment(FDI) on industrial productivity in Nigeria.
1.3 Purpose of the Study
The main purpose of the study is to investigate the impact of foreign direct investment(FDI) on industrial productivity in Nigeria. Specific purpose are to examine;
- If foreign direct investment(FDI) exert any positive impact on manufacturing sector growth in Nigeria.
- WhetherForeign direct investment inflow into manufacturing sectors significantly affects the economic growth of Nigeria
- The influence of Foreign direct Investment(FDI) on realgross domestic product.
1.4 Research Question
The following research questions are posed to guide the study as follows
- Does foreign direct investment(FDI) exert any positive impact on manufacturing sector growth in Nigeria?
- Doesforeign direct investment inflow into manufacturing sectors significantly affects the economic growth of Nigeria?
- What is the influence of Foreign direct Investment(FDI) on realgross domestic product.
1.5 Statement OfResearch Hypotheses
The following research hypotheses were posed to test the findings of the study as 0.5% as follows.
H01:Foreign direct investment(FDI) do not significantly exert any positive impact on manufacturing sector growth in Nigeria
H02:There is no significant effect of Foreigndirect investment inflow into manufacturing sectorseconomic growth of Nigeria
H03: There is no significant influence of Foreign direct Investment (FDI) on real gross domestic product.
1.6 Significant of the Study
The study is of benefit to government, Nigeria Citizens and to fellow researchers.
For government, the study will enable them make adequate policy that will make foreign direct investment a positive contributor to economic development of Nigeria. The findings will make the government of Nigeria see areas where Foreign direct investment as being contributing to Nigeria economy and area where it has affect the growth of Nigeria economy. Hence, helping government policy makers to adopt efficient policy that will harness the benefit of foreign direct investment. The study is of benefit to Nigeria citizens in that it exposes the citizen to the benefits of foreign direct investment and how areas where foreign direct investment has contributed to the economy of Nigeria. While to fellow researcher,the findings of the study serve as a source of research material and references for further related studies.
1.7 Scope of the Study
The scope of the study covers the impact of foreign direct investment on industrial productivity in Nigeria. The scope of the study also cover a time series of 5 years ranging from 2009 to 2014.In term of geographical location, of the study, the study was conducted in Awka Anambra state.
1.8 Definition of Term
For the purpose of clarity in some of the words used, the following terms are clearly defined as used in the study.
- Investment Foreign direct Investment:an investment made by a company or entity based in one country, into a company or entity based in another country.
- Privatization:The handing over of government own organization to individual considered capable of managing such establishment or a partnershipownership of government owned estabilishment between the government and individual.
- Economic Policy: law put in place to regualate the flow of commercial activities in a country in a given period of time.
- Industrial Productivity: its simply refers to the total good and serveices of a firm.
- Gross Domestic Product(GDP): This is the total domestic goods and services produced in a country in a given period of time.
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