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THE IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE OIL SECTOR IN NIGERIA (1980-2008).
The objective of the research work is to analyze empirically the impact of foreign direct investment (FDI) on Oil Sector in Nigeria from 1980 to 2008. Secondary data were collected and hypothesized with variables such as Crude Oil Production (COP), Foreign Direct Investment (FDI), while Exchange Rate (EXR) is the check variables. The ordinary least square (OLS) method of multiple regression analysis was adopted as a measurement technique. The study reveals that foreign direct Investment is statistically significantly with crude Oil production in Nigeria within the period of study. It also shows that foreign economy through contributes positively to other sector of the economy through technology and capital inflows, as well as the creation of employment. Therefore, foreign direct investment is inevitable and necessity for growth and development of the Nigeria economy. Hence the work recommends the creation of a conductive environment that will attract more foreign direct investment (FDI).
TABLE OF CONTENTS
Title Page i
Table of Contents vi
List of Tables vii
CHAPTER ONE: INTRODUCTION
1.1 Background of the study 1
1.2 Statement of the problem 4
1.3 Objectives of the study 6
1.4 Hypothesis of the study 7
1.5 Significant of the study 7
1.6 Scope and limitations 8
1.7 Definition of terms 10
1.8 Organization of the study 12
CHAPTER TWO: LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.1 Literature 17
2.1.1 Understanding foreign direct investment (FDI) 22
2.1.2 Overview of foreign direct investment (FDI) in Nigeria 27
2.1.3 Characteristics of foreign direct investment 32
2.1.4 Trends in foreign direct investment (FDI) 34
2.1.5 Argument for and against foreign direct investment (FDI) 39
2.1.6 Risk taking of foreign direct investment (FDI) 41
2.2 Theoretical framework 42
CHAPTER THREE: METHOD OF STUDY
3.1 Data collection 47
3.2 Model specification 48
3.2.1 Variables in the model 48
3.3 Analytical framework 51
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data presentation 54
4.2 Empirical result and discussion of findings 56
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1 Summary 60
5.1.1 Summary of major findings 60
5.2 Recommendations 61
5.2.1 Policy recommendation 61
5.2.2 Suggestion for further studies 64
5.3 Conclusion 65
LIST OF TABLES
Table 4.1: Comprehensive data for the variables in the model 54
Table 4.2 Short run regression for COP at log 56
Table 4.3: Short-run regression for COP at level 57
1.1 BACKGROUND OF THE STUDY
The policy thrust of any government is to provide her citizens with an improved standard of living build and sustain a self-reliant economy. To this level we claim that economy development is a necessary condition and the improvement in the quality of life.
Decades of bad government with corruption and misappropriation of funds including mounting arrears on its external debt with parish club creditors have almost crippled the nation’s economy.
Service activities have been generally stagnant; all other sectors are emerging from near total collapse. Oil services have been dominated by inefficient a public enterprise, which over the years has seriously handicapped other sectors that use their services as input.
In addition, the value of the Naira depreciated against the Dollar, this virtually wipe out any economic direct investment (FDI) into Nigeria shows an uneven path or distribution. In other words, there is a concentration of foreign direct investment in some sectors compared to others. Why the uneven distribution? Why investor’s preference of a particular sector and what is the impact on the Nigeria economy?
It is common knowledge that the ability of developing country like Nigeria to sustain economic growth and development as well as meet up with external obligations depend to a large extent on the inflow of foreign direct investment resources. This is as a result of the fact that little of noting is available at the current low level of foreign exchange earnings and high external debt services obligations. Therefore, to improve the situations, foreign investment should be seen as a complement to our local opinion that “Foreign Direct Investment fills the gap between domestically available capital/technology and the gain, considering the highly import dependent native of the Nigeria economy.
Moreso, the economy is highly vulnerable to fluctuation in the oil price and the dynamic oil sector contrast sharply with sluggish growth in the rest of the economy. In other words, the nation’s economy was at a cross-road. This ugly scenario gave rise to the question, what is the way out of this delirium economic condition? Many analysts and experts alike have given a thumb up for foreign direct investment as a veritable booster to kick-start the Nigeria economy.
With the enthronement of democratic government in 1999, the administration embarked on a number of steps to attract foreign investors into Nigeria. For instance, Former President Olusegun Obasanjo in a bid to achieve this objective and improve the economic environment embarked on a global trotting mission that saw him interacted with fellow Presidents and business community of different countries in the time. However, a cursory look at the distribution of Foreign required amount of their inputs necessary to achieve development”.
The role of oil sector in transforming both the social and economic framework of Nigeria economy cannot be over-emphasized. It is against this background that this study examined the degree of foreign direct investment policy framework to ensure conducive foreign investment atmosphere. In other words, we assessed the level of distribution of foreign direct investment flow in the oil sector, its performance and influence on the economy.
1.2 STATEMENT OF THE PROBLEM
Every country in the world is involved in the race for growth and development. The motivating factor is the desire to attain a sustainable human development and this result from inventions and technology.
Due to the level of economic backwardness in developing countries like Nigeria, foreign direct investment (FDI) has become a vital tool for industrialization and development. Its importance represents one of the defining features of globalization and reshaping of the international business environment.
There are other sources of capital grants which act as supplements to foreign direct investment (FDI) and external borrowing which are unattractive due to the debut obligation and vulnerability of the borrowing country. Aware of the importance of investment in and economy, successive Nigeria governments have introduced a number of incentives in the form of tariff, concessions, tax incentives to create a conducive atmosphere for investment and to encourage both local and foreign investors to invest in the economy. In one of his speeches, President Babangida (former) reiterated the need for pro-investment policy for a more stable and enabling macro-economic environment for foreign investors. Recently, President Goodluck Jonathan had interaction with Chinese government on how to improve on our power supply and other teething technological problems in Nigeria.
Earlier research works have been done on the impact of foreign direct investment on specific sectors of the economy. This is necessary variables generalization of the economy wide sectorial variables could conceal the implementations of foreign direct investment (FDI) on the targeted engine of growth of developing an economy like Nigeria, hence the need of this study, Ogba A.A (1993).
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to examine the impact of foreign direct investment (FDI) on the oil sector in Nigeria.
1. Analyze the relationship between foreign direct investment (FDI) and the output of the oil sector in Nigeria.
2. Evaluate the problem of foreign direct investment (FDI) in Nigeria.
1.4 HYPOTHESIS OF THE STUDY
The hypothesis for this study is stated here in the null form as:
H01: There is no significance relationship between foreign direct investment (FDI) and oil sector.
1.5 SIGNIFICANCE OF THE STUDY
Foreign direct investment (FDI) is aimed to promote economic development of the host country. The foreign investors at the same time expect to have a good return from their investment. The host country therefore, should be accommodating so as the gain a position of attracting these investors.
Empirical, theoretical and analytical tools are used in this study to investigate and explain the impact of foreign direct investment (FDI) on oil sector in Nigeria. Secondary data would be collected on the an econometric technique (multiple regression) would be used as the major measurement tools in the testing, estimation and empirical stage for the research work. This multiple regression analysis will help to understand some other factors away from foreign direct investment (FDI).
The Nigeria economy is characterized by low investment; low savings, low income and large amount of resources in the land especially crude oil, raw materials, labour etc remain underutilized. These make the economy suffers from low output, high unemployment rate and poverty.
According to Overseas Development Institute (2002), Foreign Direct Investment (FDI) is viewed as a major stimulus to economic growth in developing countries. Its ability to deal with two major obstacles namely; shortage of financial resources, technology and skills made it the centre of attraction for policy makers in low-income countries in particular by providing firms in relatively backward countries with greater access to finance a wide range of intermediate product.
On the other side of the spectrum, the radical school of thought holds the view that foreign direct investment (FDI) in the developing countries confers little of no benefits to the host country. It reinforces the centre periphery relations which are created between the metropolitan countries at the time of colonization.
According to Seitz (1990.6) “the radical school of thought sees the multinational companies (MNCs) as one of the elements foreign direct investment in developing countries and as the present vehicles of economic domination by the west on the south”.
This research will enable any reader to understand the consequences that may arise from avoiding foreign investors on oil sector in Nigeria. It will also contribute a lot in the development progress and enrichment of the literature on the subject. It will also contribute a lot in the development progress and enrichment of the literature on the subject. It will point out the importance of oil sector in Nigeria economic development.
It is equally expected that the findings and recommendation would go a long way in providing organizations, both private and public sectors with measures on how best to engage foreign investors carefully, to avoid the loop-holes that are pointed out in this study.
1.6 SCOPE AND LIMITATIONS OF STUDY
The focus on the study is on the impact of foreign direct investment (FDI) on oil sector in Nigeria and it covers the period from 1980 to 2008. This era will cover the policy reform programme in Nigeria. The period under review enable the researchers have a broad look into the study.
The statistics (T-Test), adjusted R square (R2) and Durbin-Watson test (DW’ test) of the parameter estimates should be computed to find out if the estimates are noted or largely not in the multiple regression pattern.
Crude oil as it is sometimes called is the most important of all the mineral resources found in Nigeria. Apart from the provision of internal energy requirements, it provides foreign exchange for the country through its sales in the world oil market. In fact more than three quarters of the foreign exchange earning of the country come from crude oil, Venon, (1996).
The research was carried out in an uncertain environment which made it impossible to fully achieve or realized the desired aim. Such impediments include; lack of adequate fund, non-challant attitude of some factors in releasing the needed data, information etc. notwithstanding all these obstacles, efforts were made to limit the adverse effects of these restrictions.
It is hoped that in spite of these problems, the result of this study will be relevant and serve the intended purpose.
1.7 DEFINITION OF TERMS
1. Foreign Direct Investment (FDI): according to the World Bank (1996), foreign direct investment is conceptualized as investment that is made to acquire a lasting management interest in an enterprise operating in a country other than that of the investors, the investors’ purpose being an effective voice in the management of the enterprise.
2. Growth: This occurs whenever there is a quantitative increase in country’s input and output over a period of time without qualitative occurrence.
3. Development: It can be defined as when there are qualitative and quantitative improvements in all or almost all the sectors of an economy which can be sustainable.
4. Product: It is the transformation of raw materials into finished goods and the distribution and provision of goods and services in order to satisfy human wants.
5. Regression: it is the process of going back to an earlier or less advanced form or state.
6. Capital: it may be defined as wealth reserved or set aside for the production of future wealth.
7. Oil: it can be defined as a thick liquid that is found in a rock underground.
8. Gross Domestic Product (GDP): it is defined as the total monetary value of goods and services produced in a country at a particular period of time.
9. Employment: it can be defined as a situation whereby the potentiality of a worker is fully utilized.
10. Gross National Product (GNP): it can be defined as the total monetary value of goods and services.
11. Employment: it can be defined as a situation whereby the potentiality of a worker is fully utilized.
12. Gross National Product (GNP): it can be defined as the total monetary value of goods and services produced in a country including the net income realized from the country’s investments abroad.
13. Hypothesis: It can be defined as an idea or explanation of something that is based on a few known facts but that has not yet proved to be true or correct.
14. Empirical: it can be defined as an explanation that is based on experiments or experience rather ideas or theoretical.
15. Data: it is facts or information especially when examined and used to find things or to make decisions.
16. Estimation: a judgments or opinion about the value or quality of something.
17. Analytical: it is a process of using a logical method of thinking about something in order to understand it especially by looking at all the parts separately.
18. Macro-Economic: it can be defined as the study of large economic system.
19. ORGANIZATION OF THE STUDY
This research is structured into five chapter and they are as follows:
Chapter one introduces the general concepts of investment in all sector. It also specifies the scope limitation, hypothesis, organization, significance and definition of terms in the study.
In chapter two, there was a critical review of available literature and theoretical framework. Moreso, in chapter three, it looks at the method of study, data collection, model variables and analytical framework.
Furthermore, chapter four deals with the presentation and analysis of result. Furthermore, chapter four deals with the presentation and analysis of result. Here data presentation and empirical result and discussion were made.
Finally, in chapter five, the study handles the summary, conclusions, recommendations and suggestions for further study.
References and appendix were made at the end of the chapters.