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THE IMPACT OF
FOREIGN INVESTMENT: ON NIGERIA’S MANUFACTURING SECTOR (1980-2002)
ABTRACT
The research
is designed to investigate the impact of foreign investment on Nigeria’s
manufacturing sector between 1980-2002. Depending on recital information
provided by the central bank of Nigeria (CBN) statistic on real sector analysis
index of industrial production and cumulative foreign private investment in
Nigeria within study period, analyzed by use of regression analytical method of
statistic depicts that manufacturing activities in Nigeria is about 0.07% which
is considerably low due to low influx of foreign direct investment within the
period of reference. The formulated hypothesis tested using T-test within 0.50
coefficient of determination, was statistically significant. This means that a
positive relationship exists between the period 1980-2002. Research finding
reveals that lack of cogent economic policies and conducive political
environment, absence of nationalization of industries, inflationary impact of
the oil sector on others, over valuing of the assembly type manufacturing
operation and lack of right attitude largely to the low influx of FDI’S and
consequently, low manufacturing activities in the economic sector of the
economy.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgment iv
Abstract v
CHAPTER
ONE
1.1 Introduction 1
1.2 Statement
of the problem 4
1.3 Research
questions 5
1.4 Objective
of the study 5
1.5 Hypothesis 6
1.6 Significance
of the study 6
1.7 Scope
of the study 7
1.8 Definition
of terms 7
1.9 Organization
of the study 8
CHAPTER
TWO: LITERATURE REVIEW
2.1 Introduction 28
2.2 Origin
and foreign investment development in Nigeria 11
2.3 The
roles of the foreign direct investment and
revitalization
of Nigeria manufacturing sector 12
2.4 Disadvantages
of continued heavy dependence on FDI in the
Nigeria economy. 15
2.5 Factors
that attract foreign direct investment in Nigeria 15
2.6 Private
sector: roles in revitalizing the manufacturing sector 18
2.7 Factors
affecting the performance of manufacturing 21
CHAPTER
THREE: METHODS OF STUDY
3.1 Introduction 28
3.2 Types
of data 28
3.3 Methods
of data collection 29
3.4 Techniques
of data analysis 30
3.1.4 Model
specification 31
3.1.2 Decision criteria 31
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction 32
4.2 Data
presentation 32
4.3 Data
analysis 35
4.4 Hypothesis
testing (T-test) 37
4.5 Implication
of the results for the hypothesis/discussion 38
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND
CONCLUSION
5.1 Introduction 40
5.2 Summary
of major findings 40
5.3 Recommendation 41
5.4 Conclusion 42
Bibliography
Appendixes
CHAPTER ONE
1.1 INTRODUCTION
The
Nigerian Economy has witnessed sporadic changes over the years resulting from
changing economic policies of government, inadequacy of implementation
strategies and lack of education. Often most criticized policy of government
lacked popularity and is short-lived. The idea of some policies of government
in recent time, is aimed at making foreign direct investments (FDI) as a cost
effective strategy of achieving economic growth and development that informs on
extension of enterprises, flow of capital, technology and entrepreneurial
skills, and in more recent cases management practices to the host economy,
where they combine with local factor in the production of goods and services.
Economics
consider this flow of capital across borders as a tool for a high capital rate
of return but in the subregion, foreign direct investment (FDI) provides
competition on domestic market, transfer technology Fedlstein (2000) and
importantly the global integration of capital markets and investment growths.
According
to Flood (1993) “the FDI flows to developing countries reached US $ 432 billion
in 1992 showing a seventy six percent (76%) increase from two earlier
reflecting improved macro-economic performance, more welcoming regimes and
privatization programmes,”.
Although
he opined that the FDI have shifted from the manufacturing and extractive
section to the service sectors, particularly with respect to the new service
industries such as telecommunications and information technology, FDI has made
a mark in export-oriented manufacturing. There have been economic problems
associated with the Nigeria economy, which included the growing unsustainable
fiscal deficiency, declining agricultural productivity, low and falling capital
utilization in manufacturing industry and rapid rising in inflation rate
Anyanwu: (1999).
The
manufacturing orientation and improved FDI is an antidote to the persisted
dismal economic condition of the nation. The trend of manufacturing development
became conspicuous due to the exploitation and development of oil. This has led
to an increase of GNP per capital from U.S. $70, doubled. Stevens: (1990) World
Bank (1987). There have been growth in the manufacturing activity during the
1980’s it grew almost 500% and causing a rise of GDP by 4% in 1966 to 11% in
1984. The manufacturing value added also grew at 6.7%.
There
exists a relationship between the FDI and the growth of manufacturing in the
country. The more concentrated the FDI, the better developed is the
manufacturing sector. Although, there existed some impediments to
manufacturing, such as scarcity of FDI. The substitute and interest for the oil
boom and a large internal market and even at that manufacturing depended
largely on importation of raw materials, inherent weakness of the Nigerian
management organization which has been worsen by acute shortage of appropriate
manpower, government industrial policies, macro-economic policies of
government, the exchange rate and attitude to management.
The
FDI is there for a strategy to resolve existing problem of manufacturing but
the trend have been criticized to be skewed to the oil sector where –as the
agricultural sector which had a tremendous significance of development in the
1970’s accounting for 64% of total gainful unemployment, is on the decline
hence reducing the importance of agriculture and manufacturing suppliers as
input to each other. The foreign exchange availability, role of government
policies and impact of the oil crisis did not give the sector unexpected level
of protection such as the introduction of SAP, and foreign exchange rates. The
medium term had some prospects but in the 80’s there existed the differential
ability of manufacturing sub-sector to cope with the new conditions of
austerity, differing levels of protection and more market oriented exchange
rates.
Due
to gains of democracy, Nigeria is identified with several factors that will
attract foreign direct investment especially good policies (privatization
policy) rapid expansion of trade and improving investment climate, minimal
regulatory restriction and the wooing effort in several trips over seas for
establishment of business relationship in foreign investors by the present
administration. One would question how much these efforts have yielded to
influx of foreign direct investments and its effect in the nation’s manufacturing
economy.
Foreign
direct investment’s creates more industry to the economy as to improve the
existing local manufacturing sector interms of technology capacity, managerial
skills and even training-on the job to improve the knowledge of technical know-how
as to increase the revenue generation of the country.
1.2 STATEMENT OF THE PROBLEM
The
21st century is decimated with erratic policies of government to woo
foreign investors and stimulate indigenous investment in order to facilitate
economic growth and harness our abundant natural resources.
The
improvement of the structure of the economy remains a major objective in 1999
and beyond, with particular attention to the stimulation of scientific
activities and the promotion of the acquisition of relevant modern
technological capacities.
Emphatic
enabling environment, such as fiscal policies and stability of government should
necessitate inflow of foreign investment to meet with demands.
This
research study is to investigate the influence of foreign investment in the
manufacturing sector, the impediments to foreign investment and how it affects
the Nigerian economy.
1.3 RESEARCH QUESTIONS
The
following research questions are stated in order to meet the objectives of the
study.
Ø What
factors are affecting the inflow of foreign direct investment in Nigeria?
Ø What
are existing problems of the manufacturing sector?
Ø How
does the inflow of foreign direct investment in Nigeria affect the
manufacturing sector?
Ø What
overall benefit do the foreign direct investments have on the economy of the
country?
1.4 OBJECTIVE OF THE STUDY
The
objective of the study are:
Ø To
determine the factors affecting the inflow of foreign investment in Nigeria.
Ø To
investigate why there’s low response to inflow of foreign investment despite
various government effort to encourage it.
Ø To
determine the role of foreign capital inflow the manufacturing sectors on the
rapid economic development of the country.
1.5 HYPOTHESIS
The
following Null hypothesis were formulated and put forward.
H01:
There is no significance relationship between influx of foreign investment and
the growth and performance of the manufacturing sector.
H02:
There is a significance relationship between the influx of foreign direct
investment and economic growth due to increase in performance of manufacturing sector.
1.6 SIGNIFICANCE OF THE STUDY
The
research study on “the impact of foreign investment on Nigeria manufacturing
sector” attempts to single out those impediments to foreign investment, which
shall be useful for policy formulation and measures as affecting the
manufacturing sector.
Prospective
manufacturers shall have this documentation useful reference on foreign
investment on manufacturing sector in Nigeria.
1.7 SCOPE OF THE STUDY
The
study is limited to private foreign investment to manufacturing industry
instead of an over view on the broad study on foreign investment opportunities
in Nigeria.
1.8 DEFINITION OF TERMS
Privatization
Is defined as the sale of government owned
equity in nationalized industries or other commercial enterprises to private
investors with or without the loss of government control in this organization.
Foreign Investment
Is
defined as the acquisition of physical assets and/or securities by companies or
nationals of one country to another. It is a cross border acquisition of
financial or physical assets.
Direct Foreign Investment
This
involves an entire package of capital, technology and administrative talents
from the investing country to the developing country.
Portfolio Investment
This
is when foreigner of other countries might purchase securities issued by the
borrowing country.
Economic Growth
Is
defined as an increase in the economy’s national income to produce goods and
services.
Manufacturing Sector
Is
defined as firms that are engaged in conversion of raw materials to other
finished goods.
1.9 ORGANIZATION OF THE STUDY
This
study shall be divided into five chapters. Chapter one deals with the
introduction of study, statement of the problem, research question, and
objective of the study, hypothesis, and significance of the study, scope of the
study, definition of terms and organization of the study.
Chapter
two covers the review of relevant literature (theoretical) on foreign
investment as it pertains manufacturing sector of the Nigerian economy. There
existed reliable statistical and theoretical information on the performance of
the manufacturing sector and its effect on foreign direct investments.
Chapter
three is on research methodology.
Chapter
four is on presentation, analysis and interpretation of results.
Chapter
five is the concluding part of this work, which is based on summary of finding
recommendation and conclusion.
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