EMPIRICAL ANALYSIS OF THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE ECONOMIC GROWTH IN NIGERIA A CASE STUDY OF NIGERIA BOTTLING COMPANY
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EMPIRICAL
ANALYSIS OF THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE ECONOMIC GROWTH IN
NIGERIA
A CASE STUDY OF NIGERIA BOTTLING COMPANY
A CASE STUDY OF NIGERIA BOTTLING COMPANY
ABSTRACT
The study of the nature involves a lot
of deep research and understanding of the factors, which creates the effects on
the subject matter. Primarily, these factors were more economical than
managerial as the case may be, on the understanding that this research work is
being casual out under a management setting or department. Just as the subject
matter is, the impact of foreign direct investment on the Nigerian Economy with
a case study of Nigerian Bottling Company Plc, it is based on the economic,
social and entrepreneurial impacts created by these multinational companies
like NBC Plc on their host societies. Based on this, the objective of
this study was to determine through quantitative and quantitative measures
whether the benefits of multinational enterprises (MNE’S) out weigh the cost
that results from their activities in the hose countries.The first chapter of
this work contains a general discussion (i.e. critics and defense) of FSI’s
activities in host countries. Further the statement of the research
problem was studied and the need for the study. The scope and limitation
to the research work was finally looked into with the stated hypothesis which
guide the researcher in his evaluations. In chapter two, a number of part
related literatures were examined as it relates to the impact of foreign direct
investment to Nigeria as the case may be with particular reference to NBC Plc
activities in Enugu Zone. Chapter three treated the design of the study,
the method of collecting data and the ways in which the questionnaires were
distributed within the chosen population. The data gathered from the research
were analysed and interpreted in chapter four of this research report. Finally,
the summary of findings, conclusions on the research work and recommendations
were given by the researcher all in chapter five.It is believed that these
recommendations made in this study will help both the multinationals in their
relationship with their host communities as well as creating an enabling
environment from the host country for their business to there.
TABLE OF CONTENTS
Title Page
Abstract
Table of
Contents
CHAPTER ONE
Introduction
1.1 Background of the Study
1.2
Statement of
Problem
1.3 Purpose of the Study
1.4 Scope of the Study
1.5
Research Questions
1.6
Limitations of the study
1.7 Definition of
Terms
CHAPTER TWO
Literature
Review
2.1
Theoretical
Review
2.2
The impact of foreign direct investment on the growth of the host
society
2.3
Foreign Direct Investment; how Ready is Nigeria
2.4
Theories of Foreign Direct Investment
2.5
Direct Investment and
Welfare
2.6
Recommendations
CHAPTER THREE
Introduction
3.1 Research
Design
3.2 Area of Study
3.2
Population of the
study
3.3
Sample and Size Determination
3.4
Instrument of Data Collection
3.5
Validation of the Instrument
3.6
Reliability of the
Instruments
3.7
Method of Data
Collection
3.8
Questionnaire Distribution and Retrieval
3.9
Method of Data
Analysis
CHAPTER FOUR
Data Presentation and Analysis
4.1 Data Presentation and
Analysis
4.2 Summary of Results
CHAPTER FIVE
Discussion, conclusion and
Recommendations
5.1
Discussion of Findings
5.2
Implications of the Research Findings
5.3
Conclusions
5.4
Recommendations
5.5
Suggestion for Further Studies
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Nigeria emerged from
the colonial experience with an economy structured in accordance with the
imperators of colonial economic relationship. The first National
Development plan of (1963) was launched with the objectives of providing the
framework for industrial take off and development. However, as the
foreign investors were apprehensive of the nascent independent administration,
efforts were made not only to alloy their fears of nationalism but also to
attract more foreign investments through joint ventures with regional
government then or the federal government. The first development plan as
an open door regime saw an increase in the establishment of miscellaneous
foreign enterprises in Nigeria, many of which are unincorporated branches of
their overseas business.
However, just only about few years
offer independence when the rest of the world including the erstwhile colonial
master had hardly adapted to the realities of Nigeria’s attainment of
nationhood or for the Nigerian government to articulate and plan its own
economic policy, the country experienced its first military coup d’ et al in
1966. This was followed by the civil was which tested for three years
hence necessitated the cohesion of resources towards the successful execution
of the war. The period saw the introduction of various control measures
of great significance. For the foreign investors, these include licensing,
quotas, exchange control measures with two tier compulsory credit system for
import payments, restriction on capital/individual transfer and the
promulgation of the companies decree of 1968 which compelled all forms
operating the country to be incorporated as Nigerian Companies subject to local
regulations.
Foreign Direct
Investment (FDI) refers to a movement of capital that
involves ownership and control of a firm in another 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 organisaiton have same voting rights.
For the purpose of this classification
such is recorded as FDI if the share acquired involves more than 10% of the
outstanding common shares of the Nigerian company.
In this research and generally, Foreign
Direct Investment is classified in the context of Multinational Corporations
(MNC). The MNC is sometimes referred to as Multinational Enterprises
(MNE) is Transnational Corporations (TNC) or Transnational Enterprises (TNE).
According to the
chairman of BOD’s of Chemical Co, a multinational form in the united state
origin “the emergence of a world economy and the multinational corporation have
been accomplished land in land”. He sees multinational enterprises moving
towards what he called “a global company”, a firm that have no nationality but
belongs to almost all countries.
The phenomenon of the MNC can be
explained only in a world of imperfect factor and product market characterized
by differential taxation market power and share, positive information costs and
the existence of pure specific revenue producing assistance. In such a
world, the market mechanism is partially replaced by other organizational firms,
which generates and transmits relevant information and which co-ordinates
production and marketing decisions.
The MNC arises in
other words in response to a particular kind of market failure caused by high
differential costs of inter-nation transfer of market information and
technology and of course, factors of production (Tour and Hirsil 1979).
The key features of MNC are the, it provides the recipient nation with a
package of knowledge, capital and entrepreneurship development. It may
thereby create a positive contribution to economic growth and development in
host countries.
Many multinationals
corporations exist in the Nigerian economic settings these encompassed the
manufacturing sector like Nigeria Bottling Company (NBC), constitution like
Julus Berger Nigeria, Mineral Exploration like Shell Nigeria, banking etc, to
mention but a few. It becomes pertinent that the manufacturing sector be
given due cognizance for the purpose of the research work. In this
sector, the Nigerian Bottling Company Plc will be a case study and a pointer.
The concept of
Multinational Corporation and economic development has remained on the
relationship between the MNC’s and the host societies and how development is
appraised in these host societies.
The issue of contribution to
development through social responsibility by the business enterprise has become
a topical issue in management decision and is negatively favoured in these host
societies.
They have rounding
argued that there has been gross neglect and lack of development focus in their
place or communities. It is good to discuss the fact that some laudable
developments have been directly felt by these host societies in terms of
revenue, employment technology transfer and other benefits to the
government. It is a fact that Nigeria is a developing country and have
the same peculiar characteristics with other developing nations of the world
such as low standard of living with low savings and investment and lacks
managerial know how. This has placed Nigeria in a guest for resources
from other developed nations viz-a-viz international business through MNC’s.
It is also right to say
that MNC’s like other business ventures has the objective of profit
maximization as their aim. From the foregoing, this research work places
premium on the critical evaluation and examination of the impact of
foreign direct investment (MNC) activities in the Nigerian economy using Enugu
Zone which comprises Enugu North, Enugu South, Enugu East and 9th
Mile Corner on a bench mark. The prospective here is primarily managerial
and economic i.e. the dissension focuses on the important part in the overall evaluation
so, they are discussed along with the above mentioned factors.
Historical Background
of Nigeria Bottling Company
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 1.3billion 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 decaes of
operation, NBC is a market leader in the production of non.
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. Hretrospect, we
observe abysmal results in 2006. This was however reversed in 2007 with 13.91
percent ROE and 201.69 percent growth in PAT. Due to the FYE 2006 performance,
NBC exhibited a very risky financial profile, (based on Altman’s Z score).
However, it scaled through the 4years average. Q1 2008 result show,
respectively, turnover and PAT growth of 10.2 percent and 11.7 percent. Our
forecasts for FYE 2008 percent and 5.0 percent for turnover and PAT
respectively in valuing NBC, we employed both the Discounted cash flow (DCF)
and relative valuation Methodologies we obtained #13.57, #12.12 and #23.19
respectively from the discounted.
Divided method, present value of Growth Opportunities and Residual income
valuation. Our relative of Price-to-Earnings (P/E), price-to-sales (P/S) yields
#55.75, #97.82 and #176.12 respectively. Attaching appropriate weights to each
of the methodologies, we arrived at a fair price of #65.77 with a discount to
valuation of 14.39 percent and an upside potential of
We
therefore place a BUY recommendation medium and long term investment horizons.
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.
Because the NNC’s tend to come from the
developed countries and because their operations tend to add to host countries
production, MNC’S presumably improves the distribution of income, goods and
services between the richer and poorer countries.
Within the host societies however, it
is guide different to judge whether a direct investment project improves or
aggravates these income, goods and service distribution.
The literature critical of MNC’s
demonstrates that Foreign Direct Investment (FDI) after do not help the
economic life of cost societies, do not improve their well being hence not
benefiting lower income people Very well.
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 PURPOSE 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
SCOPE OF THE STUDY
Foreign Direct Investment (FDI) analysis is clouded by
a lot of controversy, variety of interpretation and numerous emotive value
judgement. This recreant opinion about the activities of MNC’s in the
developing countries are 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.
1.5
RESEARCH QUESTIONS
1.
Do Nigerians drive 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 maintains cordial relationship with in the
host society.
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