This research work Foreign Investment and Economic Development in Nigeria, examine the essence, to what extent will forget investment generate the desired level of economic development.
In this study, various theoretical and literature issues were discussed as regards foreign investment and economic development in Nigeria and an Empirical Analysis was also employed in evaluating the effect of some economic variables on GDP growth rate (economic development), using the OLS (ordinary least square) estimation techniques and the Cochrane-Orcutt auto correlation techniques. The result indicated existence of relationship between the dependent and the independent variables and that foreign investment alongside exchange rate, BOP determine to a large extent the level of economic development (growth rate) in Nigeria.
In addition, the study also suggest policy measures and strategies needed to stabilize exchange rate, maintain favourable BOP condition as well as generate sufficient investment that will bring about a more rapid and sustained economic growth and hence, economic development.
1.1 BACKGROUND OF THE STUDY
The Nigerian economy is richly blessed with human and natural resources but the irony of it is that Nigeria is not listed among the developing countries of the world.
The Nigerian economy is striving to take advantage of the country’s huge wealth to push away the poverty that affects about 58 percent of its population. Economist refer to the co-existence huge natural resources and extreme personal poverty in developing countries like Nigeria, as a resources, the Nigerian economy has not been able to control these resources in the most efficient manner to foster meaningful economic development, which would have led to increasing per capital income and as well as increasingly the standard of living of it’s citizens.
Nigeria’s export oil and natural gas at a time enabled the country to post merchandize trade and current account surplus in recent years. Reportedly, about 80 percent of Nigeria’s energy revenue flow to the government, 16 percent covers operational cost, the remaining 4 percent goes to investors, which is absolutely insufficient to serve for investment purpose. However, the World Bank has estimated that due to corruption, about 80 percent of energy revenue benefits only 1 percent of the large population, and in 2005, Nigeria achieved a serious agreement with the Paris club of lending nations to lay-off all it’s bilateral external debt. Under the agreement, the lenders were to forgive most of the debt and Nigeria will pay the remaining part with it’s energy revenue.
More so, outside the energy sector, Nigeria’s economy is highly inefficient. Human capital is underdeveloped and Nigeria is ranked 151 out of 177 countries in the United Nation’s Development Index in 2004, and the non-energy related infrastructure is also inadequate.
Consequently, during the periods of 2003 – 2007, Nigeria had made effort to implement an economic reform programme called “the National Economic Empowerment Development Strategy (NEEDS) – whose objective is to uplift the country’s standard of living through a variety of economic reforms, liberalization, deregulation, macroeconomic stability, privatization, transparency and accountability.
The strategy was to address basic deficiencies. Such as lack of water for household and irrigation, decaying infrastructure, unreliable power supplies, impediment to private and corruption. The government believed that “NEEDS” will create 7 million new jobs, diversify the economy, boost the non-energy sector’s export, and increase industrial capacity utilization and improved agriculture productivity.
Another reform programme is the United Nation’s (UN’s) Sponsored National Millennium Development Goals for Nigeria. Under the programme, which covers the years from 2000 – 2015, Nigeria is committed to gain a wide range of ambitious objectives involving poverty reduction, gender equality, health education, the environment and international development cooperation. Also, in an update released in 2004, the UN found that Nigeria was making progress towards achieving several goals, but was falling short on others. Specifically, Nigeria has advanced attempt to provide Universal Primary Education, protect the environment and develop a global development partnership. However, the country is still far behind in area of eradicating extreme “poverty and hunger” reducing child and maternal mortality combating diseases such as human immune deficiency virus (HIV/AIDS) and malaria.
Nevertheless, one of the steps for achieving many of these worthwhile objectives is to fight against corruption which foil development and spoil Nigeria’s business environment. President Olusegun Obasanjo’s (one time president of Nigeria) campaigned against corruption, which included the arrest of some officials accused of misdeeds and recovering of stolen funds, had won praise from the World Bank assistance, recovered over US $458 million of illicit fund that had been in Swiss banks by the late military dictatorship, Gen. Sani Abacha who ruled from 1993 – 1998 including other top executive. While broad based progress has been showed, these efforts have begun to be evident in the international surveys of corruption. Infact, Nigeria’s ranking has consistently improved since 2001, ranking 147 out of 180 counties in transparency internationals 2007 corruption perception index and placed 108 of 175 countries in the World Bank’s “Ease of doing business” index, 2006.
Although, the government campaign has been disappointing so far, theme has been progress in injecting transparency and accountability into economic decision making. This however, became obvious during 2000 government privatization programme, which showed signs of life and real promise with successful turnover to the private sector of state owned Banks, fuel distribution companies and cement plants. The privatization process has showed some degree which is seen as government confronts key parastatals such as, the state telephone company (NITEL), the Nigerian Airways, and the successful auction of GSM telecommunication licenses in January 2001, has encouraged investment in the vital sector of the economy.
Consequently, as a result of the long stayed military administration, the economy had witnessed setback in the development process. With the coming of democracy therefore, which led to the institution of various economic reforms policy such as privatization, liberalization and improvement in the campaign for foreign investors in the economy by creating the conducive business environment needed to call the attention of foreign investors. Foreign investment remains the machinery’s that can generate long lasting development, which will then translate into improved society’s welfare and reduction in poverty, hunger etc. According to one economist named Arthur Lewis who referred to investment as the “engine of growth”. Although, Nigeria grapple with it’s decaying infrastructure and poor regulatory environment, the country possesses many positive attributes for carefully targeted investment, and will expand as both regional and international market player. Profitable niche market outside the energy sector like specialized telecommunication providers, have developed under the governments reform programme.
However, there exists a growing Nigeria consensus that foreign investment is essential for realizing Nigeria’s huge but wasted potentials and European investment are increasing since Belgian consultancy companies such as “Genco” are exploring the Nigerian market. More so, companies interested in long term investment and joint ventures (especially those that use locally available raw materials) will find opportunities in the large national market. However, to improve prospect for source, potentials investment must educate themselves extensively on local conditions and business practices, establish a local pressure and close their partners carefully, and the Nigerian government is aware that, sustaining Democratic principles, rebuilding and maintaining infrastructures are necessary to attract foreign investment and in 2007, Nigeria received a net inflow of US $5.2 billion of Foreign Direct Investment. Investment is the driving force of growth and as such is crucial to economic development. Investment is financed from savings in a typical less advanced economy.
Investment therefore in every economy can be categorized into: domestic investment (investment which is financed mainly using domestic savings) e.g. foreign investment, household earnings, retain earnings of business etc, all these are financed from external sources. Furthermore, foreign investment comprise of: private foreign investment and the official foreign investment. Also the foreign private investment is further classified into: The Portfolio Investment and the foreign direct investment (FDI).
1.2 STATEMENT OF THE RESEARCH PROBLEM
It is a fact that the amount of foreign investment in an economy goes a long way to determine the level of development in that economy, since foreign investment (i.e. foreigners investing in the Nigerian economy on one hand) will lead to capital repatriation from these foreign economics, which will be helpful to enhance productive effect and capacity in the productive sector. On the other hand, with Nigerians (government and citizens inclusive) investing in foreign operations, this will result into foreign exchange earnings. All these to a large extent, will lead to sustained economic growth and hence, economic development. Records have shown that Nigeria, despite her great potentials for attracting foreign investment and investors, has not benefited much from foreign investment and investment flow. In 1999, World Bank data showed that while the net foreign investment inflows to developing countries have been growing steadily since 1990, the relative shape of the increasing flow attracted into the Nigerian economy, maintained a consistent decline, except in 1994. It therefore states that, out of the US $2.5 billion investment inflow into all developing countries in 1990, Nigeria’s share reduced to only 1.9 percent of the total share and in 2007, Nigeria received a net inflow of US $ 5.2 billion of foreign direct investment, much of which came from Nigerians in the Diaspora. Also foreign investment inflow into the Nigerian economy over the years have been very low and this has been attributed to a number of actors: such as economic instability, corruption, militant’s youth activities, political instability, widespread poverty, exploitative interest of multinational corporations etc.
These economic and social factor have crippled foreign investment inflow into the Nigerian economy in the sense that fluctuations in interest rate and other macro-economic imbalances, can dampen meaningful development in an economy, corruption, political instability, widespread poverty and militant youth’s activities in areas such as, the Niger Delta tend to discourage foreign investors from coming to invest, hence reduced opportunity of foreign investment inflow into the economy. This indeed, has become great use of utmost concern and priority that need to be attended to.
1.3 OBJECTIVE OF THE STUDY
- To empirically examine the role of foreign investment on economic development of Nigeria
- The study also seek to determine the factors that cn attract foreign investment to the Nigerian economy, so as to foster rapid economic development.
- The study also seeks to examine different economic development policies of the Nigerian government so far and how it has affected foreign investment of the economy.
- The study is also built to reveal how other most developed countries have used foreign investment to attain a certain level of economic development.
1.4 RESEARCH HYPOTHESIS
The hypothesis listed below are to be tested in various ways to obtain the truthfulness and veracity of the study.
Ho: That foreign investment has no significant effect on the growth rate of the GDP in Nigeria.
H1: That foreign investment has significant effect on the growth rate of the GDP in Nigeria.
Ho: That foreign investment increase has a significant effect on the per capita income (GNP) level of Nigerians.
H1: That foreign investment increase has no significant effect on the per capita income (GNP) level of Nigerians.
1.5 SIGNIFICANCE OF THE STUDY
The significance of the study is borne out of the need to know how foreign investment can bring about the desire of level of economic `development in Nigerian economy. It also seeks to explain the reasons for poor foreign investment inflow into the economy since the past years.
More so, this research work seek to examine the negative attitude of both the government and private investors in attracting and taking active part in foreign investment over the years. In 2007, Nigeria only has a receipt of net inflow of US $5.2 million of foreign direct investment (FDI), much of which came from Nigerians in the diaspora and also to prove how to attract foreign investment into the Nigerian economy.
It will also enable us to identify the trend of investment (i.e. foreign investment) into the Nigerian economy and to provide suggestions and policy recommendation based on this research findings and available facts on how foreign investment can be around to bring about long lasting development in the economy.
This study is also significant to contribute to already knowledge and research works that have been carried in similar fields, also, to assist economic policy makers in taking the rights decisions which will bring about more government participation in foreign investment deals and issues so as to generate the desired economic development.
Furthermore, student in the universities that intend to broaden their knowledge by embarking on further research will also find it very useful and also, the average Nigerian who is business inclined, who may want to go into foreign investment by penetrating foreign markets will also find it very useful too.
1.6 SCOPE OF THE STUDY
This research work or effort covers the Nigeria economy only, with little or no reference from some selected countries.
The period is however not specified, but it sees to examine the foreign investment inflow into the economy over time and how this has influenced the level of economic development.
1.7 LIMITATIONS OF THE STUDY
This research work or study is limited to the extent that there is insufficient time and funds which tend to limit the nature of a perfect research work. Also, in the areas of data availability relating to all information needed for the perfect finishing of the research work.
1.8 DATA SOURCE AND METHODOLOGY
The source of this research work depends upon previous work carried out by researchers, textbooks sources, articles as well as publication by both government and non-governmental agencies alike. The data for this research work is derived from secondary a source which includes: the Central Bank of Nigeria, the internet, various government ministries and the World Bank.
This study uses the multiple regression techniques to test for the effect of foreign investment on economic development in Nigeria.