The_Inflow_of_Foreign_Direct_Investment_Into_Nigerian_Economy_from_1999-2008

THE INFLOW OF FOREIGN DIRECT INVESTMENT INTO NIGERIAN ECONOMY FROM 1999 TO 2008 BY JAMILU HUSSAINI SPS/08/SMS/00469 BEING PROJECT REPORT SUBMITTED TO THE SCHOOL OF POST GRADUATE STUDIES THROUGH THE DEPARTMENT OF BUSINESS ADMINISTRATION BAYERO UNIVERSITY, KANO IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTERS DEGREE IN BUSINESSADMINISTRATION (M.B.A) DEGREE JULY, 2010 DECLARATION I hereby declare that this project has been written based on the research conducted by me under the supervision of Bamidele Adepoju Ph.D for the award of Masters Degree in Business Administration (M.B.A) of Bayero University Kano, All sources of information collected for the study is the product of my research findings and has been clearly acknowledged by way of references. Signature ………………………… Jamilu Hussaini CERTIFICATION This is to Certify that this project titled “ The inflow of Foreign Direct Investment into Nigerian Economy from 1999-2008” “By Jamilu Hussaini” meets requirement governing the award of Masters Degree in Business Administration in Bayero University, Kano and is approved for its contribution to knowledge. -------------------------- -------------------- Dr. Bamidele Adepoju Date Project Supervisor --------------------------- ------------------- Dr. Aminu Kado Kurfi Date Programme coordinator ----------------------------- --------------------- External Examiner Date ACKNOWLEDGEMENT Alhamdulillahi Rabil Alamin (Glory be to Allah {S.W.T} the Most Glorious The Most Merciful for giving me the wisdom and ability to start and finished Writing this project and may peace of Allah be upon Prophet Muhammad (S.A.W) “And above every possessor of knowledge, there is one more learned” Blessed is he is whose hand is dominion over all things he is competent. I wish to acknowledge and give my profound gratitude to my project supervisor, Dr. Bamidele Adepoju who in his tireless effort gave me all the support, guidance, correction and encouragement throughout the time of writing this study. My heartfelt thanks go to entire Z.B.C.C family, my brothers and sisters who were by my side at all times and whenever i need their moral, spiritual, financial support and prayers. I am also indebted to my elder brother Alhaji Adamu Hussaini, who have always support and assisted me throughout and has lift up my spirit during my stay in kano. I also appreciate the contributions of my lecturers in the Department of Business Administration Bayero University, Such as Dr..M.S Sagagi, Dr.Mukhtar Halliru, Dr.Aminu.K.Kurfi, Professor. Kabiru.I.Dandago, Professor.Abdallah Uba Adamu., Mal. Isah Mudi, Dr.Adamu.I, Tanko, Dr.BalarabeJakada, Dr.Shehu.A.Rano, Mal.Ali Magashi, Mal A.Bambale and some of them that could not be mentioned, who have enriched what Allah has given them and has groomed me with knowledge of Business Administration. I would also like to express my candid thanks to all my friends and course mates, Khadija Sabo,Hauwa Yahya ,Suleiman Moh’d Bello,Nasir Bashir Zubair (Nas Bash), Sadiq Saleh Suleiman (Galadima) ,Ibrahim Armaya’u (Iroz), Idris Numan,,Isah Wada, Kyari Abubakar, Musa Danyaro ,Sani Sadiq Shanono,Abubakar Darma,Shamsudeen Sarki Lawal,Shehu Garba Baba,Abdullahi Jibrin Danbatta,Abbas Abdulmalik, Samuel Elaikwu. To my neigbours Jazalatu and Ema for having the patience for us to leave together peacefully. I’m also indebted to Aminu.H.Tafida, Sadiq Mohammed, Zayyan Gwandu, Murtala Ringim, Awaisu Aminu Babba, Aminu Idris Garba, Na’abu Dunguza, Ado Yahaya and D-boy for typesetting the research. I would also appreciate the efforts of Mohammed Bashir of Mai unguwan Jan-Bulo for his assistance to me throughout my stay in Kano. My heartfelt thanks go to Amina Bashir Suleiman and Jamila Hamisu for their love and support. It would be impossible to acknowledge all those that contributed towards making this project a success and the M.B.A programme. Thank you to those not mentioned here. Finally, a big thanks to several relations, friends and well wishers from whom I have benefited in one way or the other but whom because of the need for brevity I’m not able to mention here, I say thanks and God bless. Jamilu Hussaini DEDICATION I give unquantifiable thanks to Almighty Allah for sparing my life to see the successful completion of this programme. This study is dedicated to my late father Alhaji Hussaini Garba. (May Allah grant him Aljanna firdausi.ameen.) and to my mother Hajiya Nana, for giving me love, caring, encouragement and support. TABLE OF CONTENTS Title page --- ---- ---- ---- ----- --- --- --- -- --- --- --- --- --- --- --- - i Declaration --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- - ii Certification --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- - iii Acknowledgement --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- iv Dedication --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- - vi Table of contents ---- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- vii Abstract --- --- ---- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- xi CHAPTER ONE INTRODUCTION 1. Introduction --- --- --- --- --- --- --- --- --- --- --- --- 1 2. Statement of the problem --- --- --- --- --- --- --- --- --- --- --- --- 2 3. Research Question --- --- --- --- --- --- --- --- --- --- --- --- --- --- 3 4. Objective of the Study --- --- --- --- --- --- --- --- --- --- --- --- -- 3 5. Significance of the Study --- --- --- --- --- --- --- --- --- --- --- --- 4 1.6 Scope of the Study --- --- --- --- --- --- --- --- --- --- --- --- --- ---- 4 1.7 Limitation of the study --- ---- --- --- --- --- --- --- --- --- --- -- --- 4 1.8 List of abbreviations and their meanings --- --- --- --- --- --- --- -- 5 1.9 Outline of the research report --- --- --- --- --- --- --- --- --- ---- --- 5 CHAPTER TWO LITERATURE REVIEW 2.1 Introduction --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- 6 2.2 Concept and Nature of Foreign Direct Investment --- -- --- --- --- - 6 2.3 Types of Foreign Direct Investment --- --- --- --- --- --- --- --- ---- 8 2.4 Determinant of Foreign Direct Investment --- --- --- --- --- --- ---- 13 2.4.1 Determinants of Horizontal FDI --- --- --- --- --- --- --- --- --- --- --------- 15 2.4.2 Determinants of vertical Foreign Direct Investment -- --- --- --- --- --- ----- 16 2.5. General Overview of the Prevailing Environment for Attracting FDI to Nigeria------------------------------------------------------------------------------ 17 2.6 Foreign Direct Investment and Economic Development --- --- --- --- --- --- 20 2.7 Benefits and Cost of Foreign Direct Investment --- --- --- --- --- --- --- --- -- 20 2.8 Factors Affecting the Flow of FDI into the Nigerian Economy --- --- --- --- --21 CHAPTER THREE RESEARCH METHODOLOGY 1. Introduction --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- 26 2. Study Area --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---- 26 3. Research Design --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---- --- ---- 26 4. Research Instrument --- --- --- --- --- --- --- ---- --- --- --- --- --- --- --- --- --- ---- 27 5. Data collection strategy --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---- --- ---- 27 6. Method of Data analysis --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- - 27 CHAPTER FOUR ANALYSIS & PRESENTATION OF DATA 4.1 Introduction --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---- --- ---- 28 4.2 Features of Content Analysis --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -28 4.3 Inflow of Foreign Direct Investment to Nigeria from 1999 to 2009 --- ---- --- ---30 4.4 Inflow of Foreign Direct Investment by Sectors --- --- --- --- --- --- --- --- --- --- --35 4.5 Evaluation of Nigeria’s FDI Performance Potential Indices --- --- --- --- --- --- -- 37 4.6 Comparing Performance and Potential --- --- --- --- --- --- --- --- --- --- ---- --- --- 37 4.7 Inflow of Foreign Direct Investment by Countries/Regions --- --- --- --- ----- ---- 41 4.8 Possible impact of Foreign Direct Investment to Nigeria --- --- --- --- --- --- --- ---45 CHAPTER.5 SUMMARY, CONCLUSION AND RECOMMENDATION. 5.0 Introduction --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ----- 47 5.1 Summary of findings --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ----- 47 5.2 Conclusion --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---- --- --- - 48 5.3 Recommendation --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- 49 References --- --- --- --- --- --- --- --- --- --- --- ---- --- --- --- --- --- --- --- --- --- -- 52 LIST OF TABLES Title Page Table 2.3.3.1 Regional Perception of Prevailing Environment To Attracting FDI in Nigeria 19 Table 4.1 The Inflow of Foreign Direct Investment To Nigeria from 1999 to 2009 31 Table 4.2 Inflow of Foreign Direct Investment by Sectors 36 Table 4.3 Inflow of Foreign Direct Investment by Countries/Regions 41 ABSTRACT Foreign direct investment has a major role to play in the economic development of the host country. Over the years, Foreign Direct Investment has helped the economies of the host countries to obtain a launching pad from where they can make further improvements. The inflow of foreign resources such as foreign private investment has the tendency of stimulating employment, income, consumption and economic growth, hence the possibility of reducing poverty. The Nigerian economy is faced with low level of income that prevents savings, big enough to stimulate investment capital domestically or, to finance training in modern techniques and methods. One of the ways out of this problem is through the acceleration of the economy by external sources of funds (foreign investment) and technical expertise. The main purpose of the study is to investigate the inflow of Foreign Direct Investment to Nigeria from 1999 to 2008 with particular reference to the trends, sources as well as regions from where the FDI comes. The data for this research were obtained essentially from secondary source, particularly Central Bank of Nigeria 2008 Statistical Bulletin. The technique adopted for the analysis of data in this research is simple descriptive statistics, tables, line graphs, bar chart and pie chart. Three research questions were established in the course of the research. The Data analyzed revealed that the inflow of FDI has undergone tremendous shift from the period under study but it has not reflected on the overall economic growth and development of the country. The inflow of FDI has concentrated mostly in mining and quarrying, manufacturing and processing, and miscellaneous services sectors neglecting Agriculture, forestry and fisheries, transport and communication, building and construction. Also the FDI inflow by origin from various regions shows that United Kingdom injected more capital than the rest of the region such as United States of America, Europe and Others, which can be attributed to the country’s colonial linkage. Based on the findings of the research it is recommended that target should be given to Nigerian Investment Promotion Council (NIPC), the government also needs to embark on capital project such as roads and electricity which will enhance the infrastructural facilities with which foreign investors can build on. Efforts should be made to encourage private sector to engage in joint ventures that are beneficial to the economy. The Nigerian government needs to come up with more friendly economic policies and business environment, which will attracts FDI into virtually all sectors of the economy. Lastly the government also needs to tackle the menace of corruption, weak public institutions, poor external image and providing maximum security of life and property. CHAPTER ONE Introduction 1.1 Most countries strive to attract Foreign Direct Investment (FDI) because of its acknowledged advantages as a tool of economic growth and development. Africa and Nigeria in particular joined the rest of the world in seeking FDI as evidenced by the formation of the New Partnership for Africa’s Development (NEPAD) which has the attraction of foreign investment to Africa as a major component (Aremu, 2005). An agreed framework definition of Foreign Direct Investment (FDI) exists in the literature. That is, FDI is an investment made to acquire a lasting management interest (normally 10% of voting stock) in a business enterprise operating in a country other than that of the investor defined according to residency (World Bank, 1999). Such investments may take the form of either “green field” investment (also called “mortar and brick” investment) or merger and acquisition (M&A), which entails the acquisition of existing interest rather than new investment. In corporate governance, ownership of at least 10% of the ordinary shares or voting stock is the criterion for the existence of a direct investment relationship. Ownership of less than 10% is recorded as portfolio investment. FDI comprises not only merger and acquisition and new investment, but also reinvested earnings and loans and similar capital transfer between parent companies and their affiliates. Countries could be both host to FDI projects in their own country and a participant in investment projects in other counties. A country’s inward FDI position is made up of the hosted FDI projects, while outward FDI comprises those investment projects owned abroad. One of the most salient features of today’s globalization drive is conscious encouragement of cross-border investments, especially by Multinational corporations (MNCs).Moreover, Multinational Corporations (MNCs) through their affiliates(i.e. branches, subsidiaries or associates) in host economies have continued to employ the globalization process to milk the global economy among themselves ( Aremu,2005). Many countries and continents (especially developing) now see attracting FDI as an important element in their strategy for economic growth and development. This is most probably because FDI is seen as an amalgamation of capital, technology, marketing and management. Sub-Saharan Africa as a region now has to depend very much on FDI for so many reasons, some of which are amplified by Asiedu (2001). The preference for FDI stems from its acknowledged advantages (Sjoholm, 1999 and Obwona , 2004). Nigeria as a country, given her natural resource base and large market size, qualifies to be a major recipient of FDI in Africa and indeed is one of the top three leading African countries that consistently received FDI in the past decade. The level of FDI attracted by Nigeria is mediocre (Asiedu, 2003) compared with the resource base and potential need. However there is an increasing resistance to further liberalization within the economy. Which limits the options available to the government to source funds for development purposes and makes the option of seeking FDI much more critical' Nigeria (and many other African and third world countries) in trying to pave way for more foreign direct investment faces greater problems, especially with poor external image problem except African countries are able to adopt new strategies, this development will further compound the crises of under-development confronting countries like Nigeria. A very important challenge for the government in the coming years would therefore be the development of indigenous technology and entrepreneurial capabilities as the involvement of multinational companies in our economy may dwindle as a result of new bigger and attractive opportunities that are likely to emerge from Europe. With the up and down movement of Foreign Direct Investment, Nigeria needs to juxtapose foreign investment with domestic investment in order to maintain high levels of income and employment. The problem therefore does not lie so much with the magnitude of investment flows to Nigeria as with the form in which it is given. Foreign investment can be very effective if it is directed at improving and expanding managerial and labour skills. 2. Statement of the Problem Foreign Direct Investment is especially important for its potential to transfer knowledge and technology, create jobs, boost overall productivity, and enhance competitiveness and entrepreneurship (Aremu, 2005). Generally, policies and strategies of the Nigerian government towards foreign investments are shaped by certain factors such as the desire for economic independence and the demand for economic growth and development. There are four basic requirements for economic development namely: Investment capital, technical skills, enterprise, natural resources. Without these components, economic and social development of the country would be a process lasting for many years. The provisions of these first three necessary components present problems for developing countries like Nigeria. This is because of the fact that there is a low level of income that prevents savings, big enough to stimulate investment capital domestically or, to finance training in modern techniques and methods. The only way out of this problem is through acceleration of the economy by external sources of funds (foreign investment) and technical expertise. Foreign Direct Investment therefore serves as a means of augmenting Nigeria’s domestic resources in order to carryout effectively, her development programmes and raises the standard of living of her people. This study is thus, an attempt to analyse the inflow of FDI to Nigeria from 1999 to 2008. 1.3 Research Questions The study will attempt to provide answers to the following questions: 1. What is the aggregate inflow of Foreign Direct Investment into the Nigeria Economy' 2. What sectors is the recipient or beneficiary of Foreign Direct Investment' 3. Which countries /regions are the main sources of FDI to Nigeria' It is the belief of this researcher that answers to the above questions will help to appropriately address the issues underlining this research. 1.4 Objectives of the Study The broad aim of this study is to analyse the inflow of Foreign Direct Investment to Nigeria from 1999 to 2008.The specific objectives are as follows: 1. To examine the trend of Foreign Direct Investment inflow into Nigerian Economy over the specified period of time. 2. To assess on sect oral basis, the pattern of Foreign Direct Investment to Nigeria. 3. To identify the sources/origin of FDI inflow to Nigeria and analyse the factors that influence the inflow of FDI to Nigeria. 1.5 Significance of the Study The importance of Foreign Direct Investment to the growth and structural transformation of a third world country like Nigeria cannot be over-emphasised. This study will determine the direction and level of influence Foreign Direct Investment (FDI) represented by capital inflow, on the economic growth and development of Nigeria. Therefore, the following are some of the benefits of the study. 1. It will aid the government to draw up policies that will attract foreign investors and ensure that investor’s rights and public goods are protected in a manner that is legitimate, transparent and accountable. 2.It will help government to set out an institutional structure that will allow good investment regime to evolve based on it’s successes, failures and provide opportunities for further adjustments with a view to establish and support the aspiration of Nigerian government towards the promotion of global sustainable development as a clear purpose for the international agreements. 3.It will also benefits academic researchers, prospective investors, students and members of the public who will like to have further knowledge about FDI in Nigeria. 4. Finally it will serve as a basis on which further studies on Foreign Direct Investment could be conducted. 1.6 Scope of the Study This research is specifically focused on the inflow of FDI into the Nigerian economy from 1999-2008. The study also attempts to ascertain the trend, pattern, sources, regions, cost and benefits as well as the factors affecting the flow of FDI into Nigeria. However, the study will not be concerned with the outflow of FDI and technicalities. In the same vein, the research will not examine the theories of FDI as it relates to Nigerian economy, rather it is an attempt to analyse the inflow of FDI and prescribe measures that could be taken by policy makers now that the government has interest on the level of FDI inflow into the country. 1.7 Limitation Even though the researcher was able to collect the required data, it is considered pertinent to state some of the observed inhibitions of the findings of this research. The study utilised secondary data, this is because the sheer size of the Nigerian economy made it impossible for the researcher to go to the field and obtain the primary data are considered as some of the limitations of this study. However, the researcher had to rely on content analysis published by the Central Bank of Nigeria (CBN) and Nigerian Investment Promotion Council (NIPC).The data of CBN and that of United Nation Conference on Trade Development (UNCTAD), World Bank and have some discrepancies which pose limitation to the study. 1.8 List of Abbreviations and their Meaning FDI- Foreign Direct Investment CBN- Central Bank of Nigeria IMF- International Monetary Fund LDCs- Less Developed Countries GDP- Gross Domestic Product GNP- Gross National Product MNCs- Multinational Corporations NIPC- Nigerian Investment Promotion Council OECD- The organization for Economic co-operation & Development ODI- Overseas Development Initiatives WTO- World Trade Organization UNCTAD- United Nations Conference for Trade and Development 1.9 Outline of the Research Reports The study is organised into five chapters, chapter one, which is the introductory chapter, comprises of background of the study, statement of the problem, research questions, objective of the study, significance of the study, scope of the study, limitations as well as list of abbreviations and their meaning. Chapter two presents the literature review of Foreign Direct Investments (FDI).Chapter three deals with the methodology of the study. Chapter four gives data presentation and analysis, while chapter five is the concluding chapter, covers the summary, conclusion and recommendation. CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter consists of the concepts and nature of Foreign Direct Investment, the types of Foreign Direct Investment and the Determinants of Foreign Direct Investment. The chapter also includes prevailing environment for attracting FDI to Nigeria, FDI and Economic growth and development as well as benefits and costs of FDI. It also explains the factors affecting the flow of FDI into the Nigerian Economy. 2.2 Concept and Nature of Foreign Direct Investment The arguments for foreign investment grow largely out of the traditional neo classical and new growth theory analysis of the determinants of economic growth. Foreign private investment (as well as foreign aid) is typically seen as a way of filling gaps created by low domestically available supplies of savings, foreign exchange, government revenue and human capital skills so as to meet the desired levels of these resources necessary to achieve growth and development targets (Tovar and Smith, 2003). Foreign private investment is a significant component of international flow of capital that provide much-needed finance to increase the use of existing capacity and to stimulate new investment in developing countries. Foreign private investment involves the transfer of capital, in the form of portfolio investment and direct investment, mainly from developed countries to the underdeveloped ones for the purpose of filling savings and foreign exchange gaps and thereby enabling poor countries to achieve their economic potentials. It has thus become imperative in the developing countries to mobilize foreign capital inflows given the low level of domestic savings, inefficient taxation system, low level of productive base, meager foreign exchange earnings, unfavorable terms of trade and wide saving-investment gap, among other things (Moray, 1995). Foreign Direct Investment (FDI) is defined as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. Such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates, both incorporated and unincorporated. FDI may be undertaken by individuals as well as business entities. (UNCTAD, 2008). Flows of FDI comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor. FDI has three components: equity capital, reinvested earnings and intra-company loans. Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own. Reinvested earnings comprise the direct investor’s share (in proportion to direct equity participation) of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested. Intra-company loans or intra-company debt transactions refer to short or long-term borrowing and lending of funds between direct investors (parent enterprises) and affiliate enterprises. Foreign Direct Investment is also form of lending or finance in the area of equity participation. It generally involves the transfer of resources, including capital, technology, management, and marketing expertise. Such resources usually extend the production capabilities of the recipient country (Odozi, 1995). The Organization for Economic Cooperation and Development (1983) defines Direct Investment enterprise as an incorporated or unincorporated enterprise in which a single foreign investor either: Controls 10 percent or more of the ordinary shares unless it can be established that this does not allow the investor an effective representation in the management of the enterprise or controls less than 10 percent (or more) of the ordinary shares or voting power of the enterprise but has an effective representation in the management of the enterprise. Thus, Foreign Direct Investment could come to the capital importing country as a subsidiary of a foreign firm. It could also come by means of the formation of a company in which a firm in the investing country has equity holding or the creation of fixed assets in the other country by the nationals of the investing country, etc. In such investment, the foreign firm exercises de facto or de jure control over the assets they have created. The aim of the investors is to acquire a lasting interest and effective control in the management of the enterprises in which direct investment takes place. They may not necessarily have majority shareholding. And having an effective representation in the management means that the foreign investor has the potential to influence or participate in the management of an enterprise. Thus, it is the sought-after element of influence and control that distinguishes direct from portfolio investment (Obadan, 2004). Foreign Direct Investment poses lesser risk than external debts for the borrowing country, although the latter promises higher return. Indeed, FDI has the advantage that it does not add to a country’s contractual debt service obligations. If an investment financed by external borrowing turns out to be unprofitable, the country faces the same external claim as if the investment is profitable but if the Foreign Direct Investment proves unprofitable, the recipient country shares the loss with the investor. In the same way, if the business financed by FDI is successful, the country will have to share some of that good fortune with the foreign investor. Foreign Direct Investment may be geared towards export, market development, or undertaken at the initiative of the host-country government. These considerations give rise to export oriented investment, market-development investment and government-initiated investment, Obadan (2004). 2.3. Types of Foreign Direct Investment Foreign Direct Investment can take a number of forms: Wholly foreign-owned or joint ventures. It may also take the form of special contractual arrangements, technology management and marketing agreement; subcontract, joint-production and specialization contract agreement. A number of factors determine which form of Foreign Direct Investment is best for a country. They include the nature of the industry, the state of development of the country concerned, and the nature of the partner (Nunnenkamp, 2004). The common types of Foreign Direct Investment are discussed below: (I) Wholly Foreign-Owned Enterprises: In a wholly owned foreign enterprises, the foreign investor retains control over the enterprise located in the host country and does not share management with local investors. The foreign investor assumes full responsibility for the enterprise. A wholly foreign-owned enterprise takes the form of either a branch or local incorporated company. An enterprise that is a branch of a foreign company conducts the local activities of its parent company without having a separate legal entity. On the other hand, a foreign company that is locally incorporated has a separate legal entity from its foreign shareholders, parties or members. Such an enterprise is a distinct legal entity incorporated under the relevant laws of the country, for example, the Companies and Allied Matters Decree of Nigeria (1990). When a single foreign investor owns or has a controlling share of a locally incorporated company, then it is a subsidiary. Usually, host countries generally allow wholly foreign-owned local enterprises in industrial activities which are predominantly targeted at the export-market (but usually not those based on local natural resources), as well as in activities which contribute substantially to the achievement of important development objectives of the countries concerned (Aremu, 1991). (ii) Joint Ventures A joint venture is a business partnership between foreign investors and those in the host country. This involves the sharing of control and decision-making, as well as risks and profits in proportion to the respective contribution of each of the party (unless otherwise stated). Joint venture is at present an important vehicle for foreign participation in industrial ventures and remains the most prevalent type of foreign investment, particularly in the manufacturing and service ventures where a package of finance and technology is involved. The relatively straight forward nature of joint venture agreements, especially with regard to quantifying and capitalizing the contributions of partners as well as allocating the share of risks and profits proportional to these ratios, make them much more acceptable, (Obadan, 2004). In some industries, it is extremely difficult to maintain a stable relationship because there are too many points of conflict and too many interactions between the host country affiliate and others affiliated with the multinational system. Ultimately, a joint venture may result in a break-up, with one partner or the other taking over the enterprise (Vernon, 1987). Another problem with joint ventures is that in most cases, local partners in a number of countries became passive in learning the technology and marketing techniques that the foreign partner is supposed to bring along. The local partners do not see any point in learning about marketing because the foreign partner takes care of that; also, they see no reason to acquire the technical skills because the foreign partner solves any technical problem arising from their operations from time to time. Under these circumstances, joint ventures and production agreements may turn out badly as the host country may fail to capture any lasting benefits where the local partner is passive (Vernon, 1999). (iii) Special Contract Arrangements: These are similar, to the contractual joint venture in which ownership is shared with no separate legal entity as the association of both parties is based purely on a contract. A special contract agreement, however, differs slightly from a contractual joint venture because a foreign investor’s share of benefits is determined by the negotiation of a fair return for his contribution, liability and risk rather than in strict proportion to his contribution (Obadan, 2004). (iv) Technology, Management and Marketing Agreement: In this arrangement, the host, country enterprise enters into a contract for the purchase of technology, management or marketing from a foreign enterprise for an agreed price. As a kind of buyer- seller relationship there is no sharing of control, decision-making, liability, risk and profit. The foreign partner, however, runs the risk of non-payment when the enterprise is not performing well. Technology, management and marketing agreements are common where a host country intends to reduce the extent of Foreign Direct Investment and where only a specific technology is required. The most prominent types of such agreements are; licensing agreements, know-how agreements, other technical service agreements; management and marketing agreements. (v) Subcontract, Co-production and Specialization Contract Agreement: Unlike joint venture, these agreements are based on purely contractual arrangements and, like the technology, marketing and management agreements; do not involve sharing of control and decision making. In this agreement, the technology provided by the foreign investor is only meant to supplement that of the local entity or acts as a joint effort by the foreign and local entity in production and marketing with no ownership or control considerations relating to the issue of joint effort. The common types of such agreements are; subcontracting, co-production, specialization, production sharing, revenue sharing and profit sharing. It is pertinent to note that, out of the types of foreign investment discussed above, the non-equity types (for example, special agreements, technology, management and marketing agreements; as well as subcontract, co-production and specialization agreements) have been on the increase in many developing countries since the 1980s. The factors that account for this are; (a) The need to reduce to minimal level the extent of foreign ownership of productive assets and resources. This has led many of the countries to impose restrictions on the extent of investment in certain fields of business activities; b) Sophistication in macroeconomic planning has enabled LDCs to develop industrial priority schedules in which the capital requirements and types of technology required from overseas investors has been pin pointed more precisely and the guidelines for acquiring it have been duly specified; c) Those countries that are now more skilled in foreign investment analysis and negotiation, and have gained a much better appreciation of the costs and benefits of alternative forms of foreign investment. Accordingly, as a way of minimizing their exposure to global risks, foreign investors do prefer non-equity forms of investment arrangements such as special agreements; as well as subcontract, co-production and specialization agreements (Obadan, 2004). The motivation of investors can be used to classify Foreign Direct Investment into the following main types; natural resource seeking, market seeking, efficiency seeking and strategic asset seeking. These are discussed below: (I) Natural Resource-Seeking: This is perhaps the oldest form of Foreign Direct Investment. One of the prime motives of such early foreign investors as the East India Company, the East India Company, the Virginia Company and Massachusetts Bay Company in the seventeenth Century was to search for raw materials besides extending trade and creating settlements. Natural resources absorbed, until recently, one third of the United States and United Kingdom outward Foreign Direct Investment stock, but of recent, the share of this sector in the total stock of outward FDI of most of the major industrialized countries has slumped due mainly to the increasing globalization of production process which has made many multinational corporations to establish plants in developing countries (UNCTAD, 1999). (ii) Market-Seeking FDI: This type of FDI is attracted by the size and growth prospects of host country markets, advantages linked to a direct presence in customer’s vicinity, avoidance of import barriers, discriminatory government procurement policies and high transport costs in supplying markets through exports. Market size and growth have proved to be the most prominent determinants of FDI in most empirical studies (UNCTAD, 1999). Market-seeking FDI can also be a result of oligopolistic competition. Market-seeking was the predominant motive for investing in the manufacturing sector of developing countries in the 1960s and 1970s during the heyday of import-substitution industrialization. This motivation was also paramount in the wave of U.S. manufacturing investments in Europe in the early post war period and in Japanese investments in the U.S. since the early 1980s. Recently, the formation or strengthening of regional groupings has led to increase investments in order to serve enlarged markets of the integration schemes (Mody, 2004). (iii) Efficiency-Seeking FDI: Efficiency-seeking FDI is attracted generally by costs of labour or environmental resources in developing countries. The oldest of such investments have been labour seeking ones. As wages rose in home countries, multinational corporations sought to obtain access to low cost labour in developing countries through locating labour-intensive industries or segments of their production processes in such countries. This has been a characteristic of Japanese investments in the textile industry in Asia, U.S. investments in Central and Eastern Europe. More recently, as real wages have risen overtime in some of the Asian countries (first to industrial with an outward-oriented strategy), labour seeking investment has moved on to other, lower-wage Asian countries, such as China and Indonesia (UNCTAD, l999). Other, more complex forms of efficiency-seeking investments is closely related to the emergence of integrated international production. One increasingly important form for developing countries is component out sourcing which requires greater skills and higher productivity than the typical labour-seeking FDI, and is therefore concentrated in the relatively industrialized developing countries like Brazil, Mexico and Taiwan. It has also been extensively used by U.S. multinational corporations in such industries as automobiles, electronic and personal computers. Still another form of efficiency-seeking FDI is horizontal FDI in differentiated products. Horizontal FDI means the inability of a foreign firm to ‘unbundled’, that is, the inability to disentangle production in host country from headquarter services in home country. This type of FDI is less common in developing countries and tends to be associated largely with investment flows (for example, in automobiles, computer, chemicals and consumer goods) among developed countries. It occurs because of the need to adapt products to the tastes or quality requirements of a particular market (Egger and Pfafermayr, 2004). iv) Strategic Asset-seeking FDI: This type of FDI usually takes place at an advanced stage of globalization of a firm’s activities. Firms, including a few from developing countries may invest abroad in order to acquire research and development (R&D) capabilities (e.g. Japanese or Korean investments in micro-electronics in the United States) of neglect, poor policy prescriptions and the devastating effect of globalization on the continent. Therefore, any development agenda can only be effective when it incorporates mechanisms for helping poor countries overcome key factors that militate against greater inflows of foreign capital. 4. Determinants of Foreign Direct Investment There are several factors that determine countries attractiveness to FDI. Kruger (2001); Blomstrom et al (2000) observe that FDI is attracted by countries that have sound government policies (and good governance), markets, education, improved infrastructure and the socio-culture of a country that creates adaptive institutions. Conversely, Pigato (2000) insists that FDI does not necessarily require a host country to maintain liberal policies. For example, South East Asian countries were able to attract substantial foreign capital even while maintaining liberal regimes and large state involvement in directing and controlling foreign capital. Similarly, Trevino et al cited in Nnadozie and Osili (2004) found that political risk was not a significant factor in the EDT location decision in Latin America. This not withstanding, GDP growth rate, literacy, and openness are significant in attracting FDI. At the moment, poor countries are making efforts to significantly improve investment climate. However, they face new challenges as their economies are expected to exhibit similar characteristics with that of the developed economies. For instance, although Nigeria has an open foreign investment code, by allowing 100 percent foreign ownership in every industry, the United States Department of Commerce found a range of other issues such as inadequate infrastructure, regulatory environment, inadequate macroeconomic policies and inefficient judicial process as major hindrances to FDI (Index of Economic Freedom, 2005). Greater recognition of intellectual property rights is also associated with increased FDI. Obviously, strict adherence to patent laws would benefit companies from rich nations, but developing nations are also concerned with equitable distribution especially in biotech and pharmaceuticals. Unresolved issues pertaining to intellectual property protection laws still remains controversial even in the global trade and investment negotiations. Nevertheless, stricter intellectual property rights is associated with improved quality of export goods and that lead to improved terms of trade (Xiaodong, 2000). In order to remain competitive, companies are expected to be innovative and cooperative in sharing new knowledge and skills. Thus, with improved economic conditions in poor countries, intellectual property rights protection is beneficial to both foreign and domestic investors. Corruption discourages foreign investments: A survey by Industrial Research Bureau in 1999 reveals that, among the four factors that put off European and US investors, corruption is the most pronounced. Nevertheless, the presence of corruption does not deter the flow of FDI in absolute terms. China, Brazil, Mexico, Italy Belgium and Thailand attract large flows of FDI despite their perceived high level of corruption (Habib and Zurawicki, 2002). Today, there are several bodies and organizations that report level of corrupt practices around the globe. The most notable among them are the Corruption Perception Index compiled by Transparency International, US Department of Commerce, Wall Street publications among others. The data released through these sources influence risk factors analysis perform by foreign investors, analysts and researchers. Accordingly, poor countries, where embezzlements of public funds frequently emanate, are perceived as highly corrupt, while rich nations, the destinations of such funds are perceived as almost corruption free. Again, since poor nations do not produce prominent economists and analysts, they are left at the mercy of the views for few foreign specialists. Vauren (2002) concludes that the country (corruption) ranking represent exclusively the opinions of expatriate business people and does not necessarily represent an objective fact. Thus, the challenge of combating corruption requires a genuine global initiative as in the case of ‘War against Terror’ and fighting ‘Global Warming’. The combined effort would significantly reduce corrupt practices and embezzlements that incessantly drain Africa’s resources. 1. Determinants of Horizontal FDI Several theories have been postulated to explain why corporations undertake horizontal investment abroad. The most important ones are outlined below: (I).The ‘Specific-Advantage’ which explain investment decisions in terms of a specific advantage that the investing firms have relative over the produce in the host country. This specific advantage could be classified into three: a. Technological advantage in products or processes b. Entrepreneurial excess capacity c. Multi plan economy (ii).The Capital Abundance which stems from the Heckscher-Ohlin Samuelson theory, other wise called the factor endowment theory which states that, the relative availability of factor supplies determines the pattern of trade. Countries that are rich in capital will export capital-intensive and those that have much labour with export labour-intensive goods (wells and Brassloff, 1973). Based on this theory, flow of direct investment move from countries well endowed to countries poorly endowed with money (equity) capital. A casual review of the available information on capital flow reveals that such flow takes place between countries where profits rates are high. (iii).The ‘Research and development’ which explains that FDI can take place when the investing firm has specific advantage so long as there are barriers to entry in the foreign markets which are expected to persist in the research intensity of the firm or the industry. The greater the R & D expenditure in an industry, the greater the share of the subsidiaries of parent corporations in such industry in the foreign market. Horst (1972) finds both the exports and the FDI of the various industries to be positively correlated with the R&D expenditure the corresponding industries. Also, R&D expenditure on new product has been found to relate to the amount of FDI of both the USA and other western countries. (iv).The Tariff, which argues that tariff are powerful determinant of foreign investment decision. If high tariffs impede exports in protected foreign markets, foreign investment is bound to be attracted. Note, a high tariff wall or increase in tariffs will not necessarily increase the flow of FDI. Koutsoyianis (1978). Unless, tariff protects markets where productivity and profitability are high, foreign investment will not be attracted to foreign markets with high profits (arising from higher efficiency, low cost or from monopoly power associated with the offered product). The profits are high. foreign investment will not be attracted to foreign markets with high profits (arising from higher efficiency or low cost from monopoly power associated with the offered product) The profits may well be greater after the imposition of the tariff, a fact that will enhance the inflow of FDI. (v).The “foreign Government Inducement”. A popular belief that FDI can be influenced by various measure of the host country government. Such measures are in fact policy motivated cost reduction in the form of various concessions to foreign investors. The most common forms of such concession are: a. Tax differentials and incentives b. Depreciation allowances c. Favorable interest rate and credit conditions. These are widely used tools, especially by developing countries, to promote foreign investment. These are otherwise called, policy motivated cost reductions instrument in enhancing the inflow of foreign investment in under developed countries. 2. Determinants of Vertical FDI Foreign investment in a vertical integration analyzed within the framework of the theory of optimal vertical integration (Horst, 1974). In practice, there is need for a less general theory, given that most of the vertical investment in a foreign country is undertaken of the production of raw materials. Firms integrate backwards by investing in foreign countries rich in natural resources, which are used as raw materials by the process parent companies. The theory of vertical integration suggests various motives for the decision to undertake direct investment in different stage of the same production process. The most important of the motive are: 1. Realization of multi-plant economics. 2. Scouring supplies of raw materials located in LDCs 3. Avoidance of oligopolistic uncertainty 4. Avoidance of business risk 5. Increase in root power 6. Increase in barriers. From the above viewpoints, the main determination of vertical FDI are as follows: 1. It generates uncertainty in the market for the raw materials and it motivates the investor to take actions aiming to arise entry barriers to the industry. 2. The size of the firm. As investment for the development of natural resources are large, and hence the processing form must initially be large absolute size. 3. The minimum optimal plant size and the durability of the investment in resource exploitation. This aspect tends to increase market uncertainty and enhance foreign vertical investment. 4. The existence of alternative uses of the resources acquired can be sold to different user. The above factors are economical in nature. However, subjective factor do also affect the decision to invest in a foreign country in order to attain vertical integration. The prospective investor wants to be sure about the climate for foreign investment in the receiving countries. Therefore. The element that constitutes a favorable climate from this point of view can be outline below: 1. Political stability and freedom from external aggression. 2. Security of life and property. 3. Availability of opportunities for earning profit. 4. Prompt payment of fair compensation and its remittance to the country of origin in the event of compulsory acquisition of a foreign enterprise. 2.5 General Overview of the Prevailing Environment for Attracting FDI to Nigeria In trying to attract and regulate the activities of foreign investors, within the period under this study, it must be understood that Nigeria lack the required human capital, no strong and effective administrative system to negotiate with the MNCS and inappropriate macroeconomic design and management. Consequently, what the economy had tried to do over the years was to attract MNCS is by offering a wide range of incentives from tax holidays to government credits which usually cannot offset her disadvantages as location for investment. When economy succeeded at attracting sizeable flow of incentives, it had always being a trade-off of some development policy objectives. It is for this purpose that a further probe about investor’s perceptions of the prevailing environment for attracting and negotiating, FDI in Nigeria is carried out. The major challenge of this study is to ascertain the inflow of FDI into Nigerian economy. .Looking at the evidence from the inflow of FDI into Nigeria for about 10 years (1999-2008) it is clear that foreign ownership did not offer Nigerian economy much of what the modernization theorist suggested. Taking together these results, there is a need for a second round of probe into how foreign investors perceive Nigerian economy as their sites. The perception about the prevailing Nigerian investment environment by sectors is revealed in table 2.5.1.1 shows the regional perception of four main sources of FDI inflow perceive the economy, namely: United States, United Kingdom, Western Europe and Others (Asian Countries, China, Africa. etc).On the whole, the entire economy at 46% was perceived as quite undesirable as investment site. However, the labour situation in Nigeria in terms of quality of public and private sectors as well as governmental attention towards science and engineering courses well altogether rated as 58%. A breakdown of regional perception indices revealed that foreign investors from United States of America scored the country’s with perception index of 43.54%,United Kingdom 46.82%.The highest attractive scores among the ten major indices of measuring investment perception for Nigerian Economy was recorded by United Kingdom foreign investors, as well as companies from Western Europe and Others. (See table 2.5.1) Table 2.5.1 Regional Perception of Prevailing Environment to Attracting FDI in Nigeria (%) | |Risk Perception | |1999 |4,035.50 | |2000 |16,453.60 | |2001 |4,937.00 | |2002 |8,988.50 | |2003 |13,531.20 | |2004 |20,064.40 | |2005 |26,083.70 | |2006 |41,734.00 | |2007 |54,254.20 | |2008 |37,977.70 | |Total |228,059.80 | Source: Central Bank of Nigeria Bulletin 2008 page 257 As a matter of fact, Nigeria witnessed greater Foreign Direct Investment (FDI) inflow between 1999 to 2008.Another factor responsible for the phenomenal increase in FDI apart from the economic policies is the fact that the legal regime and its related institutions required for the creation of a market economy and suitable investment climate were priority public policy agenda of the civilian regime. It became evident from the table that the total inflow recorded over the period of study stood at $228,059.80 which can improve the economic growth and accelerate development. The FDI trend rise from 2002 and move upwards to 2007 while slightly dropping at 2008. Moreover, inflow of FDI moves to $13,531.20 in 2003, in 2004 $20,083.70, while in 2005 it stood at $26,083.70, it increase to $41,734.00 in 2006,while in 2007 it recorded to $54,254.20.However the total FDI inflow was $37,977.70 in 2008. The development of the FDI inflow in US dollars terms for 1999, at $4,035.50 to be the least ever recorded in Nigeria over the period under study. Also the least inflow was recorded in 2001.This development for 2002 was expected as the government was determined to implement their open door policy. It is equally interesting to know that the overvaluation of Naira equally accounted for seemingly heaviest inflow to Nigeria in 2002 when the exchange rate was $1 to N125.The implication of exchange rate fluctuation on FDI Statistics is therefore very important. Chart 1 and 2 below shows the movement of FDI inflow from 1999 to 2008. Chart 1 [pic] Chart 2 [pic] 4.4 Inflow of Foreign Direct Investment by Sectors Analysis thus revealed the Cumulative Foreign Direct Investment into the various sectors is analyzed using the key sectors of the Nigerian economy. These sectors are Mining and Quarrying (M & Q); Manufacturing and processing (M & P); Agriculture, Forestry and sFisheries (AFF); Transport and Communication (T & C); Building and Construction (B & C); Trading and Business Services (T& S); and Miscellaneous (Misc). The breakdown by sect oral distribution reveals the insensitivity of foreign investors to the various incentives put in place to lure them into the Manufacturing Processing. The total inflow of FDI to sectors of the Nigerian Economy over the period under study 1999 to 2008 stood at $3,017,484.90. M & Q received a total of $825,785.30 representing 37 %; M & P recorded a total of $1,095,964.60 representing 37% of the FDI inflow, making it the highest in the sect oral classification. Agriculture, Forestry and Fisheries had a total of $12,399.10 million which has only 2%. However Transport and communication receive the lowest of $47501.7 representing 0%. Furthermore, the result shows that Building and Construction received a total of $68,144.60 representing 2%.Trading and Business services had a total inflow of $249.486.90 representing 8% of the FDI. Miscellaneous services received a total FDI inflow of $ 718,202.70 representing only 8% of the FDI inflow. Despite the comparative advantage that the country possesses in Agriculture, Forestry and Fisheries sector, foreign investors are yet to show appreciable interest at committing their resources into the sector. Moreover, government has encouraged companies willing to invest in the AFF sector were given special preference. Yet this has not attracted needed FDI in concrete terms as the amount of debt converted via this privileged sector was still meager. This revelation suggests the low level of vertical backward integration of foreign investment activities to utilize the abundant factor resources (arable land) in Nigeria Economy. It is equally a probable signal that the level of incentives that multinational enjoys in their home countries. (See chart 4 & 5 below for representation of bar and pie chart respectively). Table 4.2 Inflow of Foreign Direct Investment by Sectors in Nigeria |Sectors |1999 |2000 |2001 |2002 | |1999 |1,251.80 |255 |1,463.80 |1,064.90 | |2000 |191.2 |14,103.70 |1,418.90 |739.8 | |2001 |2,680.00 |285 |861 |1,111.00 | |2002 |4,029.60 |2,148.90 |1,429.60 |1,380.40 | |2003 |6,050,0 |3,223.30 |2,211.80 |2,045.60 | |2004 |7,227.10 |3,023.20 |3,115.00 |6,699.10 | |2005 |9,395.20 |3,930.20 |4,049.50 |8,708.80 | |2006 |15,032.30 |6,288.30 |6,479.20 |13,934.10 | |2007 |19,541.90 |8,174.80 |8,422.90 |18,114.30 | |2008 |13,679.30 |5,722.40 |5,896.00 |12,680.00 | |Total |73,028.40 |47,154.8 |35,347.70 |66,478.00 | | | | |Source: Central Bank of Nigeria Bulletin 2008 page 255-256 | | | | | | | | |Analysis revealed that the inflow of FDI from the various regions. Earlier discussion has analyzed the various components of FDI. | | |Table 4.3 above revealed the inflow of FDI to Nigeria by Origin. United Kingdom injected $73,028.40 representing 33% of the total | | |FDI inflow under the period of study, while United States of America pumped only $47,154.8 representing 21%. However Western | | |Europe injected $35,347.70 representing only 16% making it the lowest from the regions. | | |In addition, the other regions of the world such as Asia, Australia, and South America etc injected $66,478.00 representing 30% of| | |FDI received from the regions. Charts 5 and 6 depict the cumulative share of foreign capital inflow by sources of origin to | | |Nigeria. United Kingdom had continued to maintain the lead accounting for about 33% from 1999 to 2008, followed by Others | | |30%.Western Europeans companies 16%. The increase of FDI inflow by UK Companies surpassed that of USA because of the colonial | | |linkages Another reason is the weakness of the Naira compared to Pounds Sterling. Since our exchange rate revaluation has not | | |taken note of the possibility of Dollars revaluation to Pounds Sterling this development become obvious. (See chart 5 and 6 | | |further showed the respective regional cumulative investment with Histogram and pie chart respectively). | | | | | Chart 5 [pic] Chart 6 [pic]                  4.8 Possible Impact of Foreign Direct Investment to Nigeria Macroeconomist analyst explains that in a close economy with no access to foreign savings, investment opportunities are financed only from the aggregate savings potentials of such an economy. In an open economy like Nigeria, access to foreign savings is capable of playing a complementary role particularly where there is domestic shortfall of financial resources to meet investment demand. Access toe overseas savings through FDI is generally seen as acceptable to developing countries because their domestic savings remain limited yet they require sizeable investment for rapid economic progress. The impact can improve the economy which includes: 1. Provision of Financial Investment Resources and Improvement in the allocation of resource. The multinational corporations may provide a significant increase in price competition in the host-country market. The establishment of a subsidiary constitutes entry in industries where barriers to entry by new firms are high. Rivals in the country of origin may well be expected to establish their own affiliates as a defensive strategy. With several subsidiaries operating a market, price may decline, causing an additional reduction in the monopolistic profit of local producers. This will results in the closing down of those home owned firms, which absorbed by other more productive sectors. In the long run the host country will from more efficient allocation of its resources. 2. Promoting technological capabilities and Speeding-up technical progress; the subsidiary may speed up the firms, protected by strong entry barriers, tends to be slow in technical change. The presence of a foreign subsidiary with its technological and technical knowledge will provide a stimulus to local firms for more research and development, which will increase the production capacity of Nigeria. 3. Enhancing Export Competitiveness 4. Promoting Employment Generation and Strengthening the skills base 5. Productivity improvement takes places when the excess personnel trained by the subsidiaries switch to domestic firms. These employees have the knowledge and they put pressure for the improvement of the organization and the operation of the domestic firms. 6. Foreign subsidiaries often take the initiative in improving the efficiency of domestic firms, which are their suppliers, their distributors, or the customers. They pass on to them, modern techniques of inventory and quality control, induce them to adopt standardization, and in general to modernize their organization and operations. Transaction with efficiently organized local firms improves the operation of the foreign subsidiary. 7. The entry of a foreign subsidiary will exert an indirect pressure on home owned rival firm to improve their productivity, even without the subsidiary engaging in price competition. CHAPTER FIVE SUMMARY, CONCLUSION AND RECOMMENDATION 5.1 Introduction This chapter presents the summary of findings arising from this research undertaking. Furthermore, an attempt has been made to draw some conclusions on the basis of the research findings. Finally, some recommendations have been made with a view to guiding policy formulation and implementation with regards to the major issues underlining this research. 5.2 Summary of Findings The findings of this research can be summarized as follows: 1. Although the inflow of Foreign Direct Investment into the Nigerian economy has undergone tremendous shift from the period under investigation it has not reflected on the overall economic growth and development of the country. 2. The inflow of Foreign Direct Investment has been concentrated mostly in mining and quarrying, manufacturing and processing, miscellaneous services sectors of the economy. Other sectors of the economy that received FDI include Agriculture, forestry and fisheries, Transport and communications, building and construction, trading and business services. Manufacturing Processing and Mining and quarrying received the highest share while Agriculture, forestry and fisheries sector received the lowest share. 3. FDI inflow by origin from various regions shows that United Kingdom injected more capital than the rest of the region, which can be attributed to the country’s colonial linkage. 4. It was also acknowledged from the study that the level of FDI in the country allows the transfer of varieties of capital goods particularly in the oil sector, mining and quarrying, manufacturing processing and service sub sectors. In addition the income and employments generated as a result, therefore contributed immensely in promoting the accumulation of capital. 5. Even though Foreign Direct Investment has long been recognised as a source of technological know-how, managerial skills, the much expected benefits accruable from FDI have not been achieved due to the level of the country’s indebtedness, size and growth of its market and the state of its balance of payments. There is also high level of inflation, foreign exchange rate and poor financial framework and government policies. 6. FDI were found to be very important determinants of capital formation in Nigeria, the positions of social infrastructure and the rate of interest in the process were also acknowledged as necessary. It is obvious that, even though FDI features prominently in all the desired sectors of the country’s economy, it has not brought the desired benefits to Nigeria. 3. Conclusion On the basis of the findings of this research, the following conclusions have been drawn: a. Given the above situation and the fact that Nigeria’s economic recovery efforts and growth requires major private sector investment in modern equipments that can industrialize the agricultural sector and the economy as a whole, then the Nigeria’s foreign investment policy should move towards attracting and encouraging more inflows of foreign capital by moving ahead with economic programmes that includes measures easier set-up and expansion of businesses. b. With the up and downwards movement of Foreign Direct Investment, Nigeria needs to juxtapose foreign investment with domestic investment in order to maintain high levels of income and employment. The problem therefore does not lie so much with the magnitude of investment flows to Nigeria as with the form in which it is given. We could emphasize that foreign investment cannot contribute much to the economic development of Nigeria if it is directed primarily to capital supply than to investment projects. Foreign investment can be very effective if it is directed at improving and expanding managerial and labour skills. In other words, the task of helping a “poor beggar” can be made less generous and yet more fruitful if it is directed at teaching him a trade rather than giving him food to eat. c. The analysis presented in this work does not offer a simple version of multinational corporation investment in Nigeria because the picture is complex. Foreign Direct Investment can make a valuable contribution to third world countries’ development in general and Nigeria in particular, but not all Foreign Direct Investment does so. Greater flows of investment fund’s climate in the Nigeria economy are important but a good investment climate is not synonymous with what multinational corporation prizes most. d. In order to further improve the climate for foreign investment in Nigeria, the government must appreciate the fact that the basic element in any successful development strategy should be to encourage domestic investors first before going after foreign investors, considering the fact that they constitute the bulk of investment activities in the economy. Thus, the most effective strategy for attracting foreign investment is to make the Nigeria a friendly investment country. e. Based on the findings of this investigation it can generally be concluded that the inflow of FDI to Nigeria has been on the increase from the range of period under study. 5.4 Recommendation Consequent to the findings of this investigation and the conclusions arising there from, the following policies are hereby recommended to policy makers and government, if it is desired that foreign investment contribute to the growth and development of Nigeria. a. Planning and Setting Targets for FDI inflows- If Nigeria is to attract sizeable amount of FDI, perhaps targets should be given to NIPC Governing Council perhaps for the next five years. In addition, a sector wise arrangement could equally be set and each government ministry and agency is made responsible for achieving these targets. Such sectoral estimation should be include green field investments as well as merger and acquisitions, but not privatized enterprises as that could be given separately. These targets should be refined in the budgetary discussions as well as at the National Assembly and Executive Levels. Moreover the Nigerian Government needs to embark on capital project, which will enhance the infrastructural facilities with which foreign investors can build on. b. Funds for Assistance to states (i.e. investment Facilitation Fund) could be provided for by the Federal Government to assist state governments in Nigeria that need assistance in adjusting their policies and procedural arrangements for effective promotion of their states to foreign investors. Such fund could be used to cover technical assistance, training of personnel as well as monetary assistance. State Governments could be required to use such resources to prepare investment projects for foreign investors to collaborate with or disbursed on a specified performance criteria. C. Non-Government Facilitation services; Nigeria has experts in the private sector that could make effective contributions to FDI policies. Such individuals or private consulting institutions could be organized and supported by the Federal Government in term of supplying essential services to foreign investors coming into the country. In addition to their providing information, they could be made to participate in negotiating of FDI with MNCs. d. The Nigerian government should encourage the inflows of Foreign Direct Investment and contact policy institutions that can ensure the transparency of the operations of foreign companies within the economy. There is need to improve the poor investment climate in Nigeria, which has been the bane of foreign investment inflow. Measures that could be adopted to improve the investment climate include political stability and intellectual property rights. e. In evaluating Foreign Direct Investment, the screening process should be simplified and improved upon. For example, export investment projects that consistently generate positive contribution to national income can be screened separately and swiftly, while projects in import competing industries should be screened separately. F... Efforts should be made to engage in joint ventures that are beneficial to the economy. Joint ventures provide for a set of complementary or reciprocating matching undertakings, which may include a variety of packages ranging from providing the capital to technical cooperation. The government should intensify the policy to acquire, adopt, generate and use the acquired technology to develop its industrial sectors. g. The Nigerian government needs to come up with more friendly economic policies and business environment, which will, attracts FDI into virtually all the sectors of the economy and efforts should continue, this time with more vigor at ensuring consistency in policy objectives and instruments through a good implementation strategy as well as good sense of discipline, understanding and cooperation among the policy makers. h. For Nigeria to generate more Foreign Direct Investments, efforts should be made at solving the problems of government involvement in business; relative closed economy; corruption; weak public institutions; and poor external image. It is therefore advised that the government continues with its external image laundry, seriousness and openness in the fight against corruption, and signing of more trade agreements. I. Security of life and property; Government should implement policies that will reduce the present insecurity of life and property in the country. 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