CHAPTER ONE: INTRODUCTION
- Background to the Study
Nigeria‘s economic development was anchored basically on agricultural and primary exports before independence. A purposive effort was made to alter the structure of the economy by increasing investment in other sectors on attainment of political independence in 1960. Since then and, specifically from the early 1950s, virtually all the productive sectors of the Nigerian economy were dominated by foreign investments and therefore ownership incentive measures were, thus, directly aimed at attracting foreigners, their capital, technology and skills. (Garba, 1998:18). Over the last three decades Foreign Direct Investment (FDI) has emerged as one of the most important sources of globalization and an important catalyst for economic growth, transferring technology and knowledge between participating countries.
Foreign direct investment is a direct investment into production or business in a country by an individual or company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment also provides opportunities and financial challenges around the world. In addition, gaps in entrepreneurship, managerial and supervisory personnel, organizational experience and expertise, innovation in products and production techniques in third world countries are presumed to be partially or wholly filled by foreign investors.
The theories related to the types of FDI suggest two types of FDI: horizontal (market-seeking) and vertical. The international market searching for the lowest cost of production is called vertical FDI, which is mainly export oriented (Shatz and Venables, 2000:222-223). Horizontal FDI refers to the establishment of homogenous plants in foreign locations as a means of
supplying certain goods in a foreign country. This type of FDI replaces exports from the home country to the host country.
Nigeria receives the largest amount of Foreign Direct Investment (FDI) in Africa. Foreign Direct Investment inflows have been growing enormously over the course of the last decade: from USD1.14 billion in 2001 and USD2.1 billion in 2004, Nigeria‘s FDI reached USD11 billion in 2009 according to UNCTAD, making the country the nineteenth greatest recipient of FDI in the world. The country experienced real GDP growth averaging 7.8 percent from 2004 to 2007, and 6.4 percent in 2007. This was higher than those of the low-income sub-Saharan (LI-SSA) countries with median (4.0 percent), the LI median (6.0 percent), and the rate in Indonesia (6.3 percent). Kenya however had a higher rate of 7.0 percent. Prior to 2001 40 percent of GDP came mainly from oil which changed from 2001 to 2006 though in 2003 real growth in other sectors exceeded growth in the oil sector (IMF, 2008). Some notable sectors in this respect include telecommunications, wholesale and retail trade, and agriculture (Economist Intelligent Unit,2008). Agricultures potentials are yet to be fully exploited