FOREIGN DIRECT INVESTMENT DURING A RECESSION- THE NIGERIA EXPERIENCE (A CASE STUDY OF THE CENTRAL BANK OF NIGERIA (CBN) AND THE NIGERIA STOCK EXCHANGE. 2015-MAY 2017)
ABSTRACT
This study on “Foreign Direct Investment During recession – Nigerian experience using Central Bank of Nigeria (CBN) and Nigeria Stock Exchange (NSE) for the period 2015 – May 2017, is intended to empirically assess if Foreign Direct Investment inflow in Nigeria was significant during the period of recession and also assess if fluctuation in exchange rate significantly influenced the flow of FDI during this period as well. In order to successfully carry out this project, the researcher adopted Longitudinal Survey Design which facilitates the answering of research question as well as testing the hypothesis. Yaro Yamane Technique was used to select a sample size of 27. Ex-post facto research design was used for the study. Quota control sampling technique was used to select the variable used in this study. The data used in carrying out the research were gathered from both the primary and the secondary sources. For effective data analysis, Pearson’s Product Moment Correlation Co-efficient at 5% level of significance and Chi-Square goodness-of-fit were used to analyze the numerical values of the dependent and independent variables. Findings reveal that Foreign Direct Investment (FDI) inflow in Nigeria was significant during recession 2015 – May 2017 with Telecommunication sector taking the lead seconded by Oil and Gas sector, it also revealed that fluctuations in exchange rate did not significantly influenced the inflow of FDI during the recession. It was recommended that Government should improve on the macroeconomic indices such as general price levels, interest rate and exchange rate etc. since the contribute to they flow of FDI in Nigeria.
TABLE OF CONTENTS
Title page – – – – – – – – i
Certification – – – – – – – ii
Dedication – – — – – – – – iii
Acknowledgements – – – — – – iv
Abstract – – – – – – – – vii
Table of contents – – – – – – viii
List of tables – – – – – – – xii
CHAPTER ONE
INTRODUCTION
- Background of the study – – – – – 1
1.2 Statement of the problem – – – – – 6
1.3 Objectives of the study – – – – – 8
1.4 Statement of Hypothesis – – – – – 9
1.5 Research Questions – – – – – – 9
1.6 Significance of the study – – – – – 10
1.7 Scope/Limitation of the Study – – – – 11
1.8 Organization of the Study – – – – – 11
1.9 Operational Definition of terms – – – – 12
CHAPTER TWO
2.1 Introduction – – – – – – – – 15
2.2 Foreign Direct Investment (FDI): Meaning and Rationale – 15
2.3 Types and methods of Foreign Direct Investment (FDI)- 18
2.4 Theories of Foreign Direct Investment – – – 21
2.5 Determinants of Foreign Direct Investment inflow – 27
2.6 Factors that influence Foreign Direct Investment
Decision making – – – – – – – 35
2.7 Benefits of Foreign Direct Investment – – – 37
2.8 Differences between Foreign Direct Investment
and Portfolio Investment – – – – – – 39
2.9 Guidelines for Foreign Direct Investment (FDI) in Nigeria- 41
2.10 Foreign Direct Investment and FOREX Rate – – – 41
2.11 Effects of Recession – – – – – – 43
2.11-1 Business – – – – – – – 43
2.11-1.1 Falling Stocks and Dwindling Dividends – 44
2.11-1.2 Credit default and Bankruptcy – – – 44
2.11-1.3 Product Quality compromise – – – 45
2.11-2 Financial markets – – – – – – 45
2.11-3 Unemployment – – – – – – 46
2.11-4 Social – – – – – – – 46
2.11-5 Politics – – – – – – – 47
2.12 Causes of Nigeria Economic Recession – – 47
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction – – – – – – – – 50
3.1-1 Statement of hypothesis – – – – – – 50
3.1-2 Re-stated of research Question – – – – – 51
3.2 Design of the study – – – – – – 51
3.3 Area of the study – – – – – – – 51
3.4 Population of the study – – – – – – 51
3.5 Sample and sampling technique – – – – – 52
3.6 Instrument and methods for data collection – – – 53
3.7 Data analysis techniques – – — – – – 53
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction – – – – – – – – 55
4.2: Data presentation – – – – – – – 55
4.3 Data presentation and analysis – – – – – 60
CHAPTER FIVE
INDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction – – – – – – – – 67
5.2 Findings – – – – – – – – 67
5.3 Conclusion – – – – – – – – 67
5.4 Recommendations – – – – – – – 68
References
Appendix
LIST OF TABLES
Table title Pages
2.12.1: Consumers Price Spike – – – – – 49
4.2.1: FDI inflow and FOREX rate in Nigeria
2015- May 2017 – – – – – – 55
4.2.2: Computation of Chi-Square (x2)
goodness of fit test – – – – – – 56
4.2.3 Computation of Dependent and Independent
Variable – – – – – – – 57
4.3.1: Job Experience Distribution of Respondents – – 60
4.3.2: Academic Qualification Distribution of
Respondents – – – – – – 60
4.3.3 Position Distribution of Respondents – – – 61
4.4: Responses to Questionnaire Distribution – – 61
4.5.1: Responses of Research Question One – – 61
4.5.1b: Responses of Research Question one b – – 62
4.5.2: Responses to research Question Two – – – 63
4.5.3: Responses to research Question Three – – 64
4.5.4: Responses to research Question Four – – – 65
4.5.5 Responses to research Question Five – – – 65
- BACKGROUND OF THE STUDY
Foreign direct investment is viewed as a major stimulus to economic growth in developing countries. Its ability to deal with two major obstacles, namely, shortages of financial resources and technology and skills, has made it the centre of attention for policy-makers in low-income countries in particular. Only a few of these countries have been successful in attracting significant FDI flows however. From the early 1970‟s net resource flows to developing countries have followed an uneven path, but have risen rapidly since 1986 to an unprecedented U.S $285 billion in 1996(World Bank, 1996).The fluctuating nature of private capital flows has played a key role in this. Whereas official flows have continued broadly unchanged after a peak in 1989-91, private capital flows have experienced two waves of explosive growth, the first from 1975 to 1981, dominated by bank lending involving a high proportion of recycled petro-dollars, the second since 1990, dominated by foreign direct investment. In the 1970s FDI made up only 12% of all financial flows to developing countries (World Bank, 1996). Between 1981 and 1984 there was a sharp fall in private lending as international banks lost confidence in borrowing countries financial stability following the debt crisis of 1982. Since the mid 1980‟s the growing integration of markets and financial institutions, increased economic liberalization, and rapid innovation in financial instruments and technologies, especially in terms of computing and telecommunications have contributed to a near doubling of private flows. Most significant has been the steady progression of FDI to a 35% share in 1990- 1996(World Bank, 1996). The regulatory frame-work for the promotion of foreign direct investment received a boost in Nigeria with the enactment of the Nigerian Investment Promotion Commission Act and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act all in 1995. A look at the trend of FDI in Nigeria since 1961 has shown that the economy has lagged in FDI inflows. Sectoral composition of FDI inflows into Nigeria lacks production oriented investment that could help integrate the economy into international production chains. On the aggregate, at N10371.5 and N2555.9million the naira equivalent of FDI inflows and outflows respectively was the highest for 40years. It is equally interesting to know that the overvaluation of naira equally accounted for the seemingly heaviest net inflows of FDI into Nigeria in 1982 when the exchange rate was U.S$1.49 to N1 and the consequent FDI activities resulted in $2,414.8million. That is, with only N1, 624.9million, the recorded net flow in dollar terms was $ 2,414.8million. The huge net inflow was due to substantial unremitted profit from United Kingdom (UK) companies operating in Nigeria as well as due to other foreign liabilities which Transnational Corporations (TNC‟s) affiliates operating in Nigeria from UK and USA were to pay as overseas commitments, but inadequate foreign exchange made such accrued payment impossible. A further analysis of the flows revealed that for two consecutive years (i.e. 1989 and 1990 activities of foreign investors, on the whole, resulted in Nigeria becoming a net exporter of capital resources (i.e. making more outflows than inflows) to the tune of $59.4 and $57.8 million respectively. Regional analysis of the flows has shown that American foreign investors were the most inconsistent in Nigerian economy. During the 40 years, they recorded 15 years of net outflow of net capital flows beginning from 1975. Both UK and Western European foreign investors recorded 4 years of net outflow of FDI each. Investors from other unspecified countries appeared most consistent as their inflow of capital always exceeded their outflows (except for three years i.e. civil war year of 1967, 1985 and the 1993). The unprecedented explosion in the Nigerian banking industry during the late 1980s attested to how the performance of the operators in a sector can attract foreign investors.
Leave a Reply
You must be logged in to post a comment.