ABSTRACT
Attempts
at attracting foreign direct investment in Nigeria have been based on the need
to maximise the potential benefits derived from them, and to minimise the negative
effects their operations could impose on the country. To this effect, the federal government of
Nigeria has over the years, been employing different incentive measures, both
fiscal and monetary, for the purposes of attracting investors to develop the
economy. How successful have these incentives been?In this study, impact of incentive measures on the flow of
foreign private investments: the study of Nigeria’s tax incentive policy
measures (1995 – 2005) the researcher set out achieve four objectives to
assess the Nigerian tax environment; to examine the incentive regimes of the
federal government of Nigeria; to study the trend of foreign private investment
in the country, with the objective of ascertaining its economic impact; and
finally, to appraise the effect of the various incentives on foreign private
investment in Nigeria. The research found that there are several built-in
incentives to attract foreign private investments into Nigeria; that the
manufacturing and agricultural sectors were more favoured in the incentive
measures; that the incentive measures were able to boost the inflow of foreign
direct investments; that this increased inflow however, could not translate to
visible improved living standards, nor reduce inflation and the unemployment
status of the nation.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract v
Table of Contents vi
CHAPTER ONE – INTRODUCTION
- Background of Study                                                                         1
- Statement of Problem                                                                             2
- Objectives of the Study                                                                         3
- Hypotheses Formulation                                                               3
- Scope of Study                                                                                   4
- Limitations of the Study                                                                         4
- Significance of the Study                                                                             4
- Definitions of Terms                                                                             5
References 6
CHAPTER TWO – LITERATURE REVIEW
2.1 Taxation – A Theoretical Overview                                                          7
2.1.1 Objectives of Taxation 7
2.1.2 Principles of Taxation                                                                           7
2.1.3 Features of a Good System 9
2.1.4 Classification of Taxes                                                                          10
2.1.5 Effects of Taxation                                                                               11
2.2 Nigerian Tax System                                                                                12
2.2.1 A Historical Overview of Nigerian Taxes                                           12
2.2.2 Tax Administration                                                                               15
2.3 Incentives 17
2.3.1 Administration of Incentives                                                                18
2.4 Foreign Direct Investment                                                                         18
2.4.1 Factors that Influences Foreign Direct Investment (FDI)Â Â Â Â Â Â Â Â Â Â Â Â Â Â 19
2.4.2 Appraisal of Policies and Incentives for Inflow of FDIÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 20
References 26
CHAPTER THREE – RESEARCH METHODOLOGY
3.1 Research Design                                                                                          28
3.2 Sources of Data 28
3.3 Methods of Data Collection                                                                     29
3.4 Population and Sample Size                                                               29
3.5 Techniques of Data Analysis                                                                      29
References 30
CHAPTER FOUR – DATA PRESENTATION, ANALYSIS AND TESTING OF HYPOTHESIS
4.0 Introduction                                                                                            31
4.1 Data Presentation                                                                                        31
4.2 Data Analysis 43
4.3 Testing of Hypothesis                                                                                 52
References 56
CHAPTER FIVE – SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.0 Introduction                                                                                               57
5.1 Summary of Findings                                                                             57
5.2 Conclusion 60
5.3 Recommendations                                                                                      60
Reference 62
Bibliography
63
LIST OF TABLES
Table 4.1a: Cumulative Foreign Private Investment in Nigeria by Origin (N million) 32
Table 4.1b:Cumulative Foreign Private Investment in Nigeria by Type of activity
Table4.1b(Contd.):Cumulative Foreign Private Investment in Nigeria by Type of Activity (N million)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 35
Table 4.1c: Flow of Foreign Private Capital in Nigeria                                   36
Table 4.1d: Nigeria’s Balance of Payment                                                     38
Table 4.1e: Inflation Rate                                                                           39
Table 4.1f: Nigeria Gross Domestic Product at 1984 Constant Factor Cost (N million) 41
Table 4.1g: Registered Unemployed and Vacancies Declared                   42
Table 4.1a: Cumulative Foreign Private Investment in Nigeria by Origin (N million) 44
Table 4.1b:Cumulative Foreign Private Investment in Nigeria by Type of activity (N million)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 45
Table4.1b(Contd.):Cumulative Foreign Private Investment in Nigeria by Type of Activity (N million)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 46
Table 4.1c: Flow of Foreign Private Capital in Nigeria                                   48
Table 4.1c: Flow of Foreign Private Capital in Nigeria                          51
Table 4.3a                                                                                                              53
Table 4.3b                                                                                                         54
CHAPTER ONE
- INTRODUCTION
- BACKGROUND OF STUDY
According to Medupim (2002:1), foreign private investment accounted for 70% of the total industrial investment, in Nigeria, at independence. This also constituted over 90% of investment in such basic industries as chemical production, and vehicle assembly plants and no less than 90% of other manufacturing sub-sectors. Foreign Private Direct Investment (FPDI) dominated banking, insurance and mining before the indigenization programme (Ukeje, 2003:285).
However, the indigenization programme of 1972 and 1977 drastically reduced foreign private investment in Nigeria. Ever since then, there have been concerted efforts by the FederalGovernment of Nigeria to industrialise and attract Foreign Direct Investment, over the years. This is because, according to Okafor (1983:53), direct foreign investment often means much more than capital inflow. It also constitutes a source of new product ideas, technology, professional expertise, etc. These efforts take the form of incentive schemes, which come in different forms. But common in African and the company income tadx relief, import duty relief, and all other tax incentives (ibid).
Howbeit, in order to attract enough foreign private investment, the macro economic environment must be attractive to foreign investors also. Issues like industrial infrastructure, sizeable internal market, and political stability together with a friendly tax environment, all culminate to influence foreign private investment into any country.
The Nigerian scenario is such that, since after the indigenisation programmes, successive governments have been trying very hard to woo foreign investments into the country. This was crystallised by the Federal Government repealing the Nigerian Enterprises Promotion Decree (NEPD) of 1977, in the year 1995, and in its place promulgated the Nigerian Investment Promotion Decree (NIPD) No 16 of 1995, and the Foreign Exchange Decree No 17 of the same 1995.
All with the intention of liberating the economy, as to open it up to foreign direct investments.
Added to the above were the carving out of Industrial Zones, and Export Promotion Zones. Various tax incentives have also been put in place, coupled with the relaxation of fund repatriation. The deregulation of the economy, and the privatisation of the non-performing public corporations, has also been embarked upon.
To what extent then, has all these moves been fruitful? The aim of this research is to investigate how incentive measures are used by government for attracting Foreign Private Investment in Nigeria and the extent of its success. To accomplish this, this project paper is presented in five chapters – chapter one introduces it, chapter two deals on the review of related literature, while the methodology of the research is presented in chapter three. Chapter four handles the data presentation, analysis and the testing of hypotheses. Chapter five summarises the findings of the research, draws conclusions and makes recommendation.
STATEMENT OF PROBLEM