1.1 Background of the Study
The need for foreign direct investment policies arises due to the activities of inward foreign direct investment in Nigeria. The policies are sometimes used to control the activities of multinational corporations, attract foreign investors and encourage industrialization in Nigeria. The discussion on foreign direct investment policies in Nigeria will not be complete without laying bare the precursor (the history of foreign direct investment in Nigeria) in laconic. Foreign direct investment as a developing process of the developed countries is not peculiar to developing countries such as Nigeria (Obasi, 2015). The history of foreign direct investment in Nigeria is traced to 19th century and its precursor was anchored on the Berlin Conference of the 19th century which allotted the Nigerian territory to Britain. Foreign direct investment is seen by some scholars as a conduit of colonial expansion. The coming of Britain in Nigeria integrated the latter legal system into the former which protected them and made the flow of foreign direct investment to flow in earnest. The major investor of foreign direct investment in Nigeria in the early period was Britain. Out of 102 firms that were operating in Nigeria in the 1960s, 94 were from Britain, 5 had joint British ownership and the remaining 3 owned by Nigeria (Mohammed 1985). The prominent multinational companies during the colonial era in Nigeria were United Africa Company (UAC), John Holts, A.G Leventis, Patterson Zechonics (PZ), and Pfizer among others. Initially most of the foreign investment in Nigeria was in mining sector which later shifted to manufacturing sector. In 1965 Convention on the settlement of investment disputes (for settling investment disputes among the Western countries) was signed which resulted to the broadening of the sources of foreign direct investment in Nigeria to include United States of America and other European countries. Foreign direct investment in mining sector in Nigeria received added impetus by the discovery of oil in the 1970s.
Mwilima (2003) describes FDI as investment made to acquire a lasting management interest (usually at least 10% of voting stock) and acquiring at least 10% of equity share in an enterprise operating in a country other than the home country of the investor.
FDI has further been explained as the long-term investment reflecting a lasting interest and control, by a foreign direct investor (or parent enterprise), of an enterprise entity resident in an economy other than that of the foreign investor (IMF, 1999). Equally, Mallampally and Sauvant (1999) describe FDI as investment by multinational corporations in foreign countries in order to control assets and manage production activities in those countries. Expanded explanation on the meaning of FDI has been offered by Ayanwale (2007) as 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.
Ikiara (2002), UNIDO (2002), UNCTAD (1997) recognize and emphasize the significance of FDI in providing technological know-how, capital, management and marketing skills, facilitating access to foreign markets and generating both technological and efficiency spillovers to local firms provided the right policy and
business conditions are available.
By facilitating access to the above, FDI is expected to improve the integration of the Nigeria’s economy into the global economy, and further spurring economic growth through technological advancement.
In view of the above fact, Nigeria’s investment policies and regulations have been improved to contain provisions aimed at encouraging foreign investors to invest in the country. Other measures include; the liberalization of the foreign investment regime to allow major foreign ownership, lifting foreign exchange controls and the privatization of Nigeria’s public enterprises.
1.2 Statement of the Problem
The underdeveloped nature of the Nigerian economy essentially hindered the pace of her economic development and has necessitated the demand for Foreign Direct Investment into the country. According to Aremu (2005), dependency theory maintains that, developing countries are poor because they have been systematically exploited through: imperial neglect; overdependence upon primary products as exports to developed countries; foreign investors’ malpractices, particularly through transfer of price mechanics; foreign firm control of key economic sectors with crowding-out effect of domestic firms; implantation of inappropriate technology in developing countries; introduction of international division of labour to the disadvantage of developing counties; prevention of independent development strategy fashioned around domestic technology and indigenous investors; distortion of the domestic labour force through discriminatory remuneration; and reliance on foreign capital in form of aid that usually aggravated corruption and dependency syndrome (Amin, 1976).
The main factors motivating FDI into Africa in recent decades appear to have been the availability of natural resources in the host countries (e.g. investment in the oil industries of Nigeria and Angola) and, to a lesser extent, the size of the domestic economy. The reasons for the lacklustre FDI in most other African countries are most likely the same factors that have contributed to a generally low rate of private investment to GDP across the continent. Studies have attributed this to the fact that, while gross returns on investment can be very high in Africa, the effect is more than counterbalanced by high taxes and a significant risk of capital losses. As for the risk factors, analysts now agree that three of them may be particularly pertinent: macroeconomic instability; loss of assets due to non-enforceability of contracts; and physical destruction caused by armed conflicts.
The second of these may be particularly discouraging to investors domiciled abroad, since they are generally excluded from the informal networks of agreements and enforcement that develop in the absence of a transparent judicial system. Several other factors holding back FDI have been proposed in recent studies, notably the perceived sustainability of national economic policies, poor quality of public services and closed trade regimes.
This problem is compounded where a deficit of democracy, or of other kinds of political legitimacy, makes the system of government prone to sudden changes. Finally, a lack of effective regional trade integration efforts has been singled out as a factor.
1.3 Objectives of the Study
The objectives of the study are:
a. To find out the need for foreign direct investment in Nigeria.
b. To ascertain the strategies for promoting foreign direct investment in Nigeria.
c. To determine the role of FDI on the growth of the Nigerian economy.
d. To determine the role of Nigerian Investment Promotion Commission on promotion of Foreign Direct Investment.
1.4 Research Questions
The following research questions are formulated based on the objectives of the study:
a. What are the needs for foreign direct investment in Nigeria?
b. What are the strategies for promoting foreign direct investment in Nigeria?
c. What are the roles of FDI on the growth of the Nigerian economy?
d. What are the roles of Nigerian Investment Promotion Commission in promoting foreign direct investment?
1.5 Statement of the Hypotheses
As a guide to achieve the objectives of the study, the following hypotheses were formulated:
1. Ho: Attraction of foreign investors, encouraging industrialization, boosting of the Nigerian economy are not the needs for foreign direct investment in Nigeria.
Ha: Attraction of foreign investors, encouraging industrialization,
THE STRATEGIES FOR PROMOTING FOREIGN DIRECT INVESTMENT IN NIGERIA