CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Subsequently to the increase wave of globalization and liberalization since 1980’s. The penetration, breaking and dismantling of barriers to trade, investment, capital flows and technology movement across national frontiers have been through to fore. This is against the backdrop of dramatic increase in foreign private investment flows spectacular spread of transactional corporation (TNC).

The rapid advancement in technology, the development of rapid means of transportation and telecommunication and proliferation of the mass media.

Since the mid 1980’s, the growing integration of markets and financial institutions and increased economic liberalization have been made a magnet for foreign private investment. According to Aremu 2000 “liberalization policies has expanded effect economic space where producers and investors could interact, Thus promotion  globalization in  which this  economic actors behave as if the  entire world is a  single market” Aremu observed also, that it is  equally true that  globalization has hastened the  pace and  equally extended the  scope.  Economic liberalization emanated from  liberalization,  globalization again has  in-built strategy to  further accelerate liberalization. Therefore, it is  difficult to isolate foreign private investment from globalization because the  important economic consequences of globalization especially for developing countries like Nigeria has been the  massive and  unpredicted inflows of foreign private investment, during the  first decades of the  20th  century.

However it  is pertinent for the sake of clarity to state foreign private investment (FDI) and portfolio investment (PI) the focus of this  study is on  foreign direct investment as  portfolio investment has been negligible in  Nigeria and  volatile in nature.

Foreign direct investment (FDI) is  viewed as a major stimulus to  economic growth in  developing countries it’s ability to deal with two major obstacles, namely shortage of  financial resources and  technology and  skills has made it the centre of  attention for policy makers in  low income countries in  particular.

Foreign direct investment(FDI), the  largest component of long term capital flows to  developing countries has become a  crucial factor in modern economic development process from  available statistics, the  challenge to  attract more inflows for investment in developing project has  become acute in  Sub Sahara African where only a  small proportion of  new inflows has gone. This situation has been worsened due to accelerating process of globalization. Thus Nigeria’s dire need for foreign direct investment (FDI) could be classified into three broad aspects. First, foreign direct investment (FDI) is required to fill the savings and foreign exchange gaps and thereby enable the country to achieve its economic potential. The supply side of the economy requires a massive injection of foreign resources in order to elicit the necessary inverse output, minimize the growth of unemployment and reduce the inflation rate significantly. Secondly, foreign direct investment (FDI) inflows is require to stimulate of domestic output and diversity and expand the non soil export sector. Thirdly, the effective management of external liabilities both currently and in  the  medium to  long term requires the  injection of non debt creating external resources in spite of these optimism and  expectation the  aggregate capital flows into  African countries and indeed Nigeria is  quite low.

Since foreign direct investment (FDI) is subject to many of the same “pull factors (large market size and high per capital income, economic political and social viability, favourable regime and active privitalization policy). A possession of these “factors” and the consequent design and implementation of appropriate policies and measures that would make the policy environment, invest friendly remain a fundamental prerequisite.

1.2 STATEMENT OF THE  PROBLEM

As  earlier mentioned, the  amount of  investment book foreign and  domestic in a  country is a  major determinant of the  country’s level of  economic development, Nigeria, like many developing countries lack adequate investment both in  agriculture and  industry. This  has led to an  unimpressive growth with attendant infrastructure base widespread poverty amongst others.

Agriculture, the leading sector of the  economy depend mainly on  domestic  capital, however, this  source of  capital is insufficient to sustain any  meaningful development. Similarly, investment in the industrial sector which was and is skill dominated by foreign capital could hardly be said to  be adequate, the  dvert of  independence in many African countries in the  mid 20th  century, led to the  fears of foreign investment?

Again, governments efforts aimed at  attracting foreign capital has not  been successful, hence, the  general level of  foreign investment in Nigeria is still low. The problem is that there is  no clear understanding of the  major determinants of foreign investment flows. In other words, what are the main factors that influence foreign direct investment in the country.

There is the issue of volatility of foreign direct investment (FDI) inflows. However do government strengthen the appropriate financial and other growing economic and other institutions to avoid the cruses experienced in other growing economic like Asian countries? Put adverse consequences fluctuations in foreign direct investment (FDI) inflows on the economy?

1.3 SIGNIFICANCE OF THE  STUDY

This  study is  of vital significance in  many important respects, given the  unprepossessing growth rate of  Nigeria’s economy coupled with the  myriad of  problems in the  country, the  study is  particularly important in  ascertaining if the  determinant of foreign direct investment (FDI) inflows have nay bearings on the  state on the  economy.

This study will also chart a new course for the initiation and implementation of the appropriate and necessary policies that will act as incentive to foreign investors. In addition, the study will provide policy makers the foresight to better cushion the unpleasant effects of fluctuating in foreign direct investment (FDI).

1.4 OBJECTIVE OF THE STUDY

The study seeks to:

To evaluate the determinants of foreign investment in Nigeria

To  trace the  impact of  foreign investment in Nigeria

To review the  trend of  foreign investment  inflows in the  country overtime

To examine the issue of foreign investment volatility.

1.5 HYPOTHESIS OF THE STUDY

Hypothesis are logical speculations based on available information relating to the problem under investigation for this study, hypothesis to be tested in alternative and null forms

These are:

Null Hypothesis  =              HO

Globalization and liberalization does not have relationship with the determinant of foreign direct investment (FDI)

Alternative hypothesis        =              H1

Globalization and liberalization have positive relationship with the determinant of foreign direct investment (FDI) in Nigeria.

1.6 SCOPE AND METHODOLOGY OF THE STUDY

The intent of this study, will be carried out in Nigeria, with a view of analyzing the determinant of globalization and liberalization does not have positive relationship with the determinants of foreign direct investment (FDI) in Nigeria inflows into the  country taking into consideration the  socio-economic conditions and  policy framework that  prevailed till date.

However, the  period 1980 to 2008 was chosen for the  study because basically, the  study relied heavily on secondary data. So much of the  date and  materials relating to the  study were obtained from the  Central Bank of  Nigeria Billions and  Statistical bulletins, Federal office of statistics journal, world bank journals and  reports, workshop paper, research institution such as the  national centre for  management and  administration, (NCEMA) and the  Nigeria conference on  trade and  development (UNCTAD) articles and publications of the  Nigeria economic society (NES) and the  Nigerian economic and  financial review (NEER). Newspaper, past project works and the  internet, were of  immense helps relevance and  academic value to the  goal of  the  research.

Finally, econometric techniques were employed in the  analysis of the  model related to the  study.

1.7 LIMITATIONS OF THE  STUDY

One  limitation of the  study is its inability to  empirically ascertain the  relative important of  some  factors such as  political and  economic instability and  deteriorating social and  economic infrastructure appeared to have negative determinant of  foreign direct investment (FDI) in  Nigeria and  also have negative impact on the   willingness of foreign investors to invest in Nigeria Time constraints which is the  basic problem is a  challenging and  painstaking task which requires adequate time  for  meaningful result, it  posed a  limitation also as  problem is a  challenging task for  researchers work to be  completed with a  given period of time.

Also, we  have technical constrants which involves the  non availability of  detailed literature on  the  determinant of foreign direct investment (FDI) in Nigeria.