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THE IMPACT
OF FOREIGN DIRECT INVESTMENT ON ECONOMIC DEVELOPMENT
(A CASE
STUDY OF SHELL NIGERIA PLC)
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
The foreign
direct investor may acquire 10% or more of the voting power of an enterprise in
an economy through; incorporating a wholly owned subsidiary or company,
acquiring shares in an associated enterprise, through merger or an unrelated
enterprise and, participating in an equity joint venture with another investor.
Foreign direct investment incentives may be in form of low corporate and income
tax rates, tax holidays, other types of tax concessions, preferential tariffs,
special economic zones, investment financial subsidies, soft loan or loan
guarantees,
free land or land subsidies, relocation and expatriation subsidies, job
training and employment subsidies, infrastructure subsidies, research and
development support and derogation from regulations, usually for very large
projects (Obadan, 2004).
Attempts at attracting FDI into Nigerian
economy have been based on the need to maximize the potential benefits derived
from them; and to minimize the negative effects their operations could impose
on the country. As a result of the persistent global panic, unemployment has
been on the rise, jobs are being lost, there is shortage of liquidity and acute
scarcity of credit has remained visible in the financial institutions. For
Nigeria to generate more foreign direct investment, efforts should be made at
solving problems of government involvement in business; relative closed
economy; corruption; weak public institutions; and poor external image.
Nigeria is
one of the economies with great demand for goods and services and has attracted
some FDI over the years. According to CBN (2006), the amount of FDI inflow into
Nigeria reached US$2.3 billion in 2003 and it rose to US$5.31 billion in 2004
(138% increase) this figure rose again to US$9. 92 billion (87% increase) in
2005. The banking reform engendered the interest of foreign banks in the
Nigerian market making foreign direct investment (FDI) into Nigeria grew by
134% to N1.123 trillion (US$9.6 billion) in 2007. Out of a total US$36 billion
of FDI that went into Africa, Nigeria received 26.66% of the inflow. The
Vanguard Newspaper of May 19, 2008, reported that a total of US$12.5 billion of
foreign investment inflow was recorded in the economy at the end of 2007, and
that this was an indication that “Nigeria is a beautiful bride for foreign
investors”. This has not also been so, however.
In Nigeria,
FDI is defined as an investment undertaken by an enterprise that is either
wholly or partly foreign-owned. The Investment Code that created the Nigerian
Investment Promotion Commission (NIPC) (Decree No. 16 of 1995) and the Foreign
Exchange (Monitoring and Miscellaneous Provision) Decree, also enacted in 1995,
gives full backing for FDI in Nigeria. Nigeria has a high potential to attract
significant foreign private investment inflow. Most countries strive to attract
FDI because of its acknowledged advantages as a tool of economic development.
Africa and Nigeria in particular, joined the rest of the world in seeking FDI
as evidenced by the formation of the New Partnership for Africa’s Development
(NEPAD), which has the attraction of foreign investment to Africa as a major
component. Openness to trade and available human capital, however, are not FDI
inducing. FDI in Nigeria contributes positively to economic growth. Although
the overall effect of FDI on economic growth may not be significant, the
components of FDI do have a positive impact. The FDI in the ICT sector has the
highest potential to grow the economy and is in multiples of that of the oil
sector.
Foreign
Direct Investment (FDI) refers to a movement of capital that involves ownership
and control of a firm inanother country for instance, the purchase of common chores
in a Nigerian incorporated company by a French citizen involves ownership and
an element of control. This is because
all shares in an organization have same voting rights.
For the
purpose of this classification such is recorded as FDI if the share acquired
involves more than 10% of the outstanding common shares of the Nigerian
company.
In this
research and generally, Foreign Direct Investment is classified in the context
of Multinational Corporations (MNC). The
MNC is sometimes referred to as Multinational Enterprises (MNE) is
Transnational Corporations (TNC) or Transnational Enterprises (TNE).
According to
the chairman of BOD’s of Chemical Co, a multinational form in the united state
origin “the emergence of a world economy and the multinational corporation have
been accomplished land in land”. He sees multinational enterprises moving towards
what he called “a global company”, a firm that have no nationality but belongs
to almost all countries.
As said
earlier direct investment bring about management skill and the technical know
how to next country. The laudable effect of FDI are at the macro-economic
level, for example, employment stimulation, increased output and economic
growth.
In the first instance, the tax collected from
the multinational subsidiaries is direct gain to the host country.
Second, direct investment makes for advanced
skill of the labour force of the host country. As the multinational corporation
are in certain about their future needs in skilled labour and personal turnover
especially in every technological advancing labour beyond its immediate need,
this training could either be in scientific, technical or managerial skill,
leading to higher rate of wage at no cost really. This is in turn would lead to
an increase in the production capacity of the economy of the host country. This
increase in the production capacity of the economy would lead to an outward
stript of the production of the possibility frontier of the host country as the
result of the spillovers of the activities of the subsidiaries.
Usually, foreign occupy the top managerial and
technical positions in the multinational cooperation; thus reflecting their
attitude towards the real and potential absence of human relations in countries
where their presence is felt.
1.2
STATEMENT OF PROBLEM
The
undeveloped countries like Nigeria suffer not only from low income and unstable
growth, but also from regional disequilibrium, economic instability
unemployment, depending on foreign countries, specialization in the production
of raw materials and economic, social, political and cultural marginality.
Underdevelopment
is an element in the process of development of the international system
underdevelopment and developments are two facts of a single process of which
both internal and international structures are causes. International treacle
brings about polarization because the low income countries are assigned the
production of primary production (raw materials) which are processed in the
home countries because of worsening and unstable terms of trade, because the
economics of the low income countries lack the force work force, the
entrepreneurship and physical/institutional infrastructure to seize export
opportunities and because of generally monopolistic arrangement by which
profits flow out from the underdeveloped countries to the developed.
In Nigeria
for unsnarl, there is that popular and commonly held view that manufacturing
multinationals have done greater lower than good to the host communities as a
result of their operations in these communities wheel has led to loss of
economic and social quality and environmental degradation. It is not out of place for one to say that
these MNC’s have threatenical the health of the indigenes by the use of
dangerous chemical, pollutants etc. These
and more are the problems that will be looked into which necessitated this research
work. It will try to examine the nature
and pattern of foreign direct investment that is International Corporation in
Nigeria manufacturing rector with a particular reference to Shell Nigeria Plc
as a case study.
1.3
OBJECTIVE OF THE STUDY
1. To determine the Nigerians drive benefit
from multinational corporation in term of transaction and entrepreneurial.
2. To determine if multinational corporation
contribute to the growth of gross domestic product (GDP) in the Nigeria
economy.
3. To
determine of Multinational Corporation help in solving balance of payment
problem in the Nigerian Economy.
4. To determine if multinational corporation
maintains cordial relationship with in the host society.
1.4 RESEARCH QUESTIONS
1. Do Nigerians derive benefit from
multinational corporation in term of transaction and entrepreneurial?
2. Does multinational corporations contribute
to the growth of gross domestic product (GDP) in the Nigeria economy?
3. Can Multinational Corporation help in
solving balance of payment problem in the Nigerian Economy?
4. What impact does entrepreneurial make in
the economy?
5. How did Multinational Corporation maintain
cordial relationship with in the host society?
1.5 RESEARCH
HYPOTHESIS
HYPOTHESIS I
Ho:
Multinational corporations do not contribute to the growth of gross domestic
product (GDP) in the Nigeria economy.
Hi:
Multinational corporations contribute to the growth of gross domestic product
(GDP) in the Nigeria economy.
HYPOTHESIS
II
Ho:
Multinational Corporation do not help in solving balance of payment problem in
the Nigerian Economy.
Hi:
Multinational Corporation help in solving balance of payment problem in the
Nigerian Economy.
1.6 SCOPE OF
THE STUDY
Foreign
Direct Investment (FDI) analysis is clouded by a lot of controversy, variety of
interpretation and numerous emotive value judgments. This recreant opinion about the activities of
MNC’s in the developing countries is as typical as the topic itself. Owing to the divergent opinions that exist,
it would be practically impossible to give a total survey of the current debate
on the topic.
However,
this work will make positive efforts to extract in favour of or against MNC’s
in developing nations. Furthermore, it
is outside the scope of this work to discuss the consequences of Foreign Direct
Investment (FDI) for the investor nations.
The study area in which data were collected for the study is limited to
Shell Nigeria Plc.
1.7 SIGNIFICANCE OF THE STUDY
The research
will be beneficial to all organizations especially Shell Nigeria Plc and their
staff as it emphasized on the impact of Foreign Direct Investment and its
impact on the economy in which it operates.
It will help
useful the government in way of encouraging foreign investment in the economy.
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