THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE NIGERIAN ECONOMY
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Enugu, Nigeria
Nigeria
Enugu State
Nigeria

The Impact Of Foreign Direct Investment On The Nigerian Economy

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THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE NIGERIAN ECONOMY

(A CASE STUDY OF NBC PLC ENUGU)

ABSTRACT

 The study of the nature involves a lot of deep research and understanding of the factors, which creates the effects on the subject matter.  Primarily, these factors were more economical than managerial as the case may be, on the understanding that this research work is being casual out under a management setting or department.

Just as the subject matter is, the impact of foreign direct investment on the Nigerian Economy with a case study of Nigerian Bottling Company Plc, it is based on the economic, social and entrepreneurial impacts created by these multinational companies like NBC Plc on their host societies.

Based on this, the objective of this study was to determine through quantitative and quantitative measures whether the benefits of multinational enterprises (MNE’S) out weigh the cost that results from their activities in the hose countries.

The first chapter of this work contains a general discussion (i.e. critics and defense) of FSI’s activities in host countries.  Further the statement of the research problem was studied and the need for the study.  The scope and limitation to the research work was finally looked into with the stated hypothesis which guide the researcher in his evaluations.

In chapter two, a number of part related literatures were examined as it relates to the impact of foreign direct investment to Nigeria as the case may be with particular reference to NBC Plc activities in Enugu Zone.

Chapter three treated the design of the study, the method of collecting data and the ways in which the questionnaires were distributed within the chosen population.

The data gathered from the research were analysed and interpreted in chapter four of this research report.

Finally, the summary of findings, conclusions on the research work and recommendations were given by the researcher all in chapter five.

It is believed that these recommendations made in this study will help both the multinationals in their relationship with their host communities as well as creating an enabling environment from the host country for their business to there.


TABLE OF CONTENT

 

Approval page

Dedication

Acknowledgement

Abstract

Table of content

 

CHAPTER ONE

1.0            Introduction

1.1     Overview of the study

1.2            Brief review of Nigerian Bottling Company Plc

1.3            Statement of research problem

1.4            Research questions

1.5            Hypothesis

1.6            Scope of the study

1.7            Limitations of the study

1.8            Definition of terms

CHAPTER TWO

2.0            Literature review

2.0.1    Theoretical review

2.0.2    The impact of foreign direct investment on the growth

of the host society

2.1            Theoretical paradigm

2.2            Theories of foreign direct investment

 

CHAPTER THREE

3.0            Introduction

3.1     Research design

3.2            Area of the study

3.3            Population of the study

3.4            Sample and size determination

3.5            Instrument of data collection

3.6            Validation of the instrument

3.7            Reliability of the instruments

3.8            Method of data collection

3.9            Questionnaire distribution and retrieval

3.10       Method of data analysis

 

CHAPTER FOUR

4.0            Presentation of analysis and interpretation of data

4.1     Answers to questionnaires

4.2            Test of hypothesis

 

CHAPTER FIVE

5.0            Discussion of results of findings

5.1     Conclusions

5.2            Recommendations

5.3            Suggestion for further studies

Bibliography

Appendix 1

Appendix 11

 

 

CHAPTER ONE

 

1.0            INTRODUCTION

1.1     OVERVIEW OF THE STUDY

Nigeria emerged from the colonial experience with an economy structured in accordance with the imperators of colonial economic relationship.  The first National Development plan of (1963) was launched with the objectives of providing the framework for industrial take off and development.  However, as the foreign investors were apprehensive of the nascent independent administration, efforts were made not only to alloy their fears of nationalism but also to attract more foreign investments through joint ventures with regional government then or the federal government.  The first development plan as an open door regime saw an increase in the establishment of miscellaneous foreign enterprises in Nigeria, many of which are unincorporated branches of their overseas business.

However, just only about few years offer independence when the rest of the world including the erstwhile colonial master had hardly adapted to the realities of Nigeria’s attainment of nationhood or for the Nigerian government to articulate and plan its own economic policy, the country experienced its first military coup d’ et al in 1966.  this was followed by the civil was which tested for three years hence necessitated the cohesion of resources towards the successful execution of the war.  The period saw the introduction of various control measures of great significance.  For the foreign investors, these include licensing, quotas, exchange control measures with two tier compulsory credit system for import payments, restriction on capital/individual transfer and the promulgation of the companies decree of 1968 which compelled all forms operating the country to be incorporated as Nigerian Companies subject to local regulations.

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 organisaiton have same voting rights.

For the purpose of this classification such is recorded as FDI if the shares 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 refered 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.

The phenomenon of the MNC can be explained only in a world of imperfect factor and product market characterized by differential taxation market power and share, positive information costs and the existence of pure specific revenue producing assistance.  In such a world, the market mechanism is partially replaced by other organizational firms, which generates and transmits relevant information and which co-ordinates production and marketing decisions.

The MNC arises in other words in response to a particular kind of market failure caused by high differential costs of inter-nation transfer of market information and technology and of course, factors of production (Tour and Hirsil 1979).  The key features of MNC are the, it provides the recipient nation with a package of knowledge, capital and entrepreneurship development.  It may thereby create a positive contribution to economic growth and development in host countries. 

Many multinationals corporations exist in the Nigerian economic settings these encompassed the manufacturing sector like Nigeria Bottling Company (NBC), constitution like Julus Berger Nigeria, Mineral Exploration like Shell Nigeria, banking etc, to mention but a few.  It becomes pertinent that the manufacturing sector be given due cognizance for the purpose of the research work.  In this sector, the Nigerian Bottling Company Plc will be a case study and a pointer.

The concept of Multinational Corporation and economic development has remained on the relationship between the MNC’s and the host societies and how development is appraised in these host societies.

The issue of contribution to development through social responsibility by the business enterprise has become a topical issue in management decision and is negatively favoured in these host societies.

They have rounding argued that there has been gross neglect and lack of development focus in their place or communities.  It is good to discuss the fact that some laudable developments have been directly felt by these host societies in terms of revenue, employment technology transfer and other benefits to the government.  It is a fact that Nigeria is a developing country and have the same peculiar characteristics with other developing nations of the world such as low standard of living with low savings and investment and lacks managerial know how.  This has placed Nigeria in a guest for resources from other developed nations viz-a-viz international business through MNC’s.

It is also right to say that MNC’s like other business ventures has the objective of profit maximization as their aim.  From the foregoing, this research work places premium on the critical evaluation and  examination of the impact of foreign direct investment (MNC) activities in the Nigerian economy using Enugu Zone which comprises Enugu North, Enugu South, Enugu East and 9th Mile Corner on a bench mark.  The prospective here is primarily managerial and economic i.e. the dissension focuses on the important part in the overall evaluation so, they are discussed along with the above mentioned factors.

The research work therefore will try to examine.

 

1.2            BRIEF REVIEW OF NIGERIAN BOTTLING COMPANY PLC

Coco-cola which is the major product of Nigerian Bottling Company Plc was first made on 8th May, 1886 by Dr. John Styth Demberton a pharmacist in his home town Atlanta Georgia U.S.A.

The name coco-cola was given by Frank M. Robinson Dr. Demberton’s partner and book keeper.  He also designed the flowing script that distinguishes the famous trade mark.  Coco-cola is the world’s leading soft drink, sold in more than 145 countries of the world.  A total of 250 million servings are consumed everyday in all parts of the world, from Canada in the North America to Argentina in Southern America, from Alaska to China, from Mexico to Nigeria.  

Coca-cola first came into Nigeria in 1953 when Nigerian Bottling Company set up its fruit plant in Lagos.  It was to be the beginning of an executing story of growth and development particularly during the past ten years.  Nigerian Bottling Company is today Nigeria’s No. 1 better of soft drink selling more than 6 million bottles per day.  The figure which is still growing daily with the continuing expansion of the existing 12 plants and with the opening of brand new plants in various parts of the federation.  It has other products like Fanta which is the best seller in the orange segment and spirit the most widely sold lemon have drink in Nigeria.  Other products bottled by NBC includes Fanta ginger Ale, Fanta tonic Krest soda and Krest bitter lemon.  

The successes of coco-cola has brought the development of a number of sister industries all contributing to the Nigerian economy – the Delta Glass Company in Ughelli, which supplies the millions of bottles required to keep a large bottling company in operation and the crown products factories in Ijebu-oche and Kano which manufactures the metal crowns to seal the bottles, the Benin plastic company which manufacturers the plastic creates for carrying bottles.  In addition, the trucks which are seen in many parts of the country delivering soft to more than 60,000 dealers are also assembled by ANNAMO in Nigeria.

Nigerian Bottling Company is also the largest manufacture in the country of carbon oxide (C02) used to carbonate the soft drink.  The NBC employed over 6000 Nigerians in all fields of operation.  The Nigerian Bottling Company is also engaged in philanthropic activities environmental protection and also a major sponsor sporting events on Nigeria and world as a whole.

 

1.10       STATEMENT OF RESEARCH 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.

Because the NNC’s tend to come from the developed countries and because their operations tend to add to host countries production, MNC’S presumably improves the distribution of income, goods and services between the richer and poorer countries.

Within the host societies however, it is guide different to judge whether a direct investment project improves or aggravates these income, goods and service distribution.

The literature critical of MNC’s demonstrates that Foreign Direct Investment (FDI) after do not help the economic life of cost societies, do not improve their well being hence not benefiting lower income people Very well.

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 Nigerian Bottling Company Plc as a case study.   

 

1.20       SIGNIFICANCE OF THE STUDY

The significance of this study is mostly boarders on the precise fact that it will pronade a bench work for an objective analysis of the activities of MNC’s (FDI) and the impact of their activities on the loves of the inhabitants of Enugu the study will also precede us with the opportunity to know if the presences of MNC’s is a blessing, curse or a mixed blessing (i.e. neither angelic man aril) as defenders or detractors makes them to be.

This study is also expected to open up new frontiers any facts of knowledge, which other researchers and scholars will research on.  Morso, the recommendations will no doubt benefit the government policy makers, multinational corporations and the entrepreneurial lives of the host societies or country is no small measure.

 

1.3            OBJECTIVE OF THE STUDY

The primary objective of this research work is to analyze the impact of foreign direct investment in multinational corporations on their host societies or countries, hence:

i.                   To determine through questionnaires and judgmental measures whether or not the benefits of Multinational Corporations (MNC’S) in terms of transaction and entrepreneurial transfer out weigh the cost that results from their exercise in their cost societies consequently. 

ii.                 To find out the contributions of multinationals Corporations to Gross Domestic Product (GNP).

iii.              To identify the distribution and balance of payment effects of the activities of NNC’s .

iv.              To ascertain the impact of their activities on the entrepreneurial aspect of the lives of the host societies.

v.                 To make recommendations on how to create an enabling environments for effective and cordial relationship between the MNC’s and their host societies.

 

1.4            RESEARCH QUESTIONS

A lot of questions will be presented and asked in this work in order to ascertain the feasibility and viability of the presence and activities of the multinational corporations (MNC’s) as Nigerian Bottling Company (NBC) Plc in their host societies.  Such questions will be:

i.        Does the Nigerian Bottling Company Plc improves the conclusions of your people in terms of employment and health facilities?

ii.       Have the presence of Nigerian Bottling Company Plc affected your local entrepreneurship like production of local were in tour area?

iii.      Have the activities and presence of NBC Plc affected the consumption pattern and value system in any country like yours?

iv.      Have you suffered any hazards of pollution, due to the activities of NBC Plc in your area?

v.       Do you suggest the continued presence of NBC Plc in your area?

 

These are some of the research questions that will be directed to respondents from this zone as a way to ascertain the hypothesis test to this research.

 

1.5            HYPOTHESIS

Ho:    There is no degree of inter-relationship between the activities of MNC’s (FDI) and economic development of Nigeria.

H1:    There is a degree of inter-relationship between the activities of MNC’s (FDI) and economic development of Nigeria.

Ho:    The presence of foreign direct investment in Enugu zone has not increased economic growths and employment level in the area.

H1:    The presence of foreign direct investment in Enugu zone has increased economic growths and employment level in the area.

Ho:    The Nigerian Bottling Company Plc has not added positively to socio-economic conditions of the host communities.

H1:    The Nigerian Bottling Company Plc has added positively to socio-economic conditions of the host communities.

 

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 judgement.  This recreant opinion about the activities of MNC’s in the developing countries are 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.  

 

1.7            LIMITATION OF THE STUDY

It is not out of place to encounter problems and obstacle in a study of this nature because the scope is quite encompassing both in size and complexity.

The researcher’s inability to gather enough primary and secondary data from the company posed a major problem, as the company regards its books and records as so confidential that they deemed releasing it will be detrimental to them because of fear of their competitors.

Time is another factor that militated against this work as the researcher had not enough time to source for information, as a result of the light school programme.

Finance to embark on the Nigerian trips to 9th mile corner when the company had their plant within the zone was not readily available, as such data collection was highly impeded and limited to Enugu and 9th mile area with a drastically reduced success.

Another major hunting factor was the attitude of the employees of NBC Plc in responding to the questionnaires distributed.  In most cases, the researchers were told that the key officer are busy and cannot see him or is on business trip.  Even those who responded to the questionnaire were skeptical as they were afraid of being victimized for responding to the questionnaire have it a difficult to break in the course of this study.

 

1.8            DEFINITION OF TERMS

1.       Foreign Direct Investment:    This is the existence of controlling ownership by a firm from one country over a firm in another country through new investments or acquisition.

2.       Multination Corporations:    A corporation with multi-country affiliates, each of which formulates its own business strategy based on perceived market differences

3.       Developing Countries:  Developing countries are those for which some reasons have backwardness in developing their economic resources with the attendant result that their people have a lower standard of living than that enjoyed in the more advanced countries of Europe and America (Handson 1979:128).  They are also called third world countries.

The following characteristics are common among developing countries low per capital income, population explosion, high rate of illiteracy, technological backwardness, prevalence of hunger and disease, under utilization of factors of production and the existence of traditional institutions (management in Nigeria; 20th April 1984:31).

Other features of under development include: poverty, sky rocketing inflation, environmental ravages, low industries base, political instability and the domination of military, infrastructural inadequacies, trade and balance of payment problems and debt crisis (Onuoha, 1993:53-84).

4.       Balance of Payment:    Refers to a systematic record of all transaction between the residents of the reporting country (Nigeria in this case) and residents of foreign countries during a given period of time usually one year.

5.       Employment:      By employment, we mean the state of being gainfully engaged by a multinational corporation.

6.       Social Responsibility:   This is the ethical measures taken by a corporation to see that its activities is not harmful to the lives and properties of host communities.  It can also be economic, legal or discretionary measures desired from the corporation by their communities.

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