THE IMPACT OF FOREIGN DIRECT INVESTMENTS ON THE NIGERIAN ECONOMY

ABSTRACT

Generally, policies and strategies of Nigerian government towards foreign direct investments are shaped by two principal objectives of desire for economic independence and the demand for economic development.  Multi national corporations are expected to bring into Nigeria, foreign capital in the form of technical skills, entrepreneurship, technology and investment fund to boost economic activities thereby, rising the standard of living of Nigerian.

The main issues in this paper relates to understanding the effects and impact of foreign direct investments on the Nigerian economy as well as our ability to attract adequate amounts, sufficient enough to accelerate the pace of our economic growth and development.  From related research and studies, it was revealed that multinational corporations are highly adaptive social agents and therefore, the degree to which they can help in improving economic activities through foreign direct investment will be heavily influenced by the policy choice of the host country.

Secondary data were collected for the period 1970 to 2005.  In order to analyse the data, both econometric and statistical method were used.  Tables were produced in order to create a visual impression of the dependence of Nigeria economy on that of donor countries such as Western Europe and North America.  The economic regression model of ordinary least square was applied in evaluating the relationship between foreign direct investment and major economic indicators such as gross domestic product, gross fixed capital formation and index of industrial production.  The model revealed a positive relationship between foreign direct investment and each of these variables, but that foreign direct investment has not contributed much to the growth and development of Nigeria.  This is evident in reality of enormous repatriation of profits, dividends, contract fees, and interest payments on foreign loans.

The study thus suggest that in order to further improve the economic climate for foreign direct investments in Nigeria, the government must appreciate the fact that the basic element in any successful development strategy should be the encouragement of domestic investors first before going after foreign investors.

INTRODUCTION

In order to seek the highest of return for capital, economists tend to favour the free flow of capital across national boarders.  It is against this backdrop that multinational companies seek investment in foreign countries with reasonable risk.  Nigeria is believed to be a high-risk market for investment because of factors such as bad governance, unstable macro economic policies, investment as a way out of Nigeria’s economic state of underdevelopment.

Since the enthronement of democracy in 1999, the government of Nigeria has taken a number of measures necessary to woo foreign investors into Nigeria.  These measures includes the repeal of laws that are inimical to foreign investment growth, promulgation of investment law, various overseas trips for image laundry by the president, among others.

The need for foreign direct investment is born out of the underdeveloped nature of the Nigeria’s economy that essentially, hindered the pace of her economic development.  Generally, policies and strategies of the Nigerian government towards foreign investments are shaped by two principal objective of the desire for economic independence and the demand for economic development.  There are four basic requirements for economic development namely.

i)             Investment capital

ii)            Technical skills

iii)           Enterprise

iv)           Natural resources.

Without these components, economic and social development of the country would be a process lasting for many years.  The provisions of these first three necessary components present problems for developing countries like Nigeria.  This is because of the fact that there is a low level of income that prevents savings, big enough to stimulate investment capital domestically or, to finance training in modern techniques and methods.  The only way out of this problem is through acceleration of the economy by external sources of money (foreign investment) and technical expertise.  Foreign direct investment is therefore suppose to serve as means of augmenting Nigeria’s domestic resources in order to carryout effectively, her development programmes and raise the standard of living of her people.