4.1 THE IMPACT OF FOREIGN DIRECT INVESTMENT TOWARDS ECONOMIC GROWTG OF NIGERIA.


CHAPTER FOUR.

4.0 INTRODUCTION.

This chapter discusses the impact of Foreign Direct Investment (FDI) in economic growth of Nigeria, as well as the role of Nigerian Investment Promotion Commission (NIPC) in the promotion of Foreign Direct Investment in Nigeria.  Over the year, foreign direct investment is increasing in importance in the global economy due to the additional resources they pooled for development of the host country. FDI has attracted the attention of most governments in the desire to extend the market system because many developing countries (Nigeria inclusive) are heavily indebted externally. The problem of external debt is not solved by borrowing more, but by attracting more private flows in the form of FDI. The Nigerian Investment Promotion Commission (NIPC) as an agency of the government played a vital role to coordinate, encourage and promote investment in and outside Nigeria through effective promotional means.

4.1 THE IMPACT OF FOREIGN DIRECT INVESTMENT TOWARDS ECONOMIC GROWTG OF NIGERIA.

The impact of Foreign Direct Investment (FDI) in the country has always been focal issues of different scholars. There have been some studies on investment and growth in Nigeria with varying results and submissions. FDI is often seen as an important catalyst for economic growth in developing countries and Nigeria in particular, because it affects the economic growth by stimulating domestic investment, increase in capital formation as well as facilitating the transfer of technology in the host.

Aremu (2003:28), observes that foreign firms can raise the level of capital formation, promote exports and generate foreign exchange. This is to say that FDI is an important machinery that increases the level of capital formation of a given economy thereby enhancing and promoting exports and foreign exchange.

Moreover, Todaro (1994:28) emphasized that, the primary factors which stimulate economic growth are investments that improve the quality of existing physical and human resources, that increase the quality of these same resources and that raise the productivity of all or specific resources invention, innovation and technology progress. This is to say that, FDI is seen as a vital tool for economic progress or growth of a nation. Notably it must be said that economic growth is reliant on both domestic and foreign investments. Economic growth is the basic determinant of the rate of inflow of foreign direct investment.

Notwithstanding, Osaghale and Amenkhieman (1987:29) in their research conducted to determine whether foreign capital inflows, oil revenues and foreign borrowing had any positive impact on the economic growth of Nigeria. They found out that, there was a positive relationship between foreign capital inflow and economic growth. And the conclusion of their study was of the view that the economy would perform better with greater inflow of FDI; and it also recommended that, less developed countries should create more conducive environment for FDI.

Akinlo (2004:29) observed that, foreign capital has a small and statistically insignificant effect of economic growth in Nigeria. His own result was of the negative impact of FDI on the economic growth of the country. Some research has shown that most developing countries (Nigeria inclusive) have not appreciably exploited foreign direct investment as a source of external financing of the economy due to a non-conducive investment climate and the attitude of the host nations. (Asiedu, 2002; Balasubramanyam, 2001).

In addition to the above, Boyd and Smith (1992) argued that, FDI can affect resource allocation and growth negatively where there is price distortion, financial, trade and other forms of distortions existing prior to FDI injections.

Endozien (1968:30) stresses the linkages generated by foreign investment and its impact in the economic growth of Nigeria. He contends that FDI induces the inflow of capital, technological know-how and managerial capacity which accelerate the pace of economic growth. He also observed the pains and uncertainties that come with FDI. Specifically, he noted that foreign investment could be counterproductive (i.e opposite direction) if the linkages it spurs are neither needed nor affordable by the host country; and concluded that a good test of the impact of FDI on Nigeria's economic growth is how rapidly and effectively it foster, innovates or modernizes local enterprises.

However, the impact of FDI on the host economy are normally believed to be; increase in employment, augmenting the productivity, boost in exports and amplified pace of transfer of technology. It also facilitates the utilization and exploitation of local raw materials, introduces modern techniques of management and marketing as well as eases the access to new technologies. FDI makes possible industrial grading by trying firms of developing countries hosting Trans-National Corporations (TNCs) affiliates into global research and development network, and thus resulting in technology transfer as well as providing a greater deal of investment fund.

Notwithstanding, FDI has been recognized as having negative effect on economic growth of a given nation. The Dependency theory advocates see FDI as the advanced guard for a new diplomacy of economic imperialism. To them, foreign investors penetration into a host economy would result in disarticulated development. Despite of the critical criticism, some empirical evidence has shown that FDI responds to economic growth. It has been argued by Adeoye (2009:31) that, FDI helps developing countries in supplementing their domestic savings by making available capital from overseas, which is very important because domestic capital market in such countries are usually inadequate for the financing of the corporate sectors.











4.2 THE ROLE OF NIGERIAN INVESTMENT PROMOTION COMMISSION (NIPC) IN THE PROMOTION OF FOREIGN DIRECT INVESTMENT (FDI) IN NIGERIA.


The Nigerian Investment Promotion Commission (NIPC) is an agency of the federal government established by the Nigerian Investment Promotion Act No16 of 1995 to promote investment in Nigeria. Therefore, in 1995, the Nigerian Investment Promotion Commission Act opened all sectors to the foreign participation except for a short negative list (including drugs and arms), and allowed for 100 percent foreign ownership in all sectors with the exception of the petroleum sector. Investment promotion is therefore a range of activities, many of which resemble marketing, used by governments in order to attract FDI. Investment promotion among other things covers a wealth of activities like advertising, provision of market information, direct mailings, investment seminars or missions, organization and participation in trade exhibition, identification of potential investors, matching future investors with local partner and investor facilitation in form of providing pre-investment, implementation and post-investment services to the investors.

Michael (2000:28), has defined Investment promotion as effort by a government to communicate to foreign investors, the nature of the country's investment climate, and to persuade and assist the investors to invest , or reinvest in the country. In Nigeria, NIPC is directly responsible for investment promotion and its coordination.

Nigerian Investment Promotion Commission (NIPC) as a government agency with perpetual succession and a common seal specially established to undertake the following:



a- Coordinate, monitor, encourage and provide necessary assistance and guidance for the establishment and operation of entreprises in Nigeria.

b- Initiate and support measures which shall enhance the investment climate in Nigeria for both Nigerian and non-Nigerian investors.

c- Promote investments in and outside Nigeria through effective promotional means.

d- Collect, analyze and disseminate information about investment opportunities and sources of investment capital and advice on the availability, chance or suitability of partners in joint projects.

e- Register and keep records of all enterprises to which the NIPC decree legislation applies.

f- Identify specific projects and invite interested investors for participation in those projects.

g- Initiate, organize and participate in promotion activities such as exhibitions, conferences and seminars for the stimulation of investment.

h- Maintain liaison between investors and ministries, government departments and agencies, institutional leaders and other authorities concerned with investment.

i- Provide and disseminate up to date information on incentives available to investors.

j- Advisethe Federal Government in policy matters including fiscal measures designed to promote the industrialization of Nigeria or the general development of the economy.

k- Perform such other functions that are supplementary to the attainment of the objectives of NIPC decree (Abubakar Z., et al, 2012:34).

Nevertheless, in spite of the establishment of the NIPC, many aspects of the Nigerian economy has remained incompatible with the higher spread operational capital mobility which has a result of lack of efficiency and rigid operating mechanisms that plague Nigeria, which is an additional absence of a unified highly authoritative leading body for administrative investment regulation. Thus, so far so good, the NIPC has been able to link foreign investors with local partners and has provided opportunities in the country.

Abubakar, Haruna and Ahmed (2012:34), examined the role of Nigerian Investment Promotion Commission (NIPC) in attracting foreign direct investment in Nigeria. Findings from their result revealed that there is a significant relationship between the establishment of NIPC and the increase in FDI inflow. The results of the findings revealed that NIPC had succeeded in influencing the growth of foreign investment in Nigeria, especially in Oil and Gas, Communication, Pharmaceuticals and Solid Minerals.

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