CHAPTER ONE

INTRODUCTION

1.0     Background Information

Foreign direct investment (FDI) are investments from other countries i.e (abroad), it has been described  as investment made so as to acquire lasting management interest, for example, 10% equity share in an enterprise operating in another country other than the investors country (Mwilliama, 2003 and World Bank, 2007 ). In other word, foreign direct investment implies foreign private investment. Foreign investment can be defined as the package of foreign resources comprising equity capital, reinvested earnings, or net borrowing of subsidiaries of foreign companies from their parents companies or affiliates.

In Nigeria, FDI is defined as an investment undertaken by an enterprise that is either wholly or partly foreign owned. Foreign investment inflow, particularly foreign direct investment (FDI) is perceived to have positive impact on economic growth on the host country through various direct and indirect channels. Some of the positive impact of foreign direct investment in a country like Nigeria is in the area of employment creation, transfer of technology, increased domestic competition and other positive externalities (Anyanwala, 2007).

FDI augments domestic investment which is crucial to the attainment of sustained economic growth and development. Nigeria is one of the greatest economies with great demand for goods and services and has attracted some FDI over the past decades. In Nigeria foreign direct investment increased from less than US$1billiion in 1990 to US$1.2 billion in 2000, US$1.9 billion in 2004, US$2.3 billion in 2005 and US$4.5 billion in 2006 according to United Nations Conference on Trade and Development (UNCTAD, 2007) and (CBN, 2006). As percentage of GDP, there has been a remarkable increase in FDI in recent times. The portfolio investment has also followed in the same direction, growing from US$0.2 billion in 2003 to US$0.92 billion in 2006 (UNCTAD 2007). Economic reforms and the resulting of macroeconomic stability have been adduced as reason for this, all leading to high confidence in Nigeria economy.

According to (UNCTAD, 2012), Nigeria received a net inflow of US$85.73 billion of foreign direct investment (FDI), much of which were from Nigerians in the Diaspora. Most FDI was directed towards energy and banking sectors.

The Nigeria Enterprise Promotion (NEP) Decree in 1972 (reviewed in 1977) was intended to reduced foreign direct investment in the Nigeria economy, this type of policy was not relevant in an economy with a rapidly growing force. Although one may accept the rationale for the promulgation of that decree, however, any exchange control policy that has the potential to discourage foreign investment will counter productivity under this present economic situation of the country. Hence the abrogation of the NEP decree was therefore a step in the right direction.

Foreign direct investment (FDI) is arguably an important source of employment opportunities for developing countries like Nigeria; hence it is imperative that the federal government promote a healthy private sector that can earn a reasonable rate of return.

Developing countries that wish to attract foreign direct investment (FDI) inflow should consider measures such as establishing a transparent legal framework that does not discriminate between local and foreign investors, adopting liberal foreign regime e.g. regime without large gaps between official and market rates, creating simple investment friendly regulations and institutions and effective administering them such that the rate of FDI inflow into the country will improve appreciably.

1.1     Statement of the Problem

One of the major economic problems in less developed countries (LCD) is low capital formation to finance the necessary investments for economic growth and as such there is need to analyze the impact of FDI on economic growth in Nigeria.

Although there have been a good number of studies on foreign direct investment and economic growth in Nigeria but the existing empirical evidence on their long-run relationship has been inconclusive and as such there is no consensus among researchers in relation to the period under review, it is against this backdrop that this project work is being proposed.

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