Empirical Analysis Of The Impact Of Foreign Direct Investment On The Economic Growth In Nigeria (A Case Study Of Nigeria Bottling Company)

Project and Seminar Material for Economics

Empirical Analysis Of The Impact Of Foreign Direct Investment On The Economic Growth In Nigeria (A Case Study Of Nigeria Bottling Company)


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 guides 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 analyzed 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


  • Title page ii
  • Certification iii
  • Dedication iv
  • Acknowledgment v
  • Abstract vi
  • Table of contents vii

Chapter One

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Statement of Hypotheses
  • 1.6 Significance of the Study
  • 1.7 Scope to the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Historical Profile of Nigerian Bottling Company

Chapter Two

Review of Related Literature

  • 2.1 Introduction
  • 2.2 Overview of Foreign Direct Investment
  • 2.3 Foreign Director Investment and the Nigeria Economy
  • 2.4 Trends of Foreign Direct Investment
  • 2.5 the FDI-growth Relation in Nigeria
  • 2.6 Impact of Foreign Direct Investment on Nigeria Economic Growth
  • 2.7 Negative Effect of FDI
  • 2.8 Challenges of Foreign Direct Investment in Nigeria Economy
  • 2.9 Government Policies on FDI

Chapter Three

Research Methodology

  • 3.1 Introduction
  • 3.2 Population of the Study
  • 3.3 Sample Size and Sample Techniques
  • 3.4 Source of Data Collection
  • 3.5 Validity and Reliability of the Study
  • 3.6 Tools for Data Collection
  • 3.7 Tool for Data Analysis
  • 3.8 Statistical Tools for Data Analysis
  • 3.7 Justification

Chapter Four

Data Presentation and Analysis

  • 4.1 Presentation of Result
  • 4.2 Interpretation of Result
  • 4.3 Test of Hypothesis

Chapter Five

Summary of Findings, Conclusion and Recommendations

  • 5.1 Summary of Findings
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • Appendix I

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.


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 Nigerian Bottling Company 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 Nigerian Bottling Company, Benin City.


1.7 Significance of the Study

The research will be beneficial to all organizations especially Nigerian Bottling Company 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.

It will equally be useful to small scale business, large corporations, and universities, college of education and to the researchers.


1.8 Limitation of the Study

There is no gain saying that there are no limitations in research work generally. Any shortcoming that arises in this study is as a result of factors which are beyond the researcher’s control.

Therefore, it will be of more importance to highlight certain militating factors that tend to narrow or limit my scope of study. This project research would have been easier if not for these limitating factors:

1. Time Factor:

Time was not on the researchers to consult various sectors of the economy to review employees or given out questionnaire to various institutions on the effect of government revenue policies.

As we all know, time is never our friend. The time scheduled for the completion of this research thesis was too short. As a result, generating information/data was strenuous as it coincides with final year examination period, which needed attention.

2. Finance:

This is another barrier that limited the researcher’s work.

3. Available Resources:

Was unavailable for the research work.


1.9 Definition of Terms

Variable:

A variable is anything that can take on differing or varying variables. The values can differ at various times for the same object or person, or at same time for different object or person.

Economic Growth:

Economic growth is the increase of per capita gross domestic product (GDP) or other measure of aggregate income. Economic growth is concerned with the long run. The business cycle is the short-run variation of economic growth.

Government Expenditure:

Government expenditure is the government spending. Government expenditure is financed through a variety of methods. Governments use taxes to fund programs and expenditures. Governments engage in deficit spending where government may borrow based on future projected budgets in order to fund programs. Governments may also choose to take loans from foreign countries to finance expenditure. The main component in a government’s fiscal policy are how money is spent and from what source.

Foreign Direct Investment:

Foreign direct investment is the long term participation by one country into another country. It involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI. There are outward FDIs and inward FDIs.

Inflation Rate:

Inflation rate is a measure of inflation. It is also as the rate of increase of a price index for consumer price index. Inflation is a rise in consumer prices and increasing the cost of living. It is also the percentage rate of change in price level over time. The inflation rate is one of the most important economic forces consistently weighing on the value of a nation’s currency.


1.10 Historical Background of Nigeria Bottling Company

The Nigeria Bottling Company Plc (NBC) was incorporated in November 1951, as a subsidiary of the A.G Levant’s Group with the franchise to bottle and sell coca-cola products in Nigeria. From a humble beginning as a family business, the company has grown to become predominant bottler of non-alcoholic beverages in Nigeria, responsible for the manufacture and sale of over 33 different coca-cola brands. Other popular brands of beverage produce by the company are Eva water, Five Alive fruit juice and the newly introduced Burn energy drink. The company presently has 13 bottling facilities and over 80 distribution warehouses located across the country. Since production started, NBC Plc has remained the largest bottle of nonalcoholic beverages in the country in terms of sales volume, with about 1.8 bottles sold per year, marking it the second largest market in Africa. Today, the company is part of the coca-cola Hellenic Bottling Company (CCHBC). One of coca-cola company’s largest anchor bottlers worldwide CCHBE operates in 28 countries, serving 540 million consumers and selling over 1.3 billion unit cases of beverage annually. The company recently embarked on restructuring exercise to expand further it market share and growth profit. It invested in a new state of the art can filling packing line at the Apapa plant.

This is in addition to a new bottling plant in Abuja, investment in the upgrade of other manufacturing infrastructure, distribution and delivery facilities.

Nigerian Bottling company Plc (NBC) Company and a sole franchise of the coca-cola Inc. spanning over six decaes of operation, NBC is a market leader in the production of non.

A softer than expected macroeconomic posed challenges to the manufacturing sector of which NBC, as an integral part has to come to grips with to stay ahead of the pack. Major challenges facing the industry include weak infrastructural support facilities (especially power), Unfair Competition from cheaper imported products and rising cost of fund among others, an analysis of the financial strength of NBC reveals an above-per performance in 2007.

Hretrospect, we observe abysmal results in 2006. This was however reversed in 2007 with 13.91 percent ROE and 201.69 percent growth in PAT. Due to the FYE 2006 performance, NBC exhibited a very risky financial profile, (based on Altman’s Z score). However, it scaled through the 4 years average. Q1 2008 result show, respectively, turnover and PAT growth of 10.2 percent and 11.7 percent. Our forecasts for FYE 2008 percent and 5.0 percent for turnover and PAT respectively in valuing NBC, we employed both the discounted cash flow (DCF) and relative valuation Methodologies we obtained N13.57, N 12.12 and N23.19 respectively from the discounted.

Divided method, present value of Growth Opportunities and Residual income valuation. Our relative of Price-to-Earnings (P/E), price-to-sales (P/S) yields N55.75, N97.82 and N176.12 respectively.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary of Findings

Summarily, it is no doubt that multinational corporations contribute to the growth of gross domestic product (GDP) in the Nigeria economy. One of the most important changes that has taken place in the economic policies in Nigeria in the last few years was the shift to the analysis of the impact of foreign direct investment with the environment of domestic and foreign policies, narrowing toward a common international economic order and induced globalization. Foreign Direct Investment now represents a major for cross border resource flow among counties.
More than ever the multitude of FDI within the past years has compelled discussion as to the desirability of multilateral investment agreement.

Foreign Direct Investment contributes to the economy in various ways;

1. Technology:

Technology transfer is one of the most vital benefits of FDI. In order to grow effectively, developing countries especially Nigeria needs to develop new skills. Knowledge, institutional and organizational structures and to master the technological process imported.

2. Trade:

the promotion of export is an important contribution made by multinational corporations. Export by MNCs affiliates have been one of the fastest growing components of the world trade in recent years. MNCs increases host countries competitiveness in many ways by giving affiliates privilage access to a flow of goods, services and information within the corporate system of raising skills and capabilities in the host countries.

5.2 Conclusion

The study examines the analysis of the impact of foreign direct investment on Nigeria’s economic growth. The findings revealed that economic growth is directly related to inflow of FDI and it is also statistically significant implying that a good performance of the economy is a positive signal for the inflow of FDI.

Also the result show that FDI significant because the t- calculated was greater than the t- tabulated value at 5% level of significance. This findings conforms the Granger causality result which shows that foreign direct investment has an impact on the Nigerian economy. The real interest rate and real exchange rate were not statistically significant from the findings.


5.3 Recommendations

In the light of the above findings the following policy recommendations are proposed to encourage and improve the inflow of FDI in Nigeria.

  1. Government should provide adequate infrastructure and policy framework that will be conducive for doing business in Nigeria so as to attract inflow of FDI.
  2. There is need for government to formulate policies that will be favourable to local investors in order to complement the inflow of investment from abroad and also a favourable interest rate.
  3. Given the causal link among exchange rate and export growth economically.
  4. The Nigerian economy should have favourable exchange policies.
  5. In order to grow effectively, Nigeria should develop new skills, knowledge, institutional and organizational structures and to master the technological process imported since technology transfer is one of the most vital benefits of FDI.

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