Advantages of Foreign Direct Investment in Nigeria
Discuss about the Relevance of Foreign Direct Investment.
Foreign direct investment (FDI) is a type of an investment in which the investor is of a different country and controls the company that he has purchased by investing large capital in it. The companies that make FDI are known as Multinational corporations or Multinational enterprises (MNE). MNE that invests directly into a foreign enterprise is known as Greenfield investment and if it acquires another foreign firm, it is known as Brownfield investment or an acquisition (Kardos, 2014).
The MNE has some advantages in the investment that it makes in another country but that country does not have that advantage viewpoint. The advantages that an MNE gains through FDI are:
- Gaining access in the market- Through FDI, it is the best way to enter in any foreign markets. It depends on some countries that in which way they restrict foreign companies to enter into their domestic markets. FDI helps the foreign country to use it as an advantage because the firm can acquire or start a business, which paves the way for the easy access of the market (Arita, 2013).
- Resources can be accessed- FDI helps the company to tap the natural resources that are there in the foreign country and utilize it to the maximum to have maximum output.
- Reduction in cost of production- the cost of production in a foreign country can be very less if the labor market is cheaper in that country (Vetter et al., 2014).
The annual growth rate of Nigeria is around 5.3% with a population of over 167 million making it the second largest country in the Saharan Africa. The population is mostly young and below 15 years constitute of around 40% and the urban population is estimated around 48.2%. The vast lands in the country are suitable for agriculture and crop cultivation. The country was the highest exporter of agricultural products during the 1960s and 1970s and became the highest importer of the same due to the poor infrastructure and no investments from any sector. It also has around 124 trillion cubic feet of natural reserves of gas and crude oil (“Foreign Direct Investment and the Nigerian Economy”, 2017). Due to the huge corruption rate, mismanagement by the governments and the inefficiencies created lots of tension in the country due to which the GDP was around US$212 billion and an annual growth of 5.3%. The per capita GDP was around $300 making it one of the poorest countries in the world owing huge debts to the other countries (Idio, Wilcox & Akadi, 2016).
The country came to a late realization that without proper management, it cannot develop and the future of the country is not looking bright. The government took steps to improve the situation by making flexible fiscal policies and due to the poor condition of the economy of the country the exchange rates of the country was very less. This paved a way to attract FDI. Since the vast lands that lay uncultivated also attracted FDI (Michael, Salako & Temilade, 2015). These lands were fertile and yet there was nothing happening on it. The agricultural sector was very weak in the country so foreign investors began eyeing these grounds to set up their factories. The availability of labor was very easy and very cheap since development and factories were absent in the nation. The fact that large untapped resources were available also paved a way for the investors since it would be easy for them to get the resources very cheaply and imports can be minimized. These were all possible because the nation saw their elections happening and having a government who would take care of the people by giving huge incentives to the foreign investors that are enlisted in the industrial policy of 1988 (Bartels, Napolitano & Tissi, 2014).
Challenges of Foreign Direct Investment in Nigeria
The Nigerian economy was benefitted with the introduction of FDI in the country as the nation was seeing their economic conditions to be stable and coming out of the debts slowly. The year 2007 saw foreign investments of around US$12.4 billion in the country. The proper utilization of the resources that was present in the country helped the nation to produce employment opportunities that directly affected the per capita GDP and the consumption of goods in the households (Olayiwola & Okodua, 2013). It was seen that there was a rise in the GDP due to the expense power in the hands of the locals.
The oil rich country of Nigeria recently saw a sharp fall in the export of the resource due to the drastic fall in price from the year 2014 onwards. The downward shift in the price recently from $105 per barrel in 2014 to $30 in 2016 is of great concern for the economy of the country. This led to emptying of coffers of the government and a drop in the GDP due to the declining oil prices (Okafor, Jegbefumwen & Okafor, 2016). The new president Muhammadu Buhari faced these challenges when he took over the government operations. The manufacturing, agricultural and service industries saw a growth, which were the non-oil sectors in Nigeria. There was around 10% growth in the wholesale and retail industries, 12% increase in the healthcare industry and another 14% increase in the real estate business falls under the non-oil sectors in the country. It is necessary for the country to promote the exporting sector so that unemployment reduces. Through various trainings, the laborers need to be skilled which will catch the eyes of FDI (“Nigeria’s Challenges Rise as Oil Prices Fall”, 2017).
The activities of Boko Haram, an Islamist insurgency group operates in the northeastern region of the country, which possesses constant threats to the economical and political society of the nation. The activities of the group do not possess any threat to the Niger delta or Lagos, which are the regions that are rich in oil, but has affected the agricultural production areas of the region resulting in an inflation of the prices in the north (“Youth at Risk: How can the Private Sector help Nigeria Fight Boko Haram?”, 2017). Since the downfall of the oil prices, the promotion of investments needs to be looked in to by providing better security to the companies. To curb down the problem, the youth population who makes up 19.38% of the population needs to be provided an alternative, which will prevent them from joining the force. The companies need to work hand in hand with the government to provide security for the nation. The industries will provide jobs to the youths, which will keep them away from joining the force and spreading terror Ekperiware & Adepoju, 2013). These techniques can be done by luring them in to beneficial financial plans and routing the funds to the rural areas as well.
- That the company needs to be set up along the Niger delta or the Lagos region, which will help the company to use the resources, those are accessible easily in that region.
- The youth work force has to be taken into consideration and proper training regarding the tasks that will be allocated to them needs to be given to increase the output of the company
- The company needs to maintain cordial relationship with the rural population that is residing in the northern region so that they try out the products in spite of the rising disturbances in those places. The use of the product can make a difference in their lives (Adeleke, Olowe, & Fasesin, 2014).
Impact of Foreign Direct Investment on Nigeria’s Economic Growth
The cons are:
- The terrorist group, Boko Haram will constantly be of great threat to the company and will always want the downfall of the firm. They should be resisted firmly else the firm cannot operate in a proper manner.
- The availability of skilled workers is very less because of the lack in the technological advancements (Adeleye et al., 2015). The company has to put in extra effort to make them undergo training, which will be a burden in terms of time and money.
Conclusion
The GDP of Nigeria has significantly fallen due to the problems that are discussed above. In order to come back to stability the policies that are made by the government needs to have a positive outcome on the social and economical front. They also need to look in to the power facility and communication networks as well for the improvement of the nation. Another factor is the wage rate problem, which the government and the FDI needs to revise so that it will urge the youths to come and work instead of joining the terrorist groups (Nwankwo, 2013). To attract investors the economy needs to be open and trade reception needs to be there so that the investors find monetary benefits by investing in the country.
Reference List
Adeleke, K., Olowe, O., & Fasesin, O. (2014). Impact of Foreign Direct Investment on Nigeria Economic Growth (8th ed., pp. 234-242). Retrieved from https://hrmars.com/hrmars_papers/Impact_of_Foreign_Direct_Investment_on_Nigeria_Economic_Growth.pdf
Adeleye, I., White, L., Ibeh, K., & Kinoti, A. (2015). The Changing Dynamics of International Business in Africa: Emerging Trends and Key Issues. In The Changing Dynamics of International Business in Africa (pp. 1-12). Palgrave Macmillan UK.
Arita, S. (2013). Do emerging multinational enterprises possess South-South FDI advantages?. International Journal of Emerging Markets, 8(4), 329-353.
Bartels, F. L., Napolitano, F., & Tissi, N. E. (2014). FDI in Sub-Saharan Africa: A longitudinal perspective on location-specific factors (2003–2010). International Business Review, 23(3), 516-529.
Ekperiware, M. C., & Adepoju, A. O. (2013). Empirical Analysis of the Relationship between FDI, Technology Transfer and Economic Growth in Nigeria. British Journal of Management & Economics, 3(3).
Foreign Direct Investment and the Nigerian Economy. (2017). Article.sapub.org. Retrieved 5 January 2017, from https://article.sapub.org/10.5923.j.economics.20120203.02.html
Idio, E. E., Wilcox, R., & Akadi, A. P. (2016). THE IMPACT OF INTERNATIONAL MIGRATION ON SOCIO-ECONOMIC DEVELOPMENT OF NIGERIA. GLOBAL JOURNAL OF APPLIED, MANAGEMENT AND SOCIAL SCIENCES, 8.
Kardos, M. (2014). The relevance of Foreign Direct Investment for sustainable development. Empirical evidence from European Union. Procedia Economics and Finance, 15, 1349-1354.
Michael, O. B. A., Salako, G., & Temilade, A. (2015). Falling Oil Price, Exchange Rate Volatility and Marco-economic Variables in Nigeria. Journal of Investment and Management, 4(1), 25-33.
Nigeria’s Challenges Rise as Oil Prices Fall. (2017). Prosper. Retrieved 5 January 2017, from https://csisprosper.com/2016/04/21/nigerias-challenges-rise-as-oil-prices-fall/
Nwankwo, O. (2013). Impact of Foreign Direct Investment on Power Sector of Nigeria: 2000-2011. Journal of Management Research, 5(3), 63.
Okafor, S. O., Jegbefumwen, K., & Okafor, P. N. (2016). Foreign Direct Investment for Sustainable Economic Growth in Nigeria: Factor Analytic Approach. British Journal of Economics, Finance and Management Sciences, 11(1), 123-141.
Olayiwola, K., & Okodua, H. (2013). Foreign direct investment, non-oil exports, and economic growth in Nigeria: a causality analysis. Asian Economic and Financial Review, 3(11), 1479.
Vetter, S., Böttcher, B., AG, D. B., & Hoffmann, R. (2014). Recent trends in FDI activity in Europe. Deutsche Bank AG, available on https://www. dbresearch. com/PROD/DBR_INTERNET_ EN-PROD/PROD0000000000340841.
Youth at Risk: How can the Private Sector help Nigeria Fight Boko Haram?. (2017). Prosper. Retrieved 5 January 2017, from https://csisprosper.com/2016/08/17/youth-at-risk-how-can-the-private-sector-help-nigeria-fight-boko-haram/
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