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                                               CHAPTER ONE


1.1 General Background of the Study

Foreign direct investment became imperative to the economic development in Nigeria, as her domestic savings cannot independently finance infrastructural developments in the country. Nigeria’s foreign investment can be traced back to the colonial era, when the colonial masters had the intention of exploiting our resources for the development of their economy Macaulay, (2012). Historically, there was little investment by these colonial masters. With the knowledge and discovery of oil foreign investment in Nigeria, and since then, Nigeria’s foreign investment has been unstable. In the past twenty years, foreign direct investment has increased at much higher rates than other indicators of globalization. FDI in Nigeria assumed special importance, being the most reliable channel of foreign capital inflows from the late 1990 till date. According to (World Bank, 2010) report on FDI, international capital flow had recently been marked by a sharp expansion with a substantial increase in the participation of foreign investors and Multilateral Financial Institutions (MFIs) in the financial markets of developing countries. To adjust and shape the economy of Nigeria in the near future needs further improvement of FDI in the region.

Successive Nigerian governments have made efforts at ensuring development and improving the living standards of its citizens. Some of  these effort includes: First National Development Plan (1962), the Second National Development Plan (1970-74), Third National Development Plan (1975-80), and Fourth National Development Plan 1981-85. Apart from the five year National Development Plans, the Federal Government has also embarked on three year rolling plans between 1990 and 1998 and long term perspective planning in her endless efforts to search for appropriate developmental strategy (Edame, 2003:45). The federal government also introduced another ambitious programme between 2003 and 2007 known as the National Economic Empowerment and Development Strategy (NEEDS). It was a medium term planning which focused on wealth creation, employment generation, poverty reduction and value orientation and another way of ensuring development.

Foreign Direct Investment (FDI) is a long term investment reflecting a lasting interest and control by a foreign direct investors (or parent enterprise), of an enterprise entity residents in an economy other than that of the foreign investor (IMF, 1993). World Bank (1996) defines FDI as an investment that is made to acquire a lasting management interest (usually 10% of voting stock) in an enterprise and operating in a country other than that of the investors (define according to residency) the investors purpose being an effective voice in the management of earning either long term capital or short term capital as shown in the nations balance of payments account statement (Macaulay, 2012). Foreign Direct Investment is seen as an important catalyst for economic growth in developing countries like Nigeria because it affects the economic growth by stimulating domestic investment, increase in capital formation and also, facilitating the technology transfer in the host countries (Falki, 2009). Unlike other sources of foreign investment, it is accompanied by the following benefits such as provision of managerial knowledge and skills including organizational competence and access to foreign market, provision of an array of goods and services to residents in the recipient country and the transfer of technology to developing economies.

The aforementioned and other benefits of FDI have made the developing countries like Nigeria, to see it not only as a means of increasing aggregate investment, but also as a catalyst of economic growth and development. This could explain the past and current moves by Nigeria to attract FDI, by removing structural barriers and encouraging foreign investors. These encouragements include offers of incentives such as income tax holidays, import duties exemptions and subsidies to foreign firms. For instance, the Nigeria Investment Promotion Decree was promulgated basically to encourage, promote and coordinate foreign investment and enhance capital utilization in the productive sectors of the economy. It also provides an opportunity for foreign participation in Nigeria enterprises up to 100 per cent ownership. In order to achieve these objectives, the decree established NIPC in conjunction with the foreign exchange (monitoring and miscellaneous provisions) decrees No. 17 of 1995 that establishes the Autonomous Foreign Exchange Market (AFEM).

The Nigerian governments have recognized the importance of FDI in enhancing economic growth and development; various strategies involving incentive policies and regulatory measure have since been put in place to promote the inflow of FDI to the country. Recently, the “Vision 20:2020” was launched with the primary aim of transforming Nigeria into a fully developed economy by the year 2020. Though development planning has been a consistent phenomenon in Nigeria’s administrative system, it is worrisome that these plans have not achieved the expected results. This is evident from widespread poverty, dilapidated infrastructural facilities, massive unemployment, low capacity utilization, technological backwardness, short-life expectancy, urban congestion, excessive debt burden, environmental degradation and high incidence of diseases which beset the country. It is obvious that Nigeria is an underdeveloped country and currently falls among the poorest countries of the world in spite of her huge potential in natural and human resources. In the opinion of Obikeze and Obi (2004) “a review of the various plans clearly shows that the country is still very far from where it was envisaged it will be today. This is simply as a result of either faulty implementation of the plan, distortions or even non implementation”. The failure of these plans to delivers the much expected development perhaps explains the shift of attention to foreign investors. Shiro (2009) noted that 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, he noted, include the repeal of laws that were inimical to foreign investment growth, promulgation of investment laws, various over-sea trips for image laundry by the President among others.

The importance of foreign direct investment (FDI), to Nigeria cannot be over emphasized as it serves as a supplement to the domestically mobilized savings and it is often accompanied with technology and managerial skills which set the pace for economic development. Foreign direct investment (FDI) contributes in diverse ways to economic development in developing nations, especially in breaking the vicious circle of poverty. However, the trends of the flow of Foreign Direct Investment (FDI) globally and the distribution of its attendant effect across the regions of the world have been a subject of empirical debate over the past decades (Akinmulegun, 2012). Several studies have provided evidence of upsurge and increasing degree of the international capital mobility among the developed and developing economies of the world.  Todaro (1977) opined that, FDI encourages the inflow of technology and skills and fills the gap between domestically available supplies of savings, foreign exchange and government revenue. It also encourages the inflow of technology and skills.  Onu, (2012) asserted that the contributions of foreign investment to Japan after the World War II, Singapore under the late Lee Kwan Yew and in South Korea after the Korean War has tremendously assisted the economic growth and development of these countries by providing the local economy with a source of foreign skill, technology, management expertise and human resource development through international training and collaboration.

Supporting the argument, Bello (2003), aver that privatization was also adopted, among other measures, to encourage foreign investments in Nigeria. This involved transfer of state-owned enterprise (manufacturing, agricultural production, public utility services such as telecommunication, transportation, electricity and water supply) companies that are completely or partly owned by or managed by private individuals or companies. Qualified foreign firms were given open arms to take over most of these establishments to enhance efficiency. This is because such foreign firms are reported to possess the managerial acumen and technical prowess needed to resuscitate and sustain the weak industries in Nigeria (Umah: 2007).

This leads to a key concern: What kind of economic growth does FDI bring, especially in developing countries like Nigeria, and is it sustainable in the longer-term? The debate on the environmental consequences of FDI is one of the central issues in the wider discussion about foreign direct investment and sustainable development and has been very heated. Some commentators are concerned that countries will lower environmental standards to attract FDI, creating “pollution havens”, and that a “race to the bottom” will ensue as countries compete with each other for FDI by continually reducing their environmental standards. Others argue that foreign investment brings more environmentally friendly technologies. In this view, FDI is the best way to disseminate new and cleaner technologies. (Zarsky, 1999: 4-5). There is also the argument that poverty is the main cause of environmental degradation and that increased economic wealth will therefore enable countries to afford better environmental protection, and that with rising income levels consumer expectations for more environmentally friendly products will also grow (Panayotou, 1999: 238).

Hence, this study is subjected to the following questions: Has FDI impacted positively on the socio-economic development in Nigeria? Is there any significant relationship between FDI and the development level in Nigeria? From the foregoing therefore, the general objective of this study is to assess the impact and contribution of foreign direct investment to socio-economic development in Nigeria between 2005 and 2015



It is obvious that a country as Nigeria (commonly referred to as Giant of Africa), blessed with abundance natural resources with over 61 mineral resources, each of which has the capability of sustaining the economy (Ejeogu, 2011). Unfortunately, most of these resources are presently lying untapped and the economy is solely dependent on crude oil for its survival.  Over 90 per cent of Nigeria’s foreign receipts are accounted for by oil and because of volatility of oil prices, the entire economy suffers when there is a glut in the international oil market (Devlin and Titman 2004). Besides, because there is a nexus between the oil sector and the rest of the local economy, unemployment is high, poverty is prevalence and security remains a persisting challenge (Okonjo-Iweala 2012, Olugbile 2012). A key reason for this situation is inadequate capital and technical knowhow necessary to tap from the abundant available resources (Roberts and Tybout 1997). The need for technological advancement is imperative in Nigeria.

Presently, Nigeria is desperate to expand its output due to the prevailing recession, improve its resource use (employment), enhance social welfare and diversify its economy dependence from oil and petroleum exports (Adetayo, 2012). This has informed the search for strategies that will generate economic growth. Among such strategies is the Foreign Direct Investments. Several researches have been carried out on the subject of foreign direct investment (FDI) by various academia and researchers, based on the viability of the subject in quote. Such studies include that of Badaje et’al 2011, Auty, 1993, The World Bank, 2011, United Nation Conference for Trade and Development, 2012, Arestis, Nissanke, and Stein (2005) etc. Still the big question on the actual impact of FDI on the socio-economic development of Nigeria still lingers in the heart of scholars. The entry of foreign capital increases competition, boosts efficiency, enhances technological advancement, enhances domestic investment and reduces overhead cost. This aids in stimulating economic activities, not only by reason of the foreign investment but also by invigorating domestic investment which further engenders increase in economic activities, thereby ensuring maximal utilization of resources, with the resultant effect of national growth and development. The stimulating environment for development has therefore been inaccessible despite the anticipated prospects, due probably to likely paucity of economic activities, coupled with macroeconomic instability and other social challenges which are peculiar to developing economies. Therefore, this research is pinpointing on the impact of FDI and socio-economic development of Nigeria between 2005-2015


The primary objective of this study is to examine foreign direct investment and socio-economic development in Nigeria from 2005-2015. Specifically, the sub-objectives of the study are to;



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