FOREIGN DIRECT INVESTMENT AND MANUFACTURING INDUSTRY IN NIGERIA, PERFORMANCE, PROBLEMS AND PROSPECTS

Description

ABSTRACT

This study shows the performance of foreign direct investment on the manufacturing sector of the Nigeria economy. The study adopts a time series approach to the development of three different models namely; Manufacturing Value Added Model, Foreign direct investment, Interest rate and Gross fixed capital formation, from the year 1981 to 2015.The required data were collected from the central bank of Nigeria (CBN) 2015 statistical bulletin. The econometric model of multiple regression analysis was used to test the relationship between the dependent and independent variable, the short and the long run impacts of the foreign direct investment inflow on Nigeria’s manufacturing sector was analyzed using OLS estimation technique. All variables will be tested to confirm the absence or presence of unit roots problems using ADF (Augmented Dickey-Fuller) test for the period in consideration. To test the impact of foreign direct investment (FDI), on the Manufacturing sub-sector’s performance, the Manufacturing Value Added (MVA) will be used to proxy the performance in the manufacturing industry

1.1 Background of the Study

One of the major objectives of every economy is to achieve a high economic growth that will lead to rapid economic development through poverty reduction, creation of employment opportunities and entire promotion of the welfare of the citizen.

Virtually, almost all development theories believe that this economic growth can be achieved through the accumulation of physical and human capital among other things. Hence, the accumulation of capital can come in the form of foreign direct investment (FDI) and domestic investment which are the central issues on which this research work revolves.

The Nigerian economy has been on the highest recipient of the capital income from the nest of the world (CBN statistical Bulletin, 2010). The reasons behind these are undoubtedly the large market size of the economy, the level of its trade openness among other reasons. But recent events in the country show that such benefit might not be sustained given the present socio-political rivals form the sect of some anti-social group popularly known as the “Boko Haram” in the country which highly detrimental to the economic health of the nation as well as the entire growth of the economic. This leads to a snail movement of the development process and eventually a complete over hauling of the entire system, lack of industrialization, capital flight and absence of technology transfer. For instance the level of Nigeria’s share of foreign Direct Investment (FDI) in flows to Africa, fell from 35.3% in 2005 and stood at 14.1% in 2010 (CBN statistical Bulletin 2010). Hence, the macroeconomic environment of the country is no longer conducive for investors to thrive and no one will like to invest in a place where he will suffer capital loss no matter how promising and profitable it appears. In addition to what has been said so far, attempts will be made in the literature to unravel the cause of this volatility and unstable flow of foreign direct investment to Nigeria and the consequences of such volatility of overall of overall economic progress in the country; among issues investigated is the effect of global economic policy shocks and uncertainty. Theoretically, uncertainty may adversely affect Foreign Direct Investment.