Paper presentation by Emmanuel Okoh of Synergy Research.

1. i
IN WHAT WAY DOES FOREIGN DIRECT INVESTMENT CONTRIBUTE TO THE
DEVELOPMENT OF NIGERIA?
EMMANUEL OKOH
SYNERGY RESEARCH KADUNA

2. ii
Abstract
Foreign Direct Investment (FDI) facilitates the formation of human capital as well as transfers of
technology required in industrialization and also increases revenue generaton. As a result, the st-
udy shows that FDI contributes positively to development in Nigeria. Therefore this study seeks
to examines the contribution of FDI to Development in Nigeria.

3. 3
Introduction
The effect of Foreign Direct Investment on development has been a contentious in recent pass. In
particular, direct influences of FDI on Nigeria industrialization and human capacity building are
felt through the inflow of foreign direct investment. As a result, it is not off place to find out if
the presence of foreign investments has significantly impacted the manufacturing sector as well
as oil and telecommunication sector, which is a sub-sect of development in Nigeria1
FDI can be instrumental to development in Nigeria through it spillover effect in long run. This
effect will facilitate technological transfer and innovation required in the industrialization of
Nigeria. Hence it is evident that FDI facilitates manufacturing through the inflow of technology
as well as human capital and material resource required in the manufacturing industry in
Nigeria.2 FDI also make available foreign market for primary and secondary products and
produce. A typical example is the market for petroleum product made available by multinationals
such as Shell petroleum, Cheveron, Mobile etc.
The effects of foreign direct investment industrialization in Nigeria cannot be over emphasis.3 It
is against this background that the study seeks to examine the contribution of FDI to
development in Nigeria.
1
Ekpo, A .H. (2003). Foreign Direct Investment in Nigeria: Evidence from Time Series Data.
CBN Economic & Financial Review, 35(1), 59- 78. Abuja.
2
Adelegan, J.O. (2010). “Foreign direct investment and economic growth in Nigeria: A
seemingly unrelated model”. African Review of Money, Finance and Banking, Supplementary
issue of “Savings and Development” 2000. pp.5–25. Milan, Italy.
3
Funke, N. (2003). “The New Partnership for Africa's Development (NEPAD): Opportunities
and challenges”. IMF Working Paper No.03/69. International Monetary Fund, Washington, D.C.

4. 4
The Concept of Foreign Direct Investment
Foreign direct investment FDI is the establishment of businesses across boarder by Multinational
Corporation a county. In other words, it is the act of establishing business by foreign nationals in
another country. FDI can bring industrial development because of its unique potent bundle of
capital, contacts, managerial and technological knowledge with potential spillover benefits for
host country firms. This is the reason why FDI constitutes ladder to industrial development.
To put more light into this definition, it is imperative to throw more light on some of the key
words or phrases that make up this definition. The first is “a category of cross-border
investment”. This implies that FDI is one of other categories of cross-border investment such as
portfolio investment. The second is “made by a resident in one economy (direct enterprise)”.This
means that direct investor must be an enterprise whose parent or head office is in a foreign
country. For example, General Motors Corporation has its parent office in the United States of
America.4
Foreign direct investment (FDI) is a term used to denote the acquisition abroad of physical
assets, such as plant and equipment, with operational control ultimately residing with the parent
company in the home country. It may take a number of different forms including: the
establishment of a new enterprise in an overseas country ;either as a branch or as a subsidiary as
well as the expansion of an existing overseas branch or subsidiary and the acquisition of an
4
Opaluwa .D, Ameh, A.A. & J.C. Umeh (2010). The Effect of Exchange Rate Fluctuations on
the Nigerian Manufacturing Sector. African Journal of Business Management, 4(14), 2994 –
2998. Maxwell Publications. www.academic journal.com

5. 5
overseas business enterprise or its assets. Why prefers a firm direct foreign investment to the
central of its own country”5.
This implies that the residence of the direct investment enterprise must be different from that of
the direct investor. Thus direct investors like General at of the direct investor”. This implies that
the residence of the direct investment enterprise must be different from that of the direct investor.
Thus a direct investor like General Motors Corporation in the U.S could establish a lasting
interest in a direct investment enterprise in Japan. The direct investment enterprise could be a
branch, in which the direct investor owns 100% of the enterprise; a subsidiary, in which the
direct investor owns more than 50% of the equity or voting power; or an associate, in which the
direct investor holds between 10% and 50% of the voting power.6
Subsidiaries and associates are incorporated while branches are unincorporated. FDI could be in
various modes. The notable modes include: Greenfield investment, which occurs when a firm
sets up a new operation in a foreign country; Brownfield investment involves expansion or
reinvestment in already existing foreign affiliates; Mergers and Acquisitions (M&A);
Privatization and equity investment; Joint ventures and Strategic alliances, etc. Another way of
classifying FDI is according to its forms, namely: horizontal and vertical FDI. In simple terms,
Horizontal FDI involves extending the production of the goods produced in the parent company
5
Odozi, V.A. (2012). An Overview of Foreign Investment in Nigeria. Occasional Paper No. 11.
Research Department, Central Bank of Nigeria.
6
Endozien, E. (1968). “Linkages, direct foreign investment and Nigeria’s economic
development”. The Nigerian Journal of Economic and Social Studies, 10(2): 119–203.

6. 6
to a foreign country. On the other hand, vertical FDI involves shifting stages of production to a
foreign country.7
Foreign direct investment (FDI) is an investment made to acquire a lasting management interest
(normally 10% of voting stock) in a business enterprise operating in a country other than that of
the investor defined according to residency.8 This suggests that ownership of equity is the central
requirement for FDI. But Caves (1971) pointed out that most direct investments involve a
foreign corporate parent, and not merely foreign individuals.9
FDI is an investment made to acquire a lasting management interest (normally 10% of voting
stock) in a business enterprise operating in a country other than that of the investor defined
according to residency. Such investments may take the form of either “greenfield” investment
(also called “mortar and brick” investment) or merger and acquisition (M&A), which entails the
acquisition of existing interest rather than new investment.10
Evaluation and Assessment of the Contribution of FDI in Development in Nigeria
Nigeria as a country, given her natural resource base and large market size, qualifies to be a
major recipient of FDI in Africa and indeed is one of the top three leading African countries that
consistently received FDI in the past decade. However, the level of FDI attracted by Nigeria is
7 Ahmed A. (2008) Strategies for foreign investment in Nigeria. A central Bank perspective
Economic and Financial Review volume 26.
8
Bhattachary A, (2007) How can sub-saharan African attract more private capital in flow.
9
Bhinda, N., S.Griffith-Jones and M. Martin. (1999). Private Capital Flows to Africa: Perception
and Reality. The Hague: FONDAD.
10
Blomstrom, M. & Sjoholm, F (1999). “Technological transfer and spillover: Does local
participation with multinationals matter?” European Economic Review, 43: 915–23.

7. 7
mediocre compared with the resource base and potential need. Further, the empirical linkage
between FDI and economic growth in Nigeria is yet unclear, despite numerous studies that have
examined the influence of FDI on Nigeria’s economic growth with varying outcomes. 11
More than 60% of the FDI inflows into Nigeria is made into the extractive (oil) industry. Nigeria
is a country endowed with arable land and abundant natural resources. Government policies have
been directed towards ensuring that what nature has provided is harnessed and utilized to the
fullest for the benefit of the citizenry. Thus, Government policies and strategies towards foreign
investments in Nigeria are usually shaped by two principal objectives: the desire for economic
independence and the demand for economic development.12
FDI contributes to GDP growth rates and is seen as a vital tool for economic progress. Hence,
FDI induces the inflow of capital, technical know-how and managerial capacity which accelerate
the pace of economic growth. FDI also raises the level of capital formation, promote exports and
generate foreign exchange. Indeed, the role of FDI in capital formation in Nigeria has been
increasing over the years. FDI/GCF (Gross Capital Formation) rose from 7.3% in 1974 to about
17% in 1985, although it was generally low in the late 1970s and early 1980s. For example, FDI
only contributed 1.5% to GDP growth in 1976 and 0.5% in 1982. 13
11
Greg, J. (2013). The Role of FDI and Natural Resources in Economic Development. Working
paper No 196. Central Bank of Nigeria.
12
Dipak, M, and Ata, M. (2003). The African Manufacturing Firm, an Analysis Based on Firm
Studies in Sub-Saharan Africa. Port Harcourt: Taylor and Francis Ltd.
13
Dunning J. H. (2012) Re-evaluating the benefits of foreign direct investment, Transnational
Corporations, Vol. 3, February, No 1, 23-51.

8. 8
The linkage between investment and growth does not mean that capital accumulation is the sole
determination of economic growth in Nigeria. FDI may also influence investment by domestic
firms and by other foreign affiliates. An IMF study based on 69 countries over the period 1970–
1989 found that FDI from developed countries stimulated domestic investment. FDI appears to
be the most crucial component of capital inflow Nigeria should seek to attract in the light of her
current economic circumstances. Many studies, however, indicate that the impact of FDI is
limited or even negative sometimes. FDI in Nigeria was directed at import substituting firms, the
value of imports was observed to be greater than the value added produced. This type of FDI
would give rise to outflows of investment income and high cost of imported inputs which
adversely affect growth. 14
FDI enhance human capital development in Nigeria. In this regard, DFI promote entrepreneurshi
p development as well as facilitate employment generation in Nigeria and enhances private secto
r participation. FDI also facilitate the development of local industry. Multi National companies
employ Nigerians as their staff and using Nigerian business as their suppliers and distributors.
FDI has greatly augment domestic efforts by creating more jobs in the economy. This is evident
in the employment generation capacity of Multinational Corporation such as MTN. Shell,
Chevron and other multinational companies in Telecommunication and Manufacturing and
petroleum sectors in Nigeria. FDI can be instrumental to development in Nigeria through it
spillover effect in long run. This effect will facilitate technological transfer and innovation
required in the industrialization of Nigeria. Hence it is evident that FDI facilitates manufacturing
14
Adelegan, J.O. (2010). “Foreign direct investment and economic growth in Nigeria: A
seemingly unrelated model”. African Review of Money, Finance and Banking, Supplementary
issue of “Savings and Development” 2000. pp.5–25. Milan, Italy.

9. 9
through the inflow of technology as well as human capital and material resource required in
the manufacturing industry in Nigeria. FDI also make available foreign market for primary and
secondary products and produce. A typical example is the market for petroleum product made
available by multinationals such as Shell petroleum, Cheveron, Mobile etc.
Through FDI in Nigeria, research and development (R&D) is enhanced by multinational
corporations (MNCs) thereby leading to technology transfer. Multi-National Corporations
provided local training programs, Nigerians were intricacies of machinery construction or
installation. Consequently, their innovative ability is enhanced. .Although a lot of studies
indicate that there exists a positive relationship between FDI and economic growth in Nigeria,
there is a consensus among economists that the country’s growth rate would have a positive
impact on FDI. The prospect that FDI will be profitable is brighter if the nation’s economic
health is better and the growth rate of GDP is higher.15
Conclusion
The findings revealed that there is a significant relationship between foreign direct investment,
development in Nigeria. This means that development is directly related to inflow of foreign
direct investment due to spillover effect of FDI. This implies that FDI facilities transfer of
technology and innovation and also create employment As a result, FDI enhance development
through improved technology as well as sufficient capital and the labour force in host economies,
in terms of skills, technical know-how and wages.
15
Funke, N. (2003). “The New Partnership for Africa's Development (NEPAD): Opportunities
and challenges”. IMF Working Paper No.03/69. International Monetary Fund, Washington, D.C.

10. 10
Recommendations
In the light of the above findings, the followings, i.e. recommendations are proposed:-
1. Government should provide enabling environment that will be conducive for doing business
in Nigeria, so as to attract the inflow of FDI.
2. There is need for government to be formulating investment policies that will be favorable to
local investors in order to compete with the inflow of investment from foreign countries.
3. Favorable exchange rate policies should be formulated and implemented to facilitate
exchange rate – export growth economically at the Nigerian economy.
4. In order to attract foreign direct investments into Nigeria, efforts should be made at solving
the problems of government involvement in business; relative closed economy; corruption; weak
public institutions; and poor external image. It is therefore advised that the government continues
with its privatization programme, external image laundry, seriousness and openness in the fight
against corruption as well as insurgency and signing of more trade agreements.

11. 11
Endnotes
1. Ekpo, A .H. (2003). Foreign Direct Investment in Nigeria: Evidence from Time Series Data.
CBN Economic & Financial Review, 35(1), 59- 78. Abuja.
2. Adelegan, J.O. (2010). “Foreign direct investment and economic growth in Nigeria: A
seemingly unrelated model”. African Review of Money, Finance and Banking, Supplementary
issue of “Savings and Development” 2000. pp.5–25. Milan, Italy.
3. Funke, N. (2003). “The New Partnership for Africa's Development (NEPAD): Opportunities
and challenges”. IMF Working Paper No.03/69. International Monetary Fund, Washington, D.C.
4. Asiedu. D. (2004). Prospects of FDI in Nigeria. Paper presented to the African Economic
Research Consortium. Special Seminar Series. Lagos. Poverty Alleviation CRERS.
5. Opaluwa .D, Ameh, A.A. & J.C. Umeh (2010). The Effect of Exchange Rate Fluctuations on
the Nigerian Manufacturing Sector. African Journal of Business Management, 4(14), 2994 –
2998. Maxwell Publications. www.academic journal.com
6. Odozi, V.A. (2012). An Overview of Foreign Investment in Nigeria. Occasional Paper No. 11.
Research Department, Central Bank of Nigeria.
7. Endozien, E. (1968). “Linkages, direct foreign investment and Nigeria’s economic
development”. The Nigerian Journal of Economic and Social Studies, 10(2): 119–203.
8. Ahmed A. (2008) Strategies for foreign investment in Nigeria. A central Bank perspective
Economic and Financial Review volume 26.
9. Bhattachary A, (2007) How can sub-saharan African attract more private capital in flow.
10. Bhinda, N., S.Griffith-Jones and M. Martin. (1999). Private Capital Flows to Africa:
Perception and Reality. The Hague: FONDAD.
11. Blomstrom, M. & Sjoholm, F (1999). “Technological transfer and spillover: Does local
participation with multinationals matter?” European Economic Review, 43: 915–23.
12. Greg, J. (2013). The Role of FDI and Natural Resources in Economic Development.
Working paper No 196. Central Bank of Nigeria.
13. Dipak, M, and Ata, M. (2003). The African Manufacturing Firm, an Analysis Based on Firm
Studies in Sub-Saharan Africa. Port Harcourt: Taylor and Francis Ltd.
14. Dunning J. H. (2012) Re-evaluating the benefits of foreign direct investment, Transnational
Corporations, Vol. 3, February, No 1, 23-51.
15. Adelegan, J.O. (2010). “Foreign direct investment and economic growth in Nigeria: A
seemingly unrelated model”. African Review of Money, Finance and Banking, Supplementary
issue of “Savings and Development” 2000. pp.5–25. Milan, Italy.
16. Funke, N. (2003). “The New Partnership for Africa's Development (NEPAD): Opportunities
and challenges”. IMF Working Paper No.03/69. International Monetary Fund, Washington, D.C.