IMPACT OF FOREIGN DIRECT INVESTMENT ON NATIONAL DEVELOPMENT IN NIGERIA (1986-2023)

1.1 BACKGROUND TO THE STUDY The need for an economic environment that facilitates and promotes investments and growth in the economy is still necessary. Nigerians took a giant step towards the struggle for independence which materialized in the 1st of October 1960s then the various national policies designed and created by the Nigerian government to facilitate the development of Nigerian economy. Hence, Foreign Direct Investment (FDI) is a function of such policies. The establishment of Nigerian Investment Promotion Commission (NIPC) Act of 1995, amended in 2004, dismantled controls and limits on FDI, allowing for 100% foreign ownership in all sectors, except those prohibited by law for both local and foreign entities. These include arms and ammunitions, narcotics, and military apparel. However, the nature of business activities in the sectors which are listed under the investment prohibition list are enterprises involved in products or services that touch on national security. Nevertheless, foreign investors receive largely the same treatment as domestic investors in Nigeria, including tax incentives. The Act also created the NIPC with a mandate to encourage and assist foreign investment in Nigeria. Furthermore, Nigerian government established Economic and Financial Crime Commission (EFCC), Independent Corrupt Practices Commission (ICPC) etc. to fight against corruption aiming at providing enable business environment for business to strife. Aladelusi, & Olayiwola, (2021) state that countries seeking foreign direct investment (FDI) should create a more favorable climate for multinational enterprises through the improvement of political and economic policies that will stimulate the (FDI) inflows. Foreign direct investment is defined as an investment undertaken by an enterprise that is either wholly or partly foreign owned. Foreign direct investment (FDI) is perceived to have a positive impact on the economic growth of a host country through various direct and indirect channels. Also, foreign direct investment refers to investment made in another economy that can generate income to the investing country. It is the investment in factor of production abroad by multi-national corporations. World bank (1996) FDI as 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 investors. (Rahim, and Yusof, 2021). Since the early 1990s developing countries have increasingly liberalized, privatized and deregulated their service industries, with a view to greater participation in the global economy (Chattopadhyay, Rakshit, Chatterjee, & Paul, 2022). More welcoming policies on foreign direct investments (FDIs) have been a prominent component of this trend. National policies on FDI typically feature measures aimed at both attracting and discouraging inflows (Daniel, 2021). Policies to attract FDI such as tax breaks, favourable regulatory treatment and subsidies of various sorts are usually focused on manufacturing (Rădulescu, & Druica, 2014). Meanwhile, policies restricting inward FDI are mainly concentrated in the service sector (Andreff, 2016). This increased competition led more countries to their present similar conditions before the investors with regard to the fiscal regime, qualification of working force and infrastructure. There are several factors such as corruption, political instability, macroeconomic instability that affect the investment climate (Bimal, 2017). Ndem, Okoronkwo and Nwamuo (2014) stress that the factors influencing FDI decisions are varied, because the decision to make on foreign direct investment (FDI) is a very important one which requires a large capital commitment and can have a significant effect on the firm and the host country. Thus, according to Almonte, Morales Fajardo, & Carbajal Suárez (2018), fiscal policy to is believed to be one of the factors that affect foreign direct investment (FDI) decisions and investment climate. Eze and Ogiji, (2013), thus argued that, fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy which they are the two main instrument of fiscal policy. It can also be seen as the means by which a government adjusts its level of spending to monitor and influence a nation’s economy. Government revenue (taxation) is a powerful instrument of fiscal policy in the hands of public authorities which greatly affect the changes in disposable income, consumption and investment (Havi, & Enu, 2015). An anti- depression tax policy increases disposable income of the individual, promotes consumption and investment (Oduola, Bello, & Popoola, 2022). Obviously, there will be more funds with the people for consumption and investment purposes at the time of tax reduction. This will ultimately result in the increase in spending activities i.e. it will tend to increase effective demand and reduce the deflationary gap. This instrument helps the government to mobilize finance that will enable them expand foreign direct investment to generate income to the investing country (Daniel, 2014). According to World Bank (1994), Structural Adjustment Program (SAP) initiatives to improve the regulatory climate for the private sector represent a major step forward. Implementation, however, sometimes falls short of government reform policy, and special attention needs to focus on the Development Coordinating Committee (DCC). Meanwhile, by extending the incentives under the Bureau of Public Enterprises (BPE) in Nigeria plays a crucial role in facilitating and promoting foreign direct investment (FDI) in the country. The BPE is a government agency responsible for the privatization and commercialization of public enterprises in Nigeria. Its main objective is to attract private sector investment, both domestic and foreign, in various sectors of the Nigerian economy. The BPE contributes to FDI in Nigeria through Investment Promotion (Nwali, Johnson, & Oganezi 2019). The BPE actively promotes investment opportunities in Nigeria to domestic and foreign investors. It organizes investment forums, roadshows, and other events to showcase the potential of various sectors and attract FDI. The agency provides information, guidance, and support to potential investors, helping them navigate the investment landscape in Nigeria. The BPE contributes to FDI in through Nigeria investor facilitation (Kofarbai 2015). The BPE facilitates the entry and operations of foreign investors in Nigeria. It assists investors in obtaining necessary permits, licenses, and approvals from relevant government agencies. The BPE also helps resolve investment-related issues and disputes, acting as a liaison between investors and other stakeholders. Also, BPE contributes to FDI in through policy advocacy (Kofarbai 2015). Attempts at attracting FDI into Nigeria economy have been base or the need to maximize the potential benefits which will be derived and to minimize the negative effects it could impact on the country. because One of the major objective of every economy is to achieve high economic growth that is increase in Gross Domestic Product (GDP) that will lead to rapid economic development through poverty reduction, creation of employment opportunity, infrastructure, technology transfer, increase in productive efficiency and the entire promotion of the welfare of the citizen by accommodation of human and physical capital. Foreign direct investment refers to direct investment equity flows in the reporting economy. It is the sum of equity capital, reinvestment of earnings, and other capital. Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Ownership of 10 percent or more of the ordinary shares of voting stock is the criterion for determining the existence of a direct investment relationship. Data are in current U.S. dollars. Nigeria’s foreign investment inflows fell by 26.7 percent to US$3.9 billion in 2023 from US$5.3 billion in 2022 (World Bank. 2023). The decline was orchestrated by the consecutive drop in foreign investment inflows in the first three quarters of 2023 due to political risks and elevated production costs. Consequently, foreign-owned subsidiaries, including Nestle, Guinness, Airtel Africa, and MTN Nigeria, have lost over N900 billion to currency devaluation (Aladelusi, & Olayiwola, 2023). However, the implementation of pro-market reforms – fuel subsidy removal and exchange rate harmonisation - reverted the trend in the fourth quarter of 2023 as capital importation rose to US$1.1 billion. Nonetheless, the overall drop inz foreign investment inflows reflects the unfavourable investment climate, which has doused investors’ confidence in the Nigerian economy. Moreover, the increase in capital importation in 2023Q4 was primarily attributed to the Apex Bank’s giant strides in gradually clearing the foreign exchange (FX) backlogs, which improved investors’ confidence. Furthermore, the improvement in the foreign investment inflows in 2023Q4 is traceable to the surge in Foreign Direct Investment (FDI) to US$184 million in 2023Q4 from US$84.2 million in 2022Q4. Correspondingly, the share of FDI in total investment inflows jumped to 16.9 percent in 2023Q4 relative to its level in 2022Q4 (7.9 percent). Similarly, Foreign Portfolio Investment (FPI) rose by 8.6 percent (year-on-year) to US$309.8 million in 2023Q4 (World Bank. 2023). However, Other Investments – entirely dominated by foreign loans – fell to US$594.8 million in 2023Q4 from US$691.2 million in 2022Q4 (World Bank. 2023). Meanwhile, FDI fell by 19.4 percent to US$377.4 million in 2023 from US$468.1 million in 2022. This is not unconnected with the divestments by major multinational oil and manufacturing companies due to an unfavourable business environment. Specifically, Shell reached a financial close to selling its onshore oilfields in Nigeria at US$2.4 billion (Ayomitunde, Ganiyu, Sokunbi, & Adebola 2020). Similarly, a British Pharmaceutical and Biotechnology Company, GlaxoSmithKline Consumer Nigeria, exited the country after 51 years of operation. The other multinational firms that divested from Nigeria in 2023 include Procter & Gamble (an American multinational consumer goods company), Unilever Nigeria (home care and skin cleansing division), Sanofi, and Bolt Foods (Oyegoke, & Aras, 2023). According to CBN (2019), the amount of FDI inflow into Nigeria reached US$ 1,997 Million with a decline of 42.88% in 2018, in 2017 it also decline with 21.32% (US$ 3, 497 Million), in 2016 it rose to 41.68% (US$ 4, 445 Million), in 2015 it decline by 32.55% (US$ 3, 137 Million), in 2014 it also decline by 16.38% (US$ 4,651 Million), and 2011it rose to 46.71% (US$ 8,841 Million).According to Babajide (2019), The total capital inflow from Jan to May, 2019 stood at $ 2.87 Billion representing 20.18% of the total amount. According to Ogbanje, & Salami, (2022), "The country continues to enjoy steady capital flows due to the prevailing stable macroeconomic environment and sustained investors' confidence in the economy” one would be right to say “Nigeria is a beautiful bride for foreign investors”. This has not really been so in Nigeria, prior to the investment code that created the Nigeria Investment Promotion Commission (NIPC) Decree No. 16 of 1995 and the Foreign Exchange (Monitoring and Miscellaneous Provision) Decree, also enacted in 1995, which give full backing for Foreign Direct Investment 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.