IMPACT OF FDI ON THE CONSTRUCTION SECTOR OF THE NIGERIAN ECONOMY

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

The construction sector occupies a focal position in the economy of any nation because it is an important contributor to the process of development (Aje, 2008). In the conduct of economic activities, the construction sector is always used by government as the stimulus for the buoyancy of the economy (Akindoyemi, 2011). The construction industry is therefore a critical factor or variable of progress in the drive for economic advancement of nations, especially developing countries such as Nigeria. Nigeria no doubt requires substantial amounts of foreign investment in the construction sector to speed up her economic growth most especially in the area of building and construction infrastructure/facilities investment and to promote development, which will in turn boost GDP. The significance of foreign capital for the provision of infrastructure development for both macroeconomic and microeconomic activities of the society, cannot therefore, be overemphasized.

Todero (2001) described infrastructure as the pillar of growth in Africa and it is generally inadequate and of poor quality when compared to developed nations of the world. Foreign capital has long been accepted as an inevitable input in the development process, given the fact that no country is an “island” with self sufficiency on her in terms of needed resources, to stimulate economic growth and development (Orji, 2004). This is a continuation from experience of some countries in South East Asia notably, Singapore, South Korea, Taiwan and Hong Kong (Ayo, 2008).

The Organization for Economic Co-operation and Development (OECD), (2002) succinctly described Foreign direct investment (FDI) as follows: an integral part of the international economic system and a major catalyst for development or the flow of capital and human resource from one country to another. Foreign direct investment (FDI) is thus part of the economic system that stimulates economic growth including infrastructural development. In view of the role of foreign capital inflows as investment mechanism for economic growth in most countries, it is a strong indicator of the economic strength of Nations.

National policies and the international industrial architecture obviously play a significant role in attracting FDI to most countries and stimulating growth. For instance, Nigeria’s vision 20: 2020 sets strategies and targets in every sector of the economy that are expected to ensure that the country joins the group of twenty most developed economies in the next ten years. Kolapo (2010) asserted that it is unfortunate that the palpable bottleneck in the way of sustainable growth in Nigeria are only a clear manifestation of five decades of dishonest and egocentric governance. Some notorious past leaders had unwittingly given themselves away as incompetent by saying that Nigeria’s problems defiled all logic. Discerning Nigerians only need to study the development strategies of hitherto neglected African countries to unveil real economic pests. In his view too, there is also lack of effective interplay between leaders of African countries to provide the support institutions and the dynamic domestic entrepreneurial class which is a key success factor for attracting foreign direct investment.

Another major hindrance to FDI inflow in the continent is the fact that a number of investors are not aware of the strides taken by African countries towards development, as many of them limit their focus to political stability, corruption and weak infrastructure (Eboh, 2011). It has been observed that the infrastructural base of the Nigerian economy has remained weak in the past decades. This is because of the low gross domestic savings of developing Countries such as Nigeria, which is a major limitation in financing infrastructural development (Orji, 2004), hence the need for foreign direct investment (FDI) to maximize advantages such as managerial skills, marketing connection, technical knowledge, technological transfer, training of local work force and movement of hard currency into the country.

According to Mogbo (2004) and Egolum (2011) past governments have made attempt in solving the problem by expressing determination to improve basic infrastructures as a means of promoting economic development through soft loans and grants from Multilateral Financial Institutions (MFIs) such as International Monetary Fund (IMF), World Bank and other lending nations. These loans and grants are normally characterized with conditionality’s such as budgets cuts in the social sectors; subsidy removal, leading to exchange rate crisis, massive devaluation of local currency and terms of trade determination, foreign content and expatriate usage, unemployment and underemployment (Egolum, 2011).

1.2   STATEMENT OF THE PROBLEM

A number of studies have been carried out on FDI and growth in Nigeria with varying results and submissions. However, these studies did not establish that most of the FDI was concentrated in the extractive industry. In other words, it could be said that these works assessed the impact of investment on the extractive industry (oil and natural resources) on Nigeria’s economic growth and not the construction industry.

Based on afore mentioned facts and issues, it becomes expedient to study and investigate the impact or adequacy of FDI on the Nigerian construction industry. It is thus expected that this study, while bringing to the fore, the extent of FDI impact or effect on the construction sector, it will also show the significant response of the Nigerian construction sector to FDI inflow in Nigeria. The study will also spur government agencies/departments involved in foreign investment to identify and tackle the hindrances of FDI flows with a view to enhancing the inflow of FDI in the construction sector; since, as established, the sector is a potent motivator of the national economy, providing the driving force necessary for either sustaining a buoyant economy or reviving a depressed one.

1.3   OBJECTIVES OF THE STUDY

The following are the objectives of this study:

  1. To assess the impact of foreign direct investment on the construction sector in Nigeria.
  2. To examine the rate of inflow of foreign direct investment into the Nigerian construction sector.
  3. To identify the factors limiting the inflow of foreign direct investment into the Nigerian construction sector

1.4   RESEARCH QUESTIONS

  1. What is the impact of foreign direct investment on the construction sector in Nigeria?
  2. What is the rate of inflow of foreign direct investment into the Nigerian construction sector?
  3. What are the factors limiting the inflow of foreign direct investment into the Nigerian construction sector?

1.5   HYPOTHESIS

HO: There is no significant relationship between foreign direct investment and construction sector development in Nigeria.

HA: There is significant relationship between foreign direct investment and construction sector development in Nigeria.

1.6   SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

  1. The outcome of this study will enhance the competitiveness and survival of Nigerian construction industry in the global market and ultimately improve the contribution of the construction sector to the national economy.
  2. This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.

1.7   SCOPE/LIMITATIONS OF THE STUDY

This study will cover the effect of foreign direct investment on the construction sector of the Nigerian economy.

LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

 Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

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