FOREIGN INVESTMENT IN NIGERIA UNDER STRUCTURAL ADJUSTMENT PROGRAMME (SAP)

CHAPTER ONE

1.1     INTRDUCTION

          According to annual report of the Central Bank of Nigeria, the Nigeria economy has performed less well in the 1980’s than the 1970’s. Much of the growth in both periods was based on performance of the oil sector. By 1970 oil output stood at 558 million barrels and increased to 823 million barrels by 1973. Between 1975 – 1985, oil output per day averaged between 1.8 and 2.3 million barrels respectively. With the dramatic rise in oil price in 1973 and 1974 oil came to account for 31.9% of growth in real gross domestic products and has since continued to dominate economic performance in Niger sector. Although the aim of the policy was to translate oil revenue into directly productive structures and promote long-term development prospects, the imperatives and political pressure to spend led to consolable waste and to oil boom in construction activities.

          The oil include rise in the exchange rate also gave negative protection to agriculture and eroded it’s significance in the economy from about 40% of the gross domestic product I the early 1970’s to 1980’s. According, food imports which were only 200,000 lorus the 1960’s has increase tremendously to 399,000 tones in 1974, reaching a pear level of 2,441,000 lorus in 1981.

          By 1985 capacity utilization of most industries was below 20% owing to lack of foreign exchanges raw materials and sparse parts. Inflation had also attained an intolerable level. When therefore, the past administration in Nigeria came to power (the Babangida Administration) in August 1985, it looks a critical look at the magnititude of the economic problems facing the nation and in July 1986, it adopted a programme known as Structural Adjustment Programme (SAP) as a means of tackling these preambles.

          The entailed, among other things the diversification of the economics so as to make it more resilient to external forces. The import licensing system was abolished and the inter-bank foreign exchange system was introduced in September 1986 with a view to making the naira achieve a realistic exchange rate. The commodities abroad were abolished and which various government subsidies were either removed or splashed by means of commercialization and privatization; such as telecommunications and electricity.

          Generally, market forces in the allocation of resources replaced administrative controls. Public investments were generally reduced in government owned companies and in some cases such companies were fully privatized. Except in some strategic industries such petroleum liquefied nature gas (LMG) and petrol chemicals.

          Government has rather decided to concentrate on the provision and improvement of basic infrastructural facilities such as roads, water supply, telecommunications and electricity. The overall goal of the economic adjustment is to allocate resources efficiently and to put the economy back to the past glory. It aims to relocate rescues from the public sector to the private sector as that this sector will become more productive thereby becoming the economic foundation of Nigeria’s economy (Ayaji, 1990) foreign investments are those investment that are owned by individuals and corporate bodies from other countries than the host.

          The structural adjustment programme is an array of measures that are instituted with hope of revamping an ailing economy. As it affects the issues of foreign investments, the most important aspect of the structural adjustment programme is deregulation of the exchange rate and liberalizing the procedure for the registration of foreign business in Nigeria. Although the exchange control act was enacted in 1962, it was liberally applied until the outbreak of the civil in 1967.

          The 1968 Act provides that foreign investors had to obtain a business permit and must also obtain a permit to employ foreigners. The enterprises promotion Decrease of 1977 limited the equity participation of foreigners in local enterprises depending on their schedule or category, which such enterprises fall. However, with the introduction of the Structural Adjustment Programme, most of the regulations where released. Foreigner investors could seek and obtain licenses coordination committee (IDCC), bring I their funds and repatriate the profits, without any form of inhibition.

 

1.2                                    OBJECTIVES OF THE STUDY

          The objectives of the study are based on the changes that have taken place in the Nigeria economy during the structural Adjustment Programme in relation to foreign investment ascertaining the impact of those changes. On the economy and also appraise the foreign investment in Nigeria under the structural changes in the direction anticipated by the planning authorities. It is also envision new adjustments in SAP policies and offer suggestions that will enhance the realization of the goal of attracting more foreign investments in Nigeria. The study also examines the relationship that exists between the following:

  1. Foreign investments and gross Domestic Product Items.
  2. Foreign investment and value of Nigeria (N) it is expected that the aforementioned objectives of the study will be attained at the end of the study through the hypothesis formulation and testing.
  3. Foreigner investment and balance of payment.

 

1.3                                    SIGNIFICANCES OF THE STUDY

          For sometime now the impact of foreign investment on the national economy has become a topical issue in the press, industry and academic circles. The great importance of foreign investments on the economy under scores the need to erratically examine the consequences of the level of foreign investment on the economy. This study will be of a great significance to policy makers who are seeking avenues to evaluate the effectiveness help in the policy monitoring and control process. Research and student will also find study and invaluable reference in advance or future.

1.4                                    STATEMENT OF PROBLEM

          It is generally held that the stock capital and the existing level of technology in an economy determine the economy’s level of productivity. For this reason many countries, especially third countries pursue a rigorous industrial policy in order to increase their country’s standard of living. The two ways by which this is accomplished are by participating directly in individual activities and by providing infrastructure for others to invest.

          Due to the dearth of capital in third countries, including Nigeria, they prefer the latter option. They tend to enable both foreign and local investors to participate in the economy. The scenario of attracting foreign investment and local investors has been one of the cardinal points of the structural adjustment programme.

          This study is deigned to examine “the impact these foreign investments have made on Nigeria’s economy under the structural adjustment programme.

 

1.5                                    HYPOTHESES FORMULATION

          As a basic upon which this study is to be conducted, the following hypothesis have been formulated:

1:       The gross domestic product of Nigeria has a positive relationship with the increase    in foreign investment during SAP period.

2:       The gross domestic product of Nigeria has a negative relationship with the        increase in foreign investments during the SAP period.

3:       The value of Naira has not depreciated as result of increase in foreign investment.

 

1.6                                    SCOPE AND LIMITATION OF THE STUDY

          This study focuses on the levels of foreign investment in Nigeria and the way the GDP, BOP and the exchange rate of Naira respond to those increase levels of foreign investment for the period 1984 – 1992 (9 years).

          Attention is mainly focused on the structural adjustment programme. The limitation of this study is that it covers only this period in which information is available in the Central Bank Of Nigeria (CBN).

          For instance, information relating to foreign investment as regards gross domestic product and balance of payment positions where not readily available for 1993, as SAP ended in 1993.

 

1.7                                    DEFINITION OF TERM

Investment: This is ploughing one’s finance or finds into projects or assets (be it tangible of financial assets) with a view to increasing one’s wealth.

Foreign Investment: Foreign investments are those investments that are owned by individual and corporate bodies from other countries then the host country that is, hose businesses which foreigners maintain controlling shares of which foreigners fully own, can be regarded as foreign investment (Alphonsus, 1991).

Gross Domestic Product: - The gross domestic product is the total value of all goods and services produced in a country usually a year. If the net income from aboard is added to the gross domestic product we get the gross national product.

 Balance of payment:  - The balance of payment of any country is a record of all economic transactions involving countries of the world in any gives period usually in one calendar year.

Foreign Exchange Rate: - The foreign exchange rate is defined as the price of one unit of a foreign currency in terms of a unit of the domestic currency. The exchange rate between the Nigeria naira and the British pound sterling is the number of naira required to buy one-pound starling. (Ewa udu and G.A. Agu 1992).

Private Sector: - The private sector can e defined as that sector of the economy owned by individuals and operated by individuals, that is absence of government ownership.

Mutt National Company: - This refers to a foreign company that has subsidiaries in other foreign investments, National mainly manage its local subsidiaries (WESTOM, 1984).

Devaluation of Exchange Rate: - This is the reduction if the value of a country’s currency with respect to that of another country or countries. It involves a country’s currency depreciating to a certain level, which is always done by country / countries Central Bank so as to correct their balances in the economy.

Get the Complete Project