IMPACT OF POLITICAL DEVELOPMENT ON FOREIGN DIRECT INVESTMENT DURING PRESIDENT AHMED BOLA TINUBU'S ADMINISTRATION

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Political development, often synonymous with the idealized politics of Western societies, signifies a progression towards political modernization. While advanced industrial nations often set the standards for social and economic life, the same is anticipated in the political realm (Chukuemeka, Okoye Egboh, and Ewuim, 2012). Political development is characterized by patterns of rational and responsible governmental behavior, emphasizing the avoidance of actions that jeopardize societal interests, recognition of limits to political sovereignty, adherence to orderly administrative and legal procedures, acknowledgment of politics as a means to solve problems, emphasis on welfare programs, and an endorsement of some form of mass participation (Malik and Mansur, 2017).

For a political state, a crucial element is the credible commitment to assure potential and current investors that their profits and means of production will not be arbitrarily expropriated (Chukuemeka, 2012). This commitment, beneficial to both the state and investors, hinges on adhering to formal and informal rules. Formal institutions, such as legal frameworks preventing illegal seizure of private property, courts offering sanctions for non-payment of dues, and bankruptcy procedures safeguarding financiers during bankruptcy, serve as examples of formal institutions ensuring credible commitment (Malik and Mansur, 2017). In the absence or inefficiency of formal institutions, informal institutions like kinship structures, social norms, and patron-client networks can also act as credible commitment mechanisms (Olokoyo, 2012).

 

To ensure investor confidence and commitment to investment decisions, governments must establish and maintain credible commitment through a combination of both formal and informal institutional mechanisms.

For example, in a patron–client network, where the patron is the politician and the client is the domestic entrepreneur, the politician may protect the entrepreneur and provide access to funds and certain privileges such privileges can be licenses for production, imports in return for the rents that accrue from production which may be used in part for financing the political machinery and executing political policies. Foreign direct investors will then have an incentive to find political patrons who may be keen to protect them, in exchange for economic and political support.

Foreign direct investment (FDI) is a productive investment in a country by an individual or company of another country. This can either be in form of buying a company in the target country or by expanding operations of an existing business in the country (Wafure and Nurudeen, 2010). Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. World Bank (2018) conceptualized Foreign Direct Investment (foreign direct investment) 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 the investors the investors purpose being an effective voice in the management of earning either long term capital or short term capital as shown in the nations balance of payments account statement (Emmanuel, 2016).

Broadly, foreign direct investment includes mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans. In a narrow sense, foreign direct investment refers just to building new facilities. Olokoyo, (2012) believed that foreign direct investment encourages the inflow of technology and skills and fills the gap between domestically available supplies of savings, foreign exchange and government revenue. It also encourages the inflow of technology and skills. Adeleke et al., (2014) asserted that the contributions of foreign investment to Japan after the World War II and in South Korea after the Korean War has tremendously assisted the economic growth of these countries by providing the local economy with a source of foreign skill, technology, management expertise and human resource development through international training and collaboration (Emmanuel, 2016).

Fredrick and Charles, (2014) asserted that Nigeria’s foreign investment can be traced back to the colonial era, when the colonial masters had the intention of exploiting our resources for the development of their economy. There was little investment by these colonial masters. With the research and discovery of oil foreign investment in Nigeria, but since then, Nigeria’s foreign investment has not been stable. The Nigerian governments have recognized the importance of foreign direct investment in enhancing economic growth and development and various strategies involving incentive policies and regulatory measure have been put in place to promote the inflow of foreign direct investment to the country. According to Adeleke et al., (2014), privatization was also adopted, among other measures, to encourage foreign investments in Nigeria. This involved transfer of state-owned enterprises like manufacturing, agricultural production, public utility services such as telecommunication, transportation, electricity and water supply, companies that are owned by private individuals. Olokoyo (2012) noted that since the enthronement of democracy in 1999, the government of Nigeria has taken a number of measures necessary to woo foreign investors into Nigeria. These measures, he noted, include the repeal of laws that are inimical to foreign investment growth, promulgation of investment laws, various oversea trips for image laundry by the President among others.  Thus, this study assesses the impact of foreign direct investment on economic growth in Nigeria in President Bola Ahmed Tinubu.

1.2       Statement of the Problem

Recently, the rate at which capital flight occurs is alarming especially during the recession time proclaimed by the National Bureau of Statistics. Majority of the foreign investors are leaving the country to where environment is business-friendly. This is not unconnected to the poor political and economic policies formulated and executed by polical actors in the country. As a result of this, the prospects for rapid foreign direct investment have become exceedingly dim in the country.

Economy manifestly changes far more slowly than political arrangements, and substantial investment growth is impeded by political development. The political development is perceived to have a positive impact on the inflow of foreign direct investment through various direct and indirect channels.

The key to the long-run relationship between political development and foreign direct investment is the rate of growth in potential output as an unobservable measure of the capacity of the economy to produce more goods and services, when available resources and potential power are fully utilized. Consequently, many developing countries, Nigeria included, have offered generous incentives to attract foreign direct investment inflows. However, the political development is characterized by structural rigidities and bottleneck. In view of the above, this present study is influenced to look into the impact of political development on foreign direct investment during the ongoing tenure of President Ahmed Bola Tinubu in Nigeria to actually bridge the gap not noticed by previous researchers.

1.3       Objectives of the Study

The major objective of this study is to examine the impact of political development on foreign direct investment during the ongoing tenure of President Ahmed Bola Tinubu administration while the specific objectives are to:

        i.            identify the political policies that contribute to the inflow of foreign direct investment during President Ahmed Bola Tinubu administration.

      ii.            examine the extent at which the policies influence the size of foreign direct investment in President Ahmed Bola Tinubu administration.

    iii.            investigate the political factors that hinders the inflow of foreign direct investment during the tenure of President Ahmed Bola Tinubu administration.

1.4       Research Questions

The following research questions will be used to guide the study:

        i.            What is the political policy that contribute to inflow of foreign direct investment during President Ahmed Bola Tinubu administration?

      ii.            To what extent has the policies influenced the size of foreign direct investment in President Ahmed Bola Tinubu administration?

    iii.            What are the political factors that hinders the inflow of foreign direct investment during the tenure of President Ahmed Bola Tinubu administration?

1.5       Significance of the Study

The most important task of this study is to quantify the inflow of foreign direct investment during the ongoing President Ahmed Bola Tinubu administration and political development impact on foreign investment.

The study will demonstrate the benefits of Nigerian political environment to the foreign direct investments and this will serve as an incentive to the foreigners who have the intention of investing in Nigeria.

This study will be of benefit to the entire society by identifying foreign direct investment that are productive which will yield more goods and service for the benefit of economic growth in Nigeria and improve in standard of living. The society will therefore realize the importance of being accommodative to the foreigner

The study will add to the existing knowledge on the impact of political development on the foreign direct investment. The study will also be useful to the upcoming researchers who develop interest to study related conceptual issues.

1.6       Scope of the Study

The study focuses on the impact of political development on foreign direct investment during the ongoing tenure of President Ahmed Bola Tinubu administration in Nigeria. The study will be to the view of lecturers and students of the department of International Law and Diplomacy, Babcock University, Ilishan, Ogun State, Nigeria.

 Nigeria is a country in West Africa, The constitution defines Nigeria as a democratic secular state. In the Nigerian general election, 2023, the victorious All Progressives Congress has 162 House of representatives seats and 57 in the Senate while the defeated People's Democratic Party of Nigeria and Labour Party became the strongest oppositions, People's Democratic Party of Nigeria came close with 102 seats in the House of representatives and 29 in the Senate and Labour Party has 34 House of representatives and 6 senators. The lower performing parties like NNPP has 18 House of representatives members and 2 senator, SDP has 2 House of representatives and 2 senators, APGA has 4 House of representatives and 1 senator, YPP has 1 House of representatives and 1 senator, while ADC has 2 House of representatives and zero senator.

Therefore, sample will be drawn from lecturers and students of the department of International Law and Diplomacy, Babcock University, Ilishan, Ogun State

1.7       Operational definition of terms

Economic:                                The state of a country or region in terms of the production and consumption of goods and services and the supply of money.

Foreign Direct Investment:    A foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.

Development:                          Development is a process that creates growth or change

Sector:                                      One of the areas into which the economic activity of a country is divided.

Growth:                                   The process of growing, development.