3.

2 Trends in Foreign Direct Investment Inflows to Nigeria (1970- 2010)

Following the new wave of global integration, the attitudes of many developing countries have
significantly changed. This development is underscored by the need to provide investment
friendly environment in order to catch up with this global integration train. To achieve this goal,
they (developing countries) have become more willing to offer numerous financial and non-
financial incentives to Multinational Corporations (MNCs) in order to encourage them to
increase direct investment flows (UNCTAD, 2018).

From the early 1970s, net resource flows to developing countries have been characterized by
uneven pattern. For example, the 1970s witnessed FDIs constituting only 12 percent of all
financial flows to developing countries. However, this trend has been reversed resulting in a
rapid rise since 1986. This is due largely to open-door policies and some external factors in the
developed world such as low interest rates and the cycle of economic growth. In addition to this
trend, the mid 1980s also witnessed the growing integration of markets and financial institutions,
increased economic liberalization and technologies in the area of computing and
telecommunications. This has contributed to a near doubling of private flows to low income
countries including Nigeria.

The table on FDI flows, shows that the flows to developing countries increased from
US$59.6billion on the average between 1989 and 1994 to US$241billion in 2000. In the same
vein the stock of FDI in developing countries increased from US$257billion in 1990 to US$
2,032 billion in 2000.

However, in spite of this dramatic increase in stock and in flows of FDI to developing countries,
recent trend, over the last decade, shows that the geography of flows has been uneven. The table
we refereed to shows that between 1989 and 2000, two regions Asia, Latin America and
Caribbean attracted 92.5 percent (Latin America and the Caribbean 29.4% and Asia 63.1%) of
the total flows between 1984 and 1994; in 2000 the two regions attracted 95.2 percent of all the
total FDI flow.

The implication of this is that Africa including the least developed countries and the pacific
region attracted an insignificant proportion of between 2.5 and 4.8 percent of FDI inflow to
developing countries in the period 1989/1994 and 2002.
Foreign direct Investment (FDI) flow to Nigeria has witnessed an unstable trend over the years.
From early 1970s net flows of FDI to Nigeria have followed an uneven path. It rose from
N1,003.2m to N1,763.7m in 1973. At the end in 1974, FDI inflows stood at N1,812.1m rising
again in 1975 to N2,287.5m. In 1980, Nigeria’s real FDI stood at N3,620.1m; it rose to
N9,993.6m in 1987 and further rose to N10,899.6m in 1989 due largely to the result of the policy
measure of the Structural Adjustment Programme (SAP) in Nigeria. However, in 1990, the flow
fell to N10,436.1m but rose to N70,714.6m in 1994. The astronomical rise to N119,391.9m in
1995 ushered in an era of increased and sustained inflow of FDI to Nigeria. In 2000 the net
inflow averaged to N101,512.82m between 1991 and 2000. This increase was sustained to 2003.
Thereafter, the increase was no longer sustained as the net inflow fell to N399,841.9 in 2008 as
against the previous figure of N552,498.6m in 2007. Between 2011 and 2018, the net inflow
averaged to N353,138.95million. Overall, the inflow of FDI to Nigeria has been witnessing an
increase over the years. (UNCTAD, 2019).

1.1 Statement of the problem.

The importance of FDI in stimulating economic growth and development has made it a much sought after need
especially for developing economies. However, countries do not benefit equally from FDI flows. While some
countries are able to attract a significant proportion of FDI flows, others barely make do with the insignificant
proportion and this result in the question: what factors determine FDI flows into a particular country?

Foreign direct investors are scared of investing in Nigeria because of the high risk of doing business. Many already
established firms are going down the drain as the day passes by. Workers are being laid off and the rate of
unemployment is increasing at a rapid succession. Investors are delisting from the capital market even at its
underdeveloped state and the government is relying completely on oil revenue for her survival, resulting in a
comparatively slow pace of development.
In the light of the above, it becomes indubitable that the flow of FDI into the country is the only panacea,
necessitating the need for government to clearly understand the factors that will promote FDI inflow. This is the
main reason for undertaking this study in the hope that it will empirically isolate these factors and prioritize those
that are critical to the Nigerian economy.

INFLOWS

In Nigeria, Foreign Direct Investment (FDI) has had a chequered history by witnessing a period
of increase and a period of sharp decline of inflow of FDI into the economy. Before the year
1999, FDI inflows into Nigeria have had a very serious volatility. According to CBN (2006) as
cited in Obida and Abu (2010), FDI inflows increased from N786.40 million in 1980 to N2,
193.40 million in 1982, but soon dropped to N1, 423.50 million in 1985. The value of FDI rose
from N6, 236.70 million in 1988 to N10, 450.0 million and N55, 999.30million in 1990 and
1995, respectively. However, the value of FDI fell drastically to N5, 672.90 million in 1996 and
further to N4, 035.50million in 1999. According to Obida and Abu (2010), the inflows of FDI
has continued to rise since the year 2001, moving from N4,937.0million to N13,531.20million in
2003 and N20,064.40million in 2004. The FDI inflows stood at N41, 734.0million in 2006
(CBN, 2006). However, between the year 2007 and 2018, there is a serious volatility in FDI
inflows in Nigeria. The amount of FDI inflow from 2007 to 2017 which was recorded in current
USD dollars was 6,036,021,405 USD; 8,195,499,253 USD; 8,554,740,717 USD; 6,026,232,041
USD; 8,841,113,287 USD; 7,069,934,205 USD; 5,562,873,606 USD; 4,651,465,948 USD;
3,137,318,700 USD; 4,445,102,771 USD and 3,497,233,435 USD respectively (World Data
Atlas, 2018). The years 2007-2009 recorded a percentage increase of 24.34 %, 35.78% and
4.38% respectively in the FDI inflow. Between 2012 and 2015 there was decline of FDI inflow
of -20.03%, -21.32%, -16.38% and -32.55% respectively. There was a 41.68% increase in 2016
while the year 2017 saw a sharp decline of -21.32% in FDI inflow. The highest decline was in
2015 which arguably announced the moving of the country into recession. The sharp decline in
the amount of FDI inflows in to the country in the year 2015 could be attributed to a number of
factors which arguably was linked to political and leadership factor. However, a number of
macroeconomic variables play significant role in attracting FDI in an economy. Consequently,
the relevance of foreign direct investment cannot be overemphasized. Its significant influence on
the provision of new technologies, products, management skills and competitive business
environment, overtime has been a strong impetus for economic growth.

Many countries of the world, especially emerging economies faviour policies that encourages
the inflow of foreign direct investment because of it positive spillover associated with the
provision of funds and expertise that could help smaller companies to expand and increase
international sales and transfer of technology thus, forming new varieties of capital input (i.e.
flow of services available for production from the stock of capital goods e.g. equipment,
structures, inventories etc) that cannot be achieved through financial investments or trade in
goods and services alone (Asogwa & Manasseh, 2014). Therefore, investigating factors that
propels the inflows of FDI into the economy is imperative for the obvious economic growth and
development reasons.

1.1. Statement of the Problem

This study was informed by the perceived rising level of job loss and economic strangulation in the country. It
was reported that between the year 2015 and 2018, the country recorded over three million job loss thus
increasing the rising level of unemployment in the country (NBS, 2018). This negative scenario that has also
plunged the country into recession within the period is not unconnected with the huge amount of FDI that
was withdrawn out of the economy between the year 2015 and 2018 thus suggesting that FDI plays
significant role in the economic growth and development of any economy. According to Obida and Abu
(2010), Foreign Direct Investment (FDI) not only provides developing countries (including Nigeria) with the
much needed capital for investment, it also enhances job creation, managerial skills as well as transfer of
technology. All of these contribute to economic growth and development. Attracting FDI requires a curious
and committed effort in providing the needed leadership and enabling environment for such investment as
well as policies (fiscal and monetary) that will attract FDI into the country. This study is therefore an attempt
to investigated variables that could be recommended for attracting FDI inflow in Nigeria.

1.1 Statement of the problem.

Foreign direct investors are scared of investing in Nigeria because of the high risk of doing business. Many already
established firms are going down the drain as the day passes by. Workers are being laid off and the rate of
unemployment is increasing at a rapid succession. Investors are delisting from the capital market even at its
underdeveloped state and the government is relying completely on oil revenue for her survival, resulting in a
comparatively slow pace of development.
In the light of the above, it becomes indubitable that the flow of FDI into the country is the only panacea,
necessitating the need for government to clearly understand the factors that will promote FDI inflow. This is the
main reason for undertaking this study in the hope that it will empirically isolate these factors and prioritize those
that are critical to the Nigerian economy.

ADDITION
The distinction of this study from other studies on the determinants of FDI inflows in Nigeria is that there
has been a period gap as most studies stopped at 2010 (Wafure and Abu, 2010; Uwubanmwen and Ajao,
2012; Oba and Onuoha, 2013; Ndem et al., 2014). Beyond this period, lots of macroeconomic activities
changed such as Nigeria GDP growing to become highest in Africa, depreciation of the Nigerian Naira to
US dollar, increase in insecurity across the country which led to increase in military expenditure and
fluctuations in government consumption expenditure. More so, giving the conflicting findings in previous
studies, this study therefore, intends to fill this existing gap and in addition, includes other variables such
as financial development and government consumption expenditure, military expenditure and political
stability which are not common in Nigerian studies but have been identified as key determinants of FDI.
Therefore, the broad objective of this study is to investigate the determinants of FDI inflows to Nigeria.

Literature Gap

The empirical literature reviewed show that the factors that influence FDI inflow into various
countries particularly Nigeria are varied, mixed and inconclusive. The direction that the factors
identified affect FDI inflow is also not yet agreeable. The agreeable list of variables that
influence FDI is also not yet been identified. It is on this basis that the author contributed
towards literature on the factors that determine the inflows of FDI in the context of Nigeria.