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Impact of Fdi on Nigeria Economy Essays

An analysis of Foreign Direct Investment in Nigeria: The Fate of Nigeria’s Agricultural Sector. 1Ogbanje, E C, 2Okwu, O. J and 3Saror, S. F. [email protected] com; +2348036350197 1Department of Agricultural Management, University of Agriculture, Makurdi 2Department of Extension and Communication, University of Agriculture, Makurdi 3Institute of Food Security, University of Agriculture, Makurdi Received 11th June, 2010, Accepted 19th December, 2010 Abstract The study analysed the fate of the agricultural sector in relation to foreign direct investment (FDI) in Nigeria.

Data for the study were obtained from the Central Bank of Nigeria’s statistical bulletin from 1970 to 2007. Findings revealed that of the seven sectors into which FDI was classified, agricultural sector got the least average net flow of investment (N553. 6132), while manufacturing and processing sector had the highest mean net investment flow (N28,267. 00) as depicted in the Duncan Multiple Range Test. The Least Square Difference of the Post Hoc Test showed that mean difference in net FDI between agricultural sector and manufacturing and processing sector (N-27,713. 0), mining and quarrying sector (N-25,754. 30), and miscellaneous (N-19,490. 80) were significant at 0. 01 level of probability. One-way ANOVA revealed that the difference in net flow of FDI to the sectors under study was significant at 0. 01 level of probability. The relationship (0. 879) between FDI to agricultural sector and agricultural Gross Domestic Product (GDP) was significant at 0. 01 level of probability. It was concluded that net flow of FDI to Nigeria discriminates against the agricultural sector.

Foreign countries should increase investment in Nigeria’s agricultural sector so as to mitigate capital inadequate faced by key stakeholders of the sector and increase agricultural GDP. Also, efforts should be intensified by government and other stakeholders to make the sector more attractive to foreign investors. Keywords: Agricultural sector, Agricultural Gross Domestic Product, Investment, Foreign Direct Investment, Nigeria. Introduction Investment is the process of adding to capital (Arene and Okpukpara, 2006). Lack of capital has been implicated as the major sustenance of the vicious circle of poverty.

This is due to its negative effect on production capacity. In developing countries, national income is low, hence savings and investment are low. Low investment translates to low capital stock, low productivity and low output as well as low income. PAT December 2010; 6 (2): 15-25 ISSN: 0794-5213 Online copy available at www. patnsukjournal. net/currentissue Publication of Nasarawa State University, Keffi In terms of agricultural productivity, Arene and Okpukpara (2006) hold that massive application of capital to land in form of land reclamation and critical productive inputs improve its productivity.

In Keynesian terminology, real investment refers to addition to capital (as a factor of production) which leads to increase in the levels of production and income (Jhingan, 2003). Thus, real investment includes new plant and equipment, construction of public works like dams, road, building, net foreign investment, inventories, and stocks and shares in new companies. According to Jhingan (2003), investment could be induced or autonomous. Induced investment is profit or income motivated. On the other hand, autonomous investment is independent of the level of income.

In reality, there are three major determinants of investment. These are the cost of capital asset, expected rate of return and the market rate of interest. These factors are embedded in Keynes’ concept of marginal efficiency of capital (MEC). MEC expresses the highest rate of return from an additional unit of a capital asset or fund over its cost or opportunity cost. From the foregoing, it is clear that the general drive behind any type of investment is return in one form or the other. It is in this light that this study views foreign investment in Nigeria.

A rational foreign investor will be interested in a sector that has the highest MEC. Whatever the motive of the foreign investor is, the recipient economy could have its own interest which could be at variance with that of the investor. In an economy where agriculture, despite its neglect by the government, holds the key to sustenance, the preferred sector should be agriculture. Investment transcends national boundaries in line with economic theory that capital will move from countries where it is abundant to countries where it is scarce.

This pattern, according to Oyeranti (2003), will be informed by returns on new investment opportunities, which are considered where capital is limited, especially in developing countries. As suggested by Summers (2000), the resultant capital relocation is expected to boost investment and bring about enormous social and economic benefits to the recipient country. Foreign direct investment, a major component of international capital flows, refers to investment by multinational companies with headquarters in developed countries. This investment ranges from transfer of funds to whole package of physical capital, techniques

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