EMPIRICAL ANALYSIS OF THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE ECONOMIC GROWTH IN NIGERIA A CASE STUDY OF NIGERIA BOTTLING COMPANY
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EMPIRICAL
ANALYSIS OF THE IMPACT OF FOREIGN DIRECT INVESTMENT ON THE ECONOMIC GROWTH IN
NIGERIA A CASE STUDY OF NIGERIA BOTTLING COMPANY
ABSTRACT
The study of
the nature involves a lot of deep research and understanding of the factors,
which creates the effects on the subject matter. Primarily, these factors were
more economical than managerial as the case may be, on the understanding that
this research work is being casual out under a management setting or
department. Just as the subject matter is, the impact of foreign direct
investment on the Nigerian Economy with a case study of Nigerian Bottling
Company Plc, it is based on the economic, social and entrepreneurial impacts
created by these multinational companies like NBC Plc on their host societies.
Based on this, the objective of this study was to determine through
quantitative and quantitative measures whether the benefits of multinational
enterprises (MNE’S) out weigh the cost that results from their activities in
the hose countries.The first chapter of this work contains a general discussion
(i.e. critics and defense) of FSI’s activities in host countries. Further the
statement of the research problem was studied and the need for the study. The
scope and limitation to the research work was finally looked into with the
stated hypothesis which guide the researcher in his evaluations. In chapter
two, a number of part related literatures were examined as it relates to the
impact of foreign direct investment to Nigeria as the case may be with
particular reference to NBC Plc activities in Enugu Zone. Chapter three treated
the design of the study, the method of collecting data and the ways in which
the questionnaires were distributed within the chosen population. The data
gathered from the research were analysed and interpreted in chapter four of
this research report. Finally, the summary of findings, conclusions on the
research work and recommendations were given by the researcher all in chapter
five.It is believed that these recommendations made in this study will help
both the multinationals in their relationship with their host communities as
well as creating an enabling environment from the host country for their
business to there.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria
emerged from the colonial experience with an economy structured in accordance
with the imperators of colonial economic relationship. The first National Development plan of (1963)
was launched with the objectives of providing the framework for industrial take
off and development. However, as the
foreign investors were apprehensive of the nascent independent administration,
efforts were made not only to alloy their fears of nationalism but also to
attract more foreign investments through joint ventures with regional
government then or the federal government.
The first development plan as an open door regime saw an increase in the
establishment of miscellaneous foreign enterprises in Nigeria, many of which
are unincorporated branches of their overseas business.
However,
just only about few years offer independence when the rest of the world
including the erstwhile colonial master had hardly adapted to the realities of
Nigeria’s attainment of nationhood or for the Nigerian government to articulate
and plan its own economic policy, the country experienced its first military
coup d’ et al in 1966. This was followed
by the civil was which tested for three years hence necessitated the cohesion
of resources towards the successful execution of the war. The period saw the introduction of various
control measures of great significance.
For the foreign investors, these include licensing, quotas, exchange
control measures with two tier compulsory credit system for import payments,
restriction on capital/individual transfer and the promulgation of the
companies decree of 1968 which compelled all forms operating the country to be
incorporated as Nigerian Companies subject to local regulations.
Foreign
Direct Investment (FDI) refers to a movement of capital that involves ownership
and control of a firm in another country for instance, the purchase of common
chores in a Nigerian incorporated company by a French citizen involves
ownership and an element of control.
This is because all shares in an organisaiton have same voting rights.
For the
purpose of this classification such is recorded as FDI if the share acquired
involves more than 10% of the outstanding common shares of the Nigerian
company.
In this
research and generally, Foreign Direct Investment is classified in the context
of Multinational Corporations (MNC). The
MNC is sometimes referred to as Multinational Enterprises (MNE) is
Transnational Corporations (TNC) or Transnational Enterprises (TNE).
According to
the chairman of BOD’s of Chemical Co, a multinational form in the united state
origin “the emergence of a world economy and the multinational corporation have
been accomplished land in land”. He sees
multinational enterprises moving towards what he called “a global company”, a
firm that have no nationality but belongs to almost all countries.
The
phenomenon of the MNC can be explained only in a world of imperfect factor and
product market characterized by differential taxation market power and share,
positive information costs and the existence of pure specific revenue producing
assistance. In such a world, the market
mechanism is partially replaced by other organizational firms, which generates
and transmits relevant information and which co-ordinates production and
marketing decisions.
The MNC arises
in other words in response to a particular kind of market failure caused by
high differential costs of inter-nation transfer of market information and
technology and of course, factors of production (Tour and Hirsil 1979). The key features of MNC are the, it provides
the recipient nation with a package of knowledge, capital and entrepreneurship
development. It may thereby create a
positive contribution to economic growth and development in host countries.
Many
multinationals corporations exist in the Nigerian economic settings these
encompassed the manufacturing sector like Nigeria Bottling Company (NBC),
constitution like Julus Berger Nigeria, Mineral Exploration like Shell Nigeria,
banking etc, to mention but a few. It
becomes pertinent that the manufacturing sector be given due cognizance for the
purpose of the research work. In this
sector, the Nigerian Bottling Company Plc will be a case study and a pointer.
The concept
of Multinational Corporation and economic development has remained on the
relationship between the MNC’s and the host societies and how development is
appraised in these host societies.
The issue of
contribution to development through social responsibility by the business
enterprise has become a topical issue in management decision and is negatively
favoured in these host societies.
They have
rounding argued that there has been gross neglect and lack of development focus
in their place or communities. It is
good to discuss the fact that some laudable developments have been directly
felt by these host societies in terms of revenue, employment technology
transfer and other benefits to the government.
It is a fact that Nigeria is a developing country and have the same
peculiar characteristics with other developing nations of the world such as low
standard of living with low savings and investment and lacks managerial know
how. This has placed Nigeria in a guest
for resources from other developed nations viz-a-viz international business through
MNC’s.
It is also
right to say that MNC’s like other business ventures has the objective of
profit maximization as their aim. From
the foregoing, this research work places premium on the critical evaluation
and examination of the impact of foreign
direct investment (MNC) activities in the Nigerian economy using Enugu Zone
which comprises Enugu North, Enugu South, Enugu East and 9th Mile Corner on a
bench mark. The prospective here is
primarily managerial and economic i.e. the dissension focuses on the important
part in the overall evaluation so, they are discussed along with the above
mentioned factors.
Historical
Background of Nigeria Bottling Company
The Nigeria Bottling Company Plc (NBC)
was incorporated in November 1951, as a subsidiary of the A.G Levant’s Group
with the franchise to bottle and sell coca-cola products in Nigeria. From a
humble beginning as a family business, the company has grown to become
predominant bottler of non-alcoholic beverages in Nigeria, responsible for the
manufacture and sale of over 33 different coca-cola brands. Other popular
brands of beverage produce by the company are Eva water, Five Alive fruit juice
and the newly introduced Burn energy drink. The company presently has 13
bottling facilities and over 80 distribution warehouses located across the
country. Since production started, NBC Plc has remained the largest bottle of
nonalcoholic beverages in the country in terms of sales volume, with about 1.8
bottles sold per year, marking it the second largest market in Africa. Today,
the company is part of the coca-cola Hellenic Bottling Company (CCHBC). One of
coca-cola company’s largest anchor bottlers worldwide CCHBE operates in 28
countries, serving 540 million consumers and selling over 1.3billion unit cases
of beverage annually. The company recently embarked on restructuring exercise
to expand further it market share and growth profit. It invested in a new state
of the art can filling packing line at the Apapa plant.
This is in
addition to a new bottling plant in Abuja, investment in the upgrade of other
manufacturing infrastructure, distribution and delivery facilities.
Nigerian
Bottling company Plc (NBC) Company and a sole franchise of the coca-cola Inc.
spanning over six decaes of operation, NBC is a market leader in the production
of non.
A softer than expected macroeconomic
posed challenges to the manufacturing sector of which NBC, as an integral part has
to come to grips with to stay ahead of the pack. Major challenges facing the
industry include weak infrastructural support facilities (especially power),
Unfair Competition from cheaper imported products and rising cost of fund among
others, an analysis of the financial strength of NBC reveals an above-per
performance in 2007. Hretrospect, we observe abysmal results in 2006. This was
however reversed in 2007 with 13.91 percent ROE and 201.69 percent growth in
PAT. Due to the FYE 2006 performance, NBC exhibited a very risky financial
profile, (based on Altman’s Z score). However, it scaled through the 4years
average. Q1 2008 result show, respectively, turnover and PAT growth of 10.2
percent and 11.7 percent. Our forecasts for FYE 2008 percent and 5.0 percent
for turnover and PAT respectively in valuing NBC, we employed both the
Discounted cash flow (DCF) and relative valuation Methodologies we obtained
#13.57, #12.12 and #23.19 respectively from the discounted.
Divided method, present value of Growth
Opportunities and Residual income valuation. Our relative of Price-to-Earnings
(P/E), price-to-sales (P/S) yields #55.75, #97.82 and #176.12 respectively.
Attaching appropriate weights to each of the methodologies, we arrived at a
fair price of #65.77 with a discount to valuation of 14.39 percent and an
upside potential of
We therefore place a BUY recommendation
medium and long term investment horizons.
STATEMENT OF
PROBLEM
The
undeveloped countries like Nigeria suffer not only from low income and unstable
growth, but also from regional disequilibrium, economic instability
unemployment, depending on foreign countries, specialization in the production
of raw materials and economic, social, political and cultural marginality.
Underdevelopment
is an element in the process of development of the international system
underdevelopment and developments are two facts of a single process of which
both internal and international structures are causes. International treacle brings about
polarization because the low income countries are assigned the production of
primary production (raw materials) which are processed in the home countries
because of worsening and unstable terms of trade, because the economics of the
low income countries lack the force work force, the entrepreneurship and
physical/institutional infrastructure to seize export opportunities and because
of generally monopolistic arrangement by which profits flow out from the
underdeveloped countries to the developed.
Because the
NNC’s tend to come from the developed countries and because their operations
tend to add to host countries production, MNC’S presumably improves the
distribution of income, goods and services between the richer and poorer
countries.
Within the
host societies however, it is guide different to judge whether a direct
investment project improves or aggravates these income, goods and service
distribution.
The
literature critical of MNC’s demonstrates that Foreign Direct Investment (FDI)
after do not help the economic life of cost societies, do not improve their
well being hence not benefiting lower income people Very well.
In Nigeria
for unsnarl, there is that popular and commonly held view that manufacturing
multinationals have done greater lower than good to the host communities as a
result of their operations in these communities wheel has led to loss of
economic and social quality and environmental degradation. It is not out of place for one to say that
these MNC’s have threatenical the health of the indigenes by the use of
dangerous chemical, pollutants etc.
These and more are the problems that will be looked into which
necessitated this research work. It will
try to examine the nature and pattern of foreign direct investment that is
International Corporation in Nigeria manufacturing rector with a particular
reference to Nigerian Bottling Company Plc as a case study.
PURPOSE OF
THE STUDY
1. To determine the Nigerians drive benefit
from multinational corporation in term of transaction and entrepreneurial.
2. To determine if multinational corporation
contribute to the growth of gross domestic product (GDP) in the Nigeria
economy.
3. To determine of Multinational Corporation
help in solving balance of payment problem in the Nigerian Economy.
4. To determine if multinational corporation
maintains cordial relationship with in the host society.
SCOPE OF THE
STUDY
Foreign
Direct Investment (FDI) analysis is clouded by a lot of controversy, variety of
interpretation and numerous emotive value judgement. This recreant opinion about the activities of
MNC’s in the developing countries are as typical as the topic itself. Owing to the divergent opinions that exist,
it would be practically impossible to give a total survey of the current debate
on the topic.
However,
this work will make positive efforts to extract in favour of or against MNC’s
in developing nations. Furthermore, it
is outside the scope of this work to discuss the consequences of Foreign Direct
Investment (FDI) for the investor nations.
RESEARCH
QUESTIONS
1. Do Nigerians drive benefit from
multinational corporation in term of transaction and entrepreneurial?
2. Does multinational corporations contribute
to the growth of gross domestic product (GDP) in the Nigeria economy.
3. Can Multinational Corporation help in
solving balance of payment problem in the Nigerian Economy.
4. What impact does entrepreneurial make in
the economy?
5. How did Multinational Corporation maintains
cordial relationship with in the host society.
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