Foreign Direct Investment and the Nigerian Financial Sector Growth: Inroduction

Foreign Direct Investment and the Nigerian Financial Sector Growth: InroductionForeign Direct Investment (FDI) usually consists of external resources, including technological, managerial and marketing expertise, in addition to capital. These may generate considerable impact on Nigerian real sector in general and production capabilities in particular, since they are directly linked to productive investment. Foreign Direct Investment also facilitates transfer of technology and managerial and marketing skills, which are indispensable in the quest for viable solution to the problems of industrial inputs and diversification as well as expansion of export. Thus, the ability of Nigeria to sustain growth and development as well as meet her external obligations, millennium development goals (MDG) and to realize her dream of joining the league of highly industrialize nation by the year 2020 depends on adequate inflow of foreign investment resources. Unfortunately, the country has been experiencing difficulties in her effort to meet these goals. At the current level of foreign exchange earnings and high external debt servicing obligation, little or nothing is available for new investments.
Consequently, given the low level of per capital real income characterizing underdeveloped economies, traditional model of economies assumes that average and marginal consumption propensities are high, that savings are low and that the formation of new productive capital is restricted. Some reasons for the slow economic growth in Nigeria include mono-cultural economy, high population growth, import dependency, misguided deregulation/re-regulation, lack of incentives for investment in terms of infrastructure globalization and political instability.
Based on the above scenario, it is discovered that there exists a gap between the domestically available supply of savings, foreign exchange, government revenue and skills and the planned level of the resources necessary to achieve development targets. This gap necessitates the need for external resources to augment domestic resources in the country. These external resources could be in the form of foreign aids or grants, short-term credit, state loans and private investments. The genesis of foreign investment in Nigeria cannot only be attributed to the desire by the country to fill these two-gaps. This is because foreign investment in the country started with the imposition of British colonial rule in Nigeria in the 19th century. This category of foreign investment is referred to as the “forced historical perspective”. This has been well documented.
Weeks and Macy for instance note that the foreign corporations have more than a century of trading (business) experienced in West Africa behind them. Through mergers and amalgamations, they have attained a far-flung and diverse establishment reaching virtually every town in Nigeria. Representative of this group are the United Africa Company of Nigeria (UACN), Ltd; John Holt & Co. (Nigeria) Ltd.; Campaigne Francaise de L’Afrique Occidental (CFAO); Paterson Zochonis & Co. Ltd.; just to mention a few. Expatriate Bank such as the Union Bank (formerly Barclays Bank Dc & O), First Bank (formerly Standard Bank), United Bank for Africa, dominate Banking in Nigeria.
The major aim of this study is to investigate the contributions of foreign direct investment to the country’s financial sectors development. Foreign direct investment has been referred to as a source of foreign finance urgently, needed for development by the Third World. Indeed, Kojima has indicated that instead of conflicting with international trade, foreign direct investment complements it.
This research focuses on the financial sector of the economy. Although, effort have been made to investigate real sector of various economies of the world, but there exist no concrete evidence from literature that brings out the salient problems, findings, conclusion and recommendation with respect to financial sector FDI. Furthermore, no efforts have been made to investigate the country by country contributions of FDI to Nigerian economy. However, it would be instructive to examine the sectorial relationship between FDI and other sectors of the economy. Although, it is expected “a priori” that the impact of FDI is noticeable and felt on Services and Financial sectors, there is still need to carry out a quantitative analysis of FDI and financial sector variables in Nigeria to back it up. This is because of the obvious reasons that can be attributed to Nigeria economy like inadequate power supply, weak infrastructural facilities, inconsistent and unstable government policies, inefficient capital market, Bank robbery and abuse, environmental risk; such as the Niger Delta Militant activities, to mention just a few. Since most economic and indeed socio-political phenomena cannot be adequately understood except in a historical context, the study will cover a period of thirty years. quick payday loans