IMPACT OF FDI ON THE CONSTRUCTION SECTOR OF THE NIGERIAN ECONOMY

IMPACT OF FDI ON THE CONSTRUCTION SECTOR OF THE NIGERIAN ECONOMY

Chapter One

Introduction

1.1 Background of the Study

The construction sector is vital to any nation’s economy because it contributes significantly to the development process (Aje, 2008). When conducting economic activities, the government always uses the construction sector as a stimulant to keep the economy afloat (Akindoyemi, 2011).

As a result, the building industry is an important aspect or variable in nations’ efforts to prosper economically, particularly in emerging countries like Nigeria. Nigeria

without a doubt, requires significant foreign investment in the construction sector to accelerate its economic growth, particularly in the areas of building and construction infrastructure/facilities investment, as well as to promote development, which will increase GDP.

The importance of foreign capital in infrastructure development for both macroeconomic and microeconomic activity cannot be overstated. Todero (2001) defined infrastructure as the pillar of progress in Africa, yet it is often inadequate and of poor quality when compared to industrialised countries around the world.

Foreign capital has long been considered as an unavoidable input in the development process, given that no country is a “island” with sufficient resources to support economic growth and development (Orji, 2004).

This is a continuation of the experiences of various South East Asian countries, including Singapore, South Korea, Taiwan, and Hong Kong (Ayo 2008).

Foreign direct investment (FDI) is a vital aspect of the international economic system and a major stimulant for development, as summarised clearly by the Organisation for Economic Cooperation and Development (OECD) in 2002.

Foreign direct investment (FDI) is thus a component of the economic system that promotes economic growth and infrastructure development. Foreign capital inflows serve as an investment mechanism for economic growth in most countries, making them a powerful predictor of a country’s economic prosperity.

National policies and international industrial architecture undoubtedly play an important influence in attracting FDI to most nations and driving growth.

For example, Nigeria’s Vision 20: 2020 establishes plans and targets in all sectors of the economy to ensure that the country joins the group of twenty most developed economies within the next ten years.

Kolapo (2010) stated that it is regrettable that Nigeria’s evident barrier to long-term prosperity is just a visible manifestation of five decades of dishonest and selfish governance. Some notorious former leaders have accidentally exposed themselves as incapable by claiming that Nigeria’s issues defied all logic.

To uncover true economic pests, concerned Nigerians need just examine the development practices of previously overlooked African countries.

In his opinion, there is also a lack of effective collaboration between African leaders to offer support institutions and the dynamic domestic entrepreneurial class, which is a critical success element for attracting foreign direct investment.

Another important impediment to FDI inflows on the continent is that many investors are unaware of African countries’ progress towards development, as many focus on political stability, corruption, and poor infrastructure (Eboh, 2011). The Nigerian economy’s infrastructural basis has remained weak during the last few decades.

This is due to developing countries’ low gross domestic savings, which is a major constraint in financing infrastructure development (Orji, 2004), necessitating the need for foreign direct investment (FDI) to maximise benefits such as managerial skills, marketing connections, technical knowledge, technological transfer, training of local labour, and the movement of hard currency into the country.

According to Mogbo (2004) and Egolum (2011), previous governments attempted to address the issue by expressing a desire to improve basic infrastructure as a means of promoting economic development through soft loans and grants from Multilateral Financial Institutions (MFIs) such as the International Monetary Fund (IMF), the World Bank, and other lending nations.

These loans and grants are typically accompanied by conditions such as social sector budget cuts, subsidy removal, which results in an exchange rate crisis, massive devaluation of the local currency and terms of trade determination, foreign content and expatriate usage, unemployment, and underemployment (Egolum, 2011).

1.2 Statement of the Problem

Several studies have been conducted on FDI and growth in Nigeria, with varied results and presentations. However, these studies did not find that the majority of FDI was focused in the extractive industry. In other words, these studies looked at how investment in the extractive industry (oil and natural resources) affected Nigeria’s economic growth rather than the building industry.

Based on the foregoing facts and issues, it is necessary to research and evaluate the influence or adequacy of FDI on the Nigerian construction industry.

It is also envisaged that this study, in addition to highlighting the magnitude of FDI influence or effect on the construction sector, will also demonstrate Nigeria’s construction sector’s considerable response to FDI inflows.

The study will also encourage government agencies/departments involved in foreign investment to identify and address FDI flow barriers in order to increase FDI inflows into the construction sector; as previously stated, the sector is a powerful motivator of the national economy, providing the driving force required to either sustain a buoyant economy or revive a depressed one.

1.3 Objectives of the Study

The aims of this investigation are as follows:

1. To examine the impact of foreign direct investment in Nigeria’s building sector.

2. To investigate the rate at which foreign direct investment flows into Nigeria’s construction sector.

3. Identify the variables that limit the influx of foreign direct investment into the Nigerian construction sector.

1.4 RESEARCH QUESTIONS.

1. What influence does foreign direct investment have on Nigeria’s building sector?

2. What is the rate of foreign direct investment in the Nigerian construction sector?

3. What reasons are restricting foreign direct investment in the Nigerian construction sector?

1.5 Hypothesis.

HO: There is no significant link between foreign direct investment and construction sector development in Nigeria.
HA: There is a strong link between foreign direct investment and construction sector development in Nigeria.

1.6 Significance of the Study

The following are the implications of this study:

1. The findings of this study would increase the competitiveness and survival of Nigeria’s construction industry in the global market, as well as the sector’s contribution to the national economy.

2. This study will contribute to the body of literature on the effect of personality traits on student academic achievement, thereby establishing an empirical foundation for future research in the field.

1.7 Scope/Limitations of the Study

This study will look at how foreign direct investment affects the Nigerian economy’s construction sector.

Limitations of the study

Financial constraints- Insufficient funds tend to restrict the researcher’s efficiency in accessing relevant resources, literature, or information, as well as in data collecting (internet, questionnaire, and interview).

Time constraints: The researcher will conduct this investigation while also working on other academic projects. This will reduce the time spent on research work.