ABSTRACT
The issue of Foreign Direct Investment (FDI) has
been an age long issue for quite some decades especially in Small and Medium
Enterprises (SMEs) in Enugu state, Nigeria. However, little or no attention has
been given to the importance of foreign direct investment to the development of
SMEs in the state. SMEs are the major drivers of employment in Enugu state and
Nigeria at large, because statistics has it that 60% of Nigeria’s workforce
comes through small and medium scale enterprises. Despite the significance
attached to inflow of foreign direct investment and the development of small and
medium scale enterprises as essential driving forces for economic growth, the
extent to which SMEs have developed in response to this inflow has remained an
issue of concern, given Nigeria’s poor economic predicament. Thus, this study
investigates whether FDI undermines SMEs development in Enugu state, Nigeria. A
survey research design was adopted for this study. The study utilized Marxian
Political Economy Theory to unearth the philosophical underpinning behind the government’s
role as an instrument in undermining the development of SMEs. The data
collected from the questionnaire instrument were analyzed using chi square, as
well as percentages and frequencies. The research findings show that Foreign
Direct Investment undermined the development of Small and Medium Enterprises in
Enugu state. The study recommends that the state government should formulate
policies aimed at promoting the interests of the SMEs. However, while it is
important for government to woo foreign investors into a state, it should not
be at the detriment of the local businesses such as the SMEs. Thus, the
economic policies of the state should be geared towards maintaining a balance
between the growth of SMEs and the activities of foreign investors.
TABLE OF CONTENT
Title
page
Abstract
Table
of content
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the study
1.2 Statement of problem
1.3 Objective of the study
1.4 Research questions
1.5 Research hypotheses
1.6
Significance of the study
1.
7 Scope and limitation of the study
1.8 Definition of terms
CHAPTER TWO:
REVIEW OF RELATED LITERATURE
2.0
Introduction
2.1 Concept of foreign direct investment
2.1.1
The Origin and Development of FDI in Nigeria
2.1.2
Sources and destination of FDI
2.1.3
Industrial patterns in inward FDI
2.1.4
The impact of FDI on output growth
2.1.5
The potential of green FDI
2.1.6
The determinant of the greening effect of FDI
2.1.7
Foreign direct investment’s implications for the environment and Climate goals
2.1.8
Understanding the contributions of FDI to the environment
2.2
Concept of small and medium enterprises (SMEs)
2.3
Role of the SMEs subsector in the economy
2.4
Significance of the SMEs subsector in the Nigerian economy
2.5
Contributes in local and regional development
2.6 Performance factors for small and medium
scale enterprises
2.7Challenges
of Small and Medium Enterprises (SMEs)
2.8
Foreign Direct Investment in Nigeria
2.9
Summary of gap in literature
CHAPTER THREE:
RESEARCH METHODOLOGY
3.0 Theoretical framework
3.1
Research deign
3.2
Method of data collection
3.3
Population of the study
3.4 Sample and sampling procedure
3.5 Instrument for data collection
3.6 Validation of the research instrument
3.7 Method of data analysis
CHAPTER FOUR:
DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.0
Introductions
4.1
Presentation and Data analysis
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATION
5.0 Introduction
5.1 Summary
5.2 Conclusion
5.3 Recommendation
Bibliography
Appendix
Questionnaire
CHAPTER
ONE
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY
While in theory the nexus between FDI
and growth (in terms of output and productivity) is in general positive, the
empirical literature is far less conclusive. Some studies find positive effects
from outward FDI for the investing country (Van Pottelsberghe and Lichtenberg,
2001; Nachum et al., 2000), but suggest a potential negative impact from inward
FDI on the host country. This results from a possible decrease in indigenous
innovative capacity or crowding out of domestic firms or domestic investment.
Thus, in their view and in line with the standard literature on the
determinants of FDI (i.e. Dunning’s OLI paradigm, see Dunning 1988) inward FDI
is intended to take advantage of host country (locational) characteristics
instead of disseminating new technologies originating in the sending country.
Other studies report more positive findings: Nadiri (1993) finds positive and
significant effects from US sourced capital on productivity growth of
manufacturing industries in France, Germany, Japan and the UK. Also Borensztein
et al. (1998) finds a positive influence of FDI flows from industrial countries
on developing countries’ growth. However, they report also a minimum threshold
level of human capital for the productivity enhancing impact of FDI,
emphasizing the role of absorptive capacity. Absorptive capacity or minimum
threshold levels in a country’s ability to profit from inward FDI is often
mentioned in the literature (see also Blomström et al. 1996). Consequently the
effect of FDI depends among other things to a large extent on the
characteristics of the country that receives FDI.
Given the critical role of
entrepreneurship in economic growth of any nation and considering the absence
of adequate technology in developing countries, it is essential to seek for
technology transfer. More so, market and access to expertise are crucial to the
survival and growth of small and medium enterprises (SMEs) in developing
countries. Access to expertise allows SMEs to undertake productive investments
efficiently and to acquire the latest technologies, thus ensuring their
competitiveness and that of the nation as a whole. As opined by Dutse (2008),
these latest technologies can be attained through the spill-over effects of
FDI. This is because FDI is one of the major channels for transferring new
scientific knowledge and related technological innovations. From a priori FDI
is therefore an essential impetus to small and medium scale entrepreneurship
development in the country. In this regard, FDI facilitates access to markets,
access to expertise and most of all access to technology. However the
willingness of Multinational Corporations to open their global value chains to
local firms has not really metamorphosed into meaningful SMEs development. This
therefore raises the question of why the abysmal performance of the SMEs in
Nigeria? Furthermore, the pattern of the FDI inflow is often skewed towards
extractive industries, meaning that the monumental rate of FDI inflow into
Nigeria has been adduced to natural resources, although the size of the local
market may also be a consideration (Asiedu, 2001). Invariably there is very
little hope of economic development and growth for the country due to problems
of socio-economic, political and religious factors. Historically Nigeria is one
of the economies in Africa with enormous demand for goods and services and has
attracted some FDI over the years. The amount of FDI inflow into Nigeria has
reached US$2.23 billion in 2003 and it rose to US$5.31 billion in 2004, this
figure rose again to US$9.92 billion in 2005. The volume however turns down
vaguely to US$9.44 billion in 2006 (CBN, 2009). The question that comes to mind
is do these FDIs essentially contribute to small and medium scale business
development in Nigeria? If FDI effectively contributes to growth, then the
sustainability of FDI is a worthwhile action and a way of achieving its
sustainability is by identifying those factors contributing to its growth with
a view to ensuring its enhancement.
Again, most studies on FDI and growth
are cross-country studies. However, FDI and growth debates are country
specific. Earlier studies (for instance, Otepola, 2002; Oyejide, 2005; Akinlo,
2004) examine only the importance of FDI on growth and the channels through
which it may be benefiting the economy. This study however examines the
contributions of FDI to Small and Medium scale businesses with much emphasis on
agriculture and transportation sector from 1981 to 2009.
“The Federal
Government’s economic diversification programme may have recorded a head-start
as investment groups gather for the ground breaking ceremony of the Enpower
Free Trade Zone (ENPOWER FTZ) scheduled by the end of this month with a target
to attract N240 billion Foreign Direct Investment (FDI) and 20,000 jobs
Governor Ifeanyi Ugwuanyi who consolidates on foundation efforts of former
Governor Sullivan Chime on the project, was quoted as saying in a statement at
the weekend that the ground breaking ceremony for the facility would bear the
first set of investment fruits which will give highly needed momentum to his
government’s economic diversification programme. According to him, “Enpower FTZ
has put in substantial efforts into attracting specific, targeted high-profile
investors right from the outset. These anchor investors play an important
signaling role to other potential investors, and we expect them to attract a
network of suppliers and partners.”The ceremony which holds at the Akanu Ibiam
Airport site of the Free Zone is expected to attract up to $500 million (N240
billion) worth of foreign direct investments (FDI) from leading global
manufacturing companies. Activities of the industrial clusters hosted in the
free zone are also expected to create over 20,000 jobs across three major
regions in the country. Licensed by the federal government to operate as a free
trade zone in December, 2015, ENPOWER FTZ is a Public-Private initiative with
the Enugu State government offering international and domestic investors the
benefits of connecting to business opportunities from the South-Eastern
cluster, which according to Canback & Company and the McKinsey Global Institute,
is the second largest economic cluster in Nigeria, outside of the Lagos
Cluster”.
In the world today, it becomes
difficult for business to survive without a form of exchange or another which
involves money, ideas, product and technology. As a result, every economy is
affected either positively or negatively. Trade can be drawn from the need to
exchange, which developed from the barter arrangement to the currency method.
Trade in Nigeria, nevertheless, became general with the introduction of the
imposing regulation, which brought in their merchandises and made Nigerians
their middle men. The implication of this is that Nigerians came to comprehend
the necessity for trade both domestically and internationally. International
business has remained an area of concern to policy makers. Its significance
lies on the capacity to acquire goods which cannot be manufactured in a country
or which can only be manufactured at a higher cost. Similarly, it allows a
nation to trade its locally produced goods to other countries of the world. The
performance of a given economy in terms of growth rates of output and per
capita income has not only been based on the domestic production and
consumption activities but also on international transaction of goods and services
(Jhingan 2006). Small and Medium-scale Enterprises (SMEs) play very important
roles in the process of industrialization and sustainable economic growth
(Aremu & Adeyemi, 2011; Terungwa, 2012). Since the 1960s to date, SMEs are
being given due recognitions especially in the developed nations for playing
very important roles towards fostering accelerated economic growth, development
and stability within several economies (Gunu, 2004; Onugu, 2005; Aremu, 2010).
They make up the largest proportion of business all over the world and play
tremendous roles in employment generation, provisions of goods and services,
creating a better standard of living as well as immensely contributing to the
Gross Domestic Products (GDP) of many countries (Paul, 2010; Ojeka&Mukoro,
2011). In Nigeria, SMEs account for fifty percent to employment on average and
also fifty percent of its industrial output. SMEs represent about ninety
percent of the industrial sector in terms of number of enterprises or firms,
and, however, they contribute a meager one percent of GDP (Ariyo, 2004).
Industrial and economic developments are flourished by SMEs in the country
through efficient utilization of local resources; production of intermediate
goods and services; transformation of rural technology. SMEs are the backbone,
and they play a significant role in the business landscape of any country, but
there are also faced with a lot of obstacles that make the sector not to
contribute optimally to the economy. In this regard, Aregbeyen (1999) argues
that the industrial development of Nigeria depends, to a large extent, on the
growth and development of SME potentials.
1.2
STATEMENT
OF THE PROBLEM
The underdeveloped/developing nature
of the Nigerian economy that essentially hindered the pace of her economic
development has necessitated the demand for Foreign Direct Investment into the
country. Aremu (2007), noted that Nigeria as one of the developing countries of
the world, has adopted a number of measures aimed at accelerating growth and
development in the domestic economy, one of which is attracting foreign direct
investment (FDI) into the country. According to World Bank (2006), FDI is an
investment made to acquire a lasting management interest (normally 10% of
voting stock) in a firm or an enterprise operating in a country other than that
of the investor defined according to residency. However, Foreign Direct
Investment (FDI) is often seen as an important catalyst for economic growth in
the developing countries because it affects the economic growth by stimulating
domestic investment, increase in capital formation and also, facilitating the
technology transfer in the host countries. (Falki, 2009) It is in view of the
above that the researcher intends to investigate influence of foreign direct
investment and the development of small and medium scale enterprise in Enugu
state, Nigeria.
1.3
OBJECTIVE
OF THE STUDY
The main objective of this study is
to examine foreign direct investment and the development of SMEs in Enugu
state. But to aid the effective completion of the study, the researcher intends
to achieve the following specific objective;
i)
To examine whether Foreign Direct
Investment undermined the development of SMEs in Enugu state, 2007-2017.
ii)
To examine whether the Enugu state
government provided an enabling environment for the development of SMEs in the
state, 2007-2017.
1.4
RESEARCH
QUESTIONS
The following research
hypotheses were formulated to aid the completion of the study;
i)
Did Foreign Direct Investment undermine
the development of SMEs in Enugu state, 2007-2017?
ii)
Did the Enugu state government provide
an enabling environment for the development of SMEs in the state, 2007-2017?
1.5
RESEARCH
HYPOTHESES
The following
hypotheses were formulated to proffer answers to the research questions;
1.
Foreign Direct Investment undermined the
development of SMEs in Enugu state, 2007-2017.
2.
Enugu state government provided an
enabling environment for the development of SMEs in the state, 2007-2017.
1.6
SIGNIFICANCE
OF THE STUDY
It is believed that at the completion
of the study, the findings will be of great importance to the Enugu state
economic planning committee as the study seek to explore the merit of FDI and
the merit if any on the growth of SMEs in the state, the study will also be
useful to the management of Enugu state investment and development committee as
the study will help them formulate policies that will attract FDI to the state.
The study will also be useful to researchers who intend to embark on a study in
a similar topic as the findings of the study will serve as a reference point
for further study. Finally, the study will also be useful to academia’s,
researchers, students, teachers and the general public as the study will
contribute to knowledge and the pool of existing literature.
1.7
SCOPE
AND LIMITATION OF THE STUDY
The scope of the study covers foreign
direct investment and the development of small and medium scale enterprise in
Enugu state, 2007-2017, but in the cause of the study, there were some factors
which militate against the scope of the study;
a) Availability of Research Material: The research material available to the researcher
is insufficient, thereby limiting the study.
b) Time: The time frame allocated to the study does not
enhance wider coverage as the researcher has to combine other academic
activities and examinations with the study.
1.8
DEFINITION OF TERMS
Foreign
Direct Investment
A foreign direct
investment is an investment in the form of a controlling ownership in a
business in one country by an entity based in another country. It is thus
distinguished from a foreign portfolio investment by a notion of direct control.
Productivity
Productivity is an economic measure of output per unit of input. Inputs include
labor and capital, while output is typically measured in revenues and other
gross domestic product (GDP) components such as business inventories.
Small
Medium Enterprises
The Central Bank of Nigeria defines
small and medium enterprises in Nigeria according to asset base and number of
staff employed. The criteria are an asset base that is between N5 million
to N500 million,
and a staff strength that is between 11 and 100 employees.
Development
Development in this
context is the process of promoting the growth of small and medium enterprises.
Simply put, to further or advance the growth of something.
Enugu
State
Enugu state is a state
in the Southeastern part of Nigeria, created in 1991 from part of the old
Anambra State. Its capital and largest city is Enugu, from which the state
derives its name. The state shares borders with Abia State and Imo State to the
south, Ebonyi State to the east, Benue State to the northeast, Kogi State to
the northwest and Anambra State to the west.
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