Foreign Direct Investment And The Development Of Small And Medium Enterprises

Foreign Direct Investment And The Development Of Small And Medium Enterprises

Chapter One

Preface

Background Of The Study

While in proposition the nexus between FDI and growth( in terms of affair and productivity) is in general positive, the empirical literature is far less conclusive. Some studies find positive goods from outside FDI for the investing country( Van Pottelsberghe and Lichtenberg, 2001 Nachum etal., 2000), but suggest a implicit negative impact from inward FDI on the host country. This results from a possible drop in indigenous innovative capacity or crowding out of domestic enterprises or domestic investment. therefore, 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 rather of propagating new technologies forming in the transferring country. Other studies report more positive findings Nadiri( 1993) finds positive and significant goods from US sourced capital on productivity growth ofmanufacturing inductries in France, Germany, Japan and the UK. Also Borensztein etal.( 1998) finds a positive influence of FDI flows from artificial countries on developing countries ’ growth. still, they report also a minimal threshold position of mortal capital for the productivity enhancing impact of FDI, emphasizing the part of absorptive capacity. Absorptive capacity or minimal threshold situations in a country’s capability to benefit from inward FDI is frequently mentioned in the literature( see also Blomström etal. 1996). Accordingly the effect of FDI depends among other effects to a large extent on the characteristics of the country that receives FDI.

Given the critical part of entrepreneurship in profitable growth of any nation and considering the absence of acceptable technology in developing countries, it’s essential to seek for technology transfer. More so, request and access to moxie are pivotal to the survival and growth of small and medium enterprises( SMEs) in developing countries. Access to moxie allows SMEs to take over productive investments efficiently and to acquire the rearmost technologies, therefore icing their competitiveness and that of the nation as a whole. As editorialized by Dutse( 2008), these rearmost technologies can be attained through the slip- over goods of FDI. This is because FDI is one of the major channels for transferring new scientific knowledge and related technological inventions. From a priori FDI is thus an essential motivation to small and medium scale entrepreneurship development in the country. In this regard, FDI facilitates access to requests, access to moxie and utmost of all access to technology. still the amenability of transnational pots to open their global value chains to original enterprises has not really transubstantiated into meaningful SMEs development. This thus raises the question of why the bottomless performance of the SMEs in Nigeria? likewise, the pattern of the FDI flux is frequently disposed towards extractive diligence, meaning that the monumental rate of FDI flux into Nigeria has been cited to natural coffers, although the size of the original request may also be a consideration( Asiedu, 2001). Always there’s veritably little stopgap of profitable development and growth for the country due to problems of socio- profitable, political and religious factors. Historically Nigeria is one of the husbandry in Africa with enormous demand for goods and services and has attracted some FDI over the times. The quantum of FDI flux into Nigeria has reachedUS$2.23 billion in 2003 and it rose toUS$5.31 billion in 2004, this figure rose again toUS$9.92 billion in 2005. The volume still turns down vaguely toUS$9.44 billion in 2006( CBN, 2009). The question that comes to mind is do these FDIs basically contribute to small and medium scale business development in Nigeria? If FDI effectively contributes to growth, also the sustainability of FDI is a worthwhile action and a way of achieving its sustainability is by relating those factors contributing to its growth with a view to icing its improvement.

Again, utmost studies on FDI and growth arecross-country studies. still, FDI and growth debates are country specific. before studies( for case, Otepola, 2002; Oyejide, 2005; Akinlo, 2004) examine only the significance of FDI on growth and the channels through which it may be serving the frugality. This study still examines the benefactions of FDI to Small and Medium scale businesses with important emphasis on husbandry and transportation sector from 1981 to 2009.

“ The Federal Government’s profitable diversification programme may have recorded a head- launch as investment groups gather for the ground breaking form of the Enpower Free Trade Zone( ENPOWER FTZ) listed 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 sweats of former Governor Sullivan Chime on the design, was quoted as saying in a statement at the weekend that the ground breaking form for the installation would bear the first set of investment fruits which will give largely demanded instigation to his government’s profitable diversification programme. According to him, “ Enpower FTZ has put in substantial sweats into attracting specific, targeted high- profile investors right from the onset. These anchor investors play an important signaling part to other implicit investors, and we anticipate them to attract a network of suppliers and mates. ” The form which holds at the Akanu Ibiam Airport point of the Free Zone is anticipated to attract up to$ 500 million( N240 billion) worth of foreign direct investments( FDI) from leading global manufacturing companies. Conditioning of the artificial clusters hosted in the free zone are also anticipated to produce over 20,000 jobs across three major regions in the country. certified by the civil government to operate as a free trade zone in December, 2015, ENPOWER FTZ is a Public-Private action with the Enugu State government offering transnational and domestic investors the benefits of connecting to business openings from the South- Eastern cluster, which according to Canback & Company and the McKinsey Global Institute, is the second largest profitable cluster in Nigeria, outside of the Lagos Cluster ”.

In the world moment, it becomes delicate for business to survive without a form of exchange or another which involves plutocrat, ideas, product and technology. As a result, every frugality is affected either appreciatively or negatively. Trade can be drawn from the need to change, which developed from the trade arrangement to the currency system. Trade in Nigeria, nonetheless, came general with the preface of the assessing regulation, which brought in their merchandises and made Nigerians their middle men. The recrimination of this is that Nigerians came to comprehend the necessity for trade both domestically and internationally. transnational business has remained an area of concern to policy makers. Its significance lies on the capacity to acquire goods which can not be manufactured in a country or which can only be manufactured at a advanced cost. also, it allows a nation to trade its locally produced goods to other countries of the world. The performance of a given frugality in terms of growth rates of affair and per capita income has not only been grounded on the domestic product and consumption conditioning but also on transnational sale of goods and services( Jhingan 2006). Small and Medium- scale Enterprises( SMEs) play veritably important places in the process of industrialization and sustainable profitable growth( Aremu & Adeyemi, 2011; Terungwa, 2012). Since the 1960s to date, SMEs are being given due recognitions especially in the advanced nations for playing veritably important places towards fostering accelerated profitable growth, development and stability within several husbandry( Gunu, 2004; Onugu, 2005; Aremu, 2010). They make up the largest proportion of business each over the world and play tremendous places in employment generation, vittles of goods and services, creating a better standard of living as well as immensely contributing to the Gross Domestic Products( GDP) of numerous countries( Paul, 2010; Ojeka & Mukoro, 2011). In Nigeria, SMEs regard for fifty percent to employment on average and also fifty percent of its artificial affair. SMEs represent about ninety percent of the artificial sector in terms of number of enterprises or enterprises, and, still, they contribute a stingy one percent of GDP( Ariyo, 2004). Industrial and profitable developments are flourished by SMEs in the country through effective application of original coffers; product of intermediate goods and services; metamorphosis of pastoral technology. SMEs are the backbone, and they play a significant part in the business geography of any country, but there are also faced with a lot of obstacles that make the sector not to contribute optimally to the frugality. In this regard, Aregbeyen( 1999) argues that the artificial development of Nigeria depends, to a large extent, on the growth and development of SME capabilities.

Statement Of The Problem

The underdeveloped/ developing nature of the Nigerian frugality that basically hindered the pace of her profitable development has needed the demand for Foreign Direct Investment into the country. Aremu( 2007), noted that Nigeria as one of the developing countries of the world, has espoused a number of measures aimed at accelerating growth and development in the domestic frugality, 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 operation interest( typically 10 of advancing stock) in a establishment or an enterprise operating in a country other than that of the investor defined according to occupancy. still, Foreign Direct Investment( FDI) is frequently seen as an important catalyst for profitable growth in the developing countries because it affects the profitable growth by stimulating domestic investment, increase in capital conformation and also, easing the technology transfer in the host countries.( Falki, 2009) It’s in view of the above that the experimenter intends to probe influence of foreign direct investment and the development of small and medium scale enterprise in Enugu state, Nigeria.

Ideal Of The Study

The main ideal of this study is to examine foreign direct investment and the development of SMEs in Enugu state. But to prop the effective completion of the study, the experimenter intends to achieve the following specific ideal;

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 handed an enabling terrain for the development of SMEs in the state, 2007- 2017.

Exploration Questions

The following exploration suppositions were formulated to prop 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 give an enabling terrain for the development of SMEs in the state, 2007- 2017?

Exploration Suppositions

The following suppositions were formulated to proffer answers to the exploration questions;

1. Foreign Direct Investment undermined the development of SMEs in Enugu state, 2007- 2017.

2. Enugu state government handed an enabling terrain for the development of SMEs in the state, 2007- 2017.

Significance Of The Study

It’s believed that at the completion of the study, the findings will be of great significance to the Enugu state profitable planning commission 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 operation of Enugu state investment and development commission as the study will help them formulate programs that will attract FDI to the state. The study will also be useful to experimenters who intend to embark on a study in a analogous content as the findings of the study will serve as a reference point for farther study. Eventually, the study will also be useful to academia’s, experimenters, scholars, preceptors and the general public as the study will contribute to knowledge and the pool of being literature.

Compass And Limitation Of The Study

The compass 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 compass of the study;

a) Vacuity of Research Material The exploration material available to the experimenter is inadequate, thereby limiting the study.

b) Time The time frame allocated to the study doesn’t enhance wider content as the experimenter has to combine other academic conditioning and examinations with the study.

Description Of Terms

Foreign Direct Investment

A foreign direct investment is an investment in the form of a controlling power in a business in one country by an reality grounded in another country. It’s therefore distinguished from a foreign portfolio investment by a notion of direct control.

Productivity

Productivity is an profitable measure of affair per unit of input. Inputs include labor and capital, while affair is generally measured in earnings and other gross domestic product( GDP) factors similar as business supplies.

Small Medium Enterprises

The Central Bank of Nigeria defines small and medium enterprises in Nigeria according to asset base and number of staff employed.