CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF STUDY

FDI is defined as an investment made to acquire a lasting management interest (normally 10% of voting stock) in a business enterprise operating in a country other than that of the investor (Mwillima, 2003; World Bank, 1993, 2007). Moosa (2002) defined FDI as the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country). FDI may take the form of either “Greenfield” investment (also called “mortar and brick” investment) or merger and acquisition (M&A), which means the acquisition of existing interest rather than new investment. The rule has it that for the corporate outfit, ownership of at least 10% of the ordinary shares or voting stock is the condition for the existence of a direct investment relationship. Despite Nigeria's enormous resources and potential, poverty is widespread throughout the nation.

Basic economic indicators place it among the 20 poorest countries of the world (CIA World Fact book, 2008). Nigeria has been in stagnation and relative decline since 1981, from a per capita GDP of US$1,200 in 1981 to about US$300 in 2000. In 1992, 34.1 percent of the population was below the poverty line, about 70 percent fell below the poverty line in 2000 and still on the increase, the larger percentage is in the rural areas, according to the (World Bank, 2008). For many Nigerians the quality of life has declined rather than improved. In contrast, the standard of living for a few privileged Nigerians has improved substantially.

The average worker salary cannot earn enough to support a family because of inflation and rises in food prices and transportation costs. The national minimum wage of N18, 000 (about US$118. 00) Per month, adopted by the federal government, falls far short of what is needed to cover housing, food, education, health care and transportation. Housing and living facilities for the wealthy are very similar to those available to their counterparts in countries of the western world. Middle and lower-level income groups in the urban and rural areas live in individual houses or crowded flats (apartments).

Rural dwellers live in cement or mud block houses with tin or thatched roofs, and have no running water for the most part. Water and electricity services in the major cities are erratic. Water supplies in many rural areas are infested with disease-carrying worms, while electricity services, under government patronage, are seldom available. There is, therefore, much poverty in the country, a situation that has led to a "brain drain" from the country to other nations of the world. Much of the despair can be linked to the awful quality of life of the average Nigerian, and also to the huge income disparity between the poverty-stricken masses and the few well-to-do Nigerians. Mismanagement and corruption on the part of the government squandered the nation's wealth, which encourage an atmosphere of violence that has become the order of the day. The report further confirmed that life expectancy which was 54 years in 1990 had dropped to less than 50 years in 2005. Access to adequate shelter, water and sanitation facilities as well as communication had been very low while income inequality had also worsened during the same period. The worsening situation had affected vulnerable groups and women in rural areas the most in particular are the individuals with limited or no formal education, large families’ farm communities and groups engaged in informal sector activities. However there are some measures that the federal government of Nigeria had taken in the past to present time in order to tackle poverty, such as: National Directorate of Employment (NDE), National Agricultural Land Development Authority (NALDA), Family Economic Advancement Programs (FEAP), Directorate of Food, Roads and Rural Infrastructure (DFRRI), Better Life Program for Rural women (BLP), Nigerian Agricultural and Cooperative Bank (NACB), Peoples Bank of Nigeria(PBN), National Board for Community Banks (NBCB), and lately National Poverty eradication Program (NAPEP). Despite these heartwarming programs, percentage of the poor seems not to reduce as expected

1.2 STATEMENT OF PROBLEM

It is obvious to common sense that there are numerous advantages in the reduction of poverty through FDI; the question is that of what effect is FDI on poverty reduction? Unfortunately, work on the FDI and poverty reduction links is very scanty. Most of the poverty related subjects typically relate to economic growth, without exploring further, the probable contribution of FDI. The principal notion, correct or not, seems to have been that while the expansion of the private sector contributes to the development process through economic growth, the poorest members of society often do not benefit from this process. The paradox of huge inflow of FDI to Nigeria and high rate of poverty inform the conduct of this study. In addition, very scanty studies were on direct linkage between FDI and poverty reduction in Nigeria, and these studies captured poverty reduction via economic growth.

1.3 AIM AND OBJECTIVES OF STUDY

The main of the research work is to determine the impact of foreign direct investment on poverty alleviation in Nigeria. Other specific objectives of the study are:

1. to determine the relationship between FDI and poverty alleviation in Nigeria
2. to investigate on the factors affecting FDI in Nigeria
3. to determine the poverty situation in Nigeria
4. to determine the extent to which FDI has influenced the poverty situation in Nigeria

1.4 RESEARCH QUESTIONS

The study came up research questions so as to ascertain the above stated objectives of the study. The research questions are:

1. What is the relationship between FDI and poverty alleviation in Nigeria?
2. What are the factors affecting FDI in Nigeria?
3. What is the poverty situation in Nigeria?
4. To what extent has FDI influenced the poverty situation in Nigeria?

1.5 STATEMENT OF RESEARCH HYPOTHESIS

H0: there is no significant relationship between FDI and poverty alleviation in Nigeria

H1: there is significant relationship between FDI and poverty alleviation in Nigeria

1.6 SIGNIFICANCE OF STUDY

Foreign Direct Investment (FDI) has become an increasingly important element for economic development. Specifically in Nigeria, it is paramount to know which factors affect FDI inflows. This work offers a comprehensive review of articles that were published, and to determine if the impacts of FDI on poverty alleviation in Nigeria. The information obtained is a starting point for the implementation of strategies to attract foreign investment. The study will also serve as a repository of information to other researchers that desire to carry out similar research on the above topic. Finally the study will contribute to the body of existing literature and knowledge in this field of study and provide a basis for further research.

1.7 SCOPE OF STUDY

The study on the impact of foreign direct investment on poverty alleviation in Nigeria will cover from 2005-2017. This period is adequate enough to elicit information on the role of FDI on poverty alleviation in Nigeria.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient funds tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature/information and in the process of data collection (statistical data from CBN).

Time constraint- The researcher will simultaneously engage in this study with other academic work. Consequently, this will cut reduce the time devoted for the research work.

1.9 DEFINITION OF TERMS

Foreign Direct Investment: Is a controlling ownership in a business enterprise in one country by an entity based in another country.

Poverty: The term poverty is defined in the perspective of this study as a state where an individual is unable to cater for his basic needs of food, clothing and shelter, unable to meet social and economic obligations, lack of gainful employment, skills, assets and self-esteem and has limited access to social and economic infrastructures such as education, healthcare services, potable water and sanitation and also has limited chances of advancing his welfare to the limit of his capabilities.

Unemployment: For the purpose of this study, unemployment is defined as a condition and/or situation in which able bodied persons who are physically and mentally fit and are willing to work, are unable to find work because of lack of employment opportunities. It is a condition in which those who are able or capable and eager to work find it difficult to obtain suitable jobs.

Development: The researcher views the concept of development as the fulfillment of the necessary conditions for the achievement or realization of universally acceptable aims and potentials of human personality, through the eradication of poverty, inequality and unemployment within the economic system of a nation. So development is therefore the realization of the full potentials of the society, which is the sustained improvement of the wellbeing of the people.

Self Reliance: In operation terms, self reliance is to be understood as the will to build up and use a capacity for autonomous decision making and implementation on all aspects of the development process including human development. It is an essential component of alternative strategies, pattern or mode of development which are directed at the satisfaction of the maximum needs of the entire population as the primary development objective. It is development through one’s own efforts.

Economic Development: The researcher look at economic development as a necessary element in development, a more equitable distribution of wealth and a cumulative rise in the material standard of living of an increasing proportion of the total population. In conclusion, all these definitions imply that it involves rising living standard.