CHAPTER ONE
INTRODUCTION
Background to the study
Manifestations of corruption had also found right
footing in Nigeria even before independence and kept assuming different
dimensions after independence. For instance, Nnamdi Azikiwe as Premier of
Eastern Nigeria was exposed by the Foster Suffon Tribunal of Enquiry of 1956
into the African Continental Bank (ACB) to have abused his office and divert
huge sums of Eastern Nigeria’s government funds into his own bank, the ACB.
Similarly, the GBA Coker Commission of Inquiry of 1962 revealed how Obafemi
Awolowo diverted huge sums of money and shared it with his colleagues and party
members (Osoba, 1996).
The
desire rid Nigeria of ‘corruption’ was part of the justifications the military
gave for intervening in the democratic governance of Nigeria in 1966. Yet its
anti-graft war was such that “corruption was used to check corruption by
corrupting the system all the more” (Mathew et. al., 2013).
Goodluck Ebele Jonathan’s administration appears to
have paid no attention to corruption and its scandalous manifestations.
Jonathan’s quest and ambition for second term in office beclouded his sense of
judgment and totally bamboozled his political will from fighting corruption to
cementing loyalists in all regions of the ountry through dubious transactions
Scandalous
cases of embezzlements, misappropriation, and diversion of public funds characterized
his tenure in office. Jonathan was known to have pampered corruption and had once
vindicated his cronies by stating that “stealing is not corruption”. Between
May 6, 2010 when Jonathan stood in for late Yar’adua and 2012, over N5 trillion
of government funds were stolen. According to the Nuhu Ribadu led Petroleum
Task Force Report, Nigeria lost 250,000 barrels of crude oil daily at the cost
of $6.3 billion (N1.2 trillion) a year. This puts the total amount lost through
oil theft in the two years of Jonathan government at over $12.6 billion (N2 trillion).
In July, 2012, The House of Representatives Committee on Environment discovered
a tree seedling fraud worth N2 billion awarded by Ecological Fund Office. In
the Nigerian telecommunication sector, the 450MHz frequency which was valued at
$50 million, was allegedly sold for less than $6 million (a difference of $44m
or N6.9b) by Nigerian Communication Commission. Corruption manifested in
Jonathan’s first two years in office such that KPMG, a global audit and
financial advisory firm, resolved that Nigeria accounted for the highest number
of fraud cases in Africa in the first half of 2012 (Adeyemo, 2012).
Despite the evidence to proof the scandalous
allocation of N255 million for two bulletproof BMW cars by the Aviation
Minister Ms. Stella Oduah, nothing was done and the ‘honourable’ minister
completed her tenure.
Wide spread corruption seems to be one of the main
factors that prevent poor and developing countries to catch up with the rich
and developed ones. Although corruption was not given an explicit recognition
in the traditional economic theories, it has in recent times become a globally
recognized policy variable especially in less developed countries.
Corruption exists all over the world in developing
and developed countries. However, it is found worse off in those countries
where institutions such as the legislature and judiciary are frail; where
neither rule of law nor adherence to formal rules are strictly observed; where
political support is standard practice; where the independence and
professionalism of the public sector has been eroded; and civil society lacks
the means to bring public pressure against corruption in the government (Lawal
2007). According to the Transparency International (2014), the Corruption
Perceptions Index (CPI) in the year 2013 indicates that no region ocountry in
the world is immune to the damages of corruption, the vast majority of the 183
countries and territories assessed score below 05 on a scale of 0 (highly
corrupt) to 10 (very clean). New Zealand, Denmark and Finland were found on top
of the list, while Myanmar North Korea and Somalia are at the bottom. The World
Bank identified fraud and corruption as great impediments to economic and
social development. Corruption makes economic development sluggish by
distorting the rule of law and weakening the institutional foundation on which
economic growth depends. The harmful effects of corruption are especially
severe on the world’s poorest people, who are most reliant on the provision of
public services, and are least capable of paying the extra costs associated
with fraud and corruption (see World Bank, 2004; Al-Sadig, 2009; Wang &
You,2012). Azam et al. (2013) found that FDI positively and corruption
negatively affects economic growth in a set of five South East Asian countries
There are two major views as regards the impact of corruption. The first
school of thought perceived corruption as having a relatively low transaction
costs compared to the benefits derived from increase in employment and income. Bribery is perceived to help grease the wheel
from immediate transaction and contractual businesses. This view was based
mainly on “coarsion theory” which states that market transactions are costless;
a rearrangement of right will always takes place if it leads to an increase in
production value (Prakasam.2008). Also, corrupt practices such as speed money
is perceived to be capable of enabling individuals to avoid bureaucratic delays
and that government employees who are allowed to levy bribes would work harder
thus having a positive return on investment (Leff, 1964).
The
importance of foreign capital for the development of the economies of third
world nations like Nigeria has been well researched and documented (Dutse,
2008). Many studies have shown that the
single largest component of net capital inflows to emerging markets is foreign
direct investment (Deutsche Bundesbank, 2003). Many experts have argued that
foreign direct investment (FDI) is capable of accelerating the process of
economic growth of a developing country (Obiwona, 2001).
Research has shown that most developing countries
including Nigeria have not appreciably exploited Foreign Direct Investment
(FDI) as a source of external financing of the economy due to a non-conducive
investment climate and the attitude of the host nations (e.g Asiedu, 2002;
Balasubramanyam, 2001).Empirical evidence has shown that foreign direct
investment responds to economic fundamentals, official policies and financial
market practices (Dinda, 2009; Taylor and Sarno, 1997).Among the benefits that
are said to be associated with the inflow of properly utilized FDI are the
assistance if offers developing counties to acquire advanced technology and
critical managerial skills which can increase local productivity, create
additional jobs, lower production costs and provide workers with higher wages (Cohen,
2007). In addition to the foregoing, it has been argued that FDI helps
developing countries in supplementing their domestic savings by making
available capital from overseas which is very important because domestic
capital markets in such countries are usually inadequate for the financing of
the corporate sector (Adeoye, 2009).
It is further
argued that FDI helps developing countries to gain access to foreign markets
for goods and services for the people of the recipient country (Obiwona, 2001).
In summary, the protagonists of FDI are of the view that it can make a positive
contribution to the host economy by supplying capital, technology and
management resources that would otherwise not be available in addition to
bringing jobs to a host country that would otherwise not be created there
(Hill, 2003). All of these benefits have been identified as indispensable
factors for the economic growth and development of a third world nation.
However, some critics of FDI have argued that the damage FDI has done to the
economies of their host nations is enormous. The positive contribution arising
from the resource transfereffects are said to be negated by the possible
adverse effects of FDI on competition within the host nation, the adverse
effects on the host country’s balance of payments and the perceived loss of
national sovereignty and autonomy (Hill, 2003). Some other frequently mentioned
criticisms of FDI include the domination and exploitation of host countries to
the exclusive benefit of the home source of the FDI can cause to host countries
in some primary sectors in the process of providing goods and raw materials for
advanced country markets (Kragman and Obstfeld, 2006).Although these criticism appear logical, credible and convincing,
empirical evidence and statistical reports suggest that the benefit which FDI
offers outweigh its costs to the host countries (OECD, 2002). Indeed, the
criticisms notwithstanding, many Federal and State Government officials in
Nigeria including Federal Ministers and State Governors continue to visit
advanced nations of the world including USA, Europe, Canada, Australia, South
Korea, China and Japan to look for foreign investors in addition to offering incentives
to foreign firms such as tax incentives, low interest loan, grants, subsidies,
increased spending on infrastructure, the creation of export processing zones and
other concessions. While such efforts appear necessary to facilitate the inflow
of foreign capital for the development of Nigeria’s economy, the success of the
initiative may be short lived because it depends largely on whether the
Nigerian government is able to create an appropriate and positive business
environment that can reduce the incidence of corruption and free investors from
its negative impact. In a country where the state of business and economic
infrastructure such as roads, power and security is generally considered
deficient and parlous, a high incidence of corruption may further discourage
foreign investors and the inflow of FDI.
Statement of the problem
One
of the major economic problem in Nigeria is corruption and low capital formation to finance the necessary
investment for economic growth. Capital
was one regarded by most economists as the principal obstacle to economic
development and this is lot attentions were paid to capital formation. The role
of capital in economic growth is still regarded as very crucial both the theory
of ‘big push’ and the concept of ‘vicious cycle’ all a test to the crucial role
of capital in the growth process. The theory of ‘big push’ simply state that
the stagnant and undeveloped economies need huge and sudden injection of large
capital from foreign direct investment.
However, FDI
inflow is found to be related to export
growth while human capacity building is found to be related to FDI floe.
Corruption makes investment expensive and therefore,
slowdowns the process of economic development and it is assumed that in the
absence of corruption more FDI can be enhanced. Therefore, this study will
contribute well in the literature and will certainly give another look at the
effect of endemic corruption on FDI inflows in Nigeria. Therefore, the study
intend to find out how corruption, and foreign direct investment have effect on
economic growth in Nigeria
Objective Of
The Study
The
major objective of this study is to investigate the effect of corruption and
foreign direct investment inflow on economic growth in Nigeria
The specific objectives
of the study are as follow
1. To
find out the level of corruption on FDI inflow in Nigeria
2. To
investigate the level of economic growth and the level of FDI inflow into
Nigeria
3. To
assess the effect of corruption and FDI inflow on economic growth in Nigeria
Research Question
The
following research question will be use to guide the study
1. Does
the level of corruption have effect on FDI inflow in Nigeria
2. To
what extent does the level of economic growth have effect on FDI inflow in
Nigeria
3. What
effect does corruption and FDI inflow have on Nigeria Economic
Research Hypothesis
The
following null hypothesis are forumulated at 0.05 level of significance
1. There
is no significant relationship between the level of Corruption and the level of
FDI inflow
2.
There is no significant
relationship between the level of economic growth and the level of FDI inflow
into Nigeria.
Significance Of The Study
This study is one of the most important
topics, not only in developing countries that need presence of FDI like Nigeria
but globally as testified by the number of papers, books and international
conferences on this subject that have taken place over the last few years.
Also, the subject matter is very important to the Nigerian government now that
it has big challenge of reshaping the economy.
this study would be a great deal of interest to the following;
- Investors, The
government, The academics, The policy makers, Researchers, and The general public
Investors: This study is vital
for investors in the sense that it would
provide information on the determinants of FDI in Nigeria and would also help
them to analyze every aspect of their targeted investments
in the country.
Government: This study plays an important
role in shaping, designing and implementing
fiscal policies and at the same time would help the government to think about new and better ways of doing things and provides new
understandings and discoveries that benefit our society.
Academics: This study would impact
knowledge to academics in the area of FDI and its determinants in Nigeria.
Policy makers: The study
would help the policy makers in the country to better plan and address issues
and come up with solutions.
Researchers: This study
would enable the researchers to investigate
and understand trends and relationships of variables involved in this study and
probably build on it in their studies on FDI inflow and corruption
SCOPE OF THE STUDY
The focus of the
study is to verify if there has been any effect toward the economic growth and
development of the Nigeria economics via gross domestic product (GDP) through corruption
and foreign direct investment for the period.(1997-2014)
This
study will however be limited to investigate the effect of corruption and FDI
inflow on Nigeria Economic growth
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