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THE IMPACT OF FOREIGN DIRECT
INVESTMENT ON THE NIGERIAN ECONOMY
ABSTRACT
The study of the nature involves
a lot of deep research and understanding of the factors, which creates the
effects on the subject matter. Primarily, these factors were more economical
than managerial as the case may be, on the understanding that this research
work is being casual out under a management setting or department. Just as the
subject matter is, the impact of foreign direct investment on the Nigerian
Economy with a case study of Nigerian Bottling Company Plc, it is based on the
economic, social and entrepreneurial impacts created by these multinational
companies like NBC Plc on their host societies. Based on this, the objective of
this study was to determine through quantitative and quantitative measures
whether the benefits of multinational enterprises (MNE’S) out weigh the cost
that results from their activities in the hose countries.The first chapter of
this work contains a general discussion (i.e. critics and defense) of FSI’s
activities in host countries. Further the statement of the research problem was
studied and the need for the study. The scope and limitation to the research
work was finally looked into with the stated hypothesis which guide the
researcher in his evaluations. In chapter two, a number of part related
literatures were examined as it relates to the impact of foreign direct
investment to Nigeria as the case may be with particular reference to NBC Plc
activities in Enugu Zone. Chapter three treated the design of the study, the
method of collecting data and the ways in which the questionnaires were
distributed within the chosen population. The data gathered from the research
were analysed and interpreted in chapter four of this research report. Finally,
the summary of findings, conclusions on the research work and recommendations
were given by the researcher all in chapter five.It is believed that these
recommendations made in this study will help both the multinationals in their
relationship with their host communities as well as creating an enabling environment
from the host country for their business to there.
________________________________________
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria emerged from the colonial
experience with an economy structured in accordance with the imperators of
colonial economic relationship. The
first National Development plan of (1963) was launched with the objectives of
providing the framework for industrial take off and development. However, as the foreign investors were
apprehensive of the nascent independent administration, efforts were made not
only to alloy their fears of nationalism but also to attract more foreign
investments through joint ventures with regional government then or the federal
government. The first development plan
as an open door regime saw an increase in the establishment of miscellaneous
foreign enterprises in Nigeria, many of which are unincorporated branches of
their overseas business.
However, just only about few
years offer independence when the rest of the world including the erstwhile
colonial master had hardly adapted to the realities of Nigeria’s attainment of
nationhood or for the Nigerian government to articulate and plan its own
economic policy, the country experienced its first military coup d’ et al in
1966. This was followed by the civil was
which tested for three years hence necessitated the cohesion of resources
towards the successful execution of the war.
The period saw the introduction of various control measures of great
significance. For the foreign investors,
these include licensing, quotas, exchange control measures with two tier
compulsory credit system for import payments, restriction on capital/individual
transfer and the promulgation of the companies decree of 1968 which compelled
all forms operating the country to be incorporated as Nigerian Companies
subject to local regulations.
Foreign Direct Investment (FDI)
refers to a movement of capital that involves ownership and control of a firm
in another country for instance, the purchase of common chores in a Nigerian
incorporated company by a French citizen involves ownership and an element of
control. This is because all shares in
an organisaiton have same voting rights.
For the purpose of this
classification such is recorded as FDI if the share acquired involves more than
10% of the outstanding common shares of the Nigerian company.
In this research and generally,
Foreign Direct Investment is classified in the context of Multinational
Corporations (MNC). The MNC is sometimes
referred to as Multinational Enterprises (MNE) is Transnational Corporations
(TNC) or Transnational Enterprises (TNE).
According to the chairman of
BOD’s of Chemical Co, a multinational form in the united state origin “the
emergence of a world economy and the multinational corporation have been
accomplished land in land”. He sees
multinational enterprises moving towards what he called “a global company”, a
firm that have no nationality but belongs to almost all countries.
The phenomenon of the MNC can be
explained only in a world of imperfect factor and product market characterized
by differential taxation market power and share, positive information costs and
the existence of pure specific revenue producing assistance. In such a world, the market mechanism is
partially replaced by other organizational firms, which generates and transmits
relevant information and which co-ordinates production and marketing decisions.
The MNC arises in other words in
response to a particular kind of market failure caused by high differential
costs of inter-nation transfer of market information and technology and of
course, factors of production (Tour and Hirsil 1979). The key features of MNC are the, it provides
the recipient nation with a package of knowledge, capital and entrepreneurship
development. It may thereby create a
positive contribution to economic growth and development in host countries.
Many multinationals corporations
exist in the Nigerian economic settings these encompassed the manufacturing
sector like Nigeria Bottling Company (NBC), constitution like Julus Berger
Nigeria, Mineral Exploration like Shell Nigeria, banking etc, to mention but a
few. It becomes pertinent that the manufacturing
sector be given due cognizance for the purpose of the research work. In this sector, the Nigerian Bottling Company
Plc will be a case study and a pointer.
The concept of Multinational
Corporation and economic development has remained on the relationship between
the MNC’s and the host societies and how development is appraised in these host
societies.
The issue of contribution to
development through social responsibility by the business enterprise has become
a topical issue in management decision and is negatively favoured in these host
societies.
They have rounding argued that
there has been gross neglect and lack of development focus in their place or
communities. It is good to discuss the
fact that some laudable developments have been directly felt by these host
societies in terms of revenue, employment technology transfer and other
benefits to the government. It is a fact
that Nigeria is a developing country and have the same peculiar characteristics
with other developing nations of the world such as low standard of living with
low savings and investment and lacks managerial know how. This has placed Nigeria in a guest for
resources from other developed nations viz-a-viz international business through
MNC’s.
It is also right to say that
MNC’s like other business ventures has the objective of profit maximization as
their aim. From the foregoing, this
research work places premium on the critical evaluation and examination of the impact of foreign direct
investment (MNC) activities in the Nigerian economy using Enugu Zone which
comprises Enugu North, Enugu South, Enugu East and 9th Mile Corner on a bench
mark. The prospective here is primarily
managerial and economic i.e. the dissension focuses on the important part in
the overall evaluation so, they are discussed along with the above mentioned
factors.
Historical Background of Nigeria
Bottling Company
The
Nigeria Bottling Company Plc (NBC) was incorporated in November 1951, as a
subsidiary of the A.G Levant’s Group with the franchise to bottle and sell
coca-cola products in Nigeria. From a humble beginning as a family business,
the company has grown to become predominant bottler of non-alcoholic beverages
in Nigeria, responsible for the manufacture and sale of over 33 different
coca-cola brands. Other popular brands of beverage produce by the company are
Eva water, Five Alive fruit juice and the newly introduced Burn energy drink.
The company presently has 13 bottling facilities and over 80 distribution
warehouses located across the country. Since production started, NBC Plc has
remained the largest bottle of nonalcoholic beverages in the country in terms
of sales volume, with about 1.8 bottles sold per year, marking it the second
largest market in Africa. Today, the company is part of the coca-cola Hellenic
Bottling Company (CCHBC). One of coca-cola company’s largest anchor bottlers
worldwide CCHBE operates in 28 countries, serving 540 million consumers and
selling over 1.3billion unit cases of beverage annually. The company recently
embarked on restructuring exercise to expand further it market share and growth
profit. It invested in a new state of the art can filling packing line at the
Apapa plant.
This is in addition to a new
bottling plant in Abuja, investment in the upgrade of other manufacturing
infrastructure, distribution and delivery facilities.
Nigerian Bottling company Plc
(NBC) Company and a sole franchise of the coca-cola Inc. spanning over six
decaes of operation, NBC is a market leader in the production of non.
A
softer than expected macroeconomic posed challenges to the manufacturing sector
of which NBC, as an integral part has to come to grips with to stay ahead of
the pack. Major challenges facing the industry include weak infrastructural
support facilities (especially power), Unfair Competition from cheaper imported
products and rising cost of fund among others, an analysis of the financial
strength of NBC reveals an above-per performance in 2007. Hretrospect, we
observe abysmal results in 2006. This was however reversed in 2007 with 13.91
percent ROE and 201.69 percent growth in PAT. Due to the FYE 2006 performance,
NBC exhibited a very risky financial profile, (based on Altman’s Z score).
However, it scaled through the 4years average. Q1 2008 result show,
respectively, turnover and PAT growth of 10.2 percent and 11.7 percent. Our
forecasts for FYE 2008 percent and 5.0 percent for turnover and PAT
respectively in valuing NBC, we employed both the Discounted cash flow (DCF)
and relative valuation Methodologies we obtained #13.57, #12.12 and #23.19
respectively from the discounted.
Divided
method, present value of Growth Opportunities and Residual income valuation.
Our relative of Price-to-Earnings (P/E), price-to-sales (P/S) yields #55.75,
#97.82 and #176.12 respectively. Attaching appropriate weights to each of the
methodologies, we arrived at a fair price of #65.77 with a discount to
valuation of 14.39 percent and an upside potential of
We
therefore place a BUY recommendation medium and long term investment horizons.
1.2 STATEMENT OF PROBLEM
The undeveloped countries like
Nigeria suffer not only from low income and unstable growth, but also from
regional disequilibrium, economic instability unemployment, depending on
foreign countries, specialization in the production of raw materials and
economic, social, political and cultural marginality.
Underdevelopment is an element in
the process of development of the international system underdevelopment and
developments are two facts of a single process of which both internal and international
structures are causes. International
treacle brings about polarization because the low income countries are assigned
the production of primary production (raw materials) which are processed in the
home countries because of worsening and unstable terms of trade, because the
economics of the low income countries lack the force work force, the
entrepreneurship and physical/institutional infrastructure to seize export
opportunities and because of generally monopolistic arrangement by which profits
flow out from the underdeveloped countries to the developed.
Because the NNC’s tend to come
from the developed countries and because their operations tend to add to host
countries production, MNC’S presumably improves the distribution of income,
goods and services between the richer and poorer countries.
Within the host societies
however, it is guide different to judge whether a direct investment project
improves or aggravates these income, goods and service distribution.
The literature critical of MNC’s
demonstrates that Foreign Direct Investment (FDI) after do not help the
economic life of cost societies, do not improve their well being hence not
benefiting lower income people Very well.
In Nigeria for unsnarl, there is
that popular and commonly held view that manufacturing multinationals have done
greater lower than good to the host communities as a result of their operations
in these communities wheel has led to loss of economic and social quality and
environmental degradation. It is not out
of place for one to say that these MNC’s have threatenical the health of the
indigenes by the use of dangerous chemical, pollutants etc. These and more are the problems that will be
looked into which necessitated this research work. It will try to examine the nature and pattern
of foreign direct investment that is International Corporation in Nigeria
manufacturing rector with a particular reference to Nigerian Bottling Company
Plc as a case study.
1.3 PURPOSE OF THE STUDY
1. To determine the Nigerians drive benefit from multinational
corporation in term of transaction and entrepreneurial.
2. To determine if multinational corporation contribute to the
growth of gross domestic product (GDP) in the Nigeria economy.
3. To determine of Multinational Corporation help in solving
balance of payment problem in the Nigerian Economy.
4. To determine if multinational corporation maintains cordial
relationship with in the host society.
1.4 SCOPE OF THE STUDY
Foreign Direct Investment (FDI)
analysis is clouded by a lot of controversy, variety of interpretation and
numerous emotive value judgement. This
recreant opinion about the activities of MNC’s in the developing countries are
as typical as the topic itself. Owing to
the divergent opinions that exist, it would be practically impossible to give a
total survey of the current debate on the topic.
However, this work will make
positive efforts to extract in favour of or against MNC’s in developing
nations. Furthermore, it is outside the
scope of this work to discuss the consequences of Foreign Direct Investment (FDI)
for the investor nations.
1.5 RESEARCH QUESTIONS
1. Do Nigerians drive benefit from multinational corporation in
term of transaction and entrepreneurial?
2. Does multinational corporations contribute to the growth of
gross domestic product (GDP) in the Nigeria economy.
3. Can Multinational Corporation help in solving balance of
payment problem in the Nigerian Economy.
4. What impact does entrepreneurial make in the economy?
5. How did Multinational Corporation maintains cordial
relationship with in the host society.
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