CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
According to annual report of the Central Bank of Nigeria, the Nigeria economy has performed less well in the 1980’s than the 1970’s. Much of the growth in both periods was based on performance of the oil sector. By 1970 oil output stood at 558 million barrels and increased to 823 million barrels by 1973. Between 1975 – 1985, oil output per day averaged between 1.8 and 2.3 million barrels respectively. With the dramatic rise in oil price in 1973 and 1974 oil came to account for 31.9% of growth in real gross domestic products and has since continued to dominate economic performance in Niger sector. Although the aim of the policy was to translate oil revenue into directly productive structures and promote long-term development prospects, the imperatives and political pressure to spend led to consolable waste and to oil boom in construction activities. The oil include rise in the exchange rate also gave negative protection to agriculture and eroded it’s significance in the economy from about 40% of the gross domestic product I the early 1970’s to 1980’s.
According, food imports which were only 200,000 lorus the 1960’s has increase tremendously to 399,000 tones in 1974, reaching a pear level of 2,441,000 lorus in 1981. By 1985 capacity utilization of most industries was below 20% owing to lack of foreign exchanges raw materials and sparse parts. Inflation had also attained an intolerable level. When therefore, the past administration in Nigeria came to power (the Babangida Administration) in August 1985, it looks a critical look at the magnititude of the economic problems facing the nation and in July 1986, it adopted a programme known as Structural Adjustment Programme (SAP) as a means of tackling these preambles. The entailed, among other things the diversification of the economics so as to make it more resilient to external forces. The import licensing system was abolished and the inter-bank foreign exchange system was introduced in September 1986 with a view to making the naira achieve a realistic exchange rate. The commodities abroad were abolished and which various government subsidies were either removed or splashed by means of commercialization and privatization; such as telecommunications and electricity.
Generally, market forces in the allocation of resources replaced administrative controls. Public investments were generally reduced in government owned companies and in some cases such companies were fully privatized. Except in some strategic industries such petroleum liquefied nature gas (LMG) and petrol chemicals. Government has rather decided to concentrate on the provision and improvement of basic infrastructural facilities such as roads, water supply, telecommunications and electricity. The overall goal of the economic adjustment is to allocate resources eiciently and to put the economy back to the past glory. It aims to relocate rescues from the public sector to the private sector as that this sector will become more productive thereby becoming the economic foundation of Nigeria’s economy (Ayaji, 1990) foreign investments are those investment that are owned by individuals and corporate bodies from other countries than the host. The structural adjustment programme is an array of measures that are instituted with hope of revamping an ailing economy. As it aects the issues of foreign investments, the most important aspect of the structural adjustment programme is deregulation of the exchange rate and liberalizing the procedure for the registration of foreign business in Nigeria. Although the exchange control act was enacted in 1962, it was liberally applied until the outbreak of the civil in 1967. The 1968 Act provides that foreign investors had to obtain a business permit and must also obtain a permit to employ foreigners. The enterprises promotion Decrease of 1977 limited the equity participation of foreigners in local enterprises depending on their schedule or category, which such enterprises fall. However, with the introduction of the Structural Adjustment Programme, most of the regulations where released. Foreigner investors could seek and obtain licenses coordination committee (IDCC), bring I their funds and repatriate the profits, without any form of inhibition.
1.2 OBJECTIVES OF THE STUDY
The objectives of the study are based on the changes that have taken place in the Nigeria economy during the structural Adjustment Programme in relation to foreign investment ascertaining the impact of those changes. On the economy and also appraise the foreign investment in Nigeria under the structural changes in the direction anticipated by the planning authorities. It is also envision new adjustments in SAP policies and oer suggestions that will enhance the realization of the goal of attracting more foreign investments in Nigeria. The study also examines the relationship that exists between the following:
1. Foreign investments and gross Domestic Product Items.
2. Foreign investment and value of Nigeria (N) it is expected that the aforementioned objectives of the study will be attained at the end of the study through the hypothesis formulation and testing.
3. Foreigner investment and balance of payment.