AN ANALYSIS OF FOREIGN DIRECT INVESTMENT AND GROWTH OF THE COMMUNICATION SUB-SECTOR: A STUDY OF NIGERIAN TELECOMMUNICATION INDUSTRY

CHAPTER ONE

1.0         INTRODUCTION

1.1      BACKGROUND OF STUDY

“Statelessness does provide certain environmental advantages. Among the benefits are the ability to avoid trade and political problems, to sidestep regulation hurdles, to achieve labour concessions, to balance costs, and to win technology break through,”   (Czinkota et al 2000: 392).

This statement enunciates the reasons why multinational corporations are usually better companies than their local rivals in most of the developing countries. The assumption emphasizes that these world corporations are building insider capabilities no matter their area of operation and either their factories or laboratories are moved around the world.

In the Nigerian economic sector, the highest recent growth in foreign direct investment (FDI) has been in services. The influx of international investment in telecommunications has received high and favorable attention because of the monopoly and inefficiency of NITEL for decades.

Stimulation has been given to this cross–border activity due to its connections to innovation diffusion and the mobility of foreign equity capital pumped into the Nigerian economy. FDI leads to sustainability in any developing economy. It is an amalgamation of capital, technology, marketing and management.

As Ugbaka (2007:63) writes, “It is elementary economics that the wheels of every economy are oiled not only by FDI but, also, by the creation of jobs, which has direct impact on national development, wealth creation, and national security.”

It is assumed that stronger FDI and official development assistance (ODA) inflows and a reduction in the stock of public debts are among the factors that drive growth in any review period in Nigeria (Abdul Mutallab 2006: 18; Yakubu 2007, Todaro and Smith 2003: 635, Adesida 2001: 2).

Conversely, the pre-liberalization era of telecommunication in Nigeria encountered a terrible heart attack. The industry had symptoms of high level of corruption, epileptic service provision, and high cost of acquisition, paralytic infrastructural maintenance, poor availability of telephone lines etc.

The complete deregulation in 1999 of the Nigerian mobile phone market opened up for other cellular operators a lifeline, thereby increasing competition and driving down prices. Already, by April 2007, it estimated that 38m mobile phones have served Nigerians.

The Advanced telecommunication in the telephone and internet services recognize to have led to economic success especially by strengthening real sector and personal advancement, since sustainable human development cannot occur in a vacuum (Anotonelli 1999: 25; Nwosu, Nwodu and Fab–ukozor 2007; NEEDS document 2005: 72).

Although FDI in telecommunication industry ought to be accepted, the lapses in the quality of services provided by these GSM operators in Nigeria should not be neglected. There have been complaints from consumers on the gradual decay of their services. The cause of these lapses is traceable to the government incapability to breed positive influence into the system.

This prompted into carrying out this project. The research project when concluded, will provide a framework on the levels of association between the FDI and the growth of the telecommunication industry in Nigeria

1.2    STATEMENT OF RESEARCH PROBLEM

Before proceeding further, there is need to state what constitutes the research problem on this study.

Several researchers have done work on the macroeconomics related to this topic. Such researchers  are Linda Y. C Lim and Pang Eng Fong, 1991; Antonelli C 1991; Agba A. V, 2002; Aremu J.A 2005; Ndukwe E, 2006; Bhattacharya, Montiel and Sharma 2005, Calderon and Serven 2004, Kirsten M (ed) 2003: 91 – 168.

These authors work will be reviewed as the empirical related literature. However, this research is pinpointing on how international investment in Nigeria can help at the microeconomic level to achieve economies of scale that has not been achieved in domestic market. Just as Adam Smith stressed on self-interest, once there is growth in each subsector of the economy, it will have effect on the growth in the aggregate economy.

One of the major variables to be studied is on the assumption that multinational corporation employ cultural management techniques to suit the locality.

The nature of this prediction is that there will be need for these multinational corporations in Nigeria to employ more of indigenes than bring in foreign expertise into the host economy.

Therefore, the research intends to find out how FDI has affected Employment of labour in Nigeria.

In addition, to define how the FDI tends to make a change through market expansion and increase in the federal capital reserve with the complaint of infrastructural deficiencies in Nigeria.

Another aspect is that there has been non-acceptability of their quality of services delivery especially in their inter–connectivity networking which has raised public hearing forum proposed by NCC and NASB on telecommunication activities.

Finally, the issue of who gains more than the other on the investment is yet to be clarified. Is the capital inflow into Nigeria more beneficial to Nigerians than the capital flight to the parental corporation or vice versa?

1.3      RESEARCH OBJECTIVES

The objectives are as follows:

To investigate the impact of multinational corporation on employment function in the telecommunication industry in Nigeria.

To examine the effect of capital inflow through Nigerian telecom industry into the GDP from the foreign direct investment

To assess the quality of available GSM services and other lifelines in march with the population density.

To explore the outcome of Communication FDI in developing communities through telecom services

1.4        RESEARCH QUESTIONS

The study proposes to provide empirical responses to the following research questions:

Who has gained more than the other in the foreign direct investment? Is it the host market or the parent enterprise outside the country?

What percentage index of the profit maximization gained by these multinational telecom corporations from Nigeria has been reinvested back into the economy?

What effect has the capital flight from the affiliated branch office of these international GSM operators to the parental enterprise on the Nigerian GDP?

To what extent has the improved telecommunication industry contributed on aggregate employment function in Nigerian labour market?

To what extent has the employment of Nigerians by these transnational telecom corporations affected the growth of their business trend?

What effect has the FDI expanded market into Nigerian telecommunication companies had on their global linkage?

To what extent does the consumption investment schedule of the telephony in Nigeria has to depend on foreign direct contacts?

To what rate has the revolution in the Nigerian telecommunication industry affected other sectors of the national economy in Nigeria?

How many of these multinational corporations with their manufacturing functions related to GSM operation has been attracted to invest into Nigerian manufacturing subsector?

To what extent has there been technology transfer from the transnational telecom corporation to the Nigeria domestic market?

How far has these international GSM operators gone with signing memorandum of understanding with communities to build good relation with the people?

How successful has the communication FDI assisted their subscribers by providing scholarships, skills development programmes etc to encourage their patronage?

1.5         RESEARCH HYPOTHESES

To come out with realistic results from the research questions asked, the following null hypotheses are formulated from the objectives stated above for statistical testing:

HO:     Communication FDI has no significant benefit from

the cheap labour provided by Nigerian labour market.

H0:     There is no relationship between the increased paid-up    capital with the Federal Reserve System in Nigeria and

the Communication FDI

H0:     There is less growth rate of teledensity in the

Communities even with the mobile penetration

into Nigerian economy

1.6        SCOPE OF STUDY

The nature of the study demands for an analysis on the performance of foreign-owned telecommunication companies and their relationship to the economic growth and development.

This study is confined to the MTN Nigeria and ZAIN Nigeria that are the major GSM mobile operators in Enugu state; although the findings could be generalized to their other branches since, their management system is centralized no matter their branch area.

It is limited to confirm how they have influenced the economies in Enugu State.

Its scope limits those cellular or wireless phone networks that are not operating in Enugu or those within but have not started operating.

1.7      SIGNIFICANCE OF STUDY

There is need to justify the relevance of this study.

Telecommunication industry has witnessed tremendous response to change recently in Nigeria. The outcome of its productivity and rise in GNP depends on the services prodded by both the foreign direct investors and domestic private investors.

From the study, out of the four major network operators in Nigeria, two are related to foreign-owned companies.

Therefore, a significant surveying needed to be done, to find out how favourable the part played by Communication FDI in Nigerian market. It will also assist to review how many other enterprises related to this particular subsector has been invested in Enugu urban due to presence of these transnational companies.

This research work is also necessary for researchers interested in communication development and management or international economics.

1.8         AREA OF STUDY

The geographical area for coverage is the Enugu urban in Enugu State. This locale is appropriate for the study because Enugu is one of the oldest cities in Nigeria and the two major telecom companies related to the foreign direct investment are located at the mentioned area.

The MTN Region in Asaba launched her Y’hello bahn in Enugu city on January 2002. Presently, she has a center at Zik Avenue in Uwani. Within this area, there are many related business transactions. Besides, Uwani constitutes a suitable population for the sample because of its high density.

As well, Zain Nigeria once known as Celtel until 1st August 2008 has an office at 6 Ebeano Housing Estate, Independence layout. The area also constitutes an appropriate population from which the sample is drawn.

In addition, the Zain office is situated between BankPHB Plc and Rainbownet, a local rival. The vicinity is known for its business outlook. In close proximity to the Ebeano layout is the mobile repairers’ village where so many microentrepreneurs have trade for handsets, recharge cards, simcards, and other accessories of the mobile business.

Most of the population in Enugu urban are subscribers of mobile operation and possess all the characteristics measured as required by the objectives of the study.

1.9         LIMITATIONS OF STUDY

This research has numerous limitations. The work is limited due to time factor. The time limit, within the work completed, was hampered finally.

Another limitation is lack of sufficient fund to carry out this work thoroughly.

Also, insufficient material has been encountered especially on a statistical database. The central bank of Nigeria, Okpara Avenue branch has statistical bulletin limited to 2005 (therefore, their official data will beat the span years of 2000 to 2004).

The federal office of statistics could not provide current figures for researchers. It has no data on any of these foreign- owned Cellular Companies.

The worse is that the workers has low standard of literacy and are less helpful. Besides, the aggregate data provided by government agencies are unreliable and inconsistent.

The office of the National Communication Commission branch in Enugu State, which is one of the regulatory bodies, is poorly structured. The woman at the administration who redirected the researcher to the website was of no assistance.

This is because the USPF page/chapter she referred her to is unknown zone and cannot open. She also supplied her with NCC ACTS, which is unnecessary and irrelevant to the objective of the project.

Some of the staff of MTN and Zain was unhelpful. They were not cooperative and the companies jealously guarded data, which would have helped to upgrade this study.

There is also the problem of collecting all the questionnaires shared. Sometimes, the researcher meets the absence of the respondents.

1.10   CONCEPTUAL AND OPERATIONAL DEFINITIONS OF KEY TERMS

Foreign Direct Investment (FDI)

Conceptual: FDI is 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 defined according to residency (World Bank, 1996)

Operational:  From 1970-2001 in Nigeria, the manufacturing subsector had a rate of 32.2%, mining and quarrying 30.3% and transportation and communication 1.1% because of its unattractiveness. Most multinational companies now pumped in capital, technology, or management techniques in the economics of communication subsector.

Official Developing Assistance: (ODA)

Conceptual:        Net disbursements of loans or grants made on concessional terms by official agencies of member countries of OECD     (MP. Todaro and S.C Smith 2003: 804)

Operational: The interdependency by the less developed countries for financial loans or grant on the developed economy has not helped the countries economically. There is need for stronger foreign contact that will encourage challenges and improvement of human resources.

Sustainable Development:

Conceptual:  It is an approach to development, which allows nations to meet their present needs without compromising the ability of future generations to meet their own needs