Introduction
The 1980s was a period of a remarkable increase in the flow of investment in the whole world. Within that decade, the summation of outflows in terms of capital increased by nearly 30 percent, which is thrice the amount that the world exports within such a period (Bello 2013). The 1990s also indicated further growth and improvements compared to its predecessor. In spite of the increasing flow of investment towards the developing economies, countries within the Sub-Saharan region of Africa still lag behind in terms of the areas attracting investment by foreign companies and multinational corporations (Kachikwu 1981). Foreign Direct Investment (FDI) is one of the most important sources for development and growth for developing countries. They are the engine for development in terms of technology and many of the benefits spilling over from the positive effects of foreign investment (Hilton 1973). In Nigeria, the telecommunication industry is one of the most important sectors of the economy. Therefore, the patterns of investment within this sector have an effect on the Nigerian economy as a whole.
Research Questions:
- What are the patterns of FDIs in telecommunication companies in Nigeria?
- What are the effects of the patterns of FDIs in the telecommunication industry on the economy of Nigeria?
Objectives: The research seeks to identify the patterns of FDIs in telecommunication companies in Nigeria. Moreover, it investigates the effects of the patterns of FDIs in the telecommunication industry on the economy of Nigeria.
Scope and Limitations
The study identifies the impact of the volatility of exchange rates on foreign direct investment within Nigeria. It also investigates the potential impacts of these FDIs in the telecommunication sector on the economy of Nigeria.
The limitation of this study is that maintenance, assessment and demonstration of rigor is slightly difficult.
Literature Review
In examining the case of Nigeria, the works accomplished by several authors come into the light. The authors examine several factors that relate to FDI. The first theory of FDI suggests that movements in the rates of currency exchange and uncertainty in the rates of exchange appear to be some of the most important factors in this light. Foreign investors always the two issues into consideration tom assess the level of risk associated with their investment in another country. Therefore, risk averse investors tend to avoid markets that with a high rate of volatility and uncertainty in terms of the returns. Froot and Stein (1991) agreed that the amount of exchange rates have a significant influence on FDI. They suggest that the depreciation of the host country’s currency against that of their home currency results in incremental wealth accruing to the foreigners. Therefore, the authors are in line with the argument of the first theory because investors will target markets that have lesser risk. They will invest it in regions that do not promise relative stability against their home currency (Ekwueme 2007). On the contrary, Campa (1993) gives a different argument regarding the level of the exchange rate and foreign direct investment. In his argument, Campa asserts that the factors determining the desire of the firm to invest in other countries is the expected profitability and not the level of exchange rates. Therefore, if the methods for assessing profitability indicate high amounts of possible revenues, FDI will still happen regardless of the level of exchange rates.
On the other hand, there is also the life cycle theory of foreign direct investment. The theory asserts that there is an intrinsic relationship between the expected flows from the FDI and the life cycle of the product or component of the FDI. Therefore, it relates to the concept of the net present value in financial management, which focuses on the periodicity of the expected return on the investment made by the foreign companies. Gorg and Wakelin contributed to this subject significantly, as they consider the outward or the inward value of the FDI unlike the other studies. They hold that foreign investors must be equally patient like the other contemporary investors. The must wait for the maturity of the investment in order to realize reasonable amounts of returns. Therefore, the authors agree with the theory of the life cycle, which suggests that the completion of the life cycle is important if the investment is to record the maximum returns (Oyaide 1977).
Methodology
The study investigates the available empirical evidence on the impact of the volatility of exchange rates on foreign direct investment within Nigeria. It utilizes secondary time series information between 1970 and 2004. In order to use this methodology with efficiency, the study used model for error correction and the estimation method of OLS. According to the results indicated, it is important to point out that the volatility of the exchange rate should result in worry by foreign investors. Other determinants in the market are important in assessing the viability of investments regardless of the behavior of the currencies exchanged between the host country and the parent country of the investors. In addition, there is also a positive association between the exchange rate and the inward FDI in the telecommunication companies of Nigeria. However, the telecommunication sector faced stiff competition from manufacturing and mining.
Data Collection and data Analysis
The sources of data are secondary given that the nature of the study is primarily historical. These are sources with data collected in prior primary research and recorded for use in future as sources pf reference. On that note, the inferences made are subject to bias and inaccuracy or estimations. They base on the primary judgment of the economic analysts and as such they may have portrayed convenient picture of what they intended the investors or other stakeholders to perceive in the Nigerian market (Noam 1999). According to the report filed by the World Bank and the CBN bulletin on Nigerian Statistics, the cumulative Foreign Direct Investment in Nigeria were at 1003 units with mining taking nearly half of the cumulative figure while telecommunication had a dismal value of only 1.5 percent and an approximate value of 17.6 units. In fact, foreign investment in the area of telecommunication was considered among the miscellaneous factors of FDI.
However, the unexploited sector of telecommunication presented significant market opportunities for prospective investors. The growing population also presented another opportunity as it guaranteed that the investors would never lack a ready market for their products in the Nigerian market (Mabbs-Zeno & United States 1986). By 2004, the effects of spreading technology in the whole world implied that Nigeria would also succumb to the need to upgrade its technology. By 2004, the cumulative investment in the area of telecommunication indicated much improvement. It had nearly 53000 units and accounted for an estimated 23 percent of the overall cumulative foreign direct investment in the country. Some of the telecom industries in Nigeria include the AAA Infotek Limited, the Acorin Limited, the Biswal Limited and BlueChip Technologies Limited. The improvement accrued to the foreign firms setting foot in the Nigerian market to take advantage of the market opportunities presented in the course of time. In addition, Nigeria is an active participant in multinational corporations both regionally and internationally. It is an influential member of the ECOWAS organization and other international organizations such as the World trade Organization. Such membership to international organizations allows other countries to penetrate the Nigerian market and foster the establishment of foreign firms in the market (Nigerian Investment Commission 1990). The increasing contribution of the telecommunication companies in the cumulative figure of the summation of the foreign direct investment results from the identification and effective exploitation of the Nigerian market (Nigeria 1999).
Recommendations
The recommendations in this sections focus on increasing the level of activity and profitability in the telecommunication companies like Afinbo Nigeria Limited and ATLASCO Technology Limited in the Nigerian market. It is the duty of the government and the other stakeholders in these companies to ensure that they promote the advent of foreign firms in the sector. In this light, firms often refuse to enter markets because of the conditions imposed on them by the mere fact they are foreign (Nigeria 2000). The government must lower the taxes for the telecommunication companies to facilitate further investment and participation. It should also revise the laws regarding mergers and acquisitions in the country to enable local firms to enter into partnerships. It should also enable the firms to merge with foreign firms. It will be helpful in increasing the asset base of the firms to enable them offer better services to the consumers in Nigeria. There should also be regular crackdowns on service providers who offer poor quality of services in the market. The government should have a regulatory body to certify the conditions of entry into the telecommunications market (Oziri 1985). It will help to maintain the competitive advantage of the industry by limiting the activities of firms that cannot meet the standards required in the market.
Conclusion
The Nigerian telecommunication market is one of the fastest growing market in the African continent. It attracts massive investment from local and international investors because of the ready market and potential revenue from the market,(Kachikwu 1981). Since 1970, the market has indicated significant growth over the past five decades to meet the demand of the consumers. In spite of the exemplary performance, the Nigerian government and other stakeholders can still play a role in maximizing the full potential of the market (Taiwo 2012).
References
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