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Foreign Direct Investment in Nigeria For years the economy of Nigeria, Africa’s most populace nation, was held back by political instability, poor government policies, a lack of infrastructure, and endemiccorruption. This started to change in the 2000s. In halting steps, Nigeria has movedtoward a more stable democratic form 12/15/2016 IEB Wireframe of government. In2007, for the first time in the history of the country, following general elections there wasa peaceful transfer of civilian power. Since then, the government has pursued marketorientated reforms, including the removal of subsidies, privatization of some state runbusinesses, lower trade barriers, and deregulation. The government has tried to rid itselfof corruption, albeit with decidedly mixed success. There has also been some attempt toimprove the country’s poor transportation and power infrastructure.The reforms have had a positive impact. The GDP of Nigerian measured in constant2005 U.S. dollars increased 2.75fold from $67 billion in 2000 to $183 billion in 2013.When estimates of the informal or black economy sector are taken into account, theGDP may have been 50 percent larger again in 2013. Since 2004, Nigeria has grown at 7percent per annum compounded, faster than the West African average. Powering thisgrowth were high oil prices. Nigeria is a significant oil producer, and high oil prices havehelped improve government finances, but the industrial and agricultural sectors of theeconomy are also growing. Sharp is a Japanese multinational corporation that hasengaged in foreign direct investment in Nigeria. The country of Nigeria has seen aslowdown in FDI in recent years.Foreign direct investment emerged as one of the major engines of growth. For years,foreign investors stayed away from Nigeria, scared off by political instability and highlevels of corruption, but that too is starting to change. Encouraged by better economicmanagement, and the promise of a large domestic market, inward foreign investment inNigeria increased from $1.2 billion in 2000 to a peak of almost $9 billion in 2011 beforeslipping to $5.6 billion in 2013. This surge in investment made Nigeria the topdestination for FDI in subSaharan Africa. Among recent investors has been GeneralElectric, which announced in 2013 that it would put over $1 billion into Nigeria over thenext five years. The investments include building a manufacturing plant to support thepower generation and oil extraction industries, and a service center for supporting GEequipment. GE believes that its investment will create 2,300 jobs. Foreign retailers willalso probably make major investments in distribution infrastructure such as cold storagefacilities and warehouses. Currently, there is a chronic lack of cold storage facilities inIndia. Estimates suggest that about 25 to 30 percent of all fruits and vegetables spoilbefore they reach the market due to inadequate cold storage. Similarly, there is a lack ofwarehousing capacity. A lot of wheat, for example, is simply stored under tarpaulins,where it is at risk of rotting. Such problems raise foods costs to consumers and imposesignificant losses on farmers.While the majority of investments are still targeted at Nigeria’s large energy sector, thereare signs that this too is beginning to shift. A case in point is Procter & Gamble, which in2012 invested $250 million to construct a state of the art plant to manufacture disposable diapers in Nigeria. Explaining the investment, a P&G spokesperson noted that Nigeriahas a very strong, dynamic and growing population of now over 167 million people withover 40 percent less than 15 years old. By 2050, Nigeria is projected to have the thirdlargest population in the world. This represents a rapidly growing number of consumersand a wonderful opportunity to serve. The P&G spokesperson also indicated that thecompany would increase its investment if the government was successful in furtherlowering import tariffs and consumption taxes, and resolved some of the infrastructureproblems that were currently holding back the country. Sources: K. Aderinokun,Nigeria: We Want to Make Nigeria the Hub of Procter and Gamble’s West AfricanOperations, All Africa, August 21, 2012? N. Mazen, General Electric Plans $1 BillionInvestment in NigePower, Bloomberg, January 31, 2013? CIA, The World Factbook:Nigeria, updated January 7, 2014? Staff reporter, Well below Par, The Economist,November 29, 2014.Case Discussion Questions1. What factors held back the flow of FDI into Nigeria for most of the country’s historyas an independent nation?2. Why did foreign direct investment into Nigeria start to accelerate after the mid2000s?3. How do you think FDI might benefit the Nigerian economy? Is there any potentialdownside to Nigeria from more FDI?4. Nigeria is largely dependent on oil exports to drive its economy forward. Given thesharp fall in global oil prices that occurred in 2014, what impact do you think this willhave on FDI into Nigeria?5. Nigeria’s government is currently fighting a vicious insurgency mounted by BokoHaram in the country’s remote and sparsely populated northeast. Should this be ofconcern to potential foreign investors, most of who invest in the country’s populatedsouthern regions?6. Imagine that you work for a large consumer products company selling basic householdgoods. List the pros and cons of investing in Nigeria. Under what circumstances wouldyou recommend investing? PurposeTo assess your ability to apply the concepts from this week.Overview In MBA 727, you will display your ability to apply the concepts from the overviewthrough case study analysis. Each week, you will read a case and complete a caseanalysis. You are not to answer the questions at the end of the case. However, thequestions should help you formulate where your thinking should be taking you duringyour analysis.Action Items1. Review the grading rubric for this assignment (below). 2. Read the closing case at the end of Chapter 8 in International Business. 3. Write a 3- to 4-page paper to discuss the questions in the reading using a businessbrief format. Review the Business Brief Guidelines in the MBA Toolbox to assist you inthe proper formatting of your paper. Cite resources as appropriate to support yourfindings. 4. As noted in the Overview above, do NOT merely list and answer the questions atthe end of the case. You are to use a free-flowing style to summarize your thoughts afteryour research on the issues discussed in the case. 5. Submit your paper to turnitin.com. (Your professor supplied the course ID andpassword during week 1.) 6. Read the originality report and modify your paper as needed. This may includeadding proper citations or better paraphrasing.
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