This study attempted to estimate the environmental impact of Foreign Direct Investment in the mining sector in Nigeria. It is argued that only those countries that have reached a certain income level can absorb new technologies and benefit from technology diffusion, and thus reap the extra advantages that FDI can offer. The mining industry in Nigeria is dominated by oil. Indeed, Nigeria is the largest producer of this commodity in Africa and sixth largest producers in the world. This research study makes use of secondary data. The variables used are the Foreign Direct Investment (FDI), gross domestic product (GDP), output of mining industry and per capital flight (KF).
This study covers a period of 31 years that spans between 1980 and 2010.
The regression analysis of the Ordinary Least Square (OLS) method will be use for analysing the data. The result of the analysis shows that 37.53 per cent increase in FDI caused one per cent increase in the GDP. GDP will increase by one per cent as index of mining output and capital flight increased by 84.32 and 50.37 per cent respectively. It was also reveal that 8.03 per cent increase in FDI caused one per cent increase in the mining output. It is however recommended , among other, that policy measures should be instituted to make the domestic economy more attractive for investment in the mining sector of the economy.
1.0 Background of the Study
In the last two decades, foreign direct investment (FDI) flows have grown rapidly all over the world. This is because many developing countries see FDI as an important element in their strategy for economic development (Ayanwale, 2007).
Multinational Corporations (MNCs) and Foreign Direct Investment (FDIs) in Malaysia Over the Past Decade: A Detailed Look at their Determinants, Patterns and Effects. 1.1 Multinational Corporation and Foreign Direct Investment in Malaysia Primarily, Multinational Corporations or also known as MNC is defined as a firm that has an extensive involvement in international business, owning or controlling ...
Mergers and acquisitions including private- to-private transactions as well as acquisitions through privatization, which increased significantly in developing countries became an increasingly important vehicle for FDI (Kyaw, 2003).
This has led to many countries improving their business climate to attract more FDI. In fact, one of the pillars for launching the new partnership for Africa’s development (NEPAD) was to accelerate FDI inflows to the region (Funke and Nsouli, 2003).
Exploitation of mineral resources has assumed prime importance in several developing countries including Nigeria. Nigeria is endowed with abundant mineral resources, which have contributed immensely to the national wealth with associated socio-economic benefits. Mineral resources are an important source of wealth for a nation but before they are harnessed, they have to pass through the stages of exploration, mining and processing (Adekoya, 2003; Ajakaiye, 1995).
Different types of environmental damage and hazards inevitably accompany the three stages of mineral development. Mining is an important sector for the economy, particularly in many developing countries, and one where environmental concerns have frequently been voiced.
Foreign direct investment is important to the future of development of Africa, as it is a means of increasing the capital available for investment and the economic growth needed to reduce poverty and raise living standards in the continent. In addition, it can contribute to sustainable economic development, as it can result in the transfer of new technologies, skills and production methods, provide access to international markets, enhance efficiency of resource use, reduce waste and pollution, increase product diversity and generate employment (Loots, 1999 and Ngowi, 2001).
However, in the absence of regulations governing natural resource extraction, or when they are weak or poorly enforced, increased openness to foreign investment can accelerate unsustainable resource use patterns. The ability of developing countries to attract FDI, maximise the associated benefits and minimise the risks depends on the effectiveness of their policy/institutional frameworks and institutions (Wilhelms, 1998 and Pigato, 2001).
The Economic Growth Vs. the Environmental Sustainable Development Contents I. Introduction3 II. Distinguish between Economic Growth and Environment Sustainable Development5 III. Natural Environment and the Economy 5 1. Natural Environment and the Economy5 2. Relationship between economic growth and the environment6 2. 1 Environmental Kuznets Curve 6 2. 2 Alternative views on the ...
FDI is widely recognised as a driving force of globalisation, a major catalyst for achieving development and global integration.
Despite the relatively small share of mining in world investment flows, FDI within this sector represents a substantial part of capital formation and GDP in many developing and emerging economies. FDI within mining sector can therefore have significant impacts, positive, as well as negative. Positive impacts can include increased employment, better health care, improved infrastructure and schooling. On the negative side there may be disruption of traditional cultures, environmental degradation, basic commodity price increases, population displacement, land use conflicts and loss of livelihood (Danielson and Lagos, 2001).
This is particularly true for the environment. Preliminary evidence suggests that under appropriate framework conditions, foreign investments in mining frequently have higher environmental performance compared to domestic operations, due to new technologies and practices they bring with them. On the other hand, when these framework conditions, such as effective environmental regulation and transparent public governance, are not in place, there is a risk that serious environmental and social damage can occur.
The mining industry has in recent years turned its attention to the environmental impacts of its activities, and in particular is addressing the issue through the Global Mining Initiative (www.globalmining.com) and the Mining, Minerals and Sustainable Development Project (MMSD) which is addressing the issue of the contribution of the mining sector to sustainable development (www.iied.org/mmsd/).
In 1998 the industry started the Industrial Network for Acid Prevention as part of its contribution to dealing with the legacy of abandoned mines (Balkau and Parsons, 1999).
The Report on Australia’s Economic System Can Cope with the Tide Nonetheless Variable Mining Investment
Reserve Financial institution of Australia (RBA) Chairman Stevens (Gleen Stevens) Thursday ( April 3 ) , explained the situation continues to be complicated to judge regardless of whether Australia doesn't appear within the financial downturn , deal with difficulties mining investment slowdown. this also implies that interest rates in Australia are expected to want to stay lower in a offered ...
It is from this foregoing that the study is set to critically analyze the environmental impact of foreign drect investment in the mining industry in Nigeria. 1.1Statement of the Problem
The mining industry has traditionally been a major recipient of foreign direct investment in sub- Saharan Africa (Nigeria inclusive), and has commonly been an important foreign exchange earner for the region. Over the forty years to the present, Africa’s share by value of world mining output declined from 23% to 10%, as a result of poor policies, political interference and lack of investment (Allaoua and Atkin, 2003).
This decline can be attributed to lack of investment in systematic geological mapping, poor technical data on mineral endowment, weak institutions and policies, poor infrastructure, the lack of cheap and reliable energy resources, deteriorating commodity prices, poor investment climates and the scarcity of indigenous technical and professional manpower (Quashie, 2006).
The flows of FDI to sub-Saharan Africa have traditionally been to oil and natural resources (Allaoua and Atkin, 2003; Morisset, 2000), although there has been a trend in recent years to invest in services and manufacturing (UNCTAD, 1999).
For example, 75% of FDI in Africa in the period 1999-2002 was concentrated in the mining and oil extraction industries (Allaoua and Atkin, 2003).
FDI to sub-Saharan Africa tends to be concentrated in a few countries, and in the period 1999-2002 three countries, Nigeria, Angola and Ghana were the dominant recipients. In fact 41% of the average inflows in the period 2000 to 2003 went to four oil exporting countries in the region, namely Angola, Congo Republic, Equatorial Guinea and Nigeria (Pigato,2000).
The need for foreign direct investment (FDI) is born out of the underdeveloped nature of the Nigeria‟s economy which has essentially hindered the pace of her economic development. Generally, Nigerian government policies and strategies towards foreign investments are shaped by two principal objectives: (1) the desire for economic independence and (2) the demand for economic development. According to Shiro (2008), there are four basic requirements for economic development, namely: (i) investment capital, (ii) technical skills, (iii) enterprise (i.e. human capital resources or labour) and (iv) natural resources. These are also forms of foreign direct investments (FDIs) and they are being attracted to the country in different ways as components and structures of FDIs. For instance, Nigeria has abundance of cheap labour which MNCs could utilize while transferring their expertise in different fields to the indigenous workers. It should be well noted that without these components in adequate proportions, economic and social development of the country would be a mirage.
The Research paper on The Tragedy Of The Commons Invading Our Environmental Rights Case Study Coral Reefs
Research in the Disciplines First Paper Final Draft Tragedy of the commons invading our environmental rights: Case study Coral Reefs In our world there are many resources, all of which people do not have a choice in sharing such as our air and our oceans. These resources are looked at as infinite, although this is not actually the case. Each time one person does something to pollute or use these ...
The provisions of the first three necessary components shown above present problems for developing countries like Nigeria. This is due to the fact that there exists a low level of income which prevents mobilization of adequate savings needed to stimulate investment capital at home and or to finance training in modern productive techniques and investment methods. Being so, the foreseeable solution to this problem is through acceleration of growth by attracting external funds (foreign investments) and technical expertise. Foreign direct investment is therefore supposed to serve as a means of augmenting Nigeria‟s domestic resources in order to effectively execute her development programmes and projects and thereby raise the standard of living of her citizens (Uremadu, 2006).
Environmental impacts occur during all the phases of a mining project, exploration, disposal of waste rock and overburden, ore processing and plant operation, tailings (processing wastes) management, infrastructure (access and energy) and construction of camps and towns.
A major issue concerning the remedy or compensation for environmental damage resulting from mining and processing activities is that those who bear the costs of the environmental damage are the people who live in the environment and not the producing companies. Currently, much of the debate on FDI and the environment centres around the ‘pollution havens’ hypothesis. This has deflected discussion away from macro-level issues such as: the scale of economic activity relative to regulatory capacity and environmental limits; broad development/environment linkages; and the complex policy and institutional failures linked to competition for FDI both between and inside regional trading areas. As a result of this skewed debate, FDI is often glibly characterised as environmentally beneficial.
Tom Parker, 43, is now a field technician and coordinator for Arctic Mining Consultants. In the past he’s held various positions in non-technical aspects of mineral exploration. His past experiences include claim staking, line cutting, grid installation, soil sampling, prospecting, and trenching. For this project Parker will be acting as project manger though this is not his normal role. His ...
1.2Objectives of the Study
The main objective of this study is to make an empirical analysis of environmental impact of Foreign Direct Investment in the mining sector in Nigeria. Specifically, the following supportive objective are considered relevant to the achievement of the major objective: a) To review and analyse both the positive and negative environmental effects of FDI in the mining industry in Nigeria. b) To assess the negative externalities of mining on the biophysical environment and agricultural resources of the host communities. c) To highlight available options for making foreign direct investment (FDI) and environment objectives mutually supportive in the mining sector. d) To examine the possible precautions and remedies that can be applied in order to mitigate the adverse effect of environmental impact of mining activities.
1.3Research Questions and Research Hypotheses
The following questions will be answered in the course of the study. a) What are the environmental effects of FDI in the mining industry in Nigeria? b) Why has the aactivities of the mining industry brings about negative externalities on the biophysical environment and agricultural resources of the host communities? c) Why has foreign direct investment (FDI) and environmental objectives not mutually supportive in the mining sector? d) To what extent can the adverse effect of environmental impact of mining activities be mitigated? e) How can the environmental performance of FDI in the mining sectors be enhanced for maximum benefits of FDI in the sector? Research Hypotheses
The following hypothesis will be tested to validate the study H0: There is no significant environmental impact of foreign direct investment in Nigeria’s mining sector. H1: There is a significant environmental impact of foreign direct investment in Nigeria’s mining sector.
1.4Justification of the Study
Good quality data on impacts of FDI on the environment in the natural resources sector is lacking and coupled with the lack of sectoral FDI data, it is extremely difficult to attribute a particular environmental impact to FDI. At the end of the 1990s, the debate on environmental effect foreign direct investment (FDI) in mining industries was polarised and polemical (Adekoya, 2003).
16 Foreign Direct Investment and International Portfolio Investment According to the classification of the balance of payment, there are three major channels of international economic linkages between nations around the globe – exports/imports, foreign direct investment (FDI) and international portfolio investment (IPI). The latter two channels of international economic linkages, i.e., FDI and ...
Some commentators were concerned that competition for FDI between countries would lead to a “race to the bottom” in environmental standards (the pollution haven hypothesis).
Others thought that FDI would promote the establishment of higher environmental standards through the transfer of technology and management expertise (the pollution halos hypothesis).
In this research, the problem will be approached by looking at the environmental regulatory framework concerning the mining industry in Nigeria. An attempt will be made to assess whether environmental regulations are respected and enforced, and whether or not mining companies are in advance of current laws.
In addition to regulatory requirements, the environmental behaviour of the industry is a function of the corporate culture and the company commitment to the environment, as well as leverage by financial institutions (Adekoya, 2003).
In this respect FDI could play an important role, as according to Gentry (1999) there is more environmental policy leverage over FDI than other forms of private investment. It is hoped that this study will add to the existing literature and also serve as a reference point to intending researchers willing to delve in this area of study.
1.5Research Methodology and Sources of Data
This research study makes use of secondary data. The variables used are the Foreign Direct Investment (FDI), gross domestic product (GDP), output of mining industry and capital flight (KF).
The regession analysis of the Ordinary Least Square (OLS) method will be use for analysing the data. 1.6Scope and Plan of the Study
This study covers a period of 31 years that spans between 1980 and 2010. Therefore data that were considered are those relating to the Nigerian economy on environmental impact of Foreign Direct Investment in the mining sector in Nigeria. The study was divided into five chapters. Chapter one deals with the introductory aspects of the study, which includes the statement of problem, objective and significant of the study, scope and limitation of the study and then the methodology. Chapter two talks about the conceptual, theoretical and empirical review of the study.Chapter three deals with the research methodology. Chapter four is concerned about the analysis and interpretation of data. Chapter five includes the Summary, Conclusion and Recommendations. 1.7Definition of Term
Economic Growth: An increase in a country’s total output. It may be measured by the annual rate of increase in a country’s Gross National Product (GNP) or Gross Domestic Product (GDP) as adjusted for price changes. Gross Domestic Product (GDP): The total value of all goods and services produced domestically by a nation during a year. It differs from Gross National Product (GNP), which is the value of output produced by a country’s Externelities: a factor such as environmental damage that results from the way something is produced but is not taken into account in establishing the market price of the goods or materials concerned Foreign direct investment: an investment made by a foreign person or organization in a particular country, or the total value of this type of investment. Environmental degradation: a decline in the quality of our environment
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
The enormous growth of foreign direct investment (FDI) in recent decades has generated three main currents of thought which have attempted to explain this phenomenon. First, is the market imperfections hypothesis of Toyne (1990), which postulates that FDI is the direct result of an imperfect global market environment. Second, the internalization theory of Rugman (1985, 1986), where FDI takes place as multinationals replace external markets with more efficient internal ones, and third, the eclectic approach to international production of Dunning (1986, 1988) where FDI emerges because of ownership, internalization, and locational advantages. Developing countries of the world are majorly characterized by subsistence primary production (mainly agriculture) and low level of income per head. Sub-Saharan African (SSA) also faces enormous developmental challenges ranging from high poverty level, high population growth rate, debt crisis, lingering cases of trade protectionism, destructive and hustle environment, capital flight among others. There has been a long debate in the literature on how host country’s environment respond to inward foreign direct investment (hereafter referred to as FDI) through the activities in the minning sector.
A crucial issue in this debate is whether FDI is a means of stimulating minning sector performance of the host countries. The environmental effect of FDI on the minning sector can be explained by using the flying geese model, Vernon’s product life cycle theory and the new growth theory. Although these three models have different explanations of FDI flows, the direct and indirect effects of FDI provide a starting-point that FDI is likely to have a positive influence on the host country’s environment. Firstly, FDI is undertaken for the purpose of cost reducing, and the use of the host country’s factor endowments ( for instance, cheaper labour costs and relatively abundant resources directly decreases theforeign firm’s production costs and increases their export competitiveness).
Secondly, the existence of competition between multinational enterprises (MNEs) and local firms provokes the local firms’negative externalities. The available empirical evidence of the role of FDI on the environment of host countries is mixed. 2.1Theoretical Framework
There are several theories attempting to explain why firms engage in transnational production, which is an effect of FDI. However, there is no clear-cut theory of determinant of FDI flows, especially in developing Countries like Nigeria. Equally, the traditional theories of development, which lay important emphasis on international trade and exchange of capital,as well as environmental degradation, have come under severe criticism over the years. Some of the prominent strands are presented as follows. 2.1.1Theories of FDI and Transnational Production
Early explanations of multinational production were based on neoclassical theories of capital movement and trade within the Heckscher-Ohlin framework. However, these theories were founded on the assumption of existence of perfect factor and goods markets and were therefore unable to provide satisfactory explanation of the nature and pattern of FDI. In the absence of market imperfections, these theories presumed that FDI would not make place. Nevertheless, the presence of risks in investing abroad implies that there must be distinct advantages to locating in a particular host Countries. To fill this gap in international trade theory, Vernon (1966) has developed a product-cycle model to describe how a firm trends to become multinational at a certain stage in its growth. He argues that is the early stage of the development of a new product, production will take place in the home Country for whose market the product is intended.
This is because producers require continuous feedback from consumers and need good communications with their numerous suppliers. Because countries are at different stages of economic development, new markets are available to receive new products through the demonstration effect of richer Countries. At this stage, expansion into overseas markets is by means of exports. Later, when the product becomes standardized, other countries may offer comparative cost advantages so that gradually production shifts to these Countries. It is possible to then export back to the Country that originally invented the product. There are many examples of products that have followed this cycle. Presently, Japan and other Asian Countries are major exporters of radio sets and other electronic appliances originally invented in the United States and Europe.
The product cycle hypothesis is useful on several counts. It explains the concentration of innovations in developed Countries, and offers an integrated theory of international trade and FDI. Furthermore, it provides an explanation for the rapid growth in exports of manufactured goods by the newly industrialized Countries. It therefore presents a useful point of departure for the study of the causes of international investment. However, the hypothesis does not resolve the question of why MNCs opt for the use of FDI rather than to license their technology to local firms in the host (recipient) Countries. This issue has been examined with reference to the theory of the firm, notably by Hymer (1976), and Dunning (1977, 1988).
Hymer (1976), is a groundbreaking viewpoint on industrial organization as an incentive for FDI, focuses on the advantages that some firms enjoy. Such advantages include access to patented and generally unavailable technology, team-specific management skills, plant economies of scale, special marketing skills, possession of a brand name, and so on.
Before a firm invests abroad, the potential gains from these advantages must outweigh the disadvantages of establishing and operating in a foreign country, such as communication difficulties and ignorance of institutions, customs and tastes. Dunning (1977, 1988), on the other hand, has proposed three conditions necessary for a firm to undertake FDI. His eclectic theory of FDI, often refereed to as the OLI framework, attempts to integrate other explanations of FDI mentioned earlier. OLI stands for ownership advantages, location advantages and internalization advantages, which are conditions that determine whether a firm, industry or Country will be a source or a host of FDI (or perhaps, neither).
First, a firm must have an ownership advantage; the owner advantage is anything that gives the firms enough valuable market power to outweigh the disadvantages of doing business abroad. It could be a product or production process that other firms do not have access to, such as a patent, trade secret or blueprint.
The advantages could also be intangible like a trademark or reputation for quality. Second, the foreign market must offer location advantage that makes it more profitable to produce in the foreign Country than to produce at home and then export to the foreign market. Such location-specific advantages offered by a host country include access to local and regional markets, availability of comparatively cheap factors of production, competitive transportation and communications costs, the opportunity to circumvent import restrictions, and attractive investment incentives (Chery, 2001).
Third, the MNC must have an internalization advantage, precisely; internalization involves the question of why an MNC would want to exploit its assets abroad by opening or acquiring a subsidiary versus simply selling or licensing the rights to exploit those assets to a foreign firm. Though this theory has been criticized for only listing the conditions necessary for FDI without explaining its phenomenon, it has widely contributed to international production theory. 2.1.2Theories of Economic Growth and FDI
According to the standard neoclassical theories, economic growth and development is based on the utilization of land, labour and capital in production. Since developing Countries in general, have underutilized land and labour and exhibit low, savings rate, the marginal productivity of capital is likely to be greater in these Countries. Thus, the neo-liberal theories of development assume that interdependence between the developed and the developing Counties can benefit the latter. This is because capital will flow from rich to poor areas where the returns on capital investments will be highest, helping to bring about a transformation of ‘backward’ economies. Furthermore, the standard neo-classical theory predicts that poorer Countries grow faster on average than richer Countries because of diminishing returns on Capital. Poor countries were expected to converge with the rich over time because of their higher capacity for absorbing capital. The reality, however, is that over the years divergence has been the case, the gap between the rich and the poor economies has continued to increase. The volume of capital flow to the poor economies relative the rich has been low. Arghiri’s (1972) “unequal Exchange” brought the whole issue of the validity of comparative advantage once again into sharp focus. He accepts the law on its own but tries to integrate international capital and commodity flour into the law.
His argument attempts to overthrow Ricardo’s most fundamental assumption – international immobility of factors. He sets out to investigate how international capital flows affect Richardo’s law and endeavors to see the current form of the law in a modern world. Arghiri shows that international capital flows negate gains for all form trade. He reasons that since wages are low in LDCs, profit will be high. If profits are re-invested, there will be rapid development and a narrowing of the gap between the rich and the poor. Hence, trade would be mutually gainful. However, with capital flows and foreign investment, this is not the case. Since foreigners face low profits in their home Countries, they are willing to accept much lower rates of profit than local investors are. Hence, they invade local markets, drive down prices and siphon profits back to their Countries. In the advanced Countries, therefore, foreign investment leads to higher profits, higher prices and growth while in the LDCs it creates economic imperialism and stagnation. Hence, Arghiri posits that capital flows from the developed to the underdeveloped capitalist Countries primarily to take advantage of the enormous difference in the cost of labour power. According to this view, unequal exchange is predicated on the basis of the dominant position enjoyed by the advanced industrial countries and the resultant dependence of the poor Countries o the rich. Other critics argue that FDI is often associated with enclave investment, sweatshop employment, income inequality and high external dependency (See Durham.2000).
All these argument regarding the potential negative impact of FDI on growth point to the importance of certain enabling conditions to ensure that the negative effects do not outweigh the positive impacts. At present the consensus seems to be that there is a positive association between FDI inflow and economic growth, provided the enabling environment is create.
Given the fact that economic growth is strongly associated with increased productivity, FDI inflow is particularly well suited to affect economic growth positively. The main channel through which FDI affect economic growth have been uncovered by the new growth theorists (for example, Markusen, 1995; Lemi and Asefa, 2001’ Barro and Sala-l Martin, (1995) and Borensztein, et al (1998).
In particular, have developed a simple endogenous growth model which demonstrates the importance of FDI in engendering growth through technological diffusion. Typically, technological diffusion via knowledge transfer and adoption of best practice across borders is arguably a key ingredient in rapid economic growth. And this can take different forms, imported capital goods may embody improved technology. Technology licensing may allow Countries to acquire innovations and expatriates may transmit knowledge. Yet, it can be argued that FDI has greatest potential as an effective means of transferring technical skills because it tends to package and integrate elements from all of the above mechanisms. First, FDI can encourage the adoption of new and improved technology in the production process through capital spillovers. Second, FDI may stimulate knowledge transfers, both in terms of manpower training and skill acquisition and by introduction of alternative management practices and better organizational arrangements. 2.1.3Flying Geese (FG) Model
The term flying geese pattern of development was initially coined by Akamatsu in the 1930s and introduced into academia in the early 1960 (Lee, 2007).
According to the Asian Development Bank (ADB, 2005) labour costs and openness are the essential factors in the FG model. ADB (1999) points out that FDI has shifted from high labour cost home country to the lower labour cost host country. As the lower labour cost host countries develop they become high labour cost nations for a new set of low labour cost host countries (Lee, 2007).
The implication of the FG model is that MNE subsidiaries increase the host country’s export performance by using the host country’s factor endowments to produce at lower cost. The increased export competitiveness of MNE subsidiaries directly enhances the recipient country’s export supply capacity (ADB, 2005).
Furthermore, the transfer of FDI also brings new technology, capital equipments and manufacturing expertise into the host countries which are behind in the availability and quality of factor endowment (Kwan, 1996).
Therefore, according to the FG model, spillover effects of FDI are likely to stimulate local firms’ export ability. 2.1.4Product Life Cycle (PLC) Theory
The PLC theory was developed by Vernon (1966) to provide a framework to explain the increasing FDI from US MNEs and its influence on trade flows. There are four stages of production in the PLC theory including innovation, growth, maturity and decline. Vernon observes that, at the first stage of production, US MNEs tend to produce new and innovative products in the US for mainly home consumption without undertaking any FDI, and the rest of the output is exported to serve foreign markets. As products progress to the growth stage and become high in growth and demand, the US MNEs begin to undertake FDI and are inclined to enter into joint venture investment to set up production in other countries. Interestingly, MNEs’ production at the growth phase of the product life cycle seeks local markets; in the meantime, foreign competitors start to enter the market (Basu, 1997).
Consequently, the demand for exports from the US declines; and the US consumers begin to purchase some of the products from these newly industrialised countries (NICs).
As the production progresses to maturity phase, the problem emerges from costreduction for the producers. Most FDI, which was initially allocated in advanced countries, is shifted to other lower cost NICs. Apart from the local market consumption, part of the output is exported to serve the US and other foreign markets. Therefore the US and other advanced countries have switched from being exporters to being importers. At the final stage of production, cost-minimising becomes the major task for the MNEs’ production and the allocation of FDI will be the countries having lower and even the lowest production costs. MNEs’ production at the final stage of production serves not only the local market but also the US and the rest of the world. 2.1.5New Growth Theory
New growth theory incorporates two important points. Firstly, it views technological progress as a product of economic activity. Secondly, new growth theory suggests that knowledge and technology are characterised by increasing returns, and these increasing returns drive the growth process (Cortright, 2001).
Consequently, growth is endogenous in new growth theory rather than exogenous as in old growth theory. Investment in human capital contributes to increasing returns in the production function (Meier and Rauch, 1995), and the more resources devoted to research and development, the faster the rate of innovations and the higher the rate of growth (De Castro, 1998).
According to Shan et al. (19997), the capital accumulation FDI is expected to generate non-convex growth by encouraging the incorporation of new inputs and foreign technologies in the production function of the FDI recipients’ countries. In addition, the transfer of advanced technology strengthens the host country’s existing stock of knowledge through labour training, skill acquisition, the introduction of alternative management practices and organisational arrangements (De Mello and Sinclair, 1995).
As a consequence, FDI increases productivity in the recipient economy, and FDI can be deemed to be a catalyst for domestic investment and technological progress (Shan et al.(1997).
2.2.1Determinant of Foreign Direct Investment in Nigeria
The role of foreign private investment in stimulating economic growth has been given prominence in development. The classical economist gave prominence to the extension of markets as a key element that would encourage economic growth and development. With extension of market economies prosperity would emerge as a result of increased specialization and trade. Marx like the classicists shared the same view on the extension of market as a catalyst for economic growth. But Marx analysis was based on historical stages of a society. His historical underpinning was that social, political, cultural and spiritual aspects of life are conditioned by the mode of production. The mode of production was seen as the sum of the material, productive forces of society.
These produce forces include climate and geography as well as existing technology. It was technology that Marxist saw as the main factor changing the material basis of society. The technical nature of production conditions, social relationships and upon this social relationship is built the super structure of political and legal institutions. Hood and Young (1979) observed that a country may invest in another rather than exporting because of certain advantages. Such ownership bestows specific advantages not shared by its competitors such as advantages in technology, marketing/branding skills, superior organizational skills, and ability to differentiate product and management technique. Dunning (1981) put forward his eclectic integrated approach to international trade. He observed that technology is not the main determinants that give a country advantage over another country through internationalizing. Internationalization could occur through transfer, price manipulation, security of supplies and markets and control over use of intermediate goods. Caves (1971) opined that avoidance of oligopolistic uncertainty and erection of barriers to the entry of new rivals are the factors underpinning the investment decision in LDCs.
This observation was further enhanced by the deficiencies of capital, technology and expertise to exploit and enhance the natural resources that abound in the less developed countries. Aremu (1997) submitted that foreign Private Investments accelerate the pace of economic development of the LDCs up to a point where a satisfactory rate of growth can be achieved on a self-sustaining basis. He observe that the main responsibility of foreign private, investment in LDCs is to raise the standard of living of its people so as to enable them move from economic stagnation to self-sustaining economic growth. He therefore concluded his study by recommending that foreign private investment should continue to rise till a certain level of income is reached in the undeveloped countries. The LDCs should also mobilize a level of capital formation sufficient to ensure adequate level of economic growth and development. Mishara and Mody (2001) observed that foreign private investment has been associated with higher growth in some advanced countries. Within the LDCs, however, foreign private investment is associated with high incidence of crises. Agada and Okpe (2002) investigated the determinants of risks on foreign investment in Nigeria from 1980 to 2000), used data from the Central Bank of Nigeria and Federal Office of Statistics, Lagos. The study showed that inflation rate, petroleum profits tax, political and administrative risk inhibits foreign investment in Nigeria. While government expenditure, exchange rate and balance of payment have significant effect on foreign investment in Nigeria. Anfofum (2005) investigated on the macroeconomic determinants of private investment in Nigeria.
He discovered that external debt burden, inflation and exchange rate, political crises, and coup d’etat negatively affect private investment in the manufacturing sector. The negative relationship attests to the major reason why investors do not have confidence in Nigeria’s investment climate and as such potential investors are scared away. Ayashagba and Abachi (2002) carried empirical investigation on the effects of foreign direct investment on economic growth in Nigeria from 1980 to 1997. The result presented showed that foreign direct investment had significant impact on economic growth in Nigeria. They therefore concluded that the presence of foreign direct investment in the LDCs particularly in Nigeria is not totally useful. 2.2.2Environmental effect of mineral exploitation in Nigeria Exploitation of mineral resources has assumed prime importance in several developing countries including Nigeria. Nigeria is endowed with abundant mineral resources, which have contributed immensely to the national wealth with associated socio-economic benefits. Mineral resources are an important source of wealth for a nation but before they are harnessed, they have to pass through the stages of exploration, mining and processing (Adekoya, 2003; Ajakaiye, 1985).
Different types of environmental damage and hazards inevitably accompany the three stages of mineral development. Some of the minerals, notably, cassiterite (tin), columbite, tantalite, wolframite, lead, zinc, gold and coal have been exploited on a commercial scale since early part of the last century and have made significant contributions to the revenue and socio-economic development (Kogbe and Obialo, 1976).
Other minerals like monazite, xenotime, zircon, thorite and molybdenite have also been produced in lesser quantities and exported. Relatively more recently, oil and gas (starting from 1957), limestone, marble and rock aggregates have been playing an increasing role in the national socio-economic development and growth because they generate appreciable internal revenue and/or foreign exchange earnings. They have, in fact, overshadowed other economic minerals by generating over 90% of the export earnings, more than 50% of the national revenue. To a large extent, the scale of operations involved in exploration, mining and processing of a mineral determines the intensity and extent of environmental degradation. Thus in general, a greater damage is witnessed in the localities where tribute workers do only manual winning of minerals.
For example, large-scale mining of tin and associated minerals in the Jos Plateau has resulted in a high degree of degradation of arable land, vegetation and landscape, as well as other environmental problems. Other localities affected by large-scale environmental damage are the Niger Delta as a result of oil and gas exploration and exploitation; Sagamu, Okpilla, Ewekoro, Ashaka and Gboko owing to quarrying of limestone and the establishment of Portland cement manufacturing company; and in Enugu as a result of coal mining. On the other hand, the environmental damage caused by small-scale quarrying of laterite, clay, gravel and stone in numerous parts of the country by private entrepreneurs is less but more difficult to control. A special mention must be made of the environmental degradation caused by the illegal mining of gemstone. Because of the uncontrolled manner the illegal miners operate, a lot of damage is done to the environment by haphazard pitting and trenching of the ground in many areas. This results in a kind of artificial bad land topography, which consequently renders the land impossible to cultivate for agricultural purposes. 2.2.3Types of Environmental Damage
“Environment” as used in this research has three components, namely, the sum total of external conditions in which organisms exist; the organisms themselves including the floral and faunal community; and the physical surroundings such as landforms. All these three aspects, which include various entities such as air, water, land, vegetation, animals including human, landscape and geomorphological features, historical heritage etc. Are adversely affected one way or the other during the course of mineral development. a) Air, land and water pollution
Varying degrees of pollution of air, water and land occur in the course of mineral development depending on the stage and scale of activities attained. While only minor pollution occurs during mineral exploration, more intense air and water pollution emanates from the exploitation stages, particularly if carried out on a large scale. In Nigeria, the greatest pollution effect comes from a largescale exploitation of petroleum, limestone and rocks used in the construction works (Unesco-Mab, 1995).
In the oil-producing areas of the country oil spillage of differing intensity resulting from burst pipelines, tanks, tankers, drilling operations, etc. is a common phenomenon. It causes water and land pollution with grave conesquences on both aquatic and terrestrial life. For example, fishes living in surface waters are killed as a result of which fishermen in such areas have lost their means of livelihood. Groundwater pollution has made it impossible for the indigenes of the affected Niger Delta areas to obtain potable water. Well water is almost invariably covered with a thin oil film. So far over 80% of the gases associated with the Nigerian oil are flared off.
Thus, many large red flames burning endlessly are a very common sight in the Niger Delta, the oil province of Nigeria. The flaring results, among others, in increasing CO2 and CO discharge into the atmosphere thus causing disequilibrium or imbalance in the air that supports life. A possible enhancement of earth warming through “green-house effect” can also occur. Large volume of dust from the cement factories and mining operations in the Nigerian limestone quarries are discharged daily into the air. Similarly a lot of air-borne particulate matters are generated by the numerous stonecrushing industries in the country. When the air is laden with such dust, it causes health hazards for some people. For example, pollution studies around Sagamu and Ewekoro cement works in Ogun State have shown that several people are suffering from eye pain, and asthmatic attack due to the dust-laden air that prevails within a few kilometers radius of the factories (Aigbedion, 2005).
b) Damage of vegetation
Vegetation in form of natural forest or crop plantation is usually the first casualty to suffer total or partial destruction or degradation during the exploration and exploitation of minerals in a locality. The vegetation damage is more extensive at the time of mine development and mining operations and is more expensive when crop plantation is affected. This particular problem is perpetually caused by violent confrontation between the indigenes of the Niger Delta and the oil companies. In the Niger Delta, where oil spillage occurs, the vegetation, especially the surface feeders such as the palm tress, is often degraded.
Recent environmental impact studies of limestone mining and cement industry in Sagamu have revealed a declining kola nut output from the plantations within a few kilometers radius of the cement factory (Aigbedion, 2005; Adekoya, 2003).
This phenomenon is most probably associated with dust pollution as plenty of dust is discharged into the air mainly from the cement factory. The particulate matter eventually gets deposited on the kolanut leaves and flowers as well as the soil supporting the plants. The overall effect of this is that the photosynthetic and fruiting ability of the kolanut tree is impaired with a consequent decrease in kolanut production. c) Ecological disturbance
Another adverse effect of mineral extraction and processing activities, which may not be immediately felt, is the disturbance of the ecosystem with possible adverse consequences on the floral and faunal community in general. For example, the deforestation of an area during the mine development may cause the elimination of some plants and the exodus of some animals that feed on such plants or depend on them for cover, from the affected area. Similarly, the noise generated in the course of blasting, quarrying and crushing can also frighten away part of the fauna in a mining locality. Oil spillage produces a devastating ecological disturbance in the oil-producing states as well as in areas where leakage occur due to natural breakage of oil pipeline or illegal bunkering (Aigbedion, 2005).
The plants, animals, soils and water are affected. As mentioned earlier, the vegetation may suffer degradation and eventual death. Some of the animals, especially fish and other aquatic life, as well as small terrestrial animals particularly those that feed on fish or lower plants, may die for lack of food or from contamination with the oil spillage, which normally spread rapidly. The soil gets soaked in oil and water is covered with oil. Consequently the ecosystem suffers not only disequilibria but also pronounced degradation with dire consequences on the food chain (Adepelumi et al., 2006).
d) Degradation of natural landscape
A common negative effect of mining minerals from the earth’s surface is the destruction of its natural landscape, creating open space in the ground and generating heaps of rock wastes that cannot be easily disposed off. These phenomena are amply demonstrated in several parts of Nigeria, where commercial mining or quarrying had occurred in the past or is currently taking place. In the Younger Granite Province, especially the Jos Plateau, tin and columbite mining has resulted in the destruction in places of the scenic landscape which is replaced by unsightly large irregular holes and heaps of debris produced by the opencast method of mining (Brooks, 1974).
The alteration of the landscape almost invariably creates a problem of erosion in the mining localities with the result that most of the opencast pits are filled with water. A similar situation exists in all the limestone and marble quarries in differing proportions at Ewekoro, Sagamu, Nkalagu, Gboko, Ashaka, Kalambaina, Okpilla, Jakura, etc. In many localities, particularly near centres of heavy construction works (road and building), large granite and gneiss inselbergs with their delightful scenic view are now being pulled down to produce rock aggregates e.g. at Abuja, Abeokuta, Ibadan, Ilorin, Minna, Kaduna, Kano, Bauchi, etc.
In recent times, the search for gemstones in Oyo, Kwara, Edo and Ondo States by illegal miners have resulted in haphazard pitting and trenching of the Older Granites pegmatites that host the minerals, without regard to the mining regulations. At present, irregular holes and heaps of rock materials characterize the areas that have fallen victims of illegal miners. Notable examples can be found at Ijero, Ekiti State; Igbojaiye, Olode, Falansa and New Target in Shaki area. Oyo State; Iwo, Osun State, and Oro in Kwara State. The natural landscape in these areas is now replaced by a kind of bad land or hummock topography punctuated by irregular holes. e) Geological hazards
Mining operations normally upset the equilibrium in the geological
environment, which may trigger off certain geological hazards such as landslide, subsidence, flooding, erosion and tremors together with their secondary effects. Some cases of subsidence and instability associated with draining of oil and gas from the subsurface reservoir have been reported in the Niger Delta (Aigbedion, 2005; Adekoya, 2003).
Similar subsi-dence has occurred in the Iva valley, Enugu area, as a result of coal mining. The subsidence led to diversion of water into the mines, which had to be pumped out at high cost (Kogbe and Obialo, 1976).
Minor earth tremors are generated due to blasting of rocks in various quarries. Villages and settlements in the neighborhood of the quarries have experience unpleasant earth movements when the rocks are blasted (Ajakaiye, 1985).
Some buildings are damaged by developing cracks due to minor tremors occasioned by the incessant blasting of the rocks. f) Socio-environment problems
Some socio-environmental problems are sometimes created as a result of certain peculiarity of the mineral industry. Since minerals are exhaustible and irrenewable commodities, the life of a mine and, consequently, the mining activities in a place have a limited time. The stoppage of mining activities imposed by depletion of the available reserves often leads to migration of people from the mining areas to other places. This may result in the formation of “ghost towns”, which are abandoned towns and previous bubbling mining communities. For example, Sofon Birnin Gwari was a town that once thrived on gold mining between 1914 and 1938 but was abandoned due to exodus of miners and prospectors to the Plateau tin fields in the early forties. Incidentally, the miners are currently returning to the Gwari area as a result of a new discovery of gold deposits in the place (Adekoya, 2003).
g) Radiation hazards
Exposure to natural radiations emitted by some radioactive minerals is a major source of health hazards. The radiation intensity increases when the minerals are concentrated. It has been established that some minerals such as monazite, pyrochlore and xenotime, which are obtained as by products of tin mining in the Jos Plateau, are radioactive. Because of lack of market, most of these minerals, which were in form of concentrate, are abandoned in many previous mining sites on the plateau. Some of these sites had mining communities, which developed into villages where a high level of radiation has been recorded. A few of such villages has been abandoned or nearly deserted because of the death of many people under mysterious circumstances. The mysterious deaths are now attributed to a high level of radiations released by monazite-rich sand used for building the houses the deceased lived in (Aigbedion, 2005).
2.2.4Precautions and remedies for environment damage
In order to minimize the ill effects of mineral mining and processing, certain precautionary measures must be taken by both the government and the mining and processing companies. The government’s role is to provide the legislation required to make it mandatory for the companies to practice all necessary precautions in their operations that will prevent or minimize environmental damage. Such legislation already exists in Nigeria as the Minerals and Mining Decree of 1999. The new Minerals and Mining law has addressed, among others, the environmental conservation issues very seriously. Apart from stating unequivocally the conservation methods, which must be employed in mining and processing operations, the new law has not made sufficient provision of sanctions against those who fail to comply with the environmental protection regulations. There is the need to strengthen the new law with the following suggestions made by Adekoya (1995).
(i) Mining companies should submit environmental restoration plans together with their application for either prospecting or mining lease of an area; (ii) Processing companies must install appropriate equipment, where necessary, for preventing or minimizing pollution; (iii) All large mining and processing companies are to prepare a prognosis of the possible environ-mental impact of their operations, as well as the technique for monitoring the impact for approval of the Mines Department before the companies can commence operation. Since some damage to the environment is inevitable in the course of mineral exploitation, usually, the only option left is to apply some remedy to the damage. The remedy or compensation should depend on the type, extent and magnitude of damage, which can be permanent or redeemable in which case the damage effect fades away as the causative factor is withdraw. The environmental impact of mining and processing activities can extend for many kilometers from the operation site. For example, the dust pollutants could spread up to a distance of more than 5 Km from the source. Before any remedy could be applied to any environmental problem, there is need to assess or measure the magnitude of the problem. This can be done by direct measurements such as calculating the value of economic trees removed and changes in farm produce due to pollution; land, road and property reparation cost; water treatment cost; and the costs of treating diseases directly traceable to the environmental damage.
However, direct measurements of environmental damage are not always possible because the damage may be intangible, subtle or even slow to appear (Brooks, 1974).
Under such a situation the cost of providing an alternative environment or renewable resources elsewhere, if possible, can be considered. A major issue concerning the remedy or compensation for environmental damage resulting from mining and processing activities is that those who bear the costs of the environmental damage are the people who live in the environment and not the producing companies. This case is well illustrated in Sagamu where blasting of limestone in the quarry and dust pollution from the cement works are causing incalculable damage to life, crops and buildings. Although the cement producing firm (West African Portland Cement Company) is the cause of the environmental problems, it is the Sagamu citizens who do not share in the company’s profit that bear the reparation or replacement costs resulting from the adverse environmental effects (Adekoya, 2003).
The problem requires the intervention of government through appropriate legislation that can compel the mining/processing companies to internalize the reparation or replacement costs, which are so far borne by the people who live in the environment. Safe disposal of unavoidable waste in stable and aesthetically acceptable structure must be enforced through legislation.
2.2.5Current debates on FDI and the Environment
Currently, much of the debate on FDI and the environment centres around the ‘pollution havens’ hypothesis. This basically states that companies will move their operations to less developed countries in order to take advantage of less stringent environmental regulations. In addition, all countries may purposely undervalue their environment in order to attract new investment. Either way this leads to excessive (non-optimal) levels of pollution and environmental degradation. Generally, statistical studies show that this effect cannot be clearly identified at the level of aggregate investment flows. However, this report provides ample empirical evidence that resource and pollution intensive industries do have a locational preference for, and an influence in creating, areas of low environmental standards. This work also argues that the pollution havens debate has produced an excessive focus on site-specific environmental impacts and emissions a few industrial pollutants. This has deflected discussion away from macro-level issues such as: the scale of economic activity relative to regulatory capacity and environmental limits; broad development/environment linkages; and the complex policy and institutional failures linked to competition for FDI both between and inside regional trading areas. As a result of this skewed debate, FDI is often glibly characterised as environmentally beneficial. Encouraging negotiators of economic agreements to argue against the need to introduce specific environmental clauses into international investor protection and liberalisation treaties.
However, the economic growth produced by FDI is often fuelled at the expense of the natural and social environment, and the impact of FDI on host communities and countries is often mixed in environmentally sensitive sectors. This work move beyond the pollution havens discussion, and examine the broad interactions between FDI and the environment in the paradigm of nigeria’s minning industry. This is done by drawing on a range of empirical evidence on the impact of FDI, and examining it inside a comprehensive economic and policy model of sustainability. This analysis motivates proposals for a range of regulatory and market instruments that could help FDI promote the transition to sustainability. It was argues further that the pollution havens debate has produced an excessive focus on site-specific environmental impacts and emissions a few industrial pollutants.
Figure 2.1: Determinant and impact of FDI on economic growth Source: Samuel Adams (2000)
2.2.6Effect of Poor Environmental Policy
The political debate over environmental policy has never been as contentious or rancorous as it is today. In addressing the issue of environmental policy, the questions that come to mind are: Is it true that environmental policies hit the pockets of poorer households harder than those of wealthier ones? And that the poor receive less of the benefit of such policies as they are more likely to live closer to industry or hazardous waste treatment plants and further from parks or the countryside? This is a widespread perception, and in many cases one that is supported by the available evidence (Ajayi, 2009).
Concern about the social dimension of environmental policy is nothing new – indeed, the importance of considering simultaneously the economic, environmental and social dimensions of sustainable development has been stressed since the concept was spelled out in the “Brundtland Report” in 1987. And the need to analyse the social-environmental interface is one of the key priorities of the OECD’s Environmental Strategy for the First Decade of the 21st Century. But before we can understand the links between social and environmental concerns, we need to know whether environmental policies affect households differently according to how well-off they are and other criteria such as age.
Indeed, since perceived differences in effect can be a significant political barrier to introducing environmental policies, assessing these links is often a precondition for implementing environmental policy in developing countries. In addition to considering the distributional impacts of environmental policy, the Nigeria is examining the effect of environmental policy on health and employment, since these are also key areas where environmental and social concerns meet. There are two types of social concern related to environmental policy – those related to how environmental quality is distributed across different members of society, and those related to the distribution of the financial effects of environmental policies. Uneven distribution of environmental quality arises when some people live closer to polluting manufacturing facilities, or are more exposed to noise pollution because they live under an airline flight path, or because they live further from parks or are less well-served by water, waste collection or energy services. In most cases, it is not possible to draw a sharp distinction between the environmental and financial effects of a given policy. For environmental policies which target “local public goods” such as air quality and urban parks, the empirical evidence indicates clearly that a change in environmental quality will have a significant financial impact locally on factors such as housing prices and jobs.
But how can we measure the difference in impacts? There are basically two types of measurement: “physical” units of measurement such as emissions, exposure or risk across households and “preference-based” measures which reflect personal preferences with respect to environmental quality. Several factors can contribute to possible inequities in the distribution of environmental quality including:
• Differences in preferences for environmental quality between different types of households, including different income classes (e.g. demand for urban parks);
• Differences in access to information which would allow low-income households to express their demand for environmental quality (e.g. air pollution concentration levels in residential areas);
• The existence of failures in associated markets which affect low-income households particularly acutely, such as split-incentives for landlords and tenants with respect to energy conservation measures; and,
• The existence of policy failures limiting the access of low-income households to political decision-making, which might arise if wealthier households are more successful in lobbying efforts. But environmental quality is only half the story. There is also the question of who pays, and how much, to achieve this level of environmental quality.
It is widely felt that the distribution of the financial effects of environmental policy can be regressive, with lower-income groups bearing a disproportionately higher share of environmental compliance costs than those that are more well-off. The available evidence suggests that low-income households tend to be relatively more exposed to environmental hazards than wealthier ones. Moreover, there is much less evidence on how access to environmental “goods” such as green space and environment-related public services is shared across society. 2.2.7FDI in the Mining Sector in Sub-Saharan Africa: An Overview The mining industry has traditionally been a major recipient of FDI in sub-Saharan Africa and it has been an important foreign exchange earner for the region. Over the forty years to 2010, Africa’s share by value of world mining output declined from 23% to 10% because of poor policies, political interference, lack of investment, and environmental degradation. Inadequacies associated with systematic geological mapping, poor technical data on mineral endowment, poor infrastructure, the lack of cheap and reliable energy resources, deteriorating commodity prices, poor investment climates and the scarcity of indigenous technical and professional workers have been compounding factors.
The publication by thirty-five countries of new mining codes at the end of 1995 is a recent development that has resulted in a reduction of tax levels, liberal import tax exemptions for equipment and the easing of immigration laws for expatriates. Absolute levels of FDI to African countries increased from an annual average of US$1.9 billion in 1983-87 to US$3.1 billion in 1988-1992 and to US$6 billion in 1993-1997. In 1997, FDI to these countries totalled US$9.4 billion but this declined to US$8.3 billion in 1998. Three-quarters of FDI in Africa in the period 1995-2007 went to the mining and oil extraction industries. Focusing just on sub-Saharan Africa, in 2000 it received US$1.923 million in FDI, which rose to US$13.949 billion in 2009. FDI flows to sub-Saharan Africa have traditionally been to oil and natural resources although there has been a trend in recent years to invest in services and manufacturing. A few countries in this sub-region account for most of the FDI inflow. In the period 2000-2006 Nigeria, Angola and Ghana were the dominant recipients. In fact, 41% of the average inflows in the period 2005 to 2008 went to four oil-exporting countries in the sub-region: Angola, Congo Republic, Equatorial Guinea and Nigeria. According to Loots, 15.3% of FDI in Africa in 1997 was in the primary sector, of which 60% went to mining and natural resource extraction, including fossil fuels.19 In general, there is a lack of data on FDI flows at the sectoral level. In relation to the countries assessed in this paper, sectoral data for FDI stocks for South Africa only was available.
Details of the nigeria’s mining industry, FDI and its environmental impacts are described in the following section, below. A caveat is that reliable data on the environmental impacts of FDI in the natural resources sector is lacking, as is sectoral FDI data. This makes it extremely difficult to attribute a particular environmental impact to FDI. The approach used here considers the environmental regulatory framework of the mining industry in the countries concerned as well as examples of particular projects for which some data are available. A preliminary assessment is made of whether environmental regulations are adhered to and enforced, and whether or not mining companies are in advance of current laws. 2.2.8Environmental Impacts of FDI in Nigeria’s Mining Industry The mining industry in Nigeria is dominated by oil. Indeed, nigeria is the largest producer of this commodity in Africa and six largest producer in the world. Other important mineral commodities include bauxite, manganese iron-ore, coal, lime stone and diamonds. Mining is a major foreign exchange earner for Nigeria, contributing about 20.5% of GDP. FDI in Nigeria increased rapidly from US$15 million in 1990 to US$233 million in 1994. It then decreased to US$177 million in 1999 and rise again to US$599 million in 2009. Supervision of the mining industry is the responsibility of the Ministry of Mines and Energy. The Environmental Impact Assessment Decree of 1994 and Mining Regulations of 1970 regulate the environmental aspects of mining.
The 1986 Minerals and Mining Law provides for environmental protection and pollution prevention. Under the Minerals and Mining Law, the Minister of Mines and Energy is responsible for regulations, inter alia, restricting mining activities near water bodies and preventing water pollution. The 1994 Mining and Minerals Regulation aim to prevent permanent environmental damage by mining and encourage sound stewardship. The regulation comprises three parts: guidelines for exploration, mining, processing and decommissioning; guidelines for the preparation of an EIA for new projects; and guidelines for preparing an environmental action plan (EAP) for existing projects. EIAs and EAPs are made available to the public. The Ministry of Environment, Science and Technology was also established 2003. One of its roles is to administer environmental legislation. In 2004, the Federal Environmental Protection Agency (FEPA), an advisory body, was transformed by statute into the Environmental Protection Agency (EPA) with powers of enforcement and control. The aims of the fund include environmental education of the public, research and investigations related to the functions of the EPA and human resource development. A Mineral Development Fund has also been established. Ten percent of all royalty payments are returned to mining areas to fund local infrastructure and investment in other non-mining forms of development. A further 10% helps finance regulatory institutions and the geological survey. Enforcement mechanisms in the mining industry include termination of prospecting licenses in cases of non-remediation and of inappropriate environmental practice. The Chief Inspector of Mines can require appropriate measures if a mining company does not comply with environmental requirements and recover the cost from the company.
In extreme cases the mining lease can be terminated. Directors and officers of companies can be held liable for environmental offences committed by their companies. Available data do not permit an assessment of mining company compliance with environmental regulations or the enforcement of the law by the relevant authorities. Economic instruments to promote environmentally sound practices complement regulations and standards. The environmental impacts of large-scale mines include visual effects, vegetation loss, water and atmospheric pollution and effects on local health. Mineral extraction and processing are responsible for 10% of Nigeria’s industrial pollution. In relation to air pollution, the principal sources are SO2, As2O3, NOx and particulate matter emissions. In the case of water pollution, the major problem is the use of mercury by artisanal miners. Stream flow diversion and disposal of wastes in rivers by miners are additional problems. Large-scale mining has also contributed to water pollution. Companies have supplied wells and pumps to local inhabitants to ensure they have an alternative drinking water supply when required.
However, responsibility for the maintenance costs of these wells is currently a contentious issue. Negative social effects associated with mining include land displacement and loss of livelihood for women subsistence farmers, mining-related diseases and deforestation. Land use issues are particularly important as the main gold producing areas co-exist with major logging and agricultural zones. In some cases, mining operations have disrupted local economic activities. Farmers have generally received cash compensation for crop damage and loss of livelihood but not offers of similar land or the means to continue farming. To reduce the rate of oil incidents along the Nigerian Coast particularly as a result of vandalisation, the Federal Government through an act of the National Assembly in 2000 passed into law the Niger Delta Development Commission. (NDDC).
The Act among other things, established a Commission to carry out among other things the following tasks:
a. Cause the Niger-Delta area to be surveyed in order to ascertain measures, which are necessary to promote its physical and socio-economic development;
b. Prepare plans and schemes designed to promote the physical development of the Niger- Delta area;
c. Identify factors inhibiting the development of the Niger-Delta and assist the member states in the formation and implementation of policies to ensure sound and efficient management of the resources of the Niger-Delta;
d. Assess and report on any project funded or carried out in the Niger-Delta area by oil and gas producing companies and any other company including non-governmental organisations and ensure that funds released for such projects are properly utilised;
e. Tackle ecological and environmental problems that arise from the exploration of oil in the Niger-Delta area.
f. Liaise with the various oil mineral and gas prospecting and producing companies on all matters of pollution prevention and control. Essentially, items (e) and (f) deal with issues pertaining to oil exploration and production and the NNDC act is a strategic way of dealing with all forms of pollution from these activities in the Niger Delta. 2.3Empirical Review
The notable growth of foreign direct investment (FDI) in the past 30 years continues to trigger conflicting reactions, in both industrial and emerging countries (Coughlin, 1992 and Contessi and Weinberger, 2009).
In short, FDI is an investor‟s acquisition of “long-term influence” in the management of a firm in another country. In the developed world, countries that export capital and countries that import capital both raise concerns about FDI: The former are concerned that capital leaving their countries might be detrimental to domestic investment; the latter‟s politicians and workers fear foreign ownership of domestic firms. Emerging, transaction, and developing countries (and at times local governments) usually welcome FDI, assuming that investment through this multinational activity will bring additional capital, managerial expertise, and technology (Contessi and Weinberger, 2009).
In economics, multinational activity is also viewed as a positive contribution to the technological progress of the host economies (Contessi and Weinberger, 2009).
An established literature that dates back to Findley (1978) develops models in which multinational firms own and transfer technology-which may not be available in the host country-that allows them to be more productive and profitable than firms that are not multinational in nature. Because such a transfer is assumed to contribute to the technical progress of the host economies, it is also assumed to contribute ultimately to their growth. Rivera-Batiz and Rivera-Batiz (1991) develop a formal model that allows for increasing returns due to specialization as a result of FDI. Borenszetein, De-Gregorio, and Lee (1998) stress the attraction between FDI and investment in human capital. Helpman, Melitz, and Yeaple (2004) and Yeaple (2008) show that only the most productive firms in a country become multinationals, whereas progressively less productive firms enter progressively more attractive countries. Some other studies highlight reasons why FDI may not accelerate growth: Aitken and Harrison (1999) argue that increased local competition caused by multinationals may crowd out domestic firms; Boyd and Smith (1992) show that FDI distorts resource allocation and slows growth when other distortions are present in the financial sector, prices or trade.
This would imply that FDI does not necessarily contribute to growth, and countries could be harming their economies with provisions that favour FDI. As mentioned earlier, overall FDI has increased in many countries. Contessi and Weinberger (2009) plot an index of the time series of the number of national regulatory changes between 1992 and 2006, in which its data was obtained from various annual surveys on national laws and regulations. These series were regarded as proxies for the amount of interventions aimed at expanding and restricting FDI activities and the graph illustrated clearly the existence of a growing trend over the past 15 years of introduction of policies aimed at promoting FDI. Since 1992 at least 80 percent of regulatory changes have been favourable to FDI, particularly those in the 1990s (see Contessi and Weinberger, 2009).
Furthermore, the absolute number of favourable changes has steadily increased since 1992, with some countries introducing more provisions now passing legislation to encourage foreign investment. It then means that countries now welcome FDI injections into their countries.
On firm level productivity spill over, Ayanwale and Bamire (2001) assess the influence of FDI on firm level productivity in Nigeria and report a positive spill over of foreign firms on domestic firm’s productivity. Much of the other empirical work on FDI in Nigeria centred on examination of its nature, determinants and potentials., Odozi (1995) notes that foreign investment in Nigeria was made up of mostly “greenfield” investment, that is, it is mostly utilized for the establishment of new enterprises and some through the existing enterprises. Aremu (1997) categorized the various types of foreign investment in Nigeria into five: wholly foreign owned; joint ventures; special contract arrangements; technology management and marketing arrangements; and subcontract co-production and specialization.
In his study of the determinants of FDI in Nigeria, Anyanwu (1998) identified change in domestic investment, change in domestic output or market size, indigenization policy, and change in openness of the economy as major determinants of FDI. He further noted that the abrogation of the indigenization policy in 1995 encouraged FDI inflow into Nigeria and that effort must be made to raise the nation’s economic growth so as to be able to attract more FDI.
Jerome and Ogunkola (2004) assessed the magnitude, direction and prospects of FDI in Nigeria. They noted that while the FDI regime in Nigeria was generally improving, some serious deficiencies remain. These deficiencies are mainly in the area of the corporate environment (such as corporate law, bankruptcy, labour law, etc.) and institutional uncertainty, as well as the rule of law. The establishment and the activities of the Economic and Financial Crimes Commission, the Independent Corrupt Practices Commission, and the Nigerian Investment Promotion Commission are efforts to improve the corporate environment and uphold the rule of law.
Blomstrom et al. (1994) report that FDI exerts a positive effect on economic growth, but that there seems to be a threshold level of income above which FDI has positive effect on economic growth and below which it does not. The explanation was that only those countries that have reached a certain income level can absorb new technologies and benefit from technology diffusion, and thus reap the extra advantages that FDI can offer. Previous works suggest human capital as one of the reasons for the differential response to FDI at different levels of income. This is because it takes a well-educated population to understand and spread the benefits of new innovations to the whole economy.
Borensztein et al. (1998) also found that the interaction of FDI and human capital had important effect on economic growth, and suggest that the differences in the technological absorptive ability may explain the variation in growth effects of FDI across countries. They suggest further that countries may need a minimum threshold stock of human capital in order to experience positive effects of FDI.
Balasubramanyan (1996) report positive interaction between human capital and FDI. They had earlier found significant results supporting the assumption that FDI is more important for economic growth in export-promoting than import-substituting countries. This implies that the impact of FDI varies across countries and that trade policy can affect the role of FDI in economic growth. In summary, UNCTAD (1999) submits that FDI has either a positive or negative impact on output depending on the variables that are entered alongside it in the test equation. These variables include the initial per capita GDP, education attainment, domestic investment ratio, political instability, terms of trade, black market exchange rate premiums, and the state of financial development.
Examining other variables that could explain the interaction between FDI and growth, Olofsdotter (1998) submits that the beneficiary effects of FDI are stronger in those countries with a higher level of institutional capability. He therefore emphasized the importance of bureaucratic efficiency in enabling FDI effects. The neoclassical economists argue that FDI influences economic growth by increasing the amount of capital per person. However, because of diminishing returns to capital, it does not influence long-run economic growth.
Bengos and Sanchez-Robles (2003) assert that even though FDI is positively correlated with economic growth, host countries require minimum human capital, economic stability and liberalized markets in order to benefit from long-term FDI inflows. Interestingly, Bende-Nabende et al. (2002) found that direct long-term impact of FDI on output is significant and positive for comparatively economically less advanced Philippines and Thailand, but negative in the more economically advanced Japan and Taiwan. Hence, the level of economic development may not be the main enabling factor in FDI growth nexus. On the other hand, the endogenous school of thought opines that FDI also influences long-run variables such as research and development (R&D) and human capital (Romer, 1986; Lucas, 1988).
FDI could be beneficial in the short term but not in the long term.
Durham (2004), for example, failed to establish a positive relationship between FDI and growth, but instead suggests that the effects of FDI are contingent on the “absorptive capability” of host countries. Obwona (2001) notes in his study of the determinants of FDI and their impact on growth in Uganda that macroeconomic and political stability and policy consistency are important parameters determining the flow of FDI into Uganda and that FDI affects growth positively but insignificantly. Ekpo (1995) reports that political regime, real income per capita, rate of inflation, world interest rate, credit rating and debt service explain the variance of FDI in Nigeria. For non-oil FDI, however, Nigeria’s credit rating is very important in drawing the needed FDI into the country. Furthermore, spillover effects could be observed in the labour markets through learning and its impact on the productivity of domestic investment (Sjoholm, 1999).
Sjoholm suggests that through technology transfer to their affiliates and technological spillovers to unaffiliated firms in host economy, transnational corporations (TNCs) can speed up development of new intermediate product varieties, raise the quality of the product, facilitate international collaboration on R&D, and introduce new forms of human capital. FDI also contributes to economic growth via technology transfer. TNCs can transfer technology either directly (internally) to their foreign owned enterprises (FOE) or indirectly (externally) to domestically owned and controlled firms in the host country (Blomstrom et al., 2000; UNCTAD, 2000).
Spillovers of advanced technology from foreign owned enterprises to domestically owned enterprises can take any of four ways: vertical linkages between affiliates and domestic suppliers and consumers; horizontal linkages between the affiliates and firms in the same industry in the host country (Lim, 2001; Smarzynska, 2002); labour turnover from affiliates to domestic firms; and internationalization of R&D (Hanson, 2001; Blomstrom and Kokko, 1998).
The pace of technological change in the economy as a whole will depend on the innovative and social capabilities of the host country, together with the absorptive capacity of other enterprises in the country (Carkovic and Levine, 2002).
Other than the capital augmenting element, some economists see FDI as having a direct impact on trade in goods and services (Markussen and Vernables, 1998).
Trade theory expects FDI inflows to result in improved competitiveness of host countries’ exports (Blomstrom and Kokko, 1998).
TNCs can have a negative impact on the direct transfer of technology to the FOEs, however, and thereby reduce the spill over from FDI in the host country in several ways. They can provide their affiliate with too few or the wrong kind of technological capabilities, or even limit access to the technology of the parent company. The transfer of technology can be prevented if it is not consistent with the TNC’s profit maximizing objective and if the cost of preventing the transfer is low. Consequently, the production of its affiliates could be restricted to low-level activities and the scope for technical change and technological learning within the affiliate reduced. This would be by limiting downstream producers to low value intermediate products, and in some cases “crowding out” local producers to eliminate competition. They may also limit exports to competitors and confine production to the needs of the TNCs. These may ultimately result in a decline in the overall growth rate of the “host country and worsened balance of payment situation” (Blomstrom and Kokko, 1998).
This chapter shall be committed to the description of the methodology to be adopted for this research work. Therefore, it will contain model specification, estimation techniques, source of data and data requirement and evaluation criteria. In order to analyze the short-run dynamics and long-run environmental impact of Foreign Direct Investment in the mining sector in Nigeria. This research work shall adopt econometric methodology, which consists of the use of Ordinary Least Square (OLS) techniques. According to Gujarati (2002), “the aim of econometric is to verify economic theory or assertion on how well the explanatory power of the model estimated behaves with regard to macro economic unit. This justified the reason for adopting econometric tools for this study. 3.1Data Description And Sources Of Data
This research study makes use of secondary data. The variables used are the Foreign Direct Investment (FDI), gross domestic product (GDP), Index of mining industry (IMI) and capital flight (KF).
The data are collected from the CBN statistical bulletin, the publication of CBN and the World Development Indicators 2010. It will cover the period of 1980 – 2010.
3.2 Model Specification
The variable required for this study like most other studies are both dependent and independent variable. The OLS technique was then adopted for the specification of the model in the form: GDP = f (FDI, IMI, PCI) …………………….. (1)
log (GDP) = β0 + β1 log( FDI) + β2 log (IMI)+ β3 log (PCI) + U …….. (2) IMI = f (FDI) …………………….. (3)
log (IMI) = β0 + β1 log( FDI) + U …….. (2b)
GDP = Gross Domestic Product
FDI = Foreign Direct Investment
IMI = Index Minning Industry
KF = CapitaI Flight
3.3A Priori Expectation
A priori refers to what the theory (With regard to he different schools of thought) says about each of our variable. Based on this we expect our independent variables to display their respective behaviours based on what theory says in relation to the dependent variables that is being specified in our model. Foreign Direct Investment
∂GDP / ∂FDI > 0
Theory says FDI has a direct relationship with gross domestic product; this will exhibit a positive sign. This implies that an increase in inflation rate would lead to an decrease in the GDP. Index Of Mining Industry
∂GDP / ∂IMI > 0
Theory also says that there is a direct relationship between gross domestic product and IMI and this will exhibit a positive sign. This implies that an increase in IMI will lead to an increase in the gross domestic product. CapitaI Flight
∂GDP / ∂KF >0
Theory says that here is a positive relationship between gross domestic product and KF. Therefore, there is a direct relationship between thee two variables, i.e. increase in gross domestic product will lead to increased KF. Foreign Direct Investment
∂IMI/ ∂FDI> 0
Theory also says that there is a positive relationship between Index Of Mining Industry and foreign direct investment and this will exhibit a positive sign. This implies that an increase FDI will lead to an increase in IMI. 3.4 Test Of Significance And Decision Criteria
There are certain criteria that are important in analyzing our regression results and these criteria are worthy of note. Before the final interpretation in chapter 4, we will briefly highlight these criteria. They are: 3.4.1 Standard Error of Estimate (S.E.E)
According to D.N Gujarati, it is simply the standard deviation of the’’ Y’’ values about the estimated regression line and is often used as summary measures of the “goodness of fit” of the estimated regression line. It can also be used to measure the standard error of the stochastic term (Ut).
If the standard errors of the estimates are small relatives to the mean value of the dependent variable, the model is preferred and vice versa if otherwise. 3.4.2 The D.W Statistics
The most celebrated test for determining serial correlation is that developed by statistical Durbin – Watson d statistic (Gujarati).
This test is used to test for the presence of correlation in the variables. The simple correlations Matrix of the variables will be used as a guide in determining what combination of the explanatory variables are responsible for multi-collinearity. 3.4.3 Coefficient of Determination
An important property of R2 is a non-decreasing function of the number of explanatory variables or regressors present in the model. The problem associated with R2 and adjusted-R2 will be used in measuring the goodness of
fit of our regression.
3.4.4The F. Statistics
The F- Test, which is a measure of the overall significance of the estimated regression, is also a test of significance of R2. It involves the ratio of 2 independent estimates of variance. The regression is adequate if the F – statistic gives a value higher than the appropriate table F- statistic. But if the calculated F-Statistic is less than the appropriate tables figure found form the F-Table with K-1 and N-K degree of freedom, the regression will be significant. 3.4.5 The Student T- Test
It is used to determine the statistical significance of parameters. A two tailed test would be carried out at the 1%, 5% and 10% levels of significance. 3.5Justification For The Estimation Technique
This research work is based on the (OLS) equation; design to predict the relationship between the explained and explanatory variable. The model is basically in multiple regression forms. Though there is no consensus on which of the available economic model is the most suitable for empirical stations but the parameter estimate obtained by Ordinary Least Square (OLS) have some optimal properties. Secondly, the computational procedure of ordinary least square is fairly simple as compared with other econometric technique and that the data requirements are not excessive. Thirdly, the least square method has been in a wide large of economic relationship with fairly satisfactory result and despite the improvement of computational equipment and of statistical information which facilitated the use of other more elaborate econometric techniques. Also, OLS is an essential component of most other econometric techniques.
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Given the literature review and theoretical exposition in the previous chapter of this study, this chapter presents the result of the empirical analysis of environmental impact of Foreign Direct Investment in the mining sector in Nigeria. As it has been widely acknowledged that research is an investigation taking place, in other to discover new facts, verifying existing knowledge as well as obtained additional information about something with a view of solving its inherent problem or improving its beneficial attributes, research methodology here refers to the methodological process adopted in the scientific investigation to discover facts. It contains the presentation, analysis and interpretation of data. 4.1 PRESENTATION OF DATA
Table 4.1 Aggregate of FDI, Mining Sector Output, Per Capita Income and GDP in Nigeria (1980 – 2010) YEAR
Source: CBN Statistical Bulletin (2011)
4.2Restatement of Research Hypothesis
H0: There is no significant environmental impact of foreign direct investment in Nigeria’s mining sector. H1: There is a significant environmental impact of foreign direct investment in Nigeria’s mining
sector. 4.3 MODEL ESTIMATION RESULT
Table 4.2.1: Result of the Regression Analysis I
Source: Output Of Regression Analysis (See Appendix)
R2 = 0.9397 Adjusted R2 = 0.9328 D-W = 2.001 F-Statistics = 135.2161 The estimated equation is presented below
GDP = 0.3756 + 0.3753( FDI) + 0.8432 (IMI)+ 0.5037 (PCI)
INTERPRETATION OF RESULT
The empirical result obtained from the regression analysis I is presented in Table 4.2.1 above. The value of the coefficient of determination (R2) of 0.9397 shows that the set of explanatory variables explain 93.97% of the variation in the dependent variable (Gross Domestic Product), which also confirmed the high value of the F-statistics and corresponding p-value of Zero probability that the parameters are not equal to zero at all level of significance and that the model as a whole is significant. The adjusted R2 of 0.9397 also indicate that the model has good fit. The sign of all parameters coefficients are positive and validate the theoretical exposition and are statistically significant at 5% level of significant, judging from the respective value of their standard error and t-statistics. Foreign direct investment and capital flight are significant at 5% level of significance.
The Durbin-Watson statistics of the value 2.001 show that there is no serial autocorrelation, that the independent variables are not correlated with each other. The regression result shows that 37.53 per cent increase in FDI caused one per cent increase in the GDP. GDP will increase by one per cent as index of mining output and capital flight increased by 84.32 and 50.37 per cent respectively. Table 4.2.2: Result of the Regression Analysis II
Source: Output Of Regression Analysis (See Appendix)
R2 = 0.9204 Adjusted R2 =0.9176 D-W =1.2893 F-Statistics = 324.1033
The estimated equation is presented below
IMI = 4.0136 + 0.0803 (FDI)
INTERPRETATION OF RESULT
The empirical result obtained from the regression analysis II is presented in Table 4.2.2 above. The value of the coefficient of determination (R2) of 0.9204 shows that the set of explanatory variables explain 92.04% of the variation in the dependent variable (Index of Mining Output), which also confirmed the high value of the F-statistics and corresponding p-value of Zero probability that the parameters are not equal to zero at all level of significance and that the model as a whole is significant. The sign of the parameter’s coefficient is positive and validate the theoretical exposition and are statistically significant at 5% level of significant, judging from the value of the standard error and t-statistics. Foreign direct investment is significant at 5% level of significance. The regression result shows that 8.03 per cent increase in FDI caused one per cent increase in the mining output. With these results, it can now be concluded that there is significant environmental impact of foreign direct investment in Nigeria’s mining sector.
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0Summary of Major Findings
This study attempted to estimate the environmental impact of Foreign Direct Investment in the mining sector in Nigeria. It is argued that only those countries that have reached a certain income level can absorb new technologies and benefit from technology diffusion, and thus reap the extra advantages that FDI can offer. The mining industry in Nigeria is dominated by oil. Indeed, Nigeria is the largest producer of this commodity in Africa and six largest producers in the world. Other important mineral commodities include bauxite, manganese iron-ore, coal, lime stone and diamonds.In this regard, it is discovered that some other factors apart from FDI stimulate activities of the mining industry and enhance growth in Nigeria. These factors include: availability of capital, parallel market premium and competitive growth rate of the economy. This research study makes use of secondary data.
The variables used are the Foreign Direct Investment (FDI), gross domestic product (GDP), output of mining industry and per capital flight (KF).
This study covers a period of 31 years that spans between 1980 and 2010. The regression analysis of the Ordinary Least Square (OLS) method will be use for analysing the data. The result of the analysis shows that 37.53 per cent increase in FDI caused one per cent increase in the GDP. GDP will increase by one per cent as index of mining output and capital flight increased by 84.32 and 50.37 per cent respectively. It was also reveal that 8.03 per cent increase in FDI caused one per cent increase in the mining output.
Emanating from the empirical findings, this study concludes that there is significant environmental impact of foreign direct investment in Nigeria’s mining sector. Countries lacking capital accumulation and technological progress usually grow much slower than countries with high investment rate and huge research and development (R&D) expenditures. It is known in some cases that FDI exerts a positive effect on economic growth, but that there seems to be a threshold level of income above which FDI has positive effect on economic growth and below which it does not. Given the fact that mineral resources are an important source of wealth for a nation but before they are harnessed and that they have to pass through the stages of exploration, mining and processing different types of environmental damage and hazards inevitably accompany the three stages of mineral development. We can therefore safely conclude, based on the result of the analysis, that there is every reason to hope for the better perfomance of Nigeria’s mining industry in the area of environment maintenance. 5.2 Recommendations
As discussed in the empirical analysis above and on the basis of the conclusion the study proffers the following recommendations. a) Policy measures should be instituted to make the domestic economy more attractive for investment in the mining sector of the economy. b) Since FDI in Nigeria induces the nation’s economic growth through the overall effect on the whole economy may not be significant, the components of FDI positively affect economic growth and therefore FDI needs to be encouraged. c) FDI that are directed ot mining sector needs to be made to contribute positively to the growth of the whole economy and especially to the non-oil sector. The privatization of the downstream sector of the oil industry, which was commenced by the government recently, needs to continue so as to integrate the oil sector into the economy and thereby enhance its potential to contribute to economic growth. d) One way to improve the business environment is by conscious provision of necessary infrastructure, which will lower the costs of doing business in Nigeria.
The privatization of the National Electric Power Authority (NEPA) now known as Power Holding Company may be a step in the right direction if there is an improvement in the service provided. This will enable the manufacturing FDI to contribute significantly to economic growth. e) There may be need to further liberalize the power sector by encouraging independent power supply providers. These should be encouraged to complement the efforts of the Power Holding Company, whose inability is apparent in constant power failures and attendant high costs of providing electricity. f) There is need for guided training and integration of the human resources of the country to enable them to contribute positively to economic growth wherever they find themselves employed either with foreign or with indigenous firms and whichever sector they are in. The need for training high quality personnel in the country cannot be overemphasized.
5.3Suggestions for Future Studies
Notwithstanding the less-than-encouraging record for performance requirements in achieving host-government development objectives, governments are not helpless in influencing the balance of costs and benefits from FDI. It could even be argued that because of the greater global flows of FDI and the increased competition to attract MNEs, especially in the mining sector of the economy, host-country government policies matter more than ever. Appropriate policies can both improve the chances of attracting international direct investment and increase the degree of technology transfer stemming from that investment. The single most important step a host government can take is to improve the enabling environment for both domestic and foreign investment. The term “enabling environment” is often construed as a euphemism for laissez-faire economic policies, but while it clearly involves recourse to market mechanisms and the removal of restrictions, it also necessitates more active policies in other areas. An appropriate enabling environment, together with the transparent implementation of policies, provides greater scope for host governments to influence investor behaviour . Specific policies other than performance requirements may also be applied to facilitate spillovers to local enterprises, and to encourage linkages more generally.
There is need for regular assessment Environmental Impact of FDI. This will offers a golden opportunity for the achievement of sustainable development in Nigeria. However, one of the major constraints for the effective implementation of EIA as a central tool for sustainable industrial development is that the EIA is seen differently from technical feasibility studies. To resolve this problem, the EIA Act must be revised appropriately, the EIA process should be adequately funded, more environmental public enlightenment activities should be conducted, EIA reports preparers should be trained, and re-trained while effective monitoring activities should be frequently carried out by the regulators. Nonetheless, the limitations of this study arise from the fact that we as human agents can never be all round perfect. Hence the present study suffers from a number of limitations ranging from (1).
Data is from a secondary source; as such it may have suffered from problem of bias and inaccuracy. (2).
Non availability of data and gaps in some periods covered by the study as well as non inclusion of previous years data before 1980 due to these inadequacies. (3).
Our inability to present correlation matrix to justify that the model does not have multicollinearity threat which we believe will be taken care of in further studies to significantly improve the work in future.
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