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AN ANALYSIS OF FOREIGN INVESTMENT AND GROWTH DIRECT OF THE COMMUNICATION SUBSECTON A STUDY OF NIGERIAN TELECOMMUNICATION INDUSTRY

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1-5 chapters |



ABSTRACT

This  research  analyses  communication  FDI  and  its  effect  on  the  development  of

Nigerian telecommunication industry. The 1999 deregulation introduced the presence of

umbrella people’ in almost every corner of the streets, express-roads, pathways in many suburbs and towns across Nigeria. Today, Nigerian economy is one of the targeted countries by multinational telecommunication industries due to its ready market, population size, and growing economy. This research is an ‘ex-pesto’ because it is an evaluation research on FDI and communication sector, but the focus is on the telecommunication subsector.

The hypotheses were to analyse the significant benefit from Nigerian labour market to the international GSM operators. Also, the relationship between Nigerian increased paid-up capital and the multinational GSM operations, and the effect of the mobile penetration and the growth of the teledensity in the host communities.

The study is confined to the MTN Nigeria and Zain Nigeria, the two major GSM mobile operators in Enugu state. Most of the population in Enugu urban is subscribers to these.

The instrumentation used is structured questionnaire constructed into fixed alternative questions with inter-rater scale and personal interview. The secondary data is the recorded data in the CBN annual statistical bulletin 2005, FOS report 2005, and retrieved data from selected websites, journals, and textbooks. A probability sampling with random technique is used. This employed a stratified random sampling. The sample size is 108 units.  The validated instrument, which is the fact-finding package, was distributed and collected from the selected respondents on the two different periods based on cross-sectional method. The test retest is used to measure the variables  stated  in  both  the  statement  of  research  problem,  research  questions  and  the hypotheses. The statistical tools used are chi-square(X2), Pearson’s contingency coefficient, and Yates’ correction formula.

From the field surveying, HO was rejected in the three hypotheses tested. The significance shown that X2–value calculated are greater than X2-value critical except in seven items of the questionnaires. For instance in the analysis, 37% of the respondents believed that whether

Nigerians are gaining or not, these international GSM investors are benefiting more in terms of capital flight, tax waivers, labour concession, etc

In concluding, the recommendation is that the foreign contact should be encouraged in the development of telecommunication in less developed countries like Nigeria but, there will be the need to check on the capital flight, and the standard of their services should be of international quality.

CHAPTER ONE

1.0            INTRODUCTION

1.1           BACKGROUND OF STUDY

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

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

In the Nigerian economic sector, the highest recent growth in foreign  direct  investment  (FDI)  has  been  in  services.  The  influx  of

international  investment  in  telecommunications  has  received  high and favorable attention because of the monopoly and inefficiency of NITEL for decades. Stimulation has been given to this cross–border activity due to its connections to innovation diffusion and the mobility of foreign equity capital pumped into the Nigerian economy. FDI leads to sustainability in any developing economy. It is an amalgamation of capital,  technology,  marketing  and  management.  As  Ugbaka (2007:63) writes, It is elementary economics that the wheels of every economy are oiled not only by FDI but, also, by the creation of jobs, which  has direct  impact on  national  development,  wealth  creation, and national security.” It is assumed that stronger FDI and official development assistance (ODA) inflows and a reduction in the stock of public debts are among the factors that drive growth in any review period  in  Nigeria  (Abdul  Mutallab  2006:  18;  Yakubu  2007,  Todaro and Smith 2003: 635, Adesida 2001: 2).

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

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

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

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

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

1.2     STATEMENT OF RESEARCH PROBLEM

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

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

These authors work will be reviewed  as the empirical related literature. However, this research is pinpointing on how international investment in Nigeria can help at the microeconomic level to achieve economies of scale that has not been achieved in domestic market.

Just as Adam Smith stressed on selfinterest, once there is growth in each subsector of the economy, it will have effect on the growth in the aggregate economy.

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

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

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

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

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

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

1.3        RESEARCH OBJECTIVES

The objectives are as follows:

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

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

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

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

1.4          RESEARCH QUESTIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

1.5            RESEARCH HYPOTHESES

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

HO:     Communication FDI has no significant benefit from the cheap labour provided by Nigerian labour market.

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

H0:    There is less growth rate of teledensity in the Communities even with the mobile penetration

into Nigerian economy

1.6          SCOPE OF STUDY

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

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

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

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

1.7        SIGNIFICANCE OF STUDY

There is need to justify the relevance of this study. Telecommunication industry has witnessed tremendous response to

change recently in Nigeria. The outcome of its productivity and rise in GNP depends on the services prodded by both the foreign direct investors and domestic private investors.

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

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

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

1.8            AREA OF STUDY

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

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

As well, Zain Nigeria once known as Celtel until 1st  August 2008 has an office at 6 Ebeano Housing Estate, Independence layout. The area

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

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

1.9            LIMITATIONS OF STUDY

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

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

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

The federal office of statistics could not provide current figures for  researchers.  It  has  no  data  on  any  of  these  foreign-  owned Cellular Companies. The worse is that the workers has low standard of literacy and are less helpful. Besides, the aggregate data provided by government agencies are unreliable and inconsistent.

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

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

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

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

1.10     CONCEPTUAL AND OPERATIONAL DEFINITIONS OF KEY TERMS

Conceptual:                  FDI is an investment made to acquire a lasting management interest (normally 10% of voting stock) in a business enterprise  operating  in  a  country  other  than  that  of  the  investor defined according to residency

(World Bank, 1996)

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

                Official Developing Assistance: (ODA)

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

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

                  Sustainable Development:

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

2007:7citing UNCED).

Operational:      Nigerians need a capacity for self-sustaining growth and  this  can  be  actualized  through  the  provision  of  a multidimensional institution and/or structures that meets the core values of development at the subsectors level.

                      Telecommunication:

Conceptual:                 It is the technology that is used to bring about communication of voice and data signals over some geographical distance                      (Woherem 2001:3)

Operational:                            Telecom  has  gone  super  high  tech  and Nigerians need to send and receive messages with the outsiders through electronics that can be linked globally.

                   Innovation Diffusion:

Conceptual:                  The consequence of investment behaviour and adoption   ability   influenced   both   by   macroeconomic   factor   like demand growth and the traditional epidemic learning process of judging   what   advantages   others   are   gleaning   from   the   new technology.

(Antonelli 1991: 24)

Operational:               This period of information age has helped in the spreading  of  new  ideas,  knowledge,  or  evidence  rapidly  since  the world is now a global village

Conceptual: The transfer of systematic knowledge for the manufacture  of  a  product,  the  application  of   a  process,  or   the rendering of a service (Czinkota 2000: 831)

Operational:        Communication  FDI  attracts  companies  with modern production techniques that require sophisticated machines, spare parts and technical services

Conceptual:                   The total market value of all final goods and services produced in the economy in a year. It is equal to the

GDP plus total earning made by national abroad (X)         minus the earnings of the foreigners within the country during any given period (M)          (Udabah 1999: 163)

Operational:         The capital flow from the Communication FDI is a principle way by which resource comes into Nigerian economy. It stimulates aggregate supply, damp inflation and helps to restore general macroeconomic stability through tax payment, expanding of Nigerian market domestically and globally, and boosts up the labour incomes.

Conceptual:                  The  total  final  output  of  good  and  services produced by the country’s economy, within the Country’s territory, by residents and non-residents, regardless of its allocation between domestic and foreign claims

(M.P.Todaro and S.C. Smith 2003:      797)

Operational:          Countries derives benefits such as organizational adjustment,   technology   transfer,   and   promotion   of   balance   of payment,   price   stability,   and   employment   generation,   domestic market expansion etc from foreign investment.

Conceptual:         The flow of private funds abroad because investors believe that the return on investment or the safety of capital is not sufficiently ensured in their own countries

(Czinkota 2000: 818)

Operational:           The government should adopt sound policies that will  regulate  the  entry  and  exit  of  foreign  dealings.  The  NIPC  and NCC   should   work   hand   in   hand   to   stabilize   the   system   and encourage reinvestment into other sector.

Conceptual:       The move to eliminate legal restraints on competition in various industries    (Boone L.et al 1985:576)

Operational:    The monopolization of telecom by NITEL affected the growth and development of Nigerian economy mostly because of their incompetency and lack of technology-know-how. The introduction of free market system attracted FDI into the communication subsector.

Conceptual:      The modern inventions and instruments used for information gathering, distribution, dissemination, transfer, collaboration and Co-ordination (Ogbuoshi 2007: 160)

Operational: Due to globalization, the advanced telecommunication has been changing hand frequently. The new ICTs are always introduced into the market. It anchors global linkages.

Conceptual:      They are those people who acquire the         shares of the corporation; they are its owners

(Boone et al 1985:63) Operational:   Some of the multinational companies operate under license while some operate under contract, merger, amalgamation, charter, etc. MTN International offered license to MTNNigeria to operate as franchise.



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AN ANALYSIS OF FOREIGN INVESTMENT AND GROWTH DIRECT OF THE COMMUNICATION SUBSECTON A STUDY OF NIGERIAN TELECOMMUNICATION INDUSTRY

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