After the Berlin conference of 1984 and after consequent consolidation of British rules in the country, the imperative of the colonial economics hegemony was put in place. Lucky enough, the time when most of the companies were working for raw material sources. Activities of the alien enterprises were therefore contacted one export commodities such as mineral and agricultural products as well as public utilities like commercial activities.
Due to the size of the Nigerian markets, foreign inventors came form France and compete with British firms which developed in the sharing of the markets with price understanding under the auspices of participants of Association of West African Merchants (AWAM), the continue entry of new firm from other parts of the world and the emergence of indigenous entrepreneurial class led to great competition in the country’s commercial activities. By 1950, pioneer-manufacturing establishment started emerging because of the nationalist movement. The immediate past independence policy, witnessed considerable legislation aimed at promoting development in the country.
Nevertheless, over three and half decades after independence, the inflow of foreign private investment was not very substantial compared to the inflow of investment into countries of similar political history (Malaysia, Singapore, Thailand etc). Despite the World Bank report on the review of incentive system, very little was done until the establishment of industry development coordinating committee (IDCC) in 19988. The IDCC was to act as the top agency for facilitating and attracting foreign private investment inflow into the country.
Furthermore, monitoring, and miscellaneous decree of 1971 authorized any person including non-Nigerians to invest, create and transfer any interest on security trade in Nigeria capital markets. With the coming into effect of foreign exchange market, (FEM) decree, the exchange is null and void.
The combined implication of Nigeria investment promotion commission and foreign exchange market, is to remove any bottle-neck disturbing massive inflow of foreign direct investment into the country by making investment climate very transparent like that of South Asian countries.
From the microeconomic point of view, the contention among various schools of through on maximization theory have a consensuses agreement that investment should necessarily continue whether within the country or across the boarder until the marginal return from such investment equals the given average cost of capital invested.
In order words, the perspective of the cost economics of foreign direct investment (FDI) would continue to import their resources to complement the domestic deficit in financing profitable opportunities unit the level where there is no more net profit from such decision. A brief look at the following theoretical explanation will surface.
Using the theory of international trade, (capital arbitrage and cost capital theory) foreign investors move their capital resources in response to change in the rate of return. The capital is expected to move from capital abundant countries to capital scare countries in response to higher productivity of capital until the rate of return equalizes. This is to say that the transitional corporations (TNCs) and the multinational corporations (MNCs) move their resources based on profit maximization alone. While the theory is sufficient for explaining portfolio investment, it says nothing about control of effective voice in the management of foreign direct investment. Foreign direct investment is more common among developed countries of the world.
A further theoretical attempt investment is the determinants of foreign investment are that based on the pure theory of the firm, using macroeconomic analysis. With prefect market as a basic assumption, the theory opines that the transnational corporation invest in overseas when their investment at home has reached an optimum level and further investment at home are likely to suffer diminishing return to scale. The desire is premised on the decision of the business firm to add to the existing plant and equipment for expanding output as long as they find profitable market for their products.
In the view of John Maynard Keynes, general theory, any project with an internal rate of return that greater than the market interest rate of return is equal with the market interest rate and further investment will yield diminishing return. Like the predecessor, the theory of international trade, the theory of the firm suffer the same defect because of its rigid assumption of perfect market as behaviour of transnational corporations (TNCs) resemble oligopolistic market rather than perfect markets.
EMPIRICAL LITERATURE REVIEW
According to the study carried out by Kobrin (1997). Foreign direct investment is motivated by the desire to maximize profit and minimize cost. One of the major elements in cost minimization is the search for cheap labour. However, cheap labour alone with out reference to productivity is irrelevant as high wage may be to high productivity. In addition to cost of other inputs, as well as potential difficulties arising from the operation in the undeveloped parts of the world must be well analyzed.
Here, other factors such as automation. Strike and different labour cost, social attitude and technical consideration must be weighted simultaneously with labour cost. It must equally be stressed that an alternative to seeking cheap labour is to substitute capital and advanced techniques to automate machinery and method of working.
According to Okoh (1980), the customary justification for the belief in the efficiency of tax stimulus does not rely on empirical evidence, rather, the belief is based implausible argument that business man in pursuit of gain will find the purchase of ca
pital goods more active if they cost less. In the study of the relationship between tax policy and investment expenditure, using the neoclassical theory of optimal capital accumulation, Robert E. (1984), used three major tax revision in the past periods. The adaptation of accelerated method for calculating depreciation in the internal revenue code of 1954. The investment tax credit for equipment and machinery in the revenue act of 1982.
They concluded that the effect of accelerated depreciation is very substantial especially for investment structures. The effect of depreciation guide line of 1962 were significant but their effects were confined to investment tax credit of 1962. They were guide traumatic and left little room for doubt about the efficiency of tax policy. This policy they said represent the ultimate liberalization since it is equivalent to tax expenditure for purposes.
According to Omoregbe (1997), the effectiveness of Industrial development coordinating committee (IDCC) led to the promulgation of the new decree/ decree 16 and 17 of 1995 to arrest the observed lapses in IDCC operations.
The intension of the decree is to create a conclusive environment for foreign investors.
Inspite of the effect of the IDCC, many aspect of the Nigerian economy remained incompatible with high spread operational characteristics of modern international mobility. It include lack of efficiency and operating mechanism that plague Nigerian’s existing operating system in addition to the absence of unified highly authoritative lending body for administering foreign investment regulation thus, the need to establish the Nigerian enterprise promotion commission (NEPC) of 1995 by Nigerian investment promotion decree of 1995. The promotion is charged with the co-ordination and monitoring of all investment promotion in the country.
According to Bobcleark, (1998), the night mare of the manufacturing sector are poor electricity supply, high cost of generator, high cost of telephone, high cost of distribution with constant fuel shortages, problem of adulteration, liberalization of trade and resultant disruption of local markets and lack of effective and reliable infrastructure.
In the study conducted by Nenyiaba (1990). He argued that it is not possible to determine that a given investment would have taken place but for tax concession. It appears quite unreasonable to believe that in a country like Panama, there would have been an absence of investment on the part of external firms, if there have been no tax incentive.
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