CHAPTER ONE

INTRODUCTION

1.1Background of the Study

The construction industry has the responsibility for physical infrastructure development

which is required by all sectors of the economy. With a 3% contribution to the national gross

domestic product (GDP), compared to manufacturing of 4%, the construction industry in

Nigeria is a major employer of labour (Ayanwale, 2007). The construction sector also

occupies a focal position in the economy of any nation because it is an important contributor

to the process of development (Aje, 2008). In the conduct of economic activities, the

construction sector is always used by government as the stimulus for the buoyancy of the

economy. We refer to it as the built environment industry; most other people refer to it as the

construction industry (Akindoyeni, 2011).

In the developed world, the construction industry is the highest employer of labour. While, in

the developing world such as Nigeria, the construction industry is expected to be the second

highest employer of labour after the agriculture industry (Dutse, 2008). The construction

industry is therefore a critical factor or variable of progress in the drive for economic

advancement of nations, especially less developed countries (LDCs) such as Nigeria. The

significance of foreign capital for the provision of construction facility investment to both

macroeconomic and microeconomic of any society cannot be overemphasized. Todero (2001)

described infrastructure as the pillar of growth in Africa and it is generally inadequate and of

poor quality when compared to developed nations of the world. Foreign capital has long been

accepted as an inevitable input in the development process, given the fact that no country is

an island with self sufficiency on her in terms of needed resources, to stimulate economic

1
growth and development (Orji, 2004). This is a continuation from experience of some

countries in South East Asia notably, Singapore, South Korea, Taiwan and Hong Kong (Ayo,

2008).

Therefore, foreign direct investment (FDI) is an integral part of the international economic

system and a major catalyst for development (Organization for Economic Co-operation and

Development, [OECD] 2002). It is the flow of capital and human resource from one country

to another. National policies and the international industrial architecture play a significant

role in attracting FDI to most countries. The significance of foreign capital for the provision

of building and construction infrastructure for macro and microeconomic activities of any

society cannot be overemphasized. Nigerias vision 20:2020 sets strategies and targets in

every sector of the economy that are expected to ensure that the country joins the group of

twenty most developed economies in the next ten years. Infrastructure development has been

identified as critical to the achievement of national development goals (Efem, 2009). In

recognition of this, the government is proposing to source for resources worth Nine Billion

Dollars ($9b) annually for the next three years into the development of infrastructure. The

construction industry has the responsibility for physical infrastructure development which is

required by all sectors of the economy and therefore, a critical factor or variable of progress

in the drive for economic advancement of nations, especially less developed countries such

as Nigeria (Ekpo, 2010).

Although Kolapo (2010) asserts that the palpable bottleneck in the way of sustainable growth

in Nigeria is only a clear manifestation of five decades of dishonest and egocentric

governance. Perhaps, some notorious past leaders had unwittingly given themselves away as

incompetent by saying that Nigerias problems defiled all logic, discerning Nigerians only

need to study the development strategies of hitherto neglected African countries to unveil real

2
economic pests. The author further explained that African countries leaders should provide

the support institutions and a dynamic domestic entrepreneurial class as a key factor in

success for attracting foreign direct investment. This interplay seems to have not been present

in many African countries.

Historical antecedents indicate that until the First World War, capital to developing countries

directly came mainly from Great Britain, France, Spain, Portugal, etc, to their former

colonies. In 1950s, United States of America, other industrialized nations and multinational

agencies started official assistance to less developed countries (LDCs). Shortly after the

Second World War and up to the period of the oil shocks, starting from the late 1970s, there

was a surge in bank lending to LDCs, particularly to Latin America under sovereign

guarantees (Ayanwale & Bamire, 2001). The upsurge of emerging market economies at the

beginning of the 1990s witnessed a revival of private finance in the form of foreign direct

investment (FDI) and foreign portfolio investment (FPI) flows (Orji, 2004).

International capital flows which provide some of these construction infrastructures had

recently been marked by a sharp expansion in net and gross capital flows. This has resulted

in substantial increase in the participation of foreign investors and Multilateral Financial

Institutions (MFIs) in the financial markets of developing countries (World Bank, 2001).

Even with the MFIs conditionalities attached to such assistance often cut budgets in the

social sectors, thus accentuating poverty, leading to exchange rate crisis, massive devaluation

of local currency and terms of trade determination (Todero, 2001).

Eboh (2011) advised Nigeria to market itself effectively and undertake consistent and

systematic long term planning if it intends to remain an attractive destination for foreign

investors and foreign direct investments. This can be achieve by creating more free trade

zones including construction free zone agency, because a lot of foreign firms would like to

3
operate within free zones to benefit from various incentives provided by the zones for

investors. The author also affirmed that Nigeria and the entire continent of Africa have to be

properly positioned in order to take advantage of the opportunities presented by the expected

increase in FDI inflow to the continent. The major hindrance to FDI in the continent is the

fact that a number of investors are not aware of the strides taken by African countries towards

development, as many of them limit their focus to political stability, corruption and weak

infrastructure.

Therefore, since the domestic savings cannot finance these infrastructures, there is the need

for foreign direct investment because of the advantages such as managerial skills, marketing

connection, technical knowledge, technological transfer, training of local work force and

movement of hard currency into the country. Nigeria needs substantial amounts of foreign

investment in the construction sector to speed up her economic growth most especially in the

area of construction facility investment and to promote development. This cannot be

overemphasized, because construction industry is a potent motivator of the national

economy, providing the driving force necessary for either sustaining a buoyant economy or

reviving a depressed one. Many developed countries have successfully revised their national

economies by maintaining high levels of activity in the construction industry (Mustapha,

2009). Based on these facts, it therefore becomes expedient to investigate the impact of

foreign direct investment on construction sector with a view to identifying the challenges to

the flow of foreign direct investment and a resultant effect of increase flow of FDI and FDI

projects in Nigeria.

1.2 Research Problem

It has been observed that the infrastructural base of the Nigerian economy has remained weak

in the past decades. This is because of the low gross domestic savings of less developed

4
countries (LDCs) such as Nigeria, which is a major limitation to infrastructural development

(Orji, 2004). According to Mogbo (2004) and Egolum (2011) past governments have made

attempt in solving the problem by expressing determination to improve basic infrastructures

as a means of promoting economic development through soft loans and grants from

Multilateral Financial Institutions such as International Monetary Fund (IMF), World Bank

and other lending nations and organizations. These loans and grants are normally

characterized with conditionalities such as cut budgets in the social sectors; remove

subsidies, leading to exchange rate crisis, massive devaluation of local currency and terms of

trade determination, foreign content and expatriate usage, unemployment and

underemployment (Egolum, 2011).

Therefore, due to collapse of constructed facilities, there is the need for massive

infrastructural development, which cannot be completely financed with the domestic savings

and loans that come along with attached conditionalities. Foreign direct investment can be

seen as part of the international economic system that stimulates economic growth including

infrastructural development (Organization for Economic Co-operation and Development,

2002). In view of the role of foreign capital inflows as investment mechanism for economic

growth in most countries, and as a strong indicator of the economic strengths of nations, this

research therefore is geared towards examining the impact of the FDI on the construction

sector of the Nigerian economy with a view to identifying the challenges affecting the inflow

in the construction sector.

5
1.3 Research Questions

The research questions of the study are:

(i) What is the flow of foreign direct investment into construction sector in Nigeria?

(ii) What is the effect of foreign direct investment on construction sector in Nigeria?

(iii) What are the challenges of foreign direct investment inflow into construction

sector

in Nigeria?

1.4 Aim and Objectives

The aim of the study is to assess the impact of foreign direct investment (FDI) on

construction sector with a view to identifying the challenges to the flow of foreign direct

investment and a resultant effect of increase flow of FDI and FDI projects in Nigeria. The

objectives of the study are to:

(i) assess the flow of foreign direct investment into construction sector in

Nigeria;

(ii) assess the effect of foreign direct investment on construction sector in Nigeria;

and

(iii) identify and assess the challenges facing the inflow of foreign direct

investment into construction sector in Nigeria.

1.5 Research Hypotheses

The following hypotheses are postulated for the study:

(i) There is no significant flow of foreign direct investment into construction sector

in Nigeria.

(ii) There is no significant effect of foreign direct investment on construction sector

in Nigeria.

6
 (iii) There are no significant challenges facing the inflow of foreign direct investment

into construction sector in Nigeria.

1.6 Justification for the Study

World Bank (2010) opines that U.S.$31Billion is needed by Africa from foreign investors to

develop infrastructure needed for development. To corroborate this view, Kolapo (2010)

asserts that infrastructural facilities is the pillar of development, therefore the government

should evolve a policy to induce foreign investment into Nigerias economy; because foreign

investment is desperately needed for essential infrastructure in Nigeria and Africa in general.

Significantly, records have it that many studies have been conducted in relation to the impact

of foreign direct investment on various sectors of the economy in Nigeria with the exemption

of construction sector. Communication, manufacturing, oil and gas, mining and quarry and

power sector have now taken the centre stage of FDI inflow in Nigeria. Onwuemenyi (2008)

conducted a study on the impact of FDI on lives of Nigerians. The negative impact of this is

a neglect of a sector that is expected to be the second highest employer of labour after the

agriculture industry in the developing world such as Nigeria (Dutse, 2008). Also, in the

conduct of economic activities, construction industry is expected to be used by government

as the stimulus for the buoyancy of the economy (Akindoyeni, 2011).

There have been a number of researches in this area but mainly in other parts of the world.

These include the work of Fleshman (2009) which investigated the challenges of FDI in the

construction sector in South Africa. The study conclusively identified six factors responsible

for hindrances facing FDI in construction sector in South Africa as: discrimination, policy

framework, market, cost consideration, corruption and insecurity of investment. Also, Topku

(2010) conducted a study on an assessment of the response of construction sector to foreign

direct investment in India. This was as a result of India Government acceded to a long

7
pending demand and permitted 100 percent FDI in construction and development projects in

year 2005. Jerome and Ogunkola (2004) assessed the magnitude, direction and prospects of

FDI in Nigeria with emphasis on the prospects of FDI in Nigeria.

This study will therefore bring to the fore the impact of FDI on the construction sector,

showing the significant response of the Nigerian construction sector to FDI, thereby assisting

investors to take appropriate decisions on their investment policy. The study will also provide

a basis for policy makers to identify the major hindrances to inflow of FDI, as well as

strategies that will enhance flow of foreign direct investment in the construction sector in

Nigeria. Finally, the study will enhance the competitiveness and survival of Nigerian

construction industry in the global market and ultimately improve the contribution of the

construction sector to the national economy.

1.7 Scope of the Study

Data collection was limited to Lagos and Abuja; because majority of consultants and other

stakeholders involved have their operational offices in these two cities. For the purpose of

this study the scope of the archival data for this research is within the span of 1989 2008,

obtained from Central Bank of Nigeria, Statistical Bulletin 2010. This is because as at

December, 2010, published Statistical Bulletin shows that data for 2009 is still reflected as

provisional. The study time span is 20years, which is far above the typical norm of 10 to 15

years for time series study (Ogbonmwan, 2006). Variables used for the study were foreign

direct investment (FDI) and construction sector in Nigeria. Also, prior to data collection

through questionnaire for the study, a preliminary survey was carried out by the researcher to

determine respondents within the study population that have been involved in FDI and FDI

projects in Nigeria.

8
1.8 Limitation of the Study

The archival data available was annualized; it would have been better if they were quarterly,

since quarterly data gives more reliable result (Ogbonmwan, 2006). This was overcome by

testing the stationary (Unit Root Test) of the variables (FDI and construction sector). The

data from archival for 2009 is still reflected as provisional in the last published edition of

December, 2010. Also, some challenges were encountered prior to data collection that is

during the preliminary survey to determine those respondents that have been involved in FDI

and FDI projects. They were therefore persuaded by assuring them that the information will

be treated with strict confidence and so these limitations were also overcome. Furthermore,

in the course of the preliminary survey, it was revealed that some professionals from various

institutes for over 5 to 10 years have not up-dated their financial status with their respective

institute. The inability to apply some of the statistical tools to the collected data during the

initial stage of the data analysis hindered the progress of the study. However, contact was

made to a statistician by the researcher, who organized several tutorials on the application

and interpretation of the relevant statistical tools to the field of study.

9
 CHAPTER TWO

LITERATURE REVIEW

2.1 Infrastructural Development in Nigeria

Despite all lofty initiatives and programmes by government and private sector, actual

physical achievements in infrastructural development in Nigeria still remain a mirage. A

survey of households by World Bank (2010) revealed that:

(i) The vast majority of Nigerians have little access to basic public services.

(ii) In urban areas, there is lack of pipe borne water, irregular electricity supply and lack

of good roads.

According to Mogbo (2004), the infrastructure in Nigeria is generally inadequate and of poor

quality when compared to Europe, North America and Japan. The infrastructural base of the

Nigerian economy has remained weak in the past decades, and further characterized by

uneven distribution, unreliability and decay, arising from several years of neglect. In 1999,

Nigerian government responded to the problem by expressing determination to improve basic

infrastructure as a means of promoting economic development (Orji, 2004).

Power supply in the country for instance has been grossly inadequate as only 30 percent of

the population had access to electricity in 1999, due to the fact that only 27.3 percent of

installed capacity of the eight power stations was actually generated. This problem was

further compounded by the overloading of transmission lines, resulting in frequent outages in

several areas. Presently, the old National Electric Power Authority (NEPA) has been

transformed to Power Holding Company of Nigeria (PHCN) which has been unbundled into

two generating companies, 11nos. transmission station and 11nos. distribution companies.

The Federal Government has recently promised to invest additional US$5.5billion to build

10
vital infrastructure in the Niger-Delta areas. This is in addition to US$2.3billion already

committed to the development of the seven gas-turbine power plant, perhaps US$1.54 billion

would be required to further develop the countrys transmission infrastructure and another

US$300 million annual investment to enable the country achieve about 50 percent access to

electricity by the year 2010 (Ekpo, 2010). Recently, World Bank (2010) assessment has

shown that more than one hundred million Nigerians do not have access to electricity

supply.

The state of transport infrastructure has been generally poor, as road, rail, air and water

transport systems have for several years been characterized by deplorable conditions, such

that most rural areas cannot link up with the rest of the country. Moreover, the different

transport modes are not properly linked to serve the socio-economic needs of the people.

Nigeria currently has a road network of about 193,200km and more are currently under

construction and planned for the future. However, despite huge sums of money, which have

been sunk into road construction, these roads have been plagued by problems (World Bank,

2010).

The Rail system has also remained undeveloped for several decades, and characterized by

outdated tracks with sharp curves and gradients limited speed to about 35km/hr. there are

currently less than 30% of the 280 railway stations in the country functioning. The sector is

desperately in need of reform. In July 2006, the National Council of State endorsed the

construction of a standard gauge railway line running from Lagos to Kano and also approved

that the sum of $1 billion be taken from a Chinese loan to commence the project. Water

transportation has continued to stagnate along with other systems, despite the fact that the

country has about 3,300km navigable inland water ways, which ought to provide easy access

to the coast from hinterland (Mustapha, 2009). The waterways have not been adequate for

11
navigation due to lack of dredging and modern river going vessels. Again, Nigeria has many

seaports, but they are not operating efficiently due to poor facilities and management. The

goal of government, therefore, is to enhance the use of water as major means of

transportation. This would be achieved by encouraging more private sector involvement in

maritime activities, rehabilitation and reactivation of port facilities, provision of more deep-

sea capacity ports, and the reform of procedures at seaports.

Air transport is not left out, as most facilities of the airports are also in poor conditions. Most

of the aircrafts in use in Nigeria do not meet the standards required by the International Civil

Aviation Organization (ICAO). The aviation industry is inundated by a myriad of problems

which are due to poor navigational aids, damaged runways, poor infrastructure, substandard

and poorly equipped arrival and departure terminals just to mention a few. Aviation experts

estimated that funding requirements for the sector will be in excess of N500 billion for

airport development and improvement projects (Makunike, 2008). The communication

infrastructure in Nigeria before now remained government monopoly, and the cost of

providing services was one of the highest in the world, due to inefficiency. The

telecommunications sector has over the 8 years undergone liberalization with the issuance of

licenses to Private Telephone Operators (PTO), operators of Global System of Mobile

Telecommunications (GSM). Nigeria has now emerged as one of the fastest growing

telecoms market. Billions of dollars have already been invested and more will be invested

over the next ten years to provide new infrastructures such as call centre, base stations, fibre

optic cables, local and regional offices. Celtel the Kuwait based Telecoms Company, which

recently purchased controlling share of Vmobile, now Airtel has recently announced that it

will be spending $700 million on network expansion over the next 2 years (Mustapha, 2009).

12
There is currently a serious need for a sustained planned approach towards the development

of the nations water resources in view of the variable nature of precipitation, manner of its

occurrence and distribution pattern. Despite the abundant latent water resources, about 30%

of Nigerians have access to safe water. This problem can easily be traced to inadequate

budgetary provision. The World Bank and the International Finance Cooperation (IFC) are

currently investing millions of dollars into various Federal and State Government water

supply projects (Dutse, 2008).

The oil and gas industry has always been global in outlook. Businesses in different countries

have to compete for global resources to find, develop, refine and transport oil and gas and

their derivatives. Experts believe that natural gas will be the fuel of choice for at least the

next 20 years. It is envisaged that pipelines will remain the preferred transportation means for

delivering natural gas to market. Nigeria has also recently begun to talk to Niger Republic

about the proposed Trans-Saharan Gas Project. The 4000km gas pipelines will be constructed

from Niger-Delta to Algeria and final destination in Spain. Shell, Chevron, Sinepco, and

others, are expending billions of dollars on numerous gas gathering projects in order to meet

the 2008 initial deadline for gas flaring set by the Federal Government. Transcorp will invest

in both the upstream and downstream sectors of the oil and gas industry (Makunike, 2008).

Over the last 10 years, Nigeria has witnessed a major shift from public lead to private sector

property development especially in the provision of residential property. Experts reckon that

the country currently needs 16 million homes. In a report by Shelter Rights Initiative (SRI)

submitted to the United Nations Committee on Economic, Social and Cultural Rights, there

is need for the production of over 8 million housing units in Nigeria between now and year

2015 at a minimum rate of 800,000 units annually (Okomoh, 2004).

13
Manufacturing and processing facilities in the construction sector on the other hand, has been

characterized by low capacity utilization that averaged 30 percent in the last decade. Low and

declining contribution to national output that averaged 6 percent in 1997 1999 (Todero,

2001). These features clearly identify Nigeria as a country characterized by the phenomenon

of de-industrialization. The focus of the government is to enhance the contribution of

manufacturing to national output, foreign exchange earnings, and poverty reduction.

Manufacturing is also expected to play the leading role in broadening the productive base of

the economy as well as stemming rural-urban drift. In the mining and quarrying sub-sector,

economic potentials have not been fully harnessed. The tremendous potentials of the mining

and quarrying sub-sector are mainly attributed to petroleum resources. Despite the high level

of investment in petroleum industry by government and private enterprises, its performance

in the last eight years been unimpressive and characterized by product shortages occasioned

mainly by communal strife, pipeline vandalization, and failure to carryout proper Turn-

Around-Maintenance (TAM) of refineries and pipeline systems as and when due

(Omagbeme, 2010).

The government is however poised to reverse the trend and enhance Nigerias share in the

world petroleum market by ensuring a steady flow of crude oil and petroleum products to

both local and international markets. To achieve this laudable goal, several measures have

been outlined, which includes exploring alternative sources of fund for developing petroleum

resources, encouraging private investors to established more refineries and gas projects, and

deregulation of petroleum products market (Ariyo, 2008). According to Oyinloye (2011),

Nigerias infrastructural deficit is estimated to be in excess of $200billion (more than

N30trillion). The author made this assertion in a key note address at the opening of a 3-day

workshop on pension funds investment in infrastructure. It is essential for infrastructural

investors to access the nations N2trillion plus pension fund pot. Therefore, it is no longer

14
news that the extent of financing required to bridge the countrys infrastructure deficit

surpasses the supply of capital available from government.

2.2 Foreign Investment

According to Orji (2004), viewing the Nigerian economy from the perspective of foreign

investment conventionally, foreign investment is basically divided into two categories:

2.2.1 Foreign Portfolio Investment (FPI)

Foreign portfolio investment (FPI) involves passive purchase of investment such as stocks

and bonds. This is a straight jacket form of financing for the sole purpose of dividends,

capital gains or that of earning interest. This investment is often short term and can shift

extremely rapidly out of the country (i.e. it is extremely mobile) (Kolapo, 2010).

Investments in which the investor does not have an effective voice in the management of the

enterprise are mainly portfolio (Fabayo, 2003). Foreign portfolio investment are associated

with some advantages, such as: managerial skills, marketing connection, technical

knowledge, training of local work force, transmits hard currency into the country, it carries

with it financial resources, do not create debts to the government, to mention a few (Jules &

Hennes, 2007).

However, FPI flows into Nigeria have witnessed a winding growth pattern. With the

promulgation of the Nigerian Investment and Promotion Commission Act No. 16 and the

Foreign Exchange (monitoring and miscellaneous provisions) Act No. 17 both of 1995, there

is a gradual increase of FPI flow into Nigeria. Presently, FPI come either directly through the

Nigerian Stock Exchange Market or through some dollar-dominated mutual funds managed

by a few fund managers such as Securities Transactions and Trust Co. Plc (Wakil, 2004).

15
Recently, the Ministry of Trade and Investment is planning to float a Diaspora Fund as part

of strategies aimed at unlocking available capital for investment in critical sectors of the

economy. The ministry is structuring the Nigerians in Diaspora fund to target the well over

$20 billion in the hands of Nigerians abroad to invest in the country. Available World Bank

record revealed that close to $18.6 was remitted by Nigerians in Diaspora into the country

(Aganga, 2011). The author implored Nigerians in Diaspora to advertise Nigerias investment

portfolios to multinationals with a view to attracting investments in the country, noting that

the country has the needed enabling environment for investment to thrive. The author said

the proceeds from the fund will be invested in flagship infrastructure projects in the country

as identified in the transformation agenda of President Goodluck Jonathan Administration,

such as power, housing, roads, airports, transport infrastructure etc rather than fueling

consumption which tends to lead to an increase inflationary pressure.

About N234 billion (1.5 billion dollars) worth of projects has been invested in Nigeria. The

projects spread across both the public and private sectors, with emphasis on the continents

macro-economic prospects, external financial flows, trade policies and regional integration,

human development, political and economic governance and a thematic chapter on Africas

emerging partners. This covered 51 regional member states, including Nigeria, adding that it

centered on key challenges facing Africa in meeting its development goals from global

financial crisis (Ousmane, 2011).

The focus of the portfolio has been on infrastructure and private sector development

consistent with the banks medium term strategy. The African Development Bank recently

approved credits of N78 billion (500 million dollars) to the Bank of Industry in Nigeria and

N31 billion (200 million dollars) to the Nigeria Export-Import Bank (NEXIM). This credit

16
would be given to Small and Medium Enterprises (SMEs) to promote the textile industry

which would impact positively on job creation (Ousmane, 2011).

2.2.2 Foreign Direct Investment (FDI)

The United Nations defined foreign direct investment as investment in enterprise located in

one country but effectively controlled by residents of another country (UNCTAD, 2009).

Foreign direct investment is the distinctive feature of multinational enterprise hence; a theory

of foreign direct investment is also a theory of the multinational enterprise as an actor in the

world economy (Ekpo, 2010). Based on this theory, FDI is not simply (or even primarily) an

international transfer of capital but rather, the extension of an enterprise from its home

country into foreign host country. The extension of enterprise involves flows of capital,

technology, and entrepreneurial skills and, in more recent cases, management practices to the

host economy, where they are combined with the local factors in the production of goods and

services (Chenery & Stout, 2006). In total, net direct investment abroad by UK in 2008 was

almost half the value recorded the previous year. The 2008 figure of 85.8 billion was 73.4

billion lower than the investment of 159.1 billion reported in 2007 although the value

remains higher than in other recent years (46.9 billion in 2006; 44.5 billion in 2005; 49.7

billion in 2004) (UNCTAD, 2009). Nigerias share of FDI inflow to Africa averaged around

10%, from 24.19% in 1990 to a low level of 5.88% in 2001 up to 11.65% in 2002

(UNCTAD, 2009). It showed Nigeria as the continents second top FDI recipient after

Angola in 2001 and 2002 (Efem, 2009).

International capital flows which provide some of these infrastructure had recently been

marked by a sharp expansion in net and gross capital flows and a substantial increase in the

participation of foreign investors and Multilateral Financial Institutions (MFIs) in the

financial markets of developing countries (World Bank, 2010). Even with the MFIs

17
conditionalities attached to such assistance often cut budgets in the social sectors, thus

accentuating poverty, leading to exchange rate crisis, massive devaluation of local currency

and terms of trade determination (Todero, 2001). Therefore, since the domestic savings

cannot finance these infrastructure, there is the need for foreign direct investment and foreign

portfolio investment because of these advantages; managerial skills, marketing connection,

technical knowledge, training of local work force, transmits hard currency into the country, it

carries with it financial resources and do not create debts to the government.

Therefore, Nigeria needs substantial amounts of foreign investment to speed up her economy

growth most especially in the area of building and construction investment and to promote

infrastructural development. Foreign direct investment is known for improving economic

efficiency through gains resulting from increases in international trade, international

competitiveness and improved access to foreign markets for domestic products and training

of labour force. Considering the fact that domestic capital formation (i.e. Domestic

Investment Resources (DIR) is still at its infancy and is relatively low in developing nations,

like Nigeria (Wakil, 2004).

Foreign direct investment would emerge to be the alternative for capital formation for

construction investment purposes, but due to the awfully meager export potentials,

franchising is about the most practical way of attracting foreign investment in order to

diversify the economy, which bring technology, ideas and access to industrial countries

markets as well as hard currencies, reduces borrowers exposure to changes in foreign

interest rates and encourages growth oriented economic liberalization. Urging the

government to pay attention to the construction sector in order to attract the necessary huge

amount of FDI into the sector, Nigeria needed large quantum of FDI and the country has the

18
potential to even attract more in spite of her numerous challenges to finance developmental

projects (Orji, 2004).

2.3 Foreign Direct Investment and the Enabling Laws

Orji (2004) and Wakil (2004) identified principal laws regulating foreign direct investment in

Nigeria among others. These include:

a) The Nigerian Investment and Promotion Commission Act. No. 16 of 1995.

b) The Foreign Exchange (monitoring and miscellaneous provisions) Act No. 17 of

1995.

c) The Investment and Securities Act of 1999. This Act set up the Investment and

Securities Tribunal (IST) as an appellate court and a court of first arena for the

settlement of investment and securities disputes.

The Nigerian Investment and Promotion Commission Act No. 16 of 1995 established the

Nigerian Investment Promotion Commission (NIPC) as the successor to Industrial

Development Coordination Committee (IDCC).

In other to improve the enabling environment in the Nigeria emerging economies, the

Multilateral Investment Guarantee Agency (MIGA) was created in 1988 as a member of the

world Bank Group to promote foreign direct investment into Nigeria economies by

guaranteeing noncommercial risk in order to boost industrialization, employment, capacity

building and consequently improve peoples lives and reduce poverty. MIGA has been in the

forefront of addressing the minimal global FDI flows to Africa (Makunike, 2008). Table 2.1

and 2.2 shows sectoral composition of FDI and FDI inflow into construction sector in

Nigeria respectively, both from 1989-2008 (-N-Millions) from CBN Statistical Bulletin

published 2010.

19
Table 2.1: Sectoral composition of FDI in Nigeria, 19892008 (-N-MILLIONS)
Year Mining & Manu - Agri- Transport Building Trading & Miscel

Quarrying facturing culture & Commu & Con Business laneous

& Processing -nication -struction services service

1989 636.7 5,406.4 134.8 158.2 481.8 3,497.2 584.7

1990 1,091.6 6,339.0 334.7 240.5 743.6 1,710.4 -23.7

1991 -810.0 8,692.4 382.8 373.2 1,471.6 1,452.2 682.0

1992 6,417.2 9,746.3 386.4 391.5 1,406.6 1,482.5 682.2

1993 27,686.9 13,885.1 1,214.9 426.4 71.2 1,864.5 22,638.0

1994 26,680.0 14,059.9 1,208.5 429.6 1,707.0 2,247.6 24,381.1

1995 56,747.3 27,668.8 1,209.0 374.8 1,553.0 2,990.7 28,848.0

1996 56,792.3 29,814.3 1,209.0 485.6 1,864.3 3,668.7 28,766.7

1997 59,221.4 31,297.2 1,209.0 672.6 1,259.8 3,625.7 31,046.2

1998 59,970.5 34,503.9 1,209.0 689.2 3,888.3 10,460.5 41,689.5

1999 58,855.4 36,282.1 1,209.0 820.3 3,995.9 10,927.3 42,100.4

2000 60,710.9 37,333.6 1,209.0 820.3 3,995.9 11,201.3 42,237.6

2001 61,611.9 37,779.6 1,209.0 955.3 4,211,9 12,016.3 43,657.6

2002 61,611.9 39,953.6 1,209.0 1,736.3 4,293.9 12,317.3 45,509.6

2003 61,809.1 45,719.4 1,209.0 2,890.5 4,545.8 14,457.3 49,056.5

2004 62,145.7 102,995.8 1,209.0 4,281.1 5,194.1 20,242.4 53,571.2

2005 80,789.4 133,894.5 1,209.0 5,565.4 6,713.3 26,315.1 69,642.6

2006 105,668.4 212,729.0 1,209.0 8,291.0 10,461.1 41,309.3 102,780.0

2007 132,085.5 219,512.0 1,329.9 10,758.2 12,030.2 47,505.7 129,277.1

2008 140,497.1 229,764.6 1,397.2 11,383.3 12,702.5 50,194.9 140,370.1

Source: CBN Statistical Bulletin (2010).

20
 Table 2.2: FDI INFLOWS INTO CONSTRUCTION AND GDP SECTOR OF THE NIGERIAN ECONOMY (-N-
MILLIONS)
YRS FDI IN FDI FLOW INTO % CONTR. OF TOTAL CONTRIBUTION OF %CONTR.

FLOWS CONST. FDI FLOW IN GDP CONST. SECTOR TO CONSTRU

SECTOR THE CONST. TOTAL GDP (N BILLION) CTION TO

SECTOR TO THE

THE TOTAL TOTAL

FDI FLOW GDP

1989 10,899.90 481.80 4.40 236,729.6 4,143.60 1.75
1990 10,436.10 743.60 7.10 267,550.00 4,350.80 1.63
1991 12,244.20 1,471.60 12.00 265,379.10 4,524.80 1.71
1992 20,512.70 1,406.60 6.90 271,365.50 4,701.30 1.73
1993 67,787.00 71.20 0.10 274,833.30 4,936.30 1.80
1994 70,713.70 1,707.00 2.40 274,450.60 5,084.40 1.85
1995 119,391.60 1,553.00 1.30 281,407.40 5,221.70 1.86
1996 122,600.90 1,864.30 1.50 293,745.40 5,284.30 1.80
1997 128,331.90 1,259.80 1.00 302,022.50 5,622.50 1.86
1998 152,410.90 3,888.30 2.60 310,890.10 5,959.90 1.92
1999 154,190.40 3,995.90 2.60 312,183.50 6,184.40 1.98
2000 157,508.60 3,995.90 2.50 329,178.70 6,433.80 1.95
2001 161,441.60 4,211.90 2.60 356,994.30 7,205.90 2.02
2002 166,631.60 4,293.90 2.60 433,203.50 7,518.90 1.74
2003 179,687.60 4,545.80 2.50 477,533.00 8,176.80 1.71
2004 249,639.30 5,194.10 2.10 527,576.00 7,622.50 1.45
2005 324,129.30 6,713.30 2.10 561,931.40 8,544.50 1.52
2006 482,447.80 10,461.10 2.20 595,821.60 9,654.80 1.62
2007 552,498.60 12,030.20 2.10 634,251.10 10,912.60 1.72
2008 586,309.70 12,702.50 2.20 674,889.00 12,337.50 1.83
Source: Central Bank of Nigeria (CBN) Statistical Bulletin (2010).

2.4 Challenges Responsible for the Low Inflow of Foreign Direct

Investment in the Nigerian Economy.

Aboyade (2007) and Baker (2008) identified major factors responsible for the low inflow of

FDI in the Nigerian economy as:

Infrastructure: the place of infrastructure in attracting FDI to a country is very important.

Such infrastructure as energy supply, good network of roads and efficient telecommunication

system, and water supply is very crucial. Foreign investors do consider some of these

facilities as one of the major criteria before making decision whether to invest or not (Baker,

2008).

21
Market: Multinational Corporations (MNCs) search for locations that offer substantial

internal market and also opens up large regional market. However, care should be taken not

to equate population with market that is a country with huge population with low purchasing

power may not be attractive to investors because every investor wants to make profit

(Aboyade, 2007). Nigerian have really encourage this sector in this area, even the

government import almost all their materials from abroad, then how do we expect an investor

to open an industry that he is not sure of patronage.

Policy Framework: For a country to attract FDI, it is important to put in place an investment

friendly and transparent policy framework like the Nigerian Investment Promotion

Commission (NIPC), Security and Exchange Commission (SEC). These drivers of FDI

provide the developing country like Nigeria, with the opportunity to develop their economies

by matching their strength either in terms of comparative advantage or favourable policies

with the needs of these MNCs in order to attract them (Yakub, 2005). There has been no

sincerity of purpose on the part of government, even look at the National Construction Policy

(NCP), of May, 1991. What percentage of this policy have they implemented (Todero, 2001).

Natural Resources: The availability of quality of natural resources no doubt influences the

choice of a location for FDI. However, this advantage should not be overstretched. According

to Wakil, (2004), in contrast to natural resources, technology and innovative capacities that

people made, they are created assets and possessing such assets is critical for firms

competitiveness in a global economy. He further stated, It is precisely the rise in the

importance of created assets that is the single most important shift among the economic

determinants of FDI location in a liberalizing and globalizing world economy.

Cost Consideration: This involves the cost of production, including labour, transportation,

utilities and other inputs. The cost of labour for instance has become a serious issue. It is for

22
this reason that many companies have started relocating to china where the cost of labour is

relatively low when comparing with Nigeria, including both countries physical and social

infrastructure on ground (Jerome & Ogunkola, 2004).

Bribery and Corruption: A corrupt nation no matter the degree of abundant human and

natural resources shall remain poor (Todero, 2001). This is a clear indication that even some

of these so called developed nations do not even have one quarter of the resources of some

developing or emerging countries in the world, yet they are poor. This is an indication of the

high level of bribery and corruption making a very few to be sticky rich. This eliminates the

middle class in such society who ought to be the driving force of the economy, upon which

the economy forces is measured. Most genuine investors with good intention apart from

making profits would not want to get close to countries that are corrupt inclined (Aboyade,

2007).

Political Instability: One close unique characteristic with these poor developing nations is

political instability. All over the world, pick each of these countries that fall under this poor

nations, you will discovered that either they have suffered from one political instability for a

very long time with imposed civilian government or military government in place. Even the

ones that claimed to be operating civilian government is either being control by very few

elites to the detriment of the entire populace (Orji, 2004). He identifies this as one of the

major hindrances because, no investors want to invest where there seems to be unstable

economy policy because political instability is an identical twin brother of economy

instability which give birth to volatile of exchange rate, inflation index and incentive tariff.

Militancy and Youth Restiveness: In Nigeria, recent happenings all over the country call for

worry for a listening government. From the North, we have the Islamic extremists that have

caused havoc on innocent law abiding citizens. From the South, we have the Niger-Delta

23
Militant involving in all sorts of unlawful act like: kidnapping, oil bunkering, armed robbery,

to mention a few (World Bank, 2010). Although, the present government is on the process of

rehabilitating these militants, we hope they will change totally for good and peace, so that

development can come to Niger Delta fully. Even the blind and deaf investors may not want

to come to areas that are prone to violence, no matter the degree of natural resources. This

was the case in the Niger-Delta except for now that peace is gradually being restored. We

hope that the restoration temple is going to bring sustaining peace and development (World

Bank, 2010).

Insecurity of Investment: No investor, no matter how generous that may want to invest his

money without weighing the security of the investment. Most developing/emerging countries

are associated with this problem, which is a major hindrance also. Most investor wants to be

assured of the safety and properties in case of crisis (World Bank, 2010).

Discrimination: A number of political impediments to investment can be lumped together as

discriminatory practices; this may be as a result of: nationalism, ethnic bias, favoritism for

host government owned enterprises or local firms. Discrimination may be exclusion from

certain sector example, media and finance.

Global Risk: knowing full well that most FDI flow into the construction sector come inform

of concession projects, Smith (1999) defined concession project as a project based on the

granting of a concession by a principal, usually a government, to a promoter, sometimes

known as the concessionaire, who is responsible for the construction, financing, operation

and maintenance of a facility over the period of the concession before finally transferring, at

no cost to the principal, a fully operational facility.

24
Smith (1999) opined that in context of concession projects there are two types of risk, these

being elemental risks and global risks and are defined as: elemental risks are those risks

which may be controlled within the project elements of a concession projects. Global risks

are those risks outside the project elements which may not be controllable within the project

element of a concession project. The four major global risks are: political, legal, commercial

and environmental risks.

2.5 Benefits of Foreign Direct Investment

According to Orji (2004), Wakil (2004), Yakub (2005) and Dutse (2008), the benefits of

foreign direct investment identified are:

a) Trade and Investment

While the empirical evidence of FDIs effects on host-country foreign trade differs

significantly across countries and economic sectors, a consensus is nevertheless emerging

that the FDI-trade linkage must be seen in a broader context than the direct impact of

investment on imports and exports. The main trade-related benefit of FDI for developing

countries lies in its long-term contribution to integrating the host economy more closely into

the world economy in a process likely to include higher imports as well as exports. In other

words, trade and investment are increasingly recognized as mutually reinforcing channels for

cross-border activities. However, host-country authorities need to consider the short and

medium-term impacts of FDI on foreign trade as well, particularly when faced with current-

account pressures, and they sometimes have to face the question of whether some of the

foreign-owned enterprises transactions with their mother companies could diminish foreign

reserves (Omagbeme, 2010).

b) Technology Transfers

25
Economic literature identifies technology transfers as perhaps the most important channel

through which foreign corporate presence may produce positive externalities in the host

developing economy (OECD, 2002). MNEs are the developed worlds most important source

of corporate research and development (R&D) activity, and they generally possess a higher

level of technology than is available in developing countries, so they have the potential to

generate considerable technological spillovers. However, whether and to what extent MNEs

facilitate such spillovers varies according to context and sectors (OECD, 2002).

c) Human Capital Enhancement

The major impact of FDI on human capital in developing countries economy appears to be

indirect, occurring not principally through the efforts of MNEs, but rather from government

policies seeking to attract FDI via enhanced human capital (Aremu, 2003). Once individuals

are employed by MNE subsidiaries, their human capital may be enhanced further through

training and on-the-job learning. Those subsidiaries may also have a positive influence on

human capital enhancement in other enterprises with which they develop links, including

suppliers. Such enhancement can have further effects as that labour moves to other firms and

as some employees become entrepreneurs. Thus, the issue of human capital development is

intimately related with other, broader development issues. Investment in general education

and other generic human capital is of the utmost importance in creating an enabling

environment for FDI (Oyinlola, 2005). Achieving a certain minimum level of educational

attainment is paramount to a countrys ability both to attract FDI and to maximize the human

capital spillovers from foreign enterprise presence (OCED, 2002). The minimum level differs

between industries and according to other characteristics of the host countrys enabling

environment.

26
Education in itself is unlikely to make a country attractive to foreign direct investors.

However, where a significant knowledge gap is allowed to persist between foreign entry

and the rest of the host economy, no significant spillovers are likely. Among the other

important elements of the enabling environment are the host countrys labour market

standards. By taking steps against discrimination and abuse, the authorities bolster

employees opportunities to upgrade their human capital, and strengthen their incentives for

doing so. Also, a labour market where participants have access to a certain degree of security

and social acceptance lends itself more readily to the flexibility that is key to the success of

economic strategies based on human capital. It provides an environment in which MNEs

based in OECD countries can more easily operate, applying their home country standards and

contributing to human capital development (OECD, 2002). Human capital levels and

spillovers are closely interrelated with technology transfers. In particular, technologically

advanced sectors and host countries are more likely to see human capital spillovers and,

conversely, economies with a high human capital component lend themselves more easily to

technology spillovers. The implication of this is that efforts to reap the benefits of technology

and human capital spillovers could gain effectiveness when policies of technological and

educational improvement are undertaken conjointly.

d) Competition

FDI and the presence of MNEs may exert a significant influence on competition in host-

country markets. However since there is no commonly accepted way of measuring the degree

of competition in a given market, few firm conclusions may be drawn from empirical

evidence that the presence of foreign enterprises may greatly assist economic development

by spurring domestic competition and thereby leading eventually to higher productivity,

27
lower prices and more efficient resource allocation (OECD, 2002). Conversely, the entry of

MNEs also tends to raise the levels of concentration in host-country markets, which can hurt

competition. This risk is exacerbated by any of several factors: if the host country constitutes

a separate geographic market, the barriers to entry are high, the host country is small, the

entrant has an important international market position, or the host-country competition law

framework is weak or weakly enforced.

Market concentration worldwide has increased significantly since the early 1990s due to a

wave of merger and acquisitions that has reshaped the global corporate landscape (Odozi,

2003). At the same time, a surge in the number of strategic alliances has changed the way in

which formally independent corporate entities interact. Alliances are generally thought to

limit direct competition while generating efficiency gains, but evidence of this is not firmly

established. There has also been a wave of privatizations that has attracted considerable

foreign direct investment (mainly in developing and emerging countries), and this, too, could

have important effects on competition. It is economically desirable that strongly performing

foreign competitors be allowed to replace less productive domestic enterprises, policies to

safeguard a healthy degree of competition must be in place. Best way of achieving this is by

expanding the relevant market by increasing the host economys openness to international

trade. In addition, efficiency-enhancing national competition laws and enforcement agencies

are advisable to minimize the anti-competitive effects of weaker firms exiting the market.

When mergers are being reviewed and when possible abuses of dominance cases are being

assessed, the accent should be on protecting competition rather than competitors. Modern

competition policy focuses on efficiency and protecting consumers; any other approach may

lead to competition policy being reduced to an industrial policy that may fail to deliver long-

term benefits to consumers (Yakub, 2005).

28
e) Enterprise Development

The direct impact on the targeted enterprise includes the achievement of synergies within the

acquiring MNE, efforts to raise efficiency and reduce costs in the targeted enterprise, and the

development of new activities. In addition, efficiency gains may occur in unrelated

enterprises through demonstration effects and other spillovers akin to those that lead to

technology and human capital spillovers. The strongest evidence of improvement is found in

industries with economies of scale. Here, the submersion of an individual enterprise into a

larger corporate entity generally gives rise to important efficiency gains. The privatization of

utilities enterprises is often particularly sensitive, as these enterprises often enjoy

monopolistic market power, at least within segments of the local economy. The first-best

privatization strategy is arguably to link privatization with an opening of markets to greater

competition. But where the privatized entity remains largely unreconstructed prior to

privatization, local authorities often resort to attracting foreign investors by promising them

protection from competition for a designated period. In this case there is a heightened need

for strong, independent domestic regulatory oversight (Mustapha, 2009).

2.6 Potential Drawbacks of FDI to Developing Countries

FDI also addresses concerns about potential drawbacks for host country economy as well as

non- economy. Although Orji (2004) identified many of the drawbacks referred to as cost

and the domestic policies of host countries. These include:

(i) Deterioration of the balance of payments as the profit accrued to foreign investors is

repatriated.

(ii) Lack of positive linkages with the local communities

(iii) The potentially harmful environmental impact of FDI, especially in the extractive and

heavy engineering industries, e.g Oil extraction from Niger-Delta region of Nigeria.

29
(iv) Social disruptions of accelerated commercialization in less developed countries

(v) The effects on competition in national markets.

(vi) Loss of political sovereignty, which in some host country authorities perceive an increase

dependence on international operating enterprises.

(vii) This technological benefit for host country may be elusive if the host economy in

current state of economic development, is not able to take the advantage of the

technologies or know how transferred through FDI.

2.7 Impact of FDI on Economic Growth and Development in Nigeria.

Odozi (2003) observed the linkage effects of FDI on the Nigerian economy and submits that

these have not been considerable. Wakil (2004) and Orji (2004) reported positive linkages

between FDI and economic growth in Nigeria. Oyinlola (2005) reported negative

contributions of public investment to GDP growth in Nigeria for reasons of distortions.

Adelegan (2008) explored the seemingly unrelated regression model to examine the impact

of FDI on economic growth in Nigeria and found out that FDI is pro-consumption and pro-

import and negatively related to gross domestic investment. The author further observed that,

there is no reliable evidence that all the investment variables included in his analysis have

any perceptible influence on economic growth. He therefore suggests the need for an

institutional rearrangement that recognizes and protects the interest of major partners in the

development of the economy. Akinlo (2004) found that foreign capital has a small and not

statistically significant effect on economic growth in Nigeria. Nigeria being a developing

economy has not been different from other developing economies in using foreign direct

investment (FDI) as a strategy for achieving economic growth and development.

However, unlike countries like Malaysia, Nigeria in spite of its 12 huge deposit of human,

natural and material resources has failed to achieve rapid economic growth due to several

30
factors, the principal of which is an unstable political environment occasioned by long

periods of military rule. Under the military rule, Nigeria witnessed a decline in the influx of

foreign investments as a result of various economic sanctions imposed on the country by the

international community. Oseghale and Amonkhienan (2008) found that FDI is positively

associated with GDP, concluding that greater inflow of FDI will spell a better economic

performance for the country. Ariyo (2008) studied the investment trend and its impact on

Nigerias economic growth over the years. He found that only private domestic investment

consistently contributed to raising GDP growth rates during the period considered (1970

1995).

There have been some studies on investment and growth in Nigeria with varying results and

submissions opted in (Ayanwale, 2007). Omagbeme (2010) asserts that there is a vast

literature establishing the relationship between foreign direct investment (FDI) and economic

growth especially in transitional societies, it implies an array of investments made to acquire

lasting interest in enterprises operating outside the economy of the investor, that is FDI is a

form of lending or finance in the area of equity participation, which involves the transfer of

resources, including, capital, technology, management and marketing expertise.

To examining the contributions of foreign capital to the prosperity or poverty of LDCs,

Oyinlola (2005) conceptualized foreign capital to include foreign loans, direct foreign

investments and export earnings. Further, on the basis of time series data, Ekpo (2010)

reports that political regime, real income per capita, rate of inflation, world interest rate,

credit rating and debt service were the key factors explaining the variability of FDI into

Nigeria.

31
However, these studies did not control for the fact that most of the FDI was concentrated in

the extractive industry. In other words, it could be put that these works assessed the impact of

investment in extractive industry (oil and natural resources) on Nigerias economic growth.

On firm level productivity spillover, Ayanwale and Bamire (2001) assess the influence of

FDI on firm level productivity in Nigeria and report a positive spillover of foreign firms on

domestic firms productivity. Much of the other empirical work on FDI in Nigeria centered

on examination of its nature, determinants and potentials. For example, Odozi (2003) notes

that foreign investment in Nigeria was made up of mostly green-field investment. Aremu

(2003) 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, Adelegan (2008) and Anyanwu (2004)

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.

The authors further noted that the abrogation of the indigenization policy in 1995 encouraged

FDI inflow into Nigeria and that effort should be made to raise the nations 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 (EFCC), Independent Corrupt Practices

Commission (ICPC), and the Nigerian Investment Promotion Commission (NIPC) are efforts

to improve the corporate environment and uphold the rule of law.

32
 CHAPTER THREE

RESEARCH METHODOLOGY

33
One of the most technical areas of an investigation is the methodology. It is the detailed plan

and strategy of how the study intends to find solution to the research questions. Therefore,

this chapter discusses the methodology used to provide data to investigate the research

questions raised and also, aims to provide assurance that appropriate procedures were

followed in the course of the study. This chapter is organized around the following major

topics: research design, population of the study, sample size, sampling techniques, the data

collection instrument, the pilot study, validity and reliability of the research instrument as

well as methods of data analysis.

3.1 Research Design

Dixon (1994) defined research design as a strategy that addresses the planning of scientific

inquiry or designing a strategy for finding out something. This study was designed to

investigate the impact of foreign direct investment on construction sector in Nigeria. The

investigation can therefore be regarded as historical, descriptive and correlational research.

According to Gay (1981), historical research involves the systematic search for documents

and other sources that contain facts relating to the historians question about the past to have

better understanding of the present and perhaps to predict the future situation. To an extent, it

could predict future trends. While descriptive research involves collecting data to test

hypotheses or answer questions concerning the current status of the subject of the study. This

method was adopted in collecting the data for testing the hypotheses postulated in this study.

Ogbonmwan (2006) defined correlational as an attempt to determine whether or not a degree

of relationship exists between two or more quantifiable variables. Therefore, the study

attempts to correlate foreign direct investment flows (independent variable) with construction

sector (dependent variable) to see if any relationship exists among them.

3.2 The Study Population

34
The target population for this study is in four categories, who have been involved in FDI and

FPI projects in Nigeria. There are major actors in the construction industry i.e. clients,

construction professionals, registered contractors with Federation of Construction Industry

(2008) and others. The others comprised of top senior/management staff of Nigerian

Investment and Promotion Commission (NIPC), Central Bank of Nigeria (CBN), Federal

Ministry of Trade and Investment and National Bureau of Statistics (NBS). Furthermore, it is

important to mention here that the focus of this research is on selected corporate and public

clients. Also, the construction professionals comprise of architects, quantity surveyors,

engineers and builders.

3.3 Sample Size

According to Gupta and Gupta (2005), there are several approaches to determining the

sample size. These include using a census for populations, imitating a sample size of similar

studies, using published tables and applying formulas to calculate a sampling size. Yamane

(1967) opined that a census is attractive for small populations e.g. 200 or less, although cost

considerations make this impossible for large population.

Prior to data collection for the study, a preliminary survey was carried out by the researcher

to determine respondents within the study population that have been involved in FDI and

FDI projects in Nigeria. Since the population obtained from the preliminary survey

conducted to determine total respondents that have been involved in FDI and FDI projects

was less than 200, a census of the preliminary survey populations was adopted as the sample

size of the study. Table 3.1 shows sample size for the category of respondents derived from

the preliminary survey of those respondents that have been involved in FDI and FDI projects

in Nigeria.

Table 3.1: Sample size for the category of Respondents .

35
S/Nos Respondent Lagos Abuja Total

1. Quantity Surveyors 12 15 27

2. Architects 10 14 24

3. Structural Engineers 23 29 52

4. Professional Builders 10 11 22

5. Contractors 23 12 35

6. Clients including government agencies 13 22 35

Total 91 103 194

3.4 Sampling Techniques

Aje, (2008) opined that the process of sampling or the selection of part of the population,

from which the characteristics of the larger population can be inferred, has long been

accepted as a legitimate and expeditious method of research. The study adopted judgment

sampling techniques. In choosing this type of non-probability sampling method, the

researcher was guided by what the study considers typical cases which are most likely to

provide the researcher with the requisite data or information. When a researcher chooses his

sample size under this condition, he is said to be involved in judgment sampling (Asika,

2006). This sampling design was adopted because prior to data collection for the study, a

preliminary survey was carried out by the researcher to determine respondents within the

study population that have been involved in FDI and FDI projects in Nigeria.

3.5 Data Collection Instrument

Asika (2006) opined that there were four major headings under which methods were open to

a researcher for data collection namely: opinion research, empirical research, archival

research and analytical research. It has been suggested that in a research of this nature, one

should attempt to mix methods to some extent, because it provides more perspective on the

36
phenomena being studied (Gable, 1994). This approach has been used in this study and due

to the quantitative nature of the research; evidence from literature shows that data for the

study have been generated through a combination of closed questionnaire survey to sought

answer to research question no.3 and archival materials to sought answers to research

questions 1 & 2.

However, the archival materials were from Central Bank of Nigeria and National Bureau of

Statistics from 1989 to 2008. This is because as at December, 2010, published Statistical

Bulletin shows that data for 2009 is still reflected as provisional. The closed questionnaire

method was adopted for this study because of its uniqueness in obtaining quantitative data

and considered simple and convenient to the achievement of the targeted number of

respondents for this study (Jobber, 1991). This was however achieved by ensuring that the

number of questionnaire administered in each of the study area equals the total number

indicated against each category of respondents; in order to achieve objective no. 3.

3.6 Design and Contents of the Questionnaire

Asika (2006) proposes five issues worthy of consideration when designing a questionnaire

which are: define objectives, coverage, sampling method, probability of non-response and

wording of the questionnaire. These issues have been duly considered in the design of the

questionnaire for this study. The author also cautioned about questionnaire length. According

to him, the temptation with investigators is to attempt to cover too much and ask questions on

everything that might turn out to be uninteresting.

Fellows and Liu (1997) also opined that a high response rate could be attained if the

respondents are knowledgeable about the issues covered by the survey. In this study, which is

addressing the impact of foreign direct investment on the construction sector in Nigeria;

although this study is not endemic in the Nigerian construction industry, the study prior to

37
data collection via questionnaire for the study, a preliminary survey was carried out by the

researcher to determine respondents within the study population that have been involved in

FDI and FDI projects in Nigeria. Based on this, the respondents are knowledgeable, well

placed and are able to supply the information needed.

Basically, the questionnaire was into two sections. Section A was on background or general

information about the respondents. These include the respondents designation, construction

experience, academic and professional qualifications, number of projects handled, location of

the organization and type of organization. While the other section address the main issues of

the study. A sample of the questionnaire is shown in appendix A.

3.7 Piloting the Questionnaire

Pre-testing of the questionnaire should be carried out and that it should include different

groups, such as colleagues and potential users of the data (Dillman, 1978). Therefore, the

initial draft of the questionnaire was presented to the researchers supervisor and later

pretested within Abuja; the data were then analyzed based on the proposed tool for data

analysis. The input and result generated from the data were used to refine the questionnaire

before the wide survey was carried out.

3.8 Administration of the Questionnaire and Data Collection

The questionnaire were administered in Lagos and Abuja by the researcher himself with the

assistance of two research assistants in each of the study area, Higher National Diploma final

year students of the Department of Quantity Surveying, Auchi Polytechnic, Edo State and

professional colleagues based in Abuja and Lagos. Out of the 194 questionnaires

administered, 155 were returned. The returned questionnaire represents a response rate of

38
79.90% which is far above the typical of the norm of 20-30% response rate in questionnaire

survey of the construction industry (Fellow & Liu, 1997 and Akintoye & Fitzgerald, 2000).

This was achieved as a result of the preliminary survey carried out by the researcher prior to

data collection, to determine respondents within the study population that have been involved

in FDI and FDI projects in Nigeria.

3.9 Validity and Reliability of the Research Instruments

According to Gujarati (2003), for an instrument to have valid measurement, it must measure

the variable that it aims to measure and another attribute that may have very similar

characteristics. A reliable instrument on the other hand is one that has consistent

measurement, thus it measures the same thing, the same way each time the instrument is

used. Validity of a measuring instrument according to Trochim (2002) could be ensured by

piloting of questionnaire before being administered to respondents in a real survey. The

piloting of questionnaire earlier reported ensured the validity of the research instrument used

in this study. However, Shaib (2007a) opined that Cronbachs Alpha is one of the most

commonly used reliability coefficients. According to him, alpha is based on the internal

consistency of a test. Cronbachs can be computed using the following formula:

__ _
= . Kcov/var . 3.1
. 1 + (k 1)cov/var
_ _
Where k is the number in the scale, cov is the average covariance between items, and var is

the average variance of the items. If the items are standardized to have the same variance, the

formula can be simplified to;

_
= . Kr 3.2
. 1 + (k 1)r

39
 _
Where r is the average correlation between items.

Using the Statistical Package for Social Science (SPSS) software, the Cronbachs was

computed to test the reliability of the 5-point Likert scale as well as the archival data used for

this study. The results obtained for the different measuring scales used are shown in Table

3.2.

Table 3.2: Reliability Coefficients for the Measuring Scales .

Scale of Measure Cronbachs

Factors responsible for low investment from FDI to construction sector 0.654

Impact of low flow of FDI on construction sector 0.867

Major determinants of FDI 0.601

Types of FDI 0.274

Benefits of FDI 0.769

Hindrances to inflow of FDI to construction sector 0.876

Archival Data 0.779

From the result in Table 3.2, it is observable that the Cronbachs value for scale of

measures of the research instruments ranged from 0.601 to 0.876. Since the degree of

reliability of the instruments are more perfect as they tend towards 1.00 (Shaib, 2007b). It

can then be concluded that the instruments used for this research are significantly reliable.

However, the Cronbachs value of 0.274 relating to the identification of types of FDI in

Nigeria is low, signifying that the measuring scale for this aspect of the research instrument is

not reliable. The fact that most respondents find it difficult in identification of the different

types of FDI might have contributed to the non-reliability of this scale of measure.

3.10 Method of Data Presentation and Analysis

40
The data were presented in tabulated format. Data analysis could be defined as the process of

using more than analytical techniques to facilitate the ease of communicating the results

while at the same time improving its validity (Umeh, 1977 and Ebhotemhen, 1997). Based on

this assertion therefore, five methods of data analysis were employed for this research. First,

the aspects of the questionnaire relating to the background of respondents were analyzed

using tables and percentiles. Second, the evaluation of the benefits, impacts of low flow of

FDI on construction sector, factors responsible for low inflow of FDI to construction sector

and challenges of inflow of foreign direct investment in the construction sector in Nigeria

were carried out using Mean Score method as adopted by (Ogunsemi, 2002) and analysis of

variance (ANOVA) as adopted by (Aje, 2008).

Third, the impact of FDI on construction sector was established with the aid of regression

analysis. While the archival data collected from National Bureau of Statistics (Annual

Abstract of Statistics) and Central Bank of Nigeria (Statistical Bulletin Vol. 16) between a

span of 1989 2008 were analyzed electronically with the use of statistical software

(Microsoft excel and SPSS Version 16.0). This is because as at December, 2010, published

Statistical Bulletin shows that data for 2009 is still reflected as provisional. The Microsoft

excel conducted the trend analysis and charts while the SPSS Version 16.0 performed both

the descriptive and analytical statistics through analysis of variance (ANOVA), to test the

research hypotheses at 0.05 level of significance. Moreover, Duncan Multiple Range Test of

the Post Hoc Analysis was used to compute and arrange mean foreign investment to the

various sectors. Also, statistical software GRETL VERSION 9.1.1 was employed to perform

the Granger Test. The reliability of the research data was conducted descriptively via SPSS

Version 16.0 to determine the coefficient of the reliability of the data.

3.10.1 Analysis of Variance (ANOVA)

41
Analysis of variance is used to test the significance of differences among more than two

sample means (Fellows & Liu, 1997).

HO: 1 = 2 = ..= n

HI: 1 2 .. n

The method assumes that each sample is drawn from a normal population; each population

has the same variance.

F = between groups estimated variance

within groups estimated variance

_
Sample variance: S = (n - n)2 3.3
2

n-1

Variance among sample means:

_ _
S 2 = (n - _n)2 .3.4
n K-1

Where n is the ground mean (i.e. the arithmetic mean of all the values of the samples)

K is the number of samples

As the standard error of the mean, o, is o /n, Levin and Rubin (1990) showed that the first

estimate of the population variance, between groups variance is:

o2 = nj (nj - _n)2 ..3.5

K-1

nj = the number of items in j.

The within group variance:

Sample variance, S2 = n (n - _n)2 ..3.6

n-1

The second estimate of the population variance, the within group variances, is

o2 = (nj - 1)2 Sj2.3.7

42
 (nT-K)

Where nT = nj

As F 1, the likelihood that Ho is valid increases; as the value of F increases, the

likelihood of HO being valid decreases.

Degree of freedom in the numerator: (K 1)

Degree of freedom in the denominator: (nT 1)

Using tables of the F-distributions and the appropriate degrees of freedom; if F cal < Ftab, the

null hypothesis should not be rejected. To be valid, the F test can be applied to large samples

only, n > 100 (Shaib, 2007a).

Statistical Package for Social Science (SPSS) Version 16.0, was employed in the analysis of

variance (ANOVA). In addition to the F-Statistics produced, the software also produces the

level of significance (P-Values). This enabled the statistical significant in the scales of

measure to be determined at 5% significance level. According to Yamane (1967), for

ANOVA F Test to be valid, it can be applied to large samples only, n > 100. However,

Jobber (1991) argued that the low response to answers in the construction industry might

make large samples in construction industry unrealistic. Akintoye and Fitzgerald (2000)

successfully applied the technique to analyze data from 84 respondents. As such the

technique was also employed in this study.

3.10.2 Regression Models

Yamane (1967) defined regression analysis as a technique that finds a formula or

mathematical model which best described a set of data collected. It may also be said to be a

technique that will formulate a mathematical model which best describes the data collected.

While simple linear regression models quantify the relationship between two variables, one

shall be dependent while the other is independent variable(s). The factor whose value is

being estimated (e.g. aggregate score) is referred to as the dependent variable and is denoted

43
by Y (construction sector), the factor from which these estimate is made is called the

independent variable and is denoted by X (foreign direct investment).

3.10.3 Granger Test

A question that frequently arises in time series analysis is whether or not one economic

variable can help forecast another economic variable. For instance, it has been well

documented that nearly all of the developed nations, there is boost in construction sector as a

result of large increases in the inflow of foreign direct investment (FDI) (Wkipedia, 2007).

Does this imply that FDI cause construction activities or construction activities cause FDI or

both? One way to address this question was proposed by Granger (1969) and popularized by

Sims (1972). Testing causality in the Granger sense involves using F-Tests to test whether

lagged information on a variable Y provides any statistically significant information about a

variable X in the presence of lagged X. If not, then Y does not Granger-Cause X (Eviews

Users Guide, 1994-1997).

The data obtained from Table 2.2 were inputted into the computer spreadsheet. Gretl Version

9.1.1 was the statistical software employed to achieve the desired results with the following

econometric techniques:

(i) Test for Stationary (Unit Root Test):- This is the first procedure to test for unit

root or to check if the data are stationary. A series is said to be stationary if it

displays the tendency of returning to its mean value and fluctuates around it

within a more-or-less constant range i.e. it has a finite variance (Harris, 1995).

This step is very important because if non-stationary variables are not identified

and used in the model, it will lead to a problem of spurious regression, whereby

the results suggest that there are statistical relationships between the variables in

the regression model when in fact all that is evident of contemporaneous

44
 correlation rather than meaningful causal relations (Granger & Newbold, 1995).

The number of times the data have to be differenced to become stationary is in the

order of integration. If a series is differenced d times to become stationary, it is

said to be integrated of order (d). Several tests are available for testing the order

of integration. The study adopted the most common procedures of Dickey Fuller

(DF) and Augumented Dickey Fuller (ADF) (Gujarati, 2003).

For theoretical and practical reasons, the Dickey-Fuller test is applied to regressions run in

the following forms:

Yt = 1 + Yt 1 + Ut ..3.8 .

Yt = 1 + 2t + Yt 1 + Ut ......3.9

If the error term Ut is autocorrelated, one modifies (equation 3.9) as follows:

m
Yt = 1 + 2t + Yt 1 + ii =1 Yt i + t ..3.10

The number of lagged difference terms to include is often determined empirically, the idea

being to include enough terms so that the error term in (equation 3.9) is serially independent.

The null hypothesis is still that = 0 or P = 1, that is, a unit root exists in Y (i.e., Y is non-

stationary). When the DF test is applied to models like (equation 3.9), it is called

Augumented Dickey Fuller (ADF) test. The ADF test statistics has the same asymptotic

distribution as the DF statistic, so the same critical values can be used.

(ii) Test for Cointegration: The new cointegration technique is a breakthrough in the

field of econometrics, and it changes the way that analysts handle and model time

series data. Johansen Cointegration test is normally conducted to check if there

was a long-run equilibrium relationship between these variables. If cointegration

existed, then it could be inferred that there is a long-term equilibrium relationship

between the variables and they all have a common trend. With the establishment

45
 of cointegration, this also ruled out the possibility of a fake relationship between

the variables, and also it suggested that a causal relationship must exist in at least

one direction (Sargan, 1984). Thus, if a series Y is 1(1) and another series X is

also 1(1), they can be cointegrated. In general, if Y is 1(d) and X is also 1(d),

where d is the same value, these two series can be cointegrated.

(iii) Test for Granger Causality:- This is a term for a specific notion of causality in

time-series analysis. A variable X Granger-Causes Y if Y can be better predicted

using the history of Y alone. Conceptually, the idea has several components:

- Temporality: only past values of X can cause Y.

- Exogeneity: Sims (1972) points out that a necessary condition for X to be

exogenous of Y is that X fails to Granger-Cause Y.

- Independence: similarly, variables X and Y are only independent if both fail

to Granger-Cause the other.

Sargan (1984) discusses two sets of tests for determining Granger Causality. There are

ARIMA Models/Cross Correlation and the Direct Granger Method. For the purpose of this

study, the Direct Granger Method was adopted. This involves regressing each variable on

lagged values of itself and the other. The Granger Causality test performs pair-wise causality

tests between (all possible) pairs of the listed series or a group of series. If cointegration

exists between the two variables, i.e. they exhibit a long run equilibrium relationship, if they

share a common trend; causality (in the Granger sense, not in the structural sense) must exist

in at least one direction, either unidirectional or bi-directional (Granger & Newbold, 1995).

With the establishment of cointegration, this also ruled out the possibility of a spurious

relationship between the variables, and also it suggested that a causal relationship must exist

in at least one direction. The hypotheses are normally rejected at 10%, 5% and 1% levels.

However, TSP, SHAZAM, and several other softwares now publish these critical values.

46
 CHAPTER FOUR

RESULTS AND DISCUSSION

This chapter presents the result and analysis of the data collected from Central Bank of

Nigeria (Statistical Bulletin Vol. 16) and National Bureau of Statistic (Annual Abstract of

Statistics), analyzed through the various tests earlier explained in the previous chapter. It also

presents the data obtained via the questionnaire administered in order to achieve the aim of

47
the research from which findings about the study will be drawn. The hypotheses stated earlier

in chapter one were tested using appropriate statistical tools with a view to accepting or

rejecting them. Also, the results of other findings were reported in this chapter.

4.1 Data Presentation and Analysis

The presentation of data and analysis follows the order of arrangement of the objectives in

chapter one.

4.1.1 Objective 1: To assess the flow of foreign direct investment into construction sector

in Nigeria. Table 4.1 and 4.2, both from the analysis of extract from (Table 2.1 and 2.2

respectively) sourced from Central Bank of Nigeria (CBN) Statistical Bulletin Vol. 16 and

National Bureau of Statistic (NBS) (Annual Abstract of Statistics), and Figure 4.1, 4.2 and

4.3 addresses this objective.

Table 4.1: Sectoral Analysis of FDI (-N- Million) in Nigeria, 1989 2008.
Sectors N Minimum Maximum Mean
Manufacturing and Processing 20 5,406.4 229,764.6 63,868.9

Mining and Quarrying 20 -810.0 140,497.1 56,011.0

Agric, Forestry and Fishing 20 134.8 1,397.2 1,044.9

Transport and Communication 20 158.2 11,383.3 2,587.2

Building and Construction 20 71.2 12,702.5 4,129.6

Trading and Business Services 20 1,452.2 50,194.9 13,974.3

Miscellaneous 20 -23.7 140,370.1 44,873.7

N= Nos. of years span

48
Table 4.2: Duncan Multiple Range Test.
Sectors N Mean (-N- Million)
Manufacturing and Processing 20 63,868.9

Mining and Quarrying 20 56,011.0

Miscellaneous 20 44,873.7

Trading and Business Services 20 13,974.3

Building and Construction 20 4,129.6

Transport and Communication 20 2,587.2

Agric, Forestry and Fishing 20 1,044.9

N= Nos. of years span

Table 4.1 and 4.2 indicates that the manufacturing and processing sector is the most highly

favoured by the net flow of foreign investment. The minimum foreign investment of FDI to

the manufacturing sector is N5,406.4, the maximum is N229,764.6 and the mean is

N63,868.9, all in million naira. This result is in conformity with Fabayo (2003) that the

manufacturing sector attracts more FDI than other sectors of the economy. The minimum

foreign investment of FDI to the mining and quarrying sector is N-810.0, the maximum is

N140,497.1 and the mean is N56,011.0, all in million naira. These statistics place the mining

sector as the second highest beneficiary of the FDI within the period under review. Similarly,

agricultural sector got the least average of FDI followed by the construction sector, while the

manufacturing and processing sector topped the table among the sectors as shown in Table

4.1 and 4.2 respectively. In other words, construction sector is the third least preferred of the

sectors within the years under review. The investments in these sectors: manufacturing and

processing, mining and quarrying, and miscellaneous are significantly greater than that of the

construction sector. The investment in trading and business services is also greater than that

of the construction sector but insignificantly. The minimum foreign investment of FDI to

49
construction sector is N71.2, the maximum is N12,702.5 and the mean is N4,129.6, all in

million naira. Although, the investment in construction sector is greater than that of the

transport and communication and agriculture sector, but insignificant to them respectively.

Fig 4.1: FDI inflow to the economy from 1989 to 2008.

Figure 4.1 reveals a sharp increase of the graph from 1999 to date. This is an indication that

political stability is a major factor that determines the inflow of FDI in Nigeria. What this

implied is that if the political atmosphere is sustained, there is high probability that FDI

50
inflow multiplier effect would increase more than expected in the economy. Therefore, the

stability of increase flow of FDI actually started 1999 to 2008.

FDI (-N-MILLIONS)

Figure 4.2: FDI inflow into the construction sector.

Figure 4.2 reveals a high increase of foreign direct investment into the construction sector

from 1999 to date. Even at that, the degree or rate of increase is not encouraging knowing

full well that for there to be presence of investors, there should be evidence of infrastructural

facilities which cannot be provided only by the government savings. This can be appreciated

better if one compares what goes into this sector (construction) and other sectors like

manufacturing, mining and miscellaneous sectors respectively. Although, from Figure 4.1

and 4.2, there seem to be a relationship because of the shape of both graphs. The implication

51
of this is that, an increase inflow of FDI into the Nigerian economy would also lead to

increase in the flow of FDI into the Nigerian construction sector directly or indirectly.

FDI (-N-MILLIONS)

Figure 4.3: FDI Inflow into Major Sectors of the Economy.

Figure 4.3 reveals that basically three major sectors: manufacturing & processing, mining &

quarrying and miscellaneous sectors have a significant smooth inflow. This is not in favour

of construction sector as shown in Figure 4.3. For example, in 2005 mining sector received

N80,789.4, manufacturing sector received N133,894.5 while construction sector received

N6,713.38 all in million naira. Also, in 2008 mining sector received N140,497.1,

manufacturing sector received N229,764.6 while construction sector received N12,702.5 all

in million naira also. From these two analyses, it is clear that FDI inflow into the

52
construction sector is poor taking into consideration the uniqueness of the sector to other

sectors of the economy. This therefore agrees with Aboyade (2007) and Baker (2008) that

there are challenges responsible for the low inflow of foreign direct investment in the

Nigerian economy such as: lack of policy framework, bribery and corruption, militancy, etc..

4.1.2 Objective 2: To assess the effect of foreign direct investment on construction sector

in Nigeria. Table 2.2 addresses this objective through Granger Test.

Granger Test

This section analyzed the data collected from Central Bank of Nigeria (Statistical Bulletin

Vol. 16) and National Bureau of Statistic (Annual Abstract of Statistics), with a view of

assessing the effect of FDI on construction sector in Nigeria through the various stages of

Granger Tests earlier explained in chapter three in order to achieve objective 2 of the research

from which findings about the study will be drawn. The statistical software GRETL

VERSION 9.1.1 was employed to analyze the data from Table 2.2. In order to achieve the

Granger Test, the following tests were conducted:

Step I: Testing for a unit root in construction sector

Interpretation:

At lag2 and lag 4, for T = 20 (span of time), the unit root in construction sector shows the
trend

(1-L) y = b0 + bl * t + (a-1) * y (-1) + . + e

For the e = -0.046, which indicates very insignificant noise (random occurrence), strike and

other economic factors affecting foreign direct investment (FDI) into construction.

Also, (a 1) : -0.175783, which shows that the unit root co-integration of construction via

FDI inflow is accepted as P-Value of 0.0015 and 0.0008, which means it is significant in the

53
construction sector, at lag 2 and lag 4 respectively in their level form. This indicates that the

data were stationary at level.

Step 2: Testing for a unit root in foreign direct investment (FDI).

Interpretation:

At lag2 and lag 4, for T = 20 (span of time), the unit root in FDI shows the trend
(1-L)y = b0 + bl * t + (a-1) * y (-1) + .+ e

For the e = -0.002, which indicates very insignificant noise (random occurrence), strike and

other economic factors affecting construction sector into FDI.

Also, (a 1): -0.106394, which shows that the unit root co-integration of FDI via

construction sector is accepted as P-Value of 0.0019 and 0.0010, which means it is significant

in the FDI, at lag 2 and lag 4 respectively in their level form. This indicates that the data were

stationary at level.

Step 3: Cointegrating regression trend analysis

Cointegrating regression OLS, using observations 1989-2008 (T = 20)

Dependent variable: Construction sector.

Interpretation:

Construction inflow = 0 + 1 FDIinflow + e

Construction = -254.524 + 0.04012 FDIinflow

SE () (673.338) (0.00912)

t-test (-0.3780) (4.397)

P-value (0.7101) (0.0004)***

R-Squared = 0.901085 DW-test = 1.212.

R2 = is the co-efficient of variability of model analysis which helps to determine the level of

accuracy of analysis. Therefore, the co-integration regression analysis is given as 0.9011

54
which implies, the FDI inflows explained 90.1% construction sector while 9.9% is

unexplainable in FDI inflow as a result of random error. It established that the model is good.

This model will be used in establishing the relationship, significance of variables and for

prediction. From the co-integration regression analysis, FDI inflow into construction

indicates a significant relationship at 5%. The co-integration regression Durbin Watson Test

is used to test whether construction sector and FDI inflows are co-integrated. The DW Test

value is 1.2127, which is greater than the Dtab value (0.5112) constant from Sargan (1984),

this shows that the study do not reject unit root hypothesis for individual variable. Then,

there is high presence of co-integration, thus reinforcing the finding on the basis of the

Granger Test.

Step 4: Test for Granger Causality

Table 4.3: Summary of Granger Causality Test

Direction of F Statistics P F Statistics P
causality
In Level form 2-Lags 4-Lags

FDIConst 12.9* 0.0019 8.92* 0.0010

Const.FDI 11.52* 0.0015 5.90* 0.0008

In 1st Differences

FDIConst 10.79** 0.025 5.40* 0.009

Const.FDI 9.98** 0.022 4.90** 0.028

Note: FDI stand for foreign direct investment, Const. stand for construction sector while *, ** and *** denote the rejection of the null
hypothesis of unit roots at 10%, 5% and 1% significance levels respectively. Also, the null hypothesis of no causality is rejected if the
F Statistic exceeds the critical values, or if P is less than 0.1. * and ** indicate respectively that Granger-Causality is significant at
the 0.01 and 0.05 levels; that is 10% and 5% respectively.

Table 4.3 shows the summary of the Granger Causality Tests results of the study. However,

from this Granger causality tests results, the regression was run twice by setting lag = 2 and

4. For comparisons, the causality tests were carried out in level form and then in first

differences of the data. Therefore, according to Granger sense, it is evident from Table 4.3 in

the level form, that FDI cause construction sector at second and fourth lag at 10%
55
respectively while construction sector cause FDI at second and fourth lag at 10%

respectively. Also, in their first differences, FDI cause construction sector at second lag at 5%

and fourth lag at 10%, while construction sector cause FDI at second and fourth lag at 5%

respectively.

The results suggest that FDI is Granger causing the construction sector as well as

construction sector is Granger causing FDI (BI-DIRECTIONAL). The detailed print out of

this Granger Test is shown in appendix B. The fact that FDI Granger-Cause construction

sector goes to show that FDI is an important prerequisite and catalyst for sustainable growth

and development as opined by Yakub (2005). Similarly, the fact that construction sector

Granger-cause FDI goes also to show that the level of infrastructural facilities available on

ground is also a prerequisite for attractiveness of foreign investors as opined by Todero

(2001), Anyanwu (2004) and Adelegan (2008).

4.1.3 Objective 3: To identify and assess the challenges facing the inflow of foreign direct

investment into construction sector in Nigeria. Objective no.3 was dealt with via the

questionnaire survey. This is presented below:

Background Information

Table 4.4 shows the summary of the background information of respondents. It is observable

from Table 4.4 that 44.50% of the respondents have post graduate qualifications while about

55.5% have minimum of higher national diploma in their various fields of study. Also, about

12.9% of the respondents are fellows and registered members of their respective professional

bodies. While 80.0% of them are also corporate and registered members of their professional

bodies and 7.1% are probationer members of their professional bodies. In-addition, the

56
respondents have an average of about 16.66 years experience in the construction industry and

respondents cut across stakeholders to the study area.

Table 4.4: Summary of Background Information on Respondents.

. .

Category Classification Nos %

Academic Qualification HND 16 10.3

B.Sc./B.Tech./PGD 70 45.2

M.Sc./M.Tech. 64 41.3

Ph.D. 5 3.2

Professional Qualification Probationer Member 11 7.1

Corporate/Registered Member 124 80.0

Fellow/Registered Member 20 12.9

Construction Experience 1 10 22 14.2

(In Years) 11 20 99 63.9

21 30 28 18.1

31 40 6 3.8

Mean 16.66

Location Lagos 95 61.3

Abuja 60 38.7

Organization Private Client (Corporate Organ.) 39 25.2

Public Client (Govts MDAs) 20 12.9

Contracting Firm 18 11.6

Consulting Firm 55 35.5

Nig. Investment Promotion Council 10 6.5

57
 Central Bank of Nigeria 8 5.1

National Bureau of Statistics 5 3.2

Preliminary Investigation

Explicitly, the results of the analysis on the following are presented in this section: (i)

Benefits of FDI in construction sector. (ii) Types of FDI in Nigeria. (iii) Determinants of FDI.

(iv) Result of lack of inflow of FDI. (v) Hindrances facing flow of FDI in the Nigerian

construction sector.

Table 4.5: Level of involvement in FDI and FDI projects.

Involved in FDI projects Nos. of Respondents Percentage (%)

Yes 155 100

No - -

Total 155 100

Table 4.5 shows a confirmation that a preliminary survey was conducted as reported earlier

in order to have a reliable data, only respondents that have been directly or indirectly

involved in FDI and FDI projects were administered questionnaire. It is then obvious that the

data provided by the respondents can be relied upon for the purpose of analysis. This is

because the respondents are knowledgeable enough in the subject matter.

Table 4.6: Utilization Level of the Enabling Laws in Enhancement of FDI Inflows into
Construction Sector in Nigeria.

Level of utilization Nos. of Respondents Percentage (%)

High 3 1.9

Above average 7 4.5

58
Average 15 9.7

Below average 90 58.1

Low 40 25.8

Total 155 100

Table 4.6 shows that 83.9% of the respondents indicated below average of level of utilization

of enabling laws in enhancement of FDI inflows to construction sector. Some of the

respondents from one of the agencies in-charge argued that they lack proper funding to carry

out their statutory duties. This also agrees with Jerome and Ogunkola (2004) that although

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, just to mention a few) and institutional uncertainty, as well as the rule

of law.

Table 4.7: MDAs Role in Inflow of FDI to the Construction Sector in Nigeria.

MDAs Role Nos. of Respondents Percentage (%)

High - -

Above average 2 1.3

Average 13 8.4

Below average 45 29.0

Low 95 61.3

Total 155 100

Table 4.7 reveals that 90.3% of the respondents indicated below average of the roles of

ministries, departments and agencies (MDAs) of the Federal Government in encouraging

inflow of FDI to the construction sector. The study reveals that some of these agencies do not

even know their role in enhancing the inflow of FDI to construction sector. Instead, their

interest is on other sectors. Others were of the opinion that low funding of their agency have

stalled them from performing their constitutional role effectively.

59
Table 4.8: Respondents Ranking of the Major Factors Responsible for low Investment
from FDI to Construction Sector in Nigeria.
Factors Clients Consultants Contractors Others Overall

Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank

Low presence of infrastructural development 4.39 1 4.59 1 4.32 1 4.44 1 4.41 1

Longer time of return 4.39 1 4.59 1 4.32 1 3.17 6 4.12 2

High level of corruption in the sector 3.95 4 4.59 1 3.35 3 4.23 2 4.03 3

Lack of DUE PROCESS 3.86 5 3.60 6 3.25 4 3.95 3 3.67 4

Lack of managerial capability 4.25 3 4.23 4 2.23 6 3.65 5 3.59 5

Lack of technical capability 3.86 5 3.85 5 2.57 5 3.84 4 3.53 6

Table 4.8 indicates that on the average, low presence of infrastructural development in the

country was ranked first as the most important factor that is responsible for low investment

from FDI to construction sector. Moreover, it shows that longer time of return, high level of

corruption in the sector and lack of DUE PROCESS in Nigeria were other important factors

responsible for the low investment in this sector. Lack of managerial capability and lack of

technical capability were slightly of importance. It shows that the P-Value is 0.027 i.e. it is

significant at 0.05 level as evident from the table, while the fcal = 3.699. This is an indication

that low presence of infrastructural development and longer time of return might have

discouraged investors from investing in this sector. This analysis agrees with Adelegan

(2008), that developing countries need to have reached a certain level of development in

60
education, technology, infrastructure and health before being able to benefit from a foreign

presence in their markets.

Table 4.9: Impact of low Inflow of FDI on Construction Sector in Nigeria.

Identified Impacts Clients Consultants Contractors Others Overall

Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank

Low contribu. of public investmt. to GDP 4.10 2 4.40 1 3.80 4 4.34 3 4.16 1

Low presence of infrastructural development 4.39 1 4.39 2 3.60 5 4.20 4 4.15 2

Lack of technological innovation 3.70 5 4.20 3 4.50 1 4.38 2 4.12 3

Low enterprise development 4.05 3 3.95 4 4.40 2 3.80 5 4.05 4

Lack of accelerated commercialization 3.90 4 3.50 6 3.90 3 3.20 6 3.63 5

Discourage trade and investment 3.13 6 3.70 5 3.20 6 4.49 1 3.63 5

Table 4.9 presents the ranking of the identified impacts of low flow of FDI on construction

sector in Nigeria from the respondents view points. The analysis reveals that low contribution

of public investment to GDP growth, low presence of infrastructural development, lack of

technological innovation and low enterprise development are the most significant impacts of

low flow of FDI on construction sector. While discourage trade and investment and lack

accelerated commercialization as the least impacts.

The study recognised that these impacts are not good for a country like Nigeria that is trying

to become among the best 20 countries in the year 2020. These identified impacts touch on

all facet of the economy which also agrees with Adelegan (2008). Therefore, there is need to

acknowledge that infrastructural facilities is the pillar of economy growth (Orji, 2004). It is

widely acknowledged that FDI inflow to construction sector is an important aspect of the

61
recent wave of globalization, therefore, an important driver of economic performance, as it is

expected to improve directly industrial productivity growth by infusing new capital,

technologies and managerial know-how, and by improving the average skills and efficiency

levels of the construction industry (Fleshman, 2009). However, MDAs ranked discouraged

trade and investment as the first impact while contractors ranked lack of technological

innovation as their first impacts. This is a slight deviation from clients and consultants as

evident from Table 4.9.

Table 4.10: Major Determinants of FDI in Nigeria.

Identified determinants of FDI Clients Consultants Contractors Others Overall

Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank

Indigenization policy 4.50 2 4.60 1 4.55 2 4.40 1 4.51 1

Change in openness of the economy 4.55 1 4.30 2 4.60 1 4.30 2 4.21 2

Change of domestic investment 3.70 4 3.80 4 3.90 3 3.70 3 3.78 3

Change in domestic output or market size 3.80 3 4.00 3 3.70 4 3.60 4 3.78 3

Table 4.10 presents that the ranking by the clients and contractors deviated slightly from

that given by consultants and others. While change in openness of the economy and

indigenization policy was ranked first and second by the clients and contractors with a mean

score of 4.55 and 4.50 respectively. Consultants and others ranked indigenization policy and

change in openness of the economy as first and second with a mean score of 4.60 and 4.30

respectively. On the average, indigenization policy was ranked first, followed by change in

openness of the economy while change in domestic output or market size and change of

domestic investment as the last.

Also, it reveals that the P-Value is 0.000 i.e. it is significant while the F cal is 47.310. This is an

indication that all the identified determinants of FDI are significant to the study as shown on

Table 4.10. This also agrees with Anyanwn (2004). He further noted that the abrogation of

62
the indigenization policy in 1995 encouraged FDI inflow into Nigeria and that effort should

be made to raise the nations economic growth so as to be able to attract more FDI.

Table 4.11: Types of Foreign Direct Investment (FDI) in Nigeria.

Types of FDI Clients Consultants Contractors Others Overall

Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank

Wholly foreign owned 3.42 1 3.35 1 3.35 1 3.59 1 3.43 1

Joint venture 3.13 2 3.30 2 3.15 2 3.02 2 3.15 2

Special contract arrangement 3.10 3 3.00 3 2.80 3 2.80 3 2.93 3

Technology mgt & marketing arrangement 2.53 4 2.90 4 2.50 5 2.59 5 2.63 4

Subcontract co-production & specialization 2.45 5 2.70 5 2.70 4 2.60 4 2.61 5

Table 4.11 reveals that the clients, consultants, contractors and others agreed that wholly

foreign owned is first in ranking followed by joint venture and special contract arrangement,

with an average mean score of 3.43, 3.15 and 2.93 respectively. However, there were

management arrangements and subcontract co-production and specialization because these

two last types are not frequently used in this part of the world. Table 4.11 shows that the f cal =

164.018 while the P-Value is 0.000 i.e. it is significant at 0.005 as shown on Table 11. These

identified types of FDI are in agreement with Aremu (2003) when the author categorized the

various types of FDI in Nigeria but with emphasis on the first two, which are mostly used.

Table 4.12: Respondents Ranking of the Benefits of FDI.

Identified benefits Clients Consultants Contractors Others Overall

Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank

Infrastructural development 4.50 1 4.60 1 4.50 1 4.60 1 4.55 1

Trade & investmt. increasingly recognised 4.45 2 4.55 2 4.35 2 4.50 2 4.46 2

63
Technological transfers 4.30 3 4.40 3 4.30 3 3.80 5 4.20 3

Enterprise development 4.21 4 4.31 4 3.95 4 4.20 3 4.17 4

Encouraged positive competition 3.80 5 3.90 5 3.60 5 4.01 4 3.83 5

Table 4.12 reveals that on the average, infrastructural development was ranked as the first

benefit of FDI. Also, trade and investment are increasingly recognized, technological

transfers and enterprise development were other important benefits of FDI. Encouraged

positive competition was slightly of importance. This Table 4.12 shows that the role of

foreign capital inflows as investment mechanism for economic growth and a strong indicator

of the economic strengths of nations cannot be over-emphasised based on the identified

benefits of FDI. It also reveals that the f cal =12.973 while the P-Value is 0.000 i.e. it is

significant at 0.05 as shown on the table above. This analysis agrees with OCED (2002),

Omagbeme (2010) and Yakub (2005) that identified some of the major benefits of FDI in

their various research conducted; which were similar to the ones identified in this study.

Table 4.13: Identified Hindrances to Inflow of FDI to Construction Sector in Nigeria.

Identified hindrances facing FDI Clients Consultants Contractors Others Overall

Mean Rank Mean Rank Mean Rank Mean Rank Mean Rank

Lack of policy framework 4.20 1 4.30 1 4.30 3 4.40 3 4.30 1

Lack of security and terrorism attack 3.70 3 4.30 1 4.50 1 4.60 1 4.28 2

Militancy and youth restiveness 4.00 2 3.70 3 4.30 3 4.60 1 4.15 3

Political and economic instability 3.50 4 3.70 3 3.80 5 4.30 4 3.83 4

Global risks 3.50 4 3.20 7 4.35 2 4.20 5 3.81 5

Lack of infrastructure 3.30 6 3.50 5 3.40 6 3.35 6 3.39 6

Bribery and corruption 3.01 7 3.40 6 3.20 7 3.00 7 3.15 7

Obsolete Land Use Act 3.00 8 3.00 8 2.10 10 2.01 11 2.53 8

Absence of market 2.50 10 2.30 11 2.60 8 2.55 8 2.49 9

Discrimination practices 2.70 9 2.60 9 2.30 9 2.30 9 2.48 10

Non-availability of natural resources 2.50 10 2.50 10 2.00 11 2.10 10 2.28 11

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Table 4.13 reveals that the identified hindrances to inflow of FDI to construction sector in

Nigeria. It shows that on the overall mean score, lack of policy framework with mean score

of 4.30 was ranked first as the most important factor that influenced the inflow of FDI to

construction sector in Nigeria. Moreover, it was reveals that lack of security and terrorism

attack with mean score of 4.28, militancy and youth restiveness with mean score of 4.15,

political and economic instability with mean score of 3.83 and global risks (comprising of

political, legal, commercial and environmental risks) with mean score of 3.81 were other

important hindrances identified that influenced the low inflow of FDI to construction sector.

While obsolete Land Use Act (2.53), absence of market (2.49), discrimination practices

(2.48) and non-availability of natural resources (2.28) were slightly of importance.

These identified hindrances in this analysis agree with major hindrances of Fleshman (2009)

and Wakil (2004), when the authors identified the major hindrances facing inflow of FDI in

construction sector in South Africa and challenges facing inflow of FDI to Nigeria economy

respectively. This finding also agreed with the assertion by Baker (2003) and Aboyade (2007)

that lack of policy framework, insecurity of lives, militancy and lack of infrastructure, to

mention a few are basically the hindrances that determine the level of inflow of FDI to the

economy.

Table 4.14: Result of ANOVA of the Identified hindrances to inflow of FDI to

Construction Sector in Nigeria.
Source Sum of squares df Mean Square f Sig.

Parameters of measures 0.098 4 0.025 0.202 0.935

Identified hindrance 24.866 10 2.487 20.478 0.000

Error 3.521 29 0.121

Total 525.008 44

R.Squared = 0.880 (Adjusted R. Squared = 0.822)

65
Table 4.14 shows that the F cal = 20.478 while the P-Value is 0.000, i.e. it is significant at 0.05

as evident from the analysis. This implied that all the parameters of measure are significant to

this study. The need to address these hindrances cannot be over-emphasised because the

construction sector is a potent motivator of the national economy, providing the driving force

necessary for either sustaining a buoyant economy or reviving a depressed one.

4.2 Test of Hypotheses

As earlier stated in chapter one, three major hypotheses were postulated in this study. These

were subsequently tested with the aid of f-test. The statistical level of significance for the

acceptance of each hypothesis where appropriate and was set at 0.05. The decision rule

therefore depends on whether the calculated values of f are greater than or less than the

critical values of f for (n-1) degree of freedom. Thus the null hypothesis (H O) is rejected if fcal

> ftab. Also, the alternate hypothesis (H i) is rejected if fcal < ftab, at a level of significance of

5% (Shaib, 2007a). The detailed computer Statistical Package for Social Science (SPSS)

print-out is shown in appendix B.

4.2.1 Hypothesis One

Null Hypothesis HO: There is no significant flow of foreign direct investment into

construction sector in Nigeria.

Alternate Hypothesis Hi: There is significant flow of foreign direct investment into

construction sector in Nigeria.

In testing this hypothesis, the data obtained in Table 2.2 was subjected to f-test to determine

the f-value and the corresponding p-value as shown in Table 4.15.

66
Table 4.15: Test of Flow of FDI into Construction Sector in Nigeria.

Variables R RS fcal ftab Reject Ho? P-Value

FDI flow 0.781 0.610 13.200 21.91 NO Not Sig > 0.05

and construction sector

RS=Spearmans rank correlation co-efficient, fcal=f-calculated, ftab=f-statistical tables,

P-Value=Probability that rejects the null hypothesis wrongly, Ho=Null hypothesis.

The result of the f-test on hypothesis Nos.1 is as detailed in Table 4.15. It is observable that

R=0.781, meaning there is highly positive correlation between FDI and construction sector,

this indicates 78.1% correlation between variables. Also, R 2=0.610, it reveals an accurate

analysis of FDI inflow and construction sector at 61.0%, and the P-Value is not significant.

This also agrees with the Duncan Multiple Range Test that the Foreign direct investment in

these sectors: manufacturing and processing, mining and quarrying, and miscellaneous were

significantly greater than that of the construction sector.

From the decision rule (Ogbonmwan, 2006):

If fcal < ftab, we accept null hypothesis (HO)

If fcal > ftab, we accept alternate hypothesis (Hi)

Conclusion

Since fcal (13.200) < ftab (21.91), and the P-Value is not significant, hence the null hypothesis

that there is no significant flow of FDI into construction sector in Nigeria is accepted, while

67
the alternate hypothesis that there is significant flow of FDI into construction sector in

Nigeria is rejected.

This result actually agrees with the regression model that was developed in hypothesis 2. In

that regression model, it was established that a unit increase change in the FDI inflow into

construction sector of the economy will bring 3.1% increase in construction sector. This is an

indication that there is actually a poor flow of FDI into construction sector, hence a

confirmation of the fact that other sectors like manufacturing, mining, to mention a few have

higher inflow than the construction sector.

4.2.2 Hypothesis Two

Null Hypothesis HO: There is no significant effect of foreign direct investment on

construction sector in Nigeria.

Alternate Hypothesis Hi: There is significant effect of foreign direct investment on

construction sector in Nigeria.

In testing this hypothesis, the data obtained in Table 2.2 was subjected to f-test to determine

the f-value and the corresponding p-value as shown in Table 4.16.

Table 4.16: Test of Effect of FDI on Construction Sector in Nigeria.

Variables R RS fcal ftab Reject Ho? P-Value

Foreign direct investment (FDI) 0.947 0.896 155.133 8.29 YES Sig<0.05

and construction sector

RS=Spearmans rank correlation co-efficient, fcal=f-calculated, ftab=f-statistical tables,

P-Value=Probability that rejects the null hypothesis wrongly, Ho=Null hypothesis.

68
The result of the f-test on hypothesis No.2 is as detailed in Table 4.16. It is observable that

R=0.947, meaning there is highly positive correlation between FDI and construction sector,

this indicates 94.7% correlation between variables. Also, R 2=0.896, it reveals an accurate

analysis of FDI and construction sector at 89.6%, and the P-Value is 0.000 i.e. it is therefore

significant. This also agrees with the co-integration regression analysis of the Granger Test,

which indicates a significant relationship at 0.05 or 5%.

From the decision rule (Ogbonmwan, 2006):

If fcal < ftab, we accept null hypothesis (HO)

If fcal > ftab, we accept alternate hypothesis (Hi)

Conclusion

Since fcal (155.133) > ftab (8.29), and the P-Value is significant, hence the null hypothesis that

there is no significant effect of FDI on construction sector in Nigeria is rejected, while the

alternate hypothesis that there is significant effect of FDI on construction sector in Nigeria is

accepted.

As fallout from this hypothesis, a regression model was developed. The model would ease

appropriate authority to appreciate the need to encourage investors to invest in the

construction sector of the economy instead of other sectors like: mining, manufacturing, and

miscellaneous sector which is the order of the day. Therefore, the model is based on archival

data relating to inflow of FDI to the construction sector from 1989 2008. The final

regression model for FDI impact on construction sector is thus presented as:

Constructioninflow = 0 + 1 FDI + e Where e =Error

Constructioninflow = -726.998 + 0.0031FDI

69
Interpretation

The model shows a positive relationship, which implies that a change in one variable will

certainly result in correspondent change in the other. The model established the fact that a

unit increase change in the FDI inflow into the construction sector of the economy will bring

about 3.1% increases in construction sector. This is a confirmation of Todero (2001),

describing infrastructural facilities as the pillar of growth in Africa.

This result also agrees with the result in Table 2.2 which also attested to the fact that an

increase in FDI leads to increase on investment in construction sector except for 1991-1992,

1992-1993, 1994-1995 and 1996-1997 (four years out of the twenty years span under

review). Perhaps, high or average flow of FDI should be encouraged in the Nigerian

economy. Also, it suggests that any unit increase in FDI inflow may result in subsequent

increase in construction sector. That is, high or average flow of FDI should be encouraged in

the Nigerian economy.

4.2.3 Hypothesis Three

Null Hypothesis HO: There are no significant challenges facing inflow of foreign direct

investment into the construction sector in Nigeria.

Alternate Hypothesis Hi: There are significant challenges facing inflow of foreign direct

investment into the construction sector in Nigeria.

70
In testing this hypothesis, the data obtained from Table 4.13 was also subjected to f-test to

determine the f-value and the corresponding p-value as shown in Table 4.17.

Table 4.17: Test of Challenges Facing Inflow of Foreign Direct Investment to

Construction Sector in Nigeria.

Variables fcal ftab Reject Ho? P-Value

Hindrances facing inflow 20.478 3.00 YES Sig<0.05

of FDI to construction sector

fcal=f-calculated, ftab=f-statistical tables, P-Value=Probability that rejects the null hypothesis

wrongly, Ho=Null hypothesis.

The result of the f-test on hypothesis No.3 is as detailed in Table 4.17. From Table 4.17, the

observe value of fcal = 20.478, ftab = 3.00, while the P-Value is also significant.

From the decision rule:

If fcal < ftab, we accept null hypothesis (HO)

If fcal > ftab, we accept alternate hypothesis (Hi)

Conclusion

Since fcal (20.478) > ftab (3.00), and the P-Value is significant, hence the null hypothesis that

there are no significant challenges facing inflow of foreign direct investment to construction

sector in Nigeria is rejected, while the alternate hypothesis that there are significant

challenges facing inflow of foreign direct investment to construction sector in Nigeria is

accepted. The test of this hypothesis has however confirmed that a lot of factors have been

71
responsible for the low inflow of FDI to this unique sector (construction) that could catalyze

all other sectors of the economy within a very short time. This result also agrees with the

result of the analysis in Table 4.8 and 4.13 where it was deduced that longer time of return,

lack of security and terrorism attack, militancy and youth restiveness, lack of policy

framework, high level of corruption in the sector, low presence of infrastructural

development, to mention a few, where factors responsible for low investment from FDI to

construction sector in Nigeria. This result agrees with the major findings of Aboyade (2007)

and Baker (2008), in their studies on the topic hindrances to FDI in LDCs.

4.3 Summary of Findings

Based on the analysis carried out and the hypotheses tested in this study, the major findings

of the study are summarized as follows:

The study revealed that construction sector has a poor flow compared to manufacturing and

processing, mining and quarrying and miscellaneous sectors of the economy. This is not good

for a country like Nigeria, knowing full well that the pillar of any economy is the presence of

infrastructural facilities. This sector ought to be the second largest employer of labour in any

developing country, such as Nigeria.

Moreover, investments in these sectors: manufacturing and processing, mining and

quarrying, and miscellaneous were significantly greater than that of the construction sector.

The investment in trading and business services was also greater than that of the construction

sector but insignificantly. The minimum foreign investment of FDI to construction sector is

N71.2, the maximum was N12,702.5 and the mean was N4,129.6, all million naira.

72
Although, the investment in construction sector was greater than that of the transport and

communication and agriculture sector, but insignificant to them respectively.

The study succeeded in establishing the fact from the Johansen Cointegration Test conducted

that FDI and construction sector are significantly cointegrated, indicating a valid relationship

at 0.05 or 5%. The study also revealed that according to Granger sense, the Granger

Causality Test at lagged of 2 and 4 (both in level form and first differences), indicated that

the causality is bi-directional, that is FDI < = > construction sector. Hence, construction

sector Granger-Cause FDI inflow as well as FDI inflow Granger-Cause construction sector in

Nigeria. The implication of this is that infrastructural facilities on ground through

construction activities can attract FDI inflow according to Granger sense. Also, FDI inflow to

any sector of the economy, not necessary construction sector, can lead to more activities in

the construction sector. This is because, directly or indirectly, these sectors would need

construction facilities at least a building and access road to commence full activity.

It was discovered from the study that 83.9% of the respondents agreed that utilization level

of the enabling laws in enhancement of FDI inflows into the construction sector in Nigeria is

below average. This may be as a result of obsolete laws not in conformity with international

standard. The study also revealed that 90.3% of the respondents agreed that those

government ministries, departments and agencies (MDAs) role in enhancing the inflow of

FDI to the construction sector in Nigeria is below average. This also may be the reason why

investors do hesitate to invest in this sector that ought to be the second largest employer of

labour after agriculture in a developing country like Nigeria.

The major factors responsible for low investment from FDI to construction sector in Nigeria

are: low presence of infrastructural development; longer time of return; high level of

73
corruption in the sector; lack of Due Process in Nigeria; lack of managerial capability and

lack of technical capability. Longer time of return was discovered to be major reason for the

low inflow compared to other major sectors like mining, manufacturing, to mention a few.

While the major impacts of low flow of FDI on construction sector in Nigeria are: low

contributions of public investment to GDP growth; low presence of infrastructural

development; lack of technological innovation; low enterprise development; lack of

accelerated commercialization and discourage trade and investment. The major determinants

of foreign direct investment (FDI) in Nigeria are: indigenization policy; change in openness

of the economy; change in domestic output or market size and change of domestic

investment.

The study identified the following as benefits of FDI: infrastructural development; trade and

investment are increasingly recognized; technological transfers; enterprise development and

encouraged positive competition. That is why this study is necessary at this period that

Nigeria is determined to be among the 1st twenty countries by the year 2020. The study also

identified the following as hindrances to inflow of FDI to construction sector in Nigeria as:

lack of policy framework; lack of security and terrorism attack; militancy and youth

restiveness; political and economic instability; risks; lack of infrastructure; bribery and

corruption; obsolete Land Use Act; absence of market; discrimination practices and non-

availability of natural resources.

The study shows that there is significant effect of FDI on construction sector. That is why

there is need to encourage the inflow of FDI into the economy in order to boost the

construction sector, knowing full well that this sector is a potent motivator of other sectors. It

also reveals a highly positive correlation of 94.7% between FDI and construction sector. This

finding agrees with the cointegration model (Granger Test) that indicated a significant

74
relationship of FDI and construction sector at 5%. The study also shows that there are

significant hindrances facing inflow of FDI to construction sector in Nigeria. For there to be

appreciated inflow into this sector, the major hindrances should be address properly.

A regression model was developed to establish the relationship. The model is:

Constructioninflow = 0 + 1 FDI + e1

Constructioninflow = -726.998 + 0.0311638FDI.

The interpretation of the above model is that a unit change in the FDI inflow into the

construction sector will result to 3.1% increase in the construction sector. This result actually

indicated a poor flow of FDI into the construction sector, hence it suggest that any unit

increase in FDI inflow may result to subsequent increase in construction sector. This model

agrees with the cointegration model (Granger Test) that indicated a significant relationship of

FDI and construction sector at 5%. The cointegration regression trend analysis model

(Granger Test) is:

Constructioninflow = 0 + 1 FDI + e1

Constructioninflow = -254.524 + 0.04012FDI.

This is a little deviation from the regression model, showing 4.0% increase in the

construction sector from the FDI inflow with a unit change from FDI inflow. This is less than

5%, indicating a valid model.

75
 CHAPTER FIVE

RECOMMENDATIONS AND CONCLUSION

This study has explored the significant of foreign direct investment and its impact on

construction sector in Nigeria within the years under review. This chapter therefore proposed

recommendations to address the findings that have been identified in the previous chapter.

This chapter finally concludes with possible areas for further research works on foreign

direct investment and construction sector in Nigeria.

5.1 Recommendations

Based on the summary of the findings of this research, the following policy

recommendations are proposed:

Policy makers should examine the existing laws, removing the bottlenecks and look for new

ways of increasing foreign investment flow especially in the area of construction facility

investment (CFI). This is inevitable because it is no longer news that the extent of financing

required to bridge the countrys infrastructure deficit surpasses the supply of capital available

from government. This also could be achieved in form of Public Private Partnership by

encouraging investors to build roads and toll the road for a token fee, build dams to generate

76
power and distribute electricity for a token fee, upgrade airports and seaports to international

standard and operate for defined period [Build, Operate and Transfer (BOT)].

Also, the investment promotion of monitoring institutions should encourage and empower

relevant investment and monitoring institutions or agencies like the Nigerian Investment

Promotion Council (NIPC), to evolve strategies aimed at assessing the progress made, in

adopting measures to create an investor-friendly environment; in addition to other measures

including regulatory chances in institution building, mainly in areas of investor protection

and investment facilitation. Government should be able to convince the investors regarding

non-commercial risks, such as political risk, environment of uncertainty and perceived risks.

Create partnerships that can help build the investor confidence needed to tap the global pool

of capital. Also, proper funding of these agencies cannot be over-emphasized with a view to

enhance flow of foreign direct investment in the construction sector in Nigeria.

The study also revealed that infrastructural development, trade and investment are

increasingly recognized, technological transfers, enterprise development and encouraged

positive competition are benefits of FDI inflow in any economy that encourage the inflow of

FDI. Therefore, policy makers should put all machinery in place, such as: free certificate of

occupancy (COT) for land, low tax charge, low VAT, to mention a few to encourage the

inflow most especially in this sector; since this is the sector providing the driving force

necessary for either sustaining a buoyant economy or reviving a depressed one.

It was discovered that major hindrances such as: lack of policy framework, lack of security

and terrorism attack, militancy and youth restiveness, obsolete Land Use Act, political and

economic instability, to mention a few were significant to the inflow of FDI to construction

77
sector. The policy makers in collaboration with the relevant stakeholders such as law

enforcement agencies, Federal Ministry of Trade and Investment, Federal Ministry of Youth

and Social Welfare, security agencies, to mention a few, should fashion out criteria and

strategic that will help to trim down these obstacles. Although Niger-Delta Development

Commission (NDDC) is doing her best in the area of youth restiveness and job creation for

repented militants, a lot still need to be done if we must experience a high positive growth in

the inflow of FDI to the construction sector; because this act have led to terrorism, bomb

explosion and kidnapping as the order of the day. Also, state governments should ensure

speedy access to Certificate of Occupancy and Governors consent to complement efforts of

the government in facilitating investment into the country.

The economic regulator in collaboration with appropriate stakeholders, most especially

professional institutes in the construction industry should organize training workshop for law

makers and other relevant agencies on the need to enact a bill that may encourage foreign

investors to invest more in this sector. The universal remedy for solving Nigeria

infrastructural deficit crisis is massive investment by both formal and informal sector of the

economy into the construction sector of the economy as this will yield positive multiplier

effects in all other sectors. The study therefore advice those in authority not to wait for

foreign investors only as their investment in this sector can be an avenue for open invitation

from foreign investors since construction activity can also cause foreign direct investment.

The government should provide the support to institutions (e.g. PHCN, FERMA, NIPC, to

mention a few) and a dynamic domestic entrepreneurial class. The interplay of the purposeful

government leadership and the dynamism entrepreneurs is a key factor for attracting foreign

direct investment. This interplay seems to have not been present in the Nigerian economy.

Government should not stop at the bus-stop of reviewing of existing laws and policies, but

78
that these laws and policies should be in a form that is easily accessible to both local and

international investors. Also, policy makers should put in place laws that are friendly, so that

intending investors could access the nations N2trillion plus pension fund pot.

Finally, government should set up construction free trade zone authority, because a lot of

foreign firms would like to operate within free zones to benefit from various incentives

provided by the zones for investors. This free zone should be used as platforms for bringing

in FDI into the construction sector in Nigeria. It will be an arm of the Federal Government

and agency charged with the responsibility of attracting FDI into the country with regards to

construction sector as well as other sub-sectors in the construction industry in Nigeria.

5.2 Conclusion

This study has been able to identify the most important benefits of FDI which impacts

significantly on construction sector in Nigeria. It has also identified major hindrances to

inflow of FDI to construction sector in Nigeria and accepted the fact that these hindrances

were significant to inflow of FDI to construction sector. A regression model was eventually

developed to establish the relationship between FDI and construction sector. A highly

positive correlation was established. It is believed that this model will significantly act as

indicator to monitor whether there is increase or decrease from FDI inflow to construction

sector. Also, even though FDI impacted significantly on construction sector as shown

according to Granger Causality Test, it also shown that construction sector can Granger-

Cause FDI. It is therefore hoped that the result of this research will provide early warning

sign to policy makers and stakeholders of the economy to either enhance the strategy or

change the strategy, as well as strategies that will enhance flow of foreign direct investment

in the construction sector in Nigeria. It will also assist investors to take appropriate decisions

79
on their investment policy. This study will also assist the construction industry, by making

policy makers to appreciate that this sector is a potent motivator of the national economy,

providing the driving force necessary for either sustaining a buoyant economy or reviving a

depressed one.

Moreover, the study has revealed that the extent of financing required to bridge the countrys

infrastructure deficit surpasses the supply of capital available from government. Therefore,

there is urgent need for increased private and public sector participation alongside the foreign

investors in arresting the nations infrastructural decay. However, the result of this research

will provide policy frameworks for policy makers and reduce the cumbersome nature and

problems usually encountered by foreign investors wishing to invest in this sector. Finally,

the study will enhance the competitiveness and survival of Nigerian construction industry in

the global market and ultimately improve the contribution of the construction sector to the

national economy with the enhancement of flow of foreign direct investment to the

construction sector in Nigeria.

5.3 Areas for Further Research

Some of the findings of the study provide possible directions for further studies in the

following areas:

i. The current study was limited to foreign direct investment. Further works can be

carried out in foreign portfolio investment, relating the impact of FPI on construction

sector in Nigeria.

80
 ii. Also, a comparative analysis can be carried out between foreign direct investment

and foreign portfolio investment on the construction sector in Nigeria.

iii. A study can be conducted to find out the trend in FDI flows within the

construction sector and gross domestic product using archival data only.

iv. The FDI and construction sector model developed in this present study can also be

validated by future researchers.

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85
APPENDIX A

Department of Quantity Surveying,

School of Environmental Technology,

Federal University of Technology,

Akure, Ondo State.

...........................................................

..........................................................

..........................................................

Dear Respondent,

We are currently undertaking a research at the Federal University of Technology, Akure on:
IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON CONSTRUCTION
SECTOR IN NIGERIA. The subject of FDI has gained popularity, most especially with
advert of Nigeria trying to become among the first 20 countries in year 2020; knowing full
well that the desired investments to attain this mission by 2020 exceed actual savings.

Since infrastructure is the pillar of growth in any economy, the need to assess the response of
construction sector to foreign direct investment (FDI) in Nigerian economy cannot be over-
emphasised. Moreover, the research will create avenue to identify challenges facing the

86
inflow, benefits of FDI and proffer recommendations to policy makers and stakeholders in
order to enhance inflow of FDI into the construction sector in Nigeria.

We would therefore like to request your assistance as construction consultant, government

agencies, client and contractor in completing the attached questionnaire as a basis for the
research. Confidentiality of your responses is assured and your anonymity is guaranteed. It
would be appreciated if you could take some 15minutes off to answer the questions while the
bearer will wait to collect the completed questionnaire.

Thank you.

Ebekozien Andrew

Research Co-ordinator.

QUESTIONNAIRE

SECTION A: BACKGROUND INFORMATION

(Please tick or fill as appropriate)

(1). Academic Qualifications/Discipline of respondents e.g. B.Sc (Civil Engineering), or

B.Tech. (Quantity Surveying)......................................................................................................

(2). kindly indicate your professional qualification and grade of membership. (Please tick as
appropriate) .

STATUS NIA NIOB NIQS NSE Others (Specify)

Student Member .

Graduate/Probationer
Member .

Corporate Member .

Fellow Member .

(3). Years of experience of respondent in the construction industry.

(a) Less than 10yrs { } (b) 11 20yrs { } (c) 21 30yrs { }

87
(d) 31 40yrs { } (e) Over 40yrs { }
(4). Location of organization.

(a) Lagos { } (b) Abuja { }

(5). Type of organization/practice.

(a) Private client organization { } (b) Public client organization { }

(c) Contracting { } (d) Consultancy firm { }
(e) Nig. Investment Promotion Council{ }(f) Central Bank of Nigeria { }
(g) National Bureau of Statistics { } (h) Others, please (specify)................{ }
SECTION B: INFORMATION ON PROJECTS
(6). Have you been involved in any foreign direct investment (FDI) and FDI project in
Nigeria?

(a) Yes { } (b) No { }

(7). If your choice is (A) above, what is the total value of projects executed by your
organization in the last five years?

(a) Less than N50Million { } (b) N51 N100M { } (c) N101 N500M { }

(d) N501 N1Billion { } (e) Over N1Billion { }

(8). Have the enabling laws enhances the flow of FDI to construction sector in Nigeria?

(a) Yes { } (b) No { }

(9). Are foreign investors always satisfied with the input of investment in the construction
sector in Nigeria?

(a) Yes { } (b) No { }

(10). Have government ministries/agencies/parastatials/departments (e.g. Economic and
Financial Crimes Commission (EFCC), Independent Corrupt Practices Commission (ICPC),
Nigeria Custom Services, Nigeria Immigration Services, Nigerian Investment Promotion
Commission (NIPC), Central Bank of Nigeria (CBN), just to mention a few, encouraged the
inflow of FDI to the construction sector?

(a) Yes { } (b) No { }

(11). The following factors have been identified as the reasons why foreign investors do not
want to invest in the Nigerian construction sector, please rate your level of agreement with

88
these factors using 5 = Strongly Agree; 4 = Agree; 3 = Neutral or Undecided; 2 = Disagree
and 1 = Strongly Disagree. (Please, circle number closest to your views)

Identified factors (s) 5 4 3 2 1

Longer time of Return 5 4 3 2 1

Lack of managerial capability 5 4 3 2 1

Lack of technical capability 5 4 3 2 1

High level of corruption in the sector 5 4 3 2 1

Lack of DUE PROCESS 5 4 3 2 1

Low presence of infrastructural development 5 4 3 2 1

Others (specify)...................................................................... 5 4 3 2 1

(12). The following have been identified as a result of lack of inflow of FDI in the
Construction Sector in Nigeria, please rate your level of agreement with these factors using 5
= Strongly Agree; 4 = Agree; 3 = Neutral or Undecided; 2 = Disagree and 1 = Strongly
Disagree. (Please, circle number closest to your views) .

Identified impact(s) of FDI on construction sector 5 4 3 2 1

Discourage trade & investment 5 4 3 2 1

Lack of technological innovation 5 4 3 2 1

Lack of accelerated commercialization 5 4 3 2 1

Low contributions of public investment to GDP growth 5 4 3 2 1

Low enterprise development 5 4 3 2 1

Low presence of infrastructural development 5 4 3 2 1

Others (specify)...................................................................... 5 4 3 2 1

(13). The following have been identified as the major determinants of FDI in Nigeria, please
rate your level of agreement with these factors using 5 = Strongly Agree; 4 = Agree; 3 =

89
Neutral or Undecided; 2 = Disagree and 1 = Strongly Disagree. (Please, circle number closest
to your views). .

Identified determinants of FDI 5 4 3 2 1

Change in domestic investment 5 4 3 2 1

Change in domestic output or market size 5 4 3 2 1

Indigenization policy 5 4 3 2 1

Change in openness of the economy 5 4 3 2 1

Others (specify)...................................................................... 5 4 3 2 1

(14). Foreign Direct Investment (FDI) in Nigeria has been categorized as applied in the
construction sector. Please rate your level of agreement with these category, using 5 =
Strongly Agree; 4 = Agree; 3 = Neutral or Undecided; 2 = Disagree and 1 = Strongly
Disagree. (Please, circle number closest to your views) .

Identified Types of FDI in Nigeria 5 4 3 2 1

Wholly Foreign Owned 5 4 3 2 1

Joint Venture 5 4 3 2 1

Special Contract Arrangements 5 4 3 2 1

Technology Management and Marketing Arrangements 5 4 3 2 1

Subcontract Coproduction and Specialization 5 4 3 2 1

Others (specify)...................................................................... 5 4 3 2 1

(15). Please rank the importance of the following benefits derived from inflow of FDI, using
5 = Extremely Important; 4 = Very Important; 3 = Important; 2 = Fairly Important and 1 =
Not Important. (Please, circle number closest to your views) .

Identified benefits of FDI 5 4 3 2 1

90
Trade and Investment are increasingly recognized 5 4 3 2 1

Technological Transfers 5 4 3 2 1

Infrastructural Development 5 4 3 2 1

Enterprise Development 5 4 3 2 1

Encouraged Positive Competition 5 4 3 2 1

Others (specify)...................................................................... 5 4 3 2 1

(16). The following have been identified as the major hindrances to inflow of FDI to
construction sector in Nigeria. From your experience, Please rate your level of agreement
with these factors using 5 = Strongly Agree; 4 = Agree; 3 = Neutral or Undecided; 2 =
Disagree and 1 = Strongly Disagree. (Please, circle number closest to your views) .

Identified Hindrances facing FDI 5 4 3 2 1

Lack of Infrastructure 5 4 3 2 1

Absence of market 5 4 3 2 1

Lack of Policy Framework and political instability 5 4 3 2 1

Non-avalibility of natural resources 5 4 3 2 1

Cost consideration 5 4 3 2 1

Bribery and Corruption 5 4 3 2 1

Militancy and Youth Restiveness 5 4 3 2 1

Political and Economic Instability 5 4 3 2 1

Lack of Security and Terrorism attack 5 4 3 2 1

Discrimination Practices 5 4 3 2 1
91
Global Risks 5 4 3 2 1

Others (specify)...................................................................... 5 4 3 2 1

Thank you for your co-operation.

APPENDIX B: COMPUTER PRINT-OUT ANALYSIS FOR THE STUDY

ANALYSIS OF VARIANCE 1:

Between-Subjects Factors

Value Label N

Possible Factors 1 Longer Time of Return 4

2 Lack of Managerial
4
Capability

3 Lack of Technical Capability 5

4 High Level of Corruption 4

5 Lack of Due Process 4

6 Low Presence of Structural

4
Development

The Major Parameters 1 Clients 6

2 Consultants 6

3 Contractors 6

4 Other Means 6

5 1

92
Tests of Between-Subjects Effects

Dependent Variable:Response Means

Source Sum of Squares Df Mean Square F Sig.

Corrected Model 5.743a 9 .638 2.605 .049

Intercept 201.131 1 201.131 821.096 .000

Factors 2.003 5 .401 1.635 .211

Parameters 3.624 4 .906 3.699 .027

Error 3.674 15 .245

Total 391.542 25

Corrected Total 9.417 24

a. R Squared = .610 (Adjusted R Squared = .376)

Response Means

Duncan

Subset

Possible Factors N 1 2

Lack of Managerial Capability 4 3.59

Lack of Due Process 4 3.66 3.66

Lack of Technical Capability 5 3.70 3.70

High Level of Corruption 4 4.03 4.03

Longer Time of Return 4 4.12 4.12

Low Presence of Structural

4 4.41
Development

Sig. .185 .067

Means for groups in homogeneous subsets are displayed.

Based on observed means.
The error term is Mean Square(Error) = .245.

Analysis of Variance2

93
 Between-Subjects Factors

Value Label N

Identified Impact 1 Discourage Trade and

4
Invetment

2 Lack of Technical Innovation 4

3 Lak of Accelerated
5
Commercialization

4 Low Contributions of Public

4
Investment to GDP

5 Enterprise Development 4

6 Low Presence of
4
Infrastructural Development

The Measure Parameters 1 Clients 6

2 Consultants 6

3 Contractors 6

4 Other Means 6

5 1

Tests of Between-Subjects Effects

Dependent Variable:Response Means

Type III Sum of

Source Squares df Mean Square F Sig.

Corrected Model 1.697a 9 .189 1.095 .421

Intercept 209.987 1 209.987 1.220E3 .000

ImpactID 1.433 5 .287 1.665 .204

ParametersofMeasures .155 4 .039 .225 .920

Error 2.583 15 .172

Total 395.133 25

Corrected Total 4.280 24

a. R Squared = .397 (Adjusted R Squared = .035)

94
Response Means

Duncan

Subset

Identified Impact N 1

Lak of Accelerated Commercialization 5 3.6260

Discourage Trade and Invetment 4 3.6300

Enterprise Development 4 4.0500

Low Presence of Infrastructural

4 4.1450
Development

Low Contributions of Public Investment to

4 4.1600
GDP

Lack of Technical Innovation 4 4.1950

Sig. .097

Means for groups in homogeneous subsets are displayed.

Based on observed means.
The error term is Mean Square(Error) = .172.

Analysis of Variance3

95
 Between-Subjects Factors

Value Label N

Identified Determinant FDI 1 Chang of Domestic Invetment 4

2 Change in Domestic 4

3 Indigenization Policy 5

4 Change in Openness of the

4
Economy

The Measure Parameters 1 Clients 4

2 Consultants 4

3 Contractors 4

4 Other Means 4

5 1

Tests of Between-Subjects Effects

Dependent Variable:Response Means

Type III Sum of

Source Squares df Mean Square F Sig.

Corrected Model 2.200a 7 .314 22.623 .000

Intercept 194.417 1 194.417 1.400E4 .000

ParametersofMeasures .089 4 .022 1.598 .257

IdentifiedFDI 1.971 3 .657 47.310 .000

Error .125 9 .014

Total 294.775 17

Corrected Total 2.325 16

a. R Squared = .946 (Adjusted R Squared = .904)

96
Response Means

Duncan

Subset

Identified Determinant FDI N 1 2

Chang of Domestic Invetment 4 3.7750

Change in Domestic 4 3.7750

Change in Openness of the

4 4.4375
Economy

Indigenization Policy 5 4.5120

Sig. 1.000 .383

Means for groups in homogeneous subsets are displayed.

Based on observed means.
The error term is Mean Square(Error) = .014.

Analysis of Variance4

97
Between-Subjects Factors

Value Label N

Type of FDI 1 Wholly Foreign Owned 4

2 Joint Venture 4

3 Special Contract Arrangement 5

4 Change in Openness of the

4
Economy

5 Subcontract Co production and

4
Specializaion

The Measure Parameters 1 Clients 5

2 Consultants 5

3 Contractors 5

4 Other Means 5

5 1

Tests of Between-Subjects Effects

Dependent Variable:Response Means

Type III Sum of

Source Squares df Mean Square F Sig.

Corrected Model 12.192a 8 1.524 83.433 .000

Intercept 157.531 1 157.531 8.624E3 .000

ParametersofMeasures .070 4 .017 .956 .466

TypeofFDI 11.984 4 2.996 164.018 .000

Error .219 12 .018

Total 279.626 21

Corrected Total 12.411 20

a. R Squared = .982 (Adjusted R Squared = .971)

98
 Response Means

Duncan

Subset

Type of FDI N 1 2 3 4

Subcontract Co production and

4 2.6125
Specializaion

Change in Openness of the Economy 4 2.6300

Special Contract Arrangement 5 3.9260

Joint Venture 4 4.1500

Wholly Foreign Owned 4 4.4275

Analysis of
Sig. .855 1.000 1.000 1.000 Variance5
Means for groups in homogeneous subsets are displayed.
Based on observed means.
The error term is Mean Square(Error) = .018.

99
 Between-Subjects Factors

Value Label N

Benefit of FDI 1 Trade and Investment are increasingly

4
Recognised

2 Technology Transfer 4

3 Infrastructure Development 5

4 Enterprise Development 4

5 Encourage Positive Competition 4

The Measure Parameters 1 Clients 5

2 Consultants 5

3 Contractors 5

4 Other Means 5

5 1

Tests of Between-Subjects Effects

Dependent Variable:Response Means

Type III Sum of

Source Squares df Mean Square F Sig.

Corrected Model 1.469a 8 .184 7.385 .001

Intercept 223.820 1 223.820 9.000E3 .000

ParametersofMeasures .117 4 .029 1.176 .370

BenefitofFDI 1.290 4 .323 12.973 .000

Error .298 12 .025

Total 381.760 21

Corrected Total 1.767 20

a. R Squared = .831 (Adjusted R Squared = .719)

100
Response Means

Duncan

Subset

Benefit of FDI N 1 2 3

Encourage Positive Competition 4 3.8275

Enterprise Development 4 4.1675

Technology Transfer 4 4.2000

Trade and Investment are

4 4.4625
increasingly Recognised

Infrastructure Development 5 4.5400

Sig. 1.000 .771 .492

Means for groups in homogeneous subsets are displayed.

Based on observed means.
The error term is Mean Square(Error) = .025.

Analysis of Variance6
Between-Subjects Factors

Value Label N

Identified Hinderances to 1 Lack of Infrastructure 3

Inflow of FDI into Construction
2 Absence of Market 4
Sector
3 Lack of Policy Frame works 5

4 Political and Economic Instability 4

5 Non Availability of Natural Resources 4

6 Cost Conideration 4

7 Bribery and Corruption 4

8 Militancy and Youth Restiveness 4

9 Lack of Security and Terror 4

10 Discremination Practices 4

11 Global Risks 4

The Measure Parameters 1 Clients 10

2 Consultants 11

3 Contractors 11

4 Other Means 11

5 1

101
Tests of Between-Subjects Effects

Dependent Variable:Response Means

Type III Sum of

Source Squares df Mean Square F Sig.

Corrected Model 25.886a 14 1.849 15.227 .000

Intercept 172.621 1 172.621 1.422E3 .000

ParametersofMeasures .098 4 .025 .202 .935

IdentifiedHinderance 24.866 10 2.487 20.478 .000

Error 3.521 29 .121

Total 525.008 44

Corrected Total 29.407 43

a. R Squared = .880 (Adjusted R Squared = .822)

Response Means

Duncan

Identified Hinderances to Subset

Inflow of FDI into Construction
Sector N 1 2 3 4

Non Availability of Natural

4 2.2750
Resources

Discremination Practices 4 2.4750

Absence of Market 4 2.4875

Cost Conideration 4 2.5275

Bribery and Corruption 4 3.1525

Lack of Infrastructure 3 3.4167 3.4167

Global Risks 4 3.8125 3.8125

Political and Economic

4 3.8250 3.8250
Instability

Militancy and Youth

4 4.1500
Restiveness

Lack of Security and Terror 4 4.2750

Lack of Policy Frame works 5 4.3000

Sig. .362 .295 .130 .088

Means for groups in homogeneous subsets are displayed.

Based on observed means.
The error term is Mean Square(Error) = .121.

102
FDI inflow into Building and Construction Model

Model Summary

Std. Error of the

R R Square Adjusted R Square Estimate

.947 .896 .890 37629.213

The independent variable is Building and Construction.

ANOVA

Sum of Squares df Mean Square F Sig.

Regression 2.197E11 1 2.197E11 155.133 .000

Residual 2.549E10 18 1.416E9

Total 2.451E11 19

The independent variable is Building and Construction.

Coefficients

Standardized
Unstandardized Coefficients Coefficients

B Std. Error Beta T Sig.

Building and Construction 28.752 2.308 .947 12.455 .000

(Constant) 37105.151 12715.182 2.918 .009

Granger Test for Co-Integration

Step 1: testing for a unit root in ConSector

Augmented Dickey-Fuller test for ConSector

including one lag of (1-L)ConSector
sample size 18
unit-root null hypothesis: a = 1

test with constant

model: (1-L)y = b0 + (a-1)*y(-1) + ... + e
1st-order autocorrelation coeff. for e: 0.026
estimated value of (a - 1): 0.0934454
test statistic: tau_c(1) = 0.870913
asymptotic p-value 0.9952

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Step 2: testing for a unit root in FDIinflows

Augmented Dickey-Fuller test for FDIinflows

including one lag of (1-L)FDIinflows
sample size 18
unit-root null hypothesis: a = 1

test with constant

model: (1-L)y = b0 + (a-1)*y(-1) + ... + e
1st-order autocorrelation coeff. for e: -0.003
estimated value of (a - 1): 0.0926986
test statistic: tau_c(1) = 1.41464
asymptotic p-value 0.9991
Step 3: cointegrating regression

Cointegrating regression -
OLS, using observations 1989-2008 (T = 20)
Dependent variable: ConSector

coefficient std. error t-ratio p-value

--------------------------------------------------------------
const -6559.71 1994.35 -3.289 0.0041 ***
FDIinflows 0.130796 0.0104326 12.54 2.49e-010 ***

Mean dependent var 13823.58 S.D. dependent var 15684.64

Sum squared resid 4.80e+08 S.E. of regression 5165.463
R-squared 0.897249 Adjusted R-squared 0.891540
Log-likelihood -198.3202 Akaike criterion 400.6403
Schwarz criterion 402.6318 Hannan-Quinn 401.0291
rho 0.744408 Durbin-Watson 0.468743

STEP 4: Test for Granger Causality

Table 4.3: Summary of Granger Causality Test

Direction of F Statistics P F Statistics P
causality
In Level form 2-Lags 4-Lags

FDIConst 12.9* 0.0019 8.92* 0.0010

Const.FDI 11.52* 0.0015 5.90* 0.0008

In 1st Differences

FDIConst 10.79** 0.025 5.40* 0.009

Const.FDI 9.98** 0.022 4.90** 0.028

Note: FDI stand for foreign direct investment, Const. stand for construction sector while *, ** and *** denote the rejection of the null
hypothesis of unit roots at 10%, 5% and 1% significance levels respectively. Also, the null hypothesis of no causality is rejected if the

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 F Statistic exceeds the critical values, or if P is less than 0.1. * and ** indicate respectively that Granger-Causality is significant at
the 0.01 and 0.05 levels; that is 10% and 5% respectively.

Reliability Test
Factors
Case Processing Summary

N %

Cases Valid 25 100.0

Excludeda 0 .0

Total 25 100.0

a. Listwise deletion based on all variables in the

procedure.

Reliability Statistics

Cronbach's Alpha N of Items

0.654 3

Impact

Case Processing Summary

N %

Cases Valid 21 100.0

Excludeda 0 .0

Total 21 100.0

a. Listwise deletion based on all variables in the

procedure.

Reliability Statistics

Cronbach's Alphaa N of Items

0.867 3

Major Determinant

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 Case Processing Summary

N %

Cases Valid 21 100.0

Excludeda 0 .0

Total 21 100.0

a. Listwise deletion based on all variables in the

procedure.

Reliability Statistics

Cronbach's Alphaa N of Items

0.601 3

.
Types of FDI

Case Processing Summary

N %

Cases Valid 45 100.0

Excludeda 0 .0

Total 45 100.0

a. Listwise deletion based on all variables in the

procedure.

Reliability Statistics

Cronbach's Alpha N of Items

.0274 3

Benefits

Case Processing Summary

N %

Cases Valid 21 100.0

Excludeda 0 .0

Total 21 100.0

a. Listwise deletion based on all variables in the

procedure.

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 Reliability Statistics

Cronbach's Alphaa N of Items

0.769 3

Hinderances

Case Processing Summary

N %

Cases Valid 45 100.0

Excludeda 0 .0

Total 45 100.0

a. Listwise deletion based on all variables in the

procedure.

Reliability Statistics

Cronbach's Alpha N of Items

0.876 3

Achive Data
Case Processing Summary

N %

Cases Valid 75 100.0

Excludeda 0 .0

Total 75 100.0

a. Listwise deletion based on all variables in the

procedure.

Reliability Statistics

Cronbach's Alpha N of Items

0.779 3

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