CHAPTER ONE

1.1     BACKGROUND OF STUDY

The activities of the multinational corporations in Nigeria have increased overtime. A multinational corporation is a company that has subsidiaries in several countries.  Their decentralized structure, as well as their degree size, often allows them to overstep governmental constraints which smaller regional or national companies must observe.

Developing nations attracts multinational subsidiary operations due to number factors such as cheap labour, low taxation and less vigilance concerning workers rights and environmental protection. They are made to contribute to the social security net (i.e. welfare, unemployment insurance, e.t.c) other factors including low pay for woman workers, child labour, and the absence of labour unions, also combine to make the third world ripe for exploitation.  The presence of multination in these countries improves overall living standards.  The benefits of the relationship are most often one sided, but the economic problems facing these nations makes it difficult for them to be picky about their investor. 

Firms become multinational corporations when they perceive advantages to establishing production and other activities in foreign locations.  Firms globalize their activities in foreign locations.  Firms globalize their activities both to supply their home country market move cheaply and to serve foreign markets more directly.  Keeping foreign activities within the corporate structure lets firms avoid cost inherent in arms length dealings with separated entities while utilizing their own firm specific knowledge such as advanced production techniques.   By internalizing what would otherwise by cross-border transaction multinationals can bridge the information obstacles that often hinder trade.  For example, they may be able to move carefully monitor product quality or worker conditions in factories they own than in those of contractors, or adapt the composition of output more quickly to change in market condition. Improvements in information technology have reduced the impediments to exerting corporation control across borders.  These advances have combined in recent years with an increased openness on the part of government to foreign multination, as the economic benefits of a foreign presence to the host country have become more widely recognized. 

These benefits include the increased investment and the associated jobs and income that the multinational firm brings, as well as technological transfer and improved productivity.  The role of multinationals in spreading industry best practices is likely to be especially important services, many of which are not easily traded across national boundaries.

Evidence of the heightened role of multinationals can be seen in the quickened pace of Foreign Direct Investment (FDI)  in recent years in 1991 FDI flows both in and out of other European country development (OECD), reached regard level; over 2.5 percent (%) of their combined gross domestic product (GDP) for in flow and 3.0 percent for outflow.  Most of foreign direct investment is between developed countries, since 1982, 75% (percent) of FDI out flow from OECD countries have gone to other OECD members.

          On the other hand crude oil has impacted significantly on the socio-economic development in Nigeria. Nigeria is a natural resource rich country inhabited by an estimated 167 million people and a land area of around 924 thousand square kilometres. It is situated in West Africa surrounded by Cameroon to the east, Benin to the west, Niger to the north and Gulf of Guinea to the South. It is considered the second largest economy in Africa and largest oil producer in Africa (OPEC 2012).

          The country’s primary productive base includes the production of agriculture, crude oil and other hydrocarbons and is said to account for more than 90 per cent of foreign exchange and 75 per cent of employment (NPC 2). In the last five years, Nigeria’s economy grew by an average of 7 per cent2 and is primarily driven by the oil sector which accounts for more than 30 per cent of gross domestic product and 70 per cent of all exports. According to OECD, in 2011, mining and quarrying (including oil) accounted for 33.5 per cent of total GDP. Despite the oil sector’s dominance, agriculture is also an important contributor to the economy accounting for 35.2 per cent of GDP in 2011(OECD 2). Nigeria as one of the biggest oil producing country depends on crude oil for revenue generation. As an oil dependent country, the volatility of the oil sector greatly affects Nigeria’s government revenue which coincidently determines the extent of the fiscal policy.

1.2     STATEMENT OF RESEARCH PROBLEM

It is now obvious that crude oil production is as critical to Nigeria as oxygen is to life. In fact, crude oil notwithstanding current effort of government remains the driver of economic policies of government. The overdependence on it has created vulnerability to the every sector of the Nigeria economy particularly the general hardship in the country now. In particular, the place of oil in the mind of the average Nigerian has become more profound since the continuous deregulation of the downstream sector of the Nigeria oil industry in 2003. Thus, the decline in crude oil production in Nigeria and fall in prices at the global markets meant more decreased earnings for Nigeria, but increased expense burden on imported refined petroleum products. It is such contradictions that make the Nigeria economy highly vulnerable and astronomically unstable. Monolithic nature of Nigeria economy is evident now without contradiction. It is indeed on this over dependence on oil that many of the socio-economic and political problems ravaging Nigeria today took its root. It is worthy of note that that multinational oil corporations in Nigeria have played great roles in the discovery (exploration), exploitation, refining (processing), administration, servicing and maintenance, storage and transportation as well as sales of crude oil in the country has great impact on the performance of Nigerian economy. Thus, it is often argued that multinationals oil companies dominated the oil industry in Nigeria and are often driven by the profit repatriation and expansion of other overseas market to the detriment of Nigeria’s economy

1.3     RESEARCH QUESTIONS

The study came up with research questions so as to ascertain the above stated objectives of the study. The research questions for the study are:

1. What is the relationship between multinational corporations, crude oil dependency and socio-economic development in Nigeria?
2. What is the effect of crude oil dependency on the socio-economic growth in Nigeria?
3. What is the effect of crude oil dependency on fiscal policy generation in Nigeria?

1.3     OBJECTIVES OF STUDY

The main aim of the research work is to examine Multinational Corporation, crude oil dependency and Nigeria socio-economic development (1999-2015). Other specific objectives of the study are:

1. to determine the relationship between multinational corporations, crude oil dependency and socio-economic development in Nigeria
2. to determine the effect of crude oil dependency on the socio-economic growth in Nigeria
3. to investigate on the effect of crude oil dependency on fiscal policy generation in Nigeria
4. to proffer solution to the above stated problem

1.5     STATEMENT OF RESEARCH HYPOTHESIS

Hypothesis 1

H₀: there is no significant relationship between Multinational Corporation, crude oil dependency and socio-economic development in Nigeria

H₁: there is significant relationship between Multinational Corporation, crude oil dependency and socio-economic development in Nigeria

1.6     SIGNIFICANCE OF STUDY

The study on the Multinational Corporation, crude oil dependency and Nigeria, socio-economic development (1999-2015) will be of immense benefit to the entire multinational corporations in Nigeria, the government (local, state and federal government) as the findings of the study will educate the above population on the relationship that exist between the multinational corporations, crude oil dependency and socio economic development in Nigeria. The study will also serve as a repository of information to other researchers that desire to carry out similar research on the above topic. Finally the study will contribute to the body of existing literature and knowledge in this field of study and provide a basis for further research

1.7     SCOPE OF STUDY

The study on the Multinational Corporation, crude oil dependency and Nigeria, socio-economic development will cover for a period of sixteen years (1999-2015).

1.8     DEFINITION OF TERMS

Multinational National Enterprises (MNE)

This is a cross border national business organization or aggregate of organization that are aggregate of organizations that are characterized mainly by the disposal of their managerial ability among several nations.

Undeveloped Country: A situation where some of the following feature. Absolute poverty, low per capital income, low rate of economic development, poor health, high death rate, high dependence on importation, balance of payment deficit eg Nigeria.

Economic Development: The process of improving the quality of all human living. It comprises the following economic growth, self esteem and economic freedom.

Capital Intensive: A method of production whereby capital proportion is relatively higher than labour or land.

Indigenization Policy: Measure aimed at localizing ownership and control of the economy by Nigerians. An example is the Nigerian Enterprises Decree of 28th and February, 1972.

Balance of Payment: A statement of a national's financial transactions with the outside world over time period usually a year.

Cartel: A group of firms which enter into an agreement to set mutually acceptable prices for their products and this is often accompanied by output and investment.

Production Function: A technologically or Engineering relationship between the quantity of a goods produced and the inputs required to produce it.

Economic Growth: A process by which the productive capacity of the economy is increase over time to bring increase in the levels of national income.