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INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria
emerged from the colonial experience with an economy structured in accordance
with the imperators of colonial economic relationship. The first National Development plan of
(1963) was launched with the objectives of providing the framework for industrial
take off and development. However, as
the foreign investors were apprehensive of the nascent independent
administration, efforts were made not only to alloy their fears of
nationalism but also to attract more foreign investments through joint ventures
with regional government then or the federal government. The first development plan as an open door
regime saw an increase in the establishment of miscellaneous foreign
enterprises in Nigeria, many of which are unincorporated branches of their
overseas business.
However, just only
about few years offer independence when the rest of the world including the
erstwhile colonial master had hardly adapted to the realities of Nigeria’s
attainment of nationhood or for the Nigerian government to articulate and
plan its own economic policy, the country experienced its first military coup
d’ et al in 1966. This was followed by
the civil was which tested for three years hence necessitated the cohesion of
resources towards the successful execution of the war. The period saw the introduction of various
control measures of great significance.
For the foreign investors, these include licensing, quotas, exchange
control measures with two tier compulsory credit system for import payments,
restriction on capital/individual transfer and the promulgation of the
companies decree of 1968 which compelled all forms operating the country to
be incorporated as Nigerian Companies subject to local regulations.
Foreign Direct
Investment (FDI) refers to a
movement of capital that involves ownership and control of a firm inanother
country for instance, the purchase of common chores in a Nigerian
incorporated company by a French citizen involves ownership and an element of
control. This is because all shares in
an organisaiton have same voting rights.
For the purpose of
this classification such is recorded as FDI if the share acquired involves
more than 10% of the outstanding common shares of the Nigerian company.
In this research
and generally, Foreign Direct Investment is classified in the context of
Multinational Corporations (MNC). The
MNC is sometimes referred to as Multinational Enterprises (MNE) is
Transnational Corporations (TNC) or Transnational Enterprises (TNE).
According
to the chairman of BOD’s of Chemical Co, a multinational form in the united
state origin “the emergence of a world economy and the multinational
corporation have been accomplished land in land”. He sees multinational enterprises moving
towards what he called “a global company”, a firm that have no nationality
but belongs to almost all countries.
The phenomenon of
the MNC can be explained only in a world of imperfect factor and product
market characterized by differential taxation market power and share,
positive information costs and the existence of pure specific revenue
producing assistance. In such a world,
the market mechanism is partially replaced by other organizational firms,
which generates and transmits relevant information and which co-ordinates
production and marketing decisions.
The
MNC arises in other words in response to a particular kind of market failure
caused by high differential costs of inter-nation transfer of market
information and technology and of course, factors of production (Tour and
Hirsil 1979). The key features of MNC
are the, it provides the recipient nation with a package of knowledge,
capital and entrepreneurship development.
It may thereby create a positive contribution to economic growth and
development in host countries.
Many
multinationals corporations exist in the Nigerian economic settings these
encompassed the manufacturing sector like Nigeria Bottling Company (NBC),
constitution like Julus Berger Nigeria, Mineral Exploration like Shell
Nigeria, banking etc, to mention but a few.
It becomes pertinent that the manufacturing sector be given due
cognizance for the purpose of the research work. In this sector, the Nigerian Bottling
Company Plc will be a case study and a pointer.
The
concept of Multinational Corporation and economic development has remained on
the relationship between the MNC’s and the host societies and how development
is appraised in these host societies.
The issue of
contribution to development through social responsibility by the business
enterprise has become a topical issue in management decision and is
negatively favoured in these host societies.
They
have rounding argued that there has been gross neglect and lack of
development focus in their place or communities. It is good to discuss the fact that some
laudable developments have been directly felt by these host societies in
terms of revenue, employment technology transfer and other benefits to the
government. It is a fact that Nigeria
is a developing country and have the same peculiar characteristics with other
developing nations of the world such as low standard of living with low
savings and investment and lacks managerial know how. This has placed Nigeria in a guest for
resources from other developed nations viz-a-viz international business
through MNC’s.
It
is also right to say that MNC’s like other business ventures has the
objective of profit maximization as their aim. From the foregoing, this research work
places premium on the critical evaluation and
examination of the impact of foreign direct investment (MNC)
activities in the Nigerian economy using Enugu Zone which comprises Enugu
North, Enugu South, Enugu East and 9th Mile Corner on a bench
mark. The prospective here is
primarily managerial and economic i.e. the dissension focuses on the
important part in the overall evaluation so, they are discussed along with
the above mentioned factors.
Historical
Background of Nigeria Bottling Company
The Nigeria Bottling Company Plc (NBC)
was incorporated in November 1951, as a subsidiary of the A.G Levant’s Group
with the franchise to bottle and sell coca-cola products in Nigeria. From a
humble beginning as a family business, the company has grown to become
predominant bottler of non-alcoholic beverages in Nigeria, responsible for
the manufacture and sale of over 33 different coca-cola brands. Other popular
brands of beverage produce by the company are Eva water, Five Alive fruit
juice and the newly introduced Burn energy drink. The company presently has
13 bottling facilities and over 80 distribution warehouses located across the
country. Since production started, NBC Plc has remained the largest bottle of
nonalcoholic beverages in the country in terms of sales volume, with about
1.8 bottles sold per year, marking it the second largest market in Africa.
Today, the company is part of the coca-cola Hellenic Bottling Company
(CCHBC). One of coca-cola company’s largest anchor bottlers worldwide CCHBE
operates in 28 countries, serving 540 million consumers and selling over
1.3billion unit cases of beverage annually. The company recently embarked on restructuring
exercise to expand further it market share and growth profit. It invested in
a new state of the art can filling packing line at the Apapa plant.
This is in addition
to a new bottling plant in Abuja, investment in the upgrade of other
manufacturing infrastructure, distribution and delivery facilities.
Nigerian Bottling
company Plc (NBC) Company and a sole franchise of the coca-cola Inc. spanning
over six decaes of operation, NBC is a market leader in the production of
non.
A softer than expected macroeconomic
posed challenges to the manufacturing sector of which NBC, as an integral
part has to come to grips with to stay ahead of the pack. Major challenges
facing the industry include weak infrastructural support facilities
(especially power), Unfair Competition from cheaper imported products and
rising cost of fund among others, an analysis of the financial strength of
NBC reveals an above-per performance in 2007. Hretrospect, we observe abysmal
results in 2006. This was however reversed in 2007 with 13.91 percent ROE and
201.69 percent growth in PAT. Due to the FYE 2006 performance, NBC exhibited
a very risky financial profile, (based on Altman’s Z score). However, it
scaled through the 4years average. Q1 2008 result show, respectively,
turnover and PAT growth of 10.2 percent and 11.7 percent. Our forecasts for
FYE 2008 percent and 5.0 percent for turnover and PAT respectively in valuing
NBC, we employed both the Discounted cash flow (DCF) and relative valuation
Methodologies we obtained #13.57, #12.12 and #23.19 respectively from the
discounted.
Divided method, present value of
Growth Opportunities and Residual income valuation. Our relative of
Price-to-Earnings (P/E), price-to-sales (P/S) yields #55.75, #97.82 and
#176.12 respectively. Attaching appropriate weights to each of the
methodologies, we arrived at a fair price of #65.77 with a discount to
valuation of 14.39 percent and an upside potential of
We therefore place a BUY
recommendation medium and long term investment horizons.
1.2
STATEMENT OF PROBLEM
The
undeveloped countries like Nigeria suffer not only from low income and
unstable growth, but also from regional disequilibrium, economic instability
unemployment, depending on foreign countries, specialization in the
production of raw materials and economic, social, political and cultural
marginality.
Underdevelopment
is an element in the process of development of the international system
underdevelopment and developments are two facts of a single process of which
both internal and international structures are causes. International treacle brings about
polarization because the low income countries are assigned the production of
primary production (raw materials) which are processed in the home countries
because of worsening and unstable terms of trade, because the economics of
the low income countries lack the force work force, the entrepreneurship and
physical/institutional infrastructure to seize export opportunities and
because of generally monopolistic arrangement by which profits flow out from
the underdeveloped countries to the developed.
Because the NNC’s
tend to come from the developed countries and because their operations tend
to add to host countries production, MNC’S presumably improves the
distribution of income, goods and services between the richer and poorer
countries.
Within the host
societies however, it is guide different to judge whether a direct investment
project improves or aggravates these income, goods and service distribution.
The literature
critical of MNC’s demonstrates that Foreign Direct Investment (FDI) after do
not help the economic life of cost societies, do not improve their well being
hence not benefiting lower income people Very well.
In Nigeria for
unsnarl, there is that popular and commonly held view that manufacturing
multinationals have done greater lower than good to the host communities as a
result of their operations in these communities wheel has led to loss of
economic and social quality and environmental degradation. It is not out of place for one to say that
these MNC’s have threatenical the health of the indigenes by the use of
dangerous chemical, pollutants etc.
These and more are the problems that will be looked into which
necessitated this research work. It
will try to examine the nature and pattern of foreign direct investment that
is International Corporation in Nigeria manufacturing rector with a
particular reference to Nigerian Bottling Company Plc as a case study.
1.3 PURPOSE OF THE STUDY
1. To
determine the Nigerians drive benefit from multinational corporation in term
of transaction and entrepreneurial.
2. To
determine if multinational corporation contribute to the growth of gross
domestic product (GDP) in the Nigeria economy.
3. To
determine of Multinational Corporation help in solving balance of payment
problem in the Nigerian Economy.
4. To
determine if multinational corporation maintains cordial relationship with in
the host society.
1.4 SCOPE OF THE STUDY
Foreign Direct
Investment (FDI) analysis is clouded by a lot of controversy, variety of
interpretation and numerous emotive value judgement. This recreant opinion about the activities
of MNC’s in the developing countries are as typical as the topic itself. Owing to the divergent opinions that exist,
it would be practically impossible to give a total survey of the current
debate on the topic.
However, this work
will make positive efforts to extract in favour of or against MNC’s in
developing nations. Furthermore, it is
outside the scope of this work to discuss the consequences of Foreign Direct
Investment (FDI) for the investor nations.
1.5
RESEARCH QUESTIONS
1. Do
Nigerians drive benefit from multinational corporation in term of transaction
and entrepreneurial?
2. Does
multinational corporations contribute to the growth of gross domestic product
(GDP) in the Nigeria economy.
3. Can
Multinational Corporation help in solving balance of payment problem in the
Nigerian Economy.
4. What
impact does entrepreneurial make in the economy?
5. How
did Multinational Corporation maintains cordial relationship with in the host
society.
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