CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY

1.2   STATEMENT OF THE PROBLEM

The challenge of most developing economies like Nigeria today is their overdependence on foreign capital which does not bring positive impacts only but negative impacts as well.

In spite of the laudable benefits the Nigerian insurance sector stands to derive from the inflow of foreign capital (FDI) and its attending contribution to economic growth, improvement of the living standard of the people and the provision of social amenities, the problem arises as to what extent the Nigerian insurance sector and indeed the entire economy should depend on foreign direct investment.

In recent years, firms from Asia, the US and Europe invested heavily in equities and bond markets in Nigeria. But as institutional investors around the world battled to provide cushion for their credit markets which was thrown into unprecedented deficit as a result of the global credit crunch or financial meltdown, they had to pull out their funds from Nigeria. Financial analyst say the implications of this capital flight is that local businesses in Nigeria may take a much longer time to recover because firstly local firms lack the financial muscle to cover the vacuum created by these multinationals, and secondly the FDIs will not return immediately even when the global financial market may begin to pick-up or stabilize.

Dependency theorist has also focused on how FDI of Multinational Corporation distorts business financial performance in developing nation economies. In the view of these scholars, distortion includes the crowding out of national firms, rising unemployment related to the use of capital intensive technology and a marked loss of political sovereignty.

Typically, multinational corporations in developed countries have actually become a threat to host countries as they are now subversive and exploitative. Interestingly there are some arguments about whether FDI is really beneficial or not and how significant this benefit is to insurance business financial performance in Nigeria is largely unclear.

Moreover, many of the studies on foreign direct investment (FDI) were done outside Nigeria. These studies particularly focus on economic growth. Research on impact of foreign direct investment (FDI) on company’s financial performance are very few. In Nigeria, most of the available studies about foreign direct investment (FDI) such as Otepola (2002); Onu (2012); Nwankwo, Ademola and Kehinde (2013); Adeleke, Olowe and Fasesin (2014) explored the link between foreign direct investment (FDI) and economic growth. These researches were also theoretical studies whose findings were subjectively based on researchers’ personal opinions. It is noted that the past studies did not give adequate attention to the impact of foreign direct investment (FDI) on company’s financial performance, as well as highlighting effective management of foreign direct investment (FDI) strategy that can stimulate better organization performance. Hence, the undertaking of this research work will fill in the gap by critically exploring the impact of foreign direct investment (FDI) on company’s financial performance with a special reference to some selected insurance companies in Lagos State.

1.3   OBJECTIVES OF THE STUDY

The study was conducted with the following research objectives:

    i.      To investigate the effect of foreign direct investment (FDI) on company’s financial performance.

  ii.      To explore the impact of multinational corporations on host country’s business survivability.

 iii.      To find out the relationship between foreign direct investment and economic growth in Nigeria.

 iv.      To find out the challenges to foreign direct investment in Nigeria.

   v.      To provide plausible recommendations on how to improve company’s financial performance in the face of FDI activities.

1.4   RESEARCH QUESTIONS

This study was guided by the following research questions:

    i.      What is the effect of foreign direct investment (FDI) on company’s financial performance?

  ii.      Do multinational corporations have impact on host country’s business survivability?

 iii.      Is foreign direct investment significantly related to economic growth in Nigeria?

 iv.      What are the challenges to foreign direct investment in Nigeria?

   v.      How can government policy improve company’s financial performance in the face of FDI activities?

1.5   RESEARCH HYPOTHESES

The following hypotheses were tested in the study:

Hypothesis 1:

H_o:   There is no significant relationship between foreign direct investment      and     company’s financial performance.

H_I:      There is a significant relationship between foreign direct investment       and     company’s financial performance.

Hypothesis 2:

H_o:     Foreign direct investment do not have positive relationship with the growth     of the Nigerian insurance industry

H_I:  Foreign direct investment have positive relationship with the growth of the          Nigerian insurance industry.