CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Globalization has led to a rapid growth in the number of multinational enterprises (MNEs) that have been investing abroad in recent years. Foreign Direct Investment (FDI) has become enormously significant as the magnitude of international business has grown gradually during the last two decades. This development has occurred for several reasons, including the evolution and development of free-market economies around the world, the growth of international financial markets, the proliferation of regional integration between nations, and the numerous communication and technological developments that make managing far flung businesses easier. However, foreign direct investment possesses characteristics that make it highly sought after on the one hand and controversial on the other (Dinda, 2009; Nwankwo, Ademola and Kehinde, 2013).
Foreign direct investment is viewed as a major stimulus to the growth of the financial system in developing countries of which the insurance industry in Nigeria falls into. Its ability to deal with two major obstacles, namely, shortages of financial resources and technology and skills, has made it the centre of attention for policy-makers in low-income countries in particular (Korna, Ajekwe and Idyu, 2013).
According to (IMF, 2004) Foreign Direct Investment (FDI) occurs when there is an investment in a business organization by an investor from a foreign country. Usually, a business organization has FDI when the foreign investor owns not less than I0% of the ordinary shares of the business. This investment includes the purchase by the foreign investor of shares in the business organization located in another country.
In a broad sense foreign direct investment includes mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans. In a narrow sense however, foreign direct investment refers just to building new facilities (Adeleke, Olowe and Fasesin, 2014).
Macaulay (2012) asserted that Nigeria’s foreign investment can be traced back to the colonial era, when the colonial masters had the intention of exploiting our resources for the development of their economy. There was little investment by these colonial masters. With the research and discovery of oil foreign investment in Nigeria, but since then, Nigeria’s foreign investment has not been stable. The Nigerian governments have recognized the importance of FDI in enhancing economic growth and development and various strategies involving incentive policies and regulatory measure have been put in place to promote the inflow of FDI to the country.
In the context of the insurance industry, Augustine and Bamidele (2013) have remarked that the history of insurance industry in Nigeria could be traced to the British colonial trading companies that established agency offices in Nigeria, on behalf of insurance companies in the UK.
Shiro (2009) noted that since the enthronement of democracy in 1999, the government of Nigeria has taken a number of measures necessary to woo foreign investors into the insurance industry Nigeria. These measures, he noted, include the repeal of laws that are inimical to foreign investment growth, promulgation of investment laws, various oversea trips for image laundry by the President among others.