Download MasterThesis_Charlotte_Strindlund

Why does China’s FDI play a decisive role in Nigeria’s
development? And how can we understand it from a critical
viewpoint?
Charlotte Strindlund
30/08/2015
Aalborg University and University of International Relations
China and International Relations
Strokes: 97 024
Table of Content
Abstract
1. Introduction...........................................................................................................................4
1.1. Situational overview..................................................................................................4
1.2. Defining the Question and Thesis..............................................................................5
1.3. Research Aim and Structure......................................................................................7
2. Methodology.........................................................................................................................8
2.1. Notions………………………………………………………...…...……………...14
3. Important Concepts………………………………………………………………………...17
3.1. Foreign Direct Investment…………………..…………………………………….17
4. Grounding of Context……………………………………………………………….……..18
4.1. China……………………………………………………………………..………..18
4.2. Nigeria……………………………………………………………………………..20
4.2.1. Foreign Direct Investment in Nigeria……………………………………21
4.2.2. Political Instability in Nigeria…………………………………………...22
4.3. China-Nigeria Relations…………………………………………………………...24
4.4. Foreign Direct Investment and Political Instability……………………………….30
5. Theoretical Framework…………………………………………………………………….35
5.1. International Political Economy: World-System Theory………………………….35
6. Analysis…………………………………………………………………...………………..39
7. Discussion……………………………………………………………………………...…..45
8. Conclusion…………………………………………………………………………………50
References
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Abstract
This thesis is aimed at analyzing why China’s FDI is important to Nigeria’s development and
how we can look at the relationship from a world-system theory point of view. Furthermore, I
aim to analyze what how China stands to gain from Nigeria’s political instability.
Throughout the years, China and Nigeria have forged a close economic relationship.
However, debates have arisen which are derived in the issue that Nigeria has become
dependent on China and the large amount of FDI it provides.
The results of this thesis show that China’s FDI is crucial for Nigeria’s continued
development because over the years, Nigeria has become dependent on China. Furthermore,
Nigeria is in need of what Chinese FDI can provide Nigeria with which is infrastructure and
skills; two components which are vital for a country’s development. From a world-system
theory viewpoint we can look upon the relationship as China exploiting Nigeria to further its
own interests, power and influence in the world. In addition, China can find multiple
opportunities to benefit from Nigeria’s political instability.
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1. Introduction
1.1. Situational overview
The Federal Republic of Nigeria, from here on Nigeria, is located in the poorest region of the
world – Sub-Saharan Africa (Pasquali 2015). Over the years studies have shown that foreign
direct investments (FDI) are a positive contribution to economic growth and development in
developing countries (Alade Ajayi and Babalola 2011). Nigeria, as a developing nation, is
heavily dependent on foreign direct investment (U.S. Department of State 2013). Being an oil
country (Madueke 2014), Nigeria has received large amount of FDIs, from various countries
(Corporate Nigeria 2010/2011 D), including China (Egbula and Zheng 2011). Nigeria and the
People’s Republic of China, from here on China, have for long enjoyed a close relationship as
China is in constant need of crude oil in order to satisfy domestic demand while Nigeria is in
need of foreign direct investment to fuel the growth of its domestic economy (Ibid). The
relationship that China and Nigeria is enjoying at the moment has for long been speculated is
based on dependence. The large amount of FDI China is providing Nigeria with has created
concerns that Nigeria’s further development is dependent on Chinese FDI. On top of this,
based on world-system theory signs can be found that China is exploiting Nigeria to advance
its own power and wealth.
Furthermore, there are certain conditions that will have an impact of the flow of FDIs into a
country; some of them being political and economic stability as well as rules and laws (Ibid).
Since 2009, Nigeria has been heavily plagued by ethnic, religious and political violence that
mainly involve Northern Nigeria and Abuja, Nigeria’s capital (U.S. Department of State
2013; BBC News 2015 B). Responsible for these acts, which has killed over 10 000 people
since 2009, is Boko Haram, an Islamic sect that has entered into a campaign to call for the
institution of Sharia law across Northern Nigeria (Ibid). The sect’s attacks have, over the
years, only become more deadly and advanced (Ibid). Fortunately for Nigeria, Chinese
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investors are known to take more risks than Western investors. However, from a worldsystem theory viewpoint China could be able to gain opportunities through Nigeria’s political
instability.
1.2. Defining the Question and Thesis
I pose the following question in regards to this thesis “Why does China’s FDI play a decisive
role in Nigeria’s development? And how can we understand it from a critical viewpoint?” By
asking these questions I hope to understand China’s role in Nigeria and its importance. I also
aim to understand the dependent relationship China is currently creating by providing Nigeria
large amounts of FDI and how China can capitalize and gain on Nigeria’s political instability.
The dependent relationship is an undergoing debate which derives from the issue that China
supplies Nigeria with large amounts of FDI and is thus making Nigeria dependent on the FDI
to further its development. Due to unequal exchange China is exploiting Nigeria to advance
its own power, influence and standing in the world. China, however, maintain that the
relationship between the two countries is mutually beneficial.
I will analyze my research question through a world-system theory point of view. Worldsystem theory tries to explain “development of underdevelopment” (Gorin 1989, p. 333). It is
based on the belief that the international system and the way it is structured prevents poor
countries from developing (Moaddel 1994). The international system is made up of three
different kinds of states: the core, the semi-periphery and the periphery (Moaddel 1994;
Jackson and Sørensen 2010 B; Robinson 2011); China being the core and Nigeria being the
periphery in regards to this thesis. What the world-system theory claims is that the core
countries exploit the periphery countries in order to advance their own wealth and power
(Ibid).
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Over the years Nigeria has become dependent on China as China has for long been a large
investor into the Nigerian society (Agubamah 2014). However, according to Gunder Franke,
most periphery countries will experience their “greatest economic development” when the
core countries have withdrawn (Corbridge 1986, p. 132). The problem and contradiction with
this lies in the fact that Nigeria is in need of China’s continuous FDI, but at the same time
unless China decreases its FDI, Nigeria will never be able to generate consumer led economic
growth rather than export-oriented growth, yet if China withdraws from Nigeria, the Nigerian
economy and ultimately the Nigerian society and its people will suffer.
The advantage of Nigeria’s dependence on China is that Nigeria’s economy is doing well,
development is increasing and the standard of living for the Nigerian population is thus better.
Furthermore, with a strong economy it is easier for Nigeria to battle Boko Haram. In addition,
it will not be as easy for Boko Haram to infiltrate the Nigerian population if the economy and
thus the standard of living for the Nigerian population is satisfactory. If Boko Haram were to
be defeated, it would be easier to achieve development. On the other hand, the disadvantage
of Nigeria being dependent on China means that China can easily exploit and take advantage
of Nigeria. China is also in a position to facilitate its policies and influence decision making
that will be to China’s benefit.
The significance of the topic lies in the fact that with globalization, global trade is increasing
and so are investments in foreign countries. While the hope is to build a mutually beneficial
relationship, the disadvantage of core countries investing in periphery countries is that the
relationship might become dependent, as might be the case between China and Nigeria (Abu
Akoh 2014). A dependent relationship is advantageous for the core country, but less so for the
periphery country; the periphery country can even more easily be taken advantage of.
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1.3. Research Aim and Structure
World-system theory and the concept of dependent relationships long held much value in the
academic community (Feldman 2001; Straussfogel 1997). Over time, however, the theory was
replaced with more contemporary and mainstream theories which were thought to understand
the world of politics better (Ibid). This paper seeks to understand the nature of the relationship
between China and Nigeria. In today’s world the wish is to believe that countries mutually
benefit from trading and collaboration on certain matters. However, through this thesis, I wish
to highlight the fact that periphery countries are still exploited today, and the ease at which
this exploitation occurs, perhaps even more so when political instability is present.
The paper is divided into seven different chapters, besides the introduction. It starts with
methodology where I explain my choices from topic to theory to structure. I then cover
important concepts, concepts which are used throughout the essay; in this chapter I will
explain what foreign direct investment is. The next chapter is grounding of context where I
present China as a country, as well as Nigeria. I will also describe foreign direct investment
and political instability in Nigeria. The grounding of context chapter also defines the SinoNigerian relationship, including the relationship between FDI and political instability.
Throughout this paper I talk about Nigeria’s political instability which mainly involves Boko
Haram, however it is important to realize that Nigeria has had political instability for a long
time, starting at the beginning of their independence (Muhammed 2007), however this paper
does not focus on Nigeria’s past political instabilities. The following chapter will be
theoretical framework where I will describe world-system theory. The last three chapters are
the analysis, the discussion and lastly, the conclusion.
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2. Methodology
Purpose
I pose the following questions in regards to this thesis “Why does China’s FDI play a decisive
role in Nigeria’s development? And how can we understand it from a critical viewpoint?” By
asking these questions I hope to understand China’s role and importance to Nigeria.
This paper seeks to understand the nature of the relationship between China and Nigeria. In
today’s world the wish is to believe that countries mutually benefit from trading and
collaboration on certain matters. However, through this thesis, I wish to highlight the fact that
periphery countries are still exploited today, and the ease at which this exploitation occurs,
perhaps even more so when political instability is present.
I also aim to understand China’s importance to Nigeria and the specificities of the dependent
relationship China has been establishing with the provision of large amounts of FDI to
Nigeria. Additionally, I aspire to look into how China can capitalize and gain on Nigeria’s
political instability. Over the years, Nigeria has become increasingly reliant on China for
capital seeing that China has for long been a large investor into the Nigerian society
(Agubamah 2014).
The problem of Nigeria’s dependence lies in the fact that Nigeria is in need of China’s
continuous FDI, but at the same time, unless China decreases its FDI, Nigeria might never be
able to generate consumer led economic growth rather than export-oriented growth. Yet if
China was to withdraw from Nigeria, because of factors like poor leadership and factors such
as corruption hindering the country from achieving that transition, the Nigerian economy and
ultimately the Nigerian society and its people will suffer. Nigeria’s capital inflow from China
is unquestionably protecting, reinforcing and securing certain areas of its economy. Since the
inception of the relationship between the two countries, Nigeria’s economy and its standard of
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living have improved (Adewuyi et. al 2008). On top of everything, a stronger economy could
also facilitate the breakdown of Boko Haram. Strong standards of living could acts as
deterrent for Nigerians to the Boko Haram troops. Contrastingly, the main detrimental aspect
of Nigeria’s dependence will be the asymmetrical power structure of the relationship which
China could misuse with ease; China could easily have access to the lower priced resources it
needs and thus take advantage of the relationship and Nigeria. China is also in a position to
facilitate its opinions and influence decision making which could benefit China in the long
run.
The significance of the topic lies in the fact that with globalization, global trade is increasing
and so are investments in foreign countries. While the hope is to build a mutually beneficial
relationship, the disadvantage of core countries investing in periphery countries is that the
relationship might become dependent, as might be the case between China and Nigeria (Abu
Akoh 2014). A dependent relationship is advantageous for the core country, but less so for the
periphery country; the periphery country can even more easily be taken advantage of.
Outline
The paper is divided into seven different chapters, besides the introduction. It starts with
methodology where I explain my choices from topic to theory to structure. I then cover
important concepts which are explained throughout the essay; this chapter will explain what
foreign direct investment is. The next chapter is grounding of context where I present China
as a country, as well as Nigeria. I will also describe foreign direct investment and political
instability in Nigeria. The grounding of context chapter also defines the Sino-Nigerian
relationship, including the relationship between FDI and political instability. Throughout this
paper I talk about Nigeria’s political instability which mainly involves Boko Haram, however
it is important to realize that Nigeria has had political instability for a long time, starting at the
beginning of their independence (Muhammed 2007). However, this paper does not focus on
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Nigeria’s past political instabilities. The following chapter will be theoretical framework
where I will describe world-system theory and what it stands for. The last three chapters are
the analysis, the discussion and lastly, the conclusion.
Choice of Country and Topic
Due to the orientation of my Master’s Degree, I needed to select a topic involving China. I
decided to focus my thesis to extensively investigate political instability as it is a topic that is
extremely relevant. I chose Africa as certain countries on this continent have and still face
heavy political instability. After further research I became aware of the close tie between
China and Nigeria, a country that is troubled with political instability. At the moment China is
very important to Nigeria in terms of FDI and the extensive influence China has already
established in Nigeria, to a point where dependence has become an issue. Nigeria’s ongoing
political instability is especially relevant due to the horrendous acts committed by Boko
Haram, acts that only seem to be increasing (U.S. Department of State 2013). Boko Haram is
an Islamic sect that has entered into a campaign to call for the institution of Sharia law across
Northern Nigeria (Ibid). The sect’s attacks have, over the years, only become more deadly and
advanced (Ibid). The most well-known and horror attack, though, has been the abduction of
200 schoolgirls last year, many of whom are still missing (Ibid). It is being said that since
2009, Boko Haram is responsible for over 10 000 deaths (BBC News 2015 B).
Theoretical Perspectives
I chose to base myself on the world-system theory viewpoint throughout this paper.
The choice of theory was based on its applicability to the chosen topic and on the premise that
it is most suitable when interpreting and analyzing the empirical material in relation to China,
Nigeria, FDI and political instability. I could also have used dependency theory as the two
theories have many similarities, as for example throughout this thesis I have used the concepts
unequal exchange and dependent relations; both of which can be found in world-system and
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dependency theory (Ahiakpor 1985; Friedmann and Wayne 1977; Moaddel 1994). While both
theories recognize that the rich countries exploit the poor countries in order to increase their
own wealth, world-system theory realizes that the world system is not just divided into rich
and poor, but that the world is indeed far more complex than that (Robinson 2011). Worldsystem theory concerns itself on a more global level and understands that even though states
are not equal they can still maintain a mutually beneficial relationships, which is why I
believe that the complex relationship between China, Nigeria, FDI and political instability can
best be analyzed by world-system theory.
Choice of Material
Nigeria’s turbulent state of affairs is neither recent nor unique, it has however intensified,
allegedly due to the current situation involving Boko Haram.
I gathered information from books, academic articles and trusted Internet websites. However,
due to the recent nature of these events, there is limited amount of primary data available,
which is why I mostly used secondary data instead. Nevertheless, I did conduct a few personal
interviews with people who are knowledgeable about Chinese business abroad and with
Chinese nationals.
Furthermore, I used the media as a source of information as these tend to focus on the societal
issues and because the media often offers supplementary information to books, academic
articles, journals and reports. Furthermore, news outlets are vital to this thesis due to the fact
that the development in Nigeria is ongoing, and because of it, there is limited amount of
academic articles on the subject. In addition, the secondary data will also consist of reports
from the United Nations (UN), the International Monetary Fund (IMF) and the World Bank.
These three organizations are some of the most respectable and well-known organizations
dealing with, but not limited to, political instability, which is why the information is reliable.
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By combining multiple sources of information, I hoped and expected to receive a more
comprehensive picture of the situation.
Besides the few personal interviews, I have mainly used secondary data, thus, I have no
control over how the data has been collected and interpreted, except for my own critical
evaluation. Due to the fact that I have more secondary data than empirical research, this thesis
will be based on qualitative rather than quantitative methods.
Choice of Analytical Strategy
Since there are only two actors, China and Nigeria, involved in this topic, I decided to divide
the thesis into important concepts and a section of grounding of context where current
information and background information is given to the relevant topics involved. As such, I
have not divided the paper in accordance to the actors and their positions. In order to fully
appreciate the situation, I believe that this strategic approach will give the reader and me a
deeper understanding of the issues and from there on I will be able to answer my research
questions successfully.
Case Study
I decided to structure the paper based on a single-case study design, as the purpose of a
single-case study is to provide an in-depth analysis of the subject at hand. Therefore, a case
study is more suitable for the exploratory phase, and less so for the descriptive phase (Yin
2003; Chadderton and Torrance 2011). The research question is aimed at finding out the
importance of China’s FDI to Nigeria’s development. Thus, the use of an exploratory study is
justifiable. At the same time, it helped me analyze China’s objectives but somewhat limited
my findings to the selected area.
Source Criticism
I acknowledge some critical reflections in the choice of the methodology of this thesis. I am
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aware that some bias may occur when using existing empirical material, for example, the
limited English speaking Chinese news outlet I have been able to use, describe China as a
responsible actor. Therefore, it should be handled with caution. In other words, many Western
news outlets portray the opposite picture of China - a country that increases its own wealth
and becoming a bigger player on the international political arena, but yet does not adopt the
responsibility as one of this decade’s biggest superpower. Furthermore, Chinese news outlets
have often been perceived as ‘diplomatic puppets’ which hurts their credibility and
objectivity. Conversely, Western media is, at times, very critical of China’s growing interests
in Africa as a whole, which has made it difficult to offer a more balanced and impartial
analysis, which is why I made sure to use various news outlets with different perceptions. I
also acknowledge that the origin for the empirical material was created for another purpose
and thus it is vital for me to interpret the material objectively to avoid any bias.
Limitations
As I lack Mandarin skills, the accessibility of Chinese academic journals and media sources
has been limited; I have mainly used English written material. As English is the official
language in Nigeria, I have been able to take part of Nigerian news articles as well as
published reports, papers and articles. As a result, I have been able to more clearly understand
the situation from Nigeria’s point of view. Due to Mandarin language limitations, I have
unfortunately not been able to do the same for China. In addition, throughout the paper I have
mainly used secondary sources written in English. I am aware of the fact that if I would have
used more primary data and Chinese articles written in Mandarin, particularly news articles,
my understanding and outlook on the situation might have been different. Thus, the lack of
the Mandarin language skills and limited primary data did put some limitations to my analysis
and hence the answer to my research questions.
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2.1. Notions
In this section I will describe how exploitation and underdevelopment came to Africa, the
meaning of dependence, review the reasons as to why China is considered to be a core
country and Nigeria a periphery country, and finally I will explain political instability. These
understandings are the most important notions throughout this thesis, it is thus vital to
understand their meanings in accordance to this thesis. Other important notions will be
explained under the important concepts section.
How exploitation and underdevelopment came to Africa
It is claimed that Africa became a part of the world system in year 1444 when the Europeans
started their transatlantic slave trade (Alcott n.d.). Between 1444 and 1885, the Europeans
exploited and dominated the continent by using their power, more advanced development and
superior shipping and military skills (Ibid). The biggest profits for the European countries
were slave trade (Ibid). Even when slave trade was banned, with Great Britain being the first
country to enforce this law, the dominance and exploitation continued in terms of colonization
(Ibid). This is how colonies were established and how exploitation and underdevelopment
came to exist in Africa, including Nigeria (Ibid).
Dependence
By dependence I refer to Theotonio Dos Santos who describes dependence as “in which the
economy of certain countries is conditioned by the development and expansion of another
economy to which the former is subjected. The relation of interdependence between two or
more economies, and between these and world trade, assumes the form of dependence when
some countries (the dominant ones) can expand and can be self-sustaining, while other
countries (the dependent ones) can do this only as a reflection of that expansion, which can
have either positive or a negative effect on their immediate development” (Dos Santos 1970,
p. 231).
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China as a core country
In the interest of this thesis I will classify China as part of the core countries. In reality,
China’s status in the world in terms of core, semi-periphery and periphery is semi-periphery
(Efrén Morales Ruvalcaba 2013). China and its economy, are much diversified causing social
inequalities and disparities all over the country which is why China is considered to be a
semi-periphery country (Ibid). However, in my thesis I position China as a core country
because, after the United States, it is the second largest economy in the world (World Atlas
2015 B) and has the ability to challenge the existing world order. Furthermore, China invests
heavily outside of its borders, including Nigeria, making China a very powerful and
influential country; two things that only core countries can be. Lastly, most aggregates seem
to indicate that China is an emerging superpower.
Nigeria as the periphery
Nigeria’s status in the world in terms of core, semi-periphery and periphery is periphery
(Osuntokun 2013). Nigeria is located on the poorest continent on earth (Pasquali 2015) and
even though it holds a semi-periphery or even a core status regionally, globally Nigeria is
considered to be a periphery country (Ibid). This is based on the facts of global trade (Ibid).
All African countries contributes approximately 2, 5 % to the world economy combined
(Caon 2013). Although not all African countries contribute equally to the 2, 5 %, the fact that
more than 50 countries do not make up more than 2, 5 % of the world economy unfortunately
qualifies them as periphery countries.
Political Instability
Political instability is defined as something not related to the constitution (Alesina et. al
1996), the acts of Boko Haram are clearly not considered to be related to the constitution.
Moreover, under normal circumstances I would not view a new democratic government
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change as political instability, even though uncertainty might arise (Alesina et. al 1996), but
in the case of Nigeria, and in my view it clearly does. Nigeria as a democracy has not existed
for long, and even though it just had another democratic election (BBC News 2015 B), the
uncertainty the new government creates plus the troublesome Boko Haram situation have
resulted in rising political instability.
It is important to realize that Nigeria has been plagued by political instability for a long time;
it can be traced back to the time when Nigeria gained their independence (Muhammed 2007).
Nonetheless, this paper does not touch upon the past political instabilities Nigeria has been
facing, but rather on the current ones, which are mainly due to Boko Haram.
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3. Important Concepts
3.1. Foreign Direct Investment
In order to have economic development, nations need profitable investment (Busse and
Hefeker 2007). This can be achieved through foreign direct investment, also known as FDI
(Ibid). When countries have access to foreign capital they are given opportunities that
otherwise would not have existed (Ibid). This is particularly true when it comes to developing
nations (Economy Watch 2010).
“Direct investment means that foreign investors exercise de facto or de jure
control over the assets created in the capital-importing country by means of
their investments: this typically involves setting up a company or subsidiary
of a company hitherto operating in the capital-importing country in which the
foreign investor maintains majority control. It may also involve acquiring
fixed assets in the target countries by nationals from the investing country”
(Alade Ajayi and Babalola 2011, p. 276).
Foreign capital may take the shape of official loans, official grants or private investments
(Alade Ajayi and Babalola 2011). FDIs can be separated into two groups: market-seeking and
non-market seeking (Asiedu 2002). Market-seeking FDIs are merchandise that have been
produced and sold in the local market, and thus serves the domestic markets (Ibid). While
non-market seeking FDIs are locally produced merchandise that are sold abroad (Ibid).
Countries want to attract FDI because they are
“expected to generate growth in the recipient country through direct and
indirect links with the local economy (Dahman-Saïdi 2013). FDI can
facilitate technology transfer, stimulate domestic investment, promote export
and create employment, which accelerates into development through growth”
(Ganiou Mijiyawa n.d.; Asiedu 2002).
Foreign trade has helped nations develop and is thus a vital mechanism in a country’s
economy (Abu Akoh 2014). Individuals, governments or corporations can hold FDIs (Alade
Ajayi and Babalola 2011). But what defines an FDI is “that a foreign firm or individual must
control a majority shares in the firm receiving the investment funds” (Alade Ajayi and
Babalola 2011, p. 279).
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4. Grounding of Context
4.1. China
China is the fourth largest country in the world based on its total geographic area (World
Atlas 2015 A). Civilization started to emerge some one million years ago around the regions
of the Yellow River and the Yangtze River (Ibid). Today, China has 1, 3 billion inhabitants,
making it the largest country on earth based on population (World Bank 2015; CIA World
Factbook 2014). During the era of dynasties, China was known for its knowledge and
competences in sciences and arts (World Atlas 2015 A). Furthermore, throughout the years,
many intellectual movements have been formed in China, including Taoism, Confucianism,
Legalism and many others (Ibid). Despite China’s flourishments in culture, science and arts
during the course of the 19th century, China experienced heavy instability; lack of food,
foreign occupation, civil unrest and several military defeats (BBC History 2014). China’s
situation started to improve in the 20th century, but foreign occupation remained (Ibid). The
Republic of China was established in the beginning of January 1912, the establishment
signified the end of China’s last dynasty: the Qing Dynasty (Ibid). In 1949, People’s Republic
of China was established (PBS 1999) and China was able to forge an alliance with the
Communist Party of China with the help of Soviet Russia (Ibid). Today, China remains to be
a communist state and is one of the five communist states left in the world together with
Cuba, Laos, North Korea and Vietnam (World Atlas 2015 A; Amir 2015). The upsurge of
communism in China started post World War II with Mao Zedong in office (BBC History
2014). Mao remains as an important person in Chinese history, although today’s youth do not
hold him to the same high regard as the prior generations do (Jiang 2015). However, during
his time in office, Mao, enforced strict control on the Chinese citizens and introduced the
policy of “The Great Leap Forward” that killed millions of people, all while protecting the
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Chinese sovereignty (BBC History 2014). Due to these actions the western countries look to
Mao as a dictator (Ibid).
Mao’s successor, Deng Xiaoping, started to open up China to the rest of the world in 1978;
China underwent economic reform from a centrally planned economy to a market based
economy (World Atlas 2015 B; World Bank 2015). As a result, China’s economy rapidly
developed; GDP had increased by 400 % by 2000 (Ibid). Even though political control
remains strict, China’s economy continues to flourish by increasing its free market (World
Atlas 2015 B). In 2013, China overtook Japan as the world’s largest economy, after the
United States (World Bank 2015; World Atlas 2015 B). Besides being the largest exporter of
goods, China’s tourism sector is contributing to China’s economic success as China continues
to be one of the most interesting countries to visit (World Atlas 2015 B).
Even though China’s GDP growth decreased last year from 10 % to 7, 4 %, China has had a
steady 10 % annual GDP growth for the past couple of years and thus more than 500 million
Chinese have come out of poverty (World Bank 2015). Despite China’s high annual GDP
growth, its per capita income is still far less than any other developed country (Ibid). China
has a national poverty line of RMB 2 300 per year, approximately 370 USD (World Bank
2015; X-Rates 2015), and according to the statistics from the World Bank from 2012,
approximately 98.99 million people have to survive on less than 2 300 RMB per year (World
Bank 2015). Thus, in many ways, China is still a developing country, at least for now (Ibid).
However, due to China’s large and rapidly increasing economy, China’s political and
economic influence in the economic and political world are simultaneously increasing (Ibid).
China is a member of, but not limited to, Association of Southeast Asian Nations, AsiaPacific Economic Cooperation, IMF and the World Trade Organization (CIA World Factbook
n.d.).
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4.2. Nigeria
The Federal Republic of Nigeria has a population of 175 million and is thus the most
populous country in Africa and the 32nd largest in the world (Corporate Nigeria 2010/2011 I;
Corporate Nigeria 2010/2011 J). Nigeria’s size has qualified it into being Africa’s fastest
growing market (Oduh Ezediaro 1971). It is a presidential democracy Muhammadu Buhari is
the sitting president since Nigeria held democratic elections, which were praised by world
leaders as no sign of electoral fraud were found, on April 11 (Corporate Nigeria 2010/2011 I;
Smith 2015; Naij 2015; BBC News 2015 B). Nigeria is rich in agricultural products such as
pepper, cocoa, chilies, palm produce, corn, groundnuts, yams, cotton, rubber, soybeans,
beniseed, cassava and ginger (Madueke 2014). In addition, the country has been blessed in
terms of natural resources, it has bitumen, coal, cocoa, gold, tin and most importantly oil
(Ibid). Nigeria’s growth in the industrial production has also been remarkable (Oduh Ezediaro
1971). As a result, in comparison to many other African nations, Nigeria has a welldiversified economy (Ibid). The official language is English, but another 478 different
languages and dialects are spoken throughout the country (Corporate Nigeria 2010/2011 F).
Nigeria is home to more than 250 ethnic groups; 50% Muslim, 40% Christian and 10% hold
traditional indigenous beliefs (Ibid).
Nigeria, as a country, was formed in 1914 when the British government decided to annex
three of their colonial territories together: the Southern Provinces, the Northern Protectorate
and Lagos (Corporate Nigeria 2010/2011 E). Nigeria gained independence from Britain in
1960, but not until 1963 did Nigeria officially break all ties with Britain and introduced itself
as its own republic (Ibid). As mentioned above, Nigeria has only been a democracy for some
15 years and their first civilian handover of power happened in 2007 (Corporate Nigeria
2010/2011 G). Nigeria is a member of, but not limited to, the IMF, the World Bank, the
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World Trade Organization, the African Union, Organization of the Petroleum Exporting
Countries and the African Development Bank (Corporate Nigeria 2010/2011 K).
4.2.1. Foreign Direct Investment in Nigeria
Nigeria liberalized their economy in 1995 as a way to improve its business environment
(Corporate Nigeria 2010/2011 C). Since then, Nigeria is one of the most open countries in
Africa for foreign investors (Ibid). Out of the African nations, Nigeria is the one receiving the
largest amount of FDI; this makes Nigeria the nineteenth largest FDI recipient in the world
(Corporate Nigeria 2010/2011 D). With its exceeding 9 billion tons in oil reserves Nigeria is
today the largest oil producers in Africa meaning that most of the country’s FDI comes from
major oil consumers, like China (Ibid). In addition, the country has 5, 2 trillion cubic meters
of natural gas, and thus holds the seven biggest resources in the world (Ibid). China’s net
investment to Nigeria is worth approximately $15, 42 billion, making Nigeria China’s second
largest trading partner (Corporate Nigeria 2010/2011 D; Gabriel 2013). According to
statistics, Nigeria receives over 98 % of its export earnings and about 83 % of government
revenues from its oil sector, making the economy heavily dependent on it (Zuckerman 2015).
Like any other nation in Africa, Nigeria lacks infrastructure (Asiedu 2002), but due to FDI
Nigeria’s economy continues to grow and can thus, with time, improve this area (U.S.
Department of State 2013).
Due to Nigeria’s oil reserves, the country was to a certain degree spared from the global
economic crisis as it had the ability to raise oil prices (Ibid). Yet, Nigeria is in need of further
FDIs because it needs to restore its infrastructure in terms of ports, bridges, roads and airports
(Ibid). This is a means to an end to reach Nigeria’s actual goal, which is to develop the tourist
sector, improve transportation links, create housing, improve the public services, create jobs
and eradicate poverty (Ibid); Nigeria is aiming to become one of the world’s top 20
economies (Egbula and Zheng 2011). It is the government’s hope that Nigeria can attract
21
overseas companies looking for new market opportunities in developing nations (Corporate
Nigeria 2010/2011 B). Nigeria can offer foreign investors cheap work force, a variety of
natural resources and possibly the most extensive domestic market in sub-Saharan Africa
(U.S. Department of State 2013). Compared to other developing nations, Nigeria has ensured
foreign investors against non-commercial risks to a much higher degree (Oduh Ezediaro
1971). As a result, many investors have been interested to invest in developing nations like
Nigeria (Ibid). Additionally, in the hopes of attracting further FDIs, Nigerian laws apply
equally to domestic and foreign investors (U.S. Department of State 2013). However, Nigeria
has made sure that it is protected in some areas and thus introduced the Nigerian Investment
Promotion Commission Act in 1995, which states that
“100% foreign ownership is allowed in all industries except for oil and gas,
where investment is constrained to existing joint ventures or new productionsharing agreements. Investment from both Nigerian and foreign investors is
prohibited in a few industries crucial to national security: the production of
arms and ammunition, and military uniforms. Investors can repatriate 100%
of profits and dividends” (Corporate Nigeria 2010/2011 D).
According to Michael Obadan and Harold G. Osuagwu, the market size and the trade policies
are key factors for foreign private investment in Nigeria, as well as the supply of capital,
government policies, assimilative capacity and the rate of return (Alade Ajayi and Babalola
2011). This means that Nigeria has done everything by the book in order to attract more FDI,
however the current political instability in Nigeria might negatively affect further FDIs. The
government of Nigeria realizes that it needs to be able to assure its foreign investors of nonrisks in order to maintain or attract more FDI (Oduh Ezediaro 1971). Chinese investors do not
fear risk as much as other investors, however the Nigerian political instability and
unpredictability could discourage future investments (Egbula and Zheng 2011).
4.2.2. Political Instability in Nigeria
Since 2009, Nigeria has been plagued by ethnic, religious and political violence that mainly
involve Northern Nigeria and Abuja, Nigeria’s capital (U.S. Department of State 2013; BBC
22
News 2015 B). Responsible for these acts is Boko Haram, an Islamic sect that has entered into
a campaign to call for the institution of Sharia law across Northern Nigeria (U.S. Department
of State 2013). The sect’s attacks have, over the years, only become more deadly and
advanced (Ibid). The sect has targeted everything from mosques, churches, educational and
governmental institutions, to the United Nations’ headquarter in Abuja (Ibid). To their
disposal, the sect uses explosive devices and suicide car bombings (Ibid). Since October 2010,
Boko Haram has been responsible for 5 bombings of high-profile targets in Abuja (Ibid). On
top of that, further bombings and killings have occurred in the cities of Bauchi, Damaturu,
Jos, Kaduna, Kano, Maiduguri and Suleja (Ibid). The most well-known and horror attack,
though, has been the abduction of 200 schoolgirls last year, many of whom are still missing
(Ibid). It is being said that since 2009, Boko Haram is responsible for over 10 000 deaths
(BBC News 2015 B).
Nigeria’s efforts to combat Boko Haram have resulted in a Joint Task Force which consists of
police and military personnel to assist the operation “Restore Order” to combat Boko Haram
(Ibid). The Joint Task Force has had allegations thrown at them for unnecessary use of force
and human rights abuses on both civilians and suspected sect members (Ibid). The Nigerian
government has consistently denied these allegations (Ibid).
Even though, Chinese investors are less worried about risks than any other foreign investors,
the Chinese and Nigerian relationship might have undesirable impacts as the conflict between
Boko Haram and the Nigerian government is heightening the political risk for all foreign
investors (Ibid). So far, the conflict’s targets have been Nigeria’s Muslim majority in the
north-eastern part of Nigeria (BBC News 2015 B), unless stopped Boko Haram might
penetrate the Nigerian society further.
23
According to the Huffington Post, Nigeria is the leading military force in the Economic
Community of West African States (ECOWAS) (Cafiero and Wagner 2013). ECOWAS is a
15-member states organization which initially aimed to encourage economic integration
within all fields (ECOWAS n.d.). Over the years, however, it has broadened its task to include
crisis prevention and conflict resolution (GIZ n.d.). ECOWAS has established its own
regional task force, ECOWAS Standby Force, as a step to further expand African peace and
security, which will include battling Boko Haram (GIZ n.d.; Mbella 2015). Latest news is that
China is going to assist the ECOWAS Standby Force with military equipment (ECOWAS
2015), and since among the 15 member states Nigeria is the most powerful economy and
military force, a partnership between China and Nigeria is most likely to emerge (Cafiero and
Wagner 2013).
4.3. China-Nigeria Relations
There is a debate in the scholarly world on the relationship between China and Nigeria (Abu
Akoh 2014). Some scholars argue that the relationship is symbiotic as they need each other to
achieve their goals on the political international arena (Ibid). Other scholars, however, argue
that the vast Chinese investments in Nigeria will trigger dependency for the Nigerian
economy (Ibid).
There are several reasons that explain Chinese interests in establishing contact with Africa
(Ayodele and Sotola 2014). In essence, some speculate it was a way to hinder western
imperialism and counterweight Soviet hegemony (Ibid). In other respects, it is also important
to consider China’s wish to extend its ideology of communism during the post-colonial period
(Renard 2011). It is also worth noting that the western world’s actions towards China after the
Tiananmen Square incident in 1989, economic embargo and political isolation, enabled China
to recognize the huge disparities in values between itself and the West (Ayodele and Sotola
2014). As developing nations themselves, the African governments, however, conveyed their
24
understanding towards the Chinese governments’ action facing this internal problem (Wu
n.d.; Ayodele and Sotola 2014). Since China’s liberalization of its economy in 1978, engaging
with external partners, has been a catalyst for the modernization of China’s economy (Onuoha
Udeala 2010).
China’s interest in Africa, including Nigeria, comes down to three agendas: a political agenda,
an economic agenda and an ideological agenda (Sun 2014). From a political standpoint, China
wishes to nurture its relationship with African nations as this could help China further
promote its ‘One-China’ policy, a policy that states that there is only one China and Taiwan is
part of it, as well as its foreign policy in intergovernmental institutions, such as the United
Nations (Sun 2014). China looks to Africa for support from human rights to economic
embargoes (Ibid). In the UN, this can easily be noted as China has more than once vetoed
against UN resolutions in African countries and the AU defends China against Taiwan’s
independence movement and the world’s human rights accusations (Wu n.d.).
The 54 African countries, account for more than one fourth of the UN member seats (Sun
2014). Both China and Taiwan have recognized the great support the African countries can
contribute, thus, since 1949, China and Taiwan have been in a battle for support (Haroz
2011). Due to China’s ever growing status as a superpower, it has been winning this battle
and in 1971 the African countries’ votes were vital to prevent Taiwan from acquiring a seat at
the UN Security Council (Renard 2011; Egbula and Zheng 2011). It can be argued that,
through these newly found allies, China has strengthened the legitimacy of its one party
government and communist regime (Ibid). Additionally, up until a few years ago, many
African countries still held diplomatic relations with Taiwan, but when China offers aid to
developing nations, it does not impose any conditions except one, the One-China policy; it is
Beijing’s central requirement in its diplomatic relations with countries (Egbula and Zheng
2011). The One-China policy indicate that China’s financial incentives and support comes
25
with the condition that countries must cancel diplomatic relations with Taiwan and support
that Taiwan is part of the People’s Republic of China (Renard 2011; Egbula and Zheng 2011).
The Sino-Nigerian relationship is a two-way street as Nigeria needs China to support its
mission to secure a permanent seat in an expanded Security Council of the United Nations
(Abu Akoh 2014).
Economically, the Chinese government’s interest in Africa is based on three characteristics
(Ayodele and Sotola 2014). On the one hand, China is in need of crude oil to support its
growing economy and expanding industrial base (Ibid). China’s growing manufacturing
sector has created an increased demand for precious metals, aluminum, oil and gas, copper
and iron ore (Ibid). Africa is thus seen primarily as a way for China to further increase its
domestic growth due to Africa’s extensive natural resource reserves (Sun 2014). On top of
this, China is in need of new and dependable consumer markets and believes the African
population has the potential to be this market (Ayodele and Sotola 2014). Lastly, as the
African markets have opened up to foreign investments, companies that used to be banned are
now allowed to do business on the continent, including Chinese companies (Ibid). According
to some, Chinese investments in Africa hold no threat to African countries (Ibid). On the
contrary, they are full of gains (Ibid). China imposes no political conditions, except for the
‘One-China Policy’, before signing an agreement with the African government in question
(Ibid). Supplementary to this, Chinese companies are prepared to invest in riskier areas than
western companies, such as agriculture, infrastructure and industry; these areas are vital to
Africa’s and Nigeria’s economic development (Ibid). Another reason why China is interested
in Africa is that it wants to be perceived as a super power and world leader. This statement is
being backed by both, Michael Pillsbury, an expert on China and who has worked on every
US administration since President Nixon, and Liu Mingfu who is a senior colonel in the
People’s Liberation Army (Getlen 2015; Romana 2010). Mr. Pillsbury argues that ever since
26
Mao Zedong, China has made conscious efforts to establish itself as a superpower by 2049.
2049 is a very specific date as it signifies the 100th anniversary of the Communist Revolution
(Getlen 2015). In the book “China’s Dream”, Colonel Mingfu writes that “China’s grand goal
in the 21st century is to become the world’s No.1 power” (Romana 2010, p. 1). However,
Colonel Mingfu belongs to the minority regarding this statement, because based on studies
from 2013, only 1 % of the military and 14 % of the civilian Chinese, want China to become
the single world leader; about 45 % believe that China should share the world leadership with
the United States (Ford 2013). Regardless of this, if China wishes to become the next
superpower it needs to move out of its own region and start investing globally, otherwise
China might never be able to compete with the Unites States and the European Union
(Ayodele and Sotola 2014).
From an ideological point of view, China was once in the same economic and political
position that most African countries are in at the moment (Sun 204). This is why the Chinese
government believes that its economic model is give and take, it can help Nigeria to continue
its development and it will promote China’s economic interest (Ibid). China has quite
successfully shown Nigeria that Western democratic ideals are not universal and offered an
alternative; the ‘China model’ and the ‘Beijing Consensus’ (Ibid). Furthermore, China
believes that its model could be a model for Africa’s own economic development (Ayodele
and Sotola 2014).
China’s first contact with Nigeria was in 1960 when a Chinese delegation attended Nigeria’s
independence celebrations and congratulated them on their win against colonialism
(Agubamah 2014). However, even before that Nigeria had already started looking east to seek
alternative aid and investors other than the ones from the West, which had imposed sanctions
on Nigeria comparable to the ones imposed on China (Mthembu-Salter 2009). Thus, Nigeria
started to mix aid packages from Western partners and China (Cafiero and Wagner 2013).
27
Chinese nationals started moving to Nigeria in the late 1960s, early 1970s to set up
manufacturing operations (Egbula and Zheng 2011). Nevertheless, the diplomatic relations
between China and Nigeria were only to be officially established on the 10th of February 1971
when both nations signed the Joint Communiqué on the Establishment of Diplomatic
Relations (Adewuyi et. al 2008; Abu Akoh 2014). Even though the following 30 years did not
produce any economic collaboration, the fact that both countries were in their developing
stages, the shared accusations of human rights’ violations and historic experience with
liberation movements might have been factors that potentially triggered a strong relationship
from the beginning (Mthembu-Salter 2009; Egbula and Zheng 2011).
Economic relations were first formed when Nigeria introduced democracy in 1999 (Egbula
and Zheng 2011; Ahmad Jarmajo 2009). China and Nigeria entered into a relationship at a
time when both were in need of establishing such a relationship (Adewuyi et. al 2008). In
addition to finding alternatives to Western donors, Nigeria’s mission was to attract more FDIs
and China was looking for a supplier of raw materials, as well as markets with potential for
finished products (Ibid); Chinese interest in Nigeria is due to its “vast energy reserves and a
large domestic market of 150 million inhabitants with growing disposable incomes” (Egbula
and Zheng 2011, p. 3). Today, over one third of China’s total trade with West Africa is
exclusively with Nigeria (Agubamah 2014). On top of this, Nigeria belongs to the 5 countries
where China has invested the most funds for infrastructure development (Ademola et. al
2009). At the same time, Nigeria is one of the biggest suppliers of commodities to China
which is why “China’s investment commitment in the natural resource sector in Nigeria is the
highest…” (Ademola et. al 2009, p. 500). China is looking to Africa for oil because the
Chinese governments feels the need to reduce its dependence on oil from the Middle East
(Egbula and Zheng 2011). Nigeria produces sweet, low-sulfur crude which is of high interest
to the Chinese (Utomi 2009); the low-sulfur content is more suitable for environmental
28
protection and the location makes it easy for China to process it in their refineries (Wu n.d.).
China was able to increase the volume of trade with Nigeria because China “secured various
joint-venture contracts with Nigerian oil companies, often in exchange for low-interest loans
and targeted development projects” (Utomi 2009, p. 40). Yet the imports only accounts for
2% of the entire continent (Egbula and Zheng 2011). China is valuable to Nigeria because of
“the establishment of infrastructure, intensification of skill and human capital” (Abu Akoh
2014, p. 63). China exports textile material, clothes, electronics, equipment, machinery and
manufacturing products to Nigeria (Egbula and Zheng 2011; Abu Akoh 2014). Unfortunately
for Nigeria there has been a shift in events in terms of demand for oil from China. Since the
end of 2014, November to be exact, China decreased its import of crude oil from Nigeria by
50, 3 % (Asu 2015; Obasi 2015). As mentioned previously, Nigeria’s main export to China is
oil and gas products, it accounts for 87 % (Ibid), which means that this can have major
repercussions for Nigeria’s ongoing development. Nevertheless, it is important to remember
that China’s and Nigeria’s relationship stems from the fact that the two nations have
economic complementarities (Babatunde et. al 2010). No Sino-African relationship is
growing faster than the one between China and Nigeria; “the Asian giant meets the African
giant” (Egbula and Zheng 2011). After South Africa, Nigeria is the top destination for
Chinese foreign direct investment (Ibid).
At the moment, more than 200 Chinese firms are established in Nigeria (Cafiero and Wagner
2013). Over the years, trade between China and Nigeria has grown tremendously; between
2000 and 2010 trade increased from $2 billion to $18 billion (Ibid). Furthermore, 10 large
bilateral agreements were established on agriculture, commerce, security and tourism during
the same time period (Ibid). The way the Chinese companies enter the Nigerian market is
through bidding; companies bid for contracts (Egbula and Zheng 2011). As Chinese
companies are able to start projects to lower costs than any western companies, the process
29
has become very rewarding (Egbula and Zheng 2011). On top of that, Chinese state-owned
banks have flushed billions into Chinese companies so that they can finance and insure their
activities (Ibid). The third way Chinese companies have been penetrating the Nigerian market
is by buying into already existing businesses (Ibid).
Even though, China’s presence in Nigeria has improved its social, technical and economic
areas, Chinese FDI in Nigeria is still fragmented (Adewuyi et. al 2008). In 2006, the Chinese
and Nigerian government signed a memorandum stating their future strategic relationship
(Egbula and Zheng 2011). With the hopes of strengthening certain sectors, it was decided that
the central aims for future investment would be the manufacturing, telecommunications,
petroleum and power sectors (Ibid). Nevertheless, due to China’s interest in fueling its
expanding domestic economy, the petrol sector still held the most importance (Ibid).
Although China already holds large investments in Nigeria, China needs Nigeria to further
penetrate the African markets as Nigeria is one of the larger players on the African continent
(Agubamah 2014). On the other side of the spectrum, Nigeria, is in need of even more
investments (Adewuyi et. al 2008).
4.4. Foreign Direct Investment and Political Instability
“Political instability entails uncertainty when it induces change of policy
makers and economic policies. For instance, when following a political regime
change, there is repudiation of former contracts with foreign firms, the risk of
expropriation increases, which reduces the volume of FDI. Likewise, political
instability in the form of civil war can destroy a country’s physical and human
capital infrastructure, which is deterrent to the productivity of investment”
(Ganiou Mijiyawa n.d., p. 12).
FDIs are important for achieving economic development in both developed and developing
countries (Fatehi-Sedeh and Safizadeh 1989). Studies show that multinational corporations
find sociopolitical stability of the host country one of the most important factors when
considering allocation of funds to foreign projects (Ibid). Absence of stability can be a cause
for concern because investments might benefit parties the investors cannot trust (Ibid); when
30
there is instability in the socio-political environment it creates uncertainty within the politicoeconomic environment (Aisen and Veiga 2011). Even though sociopolitical instability is not
the only factor to consider, investors tend to withdraw when strikes, demonstrations,
assassinations and riots develop (Fatehi-Sedeh and Safizadeh 1989). The relationship between
investment and political instability is particularly negative in low-income countries, hence it
can be deduced that the lack of political stability in Africa has hindered its economic growth
(de Haan and Siermann 1996).
There are four channels in which political instability might affect economic performance
(Haber and Razo 1998). Firstly, property rights may become less secure as they are part of the
public domain and thus can be detained by the ones in power (Ibid). This has a negative effect
on long-term investments as return on investment is uncertain (Ibid). It also impacts economic
exchange as buyers interested in buying assets discount their value to cover risk premia (Ibid).
Secondly, the absence of a stable political system creates a lack of confidence in future
policies and institutional change (Ibid). As a result, investors might not want to invest longterm as they do not know what to anticipate (Ibid). When policies are weak they are less
likely to attract investors as it also means that property rights are weak (Ibid); property rights
are an important factor to consider for investors (Svensson 1998). As a result, investment and
growth will suffer (Haber and Razo 1998). A good and stable policy is
“seen as a peaceful law abiding society where decision making and politicosocial change are the result of institutionalized procedures and not the
outcome of anomic processed which resolve issues through conflict and
aggression” (Levis 1979, p. 61).
As such, foreign investors tend to prefer a stable political and economic environment (Alesina
et. al 1996). The bottom line regarding political risks is that investors are scared that
sovereign host countries will suddenly change the “rules of the game” of how business is
being conducted (Busse and Hefeker 2007). This could mean that it is possible that investors
are more sensitive and scared of the policy changes than to the actual political events (Fatehi31
Sedeh and Safizadeh 1989). Nevertheless, policy uncertainty depends on whether the society
is highly polarized or not (Alesina et.al 1996). In less polarized countries, when there is a
government change, the policies will more or less stay the same without any drastic changes
(Alesina et.al 1996). However, in a society that is highly polarized a government change can
lead to a complete different policy making (Ibid). Thirdly, political instability might engage
individuals into rent-seeking (Haber and Razo 1998). Rent-seeking is when individuals
acquire economic gain without giving back to the society (Investopedia n.d.). Bureaucratic
corruption and bribing is a form of rent-seeking (Coolidge and Rose-Ackerman 1995/1996).
Because it is hard to prosecute people who commit crimes similar to rent-seeking, due to lack
of a system, as a result, investors will only make short-term investments (Ibid). Fourthly,
during political instability violence might also be an issue as properties and factors of
production might get damaged or even destroyed as a result, and as a result, might decrease
investors’ willingness to invest assets whose future values are unpredictable (Ibid).
Political instability can have short-term and long-term consequences (Haber and Razo 1998).
Short-term consequences, however, depend, on how fast and well economic agents respond,
and the type of instability (Ibid). Long-term investments are harder to identify as it will
depend on the new government and the possible new policies made (Ibid).
Numerous studies have outlined the link between investment, economic growth and
democracy (Feng 2001). Investors are “highly sensitive to changes in political stability” and
the way governments operate (Busse and Hefeker 2007, p. 13). Studies have also drawn
attention to the importance of democratic rights, political rights and civil rights matter to
multinational companies which are invested in developing countries (Busse and Hefeker
2007). Corporations are more interested in investing in democratic states (Ibid) because
democracies provides the right type of political environment for economic growth, making it
safer to do business (Feng 1997). This is based on the belief that if there are democratic rights,
32
there will most likely also be property rights protection, all which attract foreign investment
(Busse and Hefeker 2007). Ultimately, investors prefer the democratic system as it has good
governance and reliable institutions, compared to political uncertainty which is branded by
irregular government changes and autocratic system (Feng 2001). Investors can look upon
democratic and regular government changes as something positive if they find the old
government to be incompetent or corrupt (Alesina et. al 1996). Regular government changes
can actually result in higher economic growth (Feng 1997). In stable political climates, even
though the new governments might make some policy adjustments, it will not change the
fundamentals of the political order (Ibid).
On top of political freedom and democracy, regime stability is a key factor that positively
influences private investments (Feng 2001). Economic growth is sustained through
investments and savings (Ibid). When a regime is unstable consumers will reduce their
savings and increase on their spending because of the fear that their savings might become
worthless (Ibid). Furthermore, political instability often removes people from their jobs, or
even worse displaces them: this makes money saving more or less impossible (Ibid). At the
same time investors will retrieve their investments in fixed capital stocks, for example in
factories or land, as they prefer to keep their portfolios and properties in liquid and portable
forms, such as in gold or foreign currencies since they will most likely retain their value better
(Ibid). Political instability makes job opportunities less available and less attractive which
shrinks the pool of savings (Ibid). However, it also wreaks havoc with the efficient allocation
of resources and the formation of fixed capital necessary for economic development (Ibid).
Basically, an impending political crisis forces consumer to spend and investors’ decisions to
invest are put on hold (Ibid).
Despite the reasons listed above which state that political instability has a negative effect on
the flow of FDI, there are contrasting studies that show mixed reviews as to whether political
33
instability conclusively decreases economic activity in Africa, both indirectly through capital
growth and directly (de Haan and Siermann 1996). The economic prospects are usually more
important than the political prospects (Levis 1979); political stability is secondary to market
potential when dealing with FDIs (Chase et. al 1998). When companies consider an
investment project, it would be unacceptable if it would not take into account the return of
investment when evaluating the potential risks (Fatehi-Sedeh and Safizadeh 1989). Meaning
that, multinational companies might continue to invest in an unstable environment and accept
the risks involved, simply because the return on investment is great enough to take on the risk
or because the host government is offering good incentives (Ibid). Less economically
developed countries are more likely to offer tax cuts for governments and companies in order
to attract more FDI (Levis 1979). This together with a potential unexploited market makes an
investment worthwhile (Ibid). Yet, some experts argue that even though there are high returns
in a risky environment it might not promote FDI (Asiedu 2002). The reason for that is that
when the risk has been calculated into the returns, it might be too low for any government or
company to take on that risk (Ibid). Africa is seen as a risky environment, especially the Sub
Saharan Africa and especially the uncertainty of government policy; the risk of policy reversal
was elected as the most important risk factor by 150 foreign investors in East Africa (Ibid).
34
5. Theoretical Framework
5.1. International Political Economy: World-System Theory
“My ‘world-system’ is not a system ‘in the world’ or ‘of the world’. It is a
system ‘that is the world’. Rather, the two words together constitute a single
concept” (Immanuel Wallerstein in Feldman 2011, p. 346).
Mainstream political theories are mainly concerned with international politics while
economics play a secondary role (Jackson and Sørensen 2010 A). However, world-system
theory, also known as world-system analysis, is part of International Political Economy (IPE)
(Ibid). IPE analyzes the complex relationship between politics and economics; IPE focuses on
wealth and power and “who gets what in the international system” (Jackson and Sørensen
2010 B, p. 182). In times of crisis, it becomes clear that politics and economics are not
mutually exclusive (Jackson and Sørensen 2010 B). Like many other economic theories,
world-system theory derives from Marxism, and especially neo-Marxism, but also classical
sociology and dependency theory (Jackson and Sørensen 2010 A; Chase-Dunn n.d.). Marxism
and neo-Marxism is based on Karl Marx’s tools of analysis (Jackson and Sørensen 2010 A).
Karl Marx was a leading 19th century political economist who was concerned with capitalism
in Europe (Ibid). Marx argued that the capitalist class exploited the working class by using its
economic power (Ibid).
World-system theory was founded by Immanuel Wallerstein in 1974 and his primary aim
was, and to this day is, to try to explain “development of underdevelopment” (Gorin 1989, p.
333). Wallerstein believes that the international system and the way it is structured prevents
poor countries from developing; resulting in the belief that the international system is
exploitative by some countries dominating over others (Moaddel 1994). World-system
theorists have three main arguments: international division of labor, unequal exchange and
global capitalism (Ibid). At the center of these arguments is the international system
35
(Straussfogel 1997). International division of labor means that the system is made up of three
different kinds of states, which all have a different function to fill in the world economy
(Moaddel 1994; Jackson and Sørensen 2010 B). Firstly, there are the core countries
(Robinson 2011). The core countries are the richest, most influential and powerful countries
in the world, such as the United States, France and the United Kingdom (Ibid). The core
countries are in constant competition with one another (Chase-Dunn n.d.). Secondly, there are
the semi-periphery countries (Robinson 2011). These countries are still developing but yet
they have quite a fair amount of wealth, such as Argentina and Brazil (Chase-Dunn n.d.).
Lastly, you have the periphery countries (Robinson 2011). These countries are the poorest of
the world, such as Zimbabwe, Afghanistan and Myanmar (Robinson 2011; Tasch 2015).
What the world-system theory claims is that the core countries, acquire and dominate capital
intensive industries such as the areas of technology, research and industry while the periphery
countries are dependent on their own agricultural products and on their natural resource
extraction industries (Robinson 2011). As a result the periphery countries are heavily
dependent on the core countries; the structure of the world economy is one where all countries
serve the economic needs of the core countries (Moaddel 1994).
The second argument world-system theorists make is that developing nations are victims to
unequal exchange (Jackson and Sørensen 2010 A). While the developing nations have to buy
finished goods for a high price, they are forced and exploited to sell their raw materials at low
prices in order to compete on the global capitalist economy (Ibid). At the same time,
developed nations can thereby buy cheap and sell high (Ibid). Due to this unequal exchange,
tensions arise in the system (Jackson and Sørensen 2010 B). As a result, the semi-periphery
countries play a vital role as a buffer (Ibid); this way the core countries do not feel as if there
is a joined opposition against them (Ibid). One can argue that semi-periphery countries
contribute to geopolitical stability (Ibid).
36
The third argument world-system theorists make is that the entire world system is part of a
much larger and global structure, namely, global capitalism; capitalism is Wallerstein’s main
focus (Jackson and Sørensen 2013). Capitalism was established in the 16th century when
North-West Europe realized how to maximize its profits by combining its agriculture with its
industrial developments in shipping and textiles (Ibid). This was the starting point of “the
capitalist world economy [that] is built on a hierarchy of core areas, peripheral areas and
semi-peripheral areas” (Jackson and Sørensen 2013, p.172). Today, capitalism has spread
worldwide (Gorin 1985).
Wallerstein, who has analyzed the capitalistic system on our global system since its beginning
in the 16th century, believes that economic production is the foundation for all human activity,
including politics (Jackson and Sørensen 2010 B). Through the means of production,
capitalists dominate the economic activity which in turn dominates the political sphere (Ibid).
This means that the international system is completely run by the capitalists (Ibid). Global
capitalism serves the economic interests of the core countries, for example international banks
and institutions are instruments put forth to promote the economic interests of the core
countries (Chase-Dunn 2001). IMF is largely run by core countries, meaning that if periphery
or semi-periphery countries wish to loan money from the IMF, it will be on the terms set forth
by the core countries (Ibid). Nevertheless, some developing nations will be able to move up
the ladder and become developed nations because the international system is constantly
evolving, meaning that any nation at any point in time can change its status and thus its
ranking in the hierarchy; what is technological advanced today might not be the same in 20 or
40 years (Ibid). However, only a few countries will be able to move up as there is limited
space at the top (Ibid).
To conclude, dependence and peripheralization has a negative effect on a country’s
development capacity (Moaddel 1994). The entire system, with its international division of
37
labor, unequal exchange and global capitalism, serve the interest of the core countries and not
the interest of the developing nations; the system promotes dominance and exploitation
instead of development and equal opportunities (Jackson and Sørensen 2013). Thus, the world
system will always be characterized by unequal exchange and as such there will always be
core, semi-periphery and periphery countries (Ibid).
38
6. Analysis
China’s great presence in Nigeria has sparked a debate on dependence (Abu Akoh 2014).
Much due to Nigeria’s natural resources, Nigeria has, over the years, received a lot of FDI
(Corporate Nigeria 2010/2011 D). Due to China’s power, wealth and influence in the world,
Nigeria, in comparison, with its struggling economy, cannot afford to ignore a country like
China. The FDI has had a positive effect on Nigeria’s market, trade, society and further
development (Nabine 2009). However, as explained above, political instability has negative
effects on FDI (Fatehi-Sedeh and Safizadeh 1989). Studies show that multinational
corporations find sociopolitical stability of the host country one of the most important factors
when considering allocation of funds to foreign projects (Ibid). Absence of stability can be a
cause for concern especially when investments benefit parties the investors cannot trust (Ibid).
Furthermore, investors favor to invest in countries that uphold certain values such as
democratic rights, political rights and civil rights (Busse and Hefeker 2007). In the case of
Nigeria and China however, I do not believe Nigeria has to worry that China might decrease
its FDI based on that statement as China is not known to promote those values themselves. In
addition Chinese investors are known to take higher risks than Western investors (Egbula and
Zheng 2011).
As a developing nation Nigeria is far more dependent on China than vice versa; Nigeria is in
need of China’s technical and financial assistance (Agubamah 2014). Since the start of
Chinese investment in Nigeria the country’s social, technical and economic areas have
improved (Adewuyi et. al 2008). On top of this, Nigeria needs China to support its mission to
secure a permanent seat in an expanded Security Council of the United Nations (Abu Akoh
2014).
From a world-system theory point of view it can easily be argued that Nigeria is significantly
dependent on China, one example is the oil sector; Nigeria’s economy and thus its
39
development is heavily dependent on the oil sector and China is a big importer of crude oil
(Ayodele and Sotola 2014; U.S. Department of State 2013). Since the end of last year,
however, China has decreased its oil purchase from Nigeria (Asu 2015; Obasi 2015). The
official reason is because US shale production has risen and because China is no longer in as
much need of low-sulfur crude oil (Hume et. al 2015). Another reason is that the world trade
price on oil has significantly dropped for the past couple of months (Ibid). Yet, it is hard not
to contemplate whether the in-official reason might partially have to do with the current
political instability (Asu 2015; Obasi 2015) and that the Chinese government no longer knows
what to anticipate from their current investments in Nigeria. At the same time, China has
continued to make investments in Nigeria since the beginning of Boko Haram. Even though
China is looking to Nigeria for support to further expand its economic relations in Africa, the
fact that China decreased its oil ties with Nigeria, regardless of China’s dependency on oil,
indicates that China is not as dependent on Nigeria; only 2 % of China’s oil consumption
comes from Nigeria (Agubamah 2014; Asu 2015; Ayodele and Sotola 2014; Obasi 2015).
From a world-system theory viewpoint, it is likely that China will decrease its ties with
Nigeria, stemming from the belief that it will no longer benefit from the economic partnership
to the extent it once did. It can thus be argued that China only capitalized on Nigeria’s oil to
further promote its own economic interests, but subsequently decided the relationship to be
unrewarding and unnecessary, and ensued by decreasing its oil imports; the core used the
periphery to spark its own wealth and power. Furthermore, with the oil prices being low,
China now has the opportunity to purchase oil from more politically stable countries,
countries which will present China with much more stable long-term investments.
Another reason Nigeria is dependent on China is because Nigeria belongs to the 5 countries
where China has invested the most funds for infrastructure development (Ademola et. al
2009). China investing heavily in Nigerian infrastructure favors both as infrastructure is vital
40
for economic activity, such as trade, making Chinese FDI detrimental for Nigeria’s continued
development. Furthermore, China supplies Nigeria and its people with skills (Caldwell 2015),
skills which are important for its development. The Nigerian population lacks skills in areas
such as technology and infrastructure which is why they have relied upon China to teach these
skills to them (Ibid). It can be argued that skills within technology and infrastructure are one
of the key drivers for development.
If China were to decrease their investments in Nigeria, Nigeria could potentially break its
dependence on China (Corbridge 1986). This might be a blessing in disguise for Nigeria as,
according to Gunder Franke, “satellites experience their greatest economic development and
especially their most classically capitalist industrial development if and when their ties to their
metropolis are weakest” (Corbridge 1986, p. 132). China likes to announce that its
relationship with Nigeria is a win-win situation for both countries, but based on world-system
theory this is not the case. Based on the theory, the relationship is to be classified as a win
situation for China and a lose situation for Nigeria; a win-lose situation indicates dependency
(Agubamah 2014). Firstly, even though the benefits of the Sino-Nigerian relationship is that
the FDI contributes to Nigeria’s development, the economic benefits for the two countries are
unequal. Unequal exchange is one of the main concepts in world-system theory. With the oil
and other commodities China is importing from Nigeria, China can increase its domestic
economy and continue to process commodities and products for the core countries, thereby
increasing China’s economic standing in the world even more. What Nigeria is receiving in
return is also important for Nigeria’s future development, but the economic benefits in the
long-run are not as valuable as the ones China are getting from Nigeria. As opposed to China,
Nigeria is not able to produce and process to the same extent making production less
competitive and attractive to the core or the semi-periphery markets. In other words, due to
China’s strong capabilities, the country is able to generate more value, and ultimately generate
41
higher margins from the imported Nigerian commodities, than Nigeria itself. As world-system
theory argues, the periphery is serving the core countries’ needs. Furthermore, there is a trade
imbalance between China and Nigeria that Nigeria should be cautious about. In 2013 China
reported $3 billion worth of export to Nigeria, while the import from Nigeria was only $1
billion (Agubamah 2014); a trade deficit for Nigeria of $2 billion. The trade deficit shows that
Nigeria is importing more goods from China than it is exporting to China. The value
differentiation between the products from Nigeria, mainly raw materials, and from China,
mainly light industrial and mechanical products (China.org.cn 2006) is the main cause of the
trade imbalance. This is an indication that China does not go to the same lengths, as Nigeria,
in terms of support. The trade imbalance is a further indication of world-system theory’s
argument that the core countries stay developed at the expense of the developing nations. In
accordance of world-system theory, if the trade deficit had not been as significant large
between China and Nigeria, Nigeria would have been further developed as Nigeria would
have exported more products to China and thus more money would have entered into the
Nigerian economy.
A scenario of China completely pulling out of Nigeria is very unlikely. Especially when
considering that “the expected return is sufficient enough to compensate for the additional
degree of risk undertaken” and in this case oil (Levis 1970, p. 61). Yet, this statement can
easily be disputed since China has now decreased its oil demand from Nigeria and in a way is
pulling out of Nigeria. At the same time one cannot say that China has completely left Nigeria
as China is still very much involved with Nigeria, both politically and economically, for
example China is still helping Nigeria to combat Boko Haram (Boehler 2014). Furthermore,
in true world-system theory spirit “economic dependence undermines political independent
and created a weak government susceptible to control” (Igwe and Ifeanyi Okere 2013, p. 80).
In this case, China stands to gain a lot by influencing the Nigerian government. Due to
42
Nigeria’s dependence on China, one can argue that to some extent, China is already doing this
in two ways. In essence, this has been achieved through the Chinese loans. Contrary to the
IMF, China does not pose any conditions on their loans except for one, the One-China policy
(Egbula and Zheng 2011). While China only poses the One-China policy on their loans,
developing countries are still compelled to act on China’s terms on the international market;
another example of core countries exploiting the periphery countries. Furthermore, the
entanglements between the oil sector and the Nigerian government have been uncovered
(Smith 2010) and in consideration of these premises, the nature of the relationship between
the Chinese and the Nigerian governments become evident. Because of the sheer size of the
oil imports and its close ties with the government, China could have the power to influence
decisions that might ultimately favor China; yet again the core countries have the opportunity
to exploit the periphery countries in order to advance.
Besides trading technical skills, infrastructure skills and oil, China supplies Nigeria with fire
arms in an effort to combat Boko Haram (Caldwell 2015; MGAfrica 2015). The two countries
are also cooperating militarily. It can also be argued that China benefits from Nigeria’s
political instability and increasing need for arms as China could increase their exports to
Nigeria. For Nigeria, in order to battle the current political instability, it would be most
beneficial if China would lay most of its focus on military cooperation, for example in the
ECOWAS. On the other hand, according to world-system theory, this would be a sublime
time for China to focus on exporting fire arms and capitalizing on the opportunity during this
vulnerable time. Additionally, if China were to increase its fire arms exports to Nigeria, the
trade imbalance between the two countries would further rise. This would make China even
wealthier and Nigeria even poorer.
The Chinese investment in Nigeria is still very much fragmented (Adewuyi et. al 2008).
China and Nigeria have come to a conclusion that their strategic partnership should focus on
43
manufacturing, telecommunications, petroleum and power; petroleum remains to be the
biggest part of the partnership (Adewuyi et. al 2008). As a developing nation that aspires for
development, Nigeria is in need of power, telecommunications and manufacturing, however
petroleum, a commodity that China is in need of, remains the biggest sector. This exemplifies
how the core country is maneuvering a one sided way at the cost of the periphery country.
Indeed, both countries will gain immensely out of this agreement, yet had China been less
occupied with its own expansion, other sectors would have benefitted from more evenly
investments. This further provides evidence that the core countries exploit the periphery
countries for their own self advancement.
44
7. Discussion
Due to Nigeria’s size and natural resources, China cannot ignore Nigeria. On the other hand,
Nigeria cannot afford to ignore China as a trade and development partner either, as China is
the leading economy of the 21st century (Agubamah 2014). Additionally, China and Nigeria
are of geographic and demographic significance to their regions, making their partnership
particularly valuable (Ibid). China and Nigeria are both the biggest markets and countries in
their respective regions; one out of three in Asia is Chinese and one out of four in Africa is
Nigerian (Onuoha Udeala 2010). China’s and Nigeria’s prominent positions in their region
make them have an important role in terms of politics and economy (Ibid).
The large trade between the two countries have created a dependent relationship, one where
Nigeria is dependent on China. It can be argued that the dependency goes both ways as China
is looking for a new consumer market (Ayodele and Sotola 2014), a role which Nigeria has
fulfilled the past couple of years. Furthermore, China needs Nigeria to advance its penetration
into the African market (Agubamah 2014). Yet it goes without saying that as a periphery
country, Nigeria is more dependent on China. Research has pointed out that there are certain
areas in which Nigeria is dependent on China; oil, skills and infrastructure (Caldwell 2015).
Because China is not oil independent, it needs to import it from other countries. Despite the
fact that Nigeria has large amounts of oil reserves, its economic performance have been
unsatisfactory. The economy is thus heavily relying on oil; facts show that oil account for “98
percent of export earnings and about 83 percent of federal government revenue, as well as
generating more than 14 percent of its GDP” (Daly 2014). As oil is considered to be a longterm investment (Zuckerman 2015), it aligns well with Nigeria’s desire to become one of the
top 20 economies (Egbula and Zheng 2011). However, due to Nigeria’s weak economy, it is
in need of FDI and will need foreign investors help to reach this goal as Nigeria’s current
45
economy does not allow for it to get there by itself (U.S. Department of State 2013). In order
to reach this desired goal, Nigeria will have to, among others, eradicate poverty and increase
its infrastructure (Ibid). According to Prime Minister Tony Abbott infrastructure is a pillar for
developing nations as studies show that an infrastructure deficit has a negative impact on
economic growth prospects (G20 2014; Sahoo et. al 2010). Nigeria’s demand for
infrastructure indicates its desire to achieve its fill growth potential. Moreover, with
globalization, global trade has increased meaning that it is only logical that infrastructure that
promotes trade such as road, bridges, ports, airports etc. are built at the same speed in order to
better connect trading partners, which in turn will have a positive effect on a country’s
development. Luckily in exchange for receiving oil, China has invested in Nigerian
infrastructure, the most recent investment being a rail deal, worth $12 billion, which is
supposed to create 200 000 local jobs (Engler 2014). It can thus be said to be a very important
deal for Nigeria as it helps with both their infrastructure and it will be a stepping stone to
eradicate poverty.
China’s FDI does play a decisive role in Nigeria’s development as there are very little
contenders to invest. While Nigeria does trade with partners globally, very few of these
partners alone have the scale nor the financial power to accommodate the Nigerian economy.
Based on these criteria, and the need for capital to stimulate growth, China appears to be an
ideal partner in a world of limited options. Only a large investor can hit and stimulate all
sectors at ones, and generate enough capital to oversee the full development of these. China
has been investing in strategic industries, such as the rail road system. The construction of a
rail road system is the first step towards industrialization (US History n.d.). This is strategic in
the sense that China will be benefitting from the increased speeds and convenience of
transportation. On another note, China offering to invest in the rail road system has costed
Nigeria many of its natural resources and because of Nigeria’s poor leverage as a periphery
46
country, it costed them these natural resources at discounts. The lack of leverage stems from
the fact that Nigeria does not possess the building skills for building neither a rail road system
nor any of the other infrastructure developments that it needs (Caldwell 2015). This has
allured Nigeria to accept most of the Chinese deals, whether equitable or not. It is also worth
noting that while investing in the strategic industries has increased economic activity, if the
real aim was the industrialization of Nigeria, China would have been focusing on developing
Nigeria’s infant industries. This would have helped these industries mature, and would have
overall made the country more competitive, as well as independent. World-system theory
clearly agrees with this view as it does not believe that country’s act out of selfless reasons.
However, helping the Nigerian infant industries could be a good opportunity as this could
result in exclusivity which in the long-term could turn into a prosperous investment. In turn, it
would benefit the Nigerian economy immensely and thus its development. However, the
increased risks of these investments is substantial due to the uncertainty of the political scene
and the duration of these projects.
Based on research one cannot get around the fact that political stability is a better investment
environment. Thus, if Nigeria were to become more stable, partially with the help of Chinese
FDI and its impact on the economy, it would further incentivize Chinese companies to invest
in Nigeria’s infant industries. A stronger economy might help Nigeria uproot the Boko Haram
militia. Having a wealthier and more educated population would also hinder the Boko Haram
dogma from spreading (EIP n.d.). Stripped of Boko Haram, Nigeria would potentially develop
at a faster pace. Even though Nigeria is trading oil for infrastructure, the fact that the country
is undergoing political instability which is only rising, is worrying as it might end up
damaging or even destroying Nigeria’s current development. However, with the help of
China’s FDI this scenario is more easily preventable. This might be a dream scenario,
however facts still remain that if a country’s economy is strong the less likely it is for local
47
people to join local terrorist groups (EIP n.d.). Moreover, when countries have strong
economies and feel united a spurge of patriotism have tendencies to arise within a country’s
population. For Nigeria, patriotism would furthermore benefit its development as I believe
patriotism could act as a deterrent to join Boko Haram and further their cause.
However, for Nigeria to move to a consumer led economic growth rather than an exportoriented economic growth, China would need to decrease its FDI to Nigeria. Nevertheless, I
believe it is too soon for Nigeria to stand on its own; Nigeria is still very much in need of
Chinese FDI to further its development. Nigeria as a democracy has not existed for long,
Nigeria still suffers from corruption (Transparency International 2014) and with the rapid
political instability that is stemming from Boko Haram, Nigeria is in a vulnerable position and
needs to be able to rely on its FDI, now more than ever.
On top of this, it can be argued that China might lose its strong foothold in Nigeria if it were
to decrease its oil imports from Nigeria as oil is Nigeria’s main revenue. Additionally, China
is a country that wants to spread its influence in Africa, and so far Nigeria has helped China
do this as Nigeria is the biggest African market (Ayodele and Sotola 2014; Onuoha Udeala
2010; Sun 2014). However, now that China is a member of ECOWAS, a platform where
China might be able to further increase its own influence within both ECOWAS and within
each of the other 14 individual member states, it can be argued from a world-system theory
point of view, that China does not need Nigeria as much anymore to penetrate the African
market. Yet, China continues to be heavily involved in Nigeria’s internal affairs because
ECOWAS’ most important task at the moment is dealing with Boko Haram (Mbella 2015).
Furthermore, the unequal exchange between the two nations can rapidly create negative
feelings towards the Chinese. According to Remnelid (2015), sales director at Kross Konsult,
a spurge of negative feelings have already started erupting as China is buying Nigerian
48
property (land) and instead of either selling the products locally or sharing skills with the
local population, China is exporting agricultural goods back home, to secure food supply.
With Nigeria experiencing political instability China can actually exploit this opportunity by
buying up even more land and taking advantage of the delicate situation. China’s purchase of
land will not benefit the Nigerian people as neither skills from China to Nigeria are traded,
nor are the agricultural products left. With an increase in political instability I believe that
actions like these will only become more common from China’s side; China might become
nervous that the Nigerian companies or even the Nigerian government is not as trust worthy.
Nigeria might believe that it is striking a good bargain by selling the land to China but China
is actually exploiting a weakness. Buying up land and agricultural products at a discounts and
exporting it back to China is a safer return on investment because it is a short-term investment
and the profits can quickly be collected compared to if China were to invest into domestic
companies which usually are long-term investments (Zuckerman 2015). Additionally, China
might be hesitant towards investing long-term in Nigeria as it no longer knows what to
expect. The advantage of short-term investments is that it would provide the Nigerians with
the funds of purchasing necessary military equipment that is needed to battle Boko Haram.
Nigeria does have the potential to move up the ladder in the international system since
regionally Nigeria is a semi-periphery or even a periphery country, in addition Nigeria is rich
in oil, a commodity that is very valuable, despite the decreasing prices. However, with the
rising political instability, Nigeria’s dependence on China, and Nigeria’s unstable economy, it
is probable too early for China to break the cycle of dependence on China.
49
8. Conclusion
China and Nigeria have for long been close economic partners. While China maintains that
the relationship is a symbiotic one, suspicion has been raised whether Nigeria has become
dependent on China and the large amounts of FDI it is providing for its continued
development. The problem of Nigeria’s dependence lies in the fact that Nigeria is in need of
China’s continuous FDI, but at the same time unless China decreases its FDI, Nigeria might
never be able to generate consumer led economic growth rather than export-oriented growth.
Yet if China was to withdraw from Nigeria the Nigerian economy and ultimately the Nigerian
society and its people will suffer; Nigeria’s capital inflow from China is unquestionably
protecting, reinforcing and securing certain areas of its economy.
With this thesis I aimed to analyze why China’s FDI is important to Nigeria’s development
and how world-system theory can explain the relationship between the two countries.
Furthermore, I also analyzed what China can gain from its relationship with Nigeria because
of the current political instability. In today’s world the wish is to believe that countries
mutually benefit from trading and collaboration on certain matters. However, through this
thesis, I wished to highlight the fact that core countries, while playing decisive roles in the
development in periphery countries, are still exploiting today. The ease at which this
exploitation occurs, could even be more predominant when political instability is present.
The significance of the topic lies in the fact that many core countries engage in global trade
and invest in foreign countries. The disadvantage of core countries investing in periphery
countries is that the relationship might quickly become a dependent one. In the short-term a
dependent relationship will help a country develop as the FDI will fuel its economy, however
in the long-term it is not a sustainable solution as a country will not be able to develop on its
own.
50
The research demonstrates that China’s FDI is vital for Nigeria’s further development because
Nigeria has become dependent on China. Moreover, there are very few investor countries that
has the financial ability to help the Nigerian development the way China can. This is
especially true during times of political instability and Chinese investors tend to take on more
risks than Western investors. Throughout the years, in exchange for oil, China has been
heavily involved in several of the Nigerian sectors, including infrastructure, an area that is not
only vital for Nigeria to be able to reach its goal of being one of the top 20 economies but also
vital for any developing nation that wishes to further develop. Furthermore, a strong economy
might help Nigeria uproot Boko Haram as a wealthier and more educated population is less
likely to join a terrorist sect. A weaker Boko Haram will have a positive impact on Nigeria’s
future development. In addition, Nigeria’s development might be able to continue at a faster
pace. However, had China’s main focus been Nigeria’s further development, than it would
have invested in its infant industries. Infant industries can strengthen a country’s economy,
make a country more competitive on the world market and thus promote a country’s
independence. However, this does align with world-system theory which believes that core
countries exploit periphery countries to advance. Throughout this thesis, evidence can be seen
that China is indeed exploiting Nigeria to advance their own agenda through, for example,
unequal exchange which has resulted into a large trade deficit. The unequal exchange means
that by importing crude oil and other commodities from Nigeria, China will be able to
continue to produce merchandise attractive to the world’s markets. While Nigeria receives
FDI in return, it is not as advantageous for Nigeria as it will not be able to produce
merchandise as attractive to the world’s markets as China. Furthermore, the trade deficit
shows that China imports less from Nigeria, approximately $2 billion less.
On another note, also seen from a world-system theory, China can benefit from Nigeria’s
political instability in three ways. Firstly, China being involved in ECOWAS could
51
potentially increase China’s political standing in the world and could have a positive impact
on China’s influence among the ECOWAS member states. Secondly, China could capitalize
on the fact that Nigeria is in need of FDI and thus buy Nigerian property and export the
agricultural products back to China in order to secure food supply. Thirdly, China could
increase fire arms trade with Nigeria. This would be beneficial for China as export would
increase, however it would also increase the trade deficit between the two countries,
conclusively making Nigeria more dependent on China.
While this study has focused on why China’s FDI is important to Nigeria’s development, how
world-system theory can explain the nature of the relationship and what China stands to gain
from the current Nigerian political instability, further research can be done on how periphery
countries can break the cycle of dependent relations on core countries without having to
sacrifice economic growth. This is especially important since world-system theory has shown
that core countries, to this day, still exploit periphery countries.
52
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