Why does China’s FDI play a decisive role in Nigeria’s development? And how can we understand it from a critical

viewpoint?

Charlotte Strindlund30/08/2015

Aalborg University and University of International RelationsChina 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

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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

investors are known to take more risks than Western investors. However, from a world-

system 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. World-

system 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

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countries exploit the periphery countries in order to advance their own wealth and power

(Ibid).

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

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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.

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 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 Nigeria’s past political instabilities. The following chapter will be

7

theoretical framework where I will describe world-system theory. The last three chapters are

the analysis, the discussion and lastly, the conclusion.

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

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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

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

9

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 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

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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

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). World-

system 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

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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.

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

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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

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,

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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.

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

14

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).

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.

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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

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).

17

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).

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

18

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

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).

19

China is a member of, but not limited to, Association of Southeast Asian Nations, Asia-

Pacific Economic Cooperation, IMF and the World Trade Organization (CIA World Factbook

n.d.).

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 well-

diversified 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

20

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

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

21

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

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 production-sharing 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 non-

risks 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).

22

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

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

23

north-eastern part of Nigeria (BBC News 2015 B), unless stopped Boko Haram might

penetrate the Nigerian society further.

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

24

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

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

25

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

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

26

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

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

27

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).

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

28

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

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

29

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

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

30

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

there is instability in the socio-political environment it creates uncertainty within the politico-

economic 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 long-

term 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 politico-social 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).

31

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 (Fatehi-

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

32

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,

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

33

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

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).

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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).

35

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

(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

36

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).

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

37

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

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).

39

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

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

40

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

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

41

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

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

42

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

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

43

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

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).

45

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 long-

term 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

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.

46

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

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

47

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

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 export-

oriented 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

48

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

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

49

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.

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.

50

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.

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

51

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

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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