This study analyzes the policy strategies of foreign direct investment (FDI) and outsourcing that could enhance the competitiveness of Nigeria's rice sector and allow the country to achieve self-sufficiency in rice production. The study finds that for Nigeria to meet projected rice consumption demands through 2023, local rice production would need to increase by an average of 90% annually. It concludes that both FDI and outsourcing could improve welfare by increasing the productivity of local producers through technology transfer and skills training, but outsourcing may provide greater benefits as skills levels increase over time. The study recommends creating an attractive investment environment and developing sound policies to promote outsourcing partnerships in Nigeria's rice value chain.

1. Between Foreign Direct Investment
(FDI) and Outsourcing: Which
Policy Strategy Will Enhance the
Competitiveness of the Nigerian
Rice Sector?
*Animashaun,
J.O., Ojehomon, V.E.T., Muhammad-Lawal, A.
and Amolegbe, K.B
Department of Agricultural Economics and Farm
Management, University of Ilorin, Nigeria
*Corresponding Author contact: reals4u@yahoo.com; +23480-38550618

2. BACKGROUND
• The choice of which trade model to used in
achieving the goal of self sufficiency in the
Nigerian rice sector presents a very daunting
Conundrum
• Should it be a free and open trade that
encourages importation, or
• A restricted trade model with stringent
conditions on importation and which rely
exclusive on local production to meet with
demand ?

3. • To further compound this, evidences from
previous rice trade policies ranging from zerorestriction, partial and full restriction do not
provide sufficient appealing evidence on which
pathway to tread.
• First, during the trade restriction era, avenues
were created that facilitated the proliferation of
illegal and sub-standard rice smuggling rice into
the country (due to porous borders).
• This led to a loss of huge revenue (tax evasion) to
the government, consumption of sub standard rice
products by consumers and a further disincentive
to local producers due to the uncompetitive price
tha such rice was offered in the market

4. • Second, unrestricted trade liberalization on
the other hand is a subject of intense
debate. As it rarely brings about equal
welfare
gains
among
participating
asymmetric countries

5. • Quite interestingly however, a globalized world
economy may not always portends a bad omen for
Developing countries (FAO, 2002) as it can in most
cases, enhance technology transfer and productivity
increase in the sector.
• And two major offshoots of such collaboration can be
vertical FDI and international outsourcing.
• In the Nigerian rice sector, such global collaboration
has brought in major rice importers into establishing
milling, inputs procuring and value addition activities
into the country
• The key difference between FDI and international
outsourcing is that of ownership and control
(Goswami, 2011; Grossman and Helpman, 2003).

6. THE RESEARCH PROBLEM
• As shown by previous studies, it is not the amount of investment
that matters, but rather the recognition of which arrangement will
facilitate the much needed technology transfer for increased
productivity.
• In view of the different partnering arrangement that may come from
foreign sourcing, it instructive to understand which of these will
ensure technology spillover to the local producers, enable local
capacity development through skills upgrading and enhance welfare
• Given this, this study has 2 objectives
• First establish the yield gain required from local production to
achieve self sufficiency in the rice sector from 2014-2023; and
• Second, compare the prospective benefits attributed to both the FDI
and international outsourcing arrangements in the Nigerian rice
sector

7. METHODOLOGY
• The study area is Nigeria
• Secondary data sourced on previous local rice production, rice
sectoral growth rate and population growth rate of the country
in 2013 from published sources from USDA were used for this
study.
• The study modeled future rice demand (2014-2023) as an
increasing function of population growth rates of 2.5% and 3%
respectively and holding all other factors constant.
• For local rice production, estimates were projected using the
average sectoral growth rate of 3.25% from 2011 to 2013
(USDA, 2013), and 3% and 4.25% respectively
• The difference between the projected consumption and
production trends for the years under review were used in
estimating the gain required from local production.

8. RESULTS AND DISCUSSION
100
90
80
70
Estimated Average consumption
60
Average production estimates
50
Deficit
40
30
Estimated growth rate to meet
defict
20
10
0
1
2
3
4
5
6
7
8
9

9. • The study observes that given the current growth
practices upon which estimates were based, the local
sector has to increase by an average of 90% per annum
over the next 10 years in order to meet with projected
consumption in the country.
• The required investment to sustainably raise production
level may not be fully met from local source
alone, hence, the need for facilitating alternative
investment and partnership source.
• Such guaranteed global partnership may offer a winwin situation for both the investor and the host nation.
• .

10. Welfare comparison of FDI and
Outsourcing
• As a change from FDI equilibrium to the outsourcing steady state occurs,
• First, there may be an exogenous increase in the efficiency as a result of
increase in the quality and quantity of skill requirement in the basic stage of
production in the host country (note outsourcing is known to employ more
skilled labour than FDI).
• This is based on the assumption that the subsidiary is less efficient
and less skill intensive and hence a regime change to outsourcing
will facilitate training and skill acquisition of the local producers
(Grossman and Helpman, 2004).
• Furthermore, at low levels of development of a host country, when the
availability of human capital is also short, it benefits the host country to
have FDI as this will increase the local skill level.
• However, with time, as its skills level grows then it is welfare improving to
host outsourcing contracts.

11. CONCLUSION
• This study concludes that:
• First, given the current growth practices upon which
estimates were based, the local sector has to increase by
an average of 90% per annum in order to meet with
projected consumption in the country.
• Second, it suggests that local productivity can be
enhanced through the identification of strategic partnering
arrangements and support that will enable technology
transfer and training of local producers in the rice sector
of the country.
• Furthermore, it suggests that depending on the rate of
initial skill level of the host country, both FDI and
outsourcing will lead to a better welfare gains as
measured by the theoretical upward shift in the
productivity of local producers.

12. • However, if the country has a low level of human capital and skill level, it
favors her to intitlally seek for FDI as this may be more beneficial; and
• On the other hand, as the skill level gets upgraded and if the domestic
consumption of the product is above the threshold defined, then, the host
country certainly gains from outsourcing contracts rather than FDI as its
assists in upgrading the local content capacity through technology transfer
and training of local producers to meet up with international competitiors
and thereby, satisfying the local demand for rice.
• RECOMMENDATIONS:
• Setting up attractive investment environments and the formulation of sound
domestic and macroeconomic policy that would make the country an
attractive hub for foreign investors who would be interested in setting up
outsourcing factory in all the value chain activites of rice production in the
country; and
• though it is not immediately clear how to go about testing the relative
strengths of these implications in a real-life sceneriors, future studies could
however, with appropriate data, validate the predictions associated with the
FDI and outsourcing in the rice sector in Nigeria.

13. • ACKNOWLEGMENT
• Dr Goswami, A.G (World Bank) for
allowing permission to some useful
materials
• THANKS FOR LISTENING.
• MERCI
• GRATIAS