POOR CAPITAL FORMATION: THE BANE OF NIGERIA ECONOMIC DEVELOPMENT.

POOR CAPITAL FORMATION: THE BANE OF NIGERIA ECONOMIC DEVELOPMENT.
Almost all economists lay emphasis on capital formation as the major determinant of economic growth.” The meaning of capital formation is that the society does not apply the whole of its current productive activity to the needs and desires of immediate consumption, but directs a part of it to the making of capital goods: tools and instruments, machines and transport facilities, plant and equipment-all the various forms of real capital that can so greatly increase the efficacy of productive effort……..

Importance of capital formation to Nigeria economy development.
The importance of capital formation to Nigeria economy can not be over emphasized. Going by the fact that many countries in the frontline today are those who took time to develop their capital base. Nothing consuming all they had but put a great percentage of it to capital formation.
Therefore, capital formation has the following advantages:
1. It will help to break the vicious circles of poverty in the country .Due to low levels of income in Nigeria, demand, production and investment are deficient. This result in deficiency of capital goods which can be removed by capital formation. As the supplies of machines, equipment and tools increase, the scale of production expands Thus capital formation leads to increase in increase in the size of national output, income and employment thereby solving the problems of inflation and b balance of payments, and making the the economy free from the burden of foreign debt.
2. Capital formation leads to the expansion of market. It is capital formation which helps remove market imperfections by the creation of economic and social overhead capital, and thus break the vicious circles of poverty both from the demand side and supply side.
3. Capital formation helps in making a country self –sufficient and reduces the burden of foreign debt. When a country borrows from foreign countries for long, it imposes a heavy burden on the future generations.
4. Capital formation also influences the economic welfare of a country. It helps in meeting all the requirements of an increasing population in a developing economy. When capital formations leads to the proper exploitation of natural resources and the establishment of different types of industries , levels of income increase and the varied wants of the people are satisfied. They consume a variety of commodities, their standard of living rises and their economic welfare increases.

Reasons for low capital Formation., in Nigeria
The rate of capital formation is low Nigeria. The reason is that it lacks those factors which determine capital formation.Infact capital formation depends upon savings, on the institutions mobilizing these savings and investment of these savings. The failure of these three stages to operate properly is responsible for the low rate of capital formation in the country. Therefore the main reasons for the low capital formation in Nigeria are the followings:
· Low income
· Low productivity
· Demographic reasons: the growth rate of population is very high
· Lack of or poor overhead e.g. power, transport etc
· Inequalities in income distribution
· Small size of the market.
· Poor financial institutions etc
No country develops without increasing its capital base. For Nigeria to develop the government still have a lot to do in the area of capital formation. We should learn from the likes of India, Japan, China and even Malaysia.