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.
Thursday, September 17, 2009
EFFECTIVE MONETARY POLICY: TOOL FOR NIGERIA ECONOMIC DEVELOPMENT
EFFECTIVE MONETARY POLICY: TOOL FOR NIGERIA ECONOMIC DEVELOPMENT.
My concern has always been when will Nigeria join the list of developed countries in the world as it has overstayed on her time among the least developed countries un the globe. Recently G20 meeting was held and Nigeria the once popular giant of Africa was not even invited. The president of the country expressed his displeasure over this. Nigeria economy will soon celebrates its 50yrs of self determination but it is a pity that the older the nation the more complex its problems. But in this my article I will project effective monetary policy as what we need to foster economic development in this country.
What is monetary policy? It refers to the policy of the monetary authority of a country as regards monetary matters. It may be defined as that policy which deals with (a) “the controls of financial institution; (b) the active purchases and sales of paper assets by the monetary authority as a deliberate attempt to effect changes in money conditions (c) it also has to do with deliberate effort towards stabilizing the interest rate.
In brevity, it accelerate development by influencing the cost and availability of credit, by controlling inflation, and by maintaining balance of payments equilibrium.
Instruments of monetary policy necessary for Nigeria economic development.
1. Dedicated and responsible financial institution: Although one of the aims of monetary policy in developing economies is to establish and expand the financial institutions in the country. But I will rather advocate for financial institutions that are dedicated to the course of the nation and that are responsible in the discharge of their duties. Thank God for the new central bank of Nigeria president and his salutary courage of exposing the 5 hitherto perceived strong banks in Nigeria who were busy deceiving the poor Nigerians through their regular paper profit declared annually. For Nigeria to develop the mentality of the banks should be changed from just making profit to that of providing enabling environment to Nigerians who has visions of fostering the development of the country. As long as the primary commitment of our banks is to the shareholders and not to the macro economic objectives , there is bound to be problems and saboteurs in the polity.I will like to state here also that a strong central bank and selfless leadership is sine-qua non to achieving the monetary policy objectives.
2. A suitable interest rate policy: In Nigeria the interest rate structure stands at a very high level. Even in the Microfinance banks.Our banks don’t seems to be committed to the nations development course. The existence of high interest rates acts as an obstacle to the growth of both private and public investment in Nigeria. A low interest rate is rate is therefore, essential for encouraging private investment in agriculture and industry. Since in countries like Nigeria where the average income per person is low the businessmen have little savings out of undistributed profits, they have to borrow from the banks and they would borrow if the interest rate is low. Even the availability of cheaper money for” complimentary funds” will encourage private foreign investments. So the CBN should see to this.
.
3.Proper adjustment between demand for and supply of money. An imbalance between the two will be reflected the price level .A shortage of supply will inhibit growth while an excess of it will lead to inflation. Therefore the central bank of Nigeria should control the supply of money in such a way and manner that the price level is prevented from rising without affecting investment and production adversely.
You can comment on this. Expect more soon
My concern has always been when will Nigeria join the list of developed countries in the world as it has overstayed on her time among the least developed countries un the globe. Recently G20 meeting was held and Nigeria the once popular giant of Africa was not even invited. The president of the country expressed his displeasure over this. Nigeria economy will soon celebrates its 50yrs of self determination but it is a pity that the older the nation the more complex its problems. But in this my article I will project effective monetary policy as what we need to foster economic development in this country.
What is monetary policy? It refers to the policy of the monetary authority of a country as regards monetary matters. It may be defined as that policy which deals with (a) “the controls of financial institution; (b) the active purchases and sales of paper assets by the monetary authority as a deliberate attempt to effect changes in money conditions (c) it also has to do with deliberate effort towards stabilizing the interest rate.
In brevity, it accelerate development by influencing the cost and availability of credit, by controlling inflation, and by maintaining balance of payments equilibrium.
Instruments of monetary policy necessary for Nigeria economic development.
1. Dedicated and responsible financial institution: Although one of the aims of monetary policy in developing economies is to establish and expand the financial institutions in the country. But I will rather advocate for financial institutions that are dedicated to the course of the nation and that are responsible in the discharge of their duties. Thank God for the new central bank of Nigeria president and his salutary courage of exposing the 5 hitherto perceived strong banks in Nigeria who were busy deceiving the poor Nigerians through their regular paper profit declared annually. For Nigeria to develop the mentality of the banks should be changed from just making profit to that of providing enabling environment to Nigerians who has visions of fostering the development of the country. As long as the primary commitment of our banks is to the shareholders and not to the macro economic objectives , there is bound to be problems and saboteurs in the polity.I will like to state here also that a strong central bank and selfless leadership is sine-qua non to achieving the monetary policy objectives.
2. A suitable interest rate policy: In Nigeria the interest rate structure stands at a very high level. Even in the Microfinance banks.Our banks don’t seems to be committed to the nations development course. The existence of high interest rates acts as an obstacle to the growth of both private and public investment in Nigeria. A low interest rate is rate is therefore, essential for encouraging private investment in agriculture and industry. Since in countries like Nigeria where the average income per person is low the businessmen have little savings out of undistributed profits, they have to borrow from the banks and they would borrow if the interest rate is low. Even the availability of cheaper money for” complimentary funds” will encourage private foreign investments. So the CBN should see to this.
.
3.Proper adjustment between demand for and supply of money. An imbalance between the two will be reflected the price level .A shortage of supply will inhibit growth while an excess of it will lead to inflation. Therefore the central bank of Nigeria should control the supply of money in such a way and manner that the price level is prevented from rising without affecting investment and production adversely.
You can comment on this. Expect more soon
Wednesday, September 16, 2009
Nigeria Economy: The cankerworm called Unemployment.
It becomes pertinent for us to evaluate the activities of our government as it affects us as individual and a nation , going by their conflicting macro-economic objectives and perpetuating poverty in the country.
It was the ultimate desire of the former president of Nigeria , chief Olusegun Obasanjo to industrialize the nation and consequently reduce unemployment.This was said to be responsible for his many journeys outside this country to Europe and the fast growing Asia economy to lure investors into the country. However by the time the chief was leaving office , unemployment rate has not only increased but has eaten deep into the once pride number one economy in Africa. The reasons for this growth in unemployment rate and its effects are not far fetched.
Sometimes , I do wonder if there are no policymakers in the corridor of power would could adivice the leadership as regards the choice of macro economic objective to pursue and its opportunity cost.
Most notable among the numerous causes of unemployment is that the government of the country has been working tiredlessly to bring about investors and at the sametime doing everything possible to stop them from coming and thereby perpetuating unemployment by not creating a conducive environment for these potential investors by increasing the cost of production in the country, especially through poor power supply , thereby skyrocketing the cost of production.
It is no longer news that many companies left Nigeria for neighbouring countries like Ghana, where there is a conducive environment., Take for in stance a situation where a litre of diesel cost #110 and these organizations have to consume 100s’ of litre per day. It is only an irrational producer that will watch his cost of production rise rapidly without doing anything about it. This has been responsible for frequent “downsizing” and low rate of employment in our industries in recent years.
Yar’adua’s government is also planning to deregulate the downstream sector. If before removal of subsidy diesel goes for #110 per litre, then what happens after removal of subsidy.Expect more firms to join the likes of Dunlop , Club beer, Afri cola etc. I think the government should keep subsidizing until he’s able to find solution to power supply in this country. It is a big shame that after over 10billion naira has been spent on this sector , it is still the same story.
· Increase in crime rate
· Fall in aggregate demand in the economy as the ratio of dependant increases.
· Decline in the number of total output , due to fall in demand
· Poor standard of living in the country
· High cost of survival and many more are the fallouts of unemployment in Nigeria as most of the Nigerian youths look helpless.
Where do we go from here?
It becomes pertinent for us to evaluate the activities of our government as it affects us as individual and a nation , going by their conflicting macro-economic objectives and perpetuating poverty in the country.
It was the ultimate desire of the former president of Nigeria , chief Olusegun Obasanjo to industrialize the nation and consequently reduce unemployment.This was said to be responsible for his many journeys outside this country to Europe and the fast growing Asia economy to lure investors into the country. However by the time the chief was leaving office , unemployment rate has not only increased but has eaten deep into the once pride number one economy in Africa. The reasons for this growth in unemployment rate and its effects are not far fetched.
Sometimes , I do wonder if there are no policymakers in the corridor of power would could adivice the leadership as regards the choice of macro economic objective to pursue and its opportunity cost.
Most notable among the numerous causes of unemployment is that the government of the country has been working tiredlessly to bring about investors and at the sametime doing everything possible to stop them from coming and thereby perpetuating unemployment by not creating a conducive environment for these potential investors by increasing the cost of production in the country, especially through poor power supply , thereby skyrocketing the cost of production.
It is no longer news that many companies left Nigeria for neighbouring countries like Ghana, where there is a conducive environment., Take for in stance a situation where a litre of diesel cost #110 and these organizations have to consume 100s’ of litre per day. It is only an irrational producer that will watch his cost of production rise rapidly without doing anything about it. This has been responsible for frequent “downsizing” and low rate of employment in our industries in recent years.
Yar’adua’s government is also planning to deregulate the downstream sector. If before removal of subsidy diesel goes for #110 per litre, then what happens after removal of subsidy.Expect more firms to join the likes of Dunlop , Club beer, Afri cola etc. I think the government should keep subsidizing until he’s able to find solution to power supply in this country. It is a big shame that after over 10billion naira has been spent on this sector , it is still the same story.
· Increase in crime rate
· Fall in aggregate demand in the economy as the ratio of dependant increases.
· Decline in the number of total output , due to fall in demand
· Poor standard of living in the country
· High cost of survival and many more are the fallouts of unemployment in Nigeria as most of the Nigerian youths look helpless.
Where do we go from here?
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