IMPACT OF FOREIGN aid ON SOCIO ECONOMIC DEVELOPMENT IN NIGERIAN FOURTH REPUBLIC
IMPACT OF FOREIGN AID ON SOCIO ECONOMIC DEVELOPMENT IN NIGERIAN FOURTH REPUBLIC
1.1 Background Of The Study
Developing economies are characterised by a scarcity of resources, particularly capital. Domestic capital to increase economic growth and welfare is largely insufficient, necessitating the demand for external capital. Foreign aid is the only external cash readily available to support development endeavours. It began in the late 1940s with the goal of rebuilding Western Europe's war-torn economy.
Following the 1950s, African economies experienced significant inflows of international aid. External public capital covered 25% of the required total investment in Nigeria over the three five-year plan periods (1957-1973). Similarly, during the post-revolution period, foreign aid financed 37% of the total annual campaign from 1979 to 1983 (Tolessa 2001).
Furthermore, foreign aid accounted for 23.2% of total revenue in the fiscal year 2010/11 (National Bank of Ethiopia annual report, 2010/11).This demonstrates that foreign aid has played a significant role in Ethiopia's economy since the 1950s. Nigeria is a mineral-rich country with over thirty minerals, including gold, iron ore, coal, and limestone.
Following a decade of steady economic growth of 7.5% on average, the Nigerian economy slowed in 2012. Despite the country's impressive economic growth, the jobless rate grew from 21% in 2010 to 24% in 2011. Poverty remains prevalent, with a headcount that has decreased marginally from 48% in 2004 to 46% in 2010.
Furthermore, throughout the first, second, and third quarters of 2012, Nigeria's exports climbed while imports declined, resulting in a 59% improvement in its trade balance and a 24% rise in foreign direct investment (FDI) relative to 2011. Official Development Aid (ODA) fell from USD 2.0 billion in 2010 to USD 1.8 billion in 2011.
Total FDI in 2011 was USD 8.9 billion, accounting for 20% of total FDI to Africa in 2011. However, the majority of these investments are in the oil and gas sector. For a long time, Nigeria's underdevelopment has been linked to a lack of infrastructure,
poor policy frameworks, a hostile environment, technological backwardness, unemployment, and over-dependence on imported goods, among other obstacles.
Interestingly, the National Economic Empowerment and Development Strategy (NEEDS) targeted 5% annual GDP growth rates in 2004, but only reached 4.2%, while 6% growth rates were targeted in 2005 and 2006, but only achieved 4.5% and 6.1% growth rates, respectively. In addition, a 7% growth rate was targeted in 2007, but only 7.4% was achieved.
Overall, the amazing growth narrative is reflected in an average yearly real GDP growth rate of more than 6% between 2004 and 2012. These numbers show an increase in economic output, but the issue remains, to what degree does this increase translate into a higher standard of living for Nigerians?
Though significant emphasis has been placed on domestic savings and crude oil export profits, their ability to influence economic growth in the country is far from reality. According to the 2-Gap growth model, foreign aid should be provided to nations with a balance of payments restriction, while foreign direct investment should be aimed to supplement domestic savings.
Foreign aid and foreign direct investment will thus be reconsidered in order to compensate for the shortfalls in export profits and domestic savings, respectively.
Although many research have been conducted on the relationship that exists between foreign aid and economic growth, the majority of such studies have concentrated on the link between foreign direct investments and growth on the one hand, and foreign aid and growth on the other.
1.2 STATEMENT OF THE PROBLEM
As the Nigerian government investigates avenues for foreign aid assistance from developed countries, bilateral and multilateral international organisations to develop the economy by providing infrastructure and other developmental projects, it is critical to assess the extent to which growth could be propelled by filling Nigeria's savings and foreign exchange gaps.
Consequently, notwithstanding the different economic development models that have been implemented, the government seeks a growth model that mobilises domestic savings in order to reduce (if not eliminate) excessive foreign borrowing.
Although this has not produced the desired results, the researcher plans to explore the impact of foreign aids on Nigeria's socioeconomic progress.
1.3 OBJECTIVES OF THE STUDY
The primary goal of this research is to assess the influence of foreign aid on Nigeria's socioeconomic development. However, in order to complete the study successfully, the researcher intends to meet the following sub-objective;
i) To determine the influence of foreign aid on Nigeria's economic progress.
ii) To assess the relationship between foreign aid and Nigerian economic growth.
iii) To assess the impact of foreign aid on Nigeria's socioeconomic progress.
iv) To assess the impact of foreign aid on domestic investment.
1.4 RESEARCH HYPOTHESES
The researcher developed the following research hypotheses in order to successfully complete the study:
H0: Foreign aid has no substantial impact on Nigeria's socioeconomic progress.
H1: Foreign aid has a considerable impact on Nigeria's socioeconomic progress.
H02: There is no statistically significant link between foreign aid and economic growth.
H2: There is a strong link between foreign aid and economic growth in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
The conclusions of the study are expected to be very important to the federal ministry of finance once it is completed. Who is tasked with monitoring and maintaining the federal government account, as well as formulating policy to provide an enabling climate for foreign investment?
The study will also be of considerable interest to investors and potential investors because it seeks to quantify the impact of foreign aid, thereby focusing on areas of possible investment.
The study will also be useful to academics who want to do research on a similar topic because it will act as a guide for their research. Finally, the research will benefit both academic students and the general public.
1.6 SCOPE AND limitations OF THE STUDY
The study's focus includes foreign aid and its impact on Nigeria's socioeconomic development. However, during the course of the study, the researcher encounters a constraint that limits the scope of the study.
(a)Research material availability: The researcher's research material is insufficient, restricting the investigation.
(b)Time: The study's time frame does not allow for broader coverage because the researcher must balance other academic activities and examinations with the study.
(c)Finance: The funding available for the research endeavour does not allow for broader coverage because resources are constrained due to the researcher's other academic bills.
1.7 DEFINITION OF TERMS
Foreign aid is money given willingly by one government to another in the form of a gift, grant, or loan. In the United States, the word usually refers to the federal government's military and economic support to foreign governments.
Economic development can be defined as initiatives that strive to improve a community's economic well-being and quality of life by creating and/or retaining jobs and supporting or growing incomes and the tax base.
Economic growth is defined as the increase in the inflation-adjusted market value of an economy's goods and services over time. It is commonly calculated as the percentage rate of increase in real gross domestic product, or real GDP, expressed in per capita terms.
1.8 Research Organisation
This research paper is divided into five chapters for easy comprehension. The first chapter is concerned with the introduction, which includes the (overview of the study), issue statement,
objectives of the investigation, research question, importance of the study, research methodology, definition of words, and historical backdrop of the study.
The second chapter highlights the theoretical framework on which the study is based, as well as a survey of related literature. The third chapter discusses the study's research strategy and methodology.
The fourth chapter focuses on data gathering, analysis, and presenting of findings. The fifth chapter contains the study's summary, conclusion, and recommendations.