Historically development finance has been
associated with donor institutions that have provided development assistance or
aid to developing countries. Clearly discuss the role of some of these institutions in financing development in Nigeria or any developing country.
Senior Lecturer, Economics, UNN
Dr Anthony Orji is a Ph.D holder in Economics and a lecturer at the Department of Economics, University of Nigeria Nsukka.
He obtained his B.Sc, Msc and Ph.D Degrees from the University of Nigeria, Nsukka and a Post Graduate Diploma in Sustainable Local Economic Development (SLED) from Erasmus University, Rotterdam Netherlands.
EKWOMA JUDE IKECHUKWU UNN/PG/2016-17/002882
ROLES AND SIGNIFICANCE OF DEVELOPMENT FINANCE INSTITUTIONS IN NIGERIA AND OTHER DEVELOPING COUNTRIES
DFIs have a general mandate to provide finance to the private sector for investments that promote economic growth and development. The purpose of DFIs is to ensure investment in areas where otherwise, the market fails to invest sufficiently i.e. areas where private sectors are discouraged to investment as a result of long-gestation periods and low return on investment (ROI). DFIs aim to be catalysts, helping companies implement investment plans and especially seek to engage in countries where there is restricted access to domestic and foreign capital markets and provide risk mitigation that enables investors to proceed with plans they might otherwise abandon. DFIs specialise in loans with longer maturities and other financial products. DFIs have a unique advantage in providing finance that is related to the design and implementation of reforms and capacity-building programmes adopted by governments.
Thus, the basic emphasis of a DFI is on long-term finance and on assistance for activities or sectors of the economy where the risks may be higher than that of the ordinary financial system is willing to bear. DFIs may also play a large role in stimulating equity and debt markets by (i) selling their own stocks and bonds; (ii) helping the assisted enterprises float or place their securities and (iii) selling from their own portfolio of investments.
Also, DFIs provides technical assistance for the preparation and execution of development programmes projects like infrastructure and utilities. Over the last fifteen years there has been general underinvestment by the private sector in infrastructure in many developing countries. Total commitments to public-private investments (PPI) in infrastructure in developing countries was US$ 47.8 billion in 2007. Of this, telecommunications accounted for 25% and energy for 29%. Other key sectors include transportation and, to a lesser extent, water supply. Investments have been higher in East Asia, moderate across Latin America as a whole, and low in Africa. Sub Saharan Africa accounted for only 3.8% of total PPI investments in infrastructure in developing countries over 1984-2007. Over the 1990-2002: PPI investment was 0.6% of GDP in Africa compared to 1.7% in LAC. Total DFI commitments to private sector infrastructure were around US$7.5billion in 2007 – or 16% of total PPI investment. On the basis of lack of social amenities and low infrastructure investment in developing countries like Nigeria which its availability are necessary for development, justify the dominants roles played by development finance institutions and its programmes adoption in Sub-Sahara Africa (SSA).
The Multilateral Investment Guarantee Agency (MIGA)
A member of the World Bank Group, established in 1988 as an investment insurance facility to encourage confident investment in developing countries issued a record of $4.8 billion in guarantees in fiscal year 17, helping draw in some of 15.9 billion in foreign private capital to developing countries. MIGA’S mission is to promote foreign direct invest (FDI) into developing countries to support economic growth, reduce poverty and improve people’s living standard. Its major role in development efforts in LDCs are
1 Generation of new tax policies to facilitate capital formation in developing countries.
2. Development and operation of Ghana’s Sankofa Gas project, an integrated offshore oil and gas project that will provide a source of reliable and affordable energy.
3. Investments in coffee operating companies in Burundi that will enable smallholder farmers to compete and participate in the global coffer supply chain.
These are some of the various ways through which donor institutions help in providing development assistance to developing countries.
What ever efforts put in by donor institutions in the development of the third-world countries such as Nigeria especially in loans and grants can only be success by the complementary efforts to the recipient government through efficient policies and implementation.
As a matter policy, most donors attach conditions to their aid to developing countries. However, recently, donor policy seems to be moving even further away from conditionality towards partnership and (co) ownership programmes (Paris Declaration on Aid Effectiveness (2005).
THE WORLD BANK GROUP (WBG)
Formed in July 1944, came into formal existence in December 1945. The World Bank group is a family of five international organizations that make leverage loans to developing countries. It is the most famous and largest development bank in the world and an observer at the United Nations development Group. Based in Washington D.C, the bank provided around $61 billion in loans and assistance to developing and transition countries in the 2014 fiscal year. The bank’s stated mission is
1. To end Extreme poverty and
2. To build shared prosperity (economic development).
As of 2015, the bank’s total lending through development policy financing for the 10 years was approximately $117 billion. Some of its branches to look into their roles in financing development in LDCs are
1. The International Bank For Reconstruction and Development (IBRD)
This bank provides loans at preferential rates to member countries, as well as grants to the poorest countries. Loans or grants for specific projects are often linked to wider policy changes in the sector or the country’s economy as a whole. For example, a loan to improve coastal environment management may be linked to development of new environmental institutions at national and local levels and the implementation of new regulations to limit pollution, or not, such as the World Bank financed constructions of paper mills along Rio Uruguay in 2006.
2. The International Development Association (IDA)
This association was established in 1960. Its roles has been
(a) To assist the poorest nations in growing more quickly, equitably, and sustainably to reduce poverty.
(b) Help bring electricity to an additional 66 million Africans since 1997.
(c) Helped build or restore 240,000 kilometers of paved roads, and helped enroll an additional 15 million African children in school since 2002.
(d) The IDA was proved in May 2012 to provide $50 million USD worth of credit to the women entrepreneur development project as part of an effort to help women in Ethiopia participate in business as skilled employees or leader.
In Africa, with the help of IDA, between 2012 and 2015, the share of people living on less than $1.90/day dropped from 43% to 35%.
For any country to develop, it needs finance. Today’s development challenges can only be met if the private sector is part of the solution, but the public sector sets the groundwork to enable private investment and allow it to thrive. Poor capital formation and accumulation have been a major characteristic of the world’s developing countries which has constantly held them back from achieving their desired level of economic growth and development.
Development finance is the efforts of both local and international communities and agencies to support, encourage and catalyze expansion through public and private investment in physical development, redevelopment and /or business and industry. It is the act of contributing to a project or deal that causes that project or deal to materialize in a manner that benefits the long-term growth of the recipient’s economy.
Nigeria like every other developing countries have over the year relied on the aid or assistance of both bilateral and multilateral donor institutions, and even NGOs and private philanthropists for most of their development projects financing.
Donors are entities that have explicit mission to support development goals.
These institutions/agencies have continued to play crucial roles in financing development in less developed countries in the areas of:
(i). Human development (e.g. education and health)
(ii). Agricultural and rural development (e.g. irrigation and rural services).
(iii). Provision of loans (e.g. Funding to microfinance institutions)
(iv). Infrastructure (e.g. roads, urban regeneration, electricity).
(v). Large industrial constructions projects, and governance (e.g. anti-corruption, legal intuitions development)
(vi.) Environmental protection (e.g. pollution reduction, establishing and enforcing regulation).
Some of the donor institutions and the roles they play in financing development in less developed countries include:
WORLD BANK
In the early 1960s up to 1970, the World Bank interventions in Nigeria were mainly in the area of highway transport, seaport, and Telecommunications and Electricity energy. The World Bank sponsored and undertook a critical study on the nature of Nigerian economy titled “the economic development of Nigeria”, and made critical examinations of the structure of Nigerian economy and its prospects in the years ahead.
In 1958, the bank extended its first loan of $28.0 million to Nigeria to complete the railway line from Gombe to Maiduguri. By 1993, the bank had approved a total of 84 IBRD loans Valued at $ 6,248.2 million and 14 IDA credits worth $902.9 million. This gives a total of 98 projects worth $7.151 million making Nigeria the 12th largest borrower of the bank in the world accounting for up to 15.73% of the bank’s investment in Africa (alkali; 1997; 69).
3.INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT (IFAD)
International Fund for Agricultural Development, IFAD, founded in 1977 is a specialized agency of the United Nations focused on poverty eradication in developing countries.
IFAD was established subsequent to the 1974 World food conference to tackle structural impediments to rural agricultural production by providing direct funding for high impact agricultural development projects in developing countries.
In Nigeria, IFAD has financed programmes and projects to the tune of over USD232.2m with over 40% of financial resources of West and Central Africa invested in Nigeria.
IFAD financial assistance is targeted at:
1 Small scale farmers, landless people and rural women enabled to earn a living through agriculture.
2 Supporting structural agro sector reform, infrastructure provision and technology transfer.
3 Improving access to financial and social services by rural communities.
4 At the governmental level, IFAD assists in building capacity for personnel in institutions that cater for rural communities and promotes initiatives that encourage private sector led growth.
Prominent amongst IFAD programmes in Nigeria are:
(A) The Country Strategic Opportunities Programme (COSOP)
(B) Value Chain Development Programme.
(C) Climate Change adaptation and Agri-business support programme in the Savannah belt
2.UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT (USAID)
The United States Agency for International Development, formed in 1961 with a foundation aim to “join hands with our allies to eradicate extreme poverty in the next two decades”
USAID operates through technical and Financial assistance. The thrust of USAID activites are : (a) Disaster relief (b) Poverty relief (c) Technical cooperation on global issues such as environment. (d)Bilateral interests of the United States (e) Socio economic development through technical advice, training, scholarships, commodities and financial assistance.
In Nigeria, USAID’s projects and programmes of impact include:
1. Working in crisis and conflict areas, providing life-saving humanitarian assistance as well as development assistance to ensure recovery and re-integration after the Boko-Haram crisis.
2. POWER AFRICA Initiative,energy intervention in Nigeria.
3. Democracy, human rights and governance, strengthening the capacity of actors in governance, electoral and judicial systems. Of particular note is technical assistance towards the enactment of the Freedom of Information (FOI) Act.
4. Economic Growth and Trade, the NEXTT (Nigeria Expanded Trade and Transport)program, the LAKAJI corridor.Technical support in the enactment of ease of doing business ‘EOB’ legislation.
5. Agriculture and Food Security, intervention in High impact value chains.
6. Education, access to education, provision of infrastructure and teacher training.
7. Global health, strengthening sector resources, leadership and management.CONTD
1.DEPARTMENT FOR INTERNATIONAL DEVELOPMENT (DFID)
The UK Department for International development, formed in 1997 is responsible for administering UK Overseas aid with a goal of eliminating world poverty.
DFID scope of operations includes Bilateral aid such as debt relief, humanitarian assistance and project finance as well as Multilateral aid such as support to EU ,World Bank, UN and similar agencies.
Under bilateral aid the main focus of DFID projects are education, health, social services,water supply and sanitation, government and civil society, economic sector, environmental protection and research.
In Nigeria, DFID’s recent programmes and projects of impact include:
(a) Technical support for legislative processes towards better business environment through the DFID’ ENABLE programme and GEM3 in collaboration with the National Assembly and the organized private sector.
(b) Maternal and Childcare programmes countrywide. (c) ESSPIN, Education Sector Support Programme in Nigeria.
(d) Institutional Support for Nigeria Information Technology Development Agency (NITDA) towards creation of ICT jobs in the country.
(e)USD4.6m funding of Ebola vaccine trials project in conjunction with Wellcome Trust, UK Medical Research Council (MRC).(f) N44b fundi ng in conjunction with world bank towards creation of 460,000 jobs across eight sectors of the economy under the Growth and Employment (GEM) project.
(g) Technical Support on Security,Terrorism, population studies and debt management amongst others.CONTD