CAPITAL FLIGHT AND INVESTMENT IN NIGERIA IN THE ERA OF FINANCIAL GLOBALISATION

CHAPTER ONE

INTRODUCTION

1.1              Background of the Study

The term capital flight suggests a hasty cross-border movement of capital from one country to another. It is a kind of illicit movement of financial assets (capital) from one country to another. Some scholars like Nyong (2003), Ayodele (2014) label these capital movements as “flight” while others label them as “foreign investment”. Bakare (2011) argued that it is unnecessarily pejorative to label capital movement form Nigeria, for instance, as flight while terming such movements from, say the United States of America (USA) to other countries as foreign investment. He further posited that much of the capital that exited did so with either government approval or acquiescence from the country of origin, thereby rendering untenable an attempt to label these financial flows as “capital flight” on the basis of their illegality. It is however, the contention of the present authors that the illegality involved in the cross-border movement of such capital qualifies it to carry the tag “flight”. In the words of Kindleberger (1987) capital flight is an illegal movement of capital from one country to another. Indeed, it is an abnormal flow of capital as it is not sanctioned by the government of the country of origin. This is because the exchange of capital controls imposed by the particular country is not adhered to. Less developed countries (LDCs), Nigeria inclusive, are generally capital-scarce; it is, therefore a paradoxical phenomenon that capital from such countries exit into developed countries that are capital-surplus. It is in less developed countries (LDCs) that capital is most needed for investment, providing employment opportunities, addressing infrastructural deficits, insecurity challenges, providing enabling environment for businesses to thrive, improving the socio-economic conditions of domestic residents and drive development generally, to mention but a few.

Nationshave been recognised to develop through the accumulation of savings that have been profitably invested to yield returns and increase production in different sectors of the economy. Such investments could be social or soft in outlook (housing, health and education), while others are infrastructural or hard (transport, power and water),and yet others are purely economic, which the private sector undertakes for private capital accumulation. This has mademonetary authorities promote the domestic savings within the economy,since it seems that the primary source of finance for investment is savings. Such accumulated capital has been allowed to freely flow from their countries to others over the yearsand this has been on for centuries. Such capital flows however became quite pronounced during the nineteenth century, especially during the upheavals in Europe, between the countries and continents of the Northern Hemisphere.