CHAPTR ONE
INTRODUCTION
The contemporary aids influx from the foreign countries emerged from the economic breakdown of 1930s, which contributed to the world-wide economic depression, political extremism and the outbreak of the 2nd world war. Foreign aids are defined as all forms of grants and loans at concessional financial terms that are aimed at transferring resources from developed to developing countries on development, poverty and income distribution grounds (Todaro& Smith, 2011).
The Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD) views foreign aids as official development assistance; consisting of grants or loans that one government (bilateral) or multilateral organization gives to a developing country to promote economic development and social welfare. According to them (OECD) Official Development Assistance (ODA) is calculated as the sum of grants and loans to aid recipients that:
- Are undertaken by the official sector of the donor country
- Have as the main objective the promotion of economic development and welfare in recipient countries and
- Are on concessional financial terms (i.e., with a grant element equal to at least 25 percent of the total. The conceptualisations of aid above clearly depict that aid is not the same thing as loan. While aid is more comprehensive and encompassing, loan is embedded in aid. It is usually one of the total packages of aid. Aid may serve one or more functions: it may be given as a signal of diplomatic approval, or to strengthen a military ally, to reward a government for behaviour desired by the donor, to extend the donor’s cultural influence, to provide infrastructure needed by the donor for resource extraction from the recipient country, or to gain other kinds of commercial access.
Also in the work of Riddell (2007) foreign aids involves all kinds of resources ranging from physical merchandise, skills and technical know-how, financial grants including gifts, and loans which are given to recipients by donors at concessional rates.
Abiola (2008) emphasized that ODA is also a crucial instrument for supporting education, health, public infrastructure development, agriculture and rural development and food security. In a similar reasoning, Bakare (2011) argues
That foreign aid is a means of increasing the capital available for investment and the economic growth needed to reduce poverty and raise living standards in sub-Saharan African. He further stressed that it can provide resources for industrialization, enhance efficiency of resource use, increase product diversity and generate employment, (OECD-DAC, 1999). He however observed that in the absence of regulations governing natural resource extraction, or when they are weak or poorly enforced, increased openness to foreign aid can accelerate unsustainable resource use patterns
Ekiring (2000) (as cited by InangaEno L. and Mandah E. (2008)) conceptualizes foreign aid as an international transfer of capital, goods, or services for the benefit of other nations. Such aid, in her view, is offered in several forms: Capital transfers, in cash or kind, either as grants or loans, Technical assistance and training, usually as grants in the form of human resources and technical equipment, and Military assistance in the form of either equipment or training advisors. Foreign aid flows which are in the form of official development assistance (ODA) plays a significant role as complement to domestic financing for development in the Nigerian economy as observed by (Abiola, 2008).
Nigerian government has received several aids on poverty eradication and sustainable development from various sources.They include:
- The Paris club of creditors
This is an informal group of creditor nations whose objective is to find workable solutions to payment problems faced by debtor nations. The Paris Club has 19 permanent members, including most of the western European and Scandinavian nations, the United States of America, the United Kingdom and Japan. The Paris Club stresses the informal nature of its existence and deems itself a “non-institution.” As an informal group, it has no official statutes and no formal inception date, although its first meeting with a debtor nation was in 1956, with Argentina. The members of the Paris Club meet each month which may include negotiations with one or more debtor countries that have met the Club’s pre-conditions for debt negotiation. The main conditions a debtor nation has to meet are that it should have a demonstrated need for debt relief and should be committed to implementing economic reform, which in effect means that it must already have a current program with the International Monetary Fund (IMF) supported by a conditional arrangement.
- The London club of creditors
This is an informal group of private creditors on the international stage, and is similar to the Paris club of public lenders. The first meeting of the club took place in 1976 in response to Zaire’s debt payment problems. The club is also the organisation responsible for rescheduling debt payments made by countries to commercial banks.
They mainly grant uninsured and unguaranteed loans.
These are international institutions such as: African Development Bank, International Bank for Reconstruction and Development, International Finance Corporation, International Development Association, European Economic Community.
These creditors usually grant loans for development purposes. Members are the European Union, the United States of America, the East European countries and Japan.
- Promissory Note Creditors
These creditors grant uninsured trade loans, resulting mainly from trade arrears. In 1982 and 1983, Nigeria had trade arrears and was financed by promissory notes.
Since the emancipation of aids system there have been several types of aid which is allocated to several countries, these include:
- Official Development Assistance: Official Development Assistance is the largest form of foreign aids provided by donor government to the low and middle income countries like African. This is a type of aids that Nigerian has been receiving over the years. ODA increase immediately after the World WarII and during the cold war but reduced in the 1990 after the war. Again after September 2001 terrorist attack on the US, the world have experience another growth in ODA due to the needs to fight terrorism and entrench development together with other association of principle of liberalism globally.
- Official Assistance: (OA). This is the kind of aids provided by donors’ government to richer countries like Israel, Singapore etc. and to countries formally part of the defunct USSR.
- Private Voluntary Assistance (PVA): they are grants from Non-governmental organization, religion group, charity foundations and the private companies. Usually given to low and middle income countries like Nigeria.
- Bilateral and Multilateral aids: Bilateral aids are foreign assistance given from one country to another while Multilateral aids means those resources put together from various countries and donor organizations usually under the hospices of the World Bank and IMF.
The establishment of an aid system was one of the principles of the Breton Woods Agreement in 1945. The system believes that there should be a free capital market, which allows an unrestricted inflow of foreign aid. Based on this principle, a Marshall Aid Assistance of about $17.5 billion was granted to Western Europe to resuscitate her ruined economy due to the World War II. After a successful rebuild of the European economy damaged by the war II, the IMF and World Bank channeled their aids to developing countries with a different objective, which is profit oriented. Since then, the aid system has remained a durable phenomenon of the international economic system (Todaro, 1977) as cited in (Funso& Dare, 2010).
Nigeria debt crisis must be understand within the content of the structure of Nigeria political economy, especially the mono-cultural nature of the economy, and the dominance of the short sited leadership which make the country susceptible/vulnerable to the adverse effect of the global boom and boost/contraction and expansion in the global economy. Nigeria experience economic boom through its mono-cultural economy (oil) in the early 1970s but because of lack of effective economic planning by Nigeria leaders, by late 1970s and 1980s the oil revenue declined and punch the country into external debt crisis.
Specifically the first foreign aid which was inform of loan in Nigeria was borrowed in 1964, a sum of 13.1 million dollars from the Italian government for the construction of the Niger Dam. By 1970 Nigeria external debts have grown to 1 billion dollars and in 1980s it stood up to 19 billion dollars, from where it grew to 35 billion dollars in 2004. As at 2004, it was agreed that the loan from external debt was becoming unsustainable to Nigeria government and there was needs for debt reliefs to enable the country pursue the Millennium Development Goal (MDGs). By 2005 Nigeria obtained a debt relieves of 18 billion dollars from the Paris club of creditors and paid back 12 billion dollars (Ayodele, et al., 2005). Aid flows thereafter rose to US1.29 billion in 2008 and has been above that till 2011 with US1.78 billion as aid flow to Nigeria. Nigeria has received foreign aid from a wide array of agencies and countries between 1960 and today making the country to remain heavily indebted to foreign countries which have increased the rate of poverty in Nigeria.
There is no unanimously accepted definition of poverty. As a matter of fact it is almost never defined in itself, but through other concepts, such as growth, well-being, exclusion or equity. A basic feature of the concept of poverty is its complex and multidimensional nature which makes the plurality of definitions is inescapable.
According to Oxford Dictionary, (1988) the word ‘poverty’ refers to the state of being very poor. Similar words (synonyms) for poverty include beggary, bankruptcy, debt, destitution, hardship indigence and insolvency. Others are penury, privation, want, dearth, insufficiency, lack, paucity and shortage. Apparently, these are words of negative or bad connotations which make poverty altogether undesirable phenomenon. There is ambiguity as to the sense in which poverty is expressed. The word can be understood to mean the whole gamut of deprivations which may be economic, social, spiritual, political, cultural or in fact environmental. Poverty also involves lack of physical necessities, assets, vulnerability, low income rate, lack of access to productive resources and basic social services and so on
According to Copenhagen,(1995) in his work World Summit for Social Development, he stipulated that Poverty has various manifestations or indicators, including; lack of income and productive resources sufficient to ensure sustainable livelihoods, hunger and malnutrition, ill health, limited or lack of access to education and other basic services, increased morbidity and mortality from illness, homelessness and inadequate housing; unsafe environments; and social discrimination and exclusion, lack of participation and exclusion., lack of participation in decision-making and in civil, social and cultural life”.
Oyeranti and Olayiwola (2005) view poverty as a severe deprivation of some basic human needs at the individual or household level. Put differently, poverty is material deprivation which can be assessed in monetary terms. Deprivation can be equated with lack of money to spend and to obtain material things needed to satisfy human wants. This condition can lead to low standard of living.
Poverty can take different forms by different definitions, but this study examines poverty from the point of view of “Absolute poverty”. Absolute poverty is measured not only by low income but also by malnutrition, poor health, poor clothing, lack of adequate shelter and of course lack of useful education. Thus absolute poverty in Nigeria is evidenced in low standard of living of the people whose lives are characterized by all indicators of absolute poverty. They live in fear and being fatalistic, wearing dirty cloths, hunger, no education, disease, poor nutritional value, ete
Nigeria has made significant economic advances in recent times. Over the last decade or so, the country has managed to sustain an economic growth rate of about 6-7%. This data meant that Nigeria not only grew far above the sub-Saharan average of 5.6%, but was also the third fastest growing economy in the group of 10 emerging markets referred to as EM10, behind only China and India. Such rapid economic growth enabled the country to lip-frog from an economy of $46 billion USD in 2000 to an economy of $264 billion USD in 2013 (Enweremadu, 2013).
Following a recent rebasing, the size of the economy soared to $ 509billion USD by the end of 2013, making it the largest economy in Africa. In spite of her abundant natural and human resources and the robust GDP in Nigeria, Nigeria has been identified as one of the poorest nations in the world. This follows the successive United Nations Development Programme (UNDP) report on human development (HDR) since 2003 as observed by (Njoku, 2011). Consequently, this suggests the reason why Nigeria is one of the beneficiaries of foreign aid from the developed countries. Nigeria rapid growth in GDP has failed to translate into a reduction of poverty or increasing standard of living of a vast majority of Nigerians. Despite a multiplicity of poverty alleviating programmes and policies, poverty remain wide spread in contemporary Nigeria (Appleton et al., 2008).Indeed, as a 2014 World Bank report noted, that the country’s performance is at odds with the general international trend of poverty reduction, in particular in other countries experiencing rapid economic growth like Nigeria (World Bank, 2014; 16) .
For instance, official data published by Nigeria’s National Bureau of Statistics shows that percentage of Nigerians living in abject poverty, calculated on $1 USD per day, based on an adjusted purchasing power parity, had increased from 54.7% in 2004 to 61.2 %in 2010 (National Bureau of Statistics, 2012).
A recent report by the World Bank figures suggests that poverty rates in Nigeria is significantly lower than estimates based on the 2009/2010 NBS study. In the Banks view, per capita poverty rate registers at 35.2 and 33.1 percent of the population in 2009/2010 and 2012/2013, respectively (World Bank, 2014: 17).
This is still very high considering that Nigeria is a huge country. According to the World Bank, Nigeria with 7% of the world’s poor people now ranks as the third largest contributor to the worlds poverty figures (Ogunbiyi, 2014). And this is reason why Nigeria keeps on receiving all kinds of aids from foreign countries in other to eradicate poverty. It is pertinent to look at the implication of these foreign aids received in Nigeria.
The implication/impact of foreign aid on poverty reduction in Nigeria remains a subject of intense debate. Considering the relevance of foreign aid to the economies of the Less Developing Countries (LDC), it is needful to understand its contribution to poverty reduction of developing countries. Majority of aid critics assert that aid has sustained corrupt governments in the recipient countries and enriched the elite and government officials. In contrast, some pro-aid groups have come in defense of aid and argued that aid could play major role in poverty reduction, economic growth, and in addressing the issues of income disparity (Nakamura $ McPherson, 2005; Ijaiya, &Ijaiya, 2004). Increase in the amount of aid flowing from both multilateral and bilateral donors to the developing countries has prompted the need for the question, “is aid effective in reducing poverty in the developing countries?” Olofin (2013) contends that despite increase in foreign aid and growing working population, poverty and unemployment persist in the developing countries like Nigeria. Aid as well as grant can influence the economy of a nation from different fronts; increases in investment, physical and human capital, and increases in the capacity to import capital goods and technology. Aid is associated with technological transfers which promotes endogenous technical changes, fosters increase in capital productivity (Morrissey, 2001). Given the massive scale of poverty, aid might be argued to be just a drop in the ocean. However, by adjusting for differences in purchasing power, utilization of aid for a simple consumption transfer would ultimately eliminate extreme poverty (White, 1996). Developing countries have growing resource problems. Debt profile of most of these countries is alarming, and their dependence on foreign aid and grants seem eternal. Unfortunately, as aid continues to flow, debt burden is literally overwhelming. Official development assistance flows to recipient poor countries over the past decade is on the decline, and there is the need for developing countries to seek alternative ways of fixing the serious issues of resource problem, articulate ways of effective aid utilization through the right policies and finding innovative ways of attracting additional aids (Ekanayake&Chatrna, 2015).
Over the last half century, foreign aid has emerged as a dominant strategy for alleviating poverty in the third world. Not coincidentally, during this time period major international institutions, such as the United Nations, World Bank, and International Monetary Fund gained prominence in global economic affairs (Hjertholm& White, 2003). Yet it seems that sixty years later, the lesser developed countries (LDCs) of the world continue to suffer from economic hardship, raising questions of whether foreign aid is a worthwhile and effective approach to boosting growth, development and eradicating poverty in Nigeria. Now the pertinent question is does foreign aids enhance economic development in less developed country? And how does foreign aid affect growth? This is a question that has attracted the attention of many scholars over several decades.
This made some scholars to argue on the role of economic policy in determining the effectiveness of foreign aid in aid recipient countries.
Pedersen (1996) argues that it is not possible to conclude that the foreign aid has a positive impact on growth. Morrisey (2001) claimed that aid works well conditional on other variables in the growth regression. Mosley (1980), Mosley, et al. (1987), Boone (1996), and Jensen and Paldam (2003) found evidence to suggest that aid has no impact on growth. Many other authors find evidence that aid can affect growth but have a negative impact on economic development in developing countries.
Developing countries like Nigeria are indeed characterized by low level of income, high level of unemployment, very low industrial capacity utilization, and high poverty level just to mention a few of the various economic problems these countries are often faced with. In addressing these problems, foreign aid has been suggested as a veritable option for augmenting the meager domestic resources. While some countries that have benefited from foreign assistance at one time or the other have grown such that they have become aid donors (South Korea, North Korea, China etc.), majority of countries in Africa like Nigeria have remained backward. Nigeria has continued to benefit from all sorts of foreign assistance and in fact still collect at least as much as the amount collected in the early 1964, 1980s, yet socio-economic development has remained dismal. While there could be so many factors both qualitative and quantitative explaining these unfavourable trends, the incessant socio-political crisis, policy inconsistencies, macro-economic instability and bad governance evident in many developing countries which are indeed indicators of poor policy framework (Salisu, 2007).Whitaker (2006) indicate that foreign aid donations do have a positive impact on the economic growth of the recipient nation but in most cases the foreign aid are detrimental to economic growth.
Sachs and George (2009) explain that in response to extreme world poverty, the United Nations, in its Millennium Summit in 2000, agreed upon a set of Millennium Development Goals (MDGs) to be reached by year 2015 as a way of supporting future efforts to address poverty. One of the major commitments required to achieve the Millennium Development Goals (MDGs) was for wealthy and highly industrialized nations to increase their aid to developing countries to 0.7 percent of gross national income, a target that had been in place since the mid-1960s.
Despite the increased flow of foreign aids into Nigeria and the enormous potential of foreign aid in accelerating economic growth through bridging of the savings and foreign exchange gaps, Nigeria economy is still characterized by low level of income, high levelof unemployment, very low industrial capacity utilization, and high poverty level as observed by (Fasanya&Onakoya, 2012). Consequently, Njoku (2011) highlighted reasons for the slow economic progress in Nigeria. Furthermore he suggested that the major reason why Nigeria is experiencing slow economic progress is not far- fetched from the monoculture economy that is practiced, high population growth rate, import dependency, political instability etc. Therefore, it is discovered that there exist a gap between the domestically available supply of savings, foreign exchange, government revenue and skills and the planned level of the resources necessary to achieve development targets that leads to poverty alleviation in Nigeria. The key question is whether aid has effectively played its role by its effect on Nigeria’s growth and their level of poverty.
It is against this backdrop that this study aims to analyze the effects of foreign aid on the economic growth and poverty reduction in Nigeria, Hence the focal point of this study is to ascertain the nature of the relationship that exists between foreign aid and poverty reductions in Nigeria via the welfare of the overall economy; by analyzing critically the politics behind official development assistance and the conditionality’s attach to it, so as to pin point the reason foreign aids is beneficial to develop countries but detrimental to developing counties.
Africa is the only region in the world where the number of extreme poor has risen over the past fifteen years (UN, 2007a). It is also said to be the only region in the world where not even a single country (particularly for sub-Saharan nations) is on the track to meet the MDGs (UN, 2007b). Education and health care are basic services essential in any effort to combat poverty and they are critical factors to achieving the human development MDGs.
Poverty is endemic in Nigeria just like other problems bedeviling the polity. Poverty has been described as wide spread and severe (CBN/World Bank, 1996). In spite of Nigeria’s vast resources, poverty has several dimensions and complexities (Khan, 2000).Therefore a study on poverty would further enhance our understanding of the various perspectives and issues in Nigeria’s rural poverty. The incidence of poverty in Nigeria became alarming in 2010 when the Millennium Development Goals (MDGs) report for the year suggested that more than 50 percent of Nigerians live in chronic poverty and majority of them reside in the rural areas.
The poverty in situation in Nigeria has become an issue of grave concern to everybody both adult and children. Statistics have shown that the level of poverty that exist in Nigeria is quite alarming, child mortality rate is on the increase, the life expectancy of the Nigeria is too low, children die of preventable diseases due to poor medical health care facilities. All the effort made by Nigeria to combat poverty through foreign aids has proven ineffective. Poverty has been increasing in an outstanding rate despite the various aids employed to avert poverty in Nigeria (Appleton et al., 2008). Nigeria’s relative measurement stood at 54.4%, but increase to 69% in 2010 (CBN/World Bank, 2010). The North-West and North- East Geo-political zones recorded the highest poverty rate in the country with 77.7% and 76.3% respectively in 2010, while the South-West geo-political zone recorded the lowest at 59.1%. Among the state, Sokoto had the highest poverty rate at 86.4% while Niger had the lowest poverty rate at 43.6% in 2010. The dollar-par-day as a measurement to the level of poverty means the population of those living on less than US$1 per day. applying this approach to Nigeria, 51.6% of the Nigeria population were living on less than US$1 per day in 2004, but this increase to US$2 per day in 2010 (CBN/World Bank, 2010).in this regard 75.5% of Nigerian considered themselves to be poor in 2004, 2010, 2013 respectively, the case was even worst in 2015 and 2016 were most Nigerians claimed to be poor because of the outbreak of recession in Nigeria Economy.
Foreign aids and poverty are inextricably linked together and this research seeks to understand the extent to which the billions already deployed in foreign aid have served to impact on poverty reduction in Nigeria. Aid flows to Nigeria is ultimately intended to help recipient countries attain sustainable development especially in the area of capital development, sustained economic growth, poverty reduction and increase sustainable economic development. The justifications for increasing official aid to the poor countries of the world have constantly come under scrutiny and have generated intense debate among researchers. Against this background, this study is aimed at assessing the impact of Official Development Assistance on poverty reduction in Nigeria from 1999 to 2016,
This study is also concerned with identifying the root cause of persistent poverty in Nigeria despite the several programmes employed by the country through foreign aids to fight poverty. In a comprehensive manner the study will shows that Official Development Assistance has no significant positive impact on poverty reduction within the specified period in Nigeria. This means that foreign aid has a negative impact and an adverse effect on economic growth in Nigeria, and that aids obtained from donor countries has tied the nation down to a perpetual level of dependency.
- Research Questions
This study provokes the following research questions.
- Has the influx of Official Development Assistance (ODA) brought about a reductionin poverty rate in Nigeria between 1999 and 2016?
- Have the foreign aids given by IMF and World Bank underminedsocio-economic development in Nigeria between 1999 and 2016?
The study has broad and specific objectives. The broad objective of this study is to determine the impact of foreign aids on poverty reduction in Nigeria between 1999 and 2016. Therefore the specific objectives are:
- To ascertain whether the influx of Official Development Assistance (ODA) has led to poverty reduction in Nigeria between 1999 and 2016.
- To ascertain whether foreign aidsgiven byIMF and World Bank undermined socio-economic development in Nigeria between 1999 and 2016
- Significance of the study
This research work has theoretical and practical Significance. The theoretical Significance is that the study will add to existing knowledge. Practically this study will contribute to the advancement of extent literature on impact of foreign aids and technical assistance on poverty reduction in Nigeria, thus forming a verifiable source of reference for researchers.
Again, it is also expected that the empirical result and recommendation of this work will be useful to policy makers as it will help in adopting the right and suitable foreign aids policies that will eradicate extreme poverty, extreme hunger and enhance fast economic development in Nigeria, more so the entire population of Nigeria and Nigerian government will benefit immensely from this research work as it will expose them to the benefit and harmful effect of foreign aids and help Nigeria policy makers on how to make the right policies as to clear their impending debt, makes the right economic policy in determining the effectiveness of foreign aid in Nigeria and invest wisely to attained economic development independently,the recommendations in this work would help to debunk the dependency level of Nigeria government to the donors countries.
Finally, the general public will find this work very useful because it will serve as a spring board for continuation of research as well as for detailed information as regards to foreign aids in Nigeria.
The scope and limitation of the study
This research is actually to ascertain the impact of foreign aids and technical assistance on poverty reduction in Nigeria, between 1999 and 2016.
1.6 Hypotheses.
- The influx of Official Development Assistance (ODA) has not brought about a reduction in poverty rate in Nigeria between 1999 and 2016
- The foreign aids given by IMF and World Bank undermined socio-economic development in Nigeria between 1999 and 2016
FOREIGN AID AND POVERTY REDUCTION IN NIGERIA, 1999 TO 2016
