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The
Contribution Of Bank Of Industry (BOI) To Industrial Development In Nigeria
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Industrial
financing organizations have undergone a structural transformation during the
last three decades in most developing countries. In this process of
transformation, industrial development banks have emerged as catalytic agent of
industrial and economic growth. This work is aimed at examining the
contribution of the Bank of Industry (BOI) to the industrial development of
Nigeria. Industrialization is regarded by the government as a sine qua non for
National effort to achieve the degree of self reliance and confidence which are
required to maintain the stability necessary for social place at home and
equally master the respectability which serves as an essential ingredient for
meaningful involvement in international affairs and interactions.
The Bank of
industry (BOI) was thus created to vigorously pursue this aspiration of the
government. In fact with the increasing activities of (BOI) and Nigerians
position among other African Countries especially those of the Economic
Community of West African States (ECOWAS) and a great opportunity to develop
the export sector. The United Nations strongly expressed the views that for
2
development
to take place, Net investment in the country should be increased from 50
percent to at least 10 percent, it could then be argued that control facet of
economic development is rapid capital accumulation including knowledge and
skill.
Orthodox
writers like Lewis and Rostow (1998) have proposed that industrialization is
the engine which projects the development process of an economy.
This
proposition was derived from a general station of the historical experience of
the present day developed countries whose development took the form of an
industrial revolution several arguments could be advanced in favor of
industrialization. It is more likely to bring a change in attitudes, technical
progress and structural transformation which development was assured to entail.
The level of
productivity associated with any other sector. The result of the investigation
provides alternative employment for the labour force and this would relieve
pressure on the land. Most important of all is the linkage effects.
It has the
highest capacity of linkage with other sectors of the economy.
The
encouragement of indigenes as well as foreign enterprises would, among other
things, enhance the economic development of Nigeria.
3
The
appropriate institution that could carry out the function effectively is BOI.
If BOI increases and effectively channels its finance activities management and
technical assistance to investors in the industrial sectors, it will
undoubtedly facilitate growth and development in the economy. BOI, as an
industrial development finances institution, finances activities which include
textiles, metal products non metallic minerals products and also hotels of
international standards.
It provides
medium and long term financial assistance only to limited liability companies
registered in Nigeria and complying with the enterprises, promotion of 1972 and
sometime makes equity investments. The numerous problems that plague the
industrial sector like low level of technology, low level of investment,
infrastructural administrative and structural frame work have hindered this
sector from contributing substantially to economic development. To surmount
this problem will require not only finance institutions like commercial banks,
but more essentially degree of economic power by the choice of Projects or
assets on which it places it funds that are generated from both local and
foreign services. NIDB has existed for over thirty years, yet its impact has
not been immediately felt (Hirschman 1977).
4
Consequently,
some questions reality come to mind as regards to performance of BOI via-visa
development in the industrial sector in particular and in the economy as a
whole.
In most of
the developing countries like Nigeria, industrial financing organizations have
undergone a structural transformation during the last four decades.
In this
process of transformation industrial development bank have emerged as a
catalytic agent of industrial and economic growth.
Development
banks are crucial in the economic development process of a country. In Nigeria
the development of financial institutions for development purposes could be
traced to 1946 when the ten years development plan was launched by Britain. The
first to emerge in the scene was the Nigerian Local Development Board (NLDB),
which made loans and grants to native authorities, corporative societies and
other related bodies were established and recognized. At the definite of the
board, the northern, Eastern and western Regional development boards and Colony
Development Board (CDB) were setup thus, financial assistance to industrial and
agricultural projects. However, they had limited resources at their disposal
though their impacts were not widely felt.
5
In 1956, the
western region finance corporation (WRFC), the federal loans Board (FLB), the
Northern Nigeria Development Corporation (NNDC) and the Eastern Nigeria
Development Corporation (ENDC) were established to promote industrial
development in the country. The first official development bank was NLDB
(1946-1949). The second development finance institution was CDB (1949-1956). It
was established with N100,000 grants from the regular government budget plus
the colony share of the asset of NLDB which has been shared among the regional
components in the country. It was charged with the dual role of facilitating
both government and private economic activities. FLB was the third development
finance institution, it was established in 1956 with one an initial grant of
N600,000, with the following functions:
I. To make loans to indigenous clients
but not to the traders or for trading purpose.
II. Make loans of all types within the
environs of Lagos up to a maximum of N100,000.
III. Share responsibility for longer loans
in the region with Regional Corporation.
6
During the
period of the colonial development board in 1946, Regional Development Boards
like ENDC and NNDC were set up to operate on the regional level. With the
establishment of HLB, the various regional development boards loan shares
increased.
All the
development finance institution at various levels had defects.
Firstly,
they in most cases had every wide and ill-defined responsibility much beyond
their special capabilities.
In the
attempt to narrow down their area of operations, almost to the points of
putting themselves out of business and operation for instance FLB. In addition
to its original restrictions on loans to trading and foreign owned enterprise
refused to grant loans to set up new business on the ground that new investors
are inexperienced and lack of knowledge of new ventures. It also denied loans
to prosperous enterprises on the grounds that they were capable of raising
capital from normal sources.
Furthermore,
it made working capital loans on the grounds that they were capable of raising
capital that could be gotten from commercial bank management deficiency
contribution in no small measure to the poor performance of the finance
corporations.
7
The
operational defects and inefficiencies of the regional development boards are
summarized in the finding of two commissions of enquiry. The caller commission
of inquiry into the affairs of certain statutory corporations in Western
Nigeria and the comprehensive review of the past operations and method of the
Northern Nigeria Marketing Board, the finding of the two commissions revealed
that many of the projects were recklessly entered without any regards,
whatsoever, for the safety of the resources that were being invested in the
various undertakings.
1.2 STATEMENT OF THE PROBLEM:
Labour may
be abundant but the gross national output of the less developing countries
(LDC’s) remain limited by. I make additional efforts to mobilize and achieve
effective use of their available
resources.
The mobilization of external resources requires policies that would facilitate
the process of capital accumulation.
Many
economists, including Rostow and Lewis, emphasized capital accumulation as the
major factor governing the rate of the development (Udabah 1999).
BOI has
carried out its mandate under difficult conditions with Government support; it
has been able to overcome many operational and organizational
8
problems. A
few lessons may be drawn from experience. First, the assumption of the exchange
risk by BOI’s sub inborrowersacontextofexchange rate instability (a major
devaluation took place in September 1986 as part of the adjustment
process) had
seriously affected their viability and thus undermined BOI’s own portfolio
quality and credit worthiness, although the government did subsequently
step in to
share the exchange losses. having a reasonable balance between foreign currency
and local currency
liabilities.
Secondly institution building is a slow and continuous process, lack of
discipline in following sound banking practices and inadequate commitment to
continue staff training could adversely affect the institutional effectiveness.
Thirdly, the BOI should have contained to some extent its zeal for its development
rule and maintained a better balance between developmental and commercial
objectives.
Lastly, BOI’s experience emphasizes the sensitivity analysis of all subprojects
to take accounts the impact of changing
economic
situations.
9
1.3 RESEARCH QUESTIONS
The study
revolved or tries to answer the following research questions;
a) What are the contributions of the bank of
industry to industrial development in Nigeria?
b) How have the BOI contained and maintained a
better balance between developmental and commercial objectives?
c) To what extent has the contribution of
BOI’s influenced the
economic
indicator in Nigeria?
d) How have the BOI been able to overcome many
operational and organizational problems?
1.4 OBJECTIVES OF THE STUDY
The broad
objectives of the study are to examine the contribution of the bank of industry
to industrial development in Nigeria.
Specifically,
the study seeks to achieve the following:
a) To establish a relationship between the
BOI’s disbursement a development in Nigeria
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b) To determine if there is equilibrium or
stable relationship between BOI’s disbursement and the rate of industrial
production in Nigeria.
c) To gain useful policy conclusion from the
study.
1.5 RESEARCH HYPOTHESIS
The
hypothesis of this study includes:
Ho: Nigerian
industrial development bank has no significant impact on the industrial
production.
H1: Nigerian
industrial development bank has significant impact on the industrial
production.
1.6 SIGNIFICANCE OF THE STUDY
The
significance of this study is that it addresses the directed emphasis on
industrial development banking as an engine of growth and development. It also
helps in revealing the prospects and problems of BOI with reference to its
performance in the Nigerian economy. It will provide guidelines to policy
makers in formulating policies relating to industrial financing. It is hoped
that present work regard further research this field.
11
The study
will put into proper perspective role of developing banks in developing
countries.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study
covers the entire development efforts of BOI particularly in the industrial
sector and in the economy as a whole.
In view of
numerous difficulties associated with data collection and financial constraints,
duration of twenty nine years (1980-2010) will be considered the coverage
embodies the number of sanctions and the disbursements, during the period.
Sub-sectarian distribution of the sanction and disbursement will be considered
particular attention will be paid to the attempt made by the government in
terms of the first supply and other sources of fund available to the bank
within this specific period.
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