The Contribution Of Bank Of Industry (BOI) To Industrial Development In Nigeria (1980-2010)

Project and Seminar Material for Economics

The Contribution Of Bank Of Industry (BOI) To Industrial Development In Nigeria (1980-2010)


Abstract


Industrial Development has been a major cornerstone of economic development of any nation. The success of such a programme can be attributed to the methods and modes of financing the policy. The study is therefore focused on industrial Development financing in Nigeria. Since NIODB is at the apex of industrial development financing, this study is essential concerned with the contribution Bank Of Industry (BOI) in the industrialization of Nigeria.
Apart from the government of the day which must take certain position as regards the economic path of the country, hardly are there institutions that dedicate the growth of industries in the country. It is because of this that the author is motivated to carryout this research on the contribution of Bank Of Industry (BOI) in financing the industrialization of 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 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.

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 nonmetallic 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. BOI has existed for over thirty years, yet its impact has not been immediately felt (Hirschman 1977).

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.

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 contribution 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:

  1. To make loans to indigenous clients but not to the traders or for trading purpose.
  2. Make loans of all types within the environs of Lagos up to a maximum of N100,000.
  3. Share responsibility for longer loans in the region with Regional Corporation.

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.

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 problems. A few lessons may be drawn from experience. First, the assumption of the exchange risk by BOI’s sub in borrowers a context of exchange 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.


1.3 Research Questions

The study revolved or tries to answer the following research questions;

  1. What are the contributions of the bank of industry to industrial development in Nigeria?
  2. How have the BOI contained and maintained a better balance between developmental and commercial objectives?
  3. To what extent has the contribution of BOI’s influenced the economic indicator in Nigeria?
  4. 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:

  1. To establish a relationship between the BOI’s disbursement a development in Nigeria
  2. To determine if there is equilibrium or stable relationship between BOI’s disbursement and the rate of industrial production in Nigeria.
  3. To gain useful policy conclusion from the study.

1.5 Research Hypothesis

The hypothesis of this study includes:

Ho: Bank Of Industry has no significant impact on the industrial production.

H1: Bank Of Industry 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.

The study will put into proper perspective contribution 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.


1.8 Research Methodology

In any research work, after the problem of the topic has been identified, the next thing for the researcher to do is to make a plan of how appropriately the study can be conducted. The plan usually incorporates problems, statements and objectives of the study. Focus for the study (individuals, groups or organizations) the population and sample collection senses and types of data required, drafting of questionnaire and its administration. Data analyzes and conclusion and finally limitation through combination of methods of data gathering. The information’s gathered were from secondary data published literature, primary data and oral interview.

The bulk of the data were collected from published materials, which were mainly available from BOI Annuals Reports. Due to the scanty nature of published materials, tremendous effort were made in search of primary data and bank officials were interviewed personally by the author. Some clients of BOI were also interviewed and very useful information was gather in the course of the interviews.


Chapter Five


Summary, Conclusion and Recommendation

This chapter summarize the importance of features of the project as presented in the previous chapters. This is strictly on industrial Development Financing in Nigeria with specific reference to Nigeria industrial Development Bank Limited (BOI). Chapter one of this work (study) presented the introduction of the topics.

The establishment of Central Bank of Nigeria (CBN) by the Federal Government and the problems that led to the creation of development banks were highlighted. The necessities for these industrial financing systems arouse from scarcity of funds for investment suffered by investors, lack of managerial skills in investors. The fundamental objectives for setting up these banks was to fill the ‘gap’ created in the financial system, where there are only commercial banks and central bank.

This further led to the establishment of the BOI Ltd. Which the government uses in promoting industrialization. But for more than 27 years after establishment, the Nigerian economy is still referred to as agrarian. It is the continued reference to it as agrarian that promoted the research so as to ascertain whether the Nigerian economy has experienced any appreciable industrial growth since the establishment of the BOI in 1964 and to also identify any log in the wheel of industrial progress of the nation so as to proffer possible solutions.

A look at the establishment of the BOI and its project appraisal technique were discussed. The technique used by BOI in appraising projects includes technical, financial, economic, managerial and social appraisal. Chapter three dealt with a critical analysis of BOI, its history objectives and functions were discussed. The main objectives include: assisting in the creation and expansion of enterprises, encouraging and facilitating ownership of investments and enhancing the development of capital market, etc. the functions it is to perform are: the provision of long and medium term capital for investment, guaranteeing loans, etc. The general policies of BOI were presented in the chapter. This policy ranges from the size of investment, rate of interest repayment period, security of loan and mortgage, etc. Method of application and appraisal process were highlighted. The appraisal of BOI are very exhaustive.

Also a structural analysis of the bank was done. The administrative set up indicates that the managing Director is in charge of the day to day administration of the bank. To make its impact felt the grass root level the bank zone the country into administrative areas, as follows: Lagos Kano, Port Harcourt and Abuja with the headquarters now here in Lagos but very soon it will move to the Federal Capital Territory, Abuja.

Chapter four comprises mainly of data presentation and analysis investigations from the study reveal that BOI has reason for preferring large investment to small ones. Also through the use of questionnaire and other findings we got the following:

  1. It makes a long time process BOI loan
  2. That the investment policy of the bank is unrealistic because of its risk aversion.
  3. That the bank operates a rigid loan condition

The last aspect of this chapter are the prospects of BOI in Nigeria. This chapter five presents the summary of the study so far. Later conclusion will be drawn and recommendation will be preferred.


5.2 Conclusion

BOI has contributed tremendously in promoting industrialization in Nigeria. However, the desired level of industrial development for the country is far from being achieved. It is an indisputable fact that BOI has made some giants in its efforts to achieve its objectives. Its operation rights from the year of incorporation 1964 – 1990 attest to this fact.
A whooping sum of over N2 billion was approved for investment between 1964 – 1990 throughout the country, while a total of N1.2 billion was disbursed for the same period. It has really played the contribution of acting as a catalyst to private industry in Nigeria.

In addition to providing long and medium term finance for investors in a form of loan and equity, it has also acted as a pipeline for channeling domestic saving to profitable ventures. By virtue of its operations it has been able to inculcate discipline and proper management into the operation of the client’s enterprises.

The impressive responses by way of application for loans from enterprises, institutions and government that the bank is intended to help indicates that the bank has lived up to expectation. This assertion can be verified by the fact that over N2.0 billion sanction so far, represent only a minute fraction of the total value loan application.
In terms of employment BOI has performed modestly. Between 1964 and 1990 BOI has made investments that generated employment over 170,000 persons. It is worthwhile to stress that Nigerian employment problem cannot be solved through the activities of only a single financial institution.

The clients of BOI have recorded significance achievement in their effort as a result of the BOI’s assistance, it has generated industrial expansion by financing mainly new industries. It is an impressive scene to see new product flowing out of production of clients companies. These products ultimately go into the market to increase the variety of essential and luxury goods, thereby improving the living standard of the people.

BOI has made industrial contribution to the growth and development of capital market in the country. The Lagos Stock Exchange that was established in 1961 was up to 1972 housed by BOI free of charge.

BOI clients face a number of difficulties, these problem ranges from long processing period for application, cumbersome procedures; to frequent visit by BOI officials.

Finally, BOI’s performance is encumbered with a myriad of problems. These problems range from inappropriate appraisal, techniques in some cases, attitude of investors to default in repayment.

BOI’s restriction of its investment to large companies is economically indefensible in the present Nigeria conditions. BOI is primarily concerned with immediate profitability of projects. This is short sighted because cash flow projections alone cannot be used as a guide to latent economic benefits of projects.


5.3 Recommendation

In the light of all our findings and the need for BOI to breast up to the present needs of the country in industrial development financing as well as for the need to compare favourably with development banks in other development countries that have made conspicuous progress in industrial development financing.

Therefore Nigerian investors and the BOI, Federal Government being partners in progress and complimentary in their very important services of national economic development, the major problems facing them have to be eliminated or reduced to the bearest minimum for them to achieve absolute success in their onerous task. To achieve that these, following recommendations are pertinent for consideration and possible implementation.

  1. Financing assistance should broadly be distributed to correspond to the pattern of geographical spread i.e State – wise and even local government wise to further enhance the grassroots development policy of the government
  2. The Bank Of Industry (BOI) should launched a campaign aimed at dissuading Nigerian entrepreneurs from patronizing foreign consultant. Using Nigerian consultants are more relevant to the realization of an ambition of even national industrialization. This is because Nigerian consultant understand the environment better and their services to investors will be more in harmony with the overall national objectives or even economic development unlike the so-called foreign experts whose criteria are often in conflicts with our local needs.
  3. The BOI as bank with strong business relationship with the entrepreneurs should advise them to hire competent persons to assist foreign partners so that they are not placed at disadvantage positions.
  4. To ensure industrial development in the rural areas and ensure dispersal of industrial as well as even development, BOI should pursue and encourage the flow of its assistance to entrepreneurs in rural areas by offering or operating a scheme which offers confessional interest rates, liberating financial terms, such as lower promoters, contributions or higher debt/equity ratio. This has been successfully practiced in India as it was stated that the share of industrial assistance by development banks in India to backward areas is 0% of the total assistance given by the development banks.
  5. In order to make this workable BOI should note that the development of rural areas although complex, is very essential. It can be realized by engaging a considerable preparatory and promotional work to instill the relevant industrial culture in the people. The promotional efforts should include idea identification of feasibility studies managerial and technical assistance, continuous follow-up and monitoring all activities geared toward the main objectives of setting viable projects in rural areas. This calls for the reorganization and expansion of the promotion and the development of BOI in term of staff, duties and resources allocation.
  6. The BOI should process the applications for worthy projects within the shortest time possible to minimize the effects of inflation through unnecessary procrastination as is done at present. The policy of disbursing bits should be discounted and disbursement in large sum (unless there is genuine reasons to suspect that the loans will be misused) should be adapted.
  7. In view of the importance of management, BOI should emphasis on the viability of adequate management to avoid circumstances in which projects otherwise viable fall because of lack of efficient management. The management consultancy should be involved in identifying and selecting the essential staff for major projects. This study has had a hard look at the effort and problems of industrial development financing in Nigeria with a particular emphasis on Bank Of Industry Ltd. The problems and prospects of industrial financing has been analyzed within socio-economic and geopolitical environment. The widest scope and the need for realistic approach has directed most writers to focus on some selected elements within the economic environment, emphasizing the absence of the right-type of economical milieu as the major obstacles to rapid industrial development in Nigeria, skilled manpower bottlenecks, inadequate, infrastructure narrow markets and limited demand for products and problem of security, basic and auxiliary capital equipment and strangulation and raw material supply are among the factors in the economic environment poor management and bad organizational political factor rising from lack of any solid ideological based policy and other impediments have prevented domestic business enterprises from generating the rate of growth hoped for. Lack of entrepreneurial capacity, economic environment is impinging upon the industrialization of Nigeria. Other problems are inadequate spare parts shortage of capital which is grossly exaggerated, land problems and the absence of intelligent economic management information have been considered in arriving at the conclusion and recommendations in this study.
  8. It is generally opined that where long-term view is necessary and a certain amount of risk has to be taken, banks tend to be conservative and are not very helpful. As a development bank BOI should be prepared to inevitable risks which may in the end pay off.
  9. BOI can also sponsor management training programmes for the local promoters with the objective of providing training in modern management techniques in specific functional areas in financing or accounting marketing, personnel, material management or inventory management and office management.
  10. Finally, along with its financial assistance, the BOI has to be prepared to provide management and technical assistance as well as mount serious campaigns targeted at the governments and business men of less industrialized states to provide some necessary infrastructural facilities to attract industries to their areas.

This has a big challenge and reasonable impact to make in the rural areas in conformity with the present regime emphasis on rural development.

On the other hand, the Federal Government should not interfere with the policies of the political reasons; medium and long term finance and equity investments to small, medium and large scale enterprises which by their sizes can make significant contributions to the industrial development of Nigeria.

The research was able to prove that because the country is made up of so many political divisions and geo-political units, the formulation and implementation of industrial development programmes has always been from political considerations. In addition to this the research has proved that, though the industrial development programmes of this country have simply contents and can simply be implemented, the problem of poor infrastructural facilities to support industrial programmes are lacking.

This factor with the political factor will involve the country in making industrial development programmes implementation complex and unimplemented.


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