Foreign Aid And Its Impact On Socio-Economic Development In Nigeria

Project and Seminar Material for Political Science

Abstract

Development is a theme that encapsulates the totality of the outlook of every country in the world. Global concerns to eradicate poverty and many other indicators of the downside of development have been described as the basic need for foreign aid intervention. This study essentially seeks to understand the role foreign aid intervention has played in development, challenges confronting the success of foreign aid intervention and more effective approaches that can make foreign aid intervention a success. The study which was conducted in Abuja Nigeria, employed qualitative method of data collection using questionnaires as instruments for data collection. Data were analyzed using frequencies and percentages. Two hypotheses were formulated and tested using the chi square. Findings from this study revealed that foreign aid has contributed to the development of the communities studied and among other recommendations the researcher strongly recommended that foreign aid intervention should be carried out more in rural communities especially in the area of critical infrastructures.

Chapter One

Introduction

1.1 Background to the Study

The role of foreign aid in the growth process of developing countries has been an issue of intense debate. Foreign aid is an important issue given its implications for poverty reduction in developing countries. Previous empirical studies on foreign aid and economic growth generate mixed results. For example, Addison, Mavrotas and McGillivray (2005)find evidence for positive impact of foreign aid on growth; Abegaz (2005) find evidence for negative impact of foreign aid and growth, while AFDB (2005),AFDB (2004) find evidence to suggest that aid has no impact on growth. It should be noted that, although Adelman (2000) concluded that foreign aid has positive effects, this conclusion applies only to economies in which it is combined with good fiscal, monetary, and trade policies.

The main role of foreign aid in stimulating economic growth is to supplement domestic sources of finance such as savings, thus increasing the amount of investment and capital stock. As Adelman (2000) points out, there are a number of mechanisms through which aid can contribute to economic growth, including (a) aid increases investment, in physical and human capital; (b) aid increases the capacity to import capital goods or technology; (c) aid does not have indirect effects that reduce investment or savings rates; and aid is associated with technology transfer that increases the productivity of capital and promote endogenous technical change. According to Addison, Mavrotas and McGillivray (2005), four main alternative views on the effectiveness of aid have been suggested, namely, (i) aid has decreasing returns, (ii) aid effectiveness is influenced by external and climatic conditions, (iii) aid effectiveness is influenced by political conditions, and (iv) aid effectiveness depends on institutional quality. It is interesting to note that in recent years there has been a significant increase in aid flows to developing countries although other types of flows such as foreign direct investment and other private flows are declining. For example, according to the Organization for Economic Corporation and Development (OECD, 2009), foreign direct investment and other private flows are on the decline, and remittances are expected to drop significantly in 2009. Budgets of many developing countries were hit hard by the rises in food and oil prices in the last two years. Many countries are not in a strong fiscal position to address the current financial crisis. According to the OECD (2009), in 2008, total net Official Development Assistance (ODA) from members of the OECD’s Development Assistance Committee (DAC) rose by 10.2% in real terms to US$119.8 billion and is expected to rise to US$130 billion by 2010. Africa is the largest recipient of foreign aid. For example, net bilateral ODA from DAC donors to Africa in 2008 totaled US$26 billion, of which US$22.5 billion went to sub-Saharan Africa. Excluding volatile debt relief grants, bilateral aid to Africa and sub-Saharan Africa rose by 10.6% and 10% respectively in real terms.

Given the importance of foreign aid to the economies of developing countries, it is important to understand its contribution to economic growth of developing countries. Therefore, this study analyzes the effects of foreign aid on the economic growth of Nigeria.

1.2 Statement of the Problem

Does aid promote economic growth? Interest in this question has grown as large infusions of aid to developing countries have been recommended in recent years as a means of escaping poverty traps and promoting development (ActionAid, 2005). Major efforts have been underway to mobilize resources for increases in aid (e.g., through an International Financing Facility). In contrast, some have argued that aid has historically been ineffective in promoting growth (ActionAid, 2005) and large increases in aid are therefore undesirable. An intermediate position has been that more aid spurs growth under specific conditions, such as when countries have good macroeconomic policies (Abegaz, 2005). Despite the large literature on aid and growth, “the debate about aid effectiveness is one where little is “settled” (Rajan, 2005:54). Empirical evidence has been provided in favour of the argument that aid spurs economic growth unconditionally or in certain macroeconomic environments (Abegaz, 2005). It is against this backdrop that the study seeks to evaluate the impact of foreign aid on Nigeria’s economic development.

1.3 Objective of the Study

The main objectives of the study are to examine the impact of foreign aid on Nigeria’s economy development. The specific objectives, however includes the followings:

To examine the nature of foreign aid giving to Nigeria.
To establish whether Nigeria has derived any significant benefit from foreign aid.
To evaluate the challenges and prospect of foreign aid on Nigeria’s economic development.
To proffer solutions to the identified challenges of foreign aid on Nigeria’s economic development.

1.4 Research Hypotheses

Hypotheses One

Ho: Foreign aids have no impact on Nigeria’s development
Hi: Foreign aids have impact on Nigeria’s development

Hypotheses Two

Ho: There is no relationship between foreign growth and economic development in Nigeria.
Hi: There is a relationship between foreign growth and economic development in Nigeria.

1.5 Significance of the Study

The role of foreign aid in the growth process of developing countries has been a topic of intense debate. Foreign aid is an important topic given its implication for poverty reduction in developing countries. Previous empirical studies on foreign aid and economic growth generate mixed results. As such, the significance of the study will arise from the fact that it will highlight the nature, impact, challenges and prospect of foreign aid as it concern Nigeria. This is further in line with the fact that the findings will provide insight and data for policy makers and equally serve as a reference point for any future study. Above all, the study will add to existing stock of knowledge.

1.6 Scope and Limitation of the Study

This study is primary concerned with foreign aid and its impact on socio economic development in Nigeria. This study/project work covers Jikwe IDP camp, Abuja Nigeria. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

1.7 Definition of Terms

Due to the plethora of concepts within the social science discipline it becomes imperative to operationally define certain concepts within the context of its usage in the research work.

Thus, the following concepts will be defined.

Foreign Aid:

Foreign aid refers to transfer of real resources from one government or public institution of the richer countries to governments of less developed countries (LDCs) in the third world

Globalization:

This concepts within the context of it usage is defined as the process of the intensification of economic, political, social and cultural relations across international boundaries

Sovereignty:

This simply means the ability of states to make its decisions and policies without an internal or external interference.

Economic Sovereignty:

This is the ability of a nation-state to determine the values, goals, targets, direction of its economic policies including its growth pattern without any external interference.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
Chapter three deals on the research design and methodology adopted in the study.
Chapter four concentrate on the data collection and analysis and presentation of finding.
Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain a critical analysis of foreign aid and its impact on socio-economic development in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefitin addressing the challenges of poor utilisation of foreign aid for the purposes they are meant for.

5.2 Summary

This study aimed at havinga critical analysis of foreign aid and its impact on socio-economic development in Nigeria. Four objectives were raised. These objectives include:To examine the nature of foreign aid giving to Nigeria, to establish whether Nigeria has derived any significant benefit from foreign aid, to evaluate the challenges and prospect of foreign aid on Nigeria’s economic development, to proffer solutions to the identified challenges of foreign aid on Nigeria’s economic development.

5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
The recent information on Official Development Assistance (ODA) in Nigeria shows a lot of institutional weaknesses at the federal and state levels including weak aid coordination capacities as well as infrastructural deficiencies (UNDP, 2010). However, within the context of the Paris Declaration on Aid Effectiveness there is need for capacity development activities in Nigeria in order to strengthen aid management processes in line with the principles of harmonization, alignment and mutual accountability for better results in aid management in Nigeria. For foreign aid to have welfare impacts on the Nigerians there is need for proper aid coordination and management in Nigeria. Aid coordination refers to the planning and integration by a recipient government of international assistance from donor partners into national or state development goals and strategies.

5.3 Recommendation

There is the need for capacity development activities in Nigeria in order to strengthen aid programming, co-ordination and management processes in line with the principles of harmonization, alignment and mutual accountability for better results in aid management in Nigeria.

There is the need for substantial reform of foreign aid, to revitalize programmes and realign priorities.

There is the need for the establishment of sound infrastructural facilities and institutional framework for monitoring and evaluating the inflow and utilization of foreign aid.

Formulation of sound fiscal, monetary and development policies is needed to foster foreign aid utilization.
Reforming all sectors of the Nigerian economy in order to eliminate corruption and bureaucratic inefficiencies