The Impact of Domestic Savings and Foreign Private Investment O Poverty Reduction in Nigeria 1981-2009.

Topics: Investment, Macroeconomics, Economics Pages: 24 (7795 words) Published: May 28, 2012
The rising profile of poverty in Nigeria is assuming a worrisome dimension as empirical studies have shown that Africa and Nigeria in particular has witnessed monumental increase in the level of poverty. Available records from the Federal Office of Statistics (1996), shows that about 71% of Nigerian households are considered poor, which reveals that poverty has been massive, pervasive and engulfs a large proportion of the Nigerian society.

The high level of poverty has a lot of destabilizing effects on the citizens as well as the country. Poverty has the tendency to exacerbate crime, malnutrition, disease, unemployment, low life expectancy as well as general level of human hopelessness. The effects of poverty can therefore be said to be multidimensional in nature.

In order to reduce the level of poverty, the Nigerian government introduced lots of incentives such as fiscal, financial and non-financial. In 1997 budget, government showed its intention to enter into investment production agreements (i.e. Bilateral, Regional and Multilateral treaties) with foreign governments or private organizations wishing to invest in Nigeria as well as discuss additional incentives with them. (Aremu 1997:2)

The inflow of foreign resources such as foreign private investment has the tendency of stimulating employment, income, consumption and economic growth, hence the possibility of reducing poverty. Borenstein and Lee their book; “How does Foreign Investment affect Economic Growth” (1998); have shown that foreign private investment has significant effect on the host country. Though foreign private investment is made up of foreign direct investment and foreign portfolio investment, foreign direct investment is often preferred as a means of boosting the economy. This is because FDI spreads widely advanced technological and managerial practices through the host country and there by exhibits greater positive externalities compared with foreign portfolio investment which may not involve positive transfers, just being a change in ownership.

Domestic savings (or household savings) is the most and strategic sector influencing investment behaviour. In countries where there exists poor savings habit, what is evident is that, realized savings fall short of desired investment and hence there will be disequilibrium in the product market which in turn slows down the rate of economic growth. There has been deficiency in the savings habit of the Africa populace, Nigeria in particular. This is caused by factors such as high level of poverty, weak financial system which cannot properly mobilize funds internally, low level of entrepreneurial spirit among others.

The Nigerian government is putting so much effort into attracting foreign investors and stimulating domestic savings in order to reduce the level of poverty in the country, yet the economy is still dwindling. It is against this background that this research project is focused on analyzing the poverty reduction in the country. 1.2 STATEMENT OF THE PROBLEM

Nigeria is a monoculture economy, over depending on the oil sector. This has also been seen to be responsible for deficiency in investment capital in the country. According to Amadin (2002), “with oil as the main source of foreign exchange, a one-product monoculture economy must be continuously deficient in investment capitalism. Therefore, revenue must be subject to serious fluctuations”.

The above situation in the country has created savings and foreign exchange gap. And this has not in any way encouraged capital accumulation and the required investment, necessary for accelerating economic growth. And this in turn has had great negative impact on the populace leading to a high level of poverty.

Consequently, for any country like Nigeria with this gap to achieve a desired rate of economic growth which in turn reduces the level of poverty,...
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