THE ROLE OF AFRICAN DEVELOPMENT BANK IN NIGERIA ECONOMIC DEVELOPMENT
Schumpeta (1934) is widely known as the first proponent of the view that financial institutions are necessary condition for economic development in his scheme of development in Capitalism banks \financial institutions are considered to be one to two primary and essential factors of development, the other factor being the availability of entrepreneurs. Among the more important followers of this view are, Goldsmith,Cameronetal and Patrick.
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Goldsmith in his financial interrelation ratio of 35 development and developing countries .This ratio is found to be in the range of 1to 5 in development materials or need economics and generally within the range 06 to1 for development countries . Goldsmith concluded that with the exception of centrally planned that the evidence now available is more in favour of the hypolnesis that exists only major path of financial development a path marked by regularities in the course of financial interrelation ratio.
The Goldsmith measure of FIB is civilized because it is only economic but political, cultural factor can influence the level of financial structure etal. By looking at the historical economic development of developed as well as developing countries, postulated that the functions of the banking system are:
- Intermediation.
- To finish part or all the means of payments or money supply and.
iii The provision of entrepreneurial talent and guidance for the economy as a whole. And to conclude by saying that the way in which banks perform these function may well determine the degree of success of development efforts. As intermediaries, they may rigorously seek out and attract reserve of ideal fund which will be allocated to listlessly exploit their quasi monopolistic position and further away investment possibilities with unproductive loans.
Also Read: The Role of Non-Banking Financial Institutions in Nigeria
Schumpeterian thesis was widely accepted until in a study of the development process of socialist and developing countries, Gurley in 1967 reached a conclusion that financial system is not a necessary condition for development, Gurley argues that there are alternatives or substitutes for the role of financial institutions might contribute considerably to development when there is decentralization of decision making, specialization of savings are having emphasis on external rather than internal financial of development.
Empirical studies have been done to investigate the role financial institutions have played in a development countries to name a few are op (Nigeria), Taylo-(Sierre Leone) Islam (Pakisan) Bourne (Jamaica) and Abidi (eastern African).
Harneld Dormar model of economic development has provided convert theoretical frame-work within which the role of financial systems in economic development can be excluded. This is represented by the following equations:
- K=Ky
- Dk/dt= Sy
Where k =capital stick
Y=Natural income
S=Saving propensity
K=Capital – output ratio
Equation (1) state that there exist a fixed relationship described by capital coefficient (or capital) output ratio) between the stock of capital and production.
Equation (2) many expresses the theoretically expected quickly between the rate of increase of capital stock and savings given that the two phenomenon of gestation lag of depreciation are assumed away that is.
- No tome Lag
- No depreciation
There are two important and relevant message of this growth function are clear one is the central role of capital in the production of the natural income and secondly is the dependency relationship between the two variables via the investment process (Dk/Dt)
RATIONALE FOR DEVELOPMENT BANKING AND EXPECTED ROLES:
A close look at the lending process of commercial banks all over the world gives conclusive evident of creating gap of long term finance commercial banks are most unwilling to finance Long-term project because of the long tradition in banking of lending to customers who would use such finance to increase their working capital.
In explaining the reason d’ etre of development bank came into existence because of the need to full the supply gap (that of long and medium term fund) in the financial system. This gap arouse from two main causes. The first is the tradition and inadequacy of the commercial banking arrangement. The second is the tradition of central bank of not indulging of commercial banking nor in financing long term projects. The above two factors can be summarized by saying that the existing financial arrangement is source oriented.
The exigency thesis stated that bodies such as the international finance corporation (IFC) and international development associated (IDA) usually encourages recipient countries of its fund to establish development banks because there banks can easily obtain the required government guarantee and select the most promising enterprise for financing.
The IFC and IDA were set up respectively to undertake industries and agricultural finance on international level these two institution encouraged the establishment of natural country part (development banks) though which they largely operate at the grass roots level which required more local portage than international level.
Adewunmic and Ojo (1982) confirmed this thesis by Arguing that the would bank cannot uncle its charter make direct private sevo investment without a government guarantee so it has encourage countries to establish development banks which can then serve as the chamee through which financial assistance can be passed and it is also cheaper and more convenient for the world bank to advance money to a single institution or a few large institution such as development bank rather than to several establishment and page it.
2.3 ROLE OF DEVELOPMENT BANKS
The major role of development bank is to provide adequate long term and medium term finance for industry, commercial and agricultural as well as general development projects.
In addition development banks are expected to make available from their own resources or assist in procuring from other sources.
Facilitates and services such as:-
- arranging for general industrial survey and feasibility studies for special projects.
- Formulary specific proposal for new enterprises
- Assisting in finding technical and entrepreneurial partners for local clients or for foreign investors.
- Investing in share capital and undeviatry scentless in order to attract other investors.
In country where there is little or no market securities, it is likely that market often these development banks are established with international corporation and thus have access to a significant pool of experience the facilities of industrial development will almost always include the promotion of the wider spread ownership of industrial securities and most management of development banks consider the stimulation of capital market as an important area in which in which their banks can be active.
This they can achieve by:-
- Marketing their own shares and debentures
- Developing a trading mechanism
- Upgrading business practices
- Expanding the number of securities available
2.4 HISTORY AND OPERATIONS OF ADB
In the late 1950’s an attempt had been made to expend the role of the united nations in development financing by means of a proposal to establish a special united ratio.
Fund for economic development (SUNFSD). African countries had expected a fund where the principal of equal voting right or all members would be respected, irrespective of size of contribution.
This proposal had been deflect by the creation of the international development and (IDF) as a fund within the would bank group where weighed voting give.
The principal subscribes a controlling say no which their resources were put. For the African countries disappointing.
The all African peoples conference proposed that a special development fund might set up for African. A resolution was adopted in favour of the setting pu an African investment bank to promote development projects, the proposal was taken up again at the third session of economic commission for African in February 1961.
Decision to form the bank was reached in khartoun (suclan) on August 1963 independent African countries. A year later September10, the agreement came into force where members countries subscribed to percent of the bank capital stock (then us&25om) and between member 4-9 the inaugural board of governors was hold in Lagos, Nigeria:
And operations of ADB
In terms of thesis research concluded, it was agreement establishing the bank that the operations of the bank consist of ordinary operations and special operation.
The ordinary operations are these financed from the ordinary capital resources of the bank the special operations are those financed from the special resources in its operation (art 14) the bank many provide or facilitate financing any member, political subdivision or any agency thereof or for any institution or under laying in the tentory of any members as well as for international or regional agencies or institutions concerned with the development of African.
In making direct loan (art 18-6) the bank shall finish with the borrowed currencies other than the literacy of the member in whose territory the project concerned it to be carried out, when are required to meet foreign expenditure on the project provides financing to meet local expenditure on the project concerned.
- Where it can so by supplying local currency without selling any of its holding in gold or convertible currencies:
- Where in the opinion of the bank local expenditure on that project is likely to cause under loss or strain on the balance of payments of the country where that project is to be carried out and the amount of such financing by the bank does not exceed a reasonable position of the local expenditure included on that project.
The operations of the bank shall be conducted in accordance with the following principles (Art 17).
(i) The operations of the bank shall except in special circumstance, provide for the financing of a rational on regional development programme urgently required for the economic or social development of its members.
They may however include global loans to or guarantee of loans made to.
(ii) In selecting the suitable project the bank shall give priority to project or programmes which by their native or slope.
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