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
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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.
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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).
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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.
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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.
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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.
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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. It is widely recognized that the LDC’s must
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
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problems. A few lessons may be drawn from experience. First, the assumption of
the exchange risk by BOI’s sub borrowers in 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. This emphasizes the importance of DFI’s
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 need for more thorough
sensitivity analysis of all subprojects to take accounts the impact of changing
economic situations.
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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 selected macro
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 and industrial
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.
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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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