Capital formation: Capital formation is not an end in itself but a means to an end, and it is otherwise called investment. Consequently, accumulated capital is supplied for financing projects. In Nigeria, capital formation has been taking place within the framework of the national economic plans. National economic plans,
usually known as development plans are the deliberate efforts on the part of Nigerian Government. It entails stating in clear terms, after rational analysis, what the national objectives are, how they are to be achieved, when and at what cost. The first development plan was executed from 1945 – 1955. it took place during the colonial period and was termed development and welfare plan. This was followed by the second colonial development plan (1955 - 1960).
In the post – independence era, Nigeria has witnessed four different development plans between 1962 and 1985. they are:
- The First National Development Plan (1962 - 1968).
- The Second National Development Plan (1970 - 1974).
- The Third National Development Plan (1975 - 1980).
- The fourth National Development Plan (1981 - 1985).
Also, between 1990 and 1999 Nigeria had about five national rolling plans such as the First National Rolling Plan (1990 - 1992) and the National Rolling Plan (1997 - 1999).
These plans were conscious efforts made by the various Nigerian Governments to ensure continuity in the implementation of perspective plans objective/ project so as to engender sustainable development (Anyanwu, 1997).
A society releases its scarce resources for productive use by consuming less than the total output produced in a given period of time. This emphasized the importance of the savings- investment process as the veritable platform of capital accumulation. In developing countries, in general, importance of a continuous and expanding flow of private savings for financing private and public investment is recognized. The giant multi-national corporations in the manufacturing, oil and agricultural sectors are shining examples. In addition, the need to take measures aimed at increasing the rate of private savings is stressed. However, in Nigeria, secular upward trend of income per capita has not resulted in a corresponding rise in savings projection.
Since savings are generally under inflationary conditions, its pattern is prone to distortions than that of investment.
Moreover, due to the high propensity to consume, voluntary private savings is extremely low in Nigeria. In fact, there are some traces of dissaving by low-income earners in some countries, and this has also manifested itself in Nigeria. For instance, the failure of financial liberalization to foster savings in Nigeria was rarely publicly acknowledged until late 2002 when IMF expressed worry over the country’s low aggregate savings which stood at N540.7 billion at the end of December, 2001 (World Bank, 2002).
Capital formation And more Study
Savings can be divided into two groups:
(a) Government Savings: This is also known as public savings. It is the excess of current expenditure, which is usually preserved by the Government for the purposed of investment in capital project for future gains.
(b) Private Savings: This consists of savings used by individual savers for self-financing. It is usually transferred to financial institutions and invested by them either directly or through the capital market. It is also include savings not originally transferred to financial institutions but which could later find its way through investment or otherwise into the capital markets. Private savings could be invested directly in securities.
In essence, both Government savings and private savings are required in sufficient measure to continually invest / embark on people-oriented development projects thereby ensuring sustainable development.
Thus, there are three platforms for capital formation in the country. They are private or corporate sector savings, public sector savings and foreign savings. Private or corporate savings is savings generated from personal income and distributed and undistributed business profits.
On other hand, public savings is savings made by Government in excess of her current expenditure. It is generated from the National Income. Foreign savings is savings that is made from government’s oversea investment portfolios. The point been made here is that the capacity of private / corporate bodies and government to continually invest on sustainable development projects depends largely on the amount of savings generated internally and externally.
Process of capital formation involves three stages:
(1) Increase in the volume of real savings: These are savings that are kept aside for investment to increase the stock of human and physical capital. Increase in real savings increases the possibility of acquiring more capital.
(2) Mobilization of savings through financial and credit institutions: This involves using; banks insurance companies and other financial institutions to prudently manage and invest accumulated savings through loans and other devices.
(3) Investment of savings: The savings so generated has to be invested either directly on projects or on stocks and securities.
Sustainable development, in the economic sector, can be achieved in Nigeria when the savings accumulated by the three platforms are increased continuously, effectively mobilized and invested in productive projects. This has not being the case in Nigeria as Nigeria is characterized by low private sector savings and wasteful investments by various levels of government.