Capital Formation: In Nigeria, the issue of capital formation may be addressed along two dimensions- how to increase the propensity to save of the save of the people in the lower income groups and how to utilize current savings for capital formation. Consequently, the two sources of capital formation in Nigeria are domestic and external sources
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External Sources: These include:
- Increase in National income: An increase in national income will tend to raise the income of the people. This is achieved when existing techniques and resources are employed effectively and productively. For instance, in Nigeria so many mineral deposits such as Zink, Lead, Stone, Iron Ore, etc. are laying waste. Efficient taping of all these resources would potentially increase national income and income on the people by extension.
- Establishment of financial institutions: There exist the needs to establish financial institutions where small savers can safely deposit their money with confidence.
A well-developed money and capital market by the Central Bank of Nigeria can give further impetus in this direction.
3. Rural savings: Savings is the excess of income over consumption. It is the stock of assets and ways of holding them (Black, 2003). Rural savings is, therefore, a means of encouraging rural people to save part of their income through rural debentures and rural development projects. Government securities may be attached to particular
development projects in these areas because mobilization of rural savings might lead to more rapid development. Such voluntary savings can even lead to that “critical minimum” which is so essential for desired take-off.
4. Savings Drives: This is a concerted effort in the form of
propaganda and social education by government to persuade people to save in their own interest or in the interest of their families. For instance, such savings could be used for imparting education to their children, building a house, etc.
- Fiscal Measures: Since sufficient voluntary savings are not forth coming for capital formation in Nigeria, the government is in a better position to mobilize them through various fiscal and monetary measures. These measures may be in the form of budgetary surplus through increase in taxation, and expansion of export sector.
Notwithstanding, the search for capital for sustainable economic development in Nigeria has never been limited to either the international or domestic source. Thus, while Nigeria has endeavoured to encourage investment through domestic savings using fiscal and monetary policies, it has also ventured out the international capital market to procure the much needed fund for sustainable economic development.
The phenomena of underdevelopment must be viewed in both national and international context. Economic and social forces both internal and external are responsible for low capital formation in Nigeria which, indeed, is highly crucial and critical for sustainable development. In view of the above, this paper wishes to recommend as follows.
- Private and corporate bodies should be properly educated and sensitized on the need to reduce high present consumption rate so as to increase / accumulate savings for investment.
- Government at all levels should invest on strategic and productive projects that are catalysts for rapid sustainable development. Wasteful spending should be avoided.
- On the international scene, the successful pursuit of sustainable economic and social development require the formulation of appropriate strategies with the developing countries and modification of the present international economic system to make it more responsive to the needs of the developing countries, Nigeria inclusive.
- Nigeria, as a member of the international community cannot live in isolation. Therefore, it has to shop for foreign capital as well as mobilize, appropriately, domestic savings to enable it execute its development projects as to ensure sustainable development.
In this paper, attempt has been made to review the need to accelerate capital formation in Nigeria so as to engender sustainable economic development. The literature on economic development explicitly recognizes the importance of investment as a key factor determining the growth rate of various sectors of the economy. Indeed no meaningful investment can be achieved without corresponding savings. Savings are made with serious emphasis on reducing consumption of current earnings or income.