Last week in lecture we discussed who gives aid and for what reasons. With the onset of the Millennium Development Goals, Foreign aid has increased in the global south in an attempt to combat the dire situations in the developing world. We discussed how "good aid" requires transparency of the donor and beneficiary, and an accountable, democratic government in the recipient country. Adversely, we determined that "bad aid" is attributed to corrupt, autocratic regimes where a fragmentation exists in the population.
Nigeria is an intriguing example into the discrepancy between "good aid" and "bad aid." As a nation rich in natural resources and its significantly large size, Nigeria has attracted foreign direct investment (FDI) from the donor governments of the world. The potential for economic growth and development in Nigeria is promising. Yet, the level of corruption in the oil industry has prohibited the wealth from the sale of this demanded resource to find its way to the poorest of Nigerians. The unequal distribution of wealth and investment has created a significant gap between the rich and poor. In an Economist article, the author references this emerging problem, "Some 60% of Nigerians still live below the poverty line, while a rich elite—“the top million”, as it is sometimes jestingly called—educates its children privately (often abroad), relies on private health care and its own electricity, and is generally immune to the travails of ordinary Nigerian life" (The Economist, April 13 2013).
Along with the unequal distribution of FDI inflows into Nigeria, unemployment has reached 23 percent (The Arab News, March 1 2013). Additionally, political insecurity has lead donor governments to question whether or not to keep aiding Nigeria. In an article in the Arab News, the author describes this paradigm presenting FDI to Nigeria, "Yet investors remain reluctant to put funds into long term job-creating areas like agriculture or manufacturing until President Goodluck Jonathan makes good on promises to reform things like power, roads and the food industry" (The Arab News, March 1 2013). While the illuminating promise of economic growth in Nigeria is focused on its oil sector, clearly further FDI inflows must be distributed to promoting sustainable, practical, and essential needs of the entire population.
These articles conclude varying points. In the economist, the author states that, "But it is hard, in the short run, to see how Nigeria will turn into a prosperous, equitable and decent democracy" (The Economist, April 13 2013). This conclusion relates back to the concept of "good" versus "bad" aid. As a trait of "good aid," democratic regimes are important for ensuring the equal and effective distribution of funds. In the case of Nigeria, until the President and government take steps to combat corruption, they may be faced with a decline in FDI. Perhaps a solution, for the donors giving to Nigeria, would be to specialize their funds into allocating to a specific good or service that would target the poorest of the population. The author of the Arab News article argues, "Either way, until investment gets refocused into areas that create jobs, poverty in Nigeria will remain stubbornly high" (The Arab News, March 1 2013).
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This was an interesting post, and certainly the concept that comes to mind is that of foreign aid has many of the the same "dutch disease side-effects as foreign capital/forex in the presence of natural resources. Governments have no accountability to their citizens, because the money is not taxed, and with very little transparency it is hard to tell exactly where that cash is flowing to.
ReplyDeleteThere is also the problem of allocating all funds and infrastructure to one industry, as we discussed in class. This can be problematic not only because of the corruption that comes from concentrating all of that capital in one place, but also the fact that a natural resource is a limited resource. The following article: http://allafrica.com/stories/201304101487.html, discusses a solution that if successful would be a very effective way to improve transparency and limit corruption. "The European Parliament and Council have agreed that the EU's Accounting and Transparency Directives will require all EU-listed and large, privately owned oil, gas, mining and logging firms to disclose the payments they make to governments". I find this intriguing because it is not an international law which are often broken because there is less incentive to keep them, it is also not a domestic law that could be overturned by the next president or person in power, it is EU law, which, means it is accountable to many people.
ReplyDeleteI am still not sure it will work, but it is an interesting way to combat corruption.
Interesting, but not too surprising. Nigeria is a perfect example of a country experiencing the resource curse; their bountiful oil reserves have produced drastic inequality as a select few capitalize on the resource while the remaining population reaps no benefits. FDI, however, is different than aid in multiple ways. I'm pretty sure that there is no such thing as "FDI inflow distribution," and if there is, the capital is coming from the private sector: companies and corporations.
ReplyDeleteThe economic inequality that exists within Nigeria is a symptom of an over arching problem, the absence of proper FDI. Although the opportunity for creating an emerging market exists, the capital available to harness the undeveloped market is yet to come to fruition. The manner in which the capital is allocated will always dictate who will survive and who will perish.
ReplyDeleteNigeria isn't the only country that mostly receives FDI for its natural resources as the top ten recipients of FDI in Africa went to oil, mining and gas projects. I think the future of the Nigerian economy rests in the hands of Nigeria itself. I would not expect to investors to put money into a sector of the economy that they do not think would give them some some of return. Therefor, Nigeria needs to be the one to restructure its economy to better support other sectors than that of natural resources so that FDI can be applied to other areas. When Nigeria can attract FDI to these different sectors like tourism or construction then there will be an increase in job creation and more balanced economic growth. Though I think a major reason for a lack of investment in other areas of the economy is the lack of labor force who have an adequate education. Without a proper education, there is decreased productivity and this will cause investors to be wary. Greater changes also need to be done in terms of infrastructure and of course political corruption. Nigeria has the potential to be ranked 13th in the world's top 20 economies by 2050 and this prospect alone should be enough to drive political figures to make the needed changes for economic growth as it could mean greater political influence.
ReplyDeleteSources
http://www.vanguardngr.com/2013/01/nigeria-has-potential-to-be-ranked-13th-in-worlds-top-20-economies-by-2050-report/
http://dartmouthbusinessjournal.com/2012/05/foreign-direct-investment-in-nigeria/