CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The contemporary aids influx from the foreign countries emerged from the economic breakdown of 1930s, which contributed to the world-wideeconomic depression, political extremism and the outbreak of the 2nd world war. Foreign aids are defined as all forms of grants and loans at concessional financial terms that are aimed at transferring resources from developed to developing countries on development, poverty and income distribution grounds (Todaro& Smith, 2011).

The Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD) views foreign aids as official development assistance; consisting of grants or loans that one government (bilateral)  or multilateral organization gives to a developing country to promote economic development and social welfare. According to them (OECD) Official Development Assistance (ODA) is calculated as the sum of grants and loans to aid recipients that:

a.       Are undertaken by the official sector of the donor country

b.      Have as the main objective the promotion of economic development and welfare in recipient countries and

c.       Are on concessional financial terms (i.e., with a grant element equal to at least 25 percent of the total. The conceptualisations of aid above clearly depict that aid is not the same thing as loan. While aid is more comprehensive and encompassing, loan is embedded in aid. It is usually one of the total packages of aid. Aid may serve one or more functions: it may be given as a signal of diplomatic approval, or to strengthen a military ally, to reward a government for behaviour desired by the donor, to extend the donor’s cultural influence, to provide infrastructure needed by the donor for resource extraction from the recipient country, or to gain other kinds of commercial access.

Also in the work of Riddell (2007) foreign aids involves all kinds of resources ranging from physical merchandise, skills and technical know-how, financial grants including gifts, and loans which are given to recipients by donors at concessional rates.

Abiola (2008) emphasized that ODA is also a crucial instrument for supporting education, health, publicinfrastructure development, agriculture and rural development and food security. In a similar reasoning, Bakare (2011) argues

 That foreign aid is a means of increasing the capital available for investment and the economic growth needed to reduce poverty and raise living standards in sub-Saharan African. He further stressed that it can provide resources for industrialization, enhance efficiency of resource use, increase product diversity and generate employment, (OECD-DAC, 1999). He however observed that in the absence of regulations governing natural resource extraction, or when they are weak or poorly enforced, increased openness to foreign aid can accelerate unsustainable resource use patterns

Ekiring (2000) (as cited by InangaEno L. and Mandah E. (2008)) conceptualizes foreign aid as an international transfer of capital, goods, or services for the benefit of other nations. Such aid, in her view, is offered in several forms: Capital transfers, in cash or kind, either as grants or loans, Technical assistance and training, usually as grants in the form of human resources and technical equipment, and Military assistance in the form of either equipment or training advisors. Foreign aid flows which are in the form of official development assistance (ODA) plays a significant role as complement to domestic financing for development in the Nigerian economy as observed by (Abiola, 2008).

Nigerian government has received several aids on poverty eradication and sustainable development from various sources. They include:

(a)            The Paris club of creditors

This is an informal group of creditor nations whose objective is to find workable solutions to payment problems faced by debtor nations. The Paris Club has 19 permanent members, including most of the western European and Scandinavian nations, the United States of America, the United Kingdom and Japan. The Paris Club stresses the informal nature of its existence and deems itself a "non-institution." As an informal group, it has no official statutes and no formal inception date, although its first meeting with a debtor nation was in 1956, with Argentina. The members of the Paris Club meet each month which may include negotiations with one or more debtor countries that have met the Club's pre-conditions for debt negotiation. The main conditions a debtor nation has to meet are that it should have a demonstrated need for debt relief and should be committed to implementing economic reform, which in effect means that it must already have a current program with the International Monetary Fund (IMF) supported by a conditional arrangement.

(b)               The London club of creditors

This is an informal group of private creditors on the international stage, and is similar to the Paris club of public lenders. The first meeting of the club took place in 1976 in response to Zaire’s debt payment problems. The club is also the organisation responsible for rescheduling debt payments made by countries to commercial banks.

They mainly grant uninsured and unguaranteed loans.

(c)                 Multilateral Creditors

These are international institutions such as: African Development Bank, International Bank for Reconstruction and Development, International Finance Corporation, International Development Association, European Economic Community.

(d)               Bilateral Creditors

These creditors usually grant loans for development purposes. Members are the European Union, the United States of America, the East European countries and Japan.

(e)                 Promissory Note Creditors

These creditors grant uninsured trade loans, resulting mainly from trade arrears. In 1982 and 1983, Nigeria had trade arrears and was financed by promissory notes.

Since the emancipation of aids system there have been several types of aid which is allocated to several countries, these include:

(1)               Official Development Assistance: Official Development Assistance is the largest form of foreign aids provided by donor government to the low and middle income countries like African. This is a type of aids that Nigerian has been receiving over the years. ODA increase immediately after the World War II and during the cold war but reduced in the 1990 after the war. Again after September 2001 terrorist  attack on the US, the world have experience another growth in ODA due to the needs to fight terrorism and entrench development together with other association of principle of liberalism globally.

(2)               Official Assistance: (OA). This is the kind of aids provided by donors’ government to richer countries like Israel, Singapore etc. and to countries formally part of the defunct USSR.

(3)               Private Voluntary Assistance (PVA): they are grants from Non-governmental organization, religion group, charity foundations and the private companies. Usually given to low and middle income countries like Nigeria.

(4)               Bilateral and Multilateral aids: Bilateral aids are foreign assistance given from one country to another while Multilateral aids means those resources put together from various countries and donor organizations usually under the hospices of the World Bank and IMF.

The establishment of an aid system was one of the principles of the Breton Woods Agreement in 1945. The system believes that there should be a free capital market, which allows an unrestricted inflow of foreign aid. Based on this principle, a Marshall Aid Assistance of about $17.5 billion was granted to Western Europe to resuscitate her ruined economy due to the World War II. After a successful rebuild of the European economy damaged by the war II, the IMF and World Bank channeled their aids to developing countries with a different objective, which is profit oriented. Since then, the aid system has remained a durable phenomenon of the international economic system (Todaro, 1977) as cited in (Funso& Dare, 2010). 

Nigeria debt crisis must be understand within the content of the structure of Nigeria political economy, especially the mono-cultural nature of the economy, and the dominance of the short sited leadership which make the country susceptible/vulnerable  to the adverse effect of the global boom and boost/contraction and expansion in the global economy. Nigeria experience economic boom through its mono-cultural economy (oil) in the early 1970s but because of lack of effective economic planning by Nigeria leaders, by late 1970s and 1980s the oil revenue declined and punch the country into external debt crisis.

Specifically the first foreign aid which was inform of loan in Nigeria was borrowed in 1964, a sum of 13.1 million dollars from the Italian government for the construction of the Niger Dam. By 1970 Nigeria external debts have grown to 1 billion dollars and in 1980s it stood up to 19 billion dollars, from where it grew to 35 billion dollars in 2004. As at 2004, it was agreed that the loan from external debt was becoming unsustainable to Nigeria government and there was needs for debt reliefs to enable the country pursue the Millennium Development Goal (MDGs). By 2005 Nigeria obtained a debt relieves of 18 billion dollars from the Paris club of creditors and paid back 12 billion dollars (Ayodele, et al., 2005). Aid flows thereafter rose to US1.29 billion in 2008 and has been above that till 2011 with US1.78 billion as aid flow to Nigeria. Nigeria has received foreign aid from a wide array of agencies and countries between 1960 and today making the country to remain heavily indebted to foreign countries which have increased the rate of poverty in Nigeria.

There is no unanimously accepted definition of poverty. As a matter of fact it is almost never defined in itself, but through other concepts, such as growth, well-being, exclusion or equity. A basic feature of the concept of poverty is its complex and multidimensional nature which makes the plurality of definitions is inescapable.

According to Oxford Dictionary, (1988) the word ‘poverty’ refers to the state of being very poor. Similar words (synonyms) for poverty include beggary, bankruptcy, debt, destitution, hardship indigence and insolvency. Others are penury, privation, want, dearth, insufficiency, lack, paucity and shortage. Apparently, these are words of negative or bad connotations which make poverty altogether undesirable phenomenon. There is ambiguity as to the sense in which poverty is expressed. The word can be understood to mean the whole gamut of deprivations which may be economic, social, spiritual, political, cultural or in fact environmental. Poverty also involves lack of physical necessities, assets, vulnerability, low income rate, lack of access to productive resources and basic social services and so on 

According to Copenhagen,(1995) in his work World Summit for Social Development, he stipulated that Poverty has various manifestations or indicators, including; lack of income and productive resources sufficient to ensure sustainable livelihoods, hunger and malnutrition, ill health, limited or lack of access to education and other basic services, increased morbidity and mortality from illness, homelessness and inadequate housing; unsafe environments; and social discrimination and exclusion, lack of participation and exclusion., lack of participation in decision-making and in civil, social and cultural life”.

Oyeranti and Olayiwola (2005) view poverty as a severe deprivation of some basic human needs at the individual or household level. Put differently, poverty is material deprivation which can be assessed in monetary terms. Deprivation can be equated with lack of money to spend and to obtain material things needed to satisfy human wants. This condition can lead to low standard of living.

Poverty can take different forms by different definitions, but this study examines poverty from the point of view of “Absolute poverty”. Absolute poverty is measured not only by low income but also by malnutrition, poor health, poor clothing, lack of adequate shelter and of course lack of useful education. Thus absolute poverty in Nigeria is evidenced in low standard of living of the people whose lives are characterized by all indicators of absolute poverty. They live in fear and being fatalistic, wearing dirty cloths, hunger, no education, disease, poor nutritional value, ete

 Nigeria has made significant economic advances in recent times. Over the last decade or so, the country has managed to sustain an economic growth rate of about 6-7%. This data meant that Nigeria not only grew far above the sub-Saharan average of 5.6%, but was also the third fastest growing economy in the group of 10 emerging markets referred to as EM10, behind only China and India. Such rapid economic growth enabled the country to lip-frog from an economy of $46 billion USD in 2000 to an economy of $264 billion USD in 2013 (Enweremadu, 2013).