Home Analysis Sources and procurement of foreign finance 27/02/88

Sources and procurement of foreign finance 27/02/88

by Business News Report

Information flow is one of the essential ingredients for a perfectly competitive market structure to develop in any economy. Free flow of information enables economic agents to have perfect knowledge of the prevailing market conditions their economy and those outside.
In actual practice, market distortion bounds in all economy be they developed or developing.
In Nigeria a, the situation is much worse off when cognisance is taken of the adequacies of communication facilities data and some other necessaries. As a result he Nigerian internal and external economies are characteristic ay gross inefficiency the end product of an imperfect market.

Some federal agencies state government and their agencies are ignorant of some developments in the international “money and capita! markets As a result they have not been able to take due advantage of facilities enjoyed by other countries from the international finance market
For too long nothing was done to correct the imbalance in the flow of information within the economy.
Concerned for this and the development Of the country, a private company. Public Finance and Management Consulting group organised a 3-day workshop for state governments their agencies and banking institutions in the country to acquaint themselves with happening m the international finance market. The theme of the workshop was sources and procurement of for-reign Finance.
During the 3-day scan of the workshop about 10 papers identifying sources of foreign finance country by country were presented and discussed by participants.
The first paper gave an overview of foreign finance.
According to .the paper the ‘traditional noe-classical economic analysis of the determinants of economic growth sees foreign finance as an important way of filling gaps that normally exist between such resources as savings foreign exchange government revenue technical skill and technology that an economy can domestically muster and the required or planned levels of those resources necessary to achieve sizeable development and growth.
In discussing the paper, public finance and management consultants argued that the first often cited economic argument for foreign finance is its important role in filling the resource gap between targeted or desired investment and locally mobilized savings.
The second need for foreign finance the paper argued is that of filling the gap between targeted foreign exchange requirements and those derived from the net export earnings known in international finance circles as foreign exchange/trade gap.
An inflow of foreign finance the paper reasoned is not only capable of alleviating deficit on the balance of payments current accounts but will also remove the deficit overtime, especially if the flow is continuous and substantial.
A country (like Nigeria) that faces continuous balance of payments deficits and whose planned investment programmes outstrip its domestically available resources to execute them would have need for external finance, otherwise some of its vital investment projects would have to be abandoned resulting in a lower economic performance increased unemployment and attendant social problems such as increasing wave of robbery, theft, malnutrition and lawlessness.
Another reason identified by the first paper for foreign finance is the resource gap that do exist between desired or targeted government revenues through fiscal measures and locally raised taxes. By investing in developing countries the means of increasing their tax capabilities.
There is also the gap in management entrepreneurship, technology and skills which is filled by foreign participation in local economies. Foreign finance is not only a means of providing financial resources to developing countries, but also a package of needed resources including management experience, entrepreneurial abilities, technical skills, training and human resources development facilities.
The flow of resources from developed to developing countries can be examined under three themes. These are foreign and private/public foreign investment and foreign loans.
In discussing the paper participants agreed that foreign loans place heavy burden on the borrowing country if such loans are not channelled to productive investment. Foreign loan per se is not harmful but to what user it is put. Participant also argued that most aids to developing countries have serious political underpinnings ad cautions must be taken in obtaining foreign aids. The most heated issue was on the discriminatory practices of developed countries against good made in developing countries especially made in Nigeria.
Participants however agreed that such practices are not deliberate, but emanate from the sensitivity of developed countries marked to low quality products. Nigeria’s goods will gam acceptance in European market if their quality improves and that would earn the country the much talked about autonomous foreign exchange earnings.
Having identified the types of aids and loans available at the international finance market the workshop went ahead to explore the sources and institutions connected with dishing out such aid and loans.
In Japan aid in the form of investment support to developing countries is available Japan’s aid policy it was argued can be simply described as that of a rich country helping developing countries through economic cooperation. This support to developing countries comes in two forms, the first and most comprehensive is direct aids which Japan gives through bilateral programmes. The other being her support to multilateral agencies Japan’s grant; are financial assistance she extends to developing countries without requiring any payment.
In short,.Japan grant aids cover all bilateral donations excluding those donations classified as technical cooperation. In principle grant aid extended by Japan is usually in forms of funds supply. They do not include payment in kind such as equipment or materials procured by the government of Japan.
Information available shows that Japan’s total overseas Development aids was US4.-32 billion. This it was gathered is expected to double by the year 1992. As at 1984, Nigeria was considered by Japan as developed enough not to benefit from such aid But with Nigeria’s increasing difficulty m meeting her international obligations Japan now includes Nigeria as one of those to benefit from the grant aid. Most government agencies, institutions and individuals are not aware of this new development and have not been taking advantage of the generous grant aid from Japan.
The grant aids given by Japan takes four forms. There is the general grant aid fisheries grant aid cultural grant aid and food grant aid.
Activities in the sectors mentioned above invariably produce goods and services that are directly related to the improvement of the welfare of the society at large.
All developing countries are eligible to apply, for any of the Japan’s laid
In the specific case of food aid grants, priority governmental of developing countries by attention is usually accorded to those countries that are manifesttedly being threatened by natural disasters such as amine, drought. including civil war.
Another source of foreign finance explored at the workshop /vas Asian Development Bank which gives financial assistance to government of developing countries by funding development project. The bank also helps private investors o undertake financial-/ profitable projects hat have significant economic merits. Such assistance to private enterprises can direct or indirect through development finance institutions in he recipients country. This apart, the bank provides management assistance by way of advise.
The banks direct assistance to the private sector :consists mainly of:
Loans with or /without government guarantees,
• Equity investments and
• Technical assistance for promotion of projects.
The banks assistance is usually directed .o projects which utilise domestic raw materials, create more employment, or employ modern management and technology-it is also said to encourage enterprises which are export oriented or lead to efficient import substitution, or induce foreign investment
promote wider dispersal of ownership.
Other source explored at the workshop include International Finance Corporation (IFC) an international organisation whose objectives is to promote i.e. economic growth f developing member countries. United Kingdom member countries. United Kingdom Export red its Guarantee department loans, Belgium Sosciete D’Investment International (SBI) which /as established in 1971 to foster economic relations between Belgium and developing countries.
At the end of the workshop, the various available sources of foreign finance were discussed.
The consensus of participants was that they were better informed now or finance, modality of procuring them they were before the seminar.
Participants agreed that facilities from these sources have not been fully exploited by both the federal, states and the private sector.
The workshop identified low quality of products from Nigeria as the barrier to her access to international markets projects such as galvanised wire, paper recycline plant, were identified as viable projects that could be financed through foreign loans. Participants included officials of Lagos, Ogun, Ondo and Kaduna states, ministries of finance, the general manager, Ogun State Investment Corporation, Progress Bank, African Continental Bank and others.

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