Poor and Unrealistic capital budgeting has long been the bane of socio-economic development in Africa and of course, Nigeria. The issue of capital, investment and how it was undertaken in the capital budgeting process thus constitutes a major concern of this paper. Even in the midst of vast economic and resources cum endowment, African countries are not only technologically backward but wallow in neckdeep poverty and indebtedness.In the bid to resolve this nagging problem, this paper looked at the form and approach of the Nigeria government to capital budgeting. It tried to unravel the causes of project abandonment, capital disappearance and inhibition placed on capital budgeting as the country related to other countries outside her borders (particularly in the Western world). The paper adopted a basic research approach whereby it collected primary data from questionnaires administered on 94 firms primarily and they were complemented with vast secondary data extracted from Nigerian stock exchange fact books from 1980-1999. The analysed data were presented in tables, percentages and were critically discussed. Basically, the study found out that most firms used one form of the criteria or another for selecting optimum investment. However, the study revealed that the most common method is the payback period. The study also revealed that dividends and taxation payouts as well as shareholders’ funds and share capital strongly influenced public companies growth performance when juxtaposed with retained earnings and credit investment. Moreover, net cash flow on investment is found to be a strong determinant of performance since higher income dictates better investment returns and vice-versa.The paper concluded that capital budgeting decision is an unnegotiable investment decision making strategy that must be taken very seriously. Given the fact that only private sectors made use of various methods of project valuation, which accounts for the reason why the little development visible in Nigeria are from the private sectors, the study therefore pushes that the government should embrace capital budgeting if it is to witness appreciable economic development.
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by maddy | June 3, 2010 · 5:32 pm
Capital Budgeting and Economic Development in the Third World: The Case of Nigeria
Filed under Economics, Finance, Miscellaneous
Tagged as Abandonment, African Countries, Bane, capital budgeting decision, capital budgeting process, Capital Investment, Determinant, economic development in africa, fact books, growth performance, Indebtedness, Inhibition, Investment Decision, Investment Returns, nigeria government, payback period, private sectors, research approach, Share Capital, study also revealed that