THE ROLE OF ASSET MANAGEMENT ON

ECONOMIC GROWTH

CHAPTER ONE

INTRODUCTION

1.0. Introduction

In this chapter the researcher will discuss the following aspects about the asset management and
economic growth which will be: background of the study, problem statement, purpose of the
study, research objectives, research questions, scope, significance, operational definitions and
conceptual framework.

1.1 Background of the Study

globally, a country's economic growth may be defined as a long-term rise in capacity to supply
increasingly diverse economic goods to its population, this growing capacity based on advancing
technology and the institutional and ideological adjustments that it demands. All three
components of the definition are important. The sustained rise in the supply of goods is the result
of economic growth, by which it is identified. Some small countries can provide increasing in-
come to their populations because they happen to possess a resource (minerals, location, etc.)
exploitable by more developed nations, that yields a large and in- creasing rent. Despite
intriguing analytical problems that these few fortunate countries raise, we are interested here
only in the nations that derive abundance by using advanced contemporary technology not by
selling fortuitous gifts of nature to others. Advancing technology is the per- missive source of
economic growth, but it is only a potential, a necessary condition, in itself not sufficient. If
technology is to be employed efficiently and widely, and, in- deed, if its own progress is to be
stimulated by such use, institutional and ideological adjustments must be made to effect the
proper use of innovations generated by the advancing stock of human knowledge. . To cite
examples from modern economic growth: steam and electric power and the large-scale plants
needed to exploit them are not compatible with family enterprise, illiteracy, or slavery all of
which pre- vailed in earlier times over much of even the developed world, and had to be re-
placed by more appropriate institutions and social views. Nor is modern technology compatible
with the rural mode of life, the large and extended family pattern, and veneration of undisturbed
nature. The source of technological progress, the particular production sectors that it affected
most, and the pace at which it and economic growth advanced, differed over centuries and
among regions of the world; and so did the institutional and ideological adjustments in their
interplay with the technological changes introduced into and diffused through the growing
economies. The major breakthroughs in the advance of human knowledge, those that constituted
dominant sources of sustained growth over long periods and spread to a substantial part of the
world, may be termed epochal innovations. And the changing course of economic history can
perhaps be subdivided into economic epochs, each identified by the epochal innovation with the
distinctive characteristics of growth that it generated.' Without considering the feasibility of
identifying and dating such economic epochs, we may proceed on the working assumption that
modern economic growth represents such a distinct epoch-growth dating back to the late
eighteenth century and limited (except in significant partial effects) to economically developed
countries. These countries, so classified because they have managed to take adequate advantage
of the potential of modern technology, include most of Europe, the overseas offshoots of
Western Europe, and Japan-barely one quarter of world population.2 This paper will focus on
modern economic growth, but with obviously needed attention to its worldwide impact (Kuznets,
2022).

the key success factor of the FDI contributes to the economic growth in Malaysia because of the
good environment. If the environment not suitable, it will not encourage foreign investors come
to invest. Good favorable conditions make investors face fewer problems because all investors
can run their business conveniently in order to make more profit with life safety. Few vital clues
for foreign direct investment include political stability, economic stability, lower wages, and
easy accessibility to plentiful raw material, special rights, and person safety. Long term political
stability makes foreign investors confident with their businesses will succeed and remain
profitable. Besides, economic instability like inflation, foreign exchange fluctuation and
economic crisis also another important environment factor for investor to consider because can
cause the business lose without knowing in advance. Furthermore, foreign investors try to search
the country with lower wages to reduce average cost of production and hence strongly persuade
foreigners to invest in that country. A country with plenty of raw materials necessary for the
production attracts investors more than a country without it and personal safety also vital to
foreign investors because life is more valuable than money, nobody like to take risk as being
killed or kidnapped in foreign country (Mun et al., 2009).

Foreign direct investment inflows have been one of the major development financing options
often rely upon by the developing countries particularly countries within the Africa sub-Saharan
region to drive their stunted economies to a sustainable growth trajectory. However, in the recent
times, the debates have shifted to including the degree of economic freedom as an important
mediating link towards attaining the growth success. Nigeria, like many other Africa countries,
has been enjoying the torrent of foreign direct investment inflows from the developed countries
subject to availability of certain economic fundamentals of which economic freedom forms an
integral part. Economic freedom, according to Frazer Institutes is made of five components
which include size of government (SG); legal structure and security of property rights (LS);
access to sound money (AM); freedom to trade internationally (FT); and regulation of credit,
labor, and business (RG). The diagrams below show the trends of economic freedom
components, aggregate economic freedom, total foreign direct investment and real gross
domestic product. the impact of FDI on the growth rate of output was highly constricted owing
to diminishing returns to physical capital. As such, a level effect rather than a rate effect could
only be exerted on the output per capita. In effect, the flow of FDI has no appreciable impact on
growth rate of output in the long run. Thus, with neoclassical models, FDI as a veritable engine
of growth was seriously undermined. However, with exposition on new growth theory, FDI is
capable of affecting both the level as well as rate of growth of output per capita. Literature has
clearly delineated on how FDI may potentially enhance the growth rate of per capita income in
the host country. Apart from factors like existence of human capital resources, absorptive
capacity of the host country, good trade policies, size of the market and a host of other factors
that had earlier been explained. The importance of economic freedom has been well stressed in
the emerging FDI literature. Economic freedom, according to Heritage Foundation has been
defined as „the absence of government coercion or constraint on the production, distribution, or
consumption of goods and services beyond the extent necessary for citizens to protect and
maintain liberty itself‟. Economists have long accorded greater importance to freedom to choose
and supply resources, competition in business, free trade with others and secure property rights
as representing important ingredients needed for achieving economic development. According to
Frazer economic freedom index, there are five major components of index and these include are
size of government, expenditures, taxes, and enterprises; legal structure and security of property
rights; access to sound money; freedom to trade internationally and regulation of credit, labour,
and business (Ajide, 2014).

In Africa, Generally, theoretical economic growth thinking begins with the Solow model, which
explains aggregate income by aggregate capital and labor. And because capital exhibits
diminishing marginal returns, long-run growth is explained by population growth and
technological progress, both of which are exogenous. This general model, which has been
revised to include several variables, notably government spending (infrastructure), human
capital, protection of property rights and market distortions (see Barro, 1996)

In Somalia, Economic growth is measured as the percent rate of increase in real GDP. Economic
growth (GDP) was first developed by Simon Kuznets for US congress report in 1934, who
immediately said not to use it as a measure for welfare (Yusuf, n.d.). Many researchers have
attempted to determine the impact for agricultural production on economic growth. So there is
less research carried to investigate asset management to enhance capacity of the economic
growth. Therefore, this research study seeks to investigate the factors that may influence asset
manegement and how these factors affect economic growth in Mogadishu Somalia.

Depend variable of this study will be economic growth. Economic growth per capita is primarily
driven by improvements in productivity, also called economic efficiency. Increased productivity
means producing more goods and services with the same inputs of labour, capital, energy, and/or
material (Mohammad Amin Almfraji, 2014). The neoclassical Solow-Swan (1956) economic
growth theory, also known as the exogenous growth model, advocates for the accumulation of
physical capital as an important driver of economic growth in the short run, while technological
advancement is the key determinant of economic growth in the long run.
Independent variable

1.2 Problem Statement

Asset management is a vital source of economic growth. It provides a link between investors
seeking appropriate savings vehicles and the financing needs of the real economy In properly
pursuing their mandate, asset managers should stimulate overall economic development by
continuously monitoring developments in industries (Costanzo, 2011).

Economic progress is considered as part of the utmost imperative fiscal tools for plummeting
poverty as well as improving the eminence of life (DFID, 2008). Economic progress is well-
defined as the rise in gross domestic product or real gross per capital and it is, however,
influenced directly by labor (employment), natural resources and capital and influenced
indirectly by the collective demand, institutions, economic and fiscal policies, efficiency of the
government (Boldeanu & Constantinescu, 2005).According to (Jhingan, 2003), economic growth
is the procedure by which the real per capita revenue of a nation rises over a long duration of the
interval, and it is determined through the rise in the number of services and products
manufactured within a nation. (Ali, 2022). There is poor asset management in this area.
Economic growth would be beneficial if it were to occur.

Therefore, this study investigates asset management encountered on economic growth and also
this study examines the effect of asset management on economic growth.

1.3 General Objectives

The purpose of this study will be to examine the relationship between asset management and
economic growth in banadir region

1.4 Specific Objectives

2. To examine the relationship between risk sustainability management and economic growth in
Banadir region

1.5 Research Questions

1. What relationship does stakeholder and demand management have economic growth
in Banadir region
2. What relationship does risk sustainability management have with economic growth
in Banadir region

1.6 Scope of the study

1.6.1. Georaphical scope

The study will be concentrated on the financial institutions in Banadir Mogadisho Somalia

1.6.2 Content scope

The study was limited to market rates and financial liabilities and their relation with economic
growth among financial institutions in banadir Mogadishu somalia.

1.6.3. Time scope

the time scope of this study will be January 2024 to June 2024.

1.7 significance of the study

This study is important for government and for it provides a base for economic development. It
is hoped to be helpful for the financial institutions in Somalia, especially local Companies. As
findings and recommendations provided in the conclusion of this research, they will recognize
the extent of effect asset in their activities. This study is also useful to any potential researchers
who interest to make further study in this area as literature
 1.8 Operational definitions

1.9 Conceptual Framework

This conceptual framework how the actual relationship between independent variable and
dependent variable.

Figure 1.9.1 Conceptual framework

Independent Variable (IV) Dependent Variable(DV)

Asset Management Economic growth

stakeholder and demand management