THE CAPITAL MARKET AS A TOOL FOR ECONOMIC DEVELOPMENT (CASE STUDY OF THE NIGERIAN CAPITAL MARKET)


Content

 

ABSTRACT

The research work is on the contribution of the Nigerian Capital Market to the nations economic development and growth.

The research is aimed at the following:

a.           To demonstrate that individuals and corporate participation in the Nigerian Capital market will help in no small measure in the channelisation of long-term funds for investment purposes within the economy.

b.           To demonstrate the fact that the Nigeria capital market is an economic institution with the sole aim of promoting efficiency and discipline in capital formation and allocation for an overall development and growth of the economy.

c.            Seeks to demonstrate that with her better trained workforce via the acquisition of new skills and technology, the Nigerian capital market is listed in some other markets within Africa and is seriously reaching out to other parts of the world thus attracting foreign investors and injecting more funds into the system for productive purposes and economic growth.

d.           While creating a paying ground capable of ensuring honesty, transparency and fairness for quality services that will enable more companies being listed for quotation on the exchange; this no doubt, will engender wider private sector participation and a boom to the economy.

e.            To establish the fact that the Nigerian capital market stimulates industrial growth and development in Nigeria, and lastly to recommend steps based on the findings.

In the course of the study, the following findings among others were made.

 

(i)           Following the Federal Government recent reforms in reshaping the economy into something better; especially in the financial and other sectors, such that banks and non-banking institutions now rush to the Nigerian Capital Market to shop for funds, thus boosting the market.

(ii)          These reforms provided opportunities for the small companies to become quoted and have access to funds in the capital market.

(iii)        It was discovered that with the introduction of Structural Adjustment Programme (SAP) and privatization exercise going on, the Nigerian Capital  Market has facilitated the transfer of enterprises from the public to private sector for a better restructuring and management.

(iv)        That internationalization of the Nigerian Capital Market has made possible substantial injections which pumped up the volume of economic activities within the country.

(v)          That despite Government’s consistencies in her fiscal and monetary policies, Nigerian Capital Market has recorded a total of N2.96Trillion and growth rate of over 35% over the past 12 years.      

In conducting the research, frequency tables, percentages and chi-square (X2) distributions were used  as statistical tool.

In the end, summary, conclusion and recommendations were drawn.                                                                              


 

TABLE OF CONTENT

Pages

Title page

Certification

Dedication

Acknowledgement

Abstract

Table Contents

 

CHAPTER ONE  

1.0       Introduction

1.1       Background of the Study

1.2       The Objective/Purpose of the Study

1.3       Significance of The Study

1.4       Organization of the Study

1.5       Statement of Problem

1.6       Limitations of the Study

1.7       Research Questions

1.8       Research Hypothesis

1.9       Definition of Terms

CHAPTER TWO:  THE REVIEW OF RELEVANT LITERATURE  

2.0       Introduction

2.1       History Development of Capital Market in Nigeria

2.1.1  The Structure of the Nigerian Capital Market

2.1.2  Major Participants in the Nigerian Capital Market

2.1.3  Regulatory Bodies of the Nigerian Capital Market

2.1.4  Constituencies of Nigerian Capital Market        

2.2       Present Status of the Industry

2.2.1  Policy Objectives

2.3       Nigerian Capital Market – Overview

2.4       Economic Prospects/Potentials of the Capital Market in Nigeria.

2.5       The Role/Functions of the Nigerian Capital Market

2.6       The Constraints/Limitations of the Nigerian Capital Market

2.7       The Importance of the Nigerian Capital Market

 

CHAPTER THREE:  RESEARCH METHODOLOGY              

3.1       Scope of Study

3.2       Selection of Data

3.3       Collection of Data

3.3.1 Design and Administration of the Questionnaire  

3.4       Sample size Determination

3.4.1 Sampling Techniques

3.5        Operational Measures of Variables

3.6       Data Analysis Technique

CHAPTER FOUR:  PRESENTATION OF ANALYSIS OF DATA

4.1       Presentation of Data

4.2       Reliability of Data

4.3       Analysis of Data

4.4       Testing of Hypothesis

4.5       Discussion of Findings   

 

CHAPTER FIVE:  SUMMARY, CONCLUSION AND RECOMMENDATION

5.1       Summary of Findings

5.2       Conclusion

5.3       Recommendations

Bibliography

Appendix I -  Questionnaire      

 

     

 

 

 


CHAPTER ONE

1.0    INTRODUCTION

Mobilization of capital for National development has long been the main focus of development economist. In this regards, the desirability of savings and investment in economic growth has been given considerable attention in various literatures.

 

For sustainable growth and development, funds must be effectively mobilized and allocated to enable businesses and the economy harness their human, material and management resources for optional output.

 

Due to pancity in the provision of capital for national development and growth, the Nigerian capital market is therefore concerned with the channelization of long-term funds for investment purposes in the economy.

 

The stock market as an economic institution promotes efficiency in capital formation and allocation. It enables government and industries to raise long-term capital for financing New projects, and expanding and modernizing industrial/commercial concerns.

 

Besides, if capital resources are not provided, to those economic areas, especially industries. Where demand is growing (which are capable of increasing productivity), the rate of expansion of the economy often suffers.

 

According to Samuel (1996), developed economies had been using money and capital markets in mobilizing funds for growth and development. This is however not so in developing economies like ours where emphasis was placed on money market, with little consideration for capital market – Nyong, 1997.

 

However, according to Akile, 1996, since the introduction of Structural Adjustment Programme (SAP) in Nigeria, the Nigerian Stock Market has grown tremendously. This is due to the deregulation of the financial sector and privatization exercise, which compelled inventors and companies to the importance of the Stock Market; equity financing became one of the cheapest and flexible sources of finance from the capital market, and remained a critical element in the sustainable development of the economy (Okereke Onyinke 2000).

 

Besides, the determination of the overall growth of an economy via the Stock Market activities depends largely on how efficiently it performs it’s allocative functions of capital among those firms with relatively high and increasing productivity. (Alile, 1997).

 

Be that as it may, the Nigerian Stock Market characterized with certain problems, such as:-

i.             Lack of interest by Nigerian companies in being listed in the exchange.

ii.           High cost of public quotation

iii.          Reluctance to dilute ownership and control through public quotation.

iv.          The interest rate structure in the past which favoured debt financing over equity financing.

v.            Non transparency and corrupt practices among the brokers and

vi.          Strigent requirements for listing has been proved to be a veritable tool in gingering or promoting economic growth in Nigeria .

However, this study will profer solutions to the above and other problems and place Nigeria among the fastest emerging markets in the world.

 

1.1    BACKGROUND OF THE STUDY  

The unpredictability of the markets as a result of equity price valuations is the effects of the dynamics of stock market investing.

 

However, according to Abayomi (2005) a down period in the stock market cycle is one of it’s dynamics because of the inherent opportunities it brings for discerning investors. Besides, this unpredictable nature of equity movement is also one of the reasons the market had continue to exist, strong and generating compounded returns to investors from ages past, present and will continue into the future.

 

The Nigerian capital market which started largely as a means of domesticating and expanding savings within Nigerian territory have not had it quite easy eversince, hence, it has been bedevilled with problems such as:

-                     Frequent fluctuations in the value of currencies.

-                     Economic instability occasioned by the low level of the economy.

-                     Low savings within the economy.

-                     Lack of interest to invest

-                     Instability within the political system.

-                     Poor communication system.

-                     Inadequate banking and savings facilities etc.

However, with the present regime and their various reforms ranging from privatization, bank consolidations and perhaps, the insurance industry; the necessity to promote the Nigerian capital market to respond to the socio-economic development need of the Nation by facilitating the transfer of enterprises from the public sector to the private sector cannot be achieved without addressing the above problems.

 

1.2    THE OBJECTIVE/PURPOSE OF THE STUDY                                                                          

The objective of this research is to find out among other things the economic contributions or importance of the Nigerian capital market in shaping Nigeria towards attainment of her economic, eldorado.

1.           To demonstrate that individual and corporate participation in the Nigerian Capital Market will help in no small measure in the channelisation of long-term funds for investment purpose within the economy.

2.           To demonstrate the fact that  the Nigerian Capital Market is an economic institution with the sole aim of promoting efficiency and discipline in capital formation and allocation.

3.           To demonstrate that the Nigerian Capital Market is listed in some other markets within Africa and is planning to reach out to the rest of the world, thus attracting more funds into the system for productive purposes and economic development.

4.           To demonstrate the fact that as more companies are listed for quotation on the exchange it, will engender wider private sector participation and a boom to the economy.

5.           To demonstrate that the Nigerian Capital market stimulates industrial growth and development in Nigeria.

 

1.3       SIGNIFICANCE OF THE STUDY       

The importance of the Nigerian Capital Market to the economic development of the nation involves reviewing the past to enable proper adjustment to be made for now and future. This study therefore will be important to firms, individuals employees who may want to invest their idle funds, players, governments and academia.

 

The study will afford the government the opportunity of adequately appraising and harnessing the gains of the Nigerian capital market for better goals, by providing her with funds at any time of need, as well as attaining  economic growth through private sector led.

 

The study will benefit the business community as more funds will be made available for investment purposes, which will bring out overall economic growth at both the micro and macro levels. The study will afford the players the opportunity, not only to participate, but also to have their say in how some enterprises are managed and run.

 

The study will afford the players the opportunity to ensuring that such institutions as Nigerian Capital Market are more professionally managed and made more relevant to the needs and aspirations of the investors.

Finally, the academic will add this study to the existing ones for reference purposes.

 

1.4    ORGANISATION OF THE STUDY                                                         

In other that the purpose of this study is attained, the research has been organized under five chapters.

Chapter one is the introduction part of the study which provides a summarized overview of the subject matter. It contains a brief background of the study, the statement of the problem, objectives or purpose of the study, Research hypothesis, significance of the study, the limitations of the study, the definition of terms and the organization of the study.

 

Chapter two is on the review or related literature. The chapter reviewed the concept of the Nigerian Capital Market, economic prospects or potentials of the market in Nigeria.

 

Chapter three examines the research methods and procedures. It has two parts. Selection of data and process of data collection and sources of data collection, example, Questionnaire personal interview, observation, sample size calculation and tools for analysis.

 

Chapter four is devoted to the main findings of the study through research data analysis, presentation and interpretation.

 

Chapter five marks the end of the study, it contained the summary, conclusion and recommendations of the research.                                               

 

1.5    STATEMENT OF PROBLEM                                                                                               

The Nigerian Capital Market is accentuated by some critical factors among which are corrupt practices and non transparency among the brokers, non share conscious as a result of low income; refusal to dilute ownership and control of businesses, instability of our local currency in the exchange market, just to mention a few.

 

There is no need over stretching the fact that most markets, not only in Nigeria but virtually all countries no matter their strictness, development, sophistication or social planks breeds high level of insider dealing abuses that could probably affect the confidence of the market and as such, Nigerian Capital Market is not exempted.

 

Financial manipulation are not healthy for any economy desirous of achieving economic growth and development, there is need to engage in critical self examination with a view to addressing and removing all impediments to economic development, hence, securities all over the world are based on integrity and credibility – Mobolorin (2005). Therefore, the need for strict regulatory framework and adherence to laid down rules and regulations which are critical for the sustainance of a vibrant and developed capital market cannot be over – emphasized.

 

However, with the present reforms going on in the Nigerian Capital and money Markets direct and indirect impacts are going to be witnessed in the areas of:

-                     Sustainable increase in the inflow of foreign investments.

-                     Volume of transactions will increase, market become more sophisticated as a result of the Electronic Tranding system now in place.

-                     There will be injection of funds into the system, such, magnitude never witnessed in the economy and the only challenge will be how to channel the available funds into the market efficiently.

-                     Mortgage Markets benefiting as new instruments come into the Market including mortgage - backed securities.

In the course of this, we will seek to unravel the problems militating against the efficiency, effectiveness and growth of the Nigerian Capital market as an important/indispensable sector in the financial system of the country.

 

1.6    LIMITATIONS OF THE STUDY                                                                              

The study is limited to the Nigerian Capital Market (NSE) as the provider of loanable funds (debentures) and other stocks (shares and government stocks) for the sustainability of our industrial growth and development.

 

The study encountered lots of problems in collecting data and relevant records hence, the refusal of the Nigerian Stock Exchange to allow photocopies of their little works made for comprehensibility and accessibility.

 

The library attendant of the institution under study felt reluctant to release materials, figures and facts relating to the study as they claim that it is against their overall interest, instead, how much that was traded on each day was left for public consumption.

 

Another major limitation is the short period within which to complete this project are reforms of the sectors delt on (money and capital market).

Also, the inadequate fund necessary to cover the breath of the study. The cost of materials for the research much was exorbitant includes; transport, magazines, Newspapers, publication in the internet, audio-video etc. This limitations not withstanding, sufficient data was sufficiently collected.

 

1.7    RESEARCH QUESTIONS                                           

The research questions and the methodology used herein, are with the objective of establishing whether there is or not a problem in the operations of Nigerian Capital Market.

Some of the questions and objectives the exercise will seek to answer are:-

1.           Have the Nigerian Capital Market ensured an efficient, transparent and reliable management of leanable funds and stocks as an ingredient for promoting rapid economic and political development and growth in Nigeria.

2.           Have the Nigerian Capital Market facilitated the transfer of enterprises from the public sector to the private sector.

3.           Have the Nigerian Capital Market been providing additional channels for engaging and mobilizing savings for productive investments within  the economy.

4.           Have the Nigerian Capital Market encouraged privatization, and re-capitalization of the financial sector by increasing the marketability of new issues.

 

1.8       RESEARCH HYPOTHESIS 

Considering the statement of problems and the objectives of the study, the following hypothesis are formulated to guide the study.  

HYPOTHESIS I

Ho:     Frequent fluctuations in the value of currencies hinder the operations of the Nigerian Capital Market towards achieving it’s goal of piloting the Nigerian Economic growth.

HYPOTHESIS II

Ho:     The unpredictable nature of the equity market pose a problem for lack of interest to invest.

HYPOTHESIS III

Ho:     Absence of enabling environments (rules and regulations) and discipline among the players encourage an overall growth of the Nigerian Capital Market.

 

1.9    DEFINITION OF TERMS

EFFICIENCY                          -        It is concerned with doing the

right job in the right manner at the right time.

It also means the capacity of producing a maximum result with a constant result measured by comparing one entity with another.

ENABLING ENVIRONMENT -         This involves having discipline, honesty, transparency and fairness in operations between the players and the investors.

SHARES   -                                       This is an individual portion of the companies capital owned by shareholders.

STOCKS   -                                       This is the capital of the company that has been issued and can be bought in parts at the capital markets.

BONDS    -                                       They are promises to pay stated sum of money with interest. They are issued in multiples of N200, N500, N1000 etc.

GILT-EDGE  SECURITIES -            They are government securities issued to the public when government needs money for developmental purposes or as a fiscal measures. They are less risky with brighter prospects.

DEBENTURES     -                           They are long-term loans from members of the public to a public company. The holders of this securities expect returns by way of interest the rate of which pre-determined contractual and obligatory irrespective of whether the company makes profits or not.

QUOTATION    -                               This is the permission for the shares of company to be bought and sold on the stock exchange.

STOCK BROKER    -                        This is a person or firm who buys and sell securities on behalf of investors.

ISSUING HOUSES   -                      They are principal agents the Stock Exchange who helps to prepare prospectus and sells shares offered to the public by companies and governments. They guarantee to buy up any of the shares which are not sold to the public.

PROSPECTUS    -                             This is the document the public relies on for making investment decision.

ISA               -                                   Investment and security Act of 1999, meant to protect the interest of investors as well as the integrity of the market.

IST            -                                       Investment and security Tribunal set out by the commission to protect the interest and integrity of investors and the operators.

CSCS          -                                     Central securities clearing system an electronic means which hastens transactions within the market. 


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