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THE IMPACT
OF CAPITAL MARKET ON DEVELOPMENT OF NIGERIA ECONOMY
ABSTRACT
This study
tends to improve the impact of capital market on development of Nigerian
economy. The study will proceed from the general over view of capital market,
statement of problem in this research work are failure of federal government to
create awareness to the people. The primary objective of the research work was
to evaluate the impact of capital market on Nigeria economy. Research
hypothesis that was used in actual frequencies decision rule and interpretation
of result, the source of data are through primary and secondary source of data
collection, and method of data analysis based on the questionnaire administered
to the staff of Nigeria Stock Exchange (NSE) Abuja. Interview conducted with
the lenders and investors and observations made at the Nigeria Stock Exchange house.
Conclusion the recapitalization policies by the central Bank of Nigeria on
commercial Banks strengthens the financial institutions and restores confidence
in the financial system.
CHAPTER ONE
1.0 INTRODUCTION
This
research work is titled the impact of capital market on development of Nigeria
economy. The Nigeria capital market is a highly specialized and organized
financial market and indeed essential agent of economic growth and development
because of its ability to facilitate and mobilize saving and investment.
To a greater
extent the positive relationship between capital accumulation and real economic
growth has long been affirmed in economic theories (Anyanwu 1996).
1.1 BACKGROUND OF THE STUDY
The Nigeria
capital market is a complex institution where medium and long term funds are
put together and made available and also instruments like stocks shares,
debentures and bonds are transformed.
The
financial institution comprises of the Nigeria market includes commercial
banks, merchant banks, development bank, insurance companies unit trust,
pension fund and the stock exchange.
The capital
market is broadly categorized into two classes:
The Primary
market
The
secondary market
THE PRIMARY
MARKET
This is a
market in which companies or government can raise funds by issuing shares or
loan stocks. Quoted companies can also involve fresh funds.
The Nigerian
stock exchange also involve in the primary market.
THE
SECONDARY MARKET
This is a
market for buying and selling existing securities. Secondary markets are
vehicles for providing liquidity to investors. Where securities are openly, the
stock exchange provides free entry and free exists for investors through
trading in secondary market.
The Nigeria
stock exchange was established in September 15, 1960 as the Lagos Stock
Exchange but actually started operations in June, 1961 prior to this, all
formal savings and deposits went through the banking system while major capital
balance were invested for the country. On June 5, 1961, the exchange opened its
doors for business. It is owned by 135 (One hundred and thirty five)
shareholders made up of financial institution stock brokers and individual
Nigerians.
The Nigerian
Stock Exchange has a president and council members, Chairman and Board of
Directors who are elected at the annual general meeting by members of the
exchange. The tenure of office of the president is limited to a one-three year
term. The cousncil is responsible for policy making, but day-to-day running of
the affairs of the exchange is vested in the office of the Director General and
its management team (NSE 1999).
The NSE has
the following trading floor / branches in major cities of the Federation,
Kaduna (1978), Port Harcourt (1980), Kano (1989), Onitsha (Feb, 1990) Ibadan
(Aug. 1990) Abuja (October, 1999 and Yola (April 2002).
As at the
inception in 1961, the NSE started
trading in Lagos with 19 securities valued at N80 million listed on it.
This has grown to 283 listed companies with a total market capitalization of
about N15 trillion. All listings are included in the only index, the NSE all
share index. The NSE is responsible for listing, delisting and general
discipline in the stock market as well as the orderly conduct.
The NSE is
organized in such a way that only the dealing member companies of the exchange
that are allowed to trade on its trading floor on behalf of their numerous
clients and there is a regime of rules and regulations to guide the conduct of
their operations. It enables the holders of securities to convert them into
cash quickly and without inconveniences and also at a compulsory moderate cost.
The state of health of the companies is determined by evaluation of the
studies.
Oba E.
(1999) Basic understanding of capital market operations, Lagos, Deacon Oba
Ekiran Publishers.
1.2 STATEMENT OF THE PROBLEM
The
following are the statement of the problem in this research work.
The Nigeria
capital market which is supposed to being avenue for sourcing long term funds to
finance long-term project is not as developed as her foreign counterpart.
It has
therefore not been able to judiciously perform its primary obligation of
meeting long-term capital needs of the deficit sectors, through efficient
accumulation of capital or mobilization of funds from the surplus unit of the
economy, and effectively channel mobilized funds for more economic use.
A critical
study of both the real and service sector will elucidate this fact. This study
is undertaken to examine the contribution of the capital market in the Nigeria
economic growth and development
The primary
objective of the study is to evaluate the impact of capital market on
development of Nigeria economy.
Other
specific objective are as follows:
To assess
the performance of the capital market in relation to the economic growth in
Nigeria.
To analyse
the rate at which new stocks are issue on the capital market.
To appraise
how the operations of the market could be improve to boost economic growth and
development of Nigeria.
To evaluate
the operations of the Nigeria capital market.
1.4 RESEARCH QUESTIONS
This
research shall be guided by the following research questions.
How does the
capital market impact on the economic growth and development process in
Nigeria?
What is the
trend of trading activities on the capital market?
What is the
rate at which new stock are issued on the Nigeria capital market?
How could
the capital market through its crucial role stimulate economic growth in
Nigeria?
1.5 STATEMENT OF HYPOTHESIS
The
hypothesis that would be tested in the course of this research is state below
as:
H0: That the
capital market operations have not contributed to Nigeria economic growth.
H1: That the
capital market operations have contributed to Nigeria Economic growth.
1.6 SIGNIFICANCE OF THE STUDY
The study
will explore the impact or effectiveness of capital market instruments on Nigeria
economic growth. Though the scope of study will be limited to the capital
market it is hoped that the exploration of this market will provide a broad
view of the operations of the capital market. It will contribute to existing
literature on the subject matter by investigating empirically the role, which
the capital market plays in the economic growth and development of the country.
The main importance of this study is that it will provide policy
recommendations to policy makers on ways to improve operations and activities
of the capital market.
1.7 SCOPE OF THE STUDY
This
research work will only look at a particular part of the economy (the financial
sector) this work will not cover all the facets that make up the financial
sector, but shall focus only on the capital market and its activities as it
impacts on the Nigeria economic growth. The empirical investigation of the
impact of the capital market on the economic growth in Nigeria shall be
restricted to the period between 1986 and 2010 due to the non-availability of
some important data.
Capital: A
capital can be defined as assets or resources available to the individual or
organization whether permanently (i.e. down capital) or temporary (i.e. debt
capital). Therefore it can be physical or financial.
Capital
Market: Capital markets is the market for raising and investing long-term
funds. Financial instruments traded on this market are equities and loan stock
having maturity period of three years or longer.
Dividend: A
portion of the net earning that has been officially declared by the board of
directors of a company for distribution to shareholders.
Financial
Market: This simply means the various facilities provided by the financial
systems for the creation of custodianship and distributions of financial assets
and liabilities, investments trust and mortgage institutions.
Insurance
Companies: These are risk underwriters for life and non-life business. Their
non-life comprises of short-term liabilities by way of claims during the life
of the policy usually a year.
Issuing
Houses: These are institutions whose primary responsibility is to take
companies to the capital market to raise funds through primary issues.
Prospectus:
A prospectus is a document through which a public limited liability company
offer for subscription or for sales of its shares to the public detailing
information about the offer.
Portfolio
Investors: They are institutions that are established to manage huge investment
funds for one group of corporate investors.
Shareholder:
The possessor of shares or stock in an organization corporation or company by
investing in the securities available in the capital market.
Stock
Exchange: This is a primary market in which companies and other institutions raise funds by issuing shares or
loan stock. It is also a secondary market for buying and selling existing
securities (Shares and loan stocks).
Stock
Brokers: A stock brokers is a firm or person who buys and sells securities on
behalf of investors for a commission called brokerage.
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