CAPITAL MARKET, A TOOL FOR ECONOMIC GROWTH IN NIGERIA.
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CAPITAL MARKET, A TOOL FOR ECONOMIC GROWTH IN NIGERIA.
Chapter one
INTRODUCTION
1.1 Background of the Study
The capital market is a highly specialised and organised financial sector that serves as an important agent for economic growth due to its ability to facilitate and mobilise savings and investment. To a large extent, the positive relationship between capital accumulation and real economic growth has long been confirmed in economic theories (Anyanwu, 1993).
Success in capital accumulation and mobilisation for growth varies by country, but it is mostly based on domestic savings and the entrance of foreign capital. To mitigate the threat of the current economic crisis, efforts must be directed towards effective resource mobilisation.
In light of this, measures are being considered for the growth of the capital market as an institution for mobilising funds from surplus to deficit sectors.
The government has induced the development of capital markets in Nigeria, as well as in other emerging countries. However, previous to the foundation of Nigeria’s stock market, there were certain informal market mechanisms for the operation of the capital market.
It was not prominent until 1959, when Mr. J. B. Lobynesion visited on the Federal government’s invitation to advise on the role of the Central Bank in the development of the local money and capital markets.
In response, the government commissioned and established the Barback Committee to investigate and offer suggestions on how to establish a legitimate stock market in Nigeria.
Acting on the committee’s recommendation, the Lagos Stock Exchange (as it was then known) was established in March 1960, and in September 1961, it was incorporated under Section 2 cap 37 by the Central Bank of Nigeria, the Business Community, and the Industrial Development Bank (Alile&Anao, 1990).
The establishment of the Central Bank of Nigeria in 1959, the Lagos Stock Exchange in 1961, and, later, the Nigeria Stock Exchange by an Act in 1979, laid a solid foundation for the operation of the Nigerian Capital Market for trading long-term securities required for the financing of the industrial sector and the economy as a whole.
Following its establishment, the Lagos Stock Exchange was afforded further legal protection, and its activities were subject to government regulation, resulting in the passage of the Lagos Stock Exchange Act.
However, the Lagos Stock Exchange only operated in Lagos. By the mid-1970s, the necessity for an effective financial system for the entire country had been emphasised, and the government was urged to conduct a review of the functioning of the Lagos Stock Exchange.
The review was carried out to take care of the low capital formation, the huge amount of currency in circulation that was held outside the banking system, the unsatisfactory demarcation between the operation of Commercial Banks and the emerging class of Merchant Banks, and the extremely shallow depth of the capital.
To address the issues raised above, the government embraced the notion of decentralisation but chose to establish a National Stock Exchange with branches around the country.
The memorandum and articles of association that established the Lagos Stock Exchange were turned into the Nigerian Stock Exchange on December 2, 1977, with branches in Lagos, Kaduna, Port-Harcourt, Yola, and currently in the Federal Capital Territory (FCT) in Abuja, among other places.
The Nigeria Capital Market can be traced back to 1946, when the British colonial administration issued an N600,000 local loan stock with an interest rate of 3’i4% to fund developmental initiatives under the Ten-Years Plan Local Ordinance.
The loan stock, which had a term of 10-15 years, was oversubscribed by more than N l million, but local participation in the issue was extremely low.
Certainly, potential funds exist in Nigeria, but the overarching goal of this study is to investigate the role of the capital market in harnessing and mobilising these resources (funds) to generate economic growth in the country, and hence economic progress.
1.2 Statement of the Problem
1. Capital market operations that slow economic growth.
2. Capital market underperformance has a detrimental impact on capital growth.
1.3 AIM AND OBJECTIVES OF THE STUDY
The purpose of this study is to look into the impact of Nigeria’s capital market on the country’s economic growth. The report investigates the operations and performance of Nigeria’s capital market. The study’s precise aims include the following:
1. Examine the functioning of the Nigerian capital market.
2. Evaluate the capital market’s performance in relation to Nigeria’s economic growth.
3. Make recommendations on how to strengthen market operations to boost Nigeria’s economic growth and development.
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