ROLE OF CAPITAL MARKET IN DEVELOPMENT OF NIGERIA ECONOMY
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ROLE OF CAPITAL MARKET IN DEVELOPMENT OF NIGERIA ECONOMY
ABSTRACT OF THE CAPITAL MARKET’S ROLE IN THE DEVELOPMENT OF THE NIGERIAN ECONOMY
This research aims to investigate the function of the capital market in the development of the Nigerian economy.
This paper investigates the approaches of benchmarking of the Nigerian capital market towards the nation’s economic development and discusses the significance of benchmarking in overcoming identified shortcomings in the process.
The purpose of this study was to learn about the operations of the Nigerian capital market and to assess the capital market’s performance in relation to Nigeria’s economic growth. The literature study highlights the various capital market instruments and the role they have played in economic development.
All aspects of this work are very significant to Nigeria as a whole and to those who may be interested in additional research on this topic. In addition, data were gathered from secondary sources. Secondary data consists of statistical examination of central bank bulletins.
According to the report, one of the issues dragging the Nigerian capital market is a lack of interest in securities. Nigerians prefer to invest in real assets rather than financial assets, which could be addressed through deregulation of security pricing.
The findings from this study also shows that capital market operations have a favourable impact on the economy. It is therefore recommended that the regulatory authority implement measures that promote new enterprises
to enter the market while also being more proactive in their monitoring function to counter sharp practises that undermine market integrity and destroy investor confidence.
The report also proposed that, in order to promote the capital market and boost economic growth and development, a strong emphasis be placed on those factors that will aid in the market’s recovery.
1.0 INTRODUCTION TO CHAPTER ONE OF THE ROLE OF THE CAPITAL MARKET IN THE DEVELOPMENT OF THE NIGERIAN ECONOMY
1.1 BACKGROUND OF THE STUDY
Because of its ability to facilitate and mobilise saving and investment, the capital market is a highly specialised and organised financial market that is a vital agent of economic development.
To a large extent, economic theories have long supported the positive relationship between capital accumulation and real economic developments (Anyanwu, 1993).
Success in capital accumulation and mobilisation for development varies by country, but it is heavily reliant on domestic savings and international capital inflows.
As a result, in order to halt the current economic slowdown, efforts must be directed towards effective resource mobilisation. In light of this, consideration is given to measures for the growth of the capital market as an institution for mobilising funds from surplus to deficit sectors.
The government has encouraged the growth of the capital market in Nigeria, as it has in other developing countries. Prior to the founding of the Nigerian stock exchange, there were several less formal market arrangements for the operation of the capital market.
It was not notable until Mr. J. B. Lobynesion visited on the invitation of the Federal government in 1959 to advise on the role of the Central Bank in the development of local money and capital markets.
As a result, the government commissioned and established the Barback Committee to investigate and offer recommendations on the ways and means of creating a stock market in Nigeria as a formal capital market.
Acting on the committee’s recommendation, the Lagos Stock Exchange (as it was then known) was established in March 1960, and it was incorporated under Section 2 cap 37 in September 1961,
thanks to the collaborative efforts of 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, as well as the establishment of 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 in long-term securities required for the financing of the industrial sector and the economy at large.
Following the formation of the Lagos Stock Exchange, it was provided additional legal protection and its operations were placed under some sort of government control, resulting in the passage of the Lagos Stock Exchange Act. The Lagos Stock Exchange, on the other hand, was exclusively operational in Lagos.
By the mid-1970s, the need for an effective financial system for the entire nation was emphasised, and the government lobbied for a review of the operations of the Lagos Stock Exchange market.
The review was conducted to address the low capital formation, the enormous amount of currency in circulation 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 capital.
In response to the aforementioned issues, the government recognised the notion of decentralisation but chose to establish a National Stock Exchange with branches around the country. The Lagos Stock Exchange’s memorandum and articles of association were turned into the Nigerian Stock Exchange on December 2nd, 1977,
with branches in Lagos, Kaduna, Port-Harcourt, Yola, and currently in Federal Capital Territory (FCT) Abuja and other cities. The Nigeria Capital Market may be traced back to 1946,
when the British colonial authority issued an N600,000 local loan stock at a 314% interest rate to fund development projects under the Ten-Years Plan Local Ordinance.
The loan stock, which had a term of 10-15 years, was oversubscribed by more than N1 million, although local participation was extremely low. Although potential funds exist in Nigeria,
the overarching focus in this research is to investigate the function of the capital market in harnessing and mobilising these resources (money) to generate economic development in the country and, as a result, economic development.
1.2 STATEMENT OF THE PROBLEM
There is ample evidence that the majority of Nigerian businesses lack long-term capital. To finance even long-term investments, the corporate sector has relied mostly on short-term financing such as overdrafts.
Such funding is dangerous according to the maturity matching idea. All such businesses must raise a suitable combination of short- and long-term capital (Demirguc-Kunt& Levine 1996).
Most recent literatures on the Nigerian capital market have recognised the market’s amazing performance in recent years. However, the capital market’s critical role in economic development and development has not been experimentally explored, leaving a research deficit in this field.
The purpose of this research is to look into the role of the capital market in Nigeria’s economic development and growth. Aside from the social and structural problems impeding Nigeria’s economic development,
the bottleneck generated by a lack of finance to the economy is a key setback to its progress. As a result, the Nigerian capital market must be evaluated.
1.3 OBJECTIVES OF THE STUDY
The study’s overarching goal was to investigate the operations and performance of the Nigerian capital market. The following are the study’s particular objectives:
1.To investigate the activities of Nigeria’s capital market.
2. To assess the capital market’s performance in respect to the economy.
Nigeria is developing.
3. To investigate the rate at which new equities are issued on the stock exchange.
4. To give recommendations on how to strengthen market operations in order to boost Nigeria’s economic development and development.
1.4 SIGNIFICANCE OF THE STUDY
The study looked into the impact of capital market instruments on Nigerian economic development. Though the scope of the study was limited to the capital market, it is believed that the exploration of this market will provide a comprehensive understanding of capital market operations.
It will add to the existing research on the issue by experimentally investigating the role of the capital market in the country’s economic development and development.
The fundamental significance of this study is that it will provide policy recommendations to policymakers on how to improve capital market operations and activities.
1.5 RESEARCH QUESTIONS AND HYPOTHESES
The following research questions led this study:
i. How is the Nigerian capital market functioning?
ii. How is the capital market performing in regard to Nigeria’s economic development?
iii. What is the rate at which new stocks are issued on the Nigerian stock exchange?
iv. How can the capital market, with its critical function, encourage economic development in Nigeria?
The hypothesis that will be tested during this research is as follows:
H0: Capital market operations have no impact on Nigerian economic progress.
1.7 ORGANISATION OF THE STUDY
The research is organised into five (5) chapters as follows:
The first chapter is the introduction, and it contains the major theme of the investigation. It includes the issue statement, objectives of the investigation, research questions and hypotheses, significance of the study, scope and delimitation of the study, and study organisation.
The second chapter is a survey of the literature on the role of the capital market in Nigeria’s economic development.
The third chapter defines the research technique, which covers data sources, data analysis methods, and model specification.
The data analysis is covered in Chapter 4, and the summary, conclusion, and suggestions are covered in Chapter 5.
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