SHARE PRICE VOLATILITY AND ECONOMIC GROWTH OF NIGERIA (1987-2016).
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SHARE PRICE VOLATILITY AND ECONOMIC GROWTH OF NIGERIA (1987-2016).
CHAPTER ONE INTRODUCTION
1.1 Background for the Study
The Nigerian Capital Market originated during colonial times, when the British Government, which ruled Nigeria at the time, sought funding to administer the local administration. Most of these funds came from agriculture, food marketing, and solid mineral mining.
When the colonial government realised that these sources were insufficient to satisfy its rising financial responsibilities, it decided to broaden its revenue base by altering the system of revenue mobilisation, taxing, and other payments.
It also recognised the need to raise cash from the public sector to cover transitory gaps in funding availability. As a result, it decided to construct a financial system by laying the groundwork for its operation while an organised private sector developed.
According to Odife (2000), the first step in this approach was to secure the funds required for the development of this infrastructure and long-term capital project.
This it accomplished in 1946, when it issued the 1946 10-year plan Local Loan Ordinance for the flotation of the first N300,000, 3% Government stock 1956/61, with the Accountant-General in charge of its management.
The Government and Other Securities (Local Trustees Powers) Acts were enacted in 1957. This law established the securities in which trust funds could be placed. It also clearly outlined trustees’ duties and responsibilities.
Furthermore, the colonial authority established the Professor Barback committee to investigate the ways and means of promoting a share market in Nigeria. Part of the committee’s terms of reference included the possibility of establishing a capital market in Nigeria.
The committee suggested, among other things, the construction of share trading facilities, the implementation of share transfer procedures, and steps to encourage savings and the issuance of government and other organisations’ securities.
By the end of the year (1957), the colonial administration had passed the General Loan and Stock Act and the Local Loan (Registered Stock and Securities) Act based on the Barback Committee’s recommendations. The Central Bank of Nigeria was created in 1958 under the Central Bank of Nigeria Act.
The goal of these numerous laws was to lay the groundwork for a viable securities/capital market in Nigeria. In response to these legislation, the colonial authority granted the first N2 million Federation of Nigeria Development Loan Stock in May 1959.
In 1959, it also passed the Statutory Corporations (Loan Guarantees) Act. The Central Bank of Nigeria released the first Nigerian Treasury Bills in April 1960, with the goal of creating an outlet for the investment of short-term liquid funds in Nigeria as well as supplying monies to the government while it waited for its own earnings.
The Lagos Stock Exchange was established as a private limited liability company, limited by guarantee, on September 15, 1960, in accordance with the Lagos Stock Exchange Act of 1960.
The Lagos Stock Exchange Act of 1960 allowed its members monopolistic powers to deal in securities quoted on the exchange. It also enabled the Central Bank to transact directly in securities.
On June 5, 1961, the Lagos Stock Exchange opened for operation with 19 listed instruments, including 3 shares, 6 Federal Government Bonds, and 10 industrial loans. On October 1, 1961, “the National Provident Fund was established as a compulsory contributory savings scheme aimed at providing some protection to contributors at old age, invalidity or temporary loss of employment” .
The enabling Act permitted the Fund to invest its excess money only in Nigerian securities authorised under the Trustee Investment Acts of 1957 and 1962, as well as securities generated or issued by or on behalf of the federal government (SEC, 1999:49). In 1962, the Exchange Control Act and the Trustees Investment Act were passed.
The Capital Issues Committee was also formed to investigate and recommend the formation of a top monitoring entity for Nigeria’s burgeoning capital market. The Borrowings by Public Bodies Act was enacted in 1966.
The Companies Decree and the Banking Decree were issued in 1968 and 1969, respectively. The Nigerian Enterprises Promotion Decree was promulgated in 1972, while the Capital Issues Commission Decree was passed in 1963.
As a result, the Capital Issue Committee became the highest-level regulating authority for the Nigerian capital market. This order enabled it to set the price and timing of new securities offerings through an offer for sale or subscription.
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