THE IMPACT OF PRIVATIZATION ON THE CAPITAL MARKET IN NIGERIA
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THE IMPACT OF PRIVATIZATION ON THE CAPITAL MARKET IN NIGERIA
ABSTRACT
The desire to improve quick economic growth and development led to government engagement in economic operations thought to be best managed by the private sector, such as the founding and establishment of state-owned firms. The consequent waste, inefficiencies, and unproductivity of these firms, on the other hand, justified, promoted, and accelerated a shift in national consciousness towards the urgency of privatisation. (and commercialization).
The Nigeria privatisation initiative, which was implemented in several rounds and phases, has yielded numerous benefits to the economy and, in particular, the capital market. This research on the “Impact of Privatization on the Capital Market” has advanced due to the recognised benefits. A systematic five-chapter strategy was used to meet the study’s aims and validate the hypotheses developed in the study.
The first chapter discusses the study’s background, objective, research questions, hypothesis, scope, and limitations.
The second chapter conducted a review of relevant literature.
The third chapter outlines the study methods used to analyse the data collected.
The fourth chapter is about data display and analysis. It also puts the proposed theory to the test.
Chapter five discusses the project’s summary, findings, recommendations, and conclusion.
TABLE OF MATERIALS
CHAPITRE 1: INTRODUCTION
1.1 Introduction to the Research
1.2 Formulation of the Problem
1.3 The Purpose of the Research
1.4 Importance of the Research
1.5 Research Hypothesis Declaration
1.6 Scope of the Research
1.7 Methodology of Research
1.8 Limitations of the Research
1.9 Definitions of Terms REVIEW OF LITERATURE IN CHAPTER TWO
2.1 The Public Enterprises’ Historical Background
Performance Issues
2.2 Justification for Nigerian Privatization
2.3 Privatization: A Conceptual Framework
2.4 The Purposes of Privatization
2.5 Privatization Strategies
2.6 The Legal Framework for Privatization in Nigeria
2.7 Expectations of Privatization
2.8 Privatisation in Nigeria
2.9 The Evolution of Nigeria’s Capital Market
2.10 The Financial Market
The Securities and Exchange Commission (SEC)
2.12 The Capital Market’s Roles
2.13 Approach to Fund Raising in the Capital Market
2.14 Capital Markets and Privatization
2.15 Privatization’s Impact on the Capital Market
CHAPITRE THREE: METHODOLOGY OF RESEARCH AND MODEL SPECIFICATION
3.1.1 Introduction
3.2 Model Specifications
3.3 Study Participant Population
3.4 Research Study Sample
3.5 Data Collection Resources
CHAPTER FOUR: Data Presentation and Regression Result Interpretation
4.1.1 Introduction
4.2 Examination of Regression Results
4.3 Implications for Policy
CHAPITRE FIVE: SYNOPSIS, FINDINGS, CONCLUSION, AND RECOMMENDATIONS
5.1.1 Introduction
5.2 Conclusion
5.3 Discoveries
5.4 Final Thoughts
Recommendations (5.5)
Bibliography
Appendix
CHAPITRE ONE
INTRODUCTION
1.10 THE STUDY’S BACKGROUND
As a matter of fact, public service has long been known for its ability to generate income. As a result, state enterprises have typically been viewed as drain pipes for the government’s budget. As a result, fiscal difficulties and an unwarranted burden on the economy are created.
It has thus become a national policy imperative to decouple the public sector from areas where the private sector has a competitive advantage to perform, while allowing the state to be concerned. Security and a conducive atmosphere for corporate growth through increased wealth development.
It is crucial to note that for many emerging countries, such as Nigeria, it was arguably necessary for the government to stimulate initial private sector investments in the early stages of national growth.
Unfortunately, the government became so entangled in matters that should have been handled by the private sector that it could no longer perform its usual tasks.
Meanwhile, the government’s participation in national growth and wealth creation resulted in the founding and establishment of over 600 federally owned public firms (Anya 2001) (over the year to date), which are now widely regarded as inefficient, corrupt, unproductive, and wasteful.
These causes, together with the impediment to government effectiveness in performing its conventional tasks, sparked many movements in national consciousness regarding the necessity of privatisation and commercialization.
Privatization, defined as the sale of public assets or firms to the private sector, is viewed as a tool for increasing productive and allocative efficiency and economic growth. It also has the goal of reducing the public deficit and improving public finance, encouraging competition and broad private sector engagement in economic development, developing local capital markets, and so on. Its ultimate goal is to liberalise economies by enhancing private sector participation and capacity utilisation.
In March 1988, Ibrahim Babangida, the then-head of state, issued a decree establishing the Technical Committee on Privatization and Commercialization. (TCPC). The Committee, which was previously established in July 1988, was tasked with restructuring public firms slated for privatisation; this step was an integral and critical component of the Structural Adjustment Programme (SAP), which began in 1986.
The Committee, which was eventually superseded by the Bureau for Public Enterprises, has continued working on this mission since then, but in a different phase. The prevalent trend, particularly among emerging countries, has been to divest through the capital market in order to assure transparency, credibility, and widespread ownership of the shares of privatised firms.
Privatization and commercialization have created opportunities for people and organisations to buy and sell stocks both within and outside of Nigeria. This enormous development has offered obstacles as well as opportunities for the growth of Nigeria’s securities market and increased public engagement in the market.
It was said at the completion of the first phase of the exercise that “it had created a large body of shareholders and deepened and broadened the Nigerian Capital Market to position of being the most developed in black Africa.” (Anya 2001). It has boosted investment and raised capital market awareness both locally and globally.
This study conducts a critical evaluation and examination of the impact of privatisation on the capital market, taking into account the level of innovation and awareness created in the capital market by privatisation policy in connection to the Nigerian Stock Exchange.
1.11 THE PROBLEM’S STATEMENT
The Nigerian Capital Market’s mission statement emphasises the market’s role and involvement in facilitating and encouraging socioeconomic growth and development through the mobilisation and generation of long-term capital for investment.
However, it has been noticed that the market has not played this role efficiently or successfully. In fact, prior to and during the first phase of the exercise, the market was less popularised domestically and internationally. Until recently, it was not a popular source of cash due to economic insecurity and the government’s intrusive presence in economic concerns.
This research study will take into account this understanding and perspective on the contribution of privatisation.
i. To what extent has the population become more involved in the ownership of the economy’s corporate sector?
ii. What impact has privatisation had on the market?
iii. What elements are working against privatisation and the Nigerian capital market?
iv. How have the enterprises that have been privatised fared after receiving privatisation permission from the capital market’s governing bodies?
v. What problems has the exercise created to the stock market’s regulatory framework?
vi. What benefits have Nigerians reaped from the government’s privatisation programme?
Given the importance of the capital market in the economy, there can be no meaningful or significant progress if only money is used or the capital market is pushed to the background.
1.12 THE STUDY’S OBJECTIVE
This research is being conducted with the following goals in mind:
1. To assess the impact of privatisation on capital market activity.
2. To ascertain the extent to which the privatisation policy influenced capital-market investments.
3. Determine the post-privatization performance of the privatised enterprises.
4. To define the economic objectives of Nigeria’s privatisation policy.
5. To highlight the capital market consequences of the privatisation programme.
6. To learn about the advantages of privatisation and capital market operations in Nigeria.
7. To provide remedies to challenges encountered during the privatisation process and capital market activities in Nigeria.
1.13 IMPORTANCE OF THE STUDY
Based on the observation of the capital market’s unpopularity throughout the first phase of the exercise, it will aid in determining the level of knowledge, ownership, and investments that have emerged in the Nigeria Capital Market.
Aside from revealing the capital market’s development, operational efficiency, listings, and so on, it will aid in determining the profitability of the government’s privatisation strategy on a broad scale and in specific terms on the capital market.
A pre-privatization evaluation and a post-privatization study will disclose the dividends, success, and benefits of the privatisation project on the country as a whole, engendering ongoing support for the programme.
Finally, it will flesh out great efforts already done on the issue and will serve as a reference guide for future academics who wish to continue this investigation.
1.14 RESEARCH HYPOTHESIS STATEMENT
A hypothesis is a preliminary solution to a research issue; it is frequently expressed as a link between a dependent variable and the explanatory variables. The hypothesis developed for this study are as follows:
Null Hypothesis (Ho): The privatisation effort in Nigeria did not improve the growth and performance of the Nigerian capital market.
Alternative Hypothesis (Hi): Nigeria’s privatisation effort has boosted the growth and performance of the country’s capital market.
1.15 STUDY OBJECTIVES
The research on the impact of privatisation on the Nigerian capital market will concentrate on the contribution of the privatisation exercise to the growth of capital market activities, with market capitalization serving as a proxy or indication of economic performance.
The capital market operations to be recorded will be limited to the years 1980 to 2005. This 25-year timeframe will serve as the study’s horizon.
1.16 METHODOLOGY OF RESEARCH
In this study, special emphasis will be placed on the intensive use of data from secondary sources. Data will also be gathered from textbooks, journals, conference papers, the internet, the government, publications, magazines, financial papers, the Federal Offices of Statistics (FOS), and the Central Bank of Nigeria (CBN) Statistical Bulletin Vol. 16, December 2005. The Ordinary Least Squares (OLS) estimate method will be used to analyse the data.
This will allow us to test a hypothesis, provide necessary interpretations, and then draw conclusions based on our regression analysis. The OLS estimation method has some very appealing statistical qualities that have helped it become a very popular approach of analysis.
1.17 TERMS DEFINITION
The following technical terms are succinctly explained:
i. Capital Market: A market in which industries, corporations, governments, and municipal governments raise medium and long-term money.
ii. Privatization: The transfer of control and ownership of a business enterprise from the government to the private sector.
iii. Divestment: A corporate strategy in which a portion of the company is sold.
iv. Investment: The commitment of capital to long-term assets or projects that will provide returns over time.
v. Securities: These are marketable financial products such as equities and debt instruments that allow businesses and other organisations to raise funds from the general public.
vi. Financial Market: The mechanism via which money are mobilised and efficiently shifted from surplus to deficit sectors of the economy.
vii. Money Market: The market for raising short-term cash that is dominated, controlled, and affected by commercial bank activity.
viii. Shareholder: A member of a limited liability company who owns shares or equity capital in the company.
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