THE ROLE OF CAPITAL MARKET IN DEVELOPMENT OF NIGERIA ECONOMY
This project seeks to examine the role of capital market in development of Nigeria Economy. This study investigate the techniques of bench marking of Nigeria capital market toward economic development of the nation and discuss the importance of bench marking to over come perceived weaknesses within the process. This study intended to find out the operations of the Nigerian capital market and evaluate the performance of the capital market in relation to the economic growth in Nigeria. The literature review describes the various instrument of capital market and the role it has played to towards economic development. All aspect of this work is very relevant in one way or the other to Nigeria as a whole and for those who may be interested in carrying out further study in this topic. Also, data were collected through secondary source. The secondary data involves statistic analysis on central bank bulletin. The study observed that the problems that drags the Nigerian capital market is clued lack of interest in securities, Nigerians prefer to in vest in real assets against investment in financial assets should be curbed by deregulation of security pricing. The evidence from this study also reveals that the activities in the capital market tend to impact positively on the economy. It is recommended therefore that the regulatory authority should initiate policies that would encourage more companies to access the market and also be more proactive in their surveillance role in order to check sharp practices which undermine market integrity and erode investors’ confidence. The study further recommended that, to promote the capital market and stimulate economic growth and development great emphasis should be made on those things that will help in booting the market.
1.1 BACKGROUND OF THE STUDY
The capital market is a highly specialized and organized financial market and indeed essential agent of economic development because of its ability to facilitate and mobilize saving and investment. To a great extent, the positive relationship between capital accumulation real economic developments has long affirmed in economic theories (Anyanwu, 1993).
Success in capital accumulation and mobilization for development varies among nations, but it is largely dependent on domestic savings and inflows of foreign capital. Therefore, to arrest the menace of the current economic downturn, effort must be geared towards effective resources mobilization. It is in realization of this that consideration is given to measure for the development of capital market as an institution for the mobilization of finance from the surplus sectors to the deficit sectors.
The development of capital market
in Nigeria, as in other developing countries has been induced by the
government. Though prior to the establishment of stock market in Nigeria, there
existed some less formal market arrangements for the operation of capital
market. It was not prominent until the visit of Mr. J. B. Lobynesion in 1959,
on the invitation of the Federal government, to advice on the role the Central
Bank could play in the development of local money and capital market. As a
follow-up to this, the government commissioned and a set up the Barback
Committee to study and make recommendations on the ways and means of
establishing a stock market in Nigeria as a formal capital market. Acting on
the recommendation of the committee, the Lagos Stock Exchange (as it was called
then) was set-up in March 1960, and in September 1961, it was incorporated
under Section 2 cap 37, through the collaborative effort of Central Bank of
Nigeria, the Business Community and Industrial Development Bank
(Alile&Anao, 1990). With the establishment of the Central Bank of Nigeria
in 1959 and the coming into existence of the Lagos Stock Exchange in 1961 and
Subsequently, the Nigeria Stock Exchange by an Act in 1979, a sound foundation
was laid for the operation of the Nigerian Capital Market for trading in
securities of long term nature needed for the financing of the industrial
sector and the economy at large. After the incorporation of the Lagos Stock
Exchange, it was granted further protection under the law and its activities
was placed under some sort of control by the government, hence the passing of
the Lagos Stock Exchange Act. However, the Lagos Stock Exchange was only
operational in Lagos. By the mid 70’s, the need for an efficient financial
system for the whole nation was emphasized, and a review by the government of
the operations of the Lagos Stock Exchange market was advocated. The review was
carried out to take care of the low capital formation, the huge amount of
currency in circulation which was held outside the banking system, the
unsatisfactory demarcation between the operation of Commercial Banks and the
emerging class of the Merchant Banks, and the extremely shallow depth of the
In response to the problems mentioned above, the government accepted the principle of decentralization but opted for a National Stock Exchange, which will have branches in different parts of the country. On December 2nd 1977, the memorandum and article of association creating the Lagos Stock Exchange was transformed into the Nigerian Stock Exchange, with branches in Lagos, Kaduna, Port-Harcourt, Yola and now in Federal Capital Territory (FCT) Abuja some other cities. The history of Nigeria Capital Market could be traced to 1946 when the British colonial administration floated a N600, 000 local loan stock bearing interest at 3¼% for the financing of developmental projects under the Ten-Years Plan Local Ordinance. The loan stock, which had a maturity of 10-15 years, was oversubscribed by more than N1 million, yet local participation of the issued was terribly poor. Certainly, potential fund abound in Nigeria, but the overriding consideration in this project is to examine the role of the capital market in harnessing and mobilizing these resources (fund) to generate economic development in the country and consequently economic development.
1.2 STATEMENT OF THE PROBLEM
There is abundant evidence that
most Nigerian businesses lack long-term capital. The business sector has
depended mainly on short-term financing such as overdrafts to finance even
long-term capital. Based on the maturity matching concept, such financing is
risky. All such firms need to raise an appropriate mix of short- and long-term
capital (Demirguc-Kunt& Levine 1996).
Most recent literatures on the Nigeria capital market have recognized the tremendous performance the market has recorded in recent times. However, the vital role of the capital market in economic development and development has not been empirically investigated thereby creating a research gap in this area. This study is undertaken to examine the contribution of the capital market in the Nigerian economic development and development. Aside the social and institutional factors inhibiting the process of economic development in Nigeria, the bottleneck created by the dearth of finance to the economy constitutes a major setback to its development. As a result, it is necessary to evaluate the Nigerian capital market.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study
examined the activities and performance of Nigerian capital market. The
specific objectives of the study are as follows:
1.To examines the operations of the Nigerian capital market.
2. To evaluate the performance of the capital market in relation to the economic
development in Nigeria.
3. To examine the rate at which new stocks are issued on the capital market.
4. To make recommendations as to how the operations of the market could be improve to boost economic development and development of Nigeria.
1.4 SIGNIFICANCE OF THE STUDY
The study explored the role or effectiveness of capital market instruments on Nigerian economic development. Though the scope of the study was 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 development 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.
1.5 RESEARCH QUESTIONS AND HYPOTHESES
This research was guided by the following research questions:
i. How is the operation of Nigeria capital market?
ii. What is the performance of the capital market in relation to economic development in Nigeria?
iii. What is the rate at which new stocks are issued on the Nigerian capital market
How could the capital market through its crucial role stimulate economic development
The hypothesis that would be tested in the course of this research is stated below as:
H0: That the capital market operations have no role on Nigerian economic development.
1.7 ORGANIZATION OF THE STUDY
The study is divided into five (5) chapters and organized as follows:
Chapter one form the introduction part, this is where the main theme of the research is given. It comprises of the statement of the problem, objectives of the study, research questions and hypotheses, significance of the study, scope and delimitation of the study and organization of the study.
Chapter two is the literature review of the role of capital market on the economic development of Nigeria.
Chapter three forms the research methodology which includes sources of data, method of data analysis and model specification.
Chapter four is the data analysis while chapter five includes the summary, conclusion and recommendations.
TERMS AND CONDITIONS
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4. Direct citing ( if referenced properly)
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