CHAPTER ONE
INTRODUCTION
1.1 The Background of the Study
Currently, Nigeria is tagged a
developing nation even though she is blessed with numerous natural resources.
The problem of Nigeria can be resolved if resources are properly mobilized,
resulting in efficiency in all sectors and aid proper development. As the case
is today in Nigeria, various sectors remain undeveloped, and for economic
progress there must be development in various sectors of the economy, including
the capital market. The development of the capital market, and apparently the
stock market, provides opportunities for greater funds mobilization, improved
efficiency in resource allocation and provision of relevant information for
appraisal (Inanga and Emenuga, 1997). Stock market promotes efficiency in
capital information and allocation. It enables individuals and government to
finance new projects which are capable of increasing productive capacity of a
nation (Ohiomu and Enabulu, 2011). Adamopoulos (2009) stock market has
contributed to the mobilization of domestic savings by enhancing the set of
financial instrument available to savers to diversify their portfolios and
provide an important source of investment capital at a reduced cost. The role
of stock market has been very significant. According to Mala and White (2006)
stock market is an important component of any financial sector of any economy.
It is viewed as a complex institution imbued with inherent mechanism through
which long-term funds of the major sectors of the economy such as households,
firms, and government are mobilized, harnessed and made available to various
sectors of the economy (Nyong, 1997). The stock market plays an intermediation
function. Riman, Esso and Eyo (2008) provide evidence of the relationship
between stock market development and economic growth. Large, liquid and
efficient capital market can ease savings mobilization and by mobilizing
savings, capital markets enlarge the set of feasible investments projects.
Since worthy projects require large capital injection and some enjoy economies
of scale, capital markets that ease resource mobilization can boost economic
efficiency and accelerate long run economic growth (Idowu and Babatunde, 2011).
Investment remains the major catalyst
to economic growth, while resource mobilization and allocation forms a vital
pre-requisite to investment, the role of financial intermediary like stock
exchange market in securing liquidity for long term investors cannot be
undermined. These assist profitable investors in expanding their portfolio
investment. However despite the performance of Nigerian stock market, there has
been a large downturn in economic activity particularly in the real sector.
Most productive activity will prefer long term borrowing relative to short term
and the major objective of stock exchange market is to buy and sell securities
by harnessing surplus public and private savings from actors and this is
further invested optimally in real sector to facilitate economic growth.
The Nigerian Stock Exchange was
incorporated on 5 September 1960 as the then Lagos Stock Exchange, under the
Lagos Act of 1961, but operation fully took-off on 5 July 1961. The
establishment of Lagos Stock Exchange was because of the Barback committee
which was set up in 1958 by the Federal Government mainly to consider the ways
and means of promoting stocks, bonds and shares in Nigeria. It is a non-profit
making organization. To be able to meet the aspiration of its services, the
Lagos Stock Exchange was transformed into Nigerian Stock Exchange on 2 December
1977 and governed by the Memorandum of Association.
While the Capital Market in Nigeria
was informally started as far back as 1946, the basic institutional framework
for the operation of the capital market (Issue of Share etc.) did not begin any
operation until the establishment of the Lagos Stock Exchange. The major
function of the market is dealings (i.e. lending and borrowing) in long-term
loanable funds I.e. periods ranging over 3 years. It is an institutional market
for transferring funds from surplus economic units to deficit economic units.
In Nigeria, one major problem business
enterprises face is the problem of financing their activities unlike what we
observe in developed worlds. Through the stock exchange market, funds for
long-term projects can be provided, but the commercial banks cannot provide
such funds.
The Nigerian Stock Exchange (NSE) is
the center point of the Nigerian Capital Market. The NSE provides a mechanism
for mobilizing private and public savings, and makes such funds available for
productive purposes. The Exchange also provides a means for trading existing
securities. It also encourages large-scale enterprises to gain access to public
listing. The NSE operates the main exchange for relatively large enterprises,
the Second tier Securities Market) where listing requirement are less stringent
for small and medium scale enterprises.
The Capital Market is the long-term
end for financial market. It is made up of market and institutions, which
facilitate the issuance and secondary trading of long-term financial
instruments. Unlike the Money Market, which functions basically to provide
short term funds, the Capital Market provides funds to industries and
governments to meet their long-term capital requirements, such as financing for
fixed investments - buildings, plants, bridges, etc.
The Nigerian Capital Market (NCM) is
made up of the Nigerian Stock Exchange and a host of other institutions. The
NSE being a part of the NCM would have some role to play in the development of
the NCM, which would have an impact on the economy.
1.2 Statement of the Problem
There is abundant evidence that most
Nigerian business lack long term capital. The business sector has depended
mainly on some short term financing such as overdrafts to finance even long
term capital. Based on maturity matching concept, such financing is risky. All
such firms need to raise an appropriate mix of long and short term capital
(Demirgue-Kunt & Levine 1996). Most recent literature on the NCM has
recognized the tremendous performance the market has recorded in recent times. However
the vital role of capital market in economic growth has not been empirically
investigated thereby creating a research gap in this area. This study is to
examine the contribution of the capital market in the Nigerian economic growth
and development. Also there are some misconceptions on the NSE (Nigerian Stock
Market), some think it is the same as the NCM (Nigerian Capital Market) and
this study intends to make it clear that they are different.
1.3 Objectives of the Study
a) To evaluate the performance of the
NCM in relation to economic development and growth in Nigeria.
b) To make recommendations as to how
the operation of the market could be improve to boost economic growth and
development in Nigeria.
TOPIC: IMPACT OF THE NIGERIAN CAPITAL MARKET ON ECONOMIC DEVELOPMENT AND GROWTH
Format: MS Word
Chapters: 1 - 5
Delivery: Email
Delivery: Email
Number of Pages: 90
Price: 3000 NGN
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