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The Capital Market and the Challenges of
Real Sector Financing in Nigeria
Chapter One
Introduction
The capital market is central to the
economic stability, sustainable growth and development of any economy.
Sustainable growth and development in an economy has a
direct bearing to the viability of the
productive sector. To achieve this, it is essential that the capital market
through the use of financial instruments mobilizes and allocates funds to meet
the funding needs of the productive sector.
The capital market trading institution
in Nigeria is the Nigerian Stock Exchange (NSE). Thus the NSE should develop a
variety of financial instruments capable of providing diverse investments
outlets and opportunities for both the investors and borrowers in the market.
In the recent past, the Nigerian economy
has been saddled with the challenges of a declining productive sector following
the inability of the sector to get adequate funds to meet its needs from both
the money and capital market. On the part of the capital market, the challenge
has been lack of a variety of investment tools, low savings capacity of
investors for the market as well as the market capitalization which is stewed
above 50% in favour of services sector of the economy that is, banks, insurance
companies etc.
Following the above assertion, this
study aims at investigating the impact of the capital market on the productive
sector of the economy: A study of the Nigerian Stock Exchange and Selected
Quoted Stocks from 2000 to 2009. The instruments of study will consist of
Equities, Debentures, Preference Shares, and development stocks.
1.1 OBJECTIVES
OF THE STUDY
The purpose of this study is to evaluate
the effectiveness of the capital market in the mobilization and allocation of
funds to the productive sector of the economy; A study of the Nigerian Stock
Exchange and Selected Quoted Stocks (2000 to 2009).
The process involves a comprehensive
study of the capital market in Nigeria from 2000 to 2009. This includes the
investigation of the laws, regulatory mechanism and instruments of the market
and their impact on development of the productive sectors of the economy. The
specific objectives are as follows:
(i) To
find out the extent the capital market has contributed to the development of
the productive sector of the Nigerian economy.
(ii) To
find out the various financial instruments employed by the capital market for
selected companies in the productive sectors of the economy and how these
instruments have contributed to their growth and that of the economy.
(iii) To
examine the dept of equity financial instruments in the market and their
contribution to economic development.
(iv) To
find out if their exist deficiencies in the legal regulatory framework of the
Nigerian capital market.
(v) To
find out the depth of equity financial instruments, especially in the
productive sector firms quoted on the Nigerian Stock Exchange, and their
contribution to economic development.
(vi) To
find if any relationship exists between the prices of equity as well as the
value and market capitalization of the Stock Exchange in relation to GDP. (i.e.
the GDP is the index of productivity in the economy).
(vii) To
analyst the growth of each tool (that is, Equity and
Fixed interest debt instrument) in the
Nigerian Stock Exchange in relation to growth of the companies and the economy.
1.2
STATEMENT OF THE PROBLEM
The Nigerian capital market which before
now was described as one of the fastest growing stock market in Africa
witnessed serious crises and loss of value following price crashes especially
in the banking sector equities that constituted more than 50% of the market
capitalization.
As a result of this, the market
capitalization which in 2008 was about N12.5 trillion fail and is presently at N5.5
Billion (source: Stock Exchange weekly activities summary 19/2/2010). The confidence of investing public dropped,
especially, as it relates to investing in equities financial instruments.
Thus, there exists the need to create a
variety of financial instruments that can assist the market provide:
(i)
Investment
windows for the market participants such
as;
(a)
Equities
investment tools
(b)
Fixed
debt investment tool (corporate bodies)
(c)
FG
Development Stock
(d)
State
Government Development Stock
(e)
Local
Government/Municipal Stock
(f)
Mortgage
Based Financial Tools
(g)
Derivative
Financial Tools
(ii)
The
availability of these financial instruments will help deepen the market and
attract additional investment funds from both local and foreign private
investors.
(iii) Create the required choice for firms who
want to raise money from the market.
(iv) Create a viable productive sector of the
economy.
This research therefore is concerned
with the slow growth in the productive sector of the economy and how the
capital market can be used to facilitate growth, especially, in the productive
sectors of Brewing, Food and Beverages as well as construction sectors.
The problem of the research is to find
how best to analyze, examine and proffer solution to the factors that affect
the capital market especially the market instability, low productive sector
activities as well as declining market capitalization. These factors of market
instability, low productive sector activities and declining market
capitalization impact sometimes positively or negatively on economic
development of Nigeria.
Also, to investigate the impact of
inadequate operational tool in the Nigerian Capital Market, inadequate savings
for investment, lack of market transparency, political and economic instability
as well as infrastructure deficiency is to be undertaken.
NB: The Complete Thesis is well written and ready to use.
