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
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,
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
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
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:
is the operation of Nigeria capital market?
ii. What is
the performance of the capital market in relation to economic development in
iii. What is
the rate at which new stocks are issued on the Nigerian capital market
could the capital market through its crucial role stimulate economic
development in Nigeria?
The hypothesis that would be tested in the course of this research is stated
H0: That the capital market operations have no role on Nigerian economic
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 APPLY
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