THE IMPACT OF CAPITAL MARKET DEVELOPMENT ON THE NIGERIAN ECONOMIC (1980-2006)

ABSTRACT

The objective of this study is to examine the role of capital market towards sourcing fund for small and medium scale enterprises. It has been prepared as a contribution to the quest for promotion of entrepreneurship as an engine growth. To access the multidimensional role and medium scale enterprises in bringing out rapid industrialisation.

The study examine the contribution of the Nigeria capital market to the growth of small and medium scale enterprises during the period of 1987-2007 with special emphasis on the performance appraisal of the stock market.

Further more, the institutional composition of the market was reviewed and it was revealed that the Nigeria stock exchange amongst all other participants is the live wire of the medium for the mobilisation of long funds for long term investment. Also the listing requirement of small and medium scale enterprises in the second tier securities market of the NSE equally highlighted.

The result from the empirical analysis carried out using the ordinary least squares estimation technique reveals that the Nigeria stock exchange has contributed to some extent in financing small and medium scale enterprises. However, the prospect of the market appear to be bright considering the current position of the government and players in the industry in the area of formulation and implementation of favourable policies. However, the market could assume the expected role of providing long-term financing for the development of small and medium scale enterprises in Nigeria if the institutional frameworks guiding the effectiveness of the operators are strengthened and the profound recommendation by the researcher are religiously implemented.

CHAPTER ONE

INTRODUCTION

1.1BACKGROUND OF THE STUDY

The success or failure of any economic is hinged on the viability of the financial system which invariably and undoubtedly depend main on the structure of the capital market of such economy in which the Nigerian stock exchange (NSE) occupy the central position of the financial system. It plays a very vital role in the general performance of the economy.

Currently, majority of Africa economic including Nigeria suffer from financial regression and financial under-development. These maladies combines with economy dualism have continued to aggregated Nigerian development problems Faki 2006.

Since the performance of financial sector impinges on the state of the economy, Nigeria, as every other nation is consistently in search of a viable financial sector in the process of doing the quite a reforms and restructuring have been carried out in the financial sector such as the deregulation and liberalisation of financial sector. The revolution of the colonial era in 1946 when the colonial government issued the first Nigeria registered stock (FURS) in (1956-1961). The origin of the Nigeria stock exchange date back to the 1950’s when there were discussions and academic crisis about the formulation of stock market in May 1958. Then, the ministry of commerce and industry appointed the bar stock committee to advice the government on ways and means of fostering a share capital market in Nigeria.

On the 15th September 1960, the Lagos stock exchange was incorporated as non profit making organisation. The Lagos stock exchange was allowed to disperse with word “LIMITED”. Although it was a company listed by a guarantee.

The Lagos stock exchange act enacted in 1961 strengthened the Lagos exchange; it was change to Nigeria stock exchange (NSE) by the indigenization decree 1977 on second of December 1977 with branches initially in Lagos, Kaduna, and Port-Harcourt.

The stock exchange is the very hub of the capital market. It does for the economy what the money market does at the short end of the spectrum. Those who are desirous of long-term fund goes to the capital market for .0the excess liquidity of other (Nwankwo, 1987).

The capital market is divided into two categories Viz primary and secondary market has not been enough publicity which has lead to the show pace of growth in the early years in inception. The Nigeria stock exchange activities and deals are unaware by majority of the populace in the country, thus coupled with level saving and illiteracy, the market has witnessed an unecourage rate of few rich or wealthy classes has not helped issued either. However, the federal government of Nigeria was made fantastic effort at several times to create awareness and erase the nation of the stock exchange market as reserved fro the few rich class though the indigenisation decree of 1972-1977 and the current privatisation, commercialisation programme and recent reform of banking recapitalisation.

The capital market is part of the Nigeria financial system with the money market as it counterpart, these two market represent the most important division of Nigeria’s financial system, determining the volume of credit available attracting saving and setting interest rate and security and securities price.

The rate of the small and medium scale enterprises (SME) in Nigeria economy is to optimise profit and these process can simply done by improved access to fund, small and medium scale enterprises in Nigeria. Small and medium scale enterprises can as well be an enterprise where surplus fund owners in this economy and deficit unit meet to exchange assets and abilities and these will lead to its providing services that are essential to a modern economy. These small and medium scale enterprises can be trace as well as production.

Small and medium scale enterprise can be a means or a process of offering access to variety of financial instrument that enable economic agent to pool, price exchange risk through access with attractive field.

Small and medium scale enterprises are seen as potential catalyst for economic growth.

Having disclosed some of the role of small business units in Nigeria, and some of their advantages, it will be wise to mention at this point business units which make their full potential yet to be realised. These problems are partly due to the poor state of financing these business and inadequate security.

The relevance of small and medium scale enterprises can also be made known, it is to amplify the need of the enterprise that is, to create awareness in the mind of every body must especially now that Nigeria is undergoing economic reform in the area of liberalisation and deregulation. The capital market thus has a major role to play in the financing of small and medium scale enterprise in the acceleration thereby helping to alleviate poverty and bring about accelerated reduction in unemployment.

1.2 STATEMENT OF THE PROBLEM

Despite the role of stock exchange market in the growth process of the Nigeria economy and the attempts made by the government to improve the situation over the years, the small and medium scale enterprise and constraint with issue of lack of access to capital, in terms of investable fund needed to carry out their operation in large scale and also enable them to acquire necessary machineries and capital needed in their production process.

Given the above scenario there is need for the capital market through the operation to engage in the formulation of policies aimed at partnering the small and medium scale enterprise in their corporation through the access to fund which can help to enable their activities and bring about increase productivities.

Despite the large number of studies which has been carried out on small and medium scale enterprises development, there is still the need for the study because of the gap in literature as well as the approach to the development small and medium scale enterprises over the years.

1.3 OBJECTIVE OF THE STUDY

The central focus of this research work is the examination of the present credit delivery system of small and medium scale enterprises in Nigeria which is one of the most intractable issues of contemporary Nigeria and the question of adequate capital to finance small and medium scale enterprise as agents of economic growth and development also arises in this current socio-economic and political dispensation.

The study is also focused on the problems of financially small and medium business, since the big business organisation may not have many problems in obtaining financial assistance from the capital market.

The following are the objectives of the study.

To examine the role of capital market towards sourcing of fund for small and medium scale enterprises. It is being prepared as a contribution to the quest for the promotion of entrepreneurship as engine of growth.

To examine the complementary role of capital market in promoting economic activity through the pooling financial resources together for investment purpose with respect to financial resource together for investment purpose with respect to financing small and medium scale enterprises.

To examine the mul-dimensional role of small and medium scale enterprise in bringing about rapid industrialisation.

 1 .4 TESTING OF HYPOTHESIS

In the light of the statement of research problems and objectives, the hypothesis for this research is stated as:

Ho: Capital fund do not reflect the value of investment in the economy  and thus do not contribute substantially towards financing small  and medium scale enterprises.

Hi: Capital fund reflect the value of investment in the economy  and thus contribute substantially towards financing small  and medium scale enterprises.

1.5 RESEARCH QUESTION

Base on the research hypothesis and research objectives above, the following research questions can be deduced.

What are the factors that small and medium scale enterprises use to increase their operation?

What are the ways to achieve production process of small and medium scale enterprises?

How can small and medium scale enterprises get access to capital or source for funds?

What are the current problems that small and medium scale enterprises faced?

SIGNIFICANCE OF THE STUDY

Every nation seeks to examine its resources and bring about full employment of resources so as to increase total output in productivity.

This is why a study like this which deal with financing of small and medium scale enterprises by the activities of the capital market, in terms of sourcing for huge investable fund which are needed by them to boost their operation is of great importance to business entrepreneur in government and institution in the capital market in order to bring about more meaningful policies and improved the method of financing of small and medium scale enterprise and to enhance policy formulation that will promote small and medium scale enterprise as an economic network that will bring accelerated development.

1.7 SCOPE/LIMITATION OF THE STUDY

It cannot be din emphasized that this research was not faced with constraint that might affect the researcher during the course of carrying out the study.

Due to time and financial constraint it was not possible to use a large number of small and medium scale enterprises as sample size, the more confident that we can bring about our accessories, had to limit the number of enterprise to cover a particular state.

1.8 DEFINITION OF TERMS

For there to be clarity, some terms need to be expatiated, at least, defined so that even a novice in the field would go through this research report and will be able to get something out of it. Below are the definitions of some of the terms:

SME: This is an acronym for small and medium scale enterprises. Its definition shall be treated in chapter two.

Capital Market: This can be define as the complex of institution and mechanism through which intermediate term funds and long term fund are pables and made available to business, government and individual and instrument already out standing are transferred.

Capital: This is what a business unit requires to start and carry out with its activities.

Advances: A general name used for all type of credit facilities provided by the bank to its customers.

Money Market: This is a market for short term financial instrument. These instruments are usually with low risk and maturity of not more than one year.