THE ROLE OF CAPITAL MARKET IN ECONOMIC DEVELOPMENT IN NIGERIA
ABSTRACT Capital market anywhere in the world is a structure market. It’s comprises of institution through which medium and long-term funds can be raised for industries in the Nigerian economy. However, some industries both potential and actual are oblivious for the Role and importance of the capital market in the development of industries and general economy. Capital market is that segment of the financial system where long-term funds can be mobilized from surplus spending units and efficiently channeled to the deficit unit for investment purpose. How has the operation of the capital market been able to function efficiently and improve the Gross domestic Product (GDP) of the economy? Thus, a study of the role of the capital market in the Nigerian economy is imperative in evaluating the correlation of the capital market to the Nigerian economy.
TABLE OF CONTENT
Table of Content
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study – – – – – 1.2 Statement of the Problem – – – – 1.3 Purpose of the Study – – – – – – 1.4 Significance of the Study – – – – 1.5 Research Questions – – – – – 1.6 Hypothesis Formulation – – – – 1.7 The Scope and Limitation of the Study – – –
CHAPTER TWO: LITERATURE REVIEW
2.1 What Capital Market is all About – – – 2.2 The Role of the Capital Market in an Economy – 2.3 Instrument used in the Capital Market –
2.4 Suppliers and Users of Funds in the Capital Market – 2.5 Capital Market and Economic Development – – 2.6 Evaluation of the Nigerian Stock Exchange Financing The Public and Private Sectors – – – – 2.7 Problems Facing the Nigerian Capital Market – – 2.8 Method Used to Promote the Nigerian Capital Market
2.9 The Impact of Structural Adjustment Programme on The Nigerian Capital Market – – – – References – – – – –
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction – – – – – 3.2 Research Design – – – – – – 3.3 Population of the Study – – – – 3.4 Sample and Sampling Procedure – – – 3.5 Method of Data Collection – – – – 3.6 Reliability and Validation of Instrument Used – – 3.7 Data Analysis Technique – – – – CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction – – – – – 4.2 Hypothesis Testing – – – – – 4.3 Interpretation of Result – – – –
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings – – – – – 5.2 Conclusion – – – – 5.3 Recommendations – – – – Biblography – – – – –
Appendix – – – –
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY Economic development of any variables, there are those who believed that to obtain meaningful economic development, all forms of property and resources ownerships must be rested on the state. This is the central believe of those practicing communism. There are others who believe that the best way to obtain economic development is to practice free enterprise system where both the state and the private individual can own properties. In recent times, many nations have opted for a free economy where both the public and private sectors are allowed to own private properties. Under this system, personnel systems are encouraged for the purpose of investment. Investment produces an avenue by which capital formation is made possible. Thus, for any nation, the capability to accumulate wealth determines the level of output in the economy. If this is correct, then, there is interplay or a relationship existing between capital formation and economic development. However, the possession of huge capital stock does not automatically result to rapid economic growth. If for anything, even to assemble and allocate the savings for investment requires efficient mobilization and the mechanism for effecting the mobilization of this inevitable savings in the capital market. The capital market thus, said to been a financial market or a collection of financial institution set up for the mobilization and channeling of funds from the surplus unit of the country top the deficit unit. That is, it pulls the surplus funds of individual firm together and distributes it as a medium and long term loan able funds. It caters for organization who wishes to raise money for long periods, thus, the presence of capital market in any economy is not only necessary but also relevant to the process of economic development. Perhaps, this was what among other things informed and necessitated the establishment of the Nigerian capital market in the early 1960s. The users of these funds are: government, corporate bodies and individuals for financial development project on the part of the expansion or commencement of business on the path of both corporate bodies and individuals. The Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) are the two major regularity bodies in the capital market. The institutions that operate in this market include:
– Insurance companies
– Issuing houses
– Development banks
– Investment banks
– Investment trusts
– Building societies or mortgage banks
– Financial corporations
– Saving banks
– The stock exchange
Financial instrument used in the financial market to finance long-term investments are stock and shares, company bonds and government bonds. The capital market is divided into primary market and secondary market. The primary market deals with the buying and selling of new securities. It is denominated by merchant banks. The secondary market is the one that deals with the buying and selling of old (secondary) securities. It is denominated by the stock exchange. This research work will attempt to examine the role so far played by the capital market in the development of the Nigerian economy, and also examine some of the major problems facing the capital market. This work will also examine how some government policies have affected positively or negatively, the capital market.
1.2 STATEMENT OF THE PROBLEM
This research work will be base mainly on the relationship between the transaction in the capital market and its contribution to the overall economic development. This work will try to examine the following;
i. Lack of Infrastructure: The Nigerian capital market is faced with the problem of inadequate infrastructural facilities such as effect computerization, telecommunication system resulting in lower operational efficiency.
ii. Lack of Market-Making: Only rudimentary kind of market-making is performed by illegal jobbers in the Nigerian stock market whereas, market-maker with defined market-making responsibilities has traditionally been an integral part of the trading mechanism, an arrangement practiced at the New York and London Stock Exchange.
iii. Lack of Debt: The growth of the Nigerian capital over the last two decades has largely been confirmed to very few cities, notably: Lagos, Kaduna, Kano and Port Harcourt. In most cities there has been information, investors in the rural areas have not been able to exploit the full potentials in the capital market.
1.3 PURPOSE OF THE STUDY
The purpose of the study includes the following;
– To provide the government alternative sources of funds other than taxes
– To mobilizes and channel savings into long term industrial and development activities.
– To illustrates and interpret in the simplest form that the role of capital market in Nigerian economy.
– To assist in the allocation of a nations limited capital resources among numerous competition users, which helps in determining the overall growth and efficiency of an economy.
1.4 SIGNIFICANCE OF THE STUDY This research work is of great importance to the Nigerian Financial Institution such as commercial banks, savings and loan institution, Life Assurance Companies, Investment Companies, Real Estate Investment Companies, finance company, personal funding companies as well as leasing companies. The project may also be of great importance to the society at large.
1.5 RESEARCH QUESTIONS
a. What are the sources of finance of the capital market?
b. What are the different types of capital market in Nigeria?
c. What are the impacts or contribution that the capital market has on the Nigeria economy?
d. What impact does government policies has on the Nigeria capital market?
1.6 HYPOTHESIS FORMULATION
Ho: There is no positive relationship that exists between Gross Domestic Product and the value of transaction in the Capital Market. H1: There is a positive relationship that exists between Gross Domestic Product and the value of transaction in the Capital Market.
1.7 THE SCOPE AND LIMITATION OF THE STUDY
This research work intends to look into the role of capital market in Nigerian economy. However, the study will center on Nigeria Stock Exchange and the limitation of this study is based on the following problems facing it;
a. Time: Due to insufficient time, problem of inadequate timing to properly carryout a detailed research work is unvoiced.
b. Data Collection: Informative devices could probably be obsolete or incorrect due to lack of competent human effect and statistical instrument used for collecting and verifying accurate data.
Finance: The research is faced with the problem of financial constraints. And as it is known, research work such as the required finance to enable the research and source for current accurate data due to the problem of finance, the major aim of this research work is defected.