This paper seeks to
examine the impact of the Nigerian capital market on its economic growth from
the period of 1990-2010. This means that the performance of the stock market is
an impetus for economic growth and development. The economic growth was proxied
by Gross Domestic Product (GDP) while the capital market variables considered
include; Market Capitalization (MCAP), Total New Issues (TNI), Value of
Transactions (VLT), and Total Listed Equities and Government Stocks (LEGS).
Applying Johansen co-integration and Granger causality tests, results show that
the Nigerian capital market and economic growth are co-integrated. This implies
that a long run relationship exists between capital market and economic growth
in Nigeria. The causality test results suggest a bidirectional causation
between the GDP and the value of transactions (VLT) and a unidirectional
causality from Market capitalisation to the GDP and not vice versa. The F
statistics is significant at 5 percent using a two-tailed test. On the other
hand, there is no “reverse causation” from GDP to market capitalization.
Furthermore, there is independence “no causation” between the GDP and total new
issues (TNI) as well as GDP and LEGS. This is a clear indication of the
relative positive impact the capital market plays on the economic growth of the
country. The evidence from this study 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.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The growth and development of the capital
market in Nigeria can be traced to 1946 with the floating of N600,000 (more
than 300,000 pounds sterling) worth of government stocks. However, an organized
market for the secondary trading of issued stocks was lacking. In 1959,
following the establishment of the Central Bank of Nigeria (CBN) a year
earlier, a N4 million (2 million pounds sterling). Federal Government of
Nigeria development loan stock was issued in line with its role of fostering
economic and financial development. In 1986, Nigeria embraced the International
Monetary Fund (IMF) Structural Adjustment Programme (SAP) which influenced the
economic policies of the Nigerian government and led to reforms in the late
1980s and early 1990s. The programme was proposed as an economic package to
rapidly and effectively transform the Nigeria economy within two years (Yesufu,
1996). government to judiciously implement some of its policy measures (Oyefusi
and Mogbolu, 2003).
However, until SAP was
abandoned in 1994, the objectives were not achieved due to the inability of The
notable reforms include monetary and fiscal policies, sectoral reforms such as
removal of oil subsidy in 1988 to the tune of 80%, interest deregulation from
August 1987, financial market reform and public sector reform which entails the
full or partial privatization and commercialization of about 111 public owned
enterprises.
The Nigeria stock
exchange was to play a key role during the offer for sale of the shares of the
affected enterprises (World Bank, 1994; Anyanwu et al, 1997; Oyefusi and
Mogbolu, 2003). The introduction of SAP in Nigeria has resulted in significant
growth of the financial sector and the privatization exercise which exposed
investors and companies to the significance of the stock market (Alile, 1996;
Soyode, 1990).
Ariyo and Adelegan
(2005) contend that the liberalization of capital market led to the growth of
the Nigerian capital market, yet its impact at the macro-economic level was
negligible. Again the capital market was instrumental to the initial twenty
five Banks that were able to meet the minimum capital requirement of N25
billion during the banking ector consolidation in 2005. The stock market has
helped government and corporate entities to raise
long term capital for
financing new projects, and expanding and modernizing industrial/commercial
concerns (Nwankwo, 1991). We use econometric techniques the relationship
between capital market performance and economic growth. Given the roles the
capital market has played during the privatization of public owned enterprises,
recent recapitalization of the banking sector and avenue of long term funds to
various governments and companies in Nigeria, the objective of this study
therefore is to evaluate the level of development of the capital market and how
it has impacted on her economic growth.
1.2 OBJECTIVES OF THE STUDY
The objectives of the study
are:
1. To
evaluate the performance of Nigerian capital market on the economic growth.
2. To
assess the roles of Nigerian capital market on the economic growth.
3. To
determine the extent at which the capital market has impacted on the economic
growth in Nigeria.
4. To
identify the major constraints hindering the operations of Nigerian capital
market
5. To
make suggestions on how the performance of Nigerian capital market on the
economic gowth.
1.3 STATEMENT OF THE PROBLEMS
Nigeria is a country with
increasing labour force. She lacks capital as well as foreign investment into
the country as a result of political instability and other reasons. Therefore,
a proper and efficient way of utilizing her scarce other resources must be
found in order to reduce unemployment and increase economic growth. it must be noted that unemployment is not only
an economic problem but also a social problem. This means, it does not only
under growth, it also gives room for social problems such as robbery, arson,
suicide etc.
The key problem facing most
small-scale enterprises is lack of finance whether for the establishment of new
industries or to carry out expansion plans. The inability to attract financial
credit or resources has hindered or stifled the growth of small scale
enterprises. The reasons for the lack of fund include the following:
·
High rate of inflation that led to the vast depreciation of the naira exchange
rate, thus making it difficult for most small and medium enterprises to obtain
the required input for expansion
·
Low level of savings in the economy, which leads to low capital formation
·
High rate of interest charged on loan, which scares off potential small and
medium scale entrepreneurs
The unwillingness of retail
banks to grant credit to small and medium scale enterprise because of the low
creditworthiness of these enterprises has also hampered their growth over the
years.
1.4 RESEARCH QUESTIONS
i. Do Nigerian capital market play any role in economic
development?
ii. Do Nigerian capital market contribute to financial
growth?
ii. what are the major constraints hindering the activities
of capital market in Nigeria.?
1.5 STATEMENT OF HYPOTHESES
In order to achieve the above
stated objects, the following hypotheses shall be tested:
HYPOTHESIS ONE
Ho: Nigerian capital markets
do not play significant roles in economic development.
H1: Nigerian capital markets
play significant roles in economic development.
HYPOTHESIS TWO
Ho: Nigerian
Capital Market do not play significant roles in financial growth.
H1: Nigerian Capital
Market play significant roles in financial growth.
1.6 METHODOLOGY OF THE STUDY
The study will base its data
collection on both the primary and secondary sources. The secondary source
shall include, textbooks, journal, speeches delivered in various seminars,
information from Federal Offices of Statistics, CBN Annual Report etc. The
primary source is through the use of questionnaire, which will be used to
obtain information from the respondents that from the sample of the study. Data
obtained through the questionnaires shall be presented through the use of
simple frequency distribution table. The data shall be analyzed through the use
of chi-square distribution, which is the statistical method use to test for the
difference of two independent statistics.
1.7 SIGNIFICANCE OF STUDY
This paper focuses on the issues of
capital market and how it has impacted on the Nigerian economy. Olawoye (2011)
noted that the capital market is an essential agent of economic growth because
of its ability to facilitate and mobilize savings and investment. The ability
to mobilize and invest lies in the nation’s strength in effective resource
mobilization which enables internal wealth generation and domestic savings as
well as inflows of foreign capital. Thus, the consideration of the capital
market as the institution for financial management from surplus sectors of the
economy to the sectors that are seeking to be financed.
1.8 SCOPES AND LIMITATION
This research is aimed
at establishing that Capital Market actually impacts on the general economy of
a nation using Nigeria as a case study. We are aware that the economy of a nation to what extent its
production, utilization and exportation of goods and services affect the
national income and the standard of living of its people. Good and strong
economies require strong domestic infrastructure with a good foreign
relationship (Smathers 2014). Strong domestic infrastructures are capital
intensive projects including industries and corporate entities that require good
capital financing to be able to survive. The research question is that to what
extent can the Nigerian Capital Market impact on the economy of Nigeria? .The
objective of the study are to examine the impact of the capital market on the
economy of Nigeria, that is to evaluate the effect of Market Capitalization on
the Inflation rate, Gross Domestic Product (GDP), Total number of New Issues,
Transaction Value, Total listing and Foreign Direct Investment (FDI.
1.9 ORGANIZATION OF WORK
The study will be divided into
five main chapters. Chapter one will cover the general introduction into the
study under which introduction, statement of problems, objectives of the study,
statement of the study are discussed. Chapter two will focus on literature
review, which has to do with a general presentation of views by former
researchers as well as scholars on the main variables of the study. Chapter
three will contain the structural composition of the study under which the
sources of the finance of small scale enterprises are discussed. Chapter four
will be devoted to data presentation and analysis and chapter 5 will be used
for summary, conclusion and recommendations.
1.10 DEFINITION OF TERMS
Capital Market: A capital
market is a
financial market in which
long-term debt (over a year) or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to
long-term productive use, such as companies or governments making long-term
investments.
GDP:
Gross Domestic Product (GDP) is the total
monetary or market value of all the finished goods and services produced within
a country''s borders in a specific time period.
Foreign
Direct Investment: A foreign direct investment (FDI) is an investment in the form
of a controlling ownership in a business in one country by an entity based in
another country. It is thus distinguished from a foreign portfolio investment by a notion
of direct control.
Inflation
rate: The common measure of inflation is the inflation rate, the annualized percentage change in a general price index,
usually the consumer price index, over time. Economists generally believe that
very high rates of inflation and hyperinflation are caused by an excessive growth of
the money supply.
Total
new issues: The market that deals with these new issues is called the
primary market, as opposed to the secondary market that deals with existing
shares and bonds. New issues are
distributed through the primary market, which is a market where companies raise
long term equity capital.
Value
of Transaction: Transaction Value means the
aggregate cash and non-cash consideration in connection with the consummation
of a Sale Transaction that is paid,
payable, distributed, or otherwise available for distribution, to holders of
Company Shares.
Total
listing:
In corporate finance, a listing refers to the company''s shares being on the list (or board) of stock that are officially traded on a
stock exchange. Some stock exchanges allow shares of a foreign company to be listed and may allow dual listing, subject to
conditions.