Introduction
Nigeria’s economy is one of Africa’s biggest, a fact that partially explains the country’s political significance. With an area of 357,000 square miles, Nigeria is not particularly large by African standards, but its 100 million people make it the largest demographically, providing a sizable workforce and domestic market. Variable climates ranging from sparsely populated Sahelian and savanna conditions in the north to densely populated rain forest in the south have had an impact on the range of agricultural products harvested. Colonialism, too, had a significant impact on agricultural production, marketing, and exports, which in turn influenced the shape of the emerging political economy ( 1998). During the 1960s, a combination of factors contributed to a dramatic shift of economic profile, and agriculture was replaced by petroleum as the mainstay of the economy, in terms of both export revenues and attracting foreign investment–though, importantly, not in terms of employment. By the mid-1990s, Nigeria was the eighth largest producer of petroleum in the world, though only the thirtieth in gas production. Unfortunately, social indicators reflecting the quality of life for the average citizen remain poor ( 1998).
Half of the population lives below the poverty line of a day, and the country’s literacy and infant mortality rates are among the lowest in the world. Although petroleum has annually accounted for more than 90 percent of export revenues and 80 percent of government revenues over the past two decades, there was a very different economic picture before the 1970s. Unfortunately, as the 1980s wore on, the country’s oil revenues continued to fall. The debt situation of the country worsened, and the deteriorating economy forced greater concessions to IMF demands. Nigeria’s economic performance has not matched its potential ( 1998). From the standpoint of the 1970s, it is difficult to explain how the economy degenerated into its present condition. The large revenues from oil were and are being squandered, either in development projects that did not prove worthwhile or, sadly, in the obscene corruption of successive elites. Far from building an economy matching the champion of Africa, governments have helped relegate it to the status of chump. Political instability, uncertainty, and bankruptcy plague the economy, in which the World Bank has increasingly become the key player. And in the current climate, agreements with the IMF seem to be very difficult to achieve. Agriculture still lags, as do manufacturing and industry; and petroleum, though still the lifeblood of the country is open to many political pressures ( 1998).
One can hope that something called the Nigerian spirit or character will lift the country from the mire of pessimism. The immediate focus of policy remains the outcome of the structural adjustment program and the question of whether it can give the economy sufficient strength to compete in the global economy. Until such issues are resolved, long-term confidence in Nigeria’s economic development must remain in the balance ( 1998). The research intends to evaluate of the role of capital market in the industrial development of Nigeria. The research will conduct a study of the stock exchange of Nigeria.
Industrial development
The globalization of markets, manufacturing and techno-industrial innovation therefore gives particular importance to the different kinds of networking. In contrast to previous forms of the international division of lab our, location participation is less denned by contributing products than by contributing to the various processes of production. These highly globalize processes are decisive for both different types and different opportunities for industrial development that can be identified at different industrial locations ( 2003). Global tendencies in industrial development are leading to a more complex form of the international division of labor. While the relocation of mature and old industries has induced regional crisis in the traditional industrial centers, now the transfer of such industrial capabilities provides the basis for advanced industries to keep costs under control and to gain competitiveness based on low production costs at locations where suppliers for these parts are based. This kind of hierarchical integration is based on different production costs and demands successful networking between locations that are on different levels of industrial development. Depending upon the competitive situation and the opportunities to gain benefits from relocating manufacturing, there is a tendency towards the integration of new industrial locations ( 2003).
Even though there is a new pattern of integration due to both international production networks and processes of globalization, this does not relate to a complete change in industrial development. The continuation of key strategic centre or of the manufacturing of key elements at established locations, competing against relocated advanced production units in new locations, is sharpening the regional expression of the international division of labor that can be understood only if the underlying processes of organizing global manufacturing are analyzed National strategies for techno-industrial innovation are inevitably picking particularly appropriate cases for success ( 2003). The pre-existing regional structure, the very specific requirements for these new technologies and new forms of industrial development, and the need for immediate realization of these processes consequently do not take into regard attempts at regional development ( 2003).
Developments in certain industrial sectors have a regional expression, and these regions also form the basis for uneven economic development. Whilst not denying the importance of public policies, regional development to a great extent follows from the geographical expression of national industrial capabilities. Even though many of the previous centers of industrial development reemerge in relation to current innovations, the regionalized division of labour changes with regard to new technologies ( 2003). Industrial development in Nigeria was had its attention on the making sure that the country will have better relationship with the private sector. The government wants to make sure that all profitable resources of the country will be used for Nigeria’s development. The government also intends to fully develop its oil and gas resources so that the country can recover from its economic slump.
Nigerian Stock Exchange
Along with Kenya and Zimbabwe, the formal financial system in Nigeria is one of the most diversified in sub-Saharan Africa. It is comprised of a large number of heterogeneous institutions under mixed ownership. At the end of 1992 there were sixty-six commercial banks, fifty-four merchant banks and 401 community banks licensed by the Central Bank of Nigeria. There are also a large number of banking institutions which are not licensed by the Central Bank of Nigeria, including several Direct Foreign Investment (DFIs), 145 mortgage finance institutions, 228 people’s banks and the Nigerian Export-Import Bank (NEXIM). In addition, there are at least ninety-two insurance companies and several reinsurance companies, over 700 finance houses, 25 several pension funds and the National Economic Reconstruction Fund (NERFUND). Capital market institutions include three licensed discount houses, and there are 132 foreign exchange bureaus (& 1998). This proliferation of banking institutions, facilitated by a very liberal licensing policy, has created major regulatory problems. In particular, it appears that the primary interest of many of the new banks was not in banking operations but in the possibility of capturing considerable ‘arbitrage rents’ in the foreign exchange markets, where banks had secure access to allocations of foreign exchange in a weekly auction ( & 1998).
The Nigerian Stock Exchange operates four trading floors in Lagos, Ibadan, Port Harcourt and Kano. The floors are regulated by the Securities and Exchange Commission (SEC). Trading volume has been small, with a sharp decline in real terms during the 1980s. By the early 1990s, total market capitalization amounted to 6 per cent of GDP. Only a limited number of private equities have been listed, most of them the result of indigenization program of the early years or the more recent privatization program. There have not been active secondary markets, as most institutional investors such as pension funds and insurance companies acquire equities under government directives. Prices of new issues are set low by the SEC, while transaction costs are very high. Traders constitute the dominant group of clients for informal finance in both rural areas and urban centre. Besides consumption purposes, informal financial loans and savings are utilized by traders mainly to smooth working capital requirements for their commercial activities ( & 1998).
In contrast, informal finance is not used as productive working capital or for investment by small and micro-enterprises on any significant scale, although urban moneylenders do grant loans to small business, and traders operate interlinked credit transactions among farmers. However, as in many countries of sub-Saharan Africa, personal savings or savings mobilized through esusu groups constitute the main source of start-up capital for small entrepreneurs. As expected, rural informal savings and credit transactions among farmers exhibit a high seasonality and volatility ( & 1998). The Nigerian stock exchange provides assistance to the economy of Nigeria. It serves as a measure of how well the country is doing in terms of its economy.
Capital Markets
Almost without exception, contemporary economic theory extols capital markets as the financiers and controlling mechanism of the capitalist system. The financial failures of government-owned enterprises and the less developed countries are commonly attributed to the absence of capital market constraints on their profligacy. The main condition for the development of equity markets, the joint stock system of company ownership, did not become legal for industrial companies in industrialized countries until the 1860s ( 2000). Even then, the key actual function of the capital market was not the creation of a market that would allow capital to be switched between companies, but the tapping of the wealth of the old, principally landed, upper classes, in order to provide finance for the enterprises needed to establish the new capital-intensive industries of the second half of the nineteenth century. Through the capital market, those owners may more easily liquidate their interests in a company experiencing difficulties, providing there are buyers of their stock ( 2000).
If there are no buyers, then the shares are in effect suspended and the owners of such a company have to liquidate the company to retrieve their money. Thus the benefits of greater access to finance for companies that a capital market affords are offset to some degree by the weaker commitment of the owners to their enterprise. This increases the risks attendant upon capital market financing of fixed capital investment, and is the reason why rational entrepreneurs occasionally go private by buying out their less committed shareholders ( 2000). Although the issue of capital market instruments raises cash, that ash is the asset counter-part of the capital market liabilities. If the company buys other assets for that cash, the return on them must be at least as good as its payments commitments to the capital markets. There may appear to be many such opportunities in the boom, but they will almost inevitably bring reduced returns in a recession. If the proceeds of a capital market issue are retained as cash, then the credit represented by the bank deposits remains the asset counterpart of capital market liabilities. But because it is on the company’s account at the bank, it is indistinguishable from internally generated funds, so that it is more likely to be used speculatively on ventures which bring little or no return, or used to service capital market obligations which cannot be rolled over’ when the capital market is illiquid ( 2000).
In a recession, the demand for capital market finance tends to dry up, as firms concentrate on maintaining payments on commitments already entered into. Furthermore, the returns from fixed capital investments completed in the recession are now lower than anticipated, providing a less convincing case to the markets for subscribing to new stock that a company may try to issue. Eventually it may squeeze reserves and oblige companies to lower or even pass their dividends ( 2000). The capital market serves as added measure for governments and businesses to liquidate their interest in a certain company that has experienced various kinds of problems.
Role of capital market in industrial development
Capital market development is an intrinsic component of the overall strategy for economic development for three reasons. First, equity capital is an effective cushion against adverse circumstances. Second, equity capital markets are considered to be more efficient than bank-based debt markets. Third, inadequate provision of term finance and the lack of direct financial markets have resulted in high inflation in developing nations ( 1994). The stock market influences aggregate growth in two ways. First, the stock market increases firm efficiency by eliminating the premature withdrawal of capital from firms. Second, the stock market increases the resources devoted to firms. By increasing liquidity of firm investment, reducing productivity risk, and improving firm efficiency, stock markets encourage firm investment, which in turn stimulates human capital production and growth. By providing the opportunity to risk-averse investors to diversify, they are encouraged to invest more ( 1994).
The capital market provides assistance to the industrial development of Nigeria by helping the investors in this sector be protected against different internal and external factors that may affect their investments in the country. Capital markets will provide assistance to the investors in making sure that their endeavor in the country will be a success. The Nigerian stock exchange serves as the overseer that enough assistance is given to investors so that they can provide their share in making sure that Nigeria’s industrial development will improve.
The Purpose of the Study
The objective of this research work will include the following;-
1. Looking into the type of market available at Nigerian Stock Exchange through which it can be effectively serve as a tool for finance and investment.
2. Examining the contribution the Nigerian Stock Exchange has made towards the growth of the economy.
3. Examining the type of securities available to the Stock Exchange.
4. Evaluating how these securities are owed and disposed off.
5. Determining the kinds of facilities that are available individuals and corporate bodies willing to raise funds through the Stock Exchange Market.
6. Finding out the number of floors available where securities could be traded on.
7. Knowing how the Nigerian Stock Exchange can be an alternative and easily accessible place for organizations on the bridge of collapse to raise enough funds, with ease, to finance new projects or expansion to existing ones.
Finally, providing conclusions and recommendations for this research work based on the finding obtained from data analysis carried out.
Research Questions
The following questions will be designed as research questions for this research study.
1. Does capital market play any role in financing industrial development of Nigeria?
2. What contribution has the Stock Exchange Market made towards the Nigerian economy?
3. What securities are available to individuals and corporate bodies willing to raise funds from the Stock Exchange?
4. Which facility is the best acceptable to investors in the Stock Exchange?
5. Does the Stock Exchange Market help firms to raise funds for new projects and expansion?
Methodology
The statistical research method will be used in carrying out this research project. Questionnaires will be administered to the members and staff of the Stock Exchange and Stockbrokers for the purpose of gathering data for this research project. It is the researcher’s intention to initially undertake library based research to obtain data relating to the collection of Stock Exchange Market.
Conclusion
The economic performance of Nigeria as a whole has not matched its potential. Until its many issues politically and financially are resolved, long-term confidence in Nigeria’s economic development must remain in the balance. Industrial development in Nigeria was had its attention on the making sure that the country will have better relationship with the private sector. The government wants to make sure that all profitable resources of the country will be used for Nigeria’s development. The Nigerian stock exchange provides assistance to the economy of Nigeria. It serves as a measure of how well the country is doing in terms of its economy. It pictures the situation of the nation’s economy and how well it is doing. In the Nigerian stock exchange traders constitute the dominant group of clients for informal finance in both rural areas and urban centre. Besides consumption purposes, informal financial loans and savings are utilized by traders mainly to smooth working capital requirements for their commercial activities.
Although the issue of capital market instruments raises cash, that ash is the asset counter-part of the capital market liabilities. In a recession, the demand for capital market finance tends to dry up, as firms concentrate on maintaining payments on commitments already entered into. The capital market serves as added measure for governments and businesses to liquidate their interest in a certain company that has experienced various kinds of problems. The capital market provides assistance to Nigeria by helping the investors to be protected.
References
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