THE CAPITAL MARKET AND ITS IMPACT ON THE NIGERIAN ECONOMY, WITH SPECIAL EMPHASIS ON THE NIGERIAN STOCK EXCHANGE
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BACKGROUND OF THE STUDY
A formal and active capital market exists in Nigeria. Prior to 1961, practically all formal savings and deposits flowed through the banking system, and the country's primary capital balances were invested on the London stock exchange by the colonial overlords (Onyiuke, 2010). However, since the Central Bank of Nigeria was established in 1959, it was only natural to construct a stock market in 1960, which began operations in 1961. As a result, the foundation for the operations of the Nigerian capital market was ordered. The capital market, in a highly regulated environment, seeks to offer a platform for the interplay of economic surpluses and deficits in order to attract business (Hulbert, 2008).
The Central Bank of Nigeria had previously launched the first Nigerian development loan stock, which was listed internationally, in 1959. The new local exchange listed subsequent issues in 1961 and thereafter.
The Nigerian Stock Exchange is a private, non-profit, limited-by-guarantee corporation. It was founded with the help of businesspeople and the federal government through the CBN, which is controlled by roughly 300 people (Onyiuke, 2010). Financial institutions, stockbrokers, and high-integrity Nigerians who have contributed to the growth of the stock market and the Nigerian economy are among the members. Members of the stock exchange's council (Board of Directors) are elected by the exchange's members at each annual general meeting. The presidency is restricted to a single three-year term. The council is in charge of policymaking, but the Director-General (formerly Prof. Ndi Okereke Onyiuke, Emmanuel Ikhazobor) and his team of executives (currently Dr. Oscar Onyema and his team of executives at the time of this research) are in charge of the exchange's day-to-day operations. The Nigerian Stock Exchange's council members, management, and staff, as well as stockbrokers, are subject to a strict code of conduct that demands a higher level of integrity, discipline, skill, and patriotism (Hulbert, 2008).
Stock broking businesses regulated by the stock exchange to buy and sell shares on behalf of the investing public are known as dealing members. There are currently approximately 200 of them.
The exchange is a Self-Regulatory Organization (SRO), which establishes and enforces rules for its participants. The exchange was renamed "The Nigerian Stock Exchange (NSE)" in 1977 after a reorganization. The NSE now operates 10 trading floors across the nation, including Lagos, Abuja, Kaduna, Port Harcourt, Kano, Onitsha, Ibadan, Yola, Benin, Uyo, and Ilorin.
Nigeria's capital market was founded in 1960 and opened for business in 1961. The Nigerian capital market, on the other hand, can be traced all the way back to 1946, when the government floated an N600,000 (1.25 percent of Government stock) as part of the Nigerian Ten-Year Plan to assist obtain money from the London Stock Exchange.
The Central Bank of Nigeria (CBN) launched the first federation of Nigerian development loan of N4 million on behalf of the government in May 1959, as part of its role in the establishment of a capital market. Because there was no formal securities market at the time, the CBN had to verify that the stacks had adequate certainty of marketability by establishing a central registry for connecting buyers and sellers of shares and setting prices at which the transactions took place (Hulbert, 2008).
Following the approved assessment of the Barback committee, the "Lagos Stock Exchange" was officially registered in March of 1960. On the 15th of September, 1960, it was incorporated under Section 2 of Cap 7 of the Civil Code. After the adoption of the Lagos Stock Exchange (LSE) Act of 1961, trading began legally on June 5, 1961.
Between 1959 and 1965, a few catalytic institutes were founded. Investment Company of Nigeria (ICON) ltd, Nigeria Acceptance ltd (now NAL merchant Bank), and Nigeria Stock Brokers ltd are the three entities.
The foundation of the aforementioned institutions necessitated the necessity for the capital market to operate in an orderly manner by controlling the time at which issues were introduced to the market. As a result, the CBN established the Capital Issues Committee in 1962, which was an ad hoc committee with no legal support. However, because of a general lack of understanding of the mechanics of stock market transactions and poor communication, trading was relatively low at the time (Agbana, 2009). The fact that the stock exchange only handled four fresh issuance of industrial securities between 1962 and 1970 is proof of the market's lethargy at the time. Federal government issues were only made once a year, and yearly turnover seldom topped N15 million, with government stock accounting for over 90% of the total.
The Nigerian Enterprises Promotion Decrees of 1972 and 1977, on the other hand, saw a major increase in the market. Businesses who cooperated with these regulations through the Nigerian stock exchange increased equity listing to the point that by the end of 1980, the exchange had 91 companies listed.
The government passed the Capital Issues Commission (CIC) Decree of 1973 in order to provide the commission legal legitimacy and more power than the capital issues committee in order to improve the execution of the Nigeria Enterprises Promotion Decree (NEPD) (Agbana, 2009).
The CIC, on the other hand, remained to function as a department inside the CBN, with the task of defining the price, time, and number of offers for sale or subscription as established by the Financial System Review Committee, led by Dr. Pius Okigbo (the then Economic Adviser to the federal government).
"The Financial System Review Committee was entrusted with the following terms of reference, taking into consideration the historical history of the Nigerian financial system, its growth, and influence on the socio-economic and political development of an equal society:
i.To assess the institution's and financial system's appropriateness, relevance, and structure in meeting the economy's demands for rapid economic development.
ii.To look at the organizational and ownership structures of the system's institutions and assess their viability in light of the preamble, the economy's future domestic and foreign needs, and development trends.
iii.To research operational trends in the system, with a focus on financial institution promotional actions in general.
iv.To provide suggestions based on their results in (1) and, above all, (2).
v.Any other items or situations that the committee, in its sole discretion, considers important and useful to the effective completion of their mission."
The following are some of the recommendations made by Dr. P. C Okigbo's committee:
i.Assist in successful economic management
ii.Provide non-inflationary economic support
iii.Make certain that no promising idea is stymied only due to a lack of funding.
iv.Achieve more savings mobilization and efficient and effective channeling
v.Isolate the economy from the fluctuations of the world economic landscape as much as practicable and desirable.
The creation of a Securities and Exchange Commission (SEC) to replace the Capital Issues Commission (CIC), as well as a new stock exchange. As a result, trading floors were established in Kaduna, Port Harcourt, and the Lagos Stock Exchange (LSE), which was eventually renamed the Nigerian Stock Exchange (NSE).
STATEMENT OF THE RESEARCH PROBLEMS
The purpose of this study is to determine why the Nigerian Stock Exchange has not had the expected influence on the country's economy as intended by the decree that established it. It will also assess the market's influence in order to develop answers to the following issues:
i.How can this market be imbued with the requisite awareness and confidence?
ii.How can the market's functions and roles in aiding the economy's growth be realized?
iii.How can this market be created in accordance with international standards?
Buyers and sellers are the same persons on the Nigerian Stock Exchange (NSE). Trading on the market must be extensive in order to ensure sustainable economic development. This is because long-term economic progress is impossible without a well-developed market (Onyiuke, 2020). The market and its participants must be regarded as having an economic impact and instilling trust in the market's capabilities.
OBJECTIVE OF THE STUDY
The study has the main specific objective which is to ascertain the impact of the capital market on the Nigerian economy and to appraise the awareness or otherwise of the existence of the stock market by showing its impact in the business world. Other specific objectives were raised:
- To determine the relationship between the capital market and Nigerian Economy;
- To determine or rather to evaluate if the deficiencies of the market affect Nigerian Economy;
- To establish the effect of the Nigerian stock exchange crisis on Nigerian capital market;
- To ascertain if there are challenges of the Nigerian stock exchange in developing the capital market;
- To determine the role of capital market in developing the Nigerian Economy.
RESEARCH QUESTIONS
To achieve the above objectives, the following research questions were raised:
- Is there relationship between capital market and Nigerian Economy?
- How do the deficiencies of the Nigerian stock exchange affect the Nigerian economy?
- How does the crisis in the Nigerian stock exchange affect Nigerian Capital market?
- What are the challenges of the Nigerian stock exchange in developing the capital market?
- What are the roles of the capital market in developing Nigerian economy?
RESEARCH HYPOTHESIS
- There is no significant relationship between capital market and Nigerian economy.
- The deficiencies of Nigerian stock exchange market do not affect Nigerian economy.
- The crises of Nigerian stock exchange negatively affect Nigerian capital market.
- The Nigerian stock exchange does not face any challenge in developing capital market.
- Capital Market did not play a significant role in developing Nigerian Economy.
SIGNIFICANCE OF THE STUDY
It is a noted fact that for a meaningful transformation of a country to take place, her capital market must be effective and active.
This study will be of significant interest to individuals, corporate bodies and government as it would help them in mobilizing funds from the various networks of institutions that exist in the market.
This study will also be significant to the institutional operators of the market especially the Nigerian Securities and Exchange Commission (SEC) and the future researchers who might want to share this experience. This study will however offer some invaluable points that will bring to the researcher’s mind on the functions and prospect of the Nigerian stock market.
SCOPE OF THE STUDY
The study covers the Nigerian capital market with a holistic emphasis on the roles of the Nigerian stock exchange with Onitsha branch of the exchange as a contact point. It covers all relevant issues pertaining to the Nigerian capital market and the Nigerian stock exchange Vis-à-vis the Nigerian economy.
LIMITATIONS OF THE STUDY
In the course of this study, the researcher came across problems which in one way or the other challenge the simple flow of this work. These include:
- DISTANCE: In the course of this study, the researcher was visage with the challenge of actually travelling to the Nigerian stock exchange in Onitsha and visiting some stock broking firms in Enugu.
- TIME: It seems there was not enough time to meet up with this work. But however, the researcher properly managed his time effectively and efficiently.
- FINANCE: at a time it was difficult and nearly impossible to continue because of demand for finance.
- FORECASTING AND HOARDING OF INFORMATION: Forecasting seems to be prevalent in the market as most of the transactions were dependent on it. Equally, I observed in the course of this research that those approve for information were not really willing to give it.
- FATIGUE: The human bourgeois also tried to hamper this study by constant body breakdown as a result of fatigue, tiredness and distractions.
DEFINITION OF TERMS
To ensure comprehensive understanding of this research work, the under listed terms are defined thus:
- Stockbroker: Is agent who purchases and sells securities on a stock exchange market on behalf of clients and receive remuneration for the service in form of a commission.
- Stock Exchange: Are a market where securities (bonds, stocks and shares of varying types) are traded openly and where one can purchase or sell any of such securities with relative ease.
- Capital Market: Is a market in which long term capital is raised by industry and commerce, the government and local authorities. Simply, it is that part of the financial market that provides facilities for the transfer of medium and long-term funds to various economic units.
- Stockholders: Individuals, businesses and groups owning stocks in a corporation.
- Financial Instrument: Is a contract involving a financial obligation. Examples include stock, bonds, loans and derivatives.
- Shares: A share confers on its owner a legal right to have part of the company’s profit and to exercise any voting rights attached to that share.
- New Issue Market: Market where stocks are issued for the first time to the members of the public.
- The Secondary Market: This is a market where stocks are not being sold for the first time. It can also be referred to as the market for second hand stocks.
- Deficit Savings Unit (DSU): An economic unit whose current income is less than its current expenditure.
- Savings-Surplus Economic Units: These are units with more funds than they require for current consumption. They are therefore the ultimate savers or fund suppliers to the system.
- Financial Institutions: These are institutions that use their funds chiefly to purchase financial assets, deposits, bonds, loans and so on.
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