ABSTRACT
The ascendancy of the Structural Adjustment Programme (SAP) as a policy platform made liberalization and privatization dominant themes of development strategies in Nigeria. Thus, the changed attitude towards the role of the private sector in the development of the Nigerian economy facilitated the expansion of the capital market. The market is a common feature of a modern economy and reputedly performs some necessary functions, which promote the growth and development of the nation. Capital markets facilitate the mobilization and allocation of medium and long-term funds for productive investment. Prior to the late 1980s, international donors and governments in developing countries held the notion that entrepreneurial functions could be better served by the state through public ownership of the means of production, taxation, licensing and regulation. However, poor performance of the public sector, misallocation of resources, market distortions and negative economic growth influenced a re-evaluation of the state-led development strategy. The objective of this study was to examine the administration of the Nigerian capital market and its effects on national development in the country from 1980 to 2009. The specific objectives of the study were to: (i) examine the administration of the Nigerian capital market and the mobilization of long-term funds for national development in Nigeria, and (ii) appraise the administrative roles of the Nigerian capital market in facilitating wealth creation and provision of long-term funds needed for national development in Nigeria. This study adopted a survey research design. Data collections were done through two main sources, namely primary and secondary sources. The primary sources were through interview. Interviews were conducted with the key stakeholders in the Nigerian capital market, namely the Director-General and five directors of the Securities and Exchange Commission, and the Chief Executive Officer of the Nigerian Stock Exchange and his three executive directors. The secondary data were collected from books, journals, periodicals, magazines, newspapers, government publications, conference papers, published and unpublished works of relevant authorities such as the Nigerian Stock Exchange Annual Report and Accounts, and the Central Bank of Nigeria (CBN) Statistical Bulletin. The primary data generated were analyzed using Chi-square. There was a significance association (p < 0.05) between the administration of the Nigerian capital market and mobilization of long-term funds for national development in the country from 1980 to 2009. The Nigerian capital market performed well within the period. The market experienced border listings and transactions, high influx of foreign investments and investors. Statistics showed purchases (inflow) by foreign investors during 2009 to be in excess of N228.986 billion, representing 33.4% of the aggregate turnover – an increase, when compared with the N153.457 billion recorded in 2008. Concurrently, total sales (outflow) during the year were in excess of N195.583 billion, culminating in a net inflow of N33.403 billion, a reversal of the net outflow of N480.5 billion in 2008. The average number of listed companies in the Nigerian stock market for 1980-1999 periods was 129 companies. At the end of 1999, the number of listed securities stood at 269 including 196 companies. The market boasted of over ten million shareholders. The administrative roles of the Nigerian capital market facilitated wealth creation and provision of needed funds for national development in the country during the period. Privatization provided additional listing on the stock market, enlarged equity shares, and injected new life into the market.
TABLE OF CONTENTS
Title Page – – – – – – – – – i
Certification Page – – – – – – – ii
Approval Page – – – – – – – – iii
Dedication – – – – – – – – – iv
Acknowledgement – – – – – – – – v
Abstract – – – – – – – – – vii
Table of Contents – – – – – – – x
List of Tables – – – – – – – – xi
Abbreviation and acronym – – – – – – – – xii
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study – – – – – – – 1
1.2 Statement of the Problem – – – – – 8
1.3 Objectives of the Study – – – – – – – 12
1.4 Significance of the Study – – – – 12
1.5 Scope and Limitations of the study – – – – 13
CHAPTER TWO: LITERATURE REVIEW
2.1 Literature review- – – – – — – – 15
2.1.1 The Concept of Capital Market and National Development 15
2.1.1.1 Capital Market – – – – – – – 15
2.1.1.2 National Developments – – – – – – 19
2.1.2. Capital market and National Development in Nigeria – 20
2.1.2.1 Development Indicators & Indices – – – 20
2.1.2.2 Corporate Governance in Capital Market – – – 25
2.1.2.3 Development and National Growth in Nigeria- 27
2.1.2.4 National Development in Nigeria – – – – 27
2.1.2.5 Development- – – – – – – – 28
2.2 National Development Planning – – – – – 30
2.2.1 National Development Plan in Nigeria – – – – 31
2.2.2 Problems of National Development in Nigerian – – – 32
2.2.3 Models of Development Asia in Contes- – – – – 33
2.2.4 Strategies for National Development – – – – 34
2.3 Capital Market – – – – – – – – 36
2.3.1 National Development and Growth in Nigeria — – 39
2.3.2 Development and Administration of Nigeria Capital Market – 40
2.3.3 Historical Evolution of Nigeria Capital Market – – – 70
2.3.4 Development of Nigeria Capital Market – – – 78
2.3.5 Administration Challenges Confronting the Nigeria Capital Market 80
2.3.6 The Nigerian Capital Market – – – – – 81
2.3.7 NSE, Crisis the Root Cause – – – – – – 84
2.3.8 Manifestation of the Crisis – – – – 85
2.3.9 NSE; Response and Management – – – 87
2.3.10 Impact of the crisis on Capital market – – – – – 89
2.3.11 Other Impacts of the crisis on the capital market – 93
2.3.12 Performance of the Nigerian Capital Market – – 94
2.3.13 Capital Market and Economic growth of countries – 102
2.3.14 Characteristics of Nigerian Capital Market – – – – 105
2.2.15 Empirical Studies on the Impact of Stock Market on Economic Growth- – – 108
2.4 Gap in the Literature – – – – – – 109
2.5 Theoretical Framework – – – – – 110
2.6 Hypothesis – – – – – – – 114
2.7 Operationalization of Key Concepts – – – – 114
CHAPTER THREE: AREA OF STUDY AND RESEARCH PROCEDURE
3.1 Area of Study – – – – – – – – – 117
3.1.1 Review of the Rules and Regulations – 121
3.1.2 Operations of Nigerian Capital Market in enabling companies to Raise capital at a lower cost – – – – – 122
3.2 Research Procedure – – – – – – 124
3.2.1 Research Design – – – – – – 124
3.2.2 Population of the Study – – – – – 127
3.2.3 Sample and Sampling Procedure of the Study – – 127
3.2.4 Sources and Method of Data Collection – – – 128
3.2.5 Primary Sources of Data Gathering – – – 128
3.4.6 Secondary Sources of Data Gathering – – – – 129
3.3 Reliability and Validity of the Instruments – – 130
3.4 Method of Data Presentation and Analysis – – 130
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND FINDINGS
4.1Data Presentation and Analysis – – – – 132
4.1.1 The Nigerian Capital Market, Wealth Creation and Provision of long-term funds for national development in Nigeria, 1980-2009- – – 133
4.1.1.1 The Nigerian Capital Market and Its Roles in the National development – 138
4.1.1.2 Activity in the Nigerian Secondary Market — – – – – – 144
4.1.1.3 Influence of Nigerian Capital Market on Individual Savings in national development – – – – – 149
- Administrative Challenges Confronting the Nigerian Capital Market hindering its efficiency in mobilizing long-term funds for national development – – – – 152
4.2.2.1 The Global Financial Crisis hindered the Nigerian Capita market Efficiency in Mobilizing Long-Term Funds for national Development- 162
4.2.2.2 Effects of the Global Recession on the Nigerian national development 162
4.2.2.3 Global Inflation effects on the Nigerian capital market- 168
4.2.2.4 Global Commodity Demand and Prices on the Nigerian capital market- 170
4.2.2.5 World Trade effect on the Nigerian capital market – – – 171
4.2.2.6 International Financial Markets effects on the Nigerian capital Market– – – – 171
4.2.2.7 Money Markets effects on the Nigerian capital market – 171
4.2.2.8 Capital Markets and administrative challenges confronting the Nigerian capital market in mobilizing long-term funds for national development in the country – – – – – 179
4.2.2.9. The International Foreign Exchange Market effect on the Nigerian capital market – – – 182
4.2.2.10 Central Bank Interest Rate Policies effects on the Nigerian Capital market – – – – – – – – 183
4.2.2.11 Foreign Portfolio Investment on Administrative Challenges Confronting the Nigerian capital market in mobilizing long-term funds for national development – – – – – 184
4.2.2.12 Effect Of Global Recession on the on the Nigeria capital market – 186
4.3 Measures to Enhance the Capacity of the Administrative Efficiency of Nigerian Capital Market in Mobilizing Funds for National Development in Nigeria – – – – – 188
4.3.1 Privatization of the Public Enterprises – – – – 188
4.3.2 Deregulation of the financial sector – – – – 193
4.3.3 Monetary reforms & Administrative Challenges of the Nigeria Capital Market – – – – – 200
4.3.4 Upgrade of market Technology – – – – – 203
CHAPTER FIVE: Summary of Findings and Discussion
5.1 Summary of Findings – – – – – 206
5.2 Discussion – – – – – – – 218
CHAPTER SIX: Summary, Recommendations and Conclusion
6.1 Summary – – – – – – 221
6.2 Recommendations – – – – – – 223
6.3 Conclusion – – – – – – 224
Bibliography – – – – – – – – 225
Appendices – – – – – 233
LIST OF TABLES
Table 2.1: Market Indices – – – – – 22
Table 2.2: Nigerian Interbank Offer Rate – – – 26
Table 2.3: Open Buy Back – – – – 27
Table 2.4: Exchange Rates – – – – – 28
Table 2.5: Swap and Forward Quotes NIFEX (Closing- 31March 20O9) 29
Table2.6: Spot NIFEX – – – 29
Table 2.7: Retail Dutch auction System – – – – 29
Table 2.8: Treasury Bill Rate – – – – – 30
Table 2.9: PMA – – – – – – 30
Table 2.10: OMO – – – – – – – – 30
Table 3.1: Samples of Interviewees – – – – 62
Table 4.1: Statistical Summary of Market Performance in 2008 & 2009 70
Table 4.2: Statistical summary of market performance in US dollars – 72
Table 4.3: Statistical Summary of Emerged Companies with the Highest Market Capitalization – – – – – – – 75
Table 4.4: Top five new Issues Approved in 2009 . – – 78
Table 4.5: Statistical summary of Exchange’s Turnover Ratio – 79
Table 4.6: Traded and Turnover Ratio – – – – 85
Table 5.1: Growth in the Number of Listed Securities 1980-1999 – 147
Table 5.2: The Nigerian Stock Exchange All-Shares Index Percentage Change (1984-1999) – – – 150
ABBREVIATIONS AND ACRONYMS
ASI – All-Share Index
AMC – Asset Management Company
ATS – Automation of the Trading System
CRR – Cash Reserve Requirement
CSCS – Central Security and Clearing System
CBN – Central Bank of Nigeria
DMO – Debt Management Office
ETF – Exchange Traded Funds
FGN – Federal Government of Nigeria
FSRCC Financial Sector Regulation Coordinating Committee
FDI – Foreign Direct Investments
FSRCC Financial Sector Regulation Coordinating Committee
GDR – Global Depositary Receipts
GDP – Gross Domestic Product
IPO – Initial Public Offers
IFRS – International Financial Reporting Standards
IMF – Iinternational Monetary Fund
IOSCO International Organization of Securities Commissions
ISA – Investment and Securities Act
NIBOR Nigerian Inter-Bank Offer Rate
NSE – Nigerian Stock Exchange
MPC – Monetary Policy Committee
OMO – Open Market Operation
OTC – Over the Counter
PDMM Primary Dealer Market Marker
REIT – Real Estate Investment Trust
RDAS Retail Dutch auction System
SEC – Securereties and Exchange Commission
SSM – Second-Tier Securities Markets
SAP – Structural Adjustment Program
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Prior to the late 1980s, international donors and governments in developing countries held the notion that entrepreneurial functions could be better served by the state through public ownership of the means of production, taxation, licensing and regulation. Wikipedia Encyclopedia defines capital markets as the financial markets for the buying and selling of long-term debt or equity-backed securities. These 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. Financial regulators, such as the UK’s Bank of England (BoE) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their jurisdictions to protect investors against fraud, among other duties.
Modern capital markets are almost invariably hosted on computer-based electronic trading systems; most can be accessed only by entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public. There are many thousands of such systems, most serving only small parts of the overall capital markets. Entities hosting the systems include stock exchanges, investment banks, and government departments. Physically the systems are hosted all over the world, though they tend to be concentrated in financial centers like London, New York, and Hong Kong. Capital markets are defined as markets in which money is provided for periods longer than a year.
A key division within the capital markets is between the primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors, often via a mechanism known as underwriting. The main entities seeking to raise long-term funds on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies). Governments tend to issue only bonds, whereas companies often issue either equity or bonds. The main entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary markets, existing securities are sold and bought among investors or traders, usually on an exchange, over–the-counter, or elsewhere. The existence of secondary markets increases the willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out their investments if the need arises. A second important division falls between the stock markets (for equity securities, also known as shares, where investors acquire ownership of companies) and the bond markets (where investors become creditors). Microsoft Encarta 98 Encyclopedia (1998) identified the following reasons for government ownership of enterprises. Ensure safety or security, Re-distributive goals, Prevent monopolization, Government controls distribution, Public firms less likely to use price discrimination, Government captures substantial market profits, Macroeconomic stabilization, Developing Countries, and Government has political control
Private entrepreneurs were perceived to be few; while local subsidiaries of multinational firms constituted a considerable chunk of local private sector activity. However, poor performance of the public sector, misallocation of resources, market distortions and negative economic growth influenced a re-evaluation of the state-led development strategy. In the past 30 years, liberalization and privatization have become dominant themes in development planning and strategies particularly in Africa. Donors, governments and development practitioners have exhibited changing attitudes towards the role of the private sector in the development of African economies and, accordingly, have acknowledged the need to facilitate private sector development (Kibuthu, 2005).
In addition, Yartey (2008) argues that the promotion of economic growth led by the private sector requires the creation of an enabling environment within which the private sector can flourish. A key factor is the healthy growth of a nation’s financial sector, which in turn improves the private sector’s access to services such as bank credit, equity capital, payments and risk management services. Generally, the development of the financial sector has followed a trend beginning with the channeling of savings and `investments through banks, followed by the development of capital markets as investors or savers search for higher-returns, and firms seek cheaper capital.
Furthermore, Yartey and Adjabi (2007) posit that financial markets typically comprise several institutions including banks, insurance companies, mutual funds, mortgage firms, finance companies and stock markets. Nevertheless, Miller (1995) argued that in developing countries, particularly in Nigeria, financial markets are dominated by commercial banks, which have not been reliable sources of long-term financing for businesses. The non-bank sources of medium and long-term financing are generally underdeveloped. Kibuthu (2005) contends that the short-term nature of commercial banks’ assets and liabilities as well as regulatory reserve requirements in many countries render those banks incapable of supplying long-term capital.
Jeffrey and Michael (2005) argue that heavy reliance on banks increases the vulnerability of the financial system as exemplified by the Asian financial crisis in the 1990s. Having a functioning financial system, which includes non-bank financial institutions, can protect economies from financial shock. Sam (2001) surmises that in this regard, capital markets are considered better avenues for mobilizing domestic and international capital.
The capital markets have the potential to meet the fixed-capital needs of the private sector. They can ensure the efficient and sustainable funding of governments, corporations, banks and large-scale or long-term projects (Kibuthu, 2005). In addition, capital markets facilitate the mobilization and allocation of medium and long-term funds for productive investment by:
Providing a simple mechanism for the transfer of funds;
- Facilitating companies’ access to a large number of local and foreign investors;
- Widening the array of financial instruments available to savers and investors;
- Increasing the diversity and competition in the financial systems; and
- providing market signals on current situations and future expectations.
Generally, the effective functioning of capital markets requires the following:
- Existence of an exchange, clearing and settlement system;
- Existence of a legal system to enforce contracts;
- Availability of information on financial soundness and
- Future prospects of companies and governance of corporations in a manner that gives the investors’ confidence that their funds will not be stolen or wasted (Sam, 2001).
Meanwhile, developing countries are working towards reforming and deepening their financial systems, through the expansion of their capital markets in order to improve their ability to mobilize resources and efficiently allocate them to the most productive sectors of the economy. A significant policy change has been the establishment of privatization programs, which have facilitated reduction in public debt, improved incentives and efficiency in the operations of the privatized entities, and facilitated better access to capital through the floating of shares to the general public (Claessens, 2005).
Mohtadi and Argarwal (2004) posit that large capital markets lower the cost of mobilizing savings and facilitating investments in the most productive technologies. Thus, Adebiyi (2005) argues that all over the world the capital market has played significant roles in national economic growth and development.
Thornton (1995) argues that economic activities in a country constitute the key drivers of capital market development. Growth in the capital market spurs economic development [Yartey 2008) and empirical evidence shows that there is no sharp demarcation existing between developments in the capital market and economic growth [Filer 2002). Yartey and Adjasi (2007) argue that the establishment of capital markets in Africa is expected to boost domestic saving and increase the quality and quantity of investments. They emphasize that in principle the capital market is expected to accelerate economic growth by providing a boost to domestic savings and increasing the quality and quantity of investments. Equally, capital markets can increase economic development by making available information on firms’ prospects and redistributing investable capital.
Thus, the capital market has contributed to the financing of the growth of large corporations in certain African countries and those large corporations in Africa have made considerable use of the capital market to finance their growth [Yartey and Adjasi 2007). The fact, essentially, is that no matter the extent of argument that exists, the main essence of the capital market is to consolidate growth in the financial system and enhance the consequent impact of the later on economic development in the country.
Nigerian capital market
started rolling from 1960 when Nigerian Stock Exchange (Lagos stock) exchange was opened. At present
the market is gaining depths and becoming steady. This stock exchange is the
pivot of the Nigerian capital market.
This exchange is providing different types of funds to bring the accumulated
public wealth into the stock market. At the same time, the large-scale
industries of Nigeria
are listed on this exchange. There is also another stock exchange in Nigeria
that is working with the medium and small-scale industries of the country and
providing good support to strengthen the Nigerian capital market.
The development of the Nigerian capital market has some other reasons too. A number of Nigerian banks are investing in the Nigerian stock market so that they can roll the money and can earn some good profit from the market.
The recently introduced minimum capital requirements for the bank have encouraged the banks to choose the stock markets. The Nigerian capital market is still gaining depth and so that it was a bit risky for the banks to take the decision but they took the risk and the results are very positive.
It not only encouraged the individual investors but at the same time provided some good support to the growth of the Nigerian capital market. It is true that the Nigerian capital market is performing well and the country is experiencing some historical public offers by the banks like the Zenith Bank. But at the same time, it is also true that the market has to go a long way to because still now the NSE’s market capitalization is, much lower than the GDP.
According to the ongoing trends, the market capitalization should be nearer to the GDP or in certain cases it is more than the GDP as in the case of Johannesburg that recorded 239% of GDP. The turnover ratio of Nigeria stock exchange was 12.4% in 2005. The Nigerian bond market is also passing through a developing phase.
The main participants of the Nigerian capital market are the Securities and Exchange Commission (regulatory), Nigerian Stock Exchange, stock brokers, trustees, issuing houses, registrars. The investments are done by the insurance companies, pension funds, institutional investors and the individual investors.
