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Key Features:
- No of Pages: 5
- No of Chapters: 98
- Illustrations
- Tables
- Questionnaire
Introduction:
Abstract
The researcher’s mind on the topic, “The impact of the Capital market on the
Nigerian Economy with emphasis on the role of the Nigerian Stock Exchange” was
captured when a similar topic was discussed at a seminar organized by the Bureau
for Public Enterprise (BPE) to conscientize and sensitize Nigerian people to accept
the privatization programme. The organizers sought to expose how highly
underutilized the Nigerian Stock market is and what individuals and Corporations
would gain in patronizing the market. They also compared the operations and
volume of transactions with other emerging stock markets in the world. The
research work is basically, all about assessing the extent of the impact of the
capital market on the socio-economic development of this country and an in-depth
search into ways of improving upon the operations of the Nigerian Stock
Exchange. In his findings, the researcher noted (among other things) that there was
underutilization of the Stock Exchange market due to poor enlightenment
campaign, and lack of transparency and accountability on the part of the operators
of the market. In the conclusion, the researcher admitted that the future prospects
of the exchange market is still bright but emphasized that the operators of the
market must engender accountability and transparency as this will go a long way to
re-installing much desired confidence in the investing public and guarantee the
market’s future development.
Table of Content
TABLE OF CONTENTS
Pages
Title Page … … …. … … … … … … i
Certification … … …. …. ... … … … … ii
Dedication … … … … … … … … … iii
Acknowledgement … … … … … … … … iv
Abstract … … … … … … … … … … v
List of Figure … … … … … … … … … vi
List of Tables … … … … … … … … vii
Table of Contents … … … … … … … … vi
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study … … … … … … 1
1.1.1 Evolution of the Capital Market … … … … … 3
1.2 Statement of the Research Problems … … … … 7
1.3 Objective of the Study … … … … … … 8
1.4 Research Question … … … … … … … 8
1.5 Research Hypothesis … … … … … … 9
1.6 Significance of the Study … … … … … … 10
1.7 Scope of the Study … … … … … … … 10
1.8 Limitation of the Study … … … … … … 11
1.9 Definition of Terms … .. … … … … … 12
References … … … … … … … … 14
CHAPTER TWO: REVIEW OF THE RELATED LITERATURE
2.1 Wall Street – Where It All Began … … … … 15
2.2 The Nigerian Capital Market … … … … … 16
2.3 The Role of the Nigerian Capital Market … … … … 17
2.3.1 The Pooling Function … … … … … … 19
2.3.2 Facilitating Capital Formation … … … … … 19
2.3.3 Risk Reduction Function … … … … … … 20
2.4 The concept of the Nigeria Stock Exchange … … … 20
2.5 The Nigerian Stock Exchange Market … … … 23
2.5.1 Membership of the Nigerian Stock Exchange … … 24
2.5.2 Functions and Importance of the Nigerian Stock Exchange 25
2.6 Securities and Exchange Commission (SEC) … … 27
2.6.1 Duties and Functions of the Securities
and Exchange Commission … … … … … 28
2.7 The Impact of the NSE Crisis on the Nigerian Capital Market 29
2.8 The Stock Exchange in Operation … … … … 34
2.8.1 The Primary Market … … … … … … 34
2.8.2 Evaluation of the Nigerian Stock Exchange … … … 39
2.8.3 The Daily Stock Summary … … … … … 41
2.9 Problems Associated with the Nigerian Stock Exchange … 47
References … … … … … … … … 50
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction ... … … … … … … … 51
3.2 Research Design … … … … … … … 51
3.3 Sources of Data … … … … … … … 52
3.3.1 Primary Data … …. … … … … … … 52
3.3.2 Secondary Data … … … … … … … 53
3.4 Method of Data Collection … … … … … … 53
3.4.1 Reasons for using the Aforementioned Methods … … 53
3.5 Determination of Population Size … … … … 54
3.6 Sample Procedure … … … … … … … 54
3.7 Methods of Administering Questionnaires … … … 55
3.8 Decision Rule … … … … … … … 55
References … … … … … … … … 57
CHAPTER FOUR: PRESENTATION AND ANALYSIS
4.1 Introduction … … … … … … … … 58
4.2 Presentation and Analysis of Responses from Questionnaire 59
4.3 Analysis of Interview … … … … … … 80
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS.
5.1 Summary of Findings … … … … … 86
5.2 Conclusion … … … … … … … … 87
5.3 Recommendations … … …. … … … … 88
Bibliography … … … … … … … 90
Appendix – Questionnaire … … … … … 91
Introduction
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria has a formal and active capital market. Before 1961, nearly all formal
savings and deposits went through the banking system while the then colonial
masters invested major capital balances for the country on the London stock
exchange. However, following the establishment of the CENTRAL BANK OF
NIGERIA in 1959, it was logical to have a stock exchange in 1960, which
commenced operations in 1961. Thus, the foundation was ordered for the
operations of the Nigerian capital market. The capital market tends to provide a
forum for the interaction of the economic surplus and economic deficits to attract
business under a highly regulated environment.
Earlier in 1959, the Central Bank of Nigeria had floated the first Nigerian
development loan stock, which was listed overseas. Subsequent issues in 1961 and
thereafter were listed on the new local exchange.
The Nigerian stock exchange is a private, non-profit making organization
limited by guarantee. It was incorporated via the inspiration and support of
businessmen and the federal government through the CBN, owned by about 300
members. The membership includes financial institutions, stockbrokers and
individual Nigerian of high integrity who have contributed to the development of
the stock market and the Nigerian economy. The council members (Board of
Director) of the stock exchange are elected at apiece annual general meeting by
members of the exchange. The tenure of the presidency is limited to one three-year
term. The council is responsible for policy-making but the Director -General
(formerly Prof. Ndi Okereke Onyiuke , Emmanuel Ikhazobor) and presently at the
time of this research, Dr. Oscar Onyema and his team of executives administer the
day to day affairs of the exchange. The council members, management and staff of
the Nigerian stock exchange as well as stockbrokers are subject to a stringent
regime of codes of conduct, which calls for a higher degree of integrity, discipline,
skill and high sense of patriotism.
Dealing members of the stock exchange are the stock broking firms licensed
by the exchange to purchase and sell shares on behalf of the investing public.
There are over 200 of them at the moment.
The exchange is a Self-Regulatory Organization (SRO), making and
enforcing rules for its members. In 1977, the exchange was reorganized and
renamed “The Nigerian Stock Exchange (NSE)”. Today, the NSE has 10
functional trading floors in different parts of the country, namely; Lagos, Abuja,
Kaduna, Port Harcourt, Kano, Onitsha, Ibadan, Yola, Benin, Uyo and Ilorin.
1.1.1 Evolution of the Nigerian Capital Market
The Nigerian capital market was established in 1960 and became open for
operation in 1961. However, the evolution of the Nigerian capital market can be
traced to as far back as 1946 when the government floated a N600,000 (1.25% of
Government stock as part of the Nigerian Ten-Year plan embarked on to help raise
funds from the London Stock Exchange.
In May 1959, the Central Bank of Nigeria (CBN) in pursuance of its role
with respect to the development a capital market floated the first federation of
Nigerian development loan of N4million on behalf of the government. Due to nonexistence
of a formal securities market then, the CBN had to ensure that the stacks
carried with them reasonable assurance of marketability by introducing a central
register for matching buyers and sellers of shares and suggesting prices at which
the deals took place.
Following the favorable report of the Barback committee, whose
recommendation led to the registration of “The Lagos Stock Exchange” in March,
1960. This was subsequently followed by its incorporation under Section 2 Cap 7
on the 15th September, 1960. Trading however commenced formally on June 5
1961 after the enactment of Lagos Stock Exchange (LSE) Act of 1961.
Some catalytic institutions were established between 1959 and 1965. These
institutions are namely; Investment Company of Nigeria (ICON) ltd, Nigeria
Acceptance ltd (now NAL merchant Bank), and Nigeria Stock Brokers ltd.
The establishment of the above institutions gave rise to the need for the
orderly development of the capital market by regulating the time at which the
issues were brought to the market. This necessitated the setting up of the Capital
Issues Committee, an adhoc body with no legal backing under the CBN in 1962.
Trading at that period was however very low because of predominant lack of
awareness of the mechanics of stock exchange transactions and poor
communication. An evidence of the prevailing inertia in the stock exchange market
at the time is the fact that between 1962- 1970, the exchange handled only four
new issues of industrial securities. Issues of federal government were once a year
and annual turnover rarely exceeded N15m of which government stock accounted
for over 90%.
The market however experienced a significant growth with the
implementation of the Nigerian Enterprises Promotion Decree of 1972 and 1977.
The companies that complied with these decrees through the Nigerian stock market
boosted equity listing such that by the end of 1980, a total of 91 companies were
listed on the exchange.
In 1973, the government promulgated the Capital Issues Commission (CIC)
Decree of 1973 to give legal backing and more power to the commission in place
of the capital issues committee so as to enhance the implementation of the Nigeria
Enterprises Promotion Decree (NEPD).
However, the CIC continued to operate as a department in the CBN but had
the function of determining the price, timing, and the amount of offers for sale or
subscription as set up by the Financial System Review Committee headed by Dr.
Pius Okigbo (the then Economic Adviser to the federal government).
“Taking into account the historical development of the Financial System in
Nigeria ;its evolution and impact on socio-economic and political development of
an egalitarian society, the Financial System Review Committee was charged with
the following terms of reference:
I. To examine the adequacy, relevance or otherwise of the institution and the
structure of the financial system to meet the needs of the economy for rapid
economic development.
II. To examine the organizational and ownership structures of institutions in the
system and evaluate their viability in the context of the stated preamble, the
economy’s future domestic and international requirements and development
trends.
III. To study operational trends in the system with particular reference to
promotional activities of the financial institutions generally.
IV. To make recommendations in the light of their findings in respect of (1) and
above all.
V. Any other matters or issues which the committee in its own judgment deems
relevant and helpful in the successful discharge of their task”.
Dr. P. C Okigbo’s committee among other things recommended the following:
I. Facilitate effective management of the economy
II. Provide non-inflationary support for the economy
III. Ensure that no viable project is frustrated singly for lack of fund
IV. Achieve greater mobilization of savings and its efficient and effective
channeling
V. Insulate the economy as much as possible and as much as desirable from the
vicissitudes of the international economic scene.
VI. The establishment of a Securities and Exchange Commission (SEC) to
replace Capital Issues Commission (CIC) and the establishment of additional
stock exchange. This resulted to the establishment of trading floors at
Kaduna, Port Harcourt and the Lagos Stock Exchange (LSE) that was later
redesigned the Nigerian Stock Exchange (NSE).
1.2 STATEMENT OF THE RESEARCH PROBLEMS
This research work is concerned with the reasons why the Nigerian Stock
Exchange has not made the much desired impact on the economy of this country as
designed by the decree establishing it. It will also evaluate the impact of the market
with a view to finding solutions to the following problems:
How can the desired awareness and confidence be instilled on this market?
How can the functions and roles of this market in facilitating the growth of
the economy be achieved?
How can this market be developed to meet international standard?
At the Nigerian Stock Exchange (NSE), buyers and sellers are the same
people. To ensure sound economic development, trading on the exchange has to be
extensive. This is because an enduring economic development cannot be achieved
if the market is not properly developed. The market and its operators must be seen
creating the economic impact and confidence that will enhance the capacity of the
market.
1.3 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:
1. To determine the relationship between the capital market and Nigerian
Economy;
2. To determine or rather to evaluate if the deficiencies of the market affect
Nigerian Economy;
3. To establish the effect of the Nigerian stock exchange crisis on Nigerian
capital market;
4. To ascertain if there are challenges of the Nigerian stock exchange in
developing the capital market;
5. To determine the role of capital market in developing the Nigerian
Economy.
1.4 RESEARCH QUESTIONS
To achieve the above objectives, the following research questions were
raised:
1. Is there relationship between capital market and Nigerian Economy?
2. How do the deficiencies of the Nigerian stock exchange affect the
Nigerian economy?
3. How does the crisis in the Nigerian stock exchange affect Nigerian
Capital market?
4. What are the challenges of the Nigerian stock exchange in developing the
capital market?
5. What are the roles of the capital market in developing Nigerian
economy?
1.5 RESEARCH HYPOTHESIS
1. There is no significant relationship between capital market and Nigerian
economy.
2. The deficiencies of Nigerian stock exchange market do not affect Nigerian
economy.
3. The crises of Nigerian stock exchange negatively affect Nigerian capital
market.
4. The Nigerian stock exchange does not face any challenge in developing
capital market.
5. Capital Market did not play a significant role in developing Nigerian
Economy.
1.5 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.
1.7 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.
1.8 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:
i. 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.
ii. 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.
iii. FINANCE: at a time it was difficult and nearly impossible to continue
because of demand for finance.
iv. 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.
v. FATIGUE: The human bourgeois also tried to hamper this study by
constant body breakdown as a result of fatigue, tiredness and distractions.
1.9 DEFINITION OF TERMS
To ensure comprehensive understanding of this research work, the under
listed terms are defined thus:
1. 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.
2. 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.
3. 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.
4. Stockholders: Individuals, businesses and groups owning stocks in a
corporation.
5. Financial Instrument: Is a contract involving a financial obligation.
Examples include stock, bonds, loans and derivatives.
6. 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.
7. New Issue Market: Market where stocks are issued for the first time to the
members of the public.
8. 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.
9. Deficit Savings Unit (DSU): An economic unit whose current income is
less than its current expenditure.
10. 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.
11. Financial Institutions: These are institutions that use their funds chiefly to
purchase financial assets, deposits, bonds, loans and so on.
REFERENCES
Alile H.I (1984); the Nigerian Stock Exchange Historical Operations and
Contributions to Economic Development: Bullion of the Central Bank of
Nigeria.
Lead Capital (2010): Stock watch, a Guardian publication.
Onyiuke Ndi Okereke J. (2010), Overview of the Nigerian Capital Market.
Okigbo P. C (1981); the Nigerian Financial System, Longman Essex, U.K, Oxford
Dictionary of Book-keeping, “Third Edition”.
The Guardian Newspaper: Friday August 6, 2010 p.14
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