Nigerian Capital Market: A Catalyst for Sustainable Economic Development

Abstract

The capital market is the segment of the financial market which facilitates the mobilization and allocation of medium and long-term funds through the issuance and trading of financial instruments. Such instruments, otherwise known as securities, include stocks and company shares; commercial and industrial loan stocks and debentures; state government bonds and stocks; Federal government Development stock bonds,(Oloyede,2001). While equities represent ownership stake in a company which issued them, bonds are debt instruments with the principal and interest usually payable to the bondholder at specific periods.

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. Ekezie (1997) also included the CBN for its promotional and participatory roles in the market.

The Capital market is made up of two inter-related segments. The primary market is the mechanism for raising funds through the issuance of new securities. The secondary market essentially provides facilities for trading in (transferring) already issued securities, thereby creating liquidity in the market.

As the major source of appropriate long-term funds, the capital market is obviously crucial to any nation’s economic development. Specifically, the capital market facilitates economic growth by, among other things, mobilizing savings from numerous economic units such as governments, individuals and institutional investors for users such as governments and the private sector. It also improves the efficiency of capital allocation through a competitive pricing mechanism. Samuel, et al(2007) note that the capital market through its operations will continue to provide avenues for government and large enterprises to obtain financing and capital base broadening.

In pursuance of making funds available for economic development and growth the Securities and Exchange Commission was established in 1979 by the Securities and Exchange Commission Decree (this decree was re-enacted in 1988 as Securities and Exchange Commission Decree no. 29 of 1988, for the purpose of protecting the investors as well developing the capital market. A detailed review of the Nigerian Capital Market was carried out in 1996. This led to the enactment of the "Investment Securities Act (ISA) No.45 of 1999 (and the regulations made thereunder). This Act replaced the Securities and Exchange Commission Decree No.29 of 1988. It aimed at providing a more efficient and viable capital market positioned tomeet the country's economic and Developmental needs.

Obademi O.E and Adeyanju O.D (2010) observe that a changing and growing economy like Nigeria needs enormous amount of funds to fully explore the opportunities opened up by the reforms which was anchored on the National Economic Empowerment And Development Strategy blueprint and now the Vision 20-2020. This is where the capital market’s role comes in as it is expected to play the traditional role of financial intermediation by pulling financial resources from surplus units to deficit units and end-users for productive economic purposes even at this time of unpredictable revenue from crude oil being a fall-out the global financial crisis.