ROLE OF CAPITAL MARKET ON ECONOMIC GROWTH OF NIGERIA

ABSTRACT
The main objective of this study as stated in chapter one is to examine the role of capital market on economic growth of Nigeria. To achieve this, the researcher adopted a multiple regression technique in ascertaining the relationship between the capital market (stock market) and economic growth in which the GDP has been used as indices of economic growth. The researcher found that there is a significant impact between the four explanatory variables, MCAP, TNI, VLT, LEQ and GDP. The findings of the research are based on the time series data collected for the period 2007 to 2017 from the NSE, SEC and CBN. The result of the study reveals that the three predicator variables MCAP, TNI and VLT have an aggregate significant impact at one percent level of significance and LEQ is at 5 percent level of significance on the GDP. The researcher recommends that there is need for improvement in the market capitalization by encouraging more foreign investors to participate in the market, maintain state of the art technology that will ensure a free flow of information in the market to attract more investors as well as increase new issues which will automatically increase the quantum of market capitalization and also the government should invest more and develop the nation’s infrastructure in order to create an enabling environment for businesses to grow and for productivity and efficiency to thrive which will boost economic activities.

BACKGROUND OF THE STUDY
The capital market is a highly specialized and organized financial market and indeed essential agent of economic growth because of its ability to facilitate and mobilize saving and investment. To a great extent, the positive relationship between capital accumulation and real economic growths has long affirmed in economic theories (lekan olawoye, 2011).
Success in capital accumulation and mobilization for development varies among nations, but it is largely dependent on domestic savings and inflows of foreign capital. Therefore, to arrest the menace of the current economic downturn, effort must be geared towards effective resources mobilization. It is in realization of this that consideration is given to measure for the development of capital market as an institution for the mobilization of finance from the surplus sectors to the deficit sectors.

The development of capital market in Nigeria, as in other developing countries has been induced by the government. Though prior to the establishment of stock market in Nigeria, there existed some less formal market arrangements for the operation of capital market. It was not prominent until the visit of Mr. J. B. Lobynesion in 1959, on the invitation of the Federal government, to advice on the role the Central Bank could play in the development of local money and capital market. As a follow-up to this, the government commissioned and set up the Barback Committee to study and make recommendations on the ways and means of establishing a stock market in Nigeria as a formal capital market. Acting on the recommendation of the committee, the Lagos Stock Exchange (as it was called then) was set-up in March 1960, and in September 1961, it was incorporated under Section 2 cap 37, through the collaborative effort of Central Bank of Nigeria, the Business Community and Industrial Development Bank. With the establishment of the Central Bank of Nigeria in 1959 and the coming into existence of the Lagos
Stock Exchange in 1961 and subsequently, the Nigeria Stock Exchange by an Act in 1979, a sound foundation was laid for the operation of the Nigerian Capital Market for trading in securities of long term nature needed for the financing of the industrial sector and the economy at large. After the incorporation of the Lagos Stock Exchange, it was granted further protection under the law and its activities was placed under some sort of control by the government, hence the passing of the Lagos Stock Exchange Act. However, the Lagos Stock Exchange was only operational in Lagos. By the mid 70’s, the need for an efficient financial system for the whole nation was emphasized, and a review by the government of the operations of the Lagos Stock Exchange market was advocated. The review was carried out to take care of the low capital formation, the huge amount of currency in circulation which was held outside the banking system, the unsatisfactory demarcation between the operation of Commercial Banks and the emerging class of the Merchant Banks, and the extremely shallow depth of the capital.

In response to the problems mentioned above, the government accepted the principle of decentralization but opted for a National Stock Exchange, which will have branches in different parts of the country. On December 2nd 1977, the memorandum and article of association creating the Lagos Stock Exchange was transformed into the Nigerian Stock Exchange. It has branches in Lagos, Kaduna (1980), Port-Harcourt (1980), Yola, Kano, Onitsha (15 february 2008), Ibadan, Calabar, Ilorin, Uyo, and the latest being Abeokuta commissioned in November 2008 and now in Federal Capital Territory (FCT) Abuja. The history of Nigeria Capital Market could be traced to 1946 when the British colonial administration floated a N600, 000 local loan stock bearing interest at 3¼% for the financing of developmental projects under the Ten-Years Plan Local Ordinance. The loan stock, which had a maturity of 10-15 years, was oversubscribed by more than N1 million, yet local participation of the issued was terribly poor. Certainly, potential fund abound in Nigeria, but the overriding consideration in this project is to examine the impact of the capital market in harnessing and mobilizing these resources (fund) to generate economic growth in the country and consequently economic development.

In addition, the Nigerian Stock Exchange has upgraded its stock market towards the internationalization of its operations and one of such development that has increased the appeal of the Nigerian stock market internationally is the establishment of the Central Security Clearing System Limited (CSCS), which started operations in April 1997. The CSCS operates an automated clearing and settlement system, i.e, the transfers of stock ownership from one shareholder to another and the transfer of sales proceeds from the buying shareholder to the selling shareholder. The transfer of shares is now done on a T + 3 (Trading day + three working days) time frames under the automated CSCS, while transactions are executed on the basis of delivery versus payment. Also, stock brokers are licensed by the council to deal in go et al and industrial securities quoted on the exchange and their conduct are guided by the exchange rules and regulations.

The stock market has helped the government and corporate entities to raise long term capital for financing new projects and expanding and modernizing industrial / commercial concerns. Given the roles the capital market has played during the privatization of public owned enterprise, recent recapitalization of the banking sector and avenue of long term funds to various government and corporation in Nigeria. The Nigerian capital market activities have been growing at a healthy rate in relation to its role in stimulating economic growth. The volume and value of traded securities between 2007 and 2010 grew in excess of 6.3% and 3.9% respectively. Securities listed in the exchange rose from 288 in 2005 to 294 in 2010 while the total market capitalization for the period declined by about 11.4%.

The fall in market capitalization was attributed to the price losses and the global economic crisis. On annual basis, the market grew by 74% in 2007, dipped by 45% and 33.7% in 2008 and 2009 respectively, grew by 18.9% in 2010, dipped again in 2011 by 16.3% before recovering by an estimated 33% in 2012 (Eugene, 2012). The all share index also demonstrated a decline of about 29.8% within the period (Central Bank of Nigeria Economic Report, 2010).