The Role Of Nigerian Stock Exchange In The Development Of The Nigerian Economy (A Case Study Of First Bank Okpara Avenue)
This research was titles “the role of Nigerian stock exchange in the development of the Nigerian economy examines the following, to determine the various activities of Nigerian stock exchange. To examine the instruments of the Nigerian stock exchange and also to determine the problems faced by the Nigerian stock exchange in carrying it’s objectives. These are the areas that the researcher concentrated while carrying out this research work. The first chapter is the introductory part of the researcher work. This chapter also contains the background of the study, statement of problems, research questions etc. data for the study was sourced from two main sources which includes primary and secondary source of data collection. Primary data: questionnaire and oral interviews were used to collect information from the respondents. Secondary data: this category of data used in this study is in published form, they include: library stock, government publications, journal, newspapers and magazines relevant to the national library Enugu, for generation of the secondary data for this study. The research instrument used includes oral interview and questionnaire. The oral interviews were found inevitable and extensively used to cover questions not included in the questionnaire; questionnaire was structural and under used to meet its intended purposed. Sample table and percentage were used in treat of data in order to drawn the actual result made from the respondents. Based on the findings conclusion were drawn and recommendations were also made in the last chapter of this work which is the fifth chapter.
1.1 Background of the Study
The Nigerian stock exchange which started as the Lagos stock exchange Act of 1961, following the report of the Bare back committee, set up May 1958, by the Federal Government, to advice on ways and means of fastening a share market in Nigeria.
The Lagos stock exchange was sequentially incorporated on the 15thSeptember, 1960. But began operations on the 2nd December, 1977 transformed into the Nigerian stock exchange with branches now in Kaduna, Port-Harcourt, Ibadan and Onitsha.
Presently, there are six branches of Nigeria stock exchange with each branch having a trading floor. The branch in Lagos was opened in 1961, Kaduna 1978, Kano 1989, Onitsha 1990, Ibadan August 1990 and Port-Harcourt 1980. Lagos is the head office of the exchange. Besides Abuja is now included 2001. on the other hand, the Nigerian stock exchange started only with 19 (nineteen) securities and traded on it’s floors in 1961, now has 257 securities made up of 36 Federal government stock, 62 cooperatives or industrial loans and debentures) preference stocks and 159 equity/ stock of companies, all was a total market capitalization of approximately N3 half billion.
During the early years, trading was however, low due to the slow ratio of capital formation, lack of awareness of mechanics of stock exchange transaction and poor communication facilities.
However, with the implementation of the Nigeria enterprises promotion Decree, listing was booted and by 1980, the exchange registered a total of 91 firms. The market capital of equities only has grown to over N59, 924 billion. There are 48 listed firms whose stock are traced on the floor of the exchange, all grouped by sub-sectors.
The idea of a stock exchange for Nigeria came into being from the report of Professor R.H. Darback committee published in 1950 which recommended as follows.
- The creation of facilities for dealing in shares.
- The establishment of rules regulating transfers.
- Measures to encourage savings and issues of securities of government and other organization.
This report was accepted by the federal government and in September 1960, the Lagos stock exchange was incorporated as a non-profit making organization through the combination of effort from the following.
- Central bank of Nigeria
- Nigerian Industrial Development
- The Federal Government
- Nigeria business community.
The subscribers to the memorandum and Article of association of the Lagos stock exchange at the time of incorporation include:
- Alhaji Shehu Bakar
- Chief Theophilus Adebayo Doherty
- Sir Odumegun Ogukwu
- Mr Akintola Williams
- C.Y. Boneings and Co. Nigeria Limited
- John Holt Nigeria Limited
- The Investment Company of Nigeria Limited.
1.2 Statement of Problem
The Nigerian exchange market was supposed to have contributed greatly to the development of Nigerian economy in many arrears. But the unawareness of the public on the instrument that the traded by the stock exchange posses a huge problem to the Nigerian economy. The number of people that make use of the service of the stock exchange market in Nigerian is too slow.
Additionally, most people are not abreast of the duties and responsibilities of the stockers and brokers. These two bodies play a role in the transaction of the stock exchange market in Nigeria. Since their duties and responsibilities are not properly known, these tend to present problem to the exchange.
Lastly, the Nigerian stock exchange is not fully financed by the Federal government and as a result, the exchange does not have adequate capital or fund to meet its – obligations. The encouragement and incentives which they received from the Federal government is nothing to write home about.
Therefore, this study will analyze in details the contribution of the Nigerian stock exchange to the Nigerian economy.
1.3 Objective of the Study
The study is being undertaken with various specific objectives in mind, some of which includes:
- To examine the activities and the performance of the Nigerian Stock Exchange (NSE) in facilitating investment in Nigerian.
- To identify the contributions of the stock exchange in the development process of the Nigerian economic activities.
- To assess the major problems facing the stock exchange and as against its performance.
- To recommend measures to be taken to tackle the problems of the stock exchange based on the findings.
- v. To bring to notice the anticipating impact of the stock exchanges i.e. the central securities clearing system (CSC).
- The findings from the study is hoped to assist policy markets to take appropriate action or decision towards improving the activities of the stock exchange as well as in curbing the problem facing the exchange.
1.5 Research Questions
This study will examine the activities and performance of the Nigerian stock exchange with the aim of finding out the extent to which it has contributed to the development of the Nigerian economy especially in facilitating investments opportunities.
The following questions are therefore raised to guide the study.
- To what extent has the stock exchange provides necessary liquidity mechanism for investors through a formal market for debt and equity securities?
- To what extent has the stock exchange contributed to capital formation as well as gross domestic product (GDP) in the Nigeria economy?
- How true is the allegation that the Nigerian stock exchanges activities are note made public to many individual investors as well as to companies in Nigerian?
- To what extent has the policy of expanding the geographical coverage of the stock exchange activities been successful?
1.2 Research Hypothesis
H0: The market capitalization of the Nigerian Stock Exchange does not contribute to the growth of the financial system and the development of the Nigerian Economy.
H1: The market capitalization of the Nigerian Stock Exchange contributes to the growth of the financial system and the development of the Nigerian Economy.
1.6 Significance of the Study
It is a widely held view among economists and financial scholars that the economic growth and development of any economy depends on the level of capital formation of that economy. Nigeria’s low level of economic advancement has largely been attributed to the inability of the Nigerian Stock Exchange to mobilize and allocate the much needed investable capital efficiently.
Therefore, any research efforts in these directions will contribute immensely in addressing the country’s economic problems. The findings of this research could be of tremendous benefit to policy maker particularly in the current effort to sensitize the capital market support it and make it viable as well as international standard.
The economy and the investing public could also benefit significantly from the result of the investigation, large number of Nigerians even though having large sum of investigable funds, are either completely ignorant or are not well informed about the operation of the stock exchange. This unfortunate state of affairs is responsible for the large size of money outside the financial system and consequently, the low level of investment in the economy, on the other hand many Nigerians who are ready to operating their own enterprises they do no know were and how to obtain additional funds to increase their operations.
The research work is also intent to help reverse the trend by providing necessary information about the activities of the Stock Exchange to the public especially the investing public.
1.7 Scope of the Study
Basically, this study will cover the perception of staff of First Bank Okpara Avenue of the activities and performance of the Nigeria stock exchange (NSE) ideal with such aspect as the historical background or evolution of the stock exchange, capital formation as well as the role of the Nigerian Stock Exchange others areas will include legal framework, members and governance operations, listings requirement and instrument listed on the stock exchange.
1.8 Definition of Terms
The relevant terms which are used in this research work that may be new to the reader are defined or explained below.
These are written document or prints financial documents by which the claims of a holder in specific properties are secured; they could be share, bounds and debentures traded on the stock exchange.
b. Stock and Shares:
They are instrument representing partial ownership interest in a business enterprise. The enterprise entitle the holder to a proportional right over the profit known as dividend.
c. Bond and Debenture:
They are kinds of securities. They are legal documents representing a promise by the company or by government (in case of bound0 to pay back a loan, plus a certain of interest over a specific period of time.
The spending of money for purposes other than consumption in order to earn income from it or to realize a capital gain at a later date. It includes the purchase of stock exchange securities, government stock, life insurance and policies.
e. Stock Exchange:
A stock exchange is an organized market were large and small investors alike buy and sell stock through stockbrokers, the stock and share of companies and government agencies.
A firm or a person who buy and sell securities on behalf of investors for a commission called brokerage. The commission exchange regulated by the stock exchange.
These are dealers engaged in whole-selling of securities on a stock exchange market but do not deal with public, they only deal with the brokers and other jobbers.
h. Listing / Quotation:
Listing is an omission in to official list of exchange. To be listed is synonymous with the word “to be quoted” and this entitled the securities to be quoted on the exchange.
A registrar is a common place it is where records in respect to quoted stocks and shares are kept.
j. Unit Trust:
This is an instrument whereby people pool their subscription together under a trust deed. The scheme involves on one hand, a managing and on the other hand a trustee, which is usually a company, very often a bank or insurance company.
This is sometimes written as “co’ and it means that shares are transferred with dividends.
l. Ex-dividend or “XD”:
It is a financial expression for without dividend. A declared in that period for its new owner(s).
m. Market Capitalization:
The value of a firm as determined by the market place of its issued and outstanding common stock.
n. Central Securities Clearing System (CSCS):
This is a computerized subsidiary company of the Nigeria Stock Exchange (NSE) put in place to expedite the settlement delivery and custodian traded in the stock exchange. The CSCS was commissioned and commence full operation on 8th and 14th April 1997 respectively.
o. Secondary Market:
The market in which stock is traded after being issued in a primary market.
p. Primary Market:
This is the market for initial offer of securities as when a company makes its initial contact with the public in search of public fund, initial corporate capital or additional by already existing or quoted company.
q. Second Tier Securities Market:
This is the market where small and medium scale companies have their shares listed on daily basis.
r. Common stock: Equity securities having last cliam or residual assets and earning of a corporation.
Summary, Conclusion and Recommendations
5.1 Summary of Findings
The importance of stock exchange market to a developing economy like our (Nigerian) cannot be overemphasized. After about three and half decade of the existence of the Nigerian Capital Market, there are still a lot to be achieved for instance the number of companies listed on the stock exchange market today is not appreciable. The Nigerian economy is no doubt transiting from its traditional base of trading to that of an industrial economy. This switch will bring with it even greater demand on capital or reserves that are currently needed for different types of industrial and agricultural establishment both private and public.
Thus the capital market plays a prominent role as the sources of finance for the economy it provides essentially long-term fund for the companies on the low participation of indigenous companies in the stock market the researcher was able to decipher some reasons as responsible. The reasons are:-
The sire to avoid taxes and the stringent disclosure resolutions of the capital market. In the course of this study, it was established that the culture and psychology of an average Nigeria Business show that he wants to avoid tax or pay less tax to the government this was confirmed recently by the assistant General research and information services of the Nigerian Stock Exchange Commission (SEC) in lagos market 1993. according to him, most Nigerian Business men operate three banks account “one for his personnel use, another showing no profits for the government so that he will avoid the payment of tax or to be asked to pay an insignificants amount and a third buoyant one for this bankers in order to borrow more funds if he needs arises” Another reason advised as a contributing factor for low turn out of indigenous companies at the NSE is the attitude of Nigerian entrepreneur towards embracing the services of the capital market Nigerian entrepreneur are afraid of losing or on “Board room mutineer” who might turn around to insist a successful venture from the original owner. Business owners in Nigerian today do not easily buy the idea of going public their believe is that outsider participation in their private business will deprive them of taking all profits according to Mr. Paul Mbaywu, senior manager at universal Trust Bank (UTB) in the financial post of may 26, June 1991 that “The average Nigerian business man gets paranoid at suggestions of equity dilution”.
In conclusion, it is pertinent to note the following points:- The Nigerian Stock Exchange has come of age. The operations of the stock exchange played a very important role in the commercial life of the nation. There is no doubt about whether the exchange has helped in the economic development of Nigeria since inception though more are to be achieved if we are to compare with the developed nations it is also worthy or note that it is promulgation of the Nigerian enterprise promotion Decree 1972 and 1977, and privatization and commercialization Decree No.25 or 1988, among other brought about a large increment in the volume of business of the Nigerian stock exchange.
Furthermore, for investment to have the desired effect in the economic progress of the Nation, a proper and well-articulated industrial policy which will identifythe sector where capital will be deployed, therefore it is suggested that the government should always try to evolve industrial policy that will go well for the development of our capital market.
5.3 Limitations of Study
This research work on “The evaluation of the Nigeria stock exchange in the development of the Nigerian Economy” has been done bringing into focus the activities of the stock exchange in Nigerian with particular reference to Kaduna branch office of Nigeria stock exchange published by different authors and may write up and paper delivered at seminary by eminent scholars and businessmen alike. Obtaining there imponention were not easy most especially as it happenedtobe the period when the issue of political crises and make meat bus to be restricted. Also the accessibility of certain important information on the subject matter was not easy to come by even after having pledged to keep any information obtained strictly confidential, respondents showed apparent reluctance in giving certain data due to the nature of information asked for.
In view of the prevailing circumstances under which the Nigeria stock exchange (NSE) operates in particular and the need to boast the activities of the capital market in Federal, the following recommendations are proffered. This can be addressed by the establishment of a data bank that would supply market indicator; from the information gathered in the cause of this study it is evident that more branches of the stock exchange should be established. The ideal thump would be to have at least a branch of the stock exchange in each state of the federation to cater for the wide companies to be able to avoid the problems of transportation and communication. Also to boast the activities of the stock market, there is a need for increase in the members of registered dealing in the Nigeria stock exchange, the present number of dealing and the number of securities being traded in the market isinadequate to ensure a free market for the securities. In the course of the study, it was observed that quite a lot of people are generally ignorant about the role of the stock exchange in capital formation in the Nigerian economy actually some people believe that only big time investors with thousands of Naira (N) can only buy share. This does not hold water as just anyone can own a share in a company; you need only just a minimum of N100 against the widely held believe for this reason it is suggested that the NSE should organise constant seminars and public enlightenment campaign to educate the public awareness of the desirability of investing in quoted sharps /stock.
The government should reduce the rate of personal income tax also corporate taxation as much as possible to encourage the two bodies to effectively embrace the activities of the NSE while this measure would encourage private individual to work harder to earn, to create additional wealth. It would encourage corporate entities to get stock exchange quotation to be able to operate on a large scale. Also there is a need for the government to stop the interference of the regulatory authorities on regular trading activities of market operations like the placement of a maximum point for price movement in any particular trading data.
Lastly the stock exchange should use computerized system of verification for quicker transaction. A centralized clearing house should be maintained for quick and effective delivery system.
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