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THE IMPACT OF STOCK EXCHANGE MARKET ON INDUSTRIAL SECTOR IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1           BACKGROUND OF THE STUDY

Industrialization has been identified as a key ingredient in the growth and development process of developing countries, including Nigeria. The global development agenda emphasizes the need for industrialization as reflected in one of the United Nations Sustainable Development Goals of inclusive and sustainable industrialization (UN, 2015). Industrialization is basically concerned with the development of the capacity to transform raw materials to finished goods (Anyanwu, 1997), with a far-reaching impact on employment generation, poverty reduction, external balance, improved quality of life, high productivity and modernisation (Nyong, 2011; Todaro and Smith, 2011; Ebong, Udoh and Obafemi, 2014). However, industrialization thrives on the foundation of key infrastructures and institutions which are built through capital formation. The capital market serves as an avenue for capital formation and mobilization (Ly, 2011). Although, there are other avenues for the mobilization of financial resources for industrial development, the capital market is believed to be more potent in the sense that it mobilises long term financial resources and diversifies risks. Nigeria’s bid to industrialize its economy has been hampered by several factors including poor infrastructure, weak institutions, inadequate capital and financial resources, etc. Such factors have resulted in an unimpressive performance of the industrial sector. For instance, the industrial sector accounted for about 25.23% of gross domestic product (GDP) in 1986, fluctuated before falling to 16.01% in 2015 (CBN, 2015). However, the industrial sector has continued to trail the agricultural sector which contributed about 20.86% to total output in 2015.

 In Nigeria, the establishment of a formal capital market dates back to 1961. But the market was dormant until the introduction of structural adjustment programme (SAP) in 1986. The number of tradable securities increased as a result of the implementation of SAP, with much wider impact on the development of the capital market. In the post-SAP era, the market became a truly capitalist instrument for mobilizing and allocating capital funds in the process of wealth creation rather than as a vehicle for wealth distribution, as the pre-SAP activities tend to portray. Policies and strategies tended to be more market related than before. In addition, the deregulation of the foreign exchange and interest rates which were the pillars of SAP, encouraged many companies to seek for cheaper source of long term funds which only the capital market could produce (Dada, 2003). Over the years, the capital market has shown signs of improved performance as revealed by some key stock market indices, especially during the post-SAP era. The number of listed domestic companies rose from 174 in 1993 and peaked at 215 in 2005, before plunging to 183 in 2015 (World Bank, 2015). Stock market capitalization ratio increased from 3.3% in 1986 to 18.06% in 2015. The value of shares traded ratio rose from 0.25% in 1986 to 1.02% in 2015. The all share index rose steadily from 1,407.4 basis points in 1985 to 370,406 basis points in 2015 (CBN, 2015).

Surprisingly, the moderate performance of the capital market has not translated to a remarkable growth of the industrial sector. The capital market in Nigeria lacks depth and breadth, and is constrained by poor infrastructure (Dada, 2003). It is against this backdrop that this study seeks to determine if there exist any causal relationship between capital market and industrial sector performance in Nigeria. The literature is replete with studies on capital market– economic growth nexus (Oke and Adeusi, 2012; Olweny and Kimani, 2011; Paramata and Gupta, 2011). There exist scanty studies on capital market and industrial performance nexus. This study attempts to fill the existing knowledge gap by focusing on the causal relationship between the stock exchange market and industrial.

1.2       STATEMENT OF THE PROBLEMS

The basis of this project research is on the contribution of stock market toward the industrial development in Nigeria. It becomes inevitable that we should review the economic situation of the last two and a half decades to justify our stand that the stock market has a leading role to play revitalization in industrial sectors. Both government and companies obtain loan with ease. Where government has needed to secure foreign these can also be easily obtained as foreign credit considered government sufficiently credit worthy. There was less – enthusiasm by the government and company to raise finance than the domestic capital market to raise finance from the domestic capital market. The has accounted for the growth of the market until the promulgation of the indigenization decreases decrees of 1972 and 1980, which forced some enterprises to seek exercise, there has been no major development in the market to enhance industrial rapid growth in the industrial economy. Hence, the effectiveness of stock exchange market in achieving the desired improvement in the sector is questionnaire. Thus, the research work is designed to examine the impact of stock exchange market on industrial sector in Nigeria.

1.3    SIGNIFICANT OF THE STUDY         

The study of this topic is “the impact of stock and example market on industrial development in Nigeria” is aimed at discussing the importance and furnishing the government with the relevance of Nigeria Stock Exchange market in receiving the already dying stock exchange market situation of this country.

Moreover, it is designed to look into problems facing the normal functioning of the stock exchange market and the possible solutions as well as the strategy in developing the organisation.

1.4    OBJECTIVES OF THE STUDY

In view of the above observations, the objectives the study are set first as follows:-

1.To provide an in-depth analysis of the operation of the Nigeria stock exchange in the provision of finance to industrial sector.

2. To find out, if any reason(s) for the relevance of small or large indigenous enterprises from seeking quotation in the stock market.

3.To adduce workable solution or recommendation that will alleviate those problems identified as constituting major barriers for industrial sectors in making of the financial facilities offered by the stock market.

4 This study is unique because of the dominance and the growth attributes of industrial sectors in the economy. Industrial sectors are known to be agents of innovation in the world over the Nigeria’s dream of technological breakthrough to be realized, there is need to be promote the establishment of those enterprises that would be largely inward looking and venturing into new local sources of raw materials.

5.To face the industrial sector through the stock market in an area that has attracted less attention from researchers over the years.

1.5    RESEARCH HYPOTHESIS                                             

Some facts are supposed in order to explain certain facts in this study and also some questions were prepared so as to make the project a record of reference in the future.

The assumptions are:

1. Stock exchange market is established to finance and promote industrial development or sector in Nigeria.

2.To develop the country from traditional society to the age of mass production.

1.6    SCOPE AND LIMITATION OF THE STUDY          

Since the concern in this study is to explore the possibility of raising long-term funds to finance viable investment proposed in industrial sector either small or large business the study also intend to examine the preparedness of Nigeria Stock Market to fulfil the objective of relieving industrial sector of the financing stains.

Although, other alternative sources of finance in industrial sectors are available, they will only be the extent which they are relevant to the study. In particular the discussion here will bring out the gap arising from the unsatisfactory operations and hence the need for stock market to fill the gap.                   

Finally, this study will cover the period between 1983 and 1995 to enable to concentrate my findings. This period coincides with the period when significance development took place in the Nigeria Stock Market and the economy as a whole.     

It is pertinent to observe that significant limitation may be imported on many analyses because of the use of secondary data.

1.7    ORGANISATION/PLAN OF THE STUDY    

The whole research work is compiled together into five chapters. Chapter one contains the introduction to the project topics or subject matter, statement of the problem, objectives of the study, research hypothesis, scope and limitation of the project, organisation plan of the study and definition of some basic terms.

Chapter two is all about the literature review introduced the genesis of Stock Exchange Market, characteristic of stock Exchange, the role of stock market in industrial sector, stock market institution, type of stock markets, the motive for promoting stock market in Nigeria and factors inhibiting the industrial sector in Nigeria.

Chapter three of the text contains research methodology followed by instrumentation and research design, sample and sampling techniques and procedure for data collection. Moreover, chapter four contains data findings, data analysis as well as research finding and chapter five contains the summary of the whole project, Recommendations, conclusion and Bibliography. All these are well formed to meet the requirement of project topic and more so to make it a source of reference in the feature.

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