CHAPTER ONE

1.0       INTRODUCTION

The capital market is central to the economic stability, sustainable growth and development of any economy. Sustainable growth and development in an economy has a direct bearing to the viability of the productive sector. To achieve this, it is essential that the capital market through the use of financial instruments mobilizes and allocates funds to meet the funding needs of the productive sector.

The capital market trading institution in Nigeria is the Nigerian Stock Exchange (NSE). Thus the NSE should develop a variety of financial instruments capable of providing diverse investments outlets and opportunities for both the investors and borrowers in the market.

In the recent past, the Nigerian economy has been saddled with the challenges of a declining productive sector following the inability of the sector to get adequate funds to meet its needs from both the money and capital market. On the part of the capital market, the challenge has been lack of a variety of investment tools, low savings capacity of investors for the

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market as well as the market capitalization which is stewed above 50% in favour of services sector of the economy that is, banks, insurance companies etc.

Following the above assertion, this study aims at investigating the impact of the capital market on the productive sector of the economy: A study of the Nigerian Stock Exchange and Selected Quoted Stocks from 2000 to 2009. The instruments of study will consist of Equities, Debentures, Preference Shares, and development stocks.

1.1       OBJECTIVES OF THE STUDY

The purpose of this study is to evaluate the effectiveness of the capital market in the mobilization and allocation of funds to the productive sector of the economy; A study of the Nigerian Stock Exchange and Selected Quoted Stocks (2000 to 2009).

The process involves a comprehensive study of the capital market in Nigeria from 2000 to 2009. This includes the investigation of the laws, regulatory mechanism and instruments of the market and their impact on development of the productive sectors of the economy. The specific objectives are as follows:

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(i)           To find out the extent the capital market has contributed to the development of the productive sector of the Nigerian economy.

(ii)         To find out the various financial instruments employed by the capital market for selected companies in the productive sectors of the economy and how these instruments have contributed to their growth and that of the economy.

(iii)        To examine the dept of equity financial instruments in the market and their contribution to economic development.

(iv)       To find out if their exist deficiencies in the legal regulatory framework of the Nigerian capital market.

(v)         To find out the depth of equity financial instruments, especially in the productive sector firms quoted on the Nigerian Stock Exchange, and their contribution to economic development.

(vi)       To find if any relationship exists between the prices of equity as well as the value and market capitalization of the Stock Exchange in relation to GDP. (i.e. the GDP is the index of productivity in the economy).

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(vii)      To analyst the growth of each tool (that is, Equity and Fixed interest debt instrument) in the Nigerian Stock Exchange in relation to growth of the companies and the

economy.

1.2    STATEMENT OF THE PROBLEM

The Nigerian capital market which before now was described as one of the fastest growing stock market in Africa witnessed serious crises and loss of value following price crashes especially in the banking sector equities that constituted more than 50% of the market capitalization.

As a result of this, the market capitalization which in 2008 was about N12.5 trillion fail and is presently at N5.5 Billion (source: Stock Exchange weekly activities summary 19/2/2010).

The confidence of investing public dropped, especially, as it relates to investing in equities financial instruments.

Thus, there exists the need to create a variety of financial instruments that can assist the market provide:

(i)           Investment windows for the market participants such as;

(a)        Equities investment tools

(b)        Fixed debt investment tool (corporate bodies)

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