Capital is the fund used in financing enterprises. It can be working capital which is short term fund used to finance recurrent expenditure or long-term capital which is fund used to finance capital projects. The Capital Market is where long term fund is sourced by various users. It is also where investors invest their savings. The Market Operators serve as intermediaries and Regulators who enforce market discipline to protect investors. Informally, Nigeria’s Capital Market started in 1946 when the colonial administration issued the first 300 British pounds 3% FGN Bond with ten -year tenor. Its management was vested in the Accountant General. The Market became formalized in 1960 when the defunct Lagos Stock Exchange was established by an Act of Parliament. Following the recommendations of the Financial Systems Review Committee, headed by Dr. Pius Okigbo, Lagos Stock Exchange was converted to The Nigerian Stock Exchange in 1976. The first effort at regulating the Market occurred when CBN created a Capital Issues Committee in 1961 to regulate the timing of Public Issues. That Committee later transformed into a statutory body when the Capital Issues Commission (CIC) Decree of 1973 was promulgated. The Securities and Exchange Commission (SEC) Act of 1979 replaced CIC Decree of 1973, making SEC the apex Regulator of the Capital Market. Since 1960 when the Market became formalized, it has grown in leaps and bounds. In addition to The Nigerian Stock Exchange, FMDQ Stock Exchange and NASD OTC Exchange have emerged as international platforms for trading financial securities. AFEX Commodities Exchange, National Commodities Exchange and Lagos Commodities Exchange, which trade in commodities and financial assets are new additions to the Capital Market. Operations on these platforms are conducted under international standards. The primary function of the Capital Market is facilitation of capital formation for the economy. The Capital Market mobilize funds from surplus end of the economy and transfers such aggregated funds as capital, to the deficit end for their use. Through this process, the Nigerian Capital Market has since independence provided enormous development finance to corporate enterprises and all tiers of government. The acid test of virility of the Capital Market came to the fore in 2005, when it successfully anchored the recapitalization of Nigerian banks to meet new regulatory capital requirements. Dangote would not have been the richest man in Africa today if the Capital Market did not form enormous capital for his enterprises. Several projects financed through the Capital Market inundates the length and breadth of Nigeria.The Capital Market has also creditably discharged its function as a safe, liquid and profitable investment outlet in Nigeria since independence. Save briefly for the period of global meltdown in 2008, when the Market suffered its worst financial and credibility crisis, Nigeria’s Capital Market is a destination of choice for investment in Africa. Robustness of the Market has made it possible for foreign investors to invest in the Nigerian economy, thus enhancing inflow of hard currency. Nigeria’s Capital Market is still shallow. It’s market capitalization of $35 billion is just 7% of GDP whereas, it is over 50% in many other countries. This is because several companies which occupy the commanding heights of Nigeria’s economy are yet to list their stocks in the Capital Market. Government privatization exercises have largely not been done through The Capital Market. The corporate bonds market has been nearly dormant due to crowding out effect of government bonds. The Market has also not fully recovered from 2008 global financial crisis as Issuers remain sceptical about success of their offers for subscription. Similarly, institutional and retail investors who were severely wounded during the global meltdown of 2008 continue to avoid the Capital Market. Economic hindrances also beset Capital Market development in Nigeria. The economy is mainly mercantile. It relies more on the Money Market to finance inventories and exports (working capital) than long term Capital Market fund. This makes banks the dominant factor in Nigeria’s financial economy till date. Investor’s confidence is an important factor that propels Capital Market investment. Events that are capable of eroding investor confidence are plentiful in Nigeria. Macroeconomic instability and economic crisis are rampant in Nigeria. Continued fragility of the economy remains a major disincentive to investment. Non- inflationary macroeconomic growth and foreign exchange rate stability are panacea for Capital Market development. For the Market to thrive and meet expectations, the Nigerian economy must be restructured to make production its centrepiece. Producers are the ones who require long term capital funds. Because Capital Market is the main avenue that ensures allocative efficiency of economic resources. Full deregulation of the economy will give it more impetus to excel. Henceforth, all privatizations need to be through the Capital Market. It is unwise to borrow externally to finance infrastructure. Local borrowing through the Capital Market is the ideal option. So far, Nigeria’s good standing in offering internationally acclaimed stock exchange services has been consolidated, the new challenge is how to make emerging Commodity Exchanges virile. This is the new frontier for Capital Market development in Nigeria.
Adonri is the Executive Vice Chairman.
Highcap Securities Limited