THE ROLE OF NIGERIAN STOCK EXCHANGE IN INDUSTRIAL DEVELOPMENT

1.1             Background to the Study

Industrial growth forms the basis for industrial development is not only needed for its ability to improve living standard. It also acts as a weapon for building national strength and prestige. Therefore industrial development implies the increase of industrial, expansion of quality and quality of output and the institutionalization of industrial growth process. It also involve  technical activities of a own routine nature concerned with translating research findings or other with translating research findings or other scientific knowledge into products or process.

With the concept of investment as a central factor in the acceleration of industrial growth and development and the prominence given to industrialization, steps have the establishment of the Nigerian stock exchange (NSE) the evolution of  continued existence of the Nigeria stock exchange has always been small lots of shares to e  parceled into lumbs large enough to be bought by institutions provide vast numbers of  different shares to be trades and providing a  broad market in government securities its economic significance depends on its ability to mop up financial capital for investment purpose these include providing liquidity and enhancing these marketability of new issues of stock thus reducing the real costs to business firm by expanding the scope for obtaining fund.

Other functions of the stock exchange include the offer of guidance to the business management in relation to the present cost of capital so that the business man  can determine his level of investment appropriate  to the firm. Access to the  vast number of capital that are in very small amount of money that in their aggregate have s commend over vast quantities of wealth. It also make it possible for the transfer of funds that imposes only a minimum of administrative efforts he lender. By  this activity the  stock exchange is able to provide an avenue for long term investment to be financed by funds provided by individuals many of whom to make it available for a short term or with draw it at will.

The competitive nature of the stock exchange makes it possible to allocate funds efficiently which is achieved by the market ability to available companies securities in a manner based on the capitalized value of the company’s expected future earnings.

Apparently, only if stock are valued in this way will funds be provided most abundantly   and at most reasonable terms to the most promising innovation who accounting to the classical economic theory has the greatest use for them and who is the one that can obtain the profits which will serve as the investors rewards. And it in when shares are valued in relation to the  expected capitalized value of the firm that effective disciplinary advice which punishes management whose operation are inefficient or unprofitable.

Many experts share the view that industrialization is a prerequisite for the economic take-off or economic development of any country (Okoye, Nwisienyi & Eze, 2013). Industrialization is undoubtedly capital intensive therefore, finance is an essential ingredient in stimulating sustainable industrial growth and development. Levine (1998), opines that the desired   industrial growth and development of any economy is a function of the availability of long –term development funds. The Nigerian stock exchange forms the major source of capital for industries in developing economies. It is pertinent to note that substantial capital is required to acquire the machines and other modern equipments which are prerequisite for industrial development. In Nigeria, the role of the Nigerian stock exchange in Industrial development cum economic growth of the country has continued to generate a lot of arguments amongst economists and policy makers. According to

Okaro (2002), the overriding need for a vibrant Nigerian stock exchange as a source of long – term financing of Nigeria's economic growth is accentuate by the need for alternative sources of long – term finance given the country's foreign debt burden, which has hampered further international borrowing. In spite of the importance of the Nigerian stock exchange, some scholars have maintained that the Nigerian stock exchange had performed below expectation as a purveyor of cheap and stable funds for Nigeria's industrial sector. For instance, Ariyo & Adelegan (2005), argued that the liberalization of Nigerian stock exchange led to the growth of the Nigerian stock exchange yet its impact at the macro economy level was negligible. Osai-Brown (2009), pointed out that the Nigerian stock exchange earning the unenviable accolade as one of the world's worst performing stock market in 2008 after losing N5.2 trillion in market capitalization   and 54 percent   in   the All-Share Index, just a year after it had emerged as the world's best performing stock market in 2007 with return of 47 percent. The Nigeria Nigerian stock exchange as represented by the stock exchange has experienced growth as indicated by growth of its performance indicators namely market capitalization which was about N13trillion in 2007 but declined to N9.91 trillion in 2010 while All share -Index that was 57,990.22 points fell to about 24,770.52 points in the same period. In fact, the near collapse of the Nigerian stock exchange impacted negatively on the industrial sector and the Nigeria economy in general. The Nigeria   Nigerian stock exchange which is supposed to be an avenue for sourcing long-term funds to finance long term projects is not as developed as her foreign counterpart. Al-Faki (2006), noted that despite the fact that Nigeria's Nigerian stock exchange had experienced growth as indicated by growth of its performance indicators, the industrial sector (especially the manufacturing sector) growth has not been impressive. The industrial sector output has been low and has witnessed continuous decline in capacity utilization in spite of successive government's efforts to promote industrial development in Nigeria. Thus, the overriding consideration in this study is to investigate the impact Nigerian stock exchange has had on the industrial sector. The focus will be to find out how well the Nigerian stock exchange funds have been used to finance the industrial sector towards the growth of the economy.

In spite of several years of the existence of the Nigerian stock exchange, its impact on industrial sector development in Nigeria is yet to be fully felt ( Okechukwu, 2007).

Its performance vis-a-vis its contribution to the growth of the industrial sector which is the engine room of economic growth still fall below some of the vibrant economies like Taiwan, South Africa, Malaysia, United Kingdom   and United States of America. It is now increasingly being recognized that the growth process of the Nigerian economy depends to a considerable extent on the development of the industrial sector and as such their financing deserves attention. Mobilization of resources for industrial growth has long been the central focus of development (Demirgue-Kunt & levine 1996).

Also most businesses in Nigeria lack long-term capital, and has depended mainly on short-term financing such as overdrafts to finance even long-term project. Based on the maturity matching concept, such financing is risky. All such firms need is to raise an appropriate mix of short- and long-term capital (Demirgue-Kunt & Levine 1996).

There cannot be a meaningful growth without a vibrant Nigerian stock exchange. The Nigerian stock exchange is a market where long-term securities are sold and bought. Indeed, in spite of the tremendous efforts by various stakeholders aimed at strengthening and deepening the Nigerian stock exchange, the Nigerian stock exchange is still faced with a lot of challenges such as, lack of confidence on the part of investors, low level of market capitalization, leadership crisis, lack of accountability and transparency on the part of the regulatory bodies. Consequently, the Nigerian stock exchange is unable to effectively and efficiently discharge its fundamental role of mobilizing long term funds for the industrial sector and the economy in general. The unavailability of fund has led to widespread poverty, unemployment, poor standard of living and a distortion in economic activities in the country. As a result, it is necessary to re-examine the market, the institutions and instruments comprising the system to facilitate the efficient production of goods and services for the well-being of Nigerians.

The broad objective of this study is to critically appraise the contribution of Nigerian stock exchange towards the development of the industrial sector of Nigerian's economy, and how investors have utilized the opportunity provided by the Nigerian stock exchange to boost industrial activities in the country. The specific objectives of the study include to:

i.           determine the impact of Nigeria Annual Market Capitalization on the Gross Domestic Product (GDP) of the industrial sector.

ii.           examine the extent to which value of traded securities impact on the Gross Domestic Product (GDP) of the industrial sector.

iii.            ascertain the extent to which industrial loans are made available to users by the Nigeria Stock Exchange.

iv.           ascertain the impact of Nigerian stock exchange indices on average capacity utilization rate of the Nigeria manufacturing sector.

The questions this research seeks to answer are ;

i.           how does the Annual market capitalization impact on the Gross Domestic Product (GDP) of the industrial sector ?

ii.           to what extent has the Value of traded securities impacted on the Gross Domestic Product of the industrial sector?

iii.            to what extent is industrial loan made available to users by the Nigeria Stock Exchange?

iv.           to what extent does the Nigerian stock exchange indices impact on the average capacity utilization rate of the Nigeria manufacturing sector?

The hypotheses tested in the course of this research work are stated below;

i.           annual market capitalization has no significant impact on the Gross Domestic Product (GDP) of the industrial sector.

ii.           value of traded securities has no significant impact on the Gross Domestic Product of the industrial sector.

iii.            industrial Loan issued by the Nigeria Stock Exchange does not have any impact on the users.

iv.           the Nigerian stock exchange indices has no significant impact on the average capacity utilization rate of the manufacturing sector.

1.6             Significance of the Study

This study on the impact of Nigerian stock exchange on industrial development of Nigeria will be of immense benefit to the following group of persons:

i.           general public: It will help educate the general public on the enormous role industrialization can play in improving the standard of living of the people, create job opportunity for our youth and reduce social vices to the barest minimum through effective assess of fund from the Nigerian stock exchange.

ii.           academic/Future Researcher: This will serve as a useful guide to research student who yawns for knowledge to fill in the existing gap in the literature and improve on their work.

iii.            government: It will help the government to review some of its policies that are at variance with the development of Nigerian stock exchange to promote enhanced use of the market to finance huge infrastructural deficit which has become the bane of the nations growth

Capacity Utilization Rate: is a measure of the extent to which the productive capacity of a business is being used. Displayed as a percentage, capacity utilization levels give insight into the overall slack that is in the economy or a firm at a given point in time.

Market Capitalization:   This is the market value of a company's outstanding shares. It can be derived by multiplying the share price by the number of shares outstanding.

Industrial Loan: This is a debt instrument used by either companies or governments to generate funds for capital-intensive projects. It can be obtained either through the primary or secondary market.

Gross Domestic Product (GDP): This can be defined as the monetary value of all the finished goods and services produced within a country's borders in a specific time period. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

Economic development: This refers to the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards. It can also be seen as the sustained, concerted action of communities and policy makers that improve the standard of living and economic health of a specific locality.

Economic growth: It is the increase in the market value of the goods and services produced by an economy over time.