Development is the objective of every rational human being on earth and one of the cardinal goals of human existence. It includes among others sustainable improvement that yields the highest possible level of satisfaction and fulfillment as a person and a nation in general. In this piece, KAYODE OGUNWALE takes a look at the role of the capital market in the economic development of Nigeria.
THE capital Market is an integral part of the financial system, providing efficient delivery mechanism for savings, mobilizing and   allocation, of risk and liquidity, management and corporate governance. It helps in ensuring the efficient and sustainable funding of capital project or long-term projects. Capital markets can also be a driving force for the development of pension funds, insurance companies, mutual fund, as well as mortgage markets. At the macroeconomic policy level, capital markets provides avenue for domestic funding of budgets thereby reducing the need for direct financing through central bank and potentially damaging monetary financing. It also helps to avoid a build-up of foreign currency denominated debt. At the micro economic level it increases in overall financial stability and improves financial intermediaries through greater competition as a complement to banks financing. It intermediation enable s the introduction of new financial products such as debentures, derivatives and structured finance all of this can improve risk management and financial stability. However, the degree of effectiveness and efficiency of the capital market will determine the extent to which it will contribute to the process of economic growth and development. Capital market serves as an active and effective balance against the more regulated money market. The central bank engage in price fixing and tinkering with the monetary policy rate  in the money market while the capital market allow a full interplay of market forces of demand and supply of stocks to determine the prices. To that extent, the capital market is freer and provides a more dependable barometer of economic health. The capital market is ingenious invention of the fathers of capitalism to create and distribute wealth. It is a veritable means for a large number of people to become prosperous. In Nigeria it offers a huge attraction to investors because it is not only been relatively safe way of storing wealth but also a transparent and legitimate way of growing wealth. Another importance of the capital market is that business organization that raise capital through it do not have to worry about maturity date of fund since there is no repayment date. The only challenge is to maintain attractive stock price and acceptable dividend payout that only good performance guarantee. The cost advantage is an important issue in the capital market compare with other segment of the financial market. Money raise in the capital market is a preferred alternative to the money and serves as catalyst for industrial development and nation building in general.
 
The importance of capital market
Traditionally, capital markets are mechanism for wealth creation and redistribution of financial resources. The importance of capital as a strong avenue for wealth creation plays a key role in economic growth and development. The distribution of the wealth is also free because the system does not discriminate between investors with 100 units and 1 million units as in the case of money market where there are discriminatory interest rates at different levels of deposit. The rate of return an investor gets from the capital market is a matter of what he invested.
Another importance of capital market is mobilization of savings from the grass root level which is not doubtful. The previous capital raising exercise by Nigerian companies has led to increased operational capacities, higher profitability enhance personnel welfare and increase in employment opportunities. The stronger the economic growth the higher the propensity of individuals and other economic units to save.
The capital market has also provided the platform for the implementation of the privatisation programme that is intended to promote a market based economy that will hasten the pace of growth and development of the economy.
Capital market provides a platform for the development indigenous enterprises to spear head the development of the economy. Prior to 1973, indigenization decree the percentage of Nigerian holding equity is less than 50,000 shareholders and the percentage of holding is equally very insignificant less than 20 per cent of the total equity of the quoted companies. This equation has radically changed for the better as at today.
 
Lessons from the Financial Crisis
Whilst the foregoing description represents the ideal, a state to which all capital market regulators must aspire; it is not reflective of recent antecedent in capital market regulation. The global financial crisis of 2008 was an indictment on regulators the world over and laid bare the immense consequences of “loose” regulation. The crisis emanated from a lethal mix of poor macroeconomic policies, careless financial-sector supervision and regulation, financial engineering, and the global activities of large private financial institutions mostly in the United States.
In the wake of the crisis, many economies were thrown into recession, market capitalisation shrunk and capital flight was rife as investors lost confidence in the market. The aftermath was a excess of investigations and litigations with the recurring issue of discuss bordering on governance and regulation. Ultimately, the world awoke to the obvious reality that the parameters for assessing truly world class capital markets have evolved. Regulators must evaluate and account for systemic risks in addition to the traditional function of rule making.
Nigeria was fortunate to have survived the financial crisis with relative ease. The effects of the crisis were however mitigated by the dividends of sound macroeconomic management, particularly since 2003, recent rise in oil prices, and decisive measures that bolstered oil production.
However, the crisis brought a few issues to the fore which require careful consideration if we intend to survive a future occurrence of the crisis. The critical lesson is that loss of value in the equities quoted on the Nigerian Stock Exchange at the peak of the crisis/meltdown confirms that Nigeria was not completely shielded from the effects of the crisis. In addition to the stifling effects of the global downturn, there were also domestic peculiarities characterized by sharp practices which led to the erosion of investor confidence.