International Journal of Investment Management and Financial Innovations 2015; 1(3): 69-76 Published online August 10, 2015 (http://www.aascit.org/journal/ijimfi)

Capital Market Operations and Public Projects’ Financing in a Developing Economy: An Empirical Evidence from Nigeria OnigbindeIsaac Oladepo1, AwolusiOlawumi Dele2, *, Awosusi Omowumi Omojola3 1

Keywords Capital Market Operations, Developing Economy, Nigerian Financial System, Nigerian Stock Market, Public Projects’ Financing

Received: July25, 2015 Revised: August5, 2015 Accepted: August6, 2015

Department of Business Administration, McPherson University, Seriki Sotayo, Abeokuta, Ogun State, Nigeria 2 Department of Business, Accounting and Finance, Elizade University, Ilara-Mokin, Ondo State, Nigeria 3 Department of Human Resources Management, Osun State University, Osogbo, Osun State, Nigeria

Email address [email protected] (O. I. Oladepo), [email protected] (A. O. Dele), [email protected] (A. O. Omojola)

Citation Onigbinde Isaac Oladepo, Awolusi Olawumi Dele, Awosusi Omowumi Omojola. Capital Market Operations and Public Projects’ Financing in A Developing Economy: An Empirical Evidence from Nigeria. International Journal of Investment Management and Financial Innovations. Vol. 1, No. 3, 2015, pp. 69-76.

Abstract This study appraised the role of the Nigerian capital market in public projects’ financing in the country. The Ex post-facto research design was adopted as the study guide. Secondary data were sourced from the Central Bank of Nigeria’s Statistical Bulletin and the Nigerian Stock Exchange Fact book (several issues). Data were generated from a period of five(5) decades, ranging from 1961 to 2010. The data collected were analysed using Pearson’s Product Movement correlation, while the descriptive analysis for the State Government Redeemable Revenue Bonds that were raised and traded on the Nigerian stock market during the period covered by the study was also made explicit. The findings revealed that, there is no significant relationship between the volume and value of government securities raised and traded on the Nigerian stock market during the period covered by the study. The study revealed that using the capital market to finance public projects appear to be mimicked by the Nigerian financial system as predominantly a means for government to raise loan finance rather than an instrument for mobilizing industrial finance. It was recommended that using the capital market to finance public projects in Nigeria should be made to become part of the operating environment in the Nigerian financial system.

1. Introduction During the British colonial administration in Nigeria, the country had no capital market, though it had need for long-term fund for the execution of its various capital intensive projects. Accordingly, the country relied on the London Stock Exchange for raising long-term development funds. According to Anyafo(2002), Nigerian was able to raise various funds from the British capital market on the strength of the statutory instruments, such as Loan Ordinance 1904: No. 23 – £ 2.0 million; Loan Ordinance 1908: No. 7 – £ 3.0 million; Loan Ordinance 1911: No. 12 – £ 3.5 million; Loan Ordinance 1917: No. 57 – £ 2.0 million; and Loan Ordinance 1921: No. 16 – £ 3.0 million among

International Journal of Investment Management and Financial Innovations 2015; 1(3): 69-76

others. The General Loan and Inscribed Stock Ordinance 1916: No. 24 declared the terms and conditions that were applicable to loans authorized to be raised by the Government of Nigeria and provided for the creation of inscribed stock. These loans were obtained towards the execution of capital intensive public projects such as Lagos-Kano Railway line; Carter Bridge and Dentton Bridge in Lagos; Iddo and Apapa Wharf; Port-Harcourt-Jos Railway line; Iddo Power Scheme; Ebute Metta Railway Workshop; and Lagos Harbour Works among others. Similarly, subject to Sundry Colonial Stocks Acts 1877 – 1900 of the United Kingdom, the Government Securities Ordinance 1918: No. 19 was promulgated in Nigeria with effect from 17th October, 1918 to facilitate investments of trust and other funds in the Nigerian Government Securities floated in the London Stock Exchange under the colonial administration led by Sir Author Richard (1943 – 47). However, the Development Loan Ordinance 1946: No. 3 authorized the issue of stocks and debentures to raise £8million in Britain in favour of Nigeria’s first pre-independence development plan for the execution of scheduled public projects including urban water supplies, electrical development/power generation, telecommunication systems, marine and road development, and educational institutions among others(Olusanya and Akindele, 1990; Odunlami and Awolusi, 2015). The development of a formal capital market in Nigeria dates back to 1946, when the first government securities were floated. According to Anyafo(2002), the institutional facilities for the operations were however absent and did not commence until 15 years later when the Lagos Stock Exchange was established. Akamiokhor (1984) remarks that the delay was due to the rudimentary nature of the economic systems; the need to finance growing budget as from 1958 by the issue of money and capital markets’ instruments, and the deteriorating balance of payment position. However, government desire to facilitate the repatriation of funds invested abroad as well as the need to mobilize funds to embark on development programmes prompted the government into undertaking the initiative for establishing a formal capital market in Nigeria (Ekiran, 1999; Awosusi and Awolusi, 2014). Consequently, in 1958, the Federal Government of Nigeria through its Ministry of Commerce and Industry set up a committee under the leadership of Prof. R.H. Barback of the Nigerian Institute of Social and Economic Research (NISER) to advice on the ways and means of fostering a security market in Nigeria. The Barback Committee report was published in 1959 and as a follow up to this report, the Lagos Stock Exchange was incorporated, as a private, non-profit company limited by guarantee, on 15th September, 1960 through the collective efforts of the business community, the Nigerian Industrial Development Bank (NIDB) and the Central Bank of Nigeria (CBN). The need for government recognition and protection led to the passing of the Lagos Stock Exchange Act 1961. The Act restricted the business of

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stock broking in Nigeria, in relation to quoted securities only, to registered members of the exchange. Although, the CBN provides annual subvention to the stock exchange, it operates independently but submits a quarterly report to the CBN which analyses such reports on continuous basis for the purpose of monitoring developments in the Nigerian capital market and for policy guidance. However, following the recommendations made in 1977 by the Pius Okigbo’s Financial Systems Review Committee and the Government’s decision thereon, the Lagos Stock Exchange was on December 2, 1977 renamed the Nigerian Stock Exchange with head office in Lagos and decentralized trading floors/branches in Kaduna in 1978, Port-Harcourt in 1980, Kano in 1989, Onitsha in February 1990, and Ibadan in August 1990. An in-depth understanding of the antecedents of the Nigerian capital market would certainly afford one an opportunity of evaluating its invaluable role in financing capital intensive public projects (Odunlami and Awolusi, 2015; Awosusi and Awolusi, 2014). 1.1. Statement of the Problem It is observed that a lot of studies have been conducted on the relative roles of capital market as a vehicle for financing industrial development, corporate ventures, and small and medium scale enterprises (SME’s); but none of these studies addresses the issue of funding gap towards the execution of capital intensive public projects. It is against this backdrop of the heightened clamour for the use of capital market as an alternative means of funding capital intensive public projects in Nigeria that this study seeks to evaluate the effectiveness of the market within the context of the emerging economic structure in the country. However, there is also a need to finance growing budget via the issue of capital market instruments as the money market instruments can only provide equity and loan capital for a short-term, and on several occasions, not more than one fiscal year (Anyafo, 1998). Meanwhile, the capital market, as a security market, can provide equity and loan capital in debt, and equity instruments of long-term or perpetual maturities (Akadiri, 1996, Anyafo, 2002). It is to this fact that the study is to compute indices on the number of deals and value of government securities that were raised and traded towards the execution of public projects in Nigeria over a period of fifty (50) years, ranging between 1961 and 2010. In addition, an appraisal of the volume of state government bonds that have been variously floated and traded on the Nigerian Stock market over a period of twenty five (25) years, ranging between 1978 and 2002 will also be made explicit. There is no gain saying the fact that the utilization of stock market instruments in financing capital intensive public projects would go a long way to mitigate the challenge of budget deficit that is about to ravage the Nigerian fiscal system as a result of dwindling external reserves which was orchestrated by the falling in prices of crude oil at the international market. If this problem is not addressed with swiftness, it can degenerate into unfavourable balance of

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Onigbinde Isaac Oladepo et al.: Capital Market Operations and Public Projects’ Financing in a Developing Economy: An Empirical Evidence from Nigeria

trade, public infrastructural decay, and unfavourable balance of payment among others. This study will therefore involve a discussion on requisite enabling environment, structure realignment and regulatory imperatives for making the capital market an efficient alternative avenue for public projects’ financing in the developing economy. 1.2. Objectives of the Study The main objective of the study is to consider the influence of capital market operations on public projects’ financing in Nigeria. To achieve, the main objectives, the following specific objectives are listed. i. To analyse the relationship between the volume and value of government securities raised and traded on the Nigerian stock market between 1961 and 2010. ii. To appraise the volume and value of the state government bonds that had been variously floated and traded on the Nigerian stock market between 1978 and 2002. 1.3. Research Questions To achieve the objectives highlighted above, this study therefore seeks to provide answers to the following questions. i. What level of relationship exists between the volume and value of government securities raised and traded on the Nigerian stock market between 1961 and 2010? ii. To what extent does the volume of the state government bonds add value to those that had been variously floated and traded on the Nigerian stock market between 1978 and 2002? 1.4. Research Hypotheses In an attempt to consolidate the research questions highlighted above, the following hypotheses were tested. Ho1: There is no significant relationship between the volume and value of government securities raised and traded on the Nigerian stock market. Ho2: There is no significant difference in the volume and value of the state government bonds that had been variously floated and traded on the Nigerian stock market.

2. Literature Review A number of studies have been carried out on various segments of the capital market operations vis-a-vis performance indices in the economy. The capital market, according Akadiri (1996), is a vehicle for mobilisation and redistribution of surplus fund (savings in small units) to the capital deficit unit through specially designed instruments (securities). It is a mechanism for monetization of securities that would have otherwise remains illiquid. Therefore, the capital market is a source of domestic finance which provide equity and loan capital for more than one fiscal year. However, the capital market is a segment of the financial supermarket for raising long-term funds to finance productive investments. Anyafo (2002) refers to the capital

market as a securities market for transacting in debt and equity instrument of long-term or perpetual maturities. It is a meeting point for buying and selling of securities (shares, bonds, loan stock, and other securities) issued by listed companies, governments, municipals and other statutory bodies on the basis of wide distribution of ownership, adequate and full disclosure of information which must be provided regularly (Meier and Rauch, 2005). Steiner (1985) refers to the capital market as a specialised machinery to facilitate indirect investments by bringing together the sources and the users of funds in order to perform the financial function that will enable the placement of corporate and government securities in the hands of those who have funds to invest. Olalusi (1986), however, refers to the capital market as a market for the sale and procurement of medium and long term securities in the form of equity participation, and as a tool to enhance co-existence of deficit and surplus institutions in the same economy of interest. Gardner (1991) remarks that a capital market is an avenue whereby owners of surplus funds can invest such funds by lending to borrowers who need it. According to him, the participants include governments, banks, multinational companies, and small and medium scale enterprises (SMEs) among others, which can borrow or invest large sums of money from medium to long-term periods. The significance of the capital market as a segment of the financial supermarket for raising long-term funds to finance highly capital intensive public projects cannot be overemphasized. For the avoidance of doubts, the capital market, which is also referred to as the securities market or stock market, is a market for sales and purchase of medium and long-term securities in form of equity participation (Alile and Anao, 1986). It is against this back-drop that Onigbinde (2005) stresses that the capital market enables governments at various strata to raise medium to long-term finance, particularly for the execution of public projects. Nevertheless, the capital market enables one to invest at individual, corporate and institutional levels. One of the distinguishing features of the capital market operations is that: borrowing and investments are generally undertaken using financial instrument, such as shares, bonds, development stocks, and other instruments which are all negotiable (Alile, 1994). Negotiability implies that the holder of an instrument need not wait for its maturity before it can dispose it off. Another feature of the market is that a borrower need not going directly to the bank as non-bank funding is entrenched in the capital market operations (Alile, 1993). Furthermore, the market is organised into primary market, where new securities are sold; and secondary market, where outstanding securities are bought and sold. This has informed the remarks by Anyafo (2002) that the capital market is not really a market in the traditional African sense. It is rather a network of the institutions that arrange for long-term financial assets, such as shares, bonds, debenture stocks and mortgage; within this network of institutions are primary market institutions such as issuing houses and secondary

International Journal of Investment Management and Financial Innovations 2015; 1(3): 69-76

market institutions such as stock exchange. In some advanced economies, such as the United States, the secondary securities market is further decomposed into: the stock market (or the stock exchange), the over-thecounter markets (or the third market), and the fourth market. In this regard, the secondary, according to Anyafo (2002), is the market in which outstanding securities are bought and sold by the owners other than the issuers; while the third market refers to the over-the-counter trading of securities listed on an exchange; and the fourth market, is the direct trading of securities between owners, usually institutions, without any broker intermediation. The promotion of the capital market in Nigeria is tied up with the objective of accelerated economic growth and development. Ekiran (1999) identified the following as the main objectives behind the establishment of the Nigerian capital market: mobilization of long-term funds from surplus units for un-lending to deficit unit to ensure efficient allocation of scarce financial resources; reduction of over-reliance on the money market for industrial and public project financing; promotion of a solvent, efficient and competitive financial sector; and provision for long term finance as well as promotion of a healthy stock market culture. The Securities and Exchange Commission (SEC) is the apex institution in the capital market. However, it is only in operation due to the existence of the stock exchange. The stock exchange, which is the corner stone of the capital market operations, can be segmented into two sectors: The First-Tier Securities Market and the Second-Tier Securities Market (Anyafo, 2002). The first-tier securities market (Equity market) is the original and principal market dealing. According to Alile, (1994) and Anyafo (2002), the following conditions have to be met before a company can be quoted on the stock exchange: • A minimum nominal value share capital of #500,000 being at least 25% of the total issues, must be held by the general public. • Unless by prescribed council authority, minimum number of share-holders shall be 500. • There must be total payment for securities before registration. • Application of quotation will only be made possible through sponsorship by an existing member of the stock exchange Furthermore, such company must possess records of at least, five years of trading with the latest audited financial statements not exceeding nine months. The company is also required to pay an annual quotation fee based on its share capital. On the other hand, the first-tier securities market (Bond market) is the alternative market dealing. Applications for state and local government bonds must meet the requirements above in addition to four (4) prove prints of the prospectus to be provided at least, thirty days before publication. The prospectus must include the following among others: • The full name of the issuing company. • The amount and the title of issue.

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• Price of the issue, and other information regarding the issue. The second-tier securities market, however, was established in1985 for the benefit of companies that found the listing requirement of the first-tier market too stringent. The market is generally aimed at the small and medium scale enterprises (SMEs) as well as private-owned firms that wish to grow public. The following are the basic requirements: • The company must be registered according to the Companies and Allied Matters Decree (CAMD) of 1990. • 10 percent (unlike 25 percent of the first-tier market) of the minimum nominal value share capital of #150,000 should be in the possession of the general public. • Shareholding is restricted to a maximum of 75 percent by an individual. • Financial statements of, at least three (3) years, must be tendered. • A flat fee of #3,000 is payable for listing. • A maximum amount to be raised is #10 million. The number of companies that are listed on the second-tier securities market changes from time to time as new companies are listed whilst some older ones are upgraded from side-stream market and get listed on the stock exchange big board. In June 1987, the Nigerian Stock Exchange (NSE) introduced an electronic system which beams the Nigerian capital market operations to the international financial systems via the Reuters International Information Network. With the introduction of this service, foreign investors may automatically access relevant information on quoted companies on the stock exchange. Share prices, dividend payments, earnings per share, price-earnings ratio, among other stock market indices may be accessed by using the code NSXA-B. According to NSE Fact book (2009), there is growing investment interest in Nigeria’s stock market by the international business community. Meanwhile, by the virtue of the Non-Voting Shares Decree No. 34 of 1987, quoted companies are permitted to issue, through the stock exchange, non-voting shares for the subscription of persons whether citizens of Nigeria or not, whether residents of Nigeria or not. The shares, according to Alile (1993), are to be paid for in foreign convertible currency. Major features of these non-voting shares include: • Eighty percent (80%) of proceeds of sale goes to the selling companies in foreign currency for raw materials and machinery importation needs. • Twenty percent (20%) of the proceeds will be held in an interest-yielding escrow account at the CBN for the purpose of paying dividends to shareholders of nonvoting shares whosoever resident. • The position above was the policy stance prior to 1995 when Nigerian Investment Promotion Commission (NIPC) Decree No. 16 came into effects. According to NSE Fact book (2009), the shareholding structure of the Nigerian stock market shows that foreign holding represents about 43 percent of the equity market capitalization in the country.

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Onigbinde Isaac Oladepo et al.: Capital Market Operations and Public Projects’ Financing in a Developing Economy: An Empirical Evidence from Nigeria

2.1. The Instruments of Stock Market Trading in the Public Sector The basic instruments for long-term public projects’ financing in the Nigerian capital market includes the Federal Government Development Stocks, State Government Bonds, and Local Government Bonds. • Federal Government Development Stocks The Federal Government Stocks are traded on the Nigerian Stock Market. FGN Development Stocks first issued in May, 1959 and ever since then issued periodically. These are the instruments designed to enable the Federal Government raise long-term loans from the capital market. It is funded in the sense that the statutory sinking funds are created for the purpose of their redemption at maturity. To this effect, each department stock has a legal direction called instrument that is backing it (Anyafo, 2002). • State Government Bonds State Government Bonds are traded in the Nigerian capital market. State Governments in Nigeria have constitutional powers to issue state government bonds for the purpose of raising funds to execute public projects in their respective domains. • Local Government Bonds Local Government Bonds are tradable in the Nigerian capital market. A local government in Nigeria with requisite guarantee by its mother-state government has a constitutional power to issue revenue facilities of the bond through the stock exchange, provided the NSE listing conditionalities are satisfied. For example, the 24.75% First Lagos Island Local Government floating rate Revenue Bond 1996-2000 amounting to #100 million was floated on the Nigerian Stock Exchange. 2.2. The Nigerian Capital Market and Public Projects’ Financing There is no gainsaying that the public sector stock has been inactive for the most time in recent years, a development that is against the earlier state of Nigeria capital market. For instance, the public sector/government stocks were responsible for over 75 per cent of trading activities on the Nigeria secondary market from the inception of the market in 1961 to 1989 (NSE Fact book, 2012). Even in 1990, the government stocks were still very active, responsible for more than 55 percent of the trading activities in the market. However, the Federal Government has, in its wisdom, since 1987, ceased to use the capital market’s window in financing its projects, a situation that has not only affected its cash flow but sets imbalance in its funding system. Meanwhile, most of the public projects financed through borrowing from the CBN have remained uncompleted as the ways and means of funding is not efficient enough to execute the capital intensive public projects (Anyafo, 2002). In those years of military administration in the country, except for a few state and local governments which approached the capital market for financing of some of their

capital intensive projects, the general attitude in the government circle in those days was to ignore the market. This was in spite of the advice by the experts that the capital market is the most efficient means of funding capital intensive public projects. Okereke-Onyiuke (2001) emphasizes that the development bonds have a major advantage of being repayable, irrespective of the governmental regime that took the loan as the re-payments are deducted from the state or local government statutory allocation. This single-handedly responsible for the reason why some governments in Nigeria were coming to the market to raise funds. Ekiran (1999) refers to the government propensity to raise funds from the Nigerian capital market as a development which is synonymous as apparent move to raise their revenue through a more permanent capital fund instead of the money market short-term end with its negative consequences on macroeconomic stability. Similarly, Mobolurin (2001) stresses that the funding of the public projects through the money market short-term end, in the past, has resulted in huge deficit finance and its attendant problems. Such problems, as being witnessed in the country in recent times, include high rate of inflation which defines the traditional relationship between inflation and unemployment, which must have been moving in upward direction in the country as a result of inefficient public projects’ financing mechanisms. Specifically, the Redeemable Revenue Bond (RRB) which is currently being raised by several state governments in Nigeria from the primary market is being targeted towards the actualization of some special public projects. These projects include the following among others: • The establishment of agricultural plantation • Rehabilitation of rural and urban road networks • Rural electrification and rehabilitation • Rehabilitation of water works • Development of some special institutions • Execution of housing project and enterprise development Importantly, Ekiran (1999) concludes that the Nigerian capital market has prominent roles to play in addressing the issue of funding gap towards the execution of capital intensive public projects in the country.

3. Methodology This section presents the sequence of methods and procedures adopted in carrying out the study. Ex post-facto research design as suggested by Asika (2004) was used as the study’s guide in appraising the influence of capital market operations on public projects’ financing in Nigeria. Secondary data were sourced from the CBN Statistical Bulletin and NSE Fact books (Several Issues). Data generated covered a period of five (5) decades, ranging from 1961 to 2010 in the first instance and 1978 to 2002 in the other. The data collected were analysed using Pearson’s Product Moment correlation with the aid of the Statistical

International Journal of Investment Management and Financial Innovations 2015; 1(3): 69-76

Package for Social Sciences (Version 16), while the descriptive analysis for the State Government Bonds that were raised and traded on the Nigerian stock market during the period covered by the study was also made explicit (Asika and Awolusi, 2013; Awolusi, 2013).

4. Results and Discussions of Findings Considering the hypothesis I which states that “there is no significant relationship between the volume and value of government securities raised and traded on the Nigerian stock market”. The findings as depicted in table 1 below revealed that there is no significant relationship between the volume and value of government securities raised and traded on the Nigerian stock market during the period covered by the study. 4.1. Analysis and Interpretation of Result I From the table below, it was discovered that the r value of correlation coefficient is 0.007* between the Volume of Government Securities and its Value using Pearson’s Product Moment correlation.

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stock market has very little or nothing to its value at .01 level (2- tailed). Therefore, going by Kerlinger and Lee (2000) as cited in Hassan and Javad (2010) on the guideline for the acceptance or rejection of null hypothesis (Ho), the Ho1 which states that “there is no significant relationship between the volume and value of government securities raised and traded on the Nigerian stock market” is hereby not rejected. Similarly, considering the hypothesis II which states that “there is no significant difference in the Volume and Value of the state government bonds that had been variously floated and traded on the Nigerian stock market”. The finding as depicted in table 2 below,is revealing that there is also no significant difference in the volume and value of the states government bonds that had been variously floated and traded on the Nigerian stock market during the period covered by the study. 4.2. Analysis and Interpretation of Result II From the table below, it was discovered that the r value of correlation coefficient is 0.024* between the Volume of State Bonds and its Value using Pearson’s Product Moment correlation. Table 2. Test of Hypothesis II.

Table 1. Test of Hypothesis 1. Pearson’s Product Moment Correlation Volume of Govt Securities Volume of Pearson’s Correlation 1.000 Govt Securities Sig. (2- tailed) N 50 Value of Pearson’s Correlation .007* Govt Securities Sig. (2- tailed) .000 N 50

Value of Govt Securities .007* .000 50 1.000

Pearson’s Product Moment Correlations Volume of State Bonds Volume of Pearson’s Correlation 1.000 State Bonds Sig. (2- tailed) N 25 Value of Pearson’s Correlation .024* State Bonds Sig. (2- tailed) .000 N 25

Value of State Bonds .024* .000 25 1.000 25

50

Source: Research Computation (2014) *Correlation is not significant at the 0.01 level.

The results indicate that the Volume of Government Securities amount for about 0.7% of its value. This funding show a positive but weak relationship between the independent and dependent variables; that is, the Volume of Government securities floated and traded on the Nigerian

Source: Research Computation (2014) *Correlation is not significant at the 0.01 level.

The results indicate that the Volume of State Bonds account for about 2.4% of its value. This funding show a positive but weak relationship between the independent and dependent variables; that is, the volume of States Bonds floated and traded on the Nigerian stock market has very little or nothing to its value at .01 level (2- tailed).

Table 3. State Government Redeemable Revenue Bond(1978-2002). YEAR OF ISSUE 1978 1986 1987 1987 1988 1989 2000 2001 2002 2002 2002

STATE Old Bendel Ogun Old Oyo Lagos Lagos Kaduna Edo Delta Ekiti Yobe Delta

DESCRIPTION 1stBendel State Govt. Loan 12% 1st Ogun State Govt. Loan 16.5% 1st Oyo State Govt. Bond 17.5% 1st Lagos State Govt. Bond 15.5% 1st Lagos State Govt. Bond 17% 1st Lagos State Govt. Bond Edo State Govt. FRR Revenue Bond 1stDelta State Govt.FRR Revenue Bond 1stEkiti State Govt. FRR Revenue Bond Yobe State Govt. FRR Revenue Bond 2ndDelta State Govt. FRR Revenue Bond

AMOUNT(#) 20m 15m 30m 30m 60m 30m 1b 3.5b 4b 2.5b 1.5b

YEAR OF MATURITY 1996 1999 1999 1999 1999 1996 2002 2007 2005 2005 2007

Source: CBN Statistical Bulletin & NSE Fact book (Several Issues)

Therefore, going by Kerlinger and Lee (2000) as cited in Hassan and Javad (2010) on the guideline for the acceptance

or rejection of null hypothesis (Ho). The Ho2 which states that “there is no significant difference in the volume and

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Onigbinde Isaac Oladepo et al.: Capital Market Operations and Public Projects’ Financing in a Developing Economy: An Empirical Evidence from Nigeria

value of the state government bonds that had been variously floated and traded on the Nigerian stock market” is hereby not rejected. From table 3 above, it was discovered that the volume of Government Redeemable Revenue Bonds traded on the Nigerian stock market for 25 years (1978 – 2002) amounts to #12.685billion. Meanwhile, between 1978 and 1988, through a decade, only a few southern Nigerian states raised funds to finance public projects from the capital market. However, in 1989, the Kaduna State Government made a giant stride among the first generation of Northern Nigerian states by singlehandedly floating a sum of #30million from the Nigerian stock market through the State Government Bonds (SGBs). Between 1989 and the beginning of new millennium, SGBs’ trading witnessed a diminished patronage by all states across Nigeria as the state military administrators ceased to use the capital market’s window to finance public projects in the country, a situation that did not only affect their cash flow , but also set imbalance into their findings systems. Moreover, in 1996, Lagos Island Local Government, besieged the stock market, and sought funds to fill its revenue gaps. Therefore, 24.75%first Lagos Island Local Government Floating Rate Revenue Bond 1996 – 2000 amounting to #100 million was sought from the securities market. 4.3. Discussion of Findings This empirical study was undertaken in total appraisal of the Nigerian capital market operations vis-a-vis public projects’ financing the country. Statistical tests were applied to test the hypothetical statements that were stated earlier in the study. In the light of statistical results, it transpired that there is no significant relationship between the volume and value of government securities floated and traded on the Nigerian stock market during the period covered by the study. The findings further indicates that there is no significant difference in the volume and value of state government redeemable revenue bonds floated and traded on the Nigerian stock market during the period covered by the study. The result of the present, study therefore contradicts a number of findings, such as Ekiran (1999), Mobolurin (2001), OkerekeOnyiuke (2001), Anyafo (2002), which emphasize the capital market as the most efficient means of finding capital intensive public projects. Nevertheless, the result of the present study has further reinforced the need for requisite enabling environment, structural re-alignment and regulatory imperatives that will make the capital market an efficient alternative avenue for public projects’ financing in adeveloping economy of Nigeria (Awolusi, 2013; Awolusi, 2012).

5. Conclusion and Recommendations The findings indicate a positive but weak relationship between the two variables in each of the hypothesis. The outcome of the study notwithstanding, stock markets are

particularly important because of the liquidity they provide, especially for governments to raise long-term funds for their development programmes. Apart from fund mobilization and allocation, capital markets are important institutions in efficient sectorial distribution of the available financial resources. However, the market also assists in the elimination of distributions in the sectorial pattern of flow of funds in the economy. Therefore, an efficient securities market will accelerate the flow of capital into the public enterprises that answer the greatest economic need and retard the flow into enterprises with less justification for development. Using capital market to finance public projects appears to be mimicked by the Nigerian stock market that it was predominantly a means for government to raise loan finance rather than an instrument for mobilizing industrial finance. Hence, using the market to finance public projects, therefore does not only enlarge operations but it also enhances greater operational efficiency. Another measure which is derived from the statistics of the Paris Club to which Nigeria is heavily indebted indicated that the bulk of the loans, precisely 85 percent, were taken by the Nigeria’s state governments. They obtained these loans from the export credit agencies of the European Union (EU) member states for the execution of projects of questionable utility and viability, out of the view of the Nigerian Stock Exchange which would probably have raised doubts regarding the projects and the facilities. In the event today, Nigeria has a huge debt burden that is a danger to its economic recovery. Moreover, it is quite unfortunate that the Federal Government Development Stock remains inactive most often than not on the Nigerian stock market while the market is being referred to as one of the avenues by which the governments can raise long-term funds to finance their viable capital intensive projects; the scenario that was not unconnected with the political and economic crisis of the past military administration in the country. Therefore, democratic government sorely needs such market to enhance healthy financing of numerous public projects. Similarly, most state and local governments in Nigeria have not been exercising their constitutional powers, especially in the area of raising long-term funds to finance their projects through capital market. A situation that has not only affected their cash flow but sets imbalances into their funding systems.Therefore, the role of capital market as a signal of economic performance or as a vehicle for fund mobilization for development as well as a ‘barometer’ for public projects’ financing cannot be overemphasized. Finally, should the Nigerian capital market’s efficiency had really been utilized to its fullest capacity, many more viable public project ideas and financial acumen would have been turned into reality. On the strength of this study’s findings, the following are the researchers’ recommendations: Using the capital market to finance public projects in a developing economy like ours in Nigeria should not be a matter of choice, but rather a part of the operating environment of the country’s financial system, most

International Journal of Investment Management and Financial Innovations 2015; 1(3): 69-76

especially in this contemporary regime of trade liberalization and financial market deregulation. The world is now a global village and Nigeria, as a country, cannot pretend to be an island. Therefore, the Nigerian capital market should be built up with the mass participation therein to attain meaningful sustainable growth. Such mass participation could be attained via the extensive corporatisation of municipalities and the existence of an efficient municipal or government securities in the market. Stock exchanges and Securities and Exchange Commission (SEC) in Nigeria should regularly avail any state or local government showing desire to raise fund from stock market of needed information and assistance upon contact. Nigeria, as a country, must appreciate the message of new theory of growth centered on the capital market’s financial intermediation, and undertake significant and relevant financial reforms. Nigeria, as a country, needs to re-define and domesticate the stock market in her economy as a way of overcoming the dichotomy between the formal and informal sectors and her capital market. Ultimately, there are needs to formulate investment friendly regulations; keep low inflationary rate; provide suitable government policies and provide stable macroeconomic framework The foregoing scenario and trends contain grave lessons for all stakeholders in public projects’ financing in Nigeria as a country imbibes the lessons of the new forms of the possible roles of stock market in funding capital intensive public projects.

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