CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

A central objective of developing countries is to achieve high and sustained economic growth that supports rapid development and reduces poverty. Economic growth refers to a sustained increase in per capita national output over a long period. It reflects the capacity of an economy to expand its production of goods and services from the capital and other factors of production available to it. Because higher output depends heavily on capital accumulation, investment is regarded as a principal driver of growth.

To achieve high growth, governments must adopt policies that raise both public and private investment. Such investment promotes industrialisation, the process by which an economy raises productivity and generates income increasingly from industry and machinery rather than from primary activity. As industries expand, they contribute to growth and to wider development. Industrialisation, however, needs long-term finance, often for much longer periods than most savers are willing to commit their funds. The capital market exists to bridge this gap.

The capital market is the segment of the financial system in which medium- and long-term funds are raised and traded. It comprises the primary market, where new securities are issued, and the secondary market, where existing securities are bought and sold, usually on an organised stock exchange. Through it, surplus units invest in long-term financial assets issued by borrowers, either directly or through financial intermediaries. The secondary market gives savers the option to sell their holdings when they need cash without disturbing the firms that their funds financed. In this way, short-term savings become long-term capital, aggregate savings are channelled into real investment, and the capital stock and growth can expand.

The Nigerian capital market has changed considerably in the last decade. The Nigerian Stock Exchange, which was founded in 1960 as the Lagos Stock Exchange and took its later name in 1977 (ThisDay, 2022), completed its demutualisation in March 2021 and became a holding company, the Nigerian Exchange Group, with separate subsidiaries for trading, regulation and real estate (Mondo Visione, 2021). A new Investments and Securities Act was signed in 2025, repealing the 2007 Act and reaffirming the Securities and Exchange Commission as the apex regulator of the market (BusinessDay, 2025). At the same time, a recapitalisation programme introduced by the Central Bank of Nigeria in 2024 has led banks to raise equity capital, bringing renewed activity to the market (Chambers and Partners, 2026).

The real sector has not shown comparable gains. The National Bureau of Statistics reported real GDP growth of 3.4 per cent in 2024, with manufacturing contributing 8.64 per cent of real GDP (before rebasing), a lower share than the 8.81 per cent recorded in 2023 (Arise News, 2025). After the 2025 rebasing of GDP, analysts observed that services remain the main driver of growth while the share of manufacturing continues to shrink (Africa Check, 2025). This contrast between a modernising capital market and a struggling industrial sector motivates the present study.

The empirical literature on the link between the capital market and industrial performance in Nigeria is extensive but not uniform. Onwumere et al. (2023), using data from 1985 to 2020 and a vector error correction model, found a long-run relationship between capital market development and manufacturing sector performance, with market capitalisation, value of transactions and turnover ratio all having positive and significant effects. Aiyedogbon et al. (2024), covering 1986 to 2022, report that stock market capitalisation has a significant positive effect on industrial sector growth, whereas the All-Share Index has a negative relationship with it, which suggests that positive market sentiment does not always translate into industrial growth. Ikeobi (2023) found that market capitalisation has a positive and significant effect on manufacturing output, but that equities have a significant negative effect, and concluded that the capital market has not been a source of finance for manufacturing. Ojapinwa et al. (2025) revisit the relationship and conclude that manufacturing performs better when the capital market eases borrowing constraints, allocates capital more efficiently and ensures liquidity. These mixed findings justify a fresh evaluation using recent data.

1.2 Statement of the Problem

Every nation seeks economic advancement and a better standard of living for its citizens. The capital market is a major channel for achieving this, because it provides long-term finance, through its intermediation role, for projects in infrastructure, agriculture, solid minerals, manufacturing and other real-sector activities, whether they are promoted by government or by private institutions. Without an efficient capital market, an economy may lack the long-term funds required for sustainable growth.

In Nigeria, however, there is a clear disparity between the development of the market and the performance of industry. Recent reforms and growth in market indicators have not been matched by a corresponding expansion of the manufacturing sector (Africa Check, 2025; Arise News, 2025). Empirical studies disagree on whether capital market development has promoted industrial output, and several suggest that the market is not a major source of funds for manufacturing firms (Aiyedogbon et al., 2024; Ikeobi, 2023). It is therefore important to evaluate the performance of the Nigerian capital market in relation to the industrialisation of the economy over the most recent decade, in order to establish what part the market has actually played.

1.3 Objectives of the Study

Because the capital market is central to capital formation and mobilisation, growth in the market should have a measurable effect on economic indicators such as Gross Domestic Product (GDP). The specific objectives of the study are to:

1. examine the contribution of the capital market to industrialisation in Nigeria between 2015 and 2024;
2. determine the extent to which the capital market has enhanced capital formation in Nigeria;
3. ascertain the rate of growth in the development of the capital market over the period; and
4. recommend measures for sustaining or improving the contribution of the capital market to industrialisation.

1.4 Research Questions

The following research questions translate the objectives into specific questions that guide the study:

1. Has the development of the Nigerian capital market contributed to the industrialisation of the economy?
2. How has the Nigerian capital market enhanced capital formation in the economy?
3. What has been the rate of growth in the development of the Nigerian capital market over the period under review?
4. What can be done within the capital market to strengthen industrialisation?

1.5 Research Hypotheses

The following null hypotheses provide the framework for the study:

H₀₁: The development of the Nigerian capital market has no significant positive impact on industrial development in Nigeria.

H₀₂: The development of the Nigerian capital market has no significant effect on capital formation in the economy.

1.6 Significance of the Study

A study of the capital market's role in industrialisation from 2015 to 2024 is timely, because the period covers a significant structural change in the market and in market regulation. It includes the demutualisation of the Nigerian Stock Exchange in 2021 (Mondo Visione, 2021) and the bank recapitalisation programme introduced in 2024 (Chambers and Partners, 2026), and it leads directly into the Investments and Securities Act 2025 (BusinessDay, 2025). These changes may have altered how the market mobilises and allocates long-term funds, which creates a need for updated evidence.

The study will benefit several groups. Policymakers and regulators can use it to assess the effects of the laws and programmes they have introduced. Capital market operators and investors will gain insight into the extent to which the market finances productive sectors. Students and researchers will find an up-to-date reference on the relationship between the capital market and real-sector performance. Manufacturers, agricultural producers and other real-sector firms will gain a clearer understanding of how the capital market can be used to raise long-term funds.

1.7 Scope of the Study

The study covers the activities of the Nigerian capital market between 2015 and 2024. The period is recent enough to reflect the market's current structure and long enough to capture changes in market conditions. It uses annual data, and the Nigerian Exchange Group, formerly the Nigerian Stock Exchange, is the focus of the analysis of the secondary market.

1.8 Definition of Terms

Bond: A debt security under which a government or other issuer promises to repay a loan, with interest, over a specified period.

Capital formation: The addition to a country's stock of productive assets, such as machinery, buildings and infrastructure, that is financed from savings.

Debenture: A debt instrument issued by a company, under which the company promises to repay a loan, with interest, over a specified period.

Dutch disease: An economic concept in which a rise in revenue from natural resources appreciates the exchange rate and reduces the competitiveness of the manufacturing sector, thereby weakening industrial capacity.

Industrialisation: The process by which an economy develops its industries and uses machinery and other methods to raise productivity and national income.

Liquidity: The ease and speed with which shares or other assets can be converted into cash without significantly affecting their price.

Listing: The admission of a company's securities to trading on a stock exchange.

Market capitalisation: The total market value of the shares of all companies listed on an exchange.

Portfolio: A collection of securities, such as shares, bonds and funds, held by an individual or institutional investor.

Prospectus: A document that provides information to the public about securities being offered for sale.

Risk: The uncertainty about future outcomes, including the possibility of loss.

Securities: Financial instruments, such as shares, stocks, bonds and debentures, that represent a claim on assets or income and can be traded on a stock exchange.

Settlement cycle: The time between the execution of a trade and the final transfer of securities and cash between the parties.

Shares: Units of ownership in a company, which entitle the holder to a part of its profits.

Stock exchange: An organised market on which investors buy and sell securities through licensed brokers, by electronic or other means.

References

Africa Check. (2025, August 18). Factsheet: Nigeria rebases its economy again — Here's what sets it apart. https://africacheck.org/fact-checks/factsheets/factsheet-nigeria-rebases-its-economy-again-heres-what-sets-it-apart

Aiyedogbon, J. O., Abayomi, A., & Okoroike, N. J. (2024). Impact of capital market development on industrial sector output in Nigeria: 1986–2022. International Journal of Research and Innovation in Social Science, 8(2), 341–358. https://ideas.repec.org/a/bcp/journl/v8y2024i2p341-358.html

Arise News. (2025). NBS: Nigeria's GDP growth hits 3.4% in 2024, fastest pace in three years. https://arise.tv/nbs-nigerias-gdp-growth-hits-3-4-in-2024-fastest-pace-in-three-years

BusinessDay. (2025). [Report on the signing of the Investments and Securities Act 2025]. https://businessday.ng/?p=1015138

Chambers and Partners. (2026). Corporate M&A 2026: Nigeria. Chambers Practice Guides. https://practiceguides.chambers.com/practice-guides/corporate-ma-2026/nigeria

Ikeobi, N. R. (2023). Capital market intermediation and manufacturing sector financing in Nigeria. International Journal of Business Management and Finance Research, 6(1), 1–10.

Mondo Visione. (2021, March 10). Nigerian Stock Exchange completes demutualisation — Nigerian Securities and Exchange Commission and Nigerian Corporate Affairs Commission approve. https://mondovisione.com/media-and-resources/news/nigerian-stock-exchange-completes-demutualisation-nigerian-securities-and-exch-2021310/

Ojapinwa, T. V., Eze, N., & Sodiq, K. O. (2025). Capital market–manufacturing sector relationship revisited in Nigeria. Lagos Journal of Banking, Finance and Economic Issues. https://cor.unilag.edu.ng/index.php/LJBFEI/article/view/2531

Onwumere, J. U. J., Aigbodioh, C. O., Ngong, C. A., Onyejiaku, C. C., & Moguluwa, S. (2023). Responsiveness of capital market development to manufacturing sector performance in Nigeria. International Journal of Business Competition and Growth, 8(3).

ThisDay. (2022, October 12). Nigerian capital market's 62 years of impact. https://thisdaylive.com/index.php/2022/10/12/nigerian-capital-markets-62-years-of-impact