OPINION: How capital market can help create better future for all
By Treasure Mayowa
First and foremost and for a better understanding of the topic of this write-up, I will define capital market as a market for long-term investment. Entrepreneurs and business owners all go to the capital market to raise relatively cheap long-term funding for the sustainability of their businesses and support the growth and expansion of their operations. According to Investopedia, an online economic platform, “the capital market refers to the place where savings and investment are moved between suppliers of capital and those who are in need of capital.” Wikipedia, another free online encyclopedia, defines capital market as “a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold.”
The capital market provides a huge opportunity for investors to grow their wealth by investing in the shares of companies thereby helping individuals, corporate organisations and government to make provisions for future needs.
Indeed, the capital market plays a major role in the growth of the economy; but the main question is, how can the market help to create a better future for all?
The capital market can help to create a better future for all by providing an efficient platform for companies and government to mobilise long-term capital to invest in the expansion of businesses and financing developmental projects by the government. From the definitions highlighted above, the capital market has the ability to help individuals to grow their wealth while enabling companies to raise long term funds to finance their operation and government to fund development projects.
In a paper presented by Oscar Onyema, the Chief Executive Officer of the Nigerian Stock Exchange (NSE) to the Academy of Entrepreneurial Studies in Lagos on April 2012, he said: “The Capital Market facilitates the mobilisation of long-term investment capital for the financing of business enterprises as well as government long term investment projects.”
The key advantage of the capital market over all other financial markets is that it provides access to capital for businesses at rate/price cheaper compared to the money market and other financial markets. Many businesses, both small and medium scale and large enterprises can borrow or raise capital to fund their operations through the market at lower cost, unlike what obtains in the money market where short-term funds are traded between the surplus and deficit side of the economy.
Recently, regulators in the market have been carrying out major reforms in the nation’s capital market; the market reforms boost efficiency and transparency thereby enhances public confidence in the activities of the market.
Listed companies are now subjected to stricter rules to ensure transparency and accountability as part of measures by the regulators to ensure the safety of the investors’ funds. With improved regulations, performance of listed companies has been enhanced while individuals and institutional investors are increasingly taking advantage of opportunities in the market to multiply the returns on their investment through dividends and capital gains.
Also, it is important that an enlightenment programme should be organised by the capital market operators to make potential investors aware of the available opportunities in the capital market.
Knowledge of the capital market should also be encouraged in secondary schools and higher institutions as a way of imbibing the culture of investment from an early stage.
Again, from information gathered through research, the current leadership of the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC) have introduced some measures to protect investors from the adverse impact of mismanagement of companies by their owners, more can still be done to ensure that the investing public are well protected. As reforms are being carried out, more should be done on this area of investors’ protection.
The government has the responsibility to ensure a thriving capital market as any productive country needs such market to accelerate development and guarantee a better future for the populace and the growth of the financial sector generally.
Asides from the great benefits offered investors to multiply their wealth through investment in the capital market instruments, the market is a veritable avenue to accelerate development in the economy by both government and corporate institutions.
Government should also be encouraged to play a bigger role in the market to boost confidence and enhance the value of the overall performance of the market.
The government could list some of its major agencies such as the Nigerian National Petroleum Corporation (NNPC) and some of its subsidiaries in the market to increase the market capitalisation and deepen the market. A bigger capital market will boost economic development in the country, increase job creation and guarantee a better future for the citizens.
With the listing of government large corporations on the market, maybe private institutions that have been reluctant to come to the market will be encouraged, while transparency in government business will be enhanced and lead to gradual elimination of corruption and wastages in government finance.
Equally, the government could help the market to thrive by enabling the business environment in the country to attract inflow of both direct and indirect foreign investment into the country.
A major review of policies to promote savings and investment culture in the country will also go a long way to deepen the market and enhance returns on investments.
It is essential that the market regulators should also consistently fine-tune their regulatory tools to promote transparency, reduce cost of transactions and enhance discipline in the market by all players in the market.
It is envisaged that if the government, regulators and other players in the market are committed to the combination of the above measures, a better future will be assured for investors and citizens at large.
•Miss Mayowa is a SSS 1 student of BHMGS in Lagos
* The write-up was first submitted as a contribution to the Nigerian Stock Exchange essay competition last year