IMPACT OF PRIVATIZATION IN NIGERIA CAPITAL MARKET
A Case Study of Nigeria Stock Exchange  
ABSTRACT
The enthusiasm to improve rapid economic growth and development resulted in government involvement in economic activities, believed to be best operated by the private sector, though the creation and establishment of state owned enterprises. However the resulting waste, inefficiencies and unproductivity of the these enterprises warranted, stimulated and fueled the move in national consciousness towards the imperative of privatization (and commercialization).
The Nigeria privatization programme embarked upon in various rounds and phases has been observed to have accrued numerous benefits to the economy and the capital market in particular. This observed benefits have move forward this research on the “Impact of Privatization on the Capital Market”. In order to achieve the objectives of the study and to validate the hypotheses formulated in the study, a systematic five-chapter approach had been adopted.
Chapter one cover the background of the study, the objective, research questions, hypothesis, scope, limitation of the study.
Chapter two, undertaken a review of relevant literature.
Chapter three discusses the research methodology employed in analyzing the data collected.
Chapter four deals with the presentation analysis of data. It equally tests the hypothesis proposed.
Chapter five covers the summary, findings recommendations and conclusion of the project work.
 TABLE OF CONTENTS
CHAPTER ONE
Introduction
1.1       Background to the Study           
1.2       Statement of the Problem          
1.3       The Objective of the Study        
1.4       Significance of the Study           
1.5       Statement of Research Hypothesis
1.6       Scope of the Study                    
1.7       Research Methodology               
1.8       Limitations of the Study            
1.9       Definition of Terms                    
CHAPTER TWO: LITERATURE REVIEW
2.1       Historical Background of the Public Enterprises
Poor Performance              
Justification for Privatization in Nigeria
2.2       The Concept of Privatization               
2.3       Objectives of Privatization                  
2.4       Models of Privatization                       
2.5       The Legal Regulation of Privatization in Nigeria
2.6       Expectation from Privatization                    
2.7       Privatization in Nigeria                               
2.8       Evolution of the Nigerian Capital Market      
2.9        The Capital Market                                   
2.10   The Securities and Exchange Commission   
2.11   The Roles of the Capital Market                  
2.12   Approach of Raising Fund in the Capital Market
2.13   Privatization and the Capital Market            
2.14   The Impact of Privatization on the Capital Market
CHAPTER THREE:     Research Methodology and Model Specification
3.1       Introduction                                      4
3.2       Model Specification                           
3.3       Population of the Study                     
3.4       Sample of the Study                 
3.5       Sources of Data Collection         
CHAPTER FOUR:       Data Presentation and Interpretation of Regression Result
4.1       Introduction                     
4.2       Analysis of Regression Results
4.3       Policy Implications                    
 CHAPTER FIVE:        Summary, Findings, Conclusion and Recommendations
5.1       Introduction                     
5.2       Summary                         
5.3       Findings                           
5.4       Conclusion                        
5.5       Recommendations             
Bibliography                   
Appendix                         
CHAPTER ONE
INTRODUCTION
1.10  BACKGROUND TO THE STUDY
All over the world the public service as a matter of experience has been know for it’s capacity to create wealth. Consequently, public enterprises have usually been perceived as drain pipes for government budget. Thus creating budgetary strains and avoidable burden on economy. It become a national policy, imperative therefore to disengage the public sector from those area where the private sector has the comparative advantage to perform, while letting the state concern. Security and the enabling environment for business to thrive though enhanced wealth creation.
It is important to observe that for many developing countries like Nigeria, it was perhaps unavoidable for the government in an earlier epoch to promote the initial investments in the early phase of national development of the private sector.
Unfortunately, the government got herself so involved in business that could best be tackled by the private sector that government could no longer perform it’s traditional functions.
Meanwhile, government involvement in national development and wealth creation resulted in the creation and establishment of about 600 federally owned public enterprises (Anya 2001) (over the year till date) which to day have taken generally assessed as inefficient, corrupt unproductive and wasteful. These factors along with that impairing on government efficiency in performance of it’s traditional functions provoked several movements in national consciousness as to the imperative of privatization and commercialization.
Privatization, which in a narrow perspective entails the sale of public assets or enterprises to the private sector, is seen as an instrument for productive and allocative efficiency and higher economic growth. It also has the objective of pubic deficit reduction and improvement of public finance, encouragement of competition and wide private sector participation in economic development, development of local capital markets, etc. it’s ultimate objective is to liberalize the economies through increasing private sector involvement and capacity utilization.
In March 1988, the then Head of State, Ibrahim Babangida, promulgated a decree establishing the Technical Committee on Privatization and Commercialization (TCPC). The Committee, formerly inaugurated in July 1988 was to undertake the task of reforming the public enterprises scheduled for privatization, this move was an integral and critical component of the Structural Adjustment Programme (SAP) which started in 1986. The Committee, later replaced by the Bureau for Public Enterprises has been at this task since then though a different phase. In order to ensure transparency, credibility and the widespread ownership of the shares of privatized enterprises, the popular trend mostly among developing countries has been to divest through the capital market.
Privatization and Commercialization has provided opportunities for individuals and organizations both within and outside Nigeria to buy and sell of securities. This significant development has posed challenges and provided opportunities for the growth of the securities market in Nigeria and for greater public participation in the market. At end of the first phase of the exercise, it was stated that “it had crated a large body of shareholders and deepened and broadened the Nigerian Capital Market to position of being the most developed in black Africa” (Anya 2001). It has stimulated investment and improved capital market awareness both at local and international fronts.
This research work undertakes a critical review and examination of the impart of privatization on the capital market, considering the degree of innovation and awareness engendered into the capital market by the privatization policy in relation to the Nigerian Stock Exchange.
1.11  STATEMENT OF THE PROBLEM
The mission statement of the Nigerian Capital Market emphasizes its role and involvement in facilitating and stimulating socio-economic growth and development via the mobilization and formation of long-term funds for investment.
However, it has been observed that this role has not been efficiently and effectively played by the market. In fact, the market was less popularized locally and internationally before and during the first phase of the exercise. Until recently, it has not been a popular source of funds because of the instability in the economy and government’s overbearing presence in economic matters.
With this understanding and viewing from the perspective of the contribution of privatization, this research study will be considering;
i.             To what extent has populace been more involved in the ownership of the corporate sector of the economy?
ii.           What effects has privatization had on the market?
iii.         What factors are militating against privatization and the capital market in Nigeria?
iv.         How have the companies so far privatized fared after securing privatization approval from the governing bodies in the capital market?
v.           What challenges has the exercise posed to the regulatory framework of the capital market?
vi.         What benefits have Nigerians benefited from privatization programme of the government?
Given the roles that the capital market plays in the economy, there could not be any meaningful or significant development where there is reliance on only money or where the capital market is relegated to the background.
 1.12  THE OBJECTIVE OF THE STUDY
This study is specifically undertaken to achieve the following objectives:
1.           To determine the post privatization effect on the activities of the capital market.
2.           To determine the extent to which the privatization policy was propelled investments in the capital market.
3.           To find out the post privatization performance of the privatized companies.
4.           To determine the economic objectives of the privatization policy in Nigeria.
5.           To point out the implications of the privatization programme on the capital market.
6.           To find out the benefits of privatization and capital market operations in Nigeria.
7.           To proffer suggested solutions to the problems in the privatization process and capital market operations in Nigeria.
 1.13  SIGNIFICANCE OF THE STUDY
Going by the observation of the unpopularity of the capital market during the first phase of the exercise it will help to establish the level of awareness, ownership and investments that has arisen in the Nigeria Capital Market.
Besides the development, efficient operationally, listings etc of the capital market will be revealed, it will help in the ascertainment of the profitability of the governments privatization programme on general fronts and in precise terms on the capital market. Undertaking a pre-privatization review and a post-privatization analysis will further reveal the dividends, success and benefits of the privatization programme on the country as a whole and hence, engender continuous support for the programme.
Finally, it will add flesh to great works already done on the subject and will serve as a reference guide to prospective researchers who would like to continue this analysis in the future.
  1.14  STATEMENT OF RESEARCH HYPOTHESIS
Hypothesis is a tentative answer to a research question, it is often stated in the form of a relationship between a dependent variable and the explanatory variables. For the purpose of this study, the hypotheses formulated are:
Null Hypothesis (Ho): That privatization exercise in Nigeria has not enhanced the growth and performance of the capital market in Nigeria.
Alternative Hypothesis (Hi): That privatization exercise in Nigeria has enhanced the growth and performance of the capital market in Nigeria.
 1.15  SCOPE OF THE STUDY
The scope of the research on the impact of privatization on the capital market in Nigeria will focuses on the contribution of privatization exercise to the growth of capital market activities using market capitalization as proxy or indicator of economic performance. The activities of the capital market to be captured will be restricted to the period between 1980 – 2005. This period of 25 years will serve as the horizon for the study.
 1.16  RESEARCH METHODOLOGY
In this research, particular attention will be paid to the immerse utilization of data from secondary sources. Also, data will be obtained from the textbook, journals, conference papers, internet, government, publications, magazines, financial paper, Federal Offices of Statistics (FOS), Central Bank of Nigeria (CBN) Statistical Bulletin Vol. 16, December 2005. The data will be analyzed using the Ordinary Least Square (OLS) estimation method.
This will enable us test an hypothesis and give the necessary interpretations and then finally conclude based on our regression analysis. The OLS estimation method has some vary attractive statistical properties which have made it vary popular method of analysis.
1.17  DEFINITION OF TERMS
The following technical words are concisely expatiated thus:
i.             Capital Market: A market in which medium and long-term funds are raised by industries, corporations bodies, government and local authorities.
ii.           Privatization: The transfer of ownership and control of a business enterprises from government to the private sector.
iii.         Divestment: A business strategy in which a part of the business is sold off.
iv.         Investment: Commitment of funds to long-term assets or projects that will yield returns after a period of time.
v.           Securities: These are marketable financial instrument such as equity and debt instruments with which business enterprises and other organizations raise capital from the public.
vi.         Financial Market: The medium through which funds are mobilized and transferred efficiently from surplus to deficit sector(s) of the economy.
vii.        Money Market: The market for raising short-term funds, majority dominated, controlled and influenced by the activities of the commercial banks.
viii.      Shareholder: An owner of shares or equity capital in a limited liability company who is also a member of the company.