This work investigates capital market performance and privatization in Nigeria from 1975-2015 using secondary data obtained from Central Bank of Nigeria and Ordinary Least Square estimation technique. The empirical finding of the study revealed that privatization did not have statistically significant effect on capital market operations in Nigeria. The study therefore advised the government to take a second look at its privatization policy programmes so as to ensure it achieves its aims and objectives especially with rewards to the capital market.











1.1 Background to the Study

The capital market plays a very important role in the privatisation exercise to the extent that, without the mechanism of the market the privatisation exercise may not be possible (Osaze, 2001). It is in view of this that the Decree No. 25 on privatisation and commercialisation categorically stated in section 6 (1) “all shares of enterprises to be privatised under this decree shall be offered for sale in the Nigerian capital market.” In subsection 2 of the decree, it also stated that “all offers for sale of shares under sub-section 1 of this section shall be by public issues except where the Federal Government, on the advice of the Technical Committee on Privatisation and Commercialisation, decided that the shares of any affected enterprises should be sold by private placement.” And section 4 of the decree states that “the Technical Committee should advice on the capital restructuring needs of enterprises to be privatised or commercialised under this decree in order to ensure good reception in the stock exchange market for those to be privatised as well as to facilitate good management and independent access to the capital market.

In section 4 (b), it also states that to carry out all activities required for the successful public issues of shares of the enterprises to be privatised including the appointment of issuing houses, stockbrokers, solicitors, accountants and other experts to the issues, and to approach, through the appointed issuing houses, the Securities and Exchange Commission for a fair price for each issue.”

Subsection (d) “advised the federal government on the allotment pattern for sale of the shares of the enterprises concerned”. Therefore, we can clearly see that the privatisation exercise is centred on the Nigerian capital market. Hence, it is appropriate here for us to examine how the programme affects the different actors in the Nigerian capital market.

The capital market has been identified as an institution which contributes to the socio-economic growth and development of emerging and developed economies. (Okafor, 1983; CBN, 2007). This is made possible through some of the vital roles it play such as channeling resources, promoting reforms to modernize the financial intermediation capacity sector to link deficit to the surplus sector of the economy, mobilization and allocation of savings among competitive uses which are critical to local investment (Allies, 1984; Ibenta, 2000).

It helps to channel capital or long-term resources to firms with relatively high and increasing productivity, thus enhancing economic expansion and growth (Allies, 1997). Ekundayo (2002), argues that a nation requires a lot of local and foreign investments to attain sustainable economic growth and development. The capital market provides a means through which this is made possible.

The adoption of SAP by the government in August 1986 was a bold policy move aimed at changing the structure of the Nigerian economy. The objectives of SAP were to restructure the consumption and production pattern as well as to rationalise and restructure public expenditure, on this latter premise, came privatisation. Privatisation is the transfer of the ownership and control of certain production processes from the public to the private sector. It firmly presupposes that the private sector operates at a higher level of efficiency to produce goods and services at lower costs. Themajor aim of privatisation thus is to create positive performance in profit terms through greater management efficiency by creating and adding more values in services rendered and for the fees and prices charged (Boubarki and Cosset, 2008).

Understandably, the government would be able to realise more funds from the sale of its ownership in these enterprises and thus block the drain on government revenue from operating the enterprise inefficiently. It is hardly in doubt that many different institutions in the financial sector have a critical role to play in the implementation of privatisation in Nigeria (Efoagui, 2008). A general function performed by all of these institutions is to provide one form of financial intermediation or another between suppliers of funds and those who need them. In the case of privatisation, they will essentially perform the same role by bringing together the government that owns enterprises and private citizens and associations that want to buy such shares. Of relevance to this study is the particular role of the capital market in which the main players are the issuing houses and the stock-broking firms while the Nigeria Stock Exchange (NSE) provides the medium and the Securities and Exchange Commission (SEC) acts as the primary regulator. These roles will be highlighted and the impact, which the privatisation exercise itself has in turn on the capital market, will be fully evaluated in this study. Since the focus later is on the adequacy of the Nigerian capital market to cope with the demands of the privatisation exercise, it becomes necessary to examine the institution and mechanism involved in the capital market transactions (Efoagui, 2008).

There are, of course, benefits that have been and can be derived with proper implementation of privatisation. An efficient capital market should have a catalytic impact on the growth of market oriented economies. Thus, the importance of an active and efficient capital market in ameliorating the country’s financial strain should be of great concern. The success of privatisation enhances not just the capital market, but the financial system as a whole.


1.2 Statement of Problem

Public enterprises are government-owned enterprises established mainly to provide infrastructural facilities such as electricity, telecommunication services, water and other essential services. Despite the huge sums spent by various governments on these public enterprises, their performance has been far below average (UNDP, 1990). The problems of public enterprises are many:

  • Ill-conceived investments;
  • Political interference in decision-making;
  • Costly and inefficient use of public resources;
  • Growing budgetary burden;
  • Over-extension of government managerial capacity; and
  • Diversion of credit and other resources from the private sector.

These problems were well documented in a number of reports, notably the World Bank’s Human Development Report 1983. This report became the launching pad of a global programme of public enterprises’ reforms in Nigeria. We have thus become witnesses to a gradual evolution of a new economic order, which is characterised by structural adjustment programme (SAP). The primary objective of SAP is the rationalisation of national economy for the purposes of ensuring efficiency and effectiveness in resource allocation and utilization (Efoagui, 2008).

Available records have shown that government-owned enterprises are inefficient. Over the years, their performance level has been very low due to uncontrolled interference in their management and operations by the government. They are also subject of government bureaucracy and official red-tapism.

Accordingly, the primary reason for privatisation is to achieve optimal use of available resources through increased use of managerial skills and efficiency and thus reduce government involvement. It was not easy to achieve this because of the gap in the financial system of Nigerian economy, which is the major factor in the implementation of the privatisation programme. A new orientation of the capital market within the framework of the financial institutions is needed to adequately take care of the privatisation exercise. Attention is also needed to check whether fully or partially privatised enterprises (rural or urban, small and large) will ensure an effective and efficient allocation of resources (Elliot, 2009).

At this point, one would like to know whether privatisation has solved the problems of the government-owned parastatals and whether the involvement of Nigerian public enterprises has become impressive in the securities market. It is with this problems that this study seeks to assess the capital market performance and privatization in Nigeria.

1.3 Research Questions

  1. What is the effect of privatization on the performance of capital market in Nigeria?

1.4 Objectives of the Study

The main objective of this study is to assess the capital market performance and privatization in Nigeria.

The specific objectives are to:

  1. determine the effect of privatization on the performance of capital market in Nigeria

1.5 Research Hypotheses

H01:Privatization policy has not significantly propelled investments in the capital market.

1.6 Significance of the Study

This research will help the government and reader understand those benefits that privatization program embodies which we have neglected and politicized within the past.

In understanding this on the side of the government, it will allow them to return and work towards real implementation of it and thereby creating a room for the rapid growth and development of this country.

On the other hand, it will go a long way to create an avenue for more academic research.

1.7 Scope of the Study

The scope of this research study is limited to capital market performance and privatization in Nigeria. The time period is 1981-2015.