Capital market entails the part of financial system concerned with raising capital by dealing in stocks, bonds, and other long-term investments. From Investopedia perception, capital market captures individuals and institutions trading financial securities. Organizations/institutions in the public and private sectors, especially in Nigeria often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets. But I won’t dwell much on that, so as not to divert the attention of the readers from the exact points.
It is also pertinent to note that a capital market is usually made up of three major parts: (1) stock market ( 2) bond market (3) money market. It also works as an exchange for trading existing claims on capital in the form of shares. As put by online Business Dictionary.
Also to a layman perception, he will rather view capital market as an institutional arrangements to borrow and lend money for a longer period of time. We have institutions like IDBI, ICICI, UTI, LIC, e.t.c that play the role of lenders in the capital market, while business units and corporate are the borrowers in the capital market.
The Roles Capital Market Play In The Economy
Having clarify what capital market entails, let us now shed more light on economic growth. This encompasses a steady growth in the productive capacity of the economy. Wikipedia also capture economic growth as the increase in the amount of the goods and services produced by economy overtime. Similar to Wikipedia is Investopedia’s definition which portray economic growth as an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. No wonder, stakeholders in Nigeria have renewed call for an efficient and effective capital market to drive economic growth in the country as well as returning the nation’s economy to equilibrium and to the path of sustainable growth.
According to Chris Uba (2010) report on transforming Nigeria’s capital market to a world class; strong capital market was considered as a veritable instrument for economic growth and development. That is the capital market must be developed to world standard for the nation’s growth to be fully achieved.
However, Uba further reflected that economic growth is hinged on an efficient and effective financial sector that pools domestic savings and mobilizes capital for productive projects. Absence of effective capital market could leave most productive projects which carry developmental agenda unexploited. This is not amazing as capital market connects the monetary sector with the real sector and therefore facilitates growth in the real sector and economic development.
In Nigeria, it is so obvious on how capital market is connected to the facilitation of economic growth. But I will like to buttress the argument from Chris Uba’s report, for purpose of analysis support. This capture capital market in increasing the proportion of the nation’s long-term savings that is channelled to long-term investment. Capital market enables contractual savings industry to mobilize long-term savings from small individual household and channel them into long-term investments. On the other hand, if investors lose confidence in the capital market, the ability of the market to mobilize and channel long-term funds which are vital for economic development will be marred.
To further show the excess of economic growth, the report also present capital market which provides equity capital and infrastructure development capital, as well as promoting public-private sector partnerships to encourage participation of private sector in productive investments? No wonder, foreign investors have been attracted to boost the nation’s domestic economy.
Aside the above, an economic study note at Kalyan City life Blog, also pointed out capital market as a veritable means of mobilizing savings, providing various services, formation of capital, provision of Investment Avenue as well as speed up the nation’s economic growth and development. As such, capital market enhances production and productivity in the national economy. As it makes funds available for long term period of term, as have said earlier, the financial requirements of business houses are met by the capital market. It helps the nation’s research and development, this help in increasing productive economy by generation of employment.
It so disheartening that unemployment forms an inclusive part that is affecting the economy since independence. But I belief the role of capital market can combat the menace. Thus, capital market definitely plays a constructive role in the nation’s economic growth.
In conclusion, to further strengthen the role of capital market, it is essential to adopt formula T.T.A (team work, team spirit and artistic spirit) to enrich and enhance the nation’s economic growth. On this note, I say God bless all.