CHAPTER ONE: INTRODUCTION 1.1 BACKGROUND TO THE STUDY Prior to the late 1980s, international donors and governments in developing countries held the notion that entrepreneurial functions could be better served by the state through public ownership of the means of production, taxation, licensing and regulation. Wikipedia Encyclopedia defines capital markets as the financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Financial regulators, such as the UK’s Bank of England (BoE) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their jurisdictions to protect investors against fraud, among other duties. Modern capital markets are almost invariably hosted on computer-based electronic trading systems; most can be accessed only by entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public. There are many thousands of such systems, most serving only small parts of the overall capital markets. Entities hosting the systems include stock exchanges, investment banks, and government departments. Physically the systems are hosted all over the world, though they tend to be concentrated in financial centers like London, New York, and Hong Kong. Capital markets are defined as markets in which money is provided for periods longer than a year. A key division within the capital markets is between the primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors, often via a mechanism known as underwriting. The main entities seeking to raise long-term funds on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies). Governments tend to issue only bonds, whereas companies often issue either equity or bonds. The main entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary markets, existing securities are sold and bought among investors or traders, usually on an exchange, over-the-counter, or elsewhere. The existence of secondary markets increases the willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out their investments if the need arises. A second important division falls between the stock markets (for equity securities, also known as shares, where investors acquire ownership of companies) and the bond markets (where investors become creditors). Microsoft Encarta 98 Encyclopedia (1998) identified the following reasons for government ownership of enterprises. Ensure safety or security, Re-distributive goals, Prevent monopolization, Government controls distribution, Public firms less likely to use price discrimination, Government captures substantial market profits, Macroeconomic stabilization, Developing Countries, and Government has political control Private entrepreneurs were perceived to be few; while local subsidiaries of multinational firms constituted a considerable chunk of local private sector activity. However, poor performance of the public sector, misallocation of resources, market distortions and negative economic growth influenced a re-evaluation of the state-led development strategy. In the past 30 years, liberalization and privatization have become dominant themes in development planning and strategies particularly in Africa. Donors, governments and development practitioners have exhibited changing attitudes towards the role of the private sector in the development of African economies and, accordingly, have acknowledged the need to facilitate private sector development (Kibuthu, 2005). In addition, Yartey (2008) argues that the promotion of economic growth led by the private sector requires the creation of an enabling environment within which the private sector can flourish. A key factor is the healthy growth of a nation?s financial sector, which in turn improves the private sector?s access to services such as bank credit, equity capital, payments and risk management services. Generally, the development of the financial sector has followed a trend beginning with the channeling of savings and `investments through banks, followed by the development of capital markets as investors or savers search for higher-returns, and firms seek cheaper capital. Furthermore, Yartey and Adjabi (2007) posit that financial markets typically comprise several institutions including banks, insurance companies, mutual funds, mortgage firms, finance companies and stock markets. Nevertheless, Miller (1995) argued that in developing countries, particularly in Nigeria, financial markets are dominated by commercial banks, which have not been

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