The Capital Market And The Challenges Of Real Sector Financing In Nigeria.
[A STUDY OF THE PERIOD 2000-2009]

grains. They include Sorghum, Maize, Cowpea, Soya Beans, Sesame seeds and Millets. Trading volume to date (October 2007) stands at 44,120 million metric tones, while the following contracts are still outstanding: 5,000 metric tones of palm oil valued at N840 Million (or $6.562 Million), 60 metric tones of Soya beans valued at N3.18m, 300 metric tones of sesame seeds valued at 17.7m and 18 metric tones of split ginger valued at N1.125m. The exchange promises to be of immense benefit to farmers, agro commodity processors and merchants as it encourages commercial farming and the growth of the agricultural sector.

Benefits of the Commodity Exchange: Specifically, the economic benefits of a commodity exchange include the following:

• Appropriate Pricing of Commodities: With many potential buyers and sellers competing freely, commodity exchanges provide efficient means of determining the best price level of a commodity and thus provide incentives for agriculture and mining whose products are traded on such exchanges. This is unlike what obtains in unorganized markets where producers may not get economic prices for their produce especially when there is a glut.
• Risk Management: The market provides producers, processors and users of commodities with a means of passing the price risks inherent in their businesses to traders who are willing to assume these risks.
• Improved Financing Terms: By reducing price risk, commodity exchanges enhance the credit-worthiness of operators in the market with their banks. This enables commodity producer’s access to loan at lower interest rates. This ultimately, all things being equal results in higher profits for the farmers and possibly, lower prices for the end-users.
• Dissemination of Market Information: Since commodity exchanges are national or worldwide in scope, they act as collection and dissemination centers for statistics on supplies, transportation, storage, purchases, exports, imports, currency values, interest rates and other important information that may be useful for other future productive activities.
• Effective Protection of Market Participants: Trading in a commodity market is normally subject to specified rules and regulations, which all market participants must comply with. The use of clearing house also ensures that all transactions are settled as at when due, thus, assuring adequate protection for all market participants.

In addition to the foregoing, commodity exchanges further impact, albeit indirectly, on the real sector by: ï‚· Deepening of the capital market ï‚· Enhancing capital mobilization;

• Providing alternative investment Opportunities;
• Providing arbitrage opportunities Diversifying the revenue earning base of the nation;
• Ensuring food security
• Increasing Industrial activity through availability of raw materials;
• Eradicating Poverty through employment generation;

Venture Capital: Venture Capital refers to that initial fund or equity capital made available more usually to either state-up businesses that are feasible or to existing companies to foster growth and sustained profitability of the businesses. It is a high risk, high return investment in new enterprises and companies. The venture capital firms in most cases arrange for the long term financing of their investee companies and also assist in developing the management team, provide advisory services, new product ideas, strategic relationships and key customers and accounts.

Generally, a clear understanding of the business of Venture Capital financing and the various relationships between the fund providers and entrepreneurs, as well as the risk exposure for the business, is desirable from the onset. This is very important since, like any other business, the levels of returns on investment may not be met indefinitely. It should also be noted that he growth of the emerging enterprise can be significantly enhanced as the Venture Capital investors take such interest as to play an effective role in directing the affairs of the firm. Venture Capital is still an evolving business concept in Nigeria with both operators and regulators still trying to build capacity. Hence, its concept, which is expected to receive more boosts with the on-going reforms in the capital market, could contribute 58 to finding a solution to the current scarcity of funds for businesses with relatively long gestation. Venture Capital funding will help to bring viable business ideas lacking the required financial resources to fruition and reactivate ailing business.