Manufacturers scrambling for cheap credit to expand operations

Nigerian manufacturers are scrambling for cheap funds to expand operations, but lending rate remains among the topmost in sub-Saharan Africa.

Most of the funds in Nigerian banks are only accessible to manufacturers at over 20 percent, they say.

Nigeria’s monetary policy rate (MPR), which is a benchmark interest rate in the country, is 14 percent.

Compared with other countries, it is easier to see why Nigerian manufacturers are facing tough times.

The monetary policy committee (MPC) of the South Africa’s Reserve Bank met in March this year and cut interest rates by 25 basis points.

The current repo rate (central bank lending rate to commercial banks) in South Africa is now 6.5 percent, and the prime lending rate (lending rate to customers) is 10 percent.

The Reserve Bank’s MPC had earlier cut the repo rate in July 2017 by 25 basis points from 7 percent to 6.75 percent.

Similarly, Kenya Central Bank’s monetary policy committee cut the determining bank rate in late July to 9 per cent from 9.5 per cent.

BusinessDay gathered that Kenyans now borrow at an interest of 13 per cent (as against from 13.5 percent earlier) in line with the interest rate capping rule that limits lending rates to 4 percentage points above the CBR.

Zambia is one of the emerging countries in SSA and its central bank cut benchmark lending rate by 50 basis points to 9.75 percent in February this year, citing lower consumer inflation and weaker economic growth, according to Reuters.

In October 2017, the central of Ethiopia raised its benchmark interest rate to 7 percent from 5 percent.

At least the benchmark interest rate of most SSA countries have remained single digit, barring few, meaning that it is cheaper for businesses to access funds there than in Nigeria.

The Central Bank of Nigeria (CBN) has held the MPR at 14 percent for the 11th time, due chiefly to high inflation rate. Inflation rate in June 2018 was 11.23 percent. Nigeria is facing a make-or-mar general election, which will see politicians spending huge sums on campaigns and vote-buying. Analysts see this as one of the main reasons why the CBN is reluctant to cut rates.

The average borrowing rate to manufacturers in 2017 was 22.8 percent, according to data by the Manufacturers Association of Nigeria (MAN). While Nigeria has some development finance institutions, single-digit funds available for onward lending, especially to SMEs, are small. SMEs also complain of short tenor of most available funds in the country.

Bismark Rewane, CEO of Financial Derivatives Company, has been consistent on asking the CBN to cut rates to aid economic recovery for a country that just exited recession.

“No economy will grow when businesses get interest rate at a very high rate. What we need is a single-digit interest rate as manufacturers. We believe that this is what can stimulate growth,” Frank Jacobs, former president of MAN, told BusinessDay recently.

“It is important to fast-track the recapitalisation of the Bank of Industry (BoI) to enable it to meet up with huge credit demands of the industrial sector,” Jacobs said.

He said government now needs to open up access to various development funds created by the Central Bank of Nigeria (CBN) such as the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) and the N300 billion Real Sector Support Facility (RSSF) by relaxing stringent conditions denying manufacturers and businesses access to these funding windows.

Babatunde Paul Ruwase, president of the Lagos Chamber of Commerce and Industry (LCCI), said the current state of the economy shows the government must prioritise stimulation of investment and growth.

“The proposition is that low interest rate will stimulate investment, impact positively on growth, create more jobs, increase income, and boost output. This would ultimately have a moderating effect on inflation,” Ruwase said.

Ikecukwu Madu, a manufacturer in Port Harcourt, said Nigeria should create a separate bank for the manufacturing sector if it is serious with boosting the fortunes of manufacturers.

 

ODINAKA ANUDU