Lending rate to manufacturers rises to 22%

Banks and other financial institutions raised their average lending rate to local manufacturers to 22 percent in 2014, from 20.4 percent obtained in 2013, survey by the Manufacturers Association of Nigeria (MAN) has shown.

This lends credence to the fact that access to finance has become a serious problem to real sector players in the country.

“From the interaction with members from the field survey conducted for the reviewed period, most credit facilities obtained by manufacturers range around 17 percent and 24 percent,” says MAN, in its January to June 2014 survey.

Further analysis shows manufacturers in the food, beverage and tobacco sector obtained loans at an average of 20.8 percent, while those in the textile, apparel and footwear group did so at the rate of 23.4 percent within the period the first six months of 2014.

Similarly, players in the wood and wood products group sourced loans at an average rate of 24.3 percent, just as those in the pulp, paper, printing and publishing did so at 20.6 percent.

Moreover, manufacturers in the chemical and pharmaceutical had access to finance at an average of 23.2 percent, whereas those in the non-metallic products segment (cement, ceramics, glass and chalk) did so at the rate of 22.6 percent.

Also, manufacturers in the domestic/industrial plastic and rubber accessed loans at 22.2 percent, but electrical/electronics makers did so at 21.3 percent.

Those in the basic metal, iron and steel obtained loans at 21.3 percent, whereas players in the automotive industry did so at 20.2 percent.

Double-digit lending rate in the country has become a serious challenge for manufacturers who often have to bear huge energy costs and multiple charges and levies, among others.

This is too high when compared with the practice in other countries that are Nigeria’s GDP laggards.

For example, in Thailand, manufacturers borrow from commercial banks at 6.9 percent interest rate, according to World Bank data.

Lending rate for South Africa as of March 2014 was 9 percent.

World Bank data also show that lending rate in Iran remains 12 percent as at 2012.

“With the current interest rates for a growing economy like ours, it will be difficult to achieve the desired economic growth and motivate indigenous entrepreneurs to create businesses since they will not be competitive with their foreign counterparts who obtain fund from their countries at single digit and invest in the Nigerian economy,” said Mohammed Badaru Abubakar, national president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).

Cost of funds is further worsened by the central bank’s hike of the Monetary Policy Rate (MPR) to 13 percent, from 12 percent.

Manufacturers in the small and medium scale category have been the worst hit as they most times fail to break even after bearing huge costs of Nigeria’s harsh business envorinment.

According to manufacturers, the Federal Government should hasten the establishment of a development bank that will cater for the financing needs of manufacturers.

ODINAKA ANUDU