Africa-Press – Uganda. The Minister of State in charge of Industry at the Ministry of Trade, Industry and Cooperatives, David Bahati, has asked commercial institutions to establish innovative financing solutions for manufacturing sector, in a bid to boost its growth.
This, he said while officiating the Uganda Manufacturers Association (UMA) 2nd Financial Symposium at Lugogo on Tuesday, held under the theme “Innovative Financing Solutions for Sustainable Manufacturing Sector.”
Bahati said with interest rates ranging between 17% to 23%, Uganda has the highest interest rates in Sub-Saharan Africa with the highest interest rates, hence asking commercial banks to be considerate to manufacturers.
“The cost of money has become a big problem, and we are doing what we can; we are financing Uganda Development Bank (UDB), we have INVITE, Agriculture Credit Facility, all these are aimed at bringing the cost of capital down. But we are appealing to banks that you know the internal rate of return for a manufacturer is not beyond 12%, we are appealing to them to have specific funding for manufacturers. We are appealing to banks to lower interest rates so that manufacturers can access money and grow our economy,” said Bahati.
He said that Uganda’s economy is projected by June 2025 to reach USD 60.4 billion with an annual
growth of 6.3%, with manufacturing contributing 35% towards Government tax revenues and 17% to
Uganda’s Gross Domestic Product.
On the issue of electricity tariffs, the minister said they used to be close to 18 US Cents, but it has been reduced to about US 5.7 Cents.
Aga Sekalala Jr, the UMA Board Chairman, said manufacturing is a pivotal driver towards job creation, with over 2 million people employed in the sector.
However, he said the sector continues to face challenges of high commercial lending rates and limited development financing options.
“Addressing these requires policy advocacy and collaborative efforts.”
During the panel discussion, Irene Mutyaba Kabiri, the Corporate Banking Director at Absa Bank Uganda, said sometimes manufacturers incur high interest rates due to the component of loan tenure, financial discipline in terms of utilizing credit facilities, and the level of credit profile.
“The other issue is about planning; most times, the manufacturer will come to you for financing
when planning was not done end-to-end, so the bank ends up structuring the credit facility out of
the assets cycle, and that’s where problems begin in terms of high interest rates,” she stated.
On what should help business owners in terms of credit facility interest rates negotiation, she emphasised the need to build a good track record, corporate Governance, and financial discipline by
entities.
“So, as commercial institutions, we come in to understand what you want to do, as you plan your
cycles, very important to understand where you are and where you want to go, and what form of
assets you are investing in, because all these have different tenures. If you want to do an expansion,
that’s a term loan, but it should be aligned with when you are going to be in production.”
Dickson Ssembuya, the Director of Research and Market Development at the Capital Markets Authority (CMA), said the agency is reviewing the legal framework to facilitate innovative credit products such as green financing to ease access to financing.
“ Are you involved in green business? As CMA, we are providing a facilitative framework, and the whole idea is to make it as easy as possible. Your business has to be attractive, should have sound systems, and be well-planned,” he said.
According to the Bank of Uganda (BOU) reports, in the 15-year period, credit to the manufacturing
sector grew from shs364 billion to shs2.4trillion; a 553% growth.
The manufacturing sector accounted for 12% of total bank lending by the end of December 2022.
Uganda Bankers Association report indicates that food, beverages, and tobacco account for 35% of the total bank lending to the manufacturing sector, followed by chemicals, pharmaceuticals, plastic and rubber products, and basic & fabricated non-metal and metal Products which account for 11% each of the total lending to the manufacturing sector.
For More News And Analysis About Uganda Follow Africa-Press
