Minister Bahati asks banks to lower interest rates for manufacturers

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Minister Bahati asks banks to lower interest rates for manufacturers
Minister Bahati (centre), interacting with DTB’s Sebaana

The State Minister for Industry, Mr David Bahati, has urged banking institutions to lower interest rates for manufacturers in a bid to foster sectoral growth.

He made the call while presiding over the two-day financial symposium held at the Uganda Manufactures’ Association’s multipurpose hall in Nakawa.

Minister Bahati said the manufacturing sector contributed approximately Shs5.5 trillion to the Treasury in the 2021/22 financial year, out of the Shs21 trillion collected for the entire year.

He added that the manufacturing accounts for 16.5 percent of the GDP, with the industry sector alone contributing 27.4 percent to this figure.

Despite the significant contribution of the sector towards the country’s growth, the minister stressed that the sector still grapples with challenges of high cost of capital, and called for negotiations between the manufacturers, government and banks to address this.

“Despite being the largest consumer of available credit, manufacturers are burdened with an average interest rate of 17.4 percent, which is higher than the country's average rate of return of 18percent," he said.

"The cost of money is therefore still high, yet with the current technology and the history of the clients, we thought the banks would lower their rates because the risk to exposure is also lower."

In response, Godfrey Sebaana, the chief executive of Diamond Trust Bank (DTB), acknowledged that the current interest rate is high for the sector but blamed the situation on discrepancies in government monetary and fiscal policies.

For instance, he noted that while the Uganda Development Bank may offer credit at 12 percent interest, this too may be high for the manufacturers, who at the moment, are seeking for single-digit interest rates.

"At DTB, we recognise that typical manufacturing setups require patient capital with longer repayment periods. High rates of 18% are therefore unsustainable for such ventures,"

As a solution, Sebaana advised manufacturers to consider equity financing, especially during the initial capital expenditure phase.

He highlighted the role of commercial banks in providing working capital through trade finance, leveraging contingent facilities to reduce borrowing costs.

"We have introduced various programs in partnership with Development Finance Institutions (DFIs), UDB, and the Bank of Uganda to assist manufacturers at different stages of their development," he added.

The chairman of the Uganda Manufacturers’ Association, Keto Kayemba, said the financial symposium was organized to allow the manufacturers meet with bankers to explore solutions to the financing challenges they face.

He said the symposium also aimed to highlight ways the manufacturers can reduce their costs, increase production and competitiveness of their products within the regional and continental markets.

“As manufacturers, we are interested in exploring cheap financing models in order to compete effectively with our peers across the region, and the continent,” Kayemba said.

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