The importance of financing the manufacturing sector

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Staff Reporter

Windhoek-Development Bank of Namibia (DBN) CEO Martin Inkumbi has reiterated the bank’s support for the manufacturing sector. The bank is currently engaged in a drive to stimulate the sector with finance, and is reaching out to existing manufacturers with expansion plans, and potential manufacturing start-ups.

Inkumbi states that more consumption of locally manufactured goods is required to grow the local manufacturing sector. He adds that charity starts at home, and that to stimulate the sector, both public and private procurement policies and practices should give preference to goods that are produced locally.

This has benefits such as local employment creation and also improving the country’s balance of payments. The cost of cheaper imported products can be much higher to the Namibian economy than the market price of that product, when lost employment opportunities and drains on the balance of payments are taken into account, he explains.
Local value chains must be grown by procuring and consuming locally produced goods wherever possible.

Inkumbi says that DBN believes that manufacturing can benefit from opportunities through import substitution, in line with NDP5 and the Growth-at-Home strategy. By seeking opportunities, and exploiting them, Namibian manufacturers can make progress towards achieving economies of scale. This will also be augmented by the ambitions of manufacturers to penetrate regional markets.

Concerning regional markets, Inkumbi says although South Africa and Angola are experiencing recessionary economic environments, there are opportunities in other countries in the SADC. He says that economic contraction is a cyclical phenomenon, and that the upward trend of growth resumes in the long-term.

He points out that a viable manufacturing enterprise will have the scope to increase its output in future, and encourages entrepreneurs with plans to initiate them now, rather than delay at the expense of future productivity.

In addition to DBN finance applied to local start-ups and expansion, Inkumbi notes that the bank also makes the offer of trade finance. Regional expansion can be a costly exercise, however with availability of capital for expansion, cross-border ambition should be seen as an investment in long-term returns.

Talking about the bank’s support to manufacturing, Inkumbi says that the DBN’s lending terms are competitive for manufacturers, however the bank has expanded its own philosophy to encompass support in the early application phase, as well as post-borrowing.

In certain instances, where the bank identifies strong development impact potential, it will make available expertise and financial support for studies and knowledge gathering through its Project Preparation Fund (PPF). The aim of the PPF is to secure the viability of the project and seek means to mitigate risks prior to borrowing.

The DBN also provides access to a network of consultant business professionals who assist with capacity development after lending. This can be used to develop skills or streamline and strengthen operations to the benefit of the borrower.

Talking broadly about access to finance for manufacturers, Inkumbi says that manufacturing enterprises face challenges attaining the optimal financing mix. DBN’s experience indicates that manufacturing enterprises with a higher equity capital in the financing mix tend to do better than those funded solely with debt capital.

Manufacturing enterprises require a longer period to achieve break-even, given the complexity of their environments and the need to secure markets for their products.
Inkumbi also points out that the Bank may, at its own discretion, recommend a repayment holiday for manufacturers on interest, capital or both, depending on the requirement of the borrower, the project’s cash flow and factors which become apparent in the application assessment.

Talking about indirect benefits to commercial sources of finance, he goes on to say strong manufacturing base will improve the economic ecosystem, and this will also improve long-term prospects for the financial sector, which is a good reason for all financiers to support manufacturing enterprises. He adds that the DBN will consider financial syndication to spread risks.

This, however, must be supported by local procurement policies and practices, and financiers should encourage this among their own clients, in effect creating networks of procurement centered on the encouragement and policy of the provider of capital.

If local consumers buy more local goods, this will result in higher sales revenues and better profitability for local manufacturers, which will makes it easier for local manufacturers to obtain finance from financiers.

Addressing manufacturers directly, he said the bank has a sound track record in financing the manufacturing sector, which includes cement, food processing, manufacturing of plastic goods, printing and agri-processing. Since its inception, DBN has provided N$1.15 billion in finance to the manufacturing sector.

Manufacturing requires vision and ambition, and the bank recognises this, and has started engaging local manufacturers to better understand their challenges in raising capital. Manufacturers who have ambition and plans should make use of the bank’s open door policy, and expect more, Inkumbi advised.

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