Real Sector: Pondering the High Cost of Finance


The problems limiting the contribution of the manufacturing sector to the country’s GDP, particularly the high cost of finance, were the focus of attention at the 10th business luncheon of the Ogun State branch of the Manufacturers Association of Nigeria held recently in Ota. Olaseni Durojaiye, who was at the event, reports

The importance of the manufacturing sector to the growth of any economy cannot be over emphasised. The sector boasts significant contributions to the economy, which include employment creation, income generation, and supply of goods and services. The manufacturing is the pathway to development, sustaining both global trade and the services sector.

According to the World Trade Organisation, “80 per cent of world trade among regions is merchandise trade, that is, only 20 per cent of world trade is in services. If in the extreme case an economy was composed only of services, then it would be very poor, because it couldn’t trade for goods; its currency would be worth very little.”

The benefits and importance of the sector to the economy notwithstanding, findings show that the sector is stifled by access to finance. This is compounded by the wide infrastructure deficit in the country, especially poor power supply and deplorable road network.

The factors hampering the growth of the manufacturing sector were the main subject of discussion at the 10th Business Luncheon of the Ogun State branch of the Manufacturers Association of Nigeria, held November 23 in Ota. The theme of the forum, “Business Financing in Nigeria: The Bank of Industry Option,” was apt and timely, considering the current high lending rate. The gathering included entrepreneurs, representatives of developmental finance institutions, and government agencies.

BoI Window

In his presentation, Guest Speaker and Managing Director of BoI, Mr. Kayode Pitan, recalled the mandate of the institutional lender. Pitan listed available portfolio funds and explained how businesses could access the different funds warehoused with the bank at not higher than 10 per cent interest. He emphasised the need for economic diversification in the face of the current economic challenges in the country and listed sub sectors of the manufacturing sector that were prioritised by the current government. The BoI boss also discussed how the bank could assist entrepreneurs to explore the opportunities in the sectors.

According to Pitan, “There is urgent need for economic diversification in the wake of the current economic challenges that are glaring today than ever before.”

He said, “Growth has been stifled by several economic challenges, especially accessing finance;” as highlighted by “High cost of finance, lack of economic and social infrastructure and historic poor implementation of policy.”

He reiterated the BoI business strategy, which “aims to promote and support enterprises for sustained industrialisation, adding that the primary driver of BoI’s business strategy was achieving developmental impact in core sectors of the Nigerian economy in a bid to realise sustainable industrialisation.

Pitan stated, “The bank is committed to provision of innovative financing solutions, such as low interest rates, as incentives towards stimulating interest and growth of entrepreneurship; significant attention towards micro, small and medium enterprises, despite the challenges associated with SMEs in Nigeria; provision of advocacy that addresses some of the challenges and opportunities that exist for entrepreneurship in Nigeria; provision of capacity building to improve entrepreneurial education and exposure as well as seeking out local and international strategic alliances to enable it access funding opportunities.”

Pitan listed some of the available funds to include “N10 billion fund targeted at helping either young aspiring entrepreneurs to actualise their business ideas or existing entrepreneurs expand their ventures; ₦10 billion fund to support Nigerian youth of between the ages of 18 and 35 towards becoming entrepreneurs among others.”

Earlier in his welcome address, Chairman of the Ogun State branch of MAN, Mr. Wale Adegbite, noted that businesses operating in the country has always been challenged by high cost of finance adding that money deposit banks prefer to invest in short term instruments with huge returns as against lending to operators in the sector whose turnaround time are long term.


Adegbite said, “Business financing or better put, proper business financing, is key to the establishment and continued productivity of any business concern. It is the life wire that ensures the wheel of operations keep moving, even in harsh economic climates. Every business needs money to grow. Equally important is the source of the fund, and the management of same, to ensure the optimisation of the benefit the business derives from same.

“Historically, obtaining such loans from the regular commercial banks in Nigeria has not always been easy for manufacturers in the country as the banks prefer to lend short term to businesses with high turnover and higher prospect of giving a quick return on their investment rather than to manufacturers whose investments are usually long term and require continued control and supervision to bring forth returns. This is coupled with cumbersome administrative procedures and astronomically high interest rates and charges that have slowed down the growth of the manufacturing industry.”

Adegite explained, “This point was confirmed by the recent statistics released by the National Bureau of Statistics that shows that the Nigerian economy is gradually coming out of recession with a 1.4% growth in GDP in the third quarter of 2017. However, real GDP growth in the manufacturing sector in the third quarter of 2017 declined by 2.85% (year-on-year).

The contribution of manufacturing to Nominal GDP in the current quarter was 8.55%, lower than figures recorded in the corresponding period of 2016 at 8.60% and for second quarter of 2017 at 9.02%. These figures are ridiculously low when compared to the contribution of manufacturing to GDP in comparable countries like India, Indonesia, South Africa and Egypt, where the ratios are 17%, 21%, 13% and 17% respectively.

The problem of access to loans from the banks has limited the growth of many manufacturing concerns in the country. This gap is one of the areas the Bank of Industry was set up to fill through its various schemes targeted at manufacturers, such as the N235 billion intervention fund for refinancing and restructuring of banks’ loans to the manufacturing sector, which is aimed at, among other objectives, “fast tracking the development of the manufacturing sector of the Nigerian economy by improving access to credit by manufacturers,” Adegite stated.