James Emejo in Abuja
The Managing Director/Chief Executive, Sterling Bank Plc, Mr. Abubakar Suleiman, has highlighted some critical areas which the government must address in order to reduce the cost of lending for the growth of the manufacturing sector.
He said the government would need to urgently address constraints in the business environment, particularly availability of infrastructure, policy, competitiveness of the environment as well as taxes and incentives.
Speaking to THISDAY at the recently held 25th Nigerian Economic Summit (#NES25), he also noted that access to finance remained key to business enterprises more than interest rate.
The meeting, which focused on, “Driving Future Growth through Innovative and Pragmatic Solutions,” had Suleiman as chairman of a session on financing.
The overall objective of the session was to articulate a vision for the country’s manufacturing industry by 2050 and clear steps to address current issues as first steps to achieving a more competitive manufacturing industry.
Addressing journalists shortly after the discussions, the Sterling Bank MD said: “We agreed that if you don’t ask the right questions, you will end up with answers that are not useful. So the focus on the cost of financing or the interest rate to manufacturing might be misplaced.”
He said: “The reason is that when you look at the cost breakdown of manufacturing, the cost of logistics for instance is estimated at over 30 per cent of their total cost. When the look at the cost of labour, these are the important elements of costs.
“The cost of financing is less than five per cent and so even if you fix that, it doesn’t solve the problem. The big issue is about access to finance rather than the interest rate for financing.
“We need to start by solving access first. And the challenges with access is that if you have not prepared your business to be able to access bank funding then you won’t get it.”
Suleiman, further noted that the current cost of borrowing in the system would be reduced if the government starts to fix all critical aspects of the investment space, as, “more manufacturing companies would prosper and the risk of failure will be low.”
He said: “The other point is that if government desires to give incentives to manufacturers, they should look at the incentives that is given after the manufacturing has been done, similar to the export expansion grant where you have to actually export the goods before you receive the incentive.
“We could have subsidy on financing that happens only after you have successfully accessed funding, manufactured and sold and then you can get some right back in terms of subsidy.”
He further pointed out that for businesses to access financing from commercial banks, they “must have equity, you must have partners, you must have governance and you must have a reporting standard that is high.
“A lot of people have not achieved this and they then expect you to be able to access money from banks. Unfortunately, money in banks are monies that belong to depositors and the standards that we have to meet to be able to give out this money is much higher than what some people have come to expect of banks.”