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The importance of financial support for the manufacturing sector

2021-11-17  Staff Reporter

The importance of financial support for the manufacturing sector
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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.

He stated that more consumption of locally manufactured goods is required to grow the local manufacturing sector, adding 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 costs of cheaper imported products can be much higher to the Namibian economy than the market price of that product when lost employment opportunities and the drain on the balance of payments are taken into account. Local value chains must thus be grown by procuring and consuming locally produced goods wherever possible.

Inkumbi said the Bank 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 stated that although South Africa and Angola are experiencing recessionary economic environments, there are opportunities in other countries in the SADC region. Economic contraction is a cyclical phenomenon, and the upward trend of growth resumes in the long-term.

He furthermore pointed 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 noted that the Bank also makes the offer of trade finance. Regional expansion can be a costly exercise, but with the 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 said the Bank’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, they will avail expertise and financial support for studies and knowledge gathering through the 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 Bank 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 said manufacturing enterprises face challenges attaining the optimal financing mix. The DBN’s experience indicates that manufacturing enterprises with 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.

The Bank may also, 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 went on to say that a 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. 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 centred on the encouragement and policy of the provider of capital.

Addressing manufacturers directly, Inkumbi 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, the Bank has provided N$1.15 billion in financing to the manufacturing sector.

Manufacturing requires vision and ambition, and the Bank recognises this and has commenced 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, and expect more, Inkumbi added.

2021-11-17  Staff Reporter

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