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Banks to unveil Shs1tn export credit facility

It will boost manufacturing and bridge the funding gap to the sector that holds great potential for Uganda’s growth

| THE INDEPENDENT | Uganda’s commercial banks are planning to provide Shs1trillion in export credit facility to help local manufacturers boost their access to the regional markets.

Sarah Arapta, the chairperson of Uganda Bankers Association said during the 5th Annual Bankers Conference held in Kampala on July 25 that the facility is set to be rolled out later this year, enabling business that sell products to the neighbouring countries like Democratic Republic of Congo, South Sudan, Kenya and Rwanda.

Companies will be able to access working capital before their client pays for the products purchased.

“Uganda not only has comparative advantage in agriculture and natural resources but is equally endowed with critical factors of production such as labour, electricity,” she said.

“The objective here is to plug the existing gaps, facilitate production, provide funding support to the catalytic and powerful entrepreneurial ecosystem through fostering amongst others, technology innovation, enhance value addition, drive export growth and fully harness the trickle down benefits.”

Arapta said, the financial sector is cognizant of the delicate balance between facilitating the country’s growth and at the same time remaining resilient especially in this coronavirus pandemic times.

“Looking ahead, sustainability will be an even more  integral part of not only what we offer for our borrowers as they access capital but a basis for us to challenge ourselves on how to  fully and sustainably unleash the sector’s full potential for  supporting both national and social economic transformation of Uganda,” she said.

Currently, the manufacturing sector is still recovering from the production shocks caused by supply chain disruptions, limited access to materials, loan repayment with no production, and above all reduction in markets for the manufactured products.

This has been complicated with the Bank of Uganda’s recent hike in the Central Bank Rate as a measure to reduce the demand for the shilling to slow down inflation that crossed the 5% limit a few months ago.

The manufacturing sector – which has seen the number of industrial establishment increase from 80 in 1986 to 4,940 in 2019 and employing more than 1.3million people –   contributes 18.6% of the GDP, 19% of the total exports and 14% of the tax revenue collections.

But the funding to the sector remains low even as  Bank of Uganda data shows that credit to the manufacturing sector has ballooned  from  Shs 364bn to Shs 2.4 trillion in the last 15 years.

The sector, for instance, accounted for 13.1% of last year’s bank lending compared to 14.1% in 2007,  with food, beverages and tobacco accounting for more than a third of the total lending to manufacturing sector, followed by chemicals, pharmaceuticals, plastics and rubber products and fabricated non-metal and metal products that accounted for 11% each.

Uganda Manufacturers Association Executive Director, Daniel Birungi, said the export credit facility is much appreciated and that it will spur growth of the manufacturing sector.

“We believe as manufacturers (that export credit facility) is a game changer in terms of access to the market in the region and the African Continental Free Trade Area,” he said.

He said commercial banks should also come up with affordable long term financing to support faster growth of the manufacturing sector.

“We also need more of you (banks) to move into some of the markets that we are going into,” he said. “We are talking of DRC but what is the footprint of banking (there) especially the Ugandan banking in that country? It is not that big and I think there’s’ scope for entry there and extend support.”

Statistics from Bank of Uganda indicates that Democratic Republic of Congo is the country’s largest export market compared to the rest of the East African Community countries.

Uganda exported goods worth US$666million to DRC, followed by Kenya US$625milion and South Sudan US$562million in 2021. Exports to Tanzania and Burundi stood at US$141million and US$72.2million during the same period, respectively.

Uganda’s exports to the EAC countries include cement, food, palm oil, rice, beverages, sugar, plastics and plastic products, baked goods, cosmetics and iron materials. On the other hand, it imports woods and wood products, mineral products, petroleum products and chemicals and food stuffs among others.

Enter BoU Deputy Governor

Michael Atingi-Ego, the deputy governor, Bank of Uganda advised the banking sector to finance enterprises and activities that preserve and protect the environment so as to manage climate risk.

He said angling financing towards the “industries without smokestacks” such as tourism and agribusiness promotes the environmental, social and governance principles consistent with a sustainable financial sector.

“Similarly, there are several opportunities in manufacturing where banks can play an immense role in promoting sustainable and circular value chains, for example, funding sustainable buildings and construction and circularity in the textiles and plastics value chain to increase reuse and recycling rates,” he said.

He explained: “…all of this requires deliberate effort to craft financing instruments that are specifically aimed at promoting Environment Sustainability and Governance to affect the long-term sustainability in these and other value chains to support the socio-economic transformation of the communities in which the projects operate. Value chain financing is critical to supporting value addition in the identified sectors.”

Hippolyte Fofack, chief economist and director of research for African Export-Import Bank, said lending to manufacturing remains low at about $6.1million, representing about 12% of total bank lending.

This, he said, does not compare well with other African countries such as Egypt that is lending to manufacturing at US$118b or 25% of total lending as of 2019, on average. He said, lending to manufacturing in other parts such as Asia are higher and in such countries manufacturing has been the leading driver of growth and trade.

He said, there should be a deliberate decision to increase funding to the manufacturing sector if Africa is to realise its full potential.

Geraldine Ssali, the permanent secretary in the Ministry of Trade, Industry and Cooperatives said the government acknowledges that the manufacturing sector faces numerous challenges including low productivity, insufficient raw materials, poor technology and inadequate and costly financing but it is unable to singly provide all the necessary support.

She said there is need for banks to support specific agro-based industries, extractive based industries and knowledge intensive industries such as pharmaceuticals, electronics producers to boost their production and help the country achieve the import substitution target.

This year’s conference was held under the theme “Bridging Financing Gaps in the Manufacturing, Tourism, and Agribusiness Sectors for Economic Recovery & Growth Post-2021.”

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