Minister of Finance and Coordinating Minister of the Economy, Mr Taiwo Oyedele, has called for a coordinated financing framework that would enable manufacturers to get cheaper loans.
Oyedele said during the Ministerial Roundtable 2 of the Industrial Revolution Work Group (IRWG), the Federal Ministry of Industry, Trade and Investment (FMITI) in Lagos at the weekend that the high cost of loans to manufacturers is unsustainable.
The minister, represented at the event by his Special Adviser on Finance and Investment, Marie Opere, stated that commercial banks’ credit to the manufacturing sector contracted by about N1.9 trillion last year, representing a decline of more than 22 per cent from N8.5 trillion to N6.61 trillion. He said manufacturers were borrowing at prime rates averaging about 27 per cent, with maximum rates reaching the mid-30 per cent range.
Oyedele described the financing scheme as unsuitable for investments requiring seven, 10 or 15 years to deliver returns.
He said the financing gap required government, regulators, development finance institutions and commercial capital providers to understand the constraints from one another’s perspective and develop a more coordinated financing framework.
The minister said the focus should extend beyond commercial bank lending to the deliberate use of public balance sheets, blended finance, institutional capital, pension funds, insurance assets and the capital market to support productive investment.
He added that fiscal, monetary and industrial policies were interconnected, warning that an incentive, guarantee scheme or development fund that manufacturers could not access effectively produced the same outcome as having no policy at all.
Oyedele said the proposed National Industrial Finance Compact should ultimately be judged by whether manufacturers could access financing and use it to expand installed capacity, create jobs and increase export earnings.
Also, Minister of State for Industry, Trade and Investment, John Enoh, pointed out that Nigeria’s financing architecture is wired against long-term funding for the manufacturing sector.
Speaking on the theme: ‘Affordable Long-Term Finance and Building: The Capital Architecture for Industrial Growth and MSME Inclusion,’ Enoh said the challenge facing manufacturers was not simply the availability of money, but the high cost, tenor and structure of financing.
He added that industrial investments often require years to mature and therefore cannot be sustained with short-term funds, arguing that the country cannot achieve industrial growth without restructuring how capital gets into factories.
Enoh said manufacturers needed what he described as the ‘right kind of money’ to expand production and compete.
According to him, the right financing must be long enough to support investment in machinery and production capacity, while being affordable enough for manufacturers to price their products competitively.
‘Our manufacturers do not lack ambition, they don’t lack orders, they don’t lack markets. What they continuously lack is money, the right kind of money,’ he said.
Enoh explained that the long gestation period of industrial investments made the current structure of financing unsuitable for manufacturing.
‘The issue is not that there is no money. It is the price of the money, the term of the money and the capital architecture into the factories,’ he said.
The minister said a business investing in a long venture that could take 10 to 15 years to mature could not reasonably be expected to repay financing within three or six months.
He pointed out that the mismatch in financing was contributing to a situation where businesses could find trading more attractive than investing in production, particularly when the cost and structure of capital made manufacturing less viable.
Enoh said the finance sector needed to help move Nigerians from trading to production, stressing that the objective of the ongoing discussions was to find ways of directing capital towards productive investment.