Minister Bahati sides with UMA on high interest rates

Kampala, Uganda | THE INDEPENDENT | The State Minister for Trade, Industry and Cooperatives in charge of Industry, David Bahati has teamed up with the Uganda Manufacturers Association to demand for lower cost of credit by the commercial and development banks so as to meet the intended needs of the businesses.

Bahati says Uganda has the highest interest rates in the region and that this makes the private sector un-competitive compared to its counterparts in the other countries.

With the commercial banks lending at an average 17 percent the minister says the businesses cannot be expected to make profits relying on that kind of financing, as the highest rate of rate on investment in Uganda is about 14 percent. He asked the African Development Bank (AfDB) to work towards reducing the cost of money to the private sector.

Bahati was speaking to manufacturers and bankers including commercial banks and development finance institutions at the Financial Symposium and Exhibition organized by UMA at the Lugogo Show Grounds on Wednesday.

He says it is crucial that DFIs like Uganda Development Bank (UDB) and the African Development Bank (AfDB) improve accessibility of financial facilities structured to support the industrial sector especially for SMEs.

However, despite the Government support of over 1.3 trillion to UDB, the cost of there, at 12 percent, remains a major challenge for manufacturers and SMEs, according to the minister. He proposed special products for manufacturers and SMEs which may reduce the interest to at least 10 percent.

These challenges to affordable Capital were also voiced by the manufacturers.

Deo J.B Kayemba, the Chairman UMA Board, noted that the manufacturing sector has steadily contributed to economic growth and development with more than 5 trillion shillings annually.

However, it still grapples with inadequate access to affordable long-term business credit with major difficulty for Small and Medium Enterprises. He said because of their unique challenges, SMEs,which account for a bigger share of the private sector output, only account for 22.9 percent of the total credit to the private sector.

Regina Nakayenga, the proprietor of Rena Beverages, maker of fruit beverages, said that ideally, the interest rates for manufacturers should not be higher than 8 percent.

She argued that the high interest rates were hindering innovation and expansion, and called for financial products tailored to suit the small businesses. Nakayenga  accused banks of looking at how much collateral as opposed to the big vision of the enterprise, adding that banker were too ignorant of the private sector needs.

On the part of Uganda Development Bank, John Peter Emoi, director investment at the bank, said apart from having the lowest interest rates in the country, there are also several products that make investment capital cheap, including equity financing.

But he also said they were making it easier for the private sector to access financing anywhere by helping them prepare their projects to bankable levels.

Augustine Kpehe, Country Manager at the AfDB Group, noted that industrial development is essential to economic development, which highlights the significance of this symposium.

He said the AfDB had was  working closely with the Government of Uganda to support key infrastructure projects and to develop policies and create foundations for industrial growth and access to capital finance. He gave the example of the Green Industrial Financing facility that is being developed in a way that it will attract interest as low as 12 percent, calling on investors to embrace it.

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