Businesses must be able to access cheap credit facilities that can give them ample time to invest and repay loans. FILE PHOTO
Uganda’s private sector still has to deal with a large development financing deficit of at least a trillion shillings.
This is a colossal capital requirement that can be used to boost small medium and large enterprises.
The limited supply of development financing has left many enterprises highly exposed with associated risks such as collapse, loss of capacity to employ as well as generating sufficient revenue due to low productivity.
This is a colossal capital requirement that can be used to boost small medium and large enterprises.
The limited supply of development financing has left many enterprises highly exposed with associated risks such as collapse, loss of capacity to employ as well as generating sufficient revenue due to low productivity.
Such a problem, according to Gideon
Badagawa, the Private Sector Foundation Uganda executive director, makes
most business operate below capacity as they lack capital to expand.
Therefore, most businesses, he says, have to deal with expensive short term commercial loans that impact their return on investment, profit margin and debt servicing.
Such is the threat to businesses such as Horyal Investment Holding, the proprietor of Atiak Sugar Factory in northern Uganda.
Therefore, most businesses, he says, have to deal with expensive short term commercial loans that impact their return on investment, profit margin and debt servicing.
Such is the threat to businesses such as Horyal Investment Holding, the proprietor of Atiak Sugar Factory in northern Uganda.
Amina
Hersi, a businesswoman and a director in Atiak Sugar Factory has tested
the reality of how hard it is to access development financing and she
understands how challenging the problem is.
“I went into sugarcane production in Atiak because of availability of land, labour and I had my little capital. But we are now stuck. We have invested more than Shs100b. We cannot complete our factory to commence production because we have run out of money,” she says.
Hersi, on a personal level and as a businesswoman has borrowed heavily from commercial banks at high interest rates, perhaps due to the lack of development financing, to establish projects that have a long term impact on the economy.
“I went into sugarcane production in Atiak because of availability of land, labour and I had my little capital. But we are now stuck. We have invested more than Shs100b. We cannot complete our factory to commence production because we have run out of money,” she says.
Hersi, on a personal level and as a businesswoman has borrowed heavily from commercial banks at high interest rates, perhaps due to the lack of development financing, to establish projects that have a long term impact on the economy.
And
through this experience she admits that there is need for long term
development credit because most businesses that have no immediate
returns cannot survive if they have to borrow from commercial lenders.
“We are desperately waiting for at least Shs47b from government in equity financing to get the Atiak Sugar Factory operating,” she says, highlighting the urgency to establish development financing.
Lack of sufficient development financing is a concern that is well spread and Uganda Manufacturers Association is concerned that many businesses have resorted to commercial loans that have exposed them to certain risks such as failure to sufficiently payback.
“We are desperately waiting for at least Shs47b from government in equity financing to get the Atiak Sugar Factory operating,” she says, highlighting the urgency to establish development financing.
Lack of sufficient development financing is a concern that is well spread and Uganda Manufacturers Association is concerned that many businesses have resorted to commercial loans that have exposed them to certain risks such as failure to sufficiently payback.
According to
Daniel Birungi, the Uganda Manufacturers Association, executive
director, some businesses have tried syndicated financing but it is
hardly working.
“We need structured development finance so that we realise cost efficient production and distribution to the market of our goods and services,” he says.
Syndicated financing is where different banks come together to raise large sums of money to finance a substantially large project.
Roofings and MTN have previously benefited from syndicated financing but it is difficult to ascertain how these companies have fared using such facilities.
Uganda currently has a shortfall of more than Shs500b in development financing. However, Uganda Development Bank (UDB) says it’s keeping its fingers crossed on its capitalisation to become government’s single largest owner of new equity partners.
“To date, we have Shs408b of credit already approved capturing 74 large enterprises,” Patricia Ojangole, the UDB chief executive officer, says, adding that most of the projects are in the areas of agro processing, manufacturing and human development, among others.
“Funds permitting, we shall disburse cognizant of the net benefit of job creation and revenue generation advantages,” she says.
While launching UDB’s Strategic Plan in March, Matia Kasaija, the Finance minister, said government will capitalise UDB with at least Shs47b in the 2017/18 financial year.
“I thought, we could have made at least Shs200b but due to competing budgetary needs, we will not be able to extend that entire amount,” he said.
There have been intense discussions that companies with long term impact in terms of job creating must access cheap development capital at atleast 12 per cent.
The expensive capital could perhaps explain why many companies have defaulted on their repayment obligation thus driving non-performing loans northwards, which now averages at 6 per cent.
“We need structured development finance so that we realise cost efficient production and distribution to the market of our goods and services,” he says.
Syndicated financing is where different banks come together to raise large sums of money to finance a substantially large project.
Roofings and MTN have previously benefited from syndicated financing but it is difficult to ascertain how these companies have fared using such facilities.
Uganda currently has a shortfall of more than Shs500b in development financing. However, Uganda Development Bank (UDB) says it’s keeping its fingers crossed on its capitalisation to become government’s single largest owner of new equity partners.
“To date, we have Shs408b of credit already approved capturing 74 large enterprises,” Patricia Ojangole, the UDB chief executive officer, says, adding that most of the projects are in the areas of agro processing, manufacturing and human development, among others.
“Funds permitting, we shall disburse cognizant of the net benefit of job creation and revenue generation advantages,” she says.
While launching UDB’s Strategic Plan in March, Matia Kasaija, the Finance minister, said government will capitalise UDB with at least Shs47b in the 2017/18 financial year.
“I thought, we could have made at least Shs200b but due to competing budgetary needs, we will not be able to extend that entire amount,” he said.
There have been intense discussions that companies with long term impact in terms of job creating must access cheap development capital at atleast 12 per cent.
The expensive capital could perhaps explain why many companies have defaulted on their repayment obligation thus driving non-performing loans northwards, which now averages at 6 per cent.
However,
with need to mitigate the problem, especially in key areas Bank of
Uganda has been operating an Agricultural Credit Facility, which
unfortunately has experienced challenges of availability of funds and
hard accessibility for borrowers.
For instance, in a letter dated May 26, 2017, Emmanuel Tumusiime Mutebile, the Bank of Uganda governor, informed Kasaija that where as government had committed to recapitalise the Agricultural Credit Facility with Shs30b annually, only half had been remitted leaving a large deficit.
For instance, by 2017 government had only remitted Shs119b leaving a short fall of Shs90.93b.
In providing this facility government had hoped it would support the likes of Atiak Sugar Factory.
However, government has not acted on a request Atiak Sugar Factory filed almost a year ago.
For instance, in a letter dated May 26, 2017, Emmanuel Tumusiime Mutebile, the Bank of Uganda governor, informed Kasaija that where as government had committed to recapitalise the Agricultural Credit Facility with Shs30b annually, only half had been remitted leaving a large deficit.
For instance, by 2017 government had only remitted Shs119b leaving a short fall of Shs90.93b.
In providing this facility government had hoped it would support the likes of Atiak Sugar Factory.
However, government has not acted on a request Atiak Sugar Factory filed almost a year ago.
Agricultural Credit Facility
According to Hersi, Kasaija had in July 2017 promised additional funding from the Agricultural Credit Facility but she has now been told that “there is no money until the new financial year of 2018/19”.
A number of applications totaling Shs46.7b are still under review and Bank of Uganda is yet to make disbarments.
Commercial banks have tried to fill the gap but because of their nature, they have not sufficiently done it. Therefore, concerns continue to tick out their relevance in stimulating sustainable development.
William Sekabembe, the Dfcu executive director, says they have been appraising a number of sectors especially in the oil sector.
“We are watching and engaged in various discussions with both existing and potential clients across the oil and gas value chain,” he says, noting that because they have to source funds from outside, it leaves them with thin margins to spread out the lending to different sectors.
However, the challenge is the subject of interest rates that currently average at 18 per cent and short repayment periods that is between five and eight years.
Development financing demands long term grace periods as the company must be able to repay as well as raise sufficient rates on return on investment (ROI).
According to Hersi, Kasaija had in July 2017 promised additional funding from the Agricultural Credit Facility but she has now been told that “there is no money until the new financial year of 2018/19”.
A number of applications totaling Shs46.7b are still under review and Bank of Uganda is yet to make disbarments.
Commercial banks have tried to fill the gap but because of their nature, they have not sufficiently done it. Therefore, concerns continue to tick out their relevance in stimulating sustainable development.
William Sekabembe, the Dfcu executive director, says they have been appraising a number of sectors especially in the oil sector.
“We are watching and engaged in various discussions with both existing and potential clients across the oil and gas value chain,” he says, noting that because they have to source funds from outside, it leaves them with thin margins to spread out the lending to different sectors.
However, the challenge is the subject of interest rates that currently average at 18 per cent and short repayment periods that is between five and eight years.
Development financing demands long term grace periods as the company must be able to repay as well as raise sufficient rates on return on investment (ROI).
Building sustainable businesses
According to Fred Muhumuza, an economist and lecturer at Makerere University, finding development financing for certain enterprises such as Atiak Sugar Factory in the current set up, which targets some individuals, might be wasteful arguing that it is only deserving businesses that should benefit from such a facility.
For instance, he says, deserving businesses must be given time to make profits until such a time when they are able to pay back.
According to Muhumuza, the issue is not to find money to sink into certain projects but to think of projects that have a wide and long term impact on the economy and they will be able to survive beyond their the owners.
“The bigger question is will the project be able to run in order to recoup the loan that has been disbursed. Additionally, the project should be able to enrich society,” he says.
According to Fred Muhumuza, an economist and lecturer at Makerere University, finding development financing for certain enterprises such as Atiak Sugar Factory in the current set up, which targets some individuals, might be wasteful arguing that it is only deserving businesses that should benefit from such a facility.
For instance, he says, deserving businesses must be given time to make profits until such a time when they are able to pay back.
According to Muhumuza, the issue is not to find money to sink into certain projects but to think of projects that have a wide and long term impact on the economy and they will be able to survive beyond their the owners.
“The bigger question is will the project be able to run in order to recoup the loan that has been disbursed. Additionally, the project should be able to enrich society,” he says.
WAY FORWARD
Fred Muhumuza, an economist and lecturer at Makerere University says that as a country we need to get back and reflect as to whether we want to build a competitive market with a mass of people who have the capacity to purchase the goods that are put out. “For a country like Uganda we need to leverage the domestic market and this has been our argument that our aggregate demand in Uganda does not create sufficient market for industrialisation to take off,” he says.
Fred Muhumuza, an economist and lecturer at Makerere University says that as a country we need to get back and reflect as to whether we want to build a competitive market with a mass of people who have the capacity to purchase the goods that are put out. “For a country like Uganda we need to leverage the domestic market and this has been our argument that our aggregate demand in Uganda does not create sufficient market for industrialisation to take off,” he says.
Therefore, he adds, there is need to address the issue of aggregate demand by empowering Uganda to have viable incomes.
“It ceases to be an industrial space discussion but it should become an economy wide discussion. The structure of the economy should be able to support industrialisation,” he says.
If this is not fixed, he adds, the companies will collapse and ask for bailouts or investors will not bring their money.
“It ceases to be an industrial space discussion but it should become an economy wide discussion. The structure of the economy should be able to support industrialisation,” he says.
If this is not fixed, he adds, the companies will collapse and ask for bailouts or investors will not bring their money.
editorial@ug.nationmedia.com
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