Manufacturers task Gov't, banks on high interest rates

Peter 9th May, 2024 Industry Edward Kayiwa
Manufacturers task Gov't, banks on high interest rates

Representatives from various organisations participate in a panel discussion under the theme; 'Financing Solutions for the Manufacturing Sector' at the event held at Lugogo in Kampala.


The Government wants commercial banks to lower the interest rates they charge manufacturers so as to stimulate growth in the sector, but banks also insist that the Government has an important role to play.

Speaking at the Financial Symposium organized by the Uganda Manufactures’ Association (UMA), David Bahati, the State Minister of Finance, said manufacturers deserve support because of the significant contribution they make to the country's economy.

The sector contributed approximately UGX5.5 trillion to the national Treasury in the 2021/22 financial year, out of the UGX21 trillion collected for the entire year. Currently, according to Bahati, manufacturing accounts for 16.5% of the GDP, with the industries alone contributing 27.4% to this figure.

  • He therefore called on the manufacturers to unite and advocate collectively for their interests, stating, that this would give them a stronger voice to articulate issues during negotiations with the government and other stakeholders. Bahati added that although domestic credit stood at Shs42.3 billion as of March 2024, with 55.9% allocated to the private sector and 40.8% to the government, the high cost of capital remains a significant challenge facing the manufacturing sector.

“Despite being the largest consumer of available credit, manufacturers are burdened with an average interest rate of 17.4%, which is higher than the country's average rate of return of 18%. The cost of money is therefore still high, yet with the current technology and the history of the clients, we thought the banks would lower their rates because the risk to exposure is also lower,” he said.

He nevertheless highlighted government efforts to reduce barriers to business, such as streamlining investment licensing processes and improving transport infrastructure to enhance market access for manufacturers. The call by Minister came as a concerted effort to support the manufacturing industry and drive economic growth through improved access to affordable credit.

  • In response, Godfrey Sebaana, CEO of the Diamond Trust Bank Uganda(DTB), shed some light on the complexities and potential solutions regarding the issue of the bank high interest rates. Though he acknowledged that the interest rate of 18% is indeed high for sectors like manufacturing, Sebaana highlighted the need for a balance between monetary and fiscal policies to determine the underlying cost of capital in the country.

For instance, he noted that while the Uganda development Bank may offer credit at 12% interest, this too may be high for the manufacturers, who at the moment, are seeking for single-digit interest rates. He pointed out the discrepancy between government borrowing rates, which currently stand at 17%, and the rates offered to manufacturers, emphasizing the need for alignment.

"At DTB, we recognize that typical manufacturing setups require patient capital with longer repayment periods. High rates of 18% are therefore unsustainable for such ventures," Sebaana stated.

As a solution, Sebaana advised manufacturers to consider equity financing, especially during the initial capital expenditure phase. He highlighted the role of commercial banks in providing working capital through trade finance, leveraging contingent facilities to reduce borrowing costs.

"We have introduced various programs in partnership with Development Finance Institutions (DFIs), UDB, and the Bank of Uganda to assist manufacturers at different stages of their development," he added.

  • However, Sebaana acknowledged the limitations of UDB's funding capacity, suggesting that disruption of commercial bank interest rates would require a substantial increase in UDB's capital, an endeavor that is very challenging within the current fiscal framework.
  • Despite these challenges, Sebaana encouraged manufacturers to engage with banks, leveraging their expertise to navigate through high-interest rates. He also pointed out the growing trend of green financing as an alternative funding source, offering potentially lower costs compared to conventional credit.

Deo Kayemba, the UMA chairman, said the financial symposium was organized to allow the manufacturers meet with bankers to explore solutions to some of the challenges they are facing, adding that the symposium also aimed at highlighting ways the manufacturers can reduce their costs, increase production and competitiveness of their products within the regional and continental markets.

Similar Posts You May Like 

  • MTN Youth Skilling Program: Irene Nandyose turns hobby into a thriving business

    MTN Youth Skilling Program: Irene Nandyose turns hobby into a thriving busin..

    Irene Nandyose, a business administration graduate from Makerere University Kampala loved knitting and crocheting during her free time on campus. And it is through this exercise that a business idea was hatched. But the business idea was only implemented in 2020 following training under the MTN ..

  • MTN Uganda unveils the second phase of MTN Ace Tech as 20 enterprises are selected to take part in the program

    MTN Uganda unveils the second phase of MTN Ace Tech as 20 enterprises are se..

    Wednesday 31 st May 2023 Kampala, Uganda- MTN Uganda has unveiled the second phase of MTN ACE-Tech known as the MTN Ace-Tech-Incubation program aimed at equipping enterprises with skills needed to successfully spur growth of their businesses. This follows conclusion of the MTN Ace-Tech's first ph..

  • President commissions fruit processing factory in Nakasongola

    President commissions fruit processing factory in Nakasongola..

    President Yoweri Kaguta Museveni commissioned Kike Tropical Fruits Limited, an extraction and refinery plant. Situated in Kakooge, Nakasongola District, the factory deals in fruit processing. During the commissioning, the President thanked Mr. Francis Mugabe, the proprietor of the factory and his f..

  • Protect Local Industries – Museveni

    Protect Local Industries – Museveni..

    President Yoweri Kaguta Museveni has said that the government will continue protecting local manufacturers from unfair competition..

  • Mbale Industrial Park Development Takes Off

    Mbale Industrial Park Development Takes Off..

    The Uganda Investment Authority (UIA) has handed over the Mbale Industrial and Business Park site to China Railway Number 3 Group for the design and building of key infrastructure like tarmac roads and water and sewerage systems...

  • Kiira Motors seeks UGX524 billion to fund 5-year plan

    Kiira Motors seeks UGX524 billion to fund 5-year plan..

    Kiira Motors Corporation, a budding indigenous vehicle building enterprise, has presented a UGX524 billion proposed business investment budget to the Presidential Affairs Committee of Parliament. It was contained in the Ministerial Policy Statement, and Budget Estimates for the FY 2024/2025. ..

  • Expectations high as UNBS gets hi-tech executive director

    Expectations high as UNBS gets hi-tech executive director..

    Mr. James N. Kasigwa has been named the new executive director of the Uganda National Bureau of Standards (UNBS) following an appointment by the Minster of Trade, Industry and Cooperatives, Francis Mwebesa...

  • Ugandan innovation wins UGX70m engineering prize

    Ugandan innovation wins UGX70m engineering prize..

    An innovation by Mr. Martin Tumusiime and his friends has won 15,000 British Pounds (about UGX70 million) from the Royal Academy of Engineering’s Prize for Innovation, at a ceremony held in Nairobi yesterday...

  • Museveni assents to Free Zones Authority, Exports Board merger

    Museveni assents to Free Zones Authority, Exports Board merger..

    The new law that merges the Uganda Free Zones Authority with the Uganda Exports Promotions Board is one of the Acts that have been assented to by the President...

  • Minister cautions entrepreneurs on informality

    Minister cautions entrepreneurs on informality ..

    Entrepreneurs have been urged to formalize their business ventures if they are to benefit from financial services providers and expand their businesses...

  • Turkish, Chinese investors in trouble over wetlands

    Turkish, Chinese investors in trouble over wetlands..

    The Standards Utilities and Wildlife Court has sentenced Kerim Ray, a Turkish investor and Director of Yamani Construction Limited, to pay a fine of UGX200 million, following his conviction for degrading a wetland in Mukono District...

  • Uganda Breweries invests UGX32 Bn on farmers

    Uganda Breweries invests UGX32 Bn on farmers..

    Uganda Breweries Limited (UBL) has reported a 12% net sales growth in the last financial year, driven by the success of premium beer brands like Guinness and Uganda Waragi. ..

  • Uganda extends oil exploration to Karamoja

    Uganda extends oil exploration to Karamoja..

    Uganda is stepping up exploration in the Moroto-Kadam and Lake Kyoga basins, aiming to boost its reserves to 6.5 billion barrels of oil, a strategic move to solidify its position in the energy industry. ..

  • UMA international trade fair set for October 2

    UMA international trade fair set for October 2..

    The Uganda Manufacturers Association (UMA) has officially launched the 30th Uganda International Trade Fair, set to take place from October 2 -10 at the UMA showgrounds at Lugogo, under the theme; "Celebrating 30 Years of Industrial Excellence." ..

  • Dangote Refinery ousts first petroleum products

    Dangote Refinery ousts first petroleum products..

    Nigeria's Dangote Oil Refinery has begun processing gasoline after delays caused by recent crude shortages, an executive said on Monday...

  • Thousands throng Kapeeka Industrial Park Trade Fair

    Thousands throng Kapeeka Industrial Park Trade Fair..

    President Yoweri Kaguta Museveni has urged communities surrounding Kapeeka Industrial Park to take full advantage of the opportunities it offers in order to market their products and boost their household incomes. ..

Most Recent