What you need to know:
The export credit facility seeks to plug existing gaps, facilitate production and provide funding to power the entrepreneurial ecosystem through fostering growth and harnessing attendant trickle down benefits.
Banks are in advanced stages of launching a Shs1 trillion export credit facility to support manufacturers involved in export within East Africa.
The move, which is being championed by Uganda Bankers Association (UBA), seeks to finance manufacturers increase Ugandan products in regional markets.
Speaking during the fifth annual bankers’ conference in Kampala early this week, Ms Sarah Arapta, the UBA chairperson and the Citibank managing director, said: “We are currently working on a specially structured and customised Regional Export Credit Facility to the tune of Shs1 trillion to support manufacturers involved in regional export.”
The facility, she said, seeks to plug existing gaps, facilitate production and provide funding to power the entrepreneurial ecosystem through fostering growth and harnessing attendant trickle down benefits.
However, Ms Arapta also noted that as bankers there is need to review fiscal policies that constrain inflow of private capital, fast truck legislation that enables banking and the financial sector to expand and attract alternative sources and mechanisms to supplement traditional bank financing.
Ugandan businesses continue to encounter challenges in regard to mobilising credit for expanding with the available facilities being pricy due to risks related to repayment.
Ms Arapta also noted that there was need to cultivate a good borrowing and repayment culture to attract alternative financing which takes into account environmental, social and governance matters that are now central to the flow and sustainability of any business. Ministry of Trade permanent secretary Geraldine Ssali, said that whereas there are trade opportunities in the region, Ugandan manufacturers continue to face expensive financing, which cannot guarantee business sustainability.
“We have a big market in DR Congo,” she said, noting that in such circumstances the export credit facility will be a game changer that is expected to boost trade.
Currently there is only one specialised credit facility - Agricultural Credit Facility – under which participating commercial banks lend to agriculture related activities.
Mr Daniel Birungi, the Uganda Manufacturers Association executive director, said given the current structure of lending, which is largely short term and characterised by high interest rates, it cannot support sustainable manufacturing.
Banks, he said, provide short term credit of between three and five years, which is not sustainable financing for manufacturing that takes before it can give returns.
“Sustainable manufacturing needs 10 years of credit, especially for [some sectors such as] processing of steel and iron,” he said.
During the same meeting, Dr Hippolyte Fofack, the Export-Import Bank chief economist and director of research for the African region, said that despite their tremendous potential to economic transformation, funding to manufacturing and tourism remains marginal.
In Uganda, contribution of manufacturing to gross domestic product stands at 16.5 percent which is not sufficient to transform the economy.
Growing share of exports
The Export Credit Facility seeks to finance companies increase Ugandan products in regional markets.