Financing choking manufacturing
The manufacturing sector in the country is failing to grow due to lack of financing as financiaal institutions prefer other sectors such as trading, Business News has learnt.
In an interview yesterday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira, said financial institutions continue to shun the manufacturing sector because of its need for long-term finance, contrary to the banks average of one-year cycle.
Kaferapanjira said as a result, most of the credit is channeled to the trading activities, a situation which mostly encourages importation.
He said: “There is a shortage generally of long-term finance for real investment in manufacturing, which takes a bit of time before you start making profit. Then there is a cost of finance, which is also a problem.
“Financial institutions are sometimes reluctant because they have no long term money as most of the financial institutions we have here are commercial banks. In the absence of a development bank, long-term borrowing for real manufacturing and plantation agriculture for instance suffers.”
He added: “The implication, therefore, is that we grow into a trading nation with the wholesale and retail sector accounting for more shares of gross domestic product [GDP] without an accompanying growth in our manufacturing sector which shows that we are encouraging imports as evidenced by most of the shops that are into wholesale and retail.”
Kaferapanjira’s sentiments come in the wake of a recently released World Economic Forum (WEF) 2017 Africa Competiveness Report (ACR) which has since ranked Malawi 134 out of 138 economies this year from 135 out of 140 economies the previous year.
According to the report, access to finance at 14.2 percent remains the most problematic area for doing business in Malawi seconded by inflation at 12.6 percent and corruption at 11.2 percent.
Experts have argued that Malawi’s credit favours non-productive sectors, urging the money market to pay attention to key drivers of economic growth, including agriculture and manufacturing.
Other analysts have argued that the market allocates finance to sectors based on profitability.
Available statistics from the Reserve Bank of Malawi (RBM) indicate that as of December 2016, wholesale and ratail sector dominated the sector at 25 percent, followed by the agriculture sector at 19.4 percent and community services at 14.3 percent.
While addressing the pressing need for jobs in the short-term, the report reaffirms the urgency of tackling some of the most significant and persistent constraints to Africa’s competitiveness to ensure higher prosperity going forward.
Speaking to Business News recently, Small and Medium Enterprise Development Institute (Smedi) director of business information and training, Edward Chilima, while admitting that access to finance is a challenge among SMEs, challenged banks to develop products that are flexible innovative and risk averse for SME.
