Bridging financing gaps in manufacturing, tourism sectors to catalyse economic recovery

By Sarah Arapta

This year’s annual bankers conference comes at the time when Uganda like many other countries was beginning to recover and live with the effects of the COVID -19 pandemic, following the reopening of our economy in February.

And just as the wounds and scars of the pandemic disruptions were healing, with projections of a rebound in economic activity, a sunset of economic uncertainty suddenly shed a deem reality to this expectation.

The second quarter of 2022 brought with it significant downside surprises. The scale and magnitude of the global economic uncertainty resulting from the war between Russian and Ukraine has impacted global financial markets and commodity prices coupled with inflationary wave on a global scale.

We are part of a global village and the impact of the war between Russia and Ukraine has caught up with us through supply chain disruptions, commodity price spikes especially (fuel) and food insecurity which are now compounding inflationary pressures. With the outlook remaining uncertain, access to international capital markets is fraught with tightening from key Western economies who are rising their central banks rates.

Many African governments are struggling to respond given the limited fiscal space they are faced with as they strive to overcome the pressures of debt servicing given the tightening of financial conditions.

It is with the backdrop of such challenging times, that we must stand up and be counted in finding sustainable and resilient solutions that address our own challenges domestically and or regionally.

Our national development plan (NDP III) highlights among others, manufacturing and tourism as key growth sectors that have huge development multiplier effects owing to their forward and backward linkages with other sectors including agriculture, SMEs, in job creation, in regional trade and generation of foreign exchange and as such considered priority areas of focus.

Manufacturing is a key engine of growth in Uganda given its strong linkages and spill over effects of the sector. The sector consumes a staggering 67%of all power generated, employs over 1.3mm people, contributes 15.4% to GDP, 19% of the total exports to the global market and 14% of the tax revenue collected.

The banking & financial sector is pivotal to all the above dynamics as providers & enablers of financial flows and is the reason for this annual bankers’ conference dialogue this year.

The banking sector currently carries a direct exposure of about sh2.4 trillion to the manufacturing sector excluding indirect facilities like guarantees and letters of credit and about sh435bn in direct working capital facilities to the tourism sector, while tourism property developments are captured under commercial real estate.

For the country to expand capacity, financial flows to these sectors need to be scaled and by extension, their multiplier effects will come to into play.

Funding uptake goes hand in hand with expansion of markets which is where the cashflows come from. Support towards access to and opening of markets especially around the region, as well as attracting more visitors as we build capacity will therefore be critical anchor pins of any sustainable funding strategy.

We need to review fiscal policies that constrain inflow of private capital be it debt or equity, fast-track legislation that enables the banking & financial sector to expand and deepen, attract alternative sources and mechanisms of financing to supplement traditional bank financing, cultivate good borrowing and repayment culture to attract more finance providers, take into account ESG matters that are now central to the flow and sustainability of any business.

For this to happen, the economy relies on policymakers, legislators, private sector players and indeed all of us to play our role.

I wish to use this opportunity to intimate to Government and the private sector players

particularly the manufacturers who are today’s dedicated audience, that the banking sector are your key partners and beyond the custodial and tax collection, the payment facilitation, and the extension of credit roles we play including to Government, through investment in Government securities as well as provision of infrastructure financing support through trade services.

We are currently working on a specially structured and customized Regional Export Credit Facility to the tune of about sh1 trillion to support our manufacturers involved in Regional Export. We plan to have this Export Credit facility launched later this year by H.E the President of  Uganda.

Uganda not only has comparative advantage in agriculture and natural resources but is equally endowed with critical factors of production like land, skilled labour, electricity and infrastructure. So the objective here is to plug the existing gaps, facilitate production, provide funding support to the catalytic and powerful entrepreneurial ecosystem through fostering amongst others, technology innovation for enhanced value addition to drive export growth and fully harness the attendant trickle-down benefits.

As a sector, we are fully cognizant of the delicate balance between facilitating growth at the same time remaining resilient as a sector, especially in these challenging times.

Critical to this resilience is the demonstration of the role we play in embedding sustainability in every aspect of our mandate. Looking ahead, sustainability will be an even more integral part not only, for our borrower’s access to capital but crucially a basis for us to challenge ourselves on how to fully and sustainably unleash the sectors full potential for supporting the national social economic transformation of Uganda.

Sarah Arapta, the CEO of Citibank Uganda and Uganda Bankers’ Association Chair gave the speech at the opening of the fifth bankers conference on 25^th July 2022