Two hospitals in the Federal Capital Territory (FCT) planned to import surgical and non-surgical equipment for the treatment of musculoskeletal trauma, sports injuries, and infections, among others.
One hospital was to provide the foreign exchange, while the other was to offer naira. With its partners abroad, the first hospital was able to guarantee the dollars needed for imports. The second hospital was to provide N300 million. When the hospital visited a Tier-1 lender for a loan in the first quarter of 2024, a bank quoted its interest for the loan at 32 percent.
“We could not do much,” said a medical director for the hospital, who pleaded anonymity.
“We did not take the loan because it would put undue pressure on us to pay back in 12 months. We did not want to shift our attention to chasing money, rather than saving lives. So, we did not buy those items,” he noted.
High interest rates in Nigeria have stalled Nigeria’s world-class healthcare dream.
It has also forced pharmaceutical companies, diagnostics firms, and even hospitals to explore alternative financing through commercial papers, bonds, development finance institutions (DFIs), and equity investments.
When Sammy Ogunjimi, founder of Codix Pharma Limited, a medical device, kits and drug manufacturing company, began to build a factory to produce rapid diagnostic test kits for malaria and HIV earlier this year, he took out a loan at 20 percent interest rate.
However, within six months, the interest rate had jumped above 30 percent, making the cost of constructing the factory significantly higher than initially estimated.
“We are paying 31 percent on a non-commercial loan to build a factory and import essential products. It’s just too much. Bank loans are faster to obtain than Bank of Industry (BOI) loans that are cheaper. At the end of the day, all these things are passed on to the customers,” Ogunjimi said.
To tackle accelerating inflation, the Central Bank of Nigeria (CBN) has toed the hawkish path in the last 14 months.
The monetary policy rate (MPR), which is the benchmark interest rate, has risen to 26.75 percent in July 2024 from 18.75 percent in July 2023.
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This has increased the cost of borrowing for businesses, limiting their access to cheap capital.
According to the Manufacturers Association of Nigeria (MAN) CEOs Confidence Index released in August 2024, none of the top five banks had charged below 30 percent interest rate before the recent increase in MPR.
Instead, commercial banks charged as high as 32.7 percent.
MAN believes the last MPC decision would limit access to credit and discourage investments in the manufacturing sector.
Akinjide Adeosun, chairman, St. Racheal’s Pharmaceutical Nigeria Limited, said most manufacturers, importers, and business merchants are eyeing equities through shareholding and other alternatives to avoid unsustainable bank loans.
For instance, his company has recently had to float bonds to fund a contract manufacturing project overseas.
He argued that the current obsession with taming inflation has negatively impacted the healthcare industry.
He suggested that the focus should be on stimulating economic growth by lowering the interest rate from 26.25 percent to a single-digit level to enable commercial lending rates to fall below 30 percent and foster economic growth.
“We have tried this monetary policy rate hike for a year and seen the effects. When you borrow at 30 percent to bring drugs into the country, you have not addressed the clearing costs or import duties, which are 20 percent. We are not talking about the cost of diesel or petrol. No business can survive on a 30 percent interest rate. Is it not time to say, ‘Inflation hang on, let us chase growth?’ You can’t chase growth if manufacturers cannot borrow at lower rates,” Adeosun said.
Charles Ogunwuyi, CEO of Sygen Pharmaceutical, a life sciences company focused on innovative generic medicines, said the firm resorted to loans from development finance institutions (DFIs) and partnerships with foreign pharmaceutical companies that understand its business.
These partnerships provide the firm with necessary capital and support, resulting in a joint venture with a Canadian health solution company, Orx.
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Oluwafemi Olaleye, head of Health Banking at FSDH Merchant Bank, said service-based healthcare companies are the most affected by the liquidity challenges because inflation has weakened the purchasing power of the majority of Nigeria’s population.
“People don’t have money to spend on health. They are too busy using money to feed and to buy essentials and necessities. Often, service-based businesses like hospitals and diagnosis centres will feel the pinch more than pharmacies or pharmaceutical companies,” Olaleye said.
“At least, people would be able to go out and buy drugs, rather than go to the hospital to pay consultation fees, run tests, and all that. They only have to do all those things if they have to.”
Despite government intervention funds such as the BOI window where manufacturers can borrow between N500 million and N1 billion at nine percent, Adeosun said these funds are not accessible and can hardly boost the industry.
Isa Omagu, BOI general manager, however, said the institution has provided funding to companies working on innovative drug formulations, particularly those targeting diseases that are prevalent in Nigeria.
Additionally, it has supported the establishment and expansion of manufacturing facilities equipped with state-of-the-art technology, ensuring that local pharmaceutical companies can produce high-quality medicines that meet international standards.
“The impact of these strategic interventions is already being felt across the country. We have seen a significant increase in local production of essential medicines, reducing our dependency on imports,” Omagu said.
