Health firms are scrambling to secure cheaper funds to run their operations amid a liquidity crisis created by the escalating cost of borrowing in Nigeria, BusinessDay’s findings show.
High interest rates have led more pharmaceutical companies, diagnostics firms, and even hospitals to explore alternative financing through commercial papers, bonds, development finance institutions (DFIs), and equity investments.
To combat soaring inflation, the federal government implemented a more restrictive monetary policy, raising interest rates by about 8 percent over the past nine months.
This has increased the cost of borrowing for businesses, limiting their access to capital.
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Obtaining an overdraft facility has jumped above 32 percent currently while loans are about 30 percent, BusinessDay understands.
Charles Ogunwuyi, CEO of Sygen Pharmaceutical, a life sciences company focused on innovative generic medicines, said that the firm avoids local debt.
Instead, it relies on loans from DFIs and partnerships with foreign pharmaceutical companies that understand its business. These partnerships provide the firm with necessary capital, and support and recently landed it in a joint venture with a Canadian health solution company, Orx.
Akinjide Adeosun, chairman, St.Racheal’s Pharmaceutical Nigeria Limited said most manufacturers, importers, and business merchants are eyeing equity through shareholding since relying solely on bank loans has become unsustainable.
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 monetary policy rate from 26.25 percent to a single-digit level. This would enable commercial lending rates to fall below 30 percent, fostering economic growth.
“We have tried this monetary policy rate hike for a year, and seen the effects. I have contract manufacturing overseas and we depend on bonds to be able to fund us. When you borrow at 30 percent to bring in drugs into the country, we have not addressed the clearing costs or import duties, which is 20 percent. We are not talking about the cost of diesel or petrol. No business can survive on 30 percent. Is it not time to say inflation hang on, let us chase growth? You can’t chase growth from manufacturers if businesses cannot borrow at lower rates,” Adeosun said.
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 a consultation fee, run tests, and all that. They only have to do all those things if they have to.”
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Despite government intervention funds such as the Bank of Industry window where manufacturers can borrow between N500 million and N1 billion at 9 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 dependence on imports,” Omagu said.
