The high cost of funding in Nigeria is threatening the execution of projects by healthcare companies, pushing them into a liquidity crisis as they scramble for cheap funds, BusinessDay’s findings reveal.
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.
When Sammy Ogunjimi, founder of Codix Pharma Limited, a medical device, kits, and drug manufacturing company, began building a factory to produce rapid diagnostic test kits for malaria and HIV, he took out a loan at a 20 per cent interest rate.
However, within six months, the interest rate had jumped above 30 per cent, 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 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 federal government has implemented a more restrictive monetary policy, raising interest rates by about eight per cent from year to date.
This has increased the cost of borrowing for businesses, limiting their access to cheap capital.
Obtaining an overdraft facility has jumped above 32 per cent while loans are about 30 per cent, BusinessDay understands.
According to the Manufacturer’s Association of Nigeria (MAN) CEOs Confidence Index released in August, none of the top five banks charged the maximum below 30 per cent before the recent increase in MPR.
Instead, commercial banks charged as high as 32.7 per cent.
MAN believes the last MPC decision will escalate the cost, further limiting access to credit and discouraging investment in the manufacturing sector.
Akinjide Adeosun, chairman, of St. Racheal’s Pharmaceutical Nigeria Limited said most manufacturers, importers, and business merchants are eyeing equity through shareholding and other alternatives to avoid unsustainable bank loans.
For instance, his company has recently had to obtain 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 monetary policy rate from 26.25 per cent to a single-digit level. This would enable commercial lending rates to fall below 30 per cent, fostering 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, we have not addressed the clearing costs or import duties, which are 20 per cent. We are not talking about the cost of diesel or petrol. No business can survive on 30 per cent. Is it not time to say inflation hang on, let us chase growth? You can’t chase growth if manufacturers if businesses 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 DFIs and partnerships with foreign pharmaceutical companies that understand its funding 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.
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.”
Despite government intervention funds such as the Bank of Industry window where manufacturers can borrow between N500 million and N1 billion at 9 per cent, 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.
