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Faulty credit system is killing SMEs, local manufacturers – Okeke

By on February 2, 2013

Over the years, investigation had revealed that apart from the epileptic power supply that has affected business operations at every level in this country, poor credit facility has been a major challenge of local manufacturers. In this interview, Managing Director, ENGASOD Logistics Limited, Tobia Okeke, explained that faulty credit facility is one of the reasons why SME’s, local manufacturers are dying in Nigeria. Excerpts:

As the Managing Director, Engasod, Logistics Limited, what is the activities of ENGASOD Logistics and its contribution to the growth of the Nigerian economy?

The name Engasen is coined from core areas of the business interest of the company. But at this moment, we are actually involved in dredging activities as a flagship for the company and I can tell you, the four core business areas are the business of the future in this country. It has a lot of potentials. For instance, Energy which is electric power and when you look at electric power, it comprises production, generation and distribution. Then Gas, we are on the marketing side but we are looking at the service sector, that area of gas, extraction, exploration etc.

Then we talk of Oil, we are not also looking at marketing of finished product but looking at the service sector of the oil industry. Dredging, you know of course within Lagos and the south-south, that is Niger Delta areas, most of our construction work both road and building constructions involve dredging activities one way or the other, land and reclamation, sand filling and so on. All are businesses that have potentials in this country.

So, at the moment, we are really working on dredging and the area of dredging, you have reclamation, sweeping, filling, stock piling etc. Stock piling is about pumping out sharp sand and sell to the public, building industries and also supply to construction companies. That is what we are involved in for the moment. And it’s a business that can generate employment for skilled labour.

Our major challenges
What we are lacking is government support. The lack of government support I’m talking about is not just government giving us money. But it can support through creating policies that foster local businesses. For instance, Nigerian banks today, are not actually supporting small and medium enterprises in this country.

The CBN is the agency of the FG, so it’s the policy of the Federal Government that look into the interest of the small and medium enterprises, supposed to be carried out by the Central Bank. How can that be done, for instance, like my own type of business, – dredging – , what is hampering us today is capital and when I said capital it doesn’t necessarily require liquid cash, but in Nigeria we don’t have workable credit system as obtained and sustained in developed economies of the world.

And if we don’t have workable credit facility in this country, I doubt if small and medium enterprises would survive and develop this economy. Now how would credit system favour small and medium enterprises? If for instance there is a kind of a cover, guarantee to banks from the Central Bank which is the agency of the FG, the local bank now through the guarantee of the CBN will provide also guarantee for small and medium enterprises.

For instance, what I’m doing, I have a site where I pump out sand, but my company doesn’t have capital right now to buy a dredger which is high capital intensive and other equipment that would give you a complete dredging work, but they are very expensive. But if we have workable credit system in this country, that should companies that would hire out this equipment since I have the site and the market is there, I can reach to these companies through guarantee by banks then my company can hire these equipment from these companies that own these equipment. And my company would use these equipment to work out cash and pay back to bank.

Therefore, all these businesses can be done without much cash exposure. We don’t have that here. What we do have especially with the new CBN policy on security. Asking you to bring all manners of collateral. For instance you need bank guarantee, there are different types of bank guarantee – bank guarantee with cash exposure and the one without cash exposure. The CBN has not been able to separate the two.

Bank guarantee without exposure, does it require collateral? Bank guarantee with cash exposure requires collateral because the case that is involved you don’t know whether those involved are fraudulent. Most small and medium enterprises in this country are home made that don’t need much of foreign input. The SMEs are about turning what we have in this country into money and at the same time use it to create wealth and generate employment. Unfortunately, the system of operation in this country favours importation. Banks are more interested in funding importation.
[Vanguard]