Helmke Sartorius von Bach | Jul 1, 2020 | 0
Scalability key to manufacturing for exports – Development Bank
Export-oriented manufacturers can benefit from scalability and a strong consumer base in the local market, said Development Bank of Namibia CEO, Martin Inkumbi.
Inkumbi said that although Namibia is a small market, excellent access to a diversified spread of SADC neighbours, and the benefits of the African Continental Free Trade Area (ACFTA) and SACU make the country a viable proposition for manufacturing with a view to exports.
Inkumbi noted however, that the primary barrier to setting up a manufacturing business are costs of establishment and market penetration. He encouraged smaller, yet scalable operations at startup to reduce the cost of establishment aimed at multiple countries, adding that these reduce the initial cost outlays, but also enable the manufacturer to grow on the basis of demand. Inkumbi further noted that the scalable approach reduces risk in various aspects of market penetration, such as cross-border market development, inventory efficiency, distribution channels, adjustment of supply, price adjustment, penetration pricing and promotion.
“The success of a manufacturing operation is typically based on size at the time of evaluation, rather than size at the time of inception, so the view of a successful operation is biased and not reflective of its beginnings. By penetrating with a small to mid-sized operation, the manufacturer requires lower capital at start-up, but can still grow as demand increases,” Inkumbi explained.
According to Inkumbi, the Development Bank recognises the value of the owner’s contribution to establishment and operating costs, stating that a 30% owners’ equity contribution is ideal, while the Bank can provide the 70% debt funding. Collateral, Inkumbi added, can be provided in the form of assets financed and guarantees.
“The Development Bank is interested in long-term relationships that span the growth trajectory of the enterprise. As the enterprise grows and matures, it will require additional finance. The Development Bank has engaged in multiple financing deals across the span of years with larger Namibian companies, and these have been provided on the basis of sustainable growth. However, the Bank’s single obligor limit is N$400 million,” Inkumbi said.