As BusinessDay’s research shows, healthcare companies are desperately seeking cheaper financing options to continue their operations amid a liquidity crisis caused by rising borrowing costs in Nigeria.
Due to high interest rates, more and more pharmaceutical companies, diagnostic companies and even hospitals are looking for alternative financing options in the form of commercial paper, bonds, development finance institutions and equity investments.
In order to combat rapidly rising inflation, the federal government implemented a more restrictive monetary policy and raised interest rates by about 8 percent over the past nine months.
This has increased borrowing costs for companies and limited their access to capital.
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As BusinessDay has learnt, the granting of overdraft has currently risen to over 32 percent, while the loan interest rate is around 30 percent.
Charles Ogunwuyi, CEO of Sygen Pharmaceutical, a life sciences company specializing in innovative generic drugs, said his company avoids local debt.
Instead, the company relies on loans from development finance institutions and partnerships with foreign pharmaceutical companies that understand its business. These partnerships provide the company with the capital and support it needs and recently landed it a joint venture with Canadian healthcare provider Orx.
Akinjide Adeosun, Chairman of St. Racheal’s Pharmaceutical Nigeria Limited, said most manufacturers, importers and businessmen are interested in equity through shareholdings as sole dependence on bank loans is no longer sustainable.
He argued that the current obsession with curbing inflation has had a negative impact on the healthcare industry. He suggested that the focus should be on stimulating economic growth by reducing the policy rate from 26.25 percent to single digits. This could bring business loan rates below 30 percent and promote economic growth.
“We have tried this monetary policy rate hike for a year and we have seen the impact. I have contract manufacturing abroad and we rely on bonds to finance ourselves. When you borrow at 30 percent to bring medicines into the country, we have not even taken into account the customs duties or import tariffs which are 20 percent. We are not talking about the cost of diesel or petrol. No company can survive on 30 percent. Isn’t it time to tell inflation: wait, let’s drive growth? You cannot drive growth for manufacturers if companies cannot borrow at lower rates,” said Adeosun.
Oluwafemi Olaleye, Head of Health Banking at FSDH Merchant Bank, said service-based healthcare companies were most affected by liquidity problems as inflation had eroded the purchasing power of the majority of the Nigerian population.
“People have no money to spend on their health. They are too busy spending their money on food and buying essentials. Service companies such as hospitals and diagnostic centers are often more affected than pharmacies or pharmaceutical companies,” Olaleye said.
“At least people could go out and buy medicines instead of going to the hospital to pay a consultation fee, get tests done and all that. They only have to do all these things when they have to.”
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Despite government intervention funds such as the Bank of Industry window, where manufacturers can borrow between 500 million and 1 billion naira at 9 percent, Adeosun said these funds are inaccessible and can hardly give the industry a boost.
However, Isa Omagu, Director General of the BOI, said the institution had provided funding to companies working on developing innovative drugs, especially those targeting diseases prevalent in Nigeria.
In addition, the company supported the establishment and expansion of production facilities 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 measures 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.
