Scalable manufacturing and assembly operations lucrative for investor success

Scalable manufacturing and assembly operations can be a lucrative basis for investor success, says Development Bank of Namibia (DBN) CEO, Martin Inkumbi. As proof of this, he points to the commissioning of the Peugeot and Opel assembly plant in Walvis Bay. Use of Walvis Bay as a point of entry to the SADC region is a clear indication that Namibia holds potential for manufacturers.

Although Namibia is a small market, he says, excellent access to a diversified spread of SADC neighbours, and the benefits of the African Continental Free Trade Area (AfCFTA) and SACU place the country high on the shortlist of locations for manufacturers.

The primary barriers to setting up a manufacturing business though are costs of establishment and market penetration.

In order to reduce the cost of establishment aimed at multiple countries, Inkumbi advocates for smaller but scalable operations at start-up. These reduce the initial cost outlays, but also enable the manufacturer to grow on the basis of demand.

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 reduces risk to its capital structure and returns to ongoing operations in larger territories, but still has a basis for larger scale operations as a result of materialisation of growth strategies.

Once the manufacturer is confident of the sustainability of the business operation in a single country, the business can then be scaled-up to reach new markets on the basis of its own resources and / or infusions of capital from the parent operation.

By starting small at inception of the operation, the manufacturer creates capacity to pioneer and adapt the new business without major costs. 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.

Talking about the Development Bank’s approach to financing for manufacturers in Namibia, led by parent companies in other territories, Inkumbi confirms that the Bank can provide finance for manufacturing start-ups that are locally registered, but with shares held by parent companies in other territories. The Bank will also finance the participation of local shareholders in such companies.

The Bank, Inkumbi says, recognises the value of the owner’s contribution to establishment and operating costs. A 30% owners’ equity contribution is ideal, while the Bank can provide the 70% debt funding. Collateral, he explains, can be provided in the form of assets financed and guarantees from the parent companies.

Inkumbi says that aforementioned financing structure is in the best interest of sustainability of the project. Depending on need, projects may be granted a grace period on interest, capital or both in order to accommodate set-up and reach breakeven.

He goes on to say that the Bank is interested in long-term relationships that span the growth trajectory of the enterprise. He points out that as the enterprise grows and matures, it will require additional finance. The Bank, he adds, 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, he notes that the Bank’s single obligor limit is N$350 million.

Inkumbi concludes that the Bank has earned itself a reputation as a first-stop for manufacturing start-ups. The Bank’s doors are open for business, and it is able to assess each application for finance on an individual basis.

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