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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