How COVID-19 has impacted FDI flows in East Africa’s manufacturing sector

Foreign private investment in the manufacturing sector of East Africa witnessed a significant decline in 2021 due to the impact of the COVID-19 pandemic. According to a report by the Manufacturer Africa Programme, the region recorded lower deal values compared to the average value in previous years. Faheem Chaudhary, the Portfolio Lead for the organization, highlighted these findings in an interview with CNBC Africa's Eugene Anangwe. Chaudhary discussed the challenges faced by the manufacturing sector in East Africa, particularly in accessing foreign capital to drive growth. He noted that while there is money available, there have been fewer completed deals in manufacturing compared to other sectors such as financial services and tech. Despite these setbacks, Chaudhary remains optimistic about the future opportunities for the sector. One of the key issues affecting manufacturing in the region is the political context, with events such as elections in Ethiopia causing delays and hindrances. Additionally, infrastructure challenges, including power shortages, have been ongoing obstacles. However, Chaudhary believes that there are still exciting opportunities in manufacturing, with a focus on various sub-sectors that have garnered interest from local businesses and entrepreneurs. Chaudhary emphasized the importance of attracting investors to the manufacturing sector and discussed the types of investors that currently exist in the region. He mentioned a reduction in private equity deals and highlighted the role of impact funds and donors in funding institutional projects. However, the challenge lies in bridging the gap between potential manufacturing opportunities and investor expectations, particularly in terms of long-term growth and risk mitigation. When addressing the involvement of Development Finance Institutions (DFIs) in the region, Chaudhary revealed that only 10% of deals were directly from DFIs. He attributed this to challenges in investor readiness and the ticket size of deals, with a significant funding gap below two million dollars. Aligning businesses with donor expectations in terms of governance, financials, and business plans remains a hurdle that needs to be overcome to attract more DFI support. Despite the obstacles faced by the manufacturing sector, Chaudhary shared some positive developments, including several mega deals that are in the pipeline. He hinted at innovative funding structures and highlighted the importance of sectors such as apple processing and recycling in driving future growth. These potential deals could significantly impact the manufacturing landscape in East Africa and potentially lead to the emergence of billion-dollar revenue companies. In conclusion, while the manufacturing sector in East Africa has faced challenges due to the impact of COVID-19, there are promising opportunities on the horizon. With the right investment and support, the region's manufacturing sector could experience a resurgence and contribute to economic growth and development.