Impact of COVID-19 on Light Manufacturing in the East African Community
Date
2021-10-08
Authors
Walakira, Godfrey
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
The measures introduced by the EAC governments to control COVID-19 pandemic have
managed to supress the spread of infections; and in comparison with the developed
countries, the EAC economies have relatively been resilient. The study report provides
an assessment of the impact of COVID-19 on light manufacturing within the EAC.
The methodology mainly relied on two main sources of information, that is, primary
and secondary data. Information from national sources and already completed studies
relating to the impact of COVID-19 on light manufacturing were used to address the
shortcomings of non-response from the primary sources. The key findings of the
report are highlighted as follows.
The EAC economies of Kenya, Rwanda and Uganda contracted in the second and
third quarters of 2020, and the economy of Tanzania grew above 4% in the first three
quarters of 2020.
The containment measures implemented in the second quarter of 2020, as well as
restriction of movements, suppressed aggregate demand for light manufacturing in
the early stages of lockdown (from March to June 2020). The easing of restrictions
among the EAC countries in August 2020 showed positive signs of rebound in the
manufacturing sector, but not to the levels before COVID-19 Pandemic.
The negative effects experienced by light manufacturers in the second quarter
of 2020 in all the EAC countries were mainly the reduction in production output for
manufacturers that were not producing essential items; while for essential products
manufacturers, factories continued producing and industries diversified into
producing the necessary personal protective equipment {PPE} like protective gears,
sanitizers, face masks, and ventilators.
Additional effects included financial distress to the manufacturers, liquidity and
cash flows to meet their fixed and overhead costs, redundancy in the workforce where
some employees were laid off, salary cuts and others went on leave without pay, and
disruption of supply chains that limited the companies’ ability to source raw materials
and secure markets for their outputs.
Company innovation into digitalization and use of e-commerce improved some
manufacturer’s distribution networks and uptake of products during the restriction
of movements and lockdown.
Impact on trade of manufactured products varied, that is, in the early stages of
containment measures that were restrictive, export oriented companies saw a decline in their exports and sourcing of raw materials for production remained a challenge.
The recovery programmes were developed to revive the most hit sectors of the
economy, including manufacturing. The recovery solutions seemed to be about
short-term fixes; but for the sustainability of the manufacturing sector, economic
measures should look beyond COVID-19. Economic recovery in the manufacturing
sector should aim at upgrading businesses to withstand future shocks. The policy
options to boost and stimulate the recovery of light manufacturing within the EAC
are broadly in the following areas:
I. EABC, in coordination with national chapters, should spearhead the development
a private sector led EAC recovery/rebound strategy that includes the main private
sector needs and requirements for production efficiency.
II. To boost productivity and operation efficiency of manufacturing companies,
governments should promote and increase uptake of locally manufactured
products in government projects and programmes.
III. With outstanding private arears with government, governments should process
letters of credit to local manufacturers indicating the debt obligation and promise
of payment and can act as instruments of financial guarantee to the private sector.
IV. Extension of tax relief to the end of June 2021 and governments should fast track
clearance of VAT refunds to increase manufacturers’ liquidity and cash flows.
V. The private sector should engage in the negotiations of eliminating the existing
non-tariff barriers (NTBs); EABC, in coordination with national chapters, should
engage at bilateral private to private level to identify and coordinate with their
respective governments the elimination mechanism.
VI. With the new variants of COVID-19 mutating in the world, the crisis continues
with some countries entering the third wave, while in EAC, the second wave is
expected. EAC manufacturing companies must navigate through by implementing
risk mitigation strategies to minimize the looming recessions and slowdowns that
may result from second and third waves of the COVID-19 pandemic.