Impact of COVID-19 on Light Manufacturing in the East African Community

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Walakira, Godfrey
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African Economic Research Consortium
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.