Financing Manufacturing in Africa: Macroeconomic Conditions and Mobilising Private Finance

Phyllis Papadavid and Judith Tyson, June 2017

Since the downturn in global commodity prices in 2015, sub-Saharan Africa’s macroeconomic conditions have deteriorated, with 2016 seeing the worst economic growth in more than two decades. To maintain progress in economic transformation, employment-intensive and higher-productivity sectors need to be developed. Manufacturing – including agricultural processing – offers this opportunity, including through participation in regional and global value chains. In order for the sector to get the investment it needs, the promotion and mobilising of private financing will be crucial; however, this mobilisation is currently muted and, despite growing in absolute terms in the past decade, is not sufficient to support strong growth in the manufacturing sector.

These two complementary papers explore the current financing environment for manufacturing in sub-Saharan Africa including constraints on both investors and manufacturers, and offer suggestions for how barriers might be overcome with tailored policy solutions. The paper on conditions examines macroeconomic financing constraints in Kenya, Rwanda and Liberia in order to assess why manufacturing growth may have fallen behind services in these three countries at various stages of development. The paper on mobilising financing, meanwhile, looks at disparities between finance flows to the manufacturing sector and to others such as financial services, as well as the disparity between the financing of manufacturing in larger economies such as Ethiopia and Nigeria (which together account for 66% of financing manufacturing in the region) and in fragile and conflict-affected states. Finally, it offers policy recommendations to tackle these issues that include the expansion of impact accelerator funds and the supporting of value chain development.

This study has been released alongside a blog on East African manufacturing in Africa which can be found here.