Key Highlights

• Policy uncertainty and structural risks are the primary barriers to manufacturing investments in West Africa, not a lack of capital.
• Fabrice Mpollo of Norfund emphasized governance and policy clarity as critical factors for investment decisions.
• Operational challenges like port congestion and logistics delays add significant risks and costs for manufacturers.
• Long-term concessional financing often favours infrastructure, leaving manufacturers reliant on commercial funding.
• Norfund remains committed to expanding industrial investments in Nigeria due to its market size and growth potential.

Capital is readily available for manufacturing and industrial projects across West Africa, yet persistent policy uncertainty and structural risks are significantly limiting its deployment. This consensus emerged from discussions at the West Africa Industrialisation, Manufacturing and Trade forum, where financiers highlighted that the region's industrial financing gap is less about a scarcity of funds and more about the inherent risks associated with investment.

Fabrice Mpollo, senior investment manager at Norfund, underscored that governance and policy clarity are the most crucial elements influencing investment decisions in the region's manufacturing sector. "The reality of the failures of infrastructure projects is because of the laws in these regions compared to Asia and Latin America," Mpollo stated. "The risk is there but it depends how we ascertain it. In our view as an investor in manufacturing, governance is key. We forget about financial engineering and others. Governance makes it work."

Mpollo further explained that predictable policy environments in other regions have been instrumental in attracting long-term industrial investment. In contrast, the prevailing uncertainty in West Africa escalates costs and discourages investors. "In prospering economies, governance and discipline is settled. We need to be certain about the environment we operate in," he remarked.

Beyond policy, operational challenges such as port congestion and logistics delays introduce additional risks for manufacturers, frequently resulting in substantial financial losses that investors must meticulously factor into their assessments. Mpollo cited instances where manufacturers incur unexpected costs due to supply chain disruptions and are often compelled to absorb these losses without governmental support. "When there is port congestion, companies don't have protection they have to pay the rent. They go back to the shareholders and say it cost us two million dollars last year. This money should go into other things," he illustrated.

He stressed the critical importance of policy clarity for investors seeking to gauge their risk exposure. "Clarity is important. If I get port congestion, will I get cushion from the government or not?" Mpollo questioned. Consequently, investors typically demand higher returns to offset the risks associated with operating in the region, stating, "Capital requires higher returns. There is money around but it doesn't find its way here." Despite these hurdles, Norfund, according to Mpollo, remains dedicated to increasing its industrial investments in Nigeria, citing the country's vast market and long-term growth prospects. "We are doubling down on Nigeria. We are committed to take risk we understand it. Nigeria is a big market. We want to do more industrial and doubling down on family business and help them grow," he affirmed.

Other financiers at the forum identified structural gaps in the types of funding accessible to manufacturers. They noted that concessional and blended finance structures are frequently channelled towards infrastructure projects, leaving industrial firms more dependent on commercial financing. Ufuoma Adasen, vice president for heavy industries, telecoms and technology at Africa Finance Corporation, commented, "Equity, debt, as good as it is, it's more targeted for long-term infrastructure projects."

Adasen also pointed out that even when financing structures are available, projects must contend with a challenging market environment where imports often hold a cost advantage. "The way the world is, you're literally always competing with imports. While you might have projects that are not competitive and you're a first-time sponsor without clout, you will struggle," she said. She added that numerous projects fail to secure financing due to not being deemed bankable, a challenge that prolongs deal closure times and heightens overall project risk. "Because we realise the time to finance projects in the continent is long, we don't have bankable projects," she stated.

To address these issues, the Africa Finance Corporation has explored blended finance structures and credit enhancement mechanisms designed to attract institutional investors to African projects. However, Adasen cautioned that financial innovation alone cannot resolve the problems without broader policy support. "Even if you have all the blended finance you need everything to work together and a lot of it has to come from the government side as well. Policy consistency, the overall economic environment has to work in tandem," she urged.

Access to working capital in local currency also emerged as a significant concern for manufacturers, particularly small and medium-sized enterprises that rely on short-term financing for their daily operations. Industry participants suggested that enhancing access to affordable local financing could unlock investments and bolster industrial growth throughout the region. Emerging financing trends, such as climate funding, are also beginning to influence manufacturing investment decisions, although access remains limited. Investors are increasingly encouraging manufacturers to adopt renewable energy solutions and improve environmental compliance, but many companies still struggle to secure green financing.