Half a dozen workers were lounging on a bench outside a factory shed on the outskirts of Addis Abeba during working hours last week. The company's expansive compound on 10hct of land does little to resemble a plant in active operation. Inside the factory, a lanky man dressed in a blue gown and wearing a facemask was closely monitoring the activities of five employees. He did not spare a thought for another three who stood behind a production line fiddling with their phones.

"Why would I bother them?" asked Seyoume Begashaw, who has worked as a supervisor at the Tsehay Industries S.C. since 2016. "There isn't much to do around here."

Seyoume earns a salary of 10,000 Br but says the slowdown at the factory keeps him from making more. During the company's initial years of operation, he used to receive a per diem equivalent to his monthly pay.

Tsehay operates at one-fourth of its capacity to keep all its 408 employees busy.

The owners' had high hopes when they decided to turn around a bouched dream of establishing a bank a decade ago.

One hundred twenty-eight of them had raised equity of over 100 million Br. Twenty-five million Birr more than the threshold capital required at the time, they were well on their way to joining the banking industry. The unexpected happened. The central bank raised the capital requirement to half a billion Birr, a significant jump from the 75 million Br required until then. The amount was too high for the founding shareholders to pursue the initial idea. They abandoned their dreams of entering an industry known to have a high rate of return on investment.

However, they found a viable alternative the following year when the government put one of the country's oldest manufacturing plants on the auction bloc. They pooled their funds and offered over 550 million Br to acquire Kality Metal Products Factory. The metal plant, 20Km southeast of Addis Abeba, opened its doors in 1968 with Riso Sporando, an Italian national, as a major shareholder and half a million Birr in initial capital.

The bid was a success. The shareholders rechristened it to Tsehay Industry S.C. and kept operations producing sheet metal, galvanised steel, pressed metal products, and door and window profiles. The early days of the business were good, too. The shareholders pooled a 186 million Br in additional investment to raise the factory's annual production by over five-fold to 276,000tn. The number of shareholders had also swelled to 320.

The shareholders had hoped to reap the benefits of the expansion project over the coming years. It was an aspiration proven short-lived.

A crippling shortage of raw materials brought the factory down to its knees. The factory depends entirely on imported hot, cold rolled and galvanized steels. They are shipped in from suppliers in Turkey and Ukraine, the latter fighting a Russian invasion for almost three months. However, the supply crunch predated the war in Ukraine and heightened over the past three years.

"We're producing way below our capacity," Workneh Tesfaye, chief executive officer (CEO), told Fortune.

Unable to reach a 10th of its potential, the factory needs raw materials valued at an estimated 30 million dollars each year to operate at full capacity. Neither accessing foreign currency nor opening letters of credit (LC) at the commercial banks have been easy for the managers. It has been almost a year since the last time Tsehay's executives got their hands on forex. They had obtained access to 10 million dollars from the state-owned Commercial Bank of Ethiopia (CBE).

This signals that the country's manufacturing industries failed to make it to the list of sectors the government prioritised in forex allocations.

The central bank altered its priority list in December last year, determining what commodities are afforded quicker and regular access to foreign currency at commercial banks. Raw materials for manufacturing industries like Tsehay were downgraded to the second tier. Pharmaceuticals, laboratory reagents, and edible oil production inputs were prioritised.

The decision was ill-timed for Tsehay as it came during a time of high demand for its products. It frustrates senior managers like Workneh to see outlets in Jimma and Bahir Dar shuttered their doors due to a lack of products for sale.

Tsehay Industry is not alone in these tribulations.

Woda Metal Industry Plc operates a plant in Sebeta town, 35Km west of the capital, manufacturing steel structures for telecom towers, high voltage cables and metal bellows. The company erected its existing plant on a 210,000sqm plot in 2016 for an investment of 30 million dollars. It began operations five years later, employing 150 people.

Woda imports raw materials from China and the United Arab Emirates (UAE) to manufacture the towers and cables, with a combined annual production capacity of 100,000tn. However, like Tsehay, it has been suffering from shortages of inputs. For Michael Mesele, the company's marketing manager, it boils down to the unavailability of foreign currency to buy the raw materials.

The predicament is despite the authorities' emphasis on manufacturers like Tsehay and Woda as key to import substitution. Government policy favoured foreign direct investments for over a decade, particularly in export-oriented projects. Hoping they would help energise the sluggish export sector and improve stagnant export earnings, the government has been providing incentives such as tax holidays and duty-free imports to these companies.

As the import bill skyrocketed to close to 18 billion dollars a few years ago, five times higher than the country's average export revenues, policymakers shifted their attention towards import substitution. They wanted to support industries that could replace imported products with locally-manufactured goods. Foreign currency constraints have been a severe impediment to importing inputs, spare parts and machinery.