Africa exposed by Covid-19
By Banji Oyelaran-Oyeyinka
The Covid-19 pandemic is clearly a crisis. This particular crisis has resulted in cessation of economic activities that will lead to a significant decline in GDP, an unprecedented social disruption, and the loss of millions of jobs.
According to estimates by the African Development Bank (AfDB), the region’s contraction will cost Sub-Saharan Africa between $35 billion to $100 billion due to output decline and steep fall in commodity prices, especially the crash of oil price.
More fundamentally, the pandemic has brutally exposed the hollowness of African economies on two fronts: the fragility and weakness of Africa’s health and pharmaceutical sectors and the lack of industrial capabilities. The two are complimentary.
In the absence of an industrial capacity, the twin sectors of pharmaceutical and healthcare remain shallow. This is because Africa is almost 100 percent dependent on the supply of medicines.
China and India supply 70 percent of Sub-Saharan Africa’s market demand for medicine worth $14 billion. China and India market is worth $120 billion and $33 billion respectively.
Consider a hypothetic situation where both India and China are unable or unwilling to supply the African market? Africa surely faces a health security.
I articulate the root of Africa’s underdeveloped industrial and health sectors in four ways. First, some African policy makers tend to agree with the simplistic notion that poor countries do not need to industrialize.
This group believes those “no-industrial policy” advocates who engage in rhetoric that does not fit the facts. The history of both Western societies and that of contemporary lessons from East Asia run contrary to that stance.
Clearly, governments have an important role to play in directing the nature and direction of industrialization. Progressive governments throughout history understand that the faster the rate of growth of manufacturing, the faster the growth of Gross Domestic Product (GDP).
Writing in Business Day of April 11, Temitayo Fagbule recounts how the pandemic of 1918 affected trade in raw materials, how Nigeria did not plan for the aftermath and how a reliance on commodity trade and lack of diversification leaves us at the mercy of outsiders.
Nigeria was the largest exporter of palm oil and palm kernel, demand for both had soared because of World War I. Nigeria made £9.5 million from exports in 1918, the highest since it was amalgamated four years earlier – 61 percent was from palm oil and palm kernels.
Export revenues from palm oil and palm kernels were the main source of income for the colonial government. Then as now, Nigeria relied on a single commodity.
Before World War I, palm oil was exported to Liverpool to make soap, and palm kernels were shipped to Germany to make cattle feed and the oil extracted from it was sold to the Dutch who made margarine from it. We ship away; others add value and got rich; 100 hundred years after, nothing changed.
Then demand for palm oil and palm kernel ended abruptly in 1920. Many big and small British merchants and companies were affected, subsistence farmers, and their families, in the South East and Niger Delta were affected too. As it was then, the economy isn’t diversified, there is no infrastructure to spur growth in other sectors after the crisis subsides, demand for oil has collapsed.
From the Economist magazine five years ago: “BY MAKING things and selling them to foreigners, China has transformed itself—and the world economy with it. In 1990 it produced less than 3% of global manufacturing output by value; its share now is nearly a quarter.
China produces about 80% of the world’s air-conditioners, 70% of its mobile phones and 60% of its shoes. Today, China is the world’s leader in manufacturing and produces almost half of the world’s steel. The key words are: “Making” and “Factory”.
Two, rich countries therefore became rich by manufacturing and exporting to others including high quality goods and services. Poor African countries remain poor because they continue to produce raw materials for rich countries.
For example, 70% of global trade in agriculture is in semi-processed and processed products. Africa is largely absent in this market while the region remains an exporter of raw materials to Asia and the West.
Third, central to the production activities of all countries that became rich is a set of policies that one might classify as industrial. The rhetoric of some rich countries does not square with the reality as exemplified by the set of ideas embodied in the so-called ‘Neo-liberal’ agenda.
In other words, rich countries do precisely what benefit their industries at every historical turn. They advise poor countries to do what benefit rich countries like: “adhere strictly to free and open market principles” even while rescuing their industries in times of trouble.
The strong emerging countries (India, China and much of East Asia earlier on) deployed industrial policies that benefit their economies while the weak poor countries listened to variants of advice embodied in the “Washington Consensus”. This is the root of poverty in Africa.
This was precisely what the Structural Adjustment Programme (SAP) was about in the 1980s. The set of “one size fits all” policies replaced the industrial policies in developing countries with simplistic macro – economic framework that led to the de-industrialization of their embryonic economies.
These misguided approaches to development have denied African countries the space to create broad manufacturing platforms that offer avenues for large-scale employment and decent wages.
Lastly, African countries are repeatedly told that they cannot compete based on scale economy, and as well, price and quality competitiveness because China will outcompete them. For this reason, they should jettison the idea of local production of drugs, food and the most basic things.
The question is why is it that Vietnam, Thailand coming long after Japan, Taiwan and South Korea among others, able to industrialize even though they are neighbours of China? Vietnam currently exports over 10 million tonnes of rice coming third after India and China? How did a Vietnam with 95 million population able to emerge from a brutal 20-year war to lift more than 45 million people out of poverty between 2002 and 2018 and developed a manufacturing base that span textiles, agriculture, furniture, plastics, paper, tourism and telecommunications.
It has emerged a manufacturing powerhouse, as the world’s third largest exporter of textiles and garments (after China and Bangladesh).
How is it that Bangladesh, a country far poorer than many African countries able to manufacture 97% of all its drugs demand, yet it is next door to an India that is a powerhouse of drug manufacturing?
The Covid-19 pandemic has exposed Africa. African leaders need to look themselves in the mirror as to where this continent will be in 2030 and 2063. Africa must adopt progressive industrial policies that creates an inclusive, prosperous and sustainable societies.
What then should be done?
First, given the fragmented African markets, regionalism will be key. Africa has a consumer base of 1.3 billion and $3.3 billion market under the African Continental Free Trade Area (AfCFTA). Unfortunately, the pharmaceutical and medical market is huge with few price-setters that control the global supply chain.
Africa needs strong regional coordination mechanism to consolidate small uncompetitive firms operating in small atomistic market structures.
Second, the argument against robust industrial policy is that governments are unable to allocate resources through bureaucratic mechanisms, are in any case too corrupt, and lack the incentive to work towards public purpose.
Unfortunately, neither is the market able to optimally allocate resources and for this reason, market failure is pervasive. Africa needs to build better institutions, strengthen weak ones and introduce the ones missing. No better wake-up call is required than the present pandemic.
Third, one important institution that has been abruptly disrupted is the supply chain for medicines, and food for example. Logistics for transporting capital and consumer goods across the region need predictable structures.
Building or strengthening supply chains involve fostering and providing regulations for long-term agreements and competences that leverage both private and public institutional challenges such as customs regulations.
Finally, Development Finance Institutions (DFIs) such as the African Development Bank are mandated to, and are currently, trying to fill the gaps left by private financial institutions, which are often geared towards commercial activities. At this moment of great disruptive change, we understand that countries have to be laser-focused on defeating the pandemic.
However, as they do this, they should leverage the emergency interventions to target and push for deeper economic transformation. Africa needs to execute structurally transforming projects that generate positive externalities and social returns. Keep our eyes on the days after. Let this crisis focus our efforts on the long term.
- Professor Oyelaran-Oyeyinka, is Senior Special Adviser on Industrialization to the President, AfDB.
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