Covid-19 pandemic exposes Africa’s weak industrial base
Continent’s leaders have to wake up and realise that its future lies in making its own things, especially pharmaceutical requirements
The Covid-19 pandemic, one of the world’s most significant events, has resulted in cessation of economic activities that will lead to a significant decline in GDP, unprecedented social disruption and the loss of millions of jobs. According to African Development Bank estimates, the contraction of the region’s economies will cost Sub-Saharan Africa between $35bn and $100bn due to an output drop and a steep fall in commodity prices, especially the crash of oil prices.
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 complementary. This is because Africa is almost completely dependent on imports for the supply of medicines.
According to a 2019 McKinsey study, China and India supply 70% of Sub-Saharan Africa’s demand for medicine, worth $14bn. China and India’s markets are worth $120bn and $33bn respectively. Consider a hypothetical situation where both India and China are unable or unwilling to supply the African market; Africa surely faces a health hazard.
The root of Africa’s underdeveloped industrial and health sectors can be encapsulated in three ways. First, some African policymakers believe poor countries do not need to industrialise, but this does not fit the facts. The history of Western societies and contemporary lessons from East Asia run contrary to that stance.
Clearly, governments have an important role to play in the nature and direction of industrialisation. Progressive governments throughout history have understood that the faster the rate of growth in manufacturing, the faster the growth of GDP.
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 keyword is “making”.
Countries 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 semiprocessed and processed products. Africa is largely absent in this market while the region remains an exporter of raw materials to Asia and the West.
Lastly, African countries are repeatedly told they cannot compete based on economies of scale, price or 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, how did Vietnam, with a population of 95-million, emerge from a brutal 20-year war and lift more than 45-million people out of poverty between 2002 and 2018, and develop a manufacturing base that spans textiles, agriculture, furniture, plastics, paper, tourism and telecommunications? It has emerged as a manufacturing powerhouse, becoming the world’s third-largest exporter of textiles and garments (after China and Bangladesh). Vietnam exports more than 10-million tonnes of rice, third after India and China.
How is it that Bangladesh, a country far poorer than many African countries, is able to manufacture 97% of all its pharmaceuticals, yet it is next door to India, a powerhouse of drug manufacturing? The Covid-19 pandemic has exposed Africa. African leaders need to look in the mirror and ask where this continent will be in 2030 and 2063. Africa must adopt progressive industrial policies that create inclusive, prosperous and sustainable societies.
A three-pronged approached is urgently needed. First, Africa needs a strong regional co-ordination mechanism to consolidate small, uncompetitive firms operating in small, atomistic market structures. With a consumer base of 1.3bn and a $3.3-trillion market under the African Continental Free Trade Area (AfCFTA), the continent has no choice but to bring together its fragmented markets.
Second, Africa needs to build better institutions, strengthen weak ones and introduce the ones that are 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. Logistics for transporting capital and consumer goods across the region need predictable structures. Building or strengthening supply chains involves 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 such as the African Development Bank are mandated to, and are trying to fill the gaps left by private financial institutions. There is an opportunity for Africa to rethink and re-engineer its future. The Africa of tomorrow must look inward for its solutions, whether in feeding its own people or building industrial powerhouses led by African champions.
Africa needs to execute structurally transformative projects that generate positive externalities and social returns.
• Oyelaran-Oyeyinka is senior special adviser on industrialisation to the President of the African Development Bank. He is a fellow of the Nigerian Academy of Engineering and professorial fellow at the UN University.