Key messages:

• Manufacturing firms have a key role in achieving water security and the resilience of local aquatic ecosystems within which they operate.
• Industrial water users should seize opportunities to collaborate with local stakeholders and pursue greater co-benefits through partnerships, by adopting a holistic approach that takes local impacts into consideration, beyond the industrial loads they themselves produce.
• The scale of investment needed at the local level often requires the joining of forces with other end users. The adoption of a portfolio approach could be beneficial, especially for small-scale projects.
• Better sustainability reporting by manufacturing firms could help attract private investment.

By Vania Paccagnan, water economist

- This opinion piece is part of a series of articles commissioned by UNIDO's Department of Policy Research and Statistics. The views expressed in this article are those of the author based on his experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

Lessons learnt on water use from the pandemic

The pandemic has underscored the need to be better prepared and able to cope with systemic crises, such as those related to energy, water and food (Al Saidi and Hussein, 2021). The achievement of Sustainable Development Goal 6 (SDG-6) and its sub-targets [1] is hampered not only by the lack of or by inadequate water supply and sanitation facilities, but also by untreated industrial water effluents. Together with diffuse agricultural pollution and untreated municipal wastewater, industry continues to contribute to the pollution of major rivers around the globe. Industry can therefore play a key role in improving local water security, considering that adequate treatment of municipal and industrial wastewater is a prerequisite for reusing water.

The temporary improvements in aquatic ecosystems following the imposition of lockdowns and restrictions to economic activity were short-lived[2] and did not reverse the long-term environmental degradation caused by past unsustainable production and consumption patterns. Aside from preventing the spread of the virus, sustainable water use is crucial for addressing overlapping shocks (Sadoff and Smith, 2020), as investments in essential infrastructure increases a country’s ability to respond to systemic risks (OECD, 2020). A sustainable and inclusive recovery from the pandemic calls for improvements in water infrastructure, including industrial wastewater treatment facilities, combined with mitigation technologies. The COVID recovery presents an opportunity to align today’s investment decisions with the long-term objectives of increased resilience to climate change (through mitigation and adaptation policies), biodiversity protection and resource efficiency.

 

Sustainable and inclusive recovery through water infrastructure

From a macroeconomic perspective, investment in green infrastructure is key in driving the transition to a more resilient economy and to avoid locking-in polluting industries. Sustainable industrial water management requires substantial investments by the manufacturing sector—especially in developing and emerging economies—to increase or update firms’ wastewater treatment potential and to facilitate the reuse of wastewater. While the industrial sector demonstrates great heterogeneity in terms of water resource use for productive purposes (compared to municipal water uses, which are based on standard technologies), best practices have emerged for several industries, from food processing to pharmaceuticals. The case for investing in wastewater treatment technologies has recently been reinforced by experiences made with the recovery of materials and power generation through the adoption of most advanced technologies (Process-Net, 2017). Industrial effluents have already become a resource for creating a wide range of high-value products (Guerra-Rodríguez et al., 2020[3]), from chemicals to electronics. While in developed countries existing plants need to be upgraded, in developing ones the latest available technologies and solutions could be applied. The adoption of circular economy approaches by businesses in different industrial sectors offers tremendous untapped cost savings associated with the recovery of materials from industrial sludge (World Bank, 2019).

While economic stimulus packages introduced by governments around the globe in response to the COVID-19 pandemic could boost inclusive green growth (OECD, 2020), appropriate financing and governance approaches need to be developed to drive the transition to more sustainable industrial water use based on a transparent assessment of manufacturing firms’ environmental impacts. Yet many companies lack an

understanding of water sustainability issues, the technical expertise, and the financial resources required to implement sustainable water use practices and technologies (Davis, 2021).[4]

 

Long-term business viability

Protecting local water sources to ensure reliable supply is indispensable from a long-term business sustainability perspective. Firms already face a series of water risks [5], either directly (due to changes in local water availability) or indirectly (through disruptions in the value chain caused by drought or flood events). As illustrated in Figure 1, firms’ environmental management strategies can avoid reputational risks (public perception of the firm), and can indirectly influence the physical risks in the context in which they operate and along the value chain by increasing their resilience to water scarcity and flooding (Morgan et al., 2020; CSRD, 2021[1]).

Figure 1 – Water risk framework

In a recent survey, the CDP [7] concluded that water risk represents one of the biggest challenges for major corporations. As highlighted in Table 2, the potential financial impacts of water risks (i.e. revenues at risk) far exceed the costs of addressing them. The business case for mitigating water-related risk is clear in all continents, and is especially pervasive in Africa and Asia.

 Table 2– Financial implications of water risk for major corporations (billions USD)

 

Figure 2 – Potential financial risk and mitigation cost by industry (2020)

The double-materiality principle: a driver of sustainable industrial water management?

The international community had been engaged in several initiatives well before the outbreak of the pandemic to improve the disclosure of companies’ non-financial information on the premise that increasing awareness and the understanding of climate-related risks, including water scarcity or flood risk, is essential for ensuring the economic system’s financial stability and for redirecting private investment towards green projects. In 2017, the European Commission’s Task Force on Climate-related Financial Disclosures recommended financial institutions and other (non-financial) firms to disclose information on climate-related risks and opportunities[8], recognizing that these could affect companies’ financial performance. This concept was further developed in the Non-financial Reporting Directive (NFRD), which introduces the “double materiality” perspective (Adams et al., 2020; Bussot et al., 2021). Accordingly, companies should report how sustainability issues affect their performance, position and development, and how their activities, in turn, impact society and the environment. The European Commission’s recent proposal for a revised Corporate Sustainability Reporting Directive (CSRD)[9] reaffirms this requirement for large

companies. Whilst European regulations will apply to companies located in Europe, their effects will be felt beyond the continent’s borders, as sustainability reporting has an impact along the entire value chain, both upstream and downstream. Several cross-sectoral examples exist of global buyers and finance providers that implemented programmes for financing sustainable supply chains and to assist local SMEs in adopting sustainable water management practices (Bancilhon et al, 2018[10]; Maennicke and Honerhoff, 2021[11]).

 

 

Business activity reports must take better account of environmental and social impacts

The impacts of business activities on risks and resilience are often not adequately reflected in firms’ strategies or evaluations, but recent policy developments could change general business reporting practices. On the one hand, information on a firm’s sustainability allows asset managers to assess investment risk in terms of the target firm’s performance, position and potential development, and to flag the impact of the firm’s activities on society and the environment, on the other. An analysis by Ching and Yi (2020) of companies involved in water-related business activities[12] concludes that they benefit from higher risk-adjusted returns over the long term than the global equity market in general. Climate- and water-related risks can be transformed into opportunities, not only for companies that offer products and services related to climate change mitigation and adaptation, but also for those that are threatened by these risks. Improvements in environmental management systems brings co-benefits such as more resource efficient productive processes (and consequent operational cost savings), as well as wider societal benefits (e.g. reduction of health impacts from pollution). In this respect, better and more integrated sustainability reporting at firm level could positively influence business strategies and improve relationships with local stakeholders by highlighting the positive impacts the manufacturing firm can have at the local level.

 Transparency to overcome barriers to financing

Recognizing the positive contribution of manufacturing firms to the protection of local water sources could help reverse chronic underinvestment in water resource protection and fill the financing gap to achieve the related SDGs.[13] Private finance has not yet become a viable alternative to publicly financed programmes, despite the fact that the business case for investing in water infrastructure is clear and compelling. In cases of water scarcity, any measures that increase local water security entail social benefits that are neither captured in market transactions nor in regulations, as the price paid for such measures mostly reflects cost considerations as opposed to their intrinsic value (WWDR, 2021). A mechanism to reward manufacturers for the positive impacts (co-benefits) they produce for local ecosystems through sustainable water resource management must therefore be introduced. The adoption of a double-materiality perspective would be the first step towards internalizing the positive external effects of regulatory (e.g. water fees) and market instruments (e.g. better access to credit and lower interest rates).

Transparency and accountability are prerequisites for attracting private investment. First, “if the market for green investments is to be credible, investors need to know about the sustainability impact of the companies in which they invest”.[14] Better reporting would thus be necessary to access private investments for wastewater treatment and to put businesses in a better position to access public funds with conditionality clauses. Secondly, stakeholder engagement would disclose impacts to manufacturers that they are not even aware of, thereby enhancing firms’ understanding of the impacts their activity has on the local environment. Such collaboration could help overcome the information asymmetry on firms’ social and environment impacts that have not yet materialized.

Collaborative ways of working towards sustainable industrial water management

The industrial sector can become a key player in sustainable water management in the post-COVID era, provided that current barriers to investment in wastewater treatment are overcome. The shift towards a circular approach (which, among others, implies economies of scale, resource recovery and energy savings) encourages businesses to work together. By demonstrating how sustainable practices maximize local co-benefits, manufacturers could improve relationships with other stakeholders, to collaboratively pursue sustainability objectives. Recovery from the pandemic represents a major opportunity to not only “build back better” but to “build forward” by experimenting with innovative cooperation between manufacturers and other stakeholders at the local level. One example is the so-called end-user public-private partnership (PPP) model (Figure 3). Although the grey water comes from the effluents of the municipality in the figure, the model could be expanded to include the manufacturing firm’s own effluents by building an additional conveyance main that leads to the treatment plant. The manufacturing firm could co- or fully finance the conveyance facility and wastewater treatment plant. Another possibility would be for the manufacturing firm to supply bulk-treated wastewater to local farmers. Local circumstances will determine the preferred PPP model structure, and the financial arrangements will vary according to the selected PPP type (World Bank, 2019). Several existing institutional arrangements are described in Delgado et al. (2021)[15].

Figure 3– Diagram of the end-user reuse model

By joining forces and pooling water supply and treatment needs at the local level, the “critical mass” necessary to access new sources of finance can be achieved, even for smaller projects, which often face difficulties in terms of access to capital markets. If a portfolio approach is adopted, such projects can be aggregated at the local or regional scale, reducing the transaction costs related to project appraisal and approval. Finally, aggregating projects diversifies the risk from an investor perspective, thus making more favourable financing conditions possible. The portfolio approach should be applied at the catchment scale to ensure that all external effects are taken into account. Economies of scale could be exploited by co-developing centralized municipal-industrial treatment facilities as illustrated above. In this respect, successful case studies from industrialized countries could be replicated in least developed countries with support from international organizations, including UNIDO, e.g. through existing eco-industrial parks. This calls for leadership at the local level, a role that bigger industrial water users could take on.

 

- It is now abundantly clear that the COVID-19 pandemic has had an impact on nearly all aspects of our lives and has caused us to rethink “business as usual”. As we adapt to the "new normal", appropriately channeled opportunities can help us improve the way we do business and the way we live. The United Nations Industrial Development Organization's latest flagship report, the Industrial Development Report 2022, provides a comprehensive assessment of the pandemic’s impact on global manufacturing and the prospects for the future of industrialization in a post-pandemic world. The report makes a key contribution to countries' national and international strategies for an inclusive, sustainable and resilient industrial recovery to build back better from the COVID-19 pandemic.

 

 

[1] 6.1: Access to safe and affordable drinking water, 6.2: access to adequate and equitable sanitation and hygiene, 6.3: improve water quality, 6.4: address water scarcity, 6.5: implement integrated water resources management, and 6.6: protect and restore water-related ecosystems.

[2] The water quality of rivers and coastal areas improved temporarily as a consequence of the decreases in economic activity during the pandemic, including industrial production (OECD, 2020). Evidence for industrial water pollution is anecdotal[2], but local improvements in the concentrations of NO3, As, Fe, Pb, Se and suspended particular matters are consistently mentioned. Moreover, according to the IFC (2020), industrial water demand decreased by 27 per cent during the lockdowns.

[3] Towards the Implementation of Circular Economy in the Wastewater Sector: Challenges and Opportunities. Water 2020, 12(5).

[4] Chapter 16 in Davis C., and E. Rosenblum, 2021, Sustainable Industrial Water Use: Perspective, Incentives, and Tools. Available at https://iwaponline.com/ebooks/book/814/Sustainable-Industrial-Water-Use-Perspectives 

[5] According to the WWF (2009), physical risk relates to situations in which there is either insufficient water (water scarcity or drought), too much water (flooding) or where the water is unfit for the relevant purpose (polluted). Financial risk is caused by the inflation effects induced by water scarcity, which increases the cost of water provision and energy. Regulatory risk arises when changes in legislation affect business operating costs or when new capital investments become necessary. Reputational risk refers to public perception of the company’s operations, which may entail losing market share or customers.

[6] Morgan A., (2020), Right tool for the job. Tools and Approaches for Companies and Investors to Assess Water Risks and Shares Water Challenges. Available at: https://wwfint.awsassets.panda.org/downloads/right_tool_for_the_job_1.pdf

[7] CDP, 2021b, A wave of change. The role of companies in securing a water secure world. Available at: https://cdn.cdp.net/cdp-production/cms/reports/documents/000/005/577/original/CDP_Water_analysis_report_2020.pdf?1617987510

[8] https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf

[9] https://ec.europa.eu/info/publications/210421-sustainable-finance-communication_en#csrd

[12] The paper considers water utilities, water infrastructure providers and suppliers of equipment, technologies and services s for the treatment, separation or purification of water.

[13] Whilst the international community has in recent years pushed for more extended use of blended finance[4] to resolve water management issues (WEF, 2021)[4], only 1 per cent of commercial finance targeted water and sanitation goals between 2012–17 (OECD, 2019).

[14]  https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_1806

References

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Al Saidi and Hussein,2021. The water-energy-food nexus and COVID-19: Towards a systematization of impacts and responses. Science of the Total Environment. Available online: https://reader.elsevier.com/reader/sd/pii/S0048969721015977?token=9962113C95E0DC21CAA0B1181824893756589F5AC5076679EA80F095F6AE520DECD711584AB19223BCE936C675099806&originRegion=eu-west-1&originCreation=20210625105130

Bancilhon, C., Christoph K., and T. Norton, 2018. “Win-Win-Win: The Sustainable Supply Chain Finance Opportunity.” Report. BSR, Paris.

Bossut M., I. Jürgens, T. Pioch, F. Schiemann, T. Spandel, and R. Tietmeyer, 2021. What information is relevant for sustainability reporting? The concept of materiality and the EU Corporate Sustainability Reporting Directive.  Sustainable Finance Research Platform. Policy Brief – 7/2021. Available at:

CDP, 2021a. Transparency to Transformation. A chain report. CDP Global Supply Chain Report 2020. Available at: https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/005/554/original/CDP_SC_Report_2020.pdf?1614160765

CDP, 2021b. A wave of change. The role of companies in securing a water secure world. Available at: https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/005/577/original/CDP_Water_analysis_report_2020.pdf?1614347489

Chakraborty C., S. Roy, S. Sharma, and T. A. Tran, 2021. Aftermath of Industrial Pollution, Post COVID-19 Quarantine on Environment, The Impact of the COVID-19 Pandemic on Green Societies. 2021 Mar 23 : 141–167. Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7984822/

Ching and Yi, 2020. Investing in Water for a Sustainable Future. Available https://www.spglobal.com/spdji/en/documents/education/education-investing-in-water-for-a-sustainable-future.pdf

Davis C., and E. Rosenblum, 2021. Sustainable Industrial Water Use: Perspective, Incentives, and Tools.Available at https://iwaponline.com/ebooks/book/814/Sustainable-Industrial-Water-Use-Perspectives

Delgado, A., D. J. Rodriguez, C. A. Amadei and M. Makino, 2021. "Water in Circular Economy and Resilience (WICER).” World Bank, Washington, DC. Available at: https://www.worldbank.org/en/topic/water/publication/wicer

EC, 2019. Communication from the Commission. C(2019) 4490 final. Guidelines on non-financial reporting: Supplement on reporting climate-related information. Available https://ec.europa.eu/finance/docs/policy/190618-climate-related-information-reporting-guidelines_en.pdf

Fonseca L.M., J.P. Domingues and A. M. Dima, 2020. Mapping the Sustainable Development Goals Relationships. Sustainability. Available at:

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World Bank, 2019. From Waste to Resource: Shifting paradigms for smarter wastewater interventions in Latin America and the Caribbean. Background Paper V: Financial incentives for the development of resource recovery projects in wastewater. Available at: https://documents1.worldbank.org/curated/en/420981582254775447/pdf/Background-Paper-V-Financial-Incentives-for-the-Development-of-Resource-Recovery-Projects-in-Wastewater.pdf WWAP, 2017. The United Nations World Water Development Report 2017: Wastewater, the untapped resource. United Nations World Water Assessment Programme (WWAP). Paris, United Nations Educational, Scientific and Cultural Organization.

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Key messages

• 4IR platforms provide opportunities to formalize the informal sector by organizing informal workers, building trust, delivering services and upgrading skills.
• There is potential for far-reaching innovations, including the use of simple off-the-shelf computers to automate informal manufacturing.

By Julius Gatune, Maastricht School of Management, and UNESCO Chair of Futures Literacy Laboratory, Dedan Kimathi University of Technology, Nyeri, Kenya

Introduction

The informal sector[1] is Africa’s largest economic sector.[2] The informal sector is generally considered to be a drag on productivity and is characterized by low pay and vulnerable jobs (Medina et al., 2017). Moreover, informal economic activity severely limits tax revenues, while most African countries would certainly benefit from a more stable tax base. Around 90 per cent of jobs created in Africa are in the informal sector (Benjamin and Mbaye, 2014). Hence, there is sufficient incentive for African economies to shift production from the informal to the formal sector (Medina et al., 2017).

Fourth Industrial Revolution (4IR) technologies are transforming how business is done by promoting digitization and platform economics. These new technological innovations are formalizing economies by including more people in formal systems. The financial sector has witnessed the highest level of inclusion as a result of providing mobile money services. Such services can address the many obstacles to accessing finance, such as physical distance, minimum balance requirements, little to no credit and low income flows, in a cost effective way. One example of this is the M-Pesa platform in Kenya, which has over 110,000 agents distributed across the country, ensuring that anyone can access e-money. The impact of this innovation has been immense. While financial inclusion in Kenya was at just 26 per cent in 2006, it has increased to 83 per cent of the population (Chitavi, Cohen, & Hagist, 2018). Many African countries are following in Kenya’s footsteps, generating a rapid rise in financial inclusion.

The emergence of platforms to better organize the informal sector has introduced far-reaching innovations. The Lynk platform (www.Lynk.co.ke), for example, connects businesses and households with verified domestic workers, artisans and blue collar workers in Nairobi. By September 2018, the platform had successfully “lynked” 20,000 jobs. There are currently over 365 platforms[3] in Africa that provide a variety of services.

COVID–19-inspired innovations

The COVID-19 pandemic has accelerated the process of digitization[4] and formalization by intensifying the adoption of 4IR technologies. The biggest impact of COVID-19-driven innovations has been the linking of the formal with the informal sector. Lockdowns forced companies to look for and implement new business models, resulting in a greater inclusion of informal workers in the formal sector, especially in supply and distribution chains.  

GetBoda, a logistics/courier platform in Uganda that engages informal motorbike riders, reported a 150 per cent jump in demand for delivery services within one week in April 2020 (Johnson, Dunn & van Vuuren, 2020). With demand for home deliveries increasing in the wake of the pandemic, motorbike delivery services have become a key component of the supply chain.

Financial innovation also experienced a boost – the banking sector witnessed a significant rise in mobile and agent banking during the crisis. Nigerian consumers are moving to digital financial transactions, and the majority of consumers surveyed stated that they planned to progressively use digital and mobile banking services post-crisis.[5] Agent banking transactions that rely on 4IR technologies surged eight-fold between March and April 2020, with agents able to distribute money—including government aid—and conduct various other financial transactions (Kola-Oyeneyin, Kuyoro & Olanrewaju, 2020). The uptake of mobile money services also increased in countries previously hesitant about using them.

The COVID-19 pandemic intensified the need for humanitarian aid in some of the hardest hit countries, inspiring innovations to deliver assistance. In Kenya, for instance, mobile apps were developed to facilitate the donation of food packages for donors and notification  of beneficiaries about designated collection points, which included small-scale kiosks, thus bringing informal retailers online.[6] Many informal businesses were forced to reinvent their business models due to disruptions and move parts of their business online. Africa’s e-commerce and payments platform giant, Jumia, developed partnerships with various vendors that use its ePayment system and last mile delivery capabilities to offer contactless delivery of food and other necessities to all locations, including remote and rural areas (Johnson, Dunn & van Vuuren, 2020).

 

Building on the COVID-19 momentum

The COVID-19 pandemic has uncovered new perspectives about how 4IR can be leveraged and its potential to inspire new innovations. Likewise, new ways of working that have evolved in response to the pandemic have exposed ways to leverage 4IR technologies.

The provision of humanitarian assistance without the requirement for extensive logistics opens up the potential for peer-to-peer humanitarian aid delivery, i.e. individuals or groups can now supply food to those in need directly. This model has been introduced in Ethiopia (MSM, 2020). Building a peer-to-peer platform that matches individuals or groups with others and that provides logistics and payment systems can considerably reduce the costs of humanitarian aid distribution and bring informal food vendors (especially those that are home-based) and deliverers of humanitarian assistance on board. This has the potential of reducing the supply/distribution logistics costs of humanitarian aid providers and frees up funds to further support the needy.

Such peer-to-peer platforms can be further leveraged to develop innovative public-private partnerships, which can incorporate the informal sector. For example, a new delivery cooperation was set up between the Ministry of Agriculture and the Indonesian motorbike delivery app Gojek in Indonesia to provide shopping services for local communities during the pandemic, with the Ministry covering the delivery costs. This successful collaboration includes retail giants, farmers’ markets and supermarkets to provide access to a large number of vendors. Consumers can place their orders and have them delivered directly to their doorstep. This is a model that governments in Africa could also adopt and adapt.

Beyond COVID-19-inspired innovations

COVID-19-inspired innovations have expanded our perception of what is possible, thereby opening a window of opportunity to further develop 4IR innovations that target the informal sector with a focus of establishing stronger linkages with the formal sector. Some avenues for further innovations are discussed below.

1. Simple automation interfaces

Using small low-cost computers such as the Pi (see Box 1), Internet of Things (IoT) systems with integrated data acquisition and communication solutions can be manufactured at a low cost. These devices can benefit small and medium enterprises (SMEs) and informal sector actors. Woo‑Kyun et al. (2020) demonstrate how the off-the-shelf Raspberry Pi (computer board), a Pi camera and algorithms based on open source solutions can be connected to a sewing machine to film and use image processing to detect faults during the sewing process. The IoT system sounds an alarm when a defect is detected. This example illustrates the potential of adopting cost-effective Industry 4.0 solutions to improve quality at the SME and micro-enterprise level. Better integration of the informal sector and of researchers and developers offers tremendous potential to upgrade the quality of goods manufactured in the informal sector.

Box 1: Raspberry Pi

 

The Raspberry Pi is a low-cost computer that allows users to control electronic components for physical computing and to explore the Internet of Things (IoT). The Raspberry Pi Foundation aims to place the power of computing and digital making in the hands of people across the globe. The cost of the Raspberry Pi has always been under USD 100 (the average price is around USD 35). The Pi Zero only costs USD 5. The Foundation also provides outreach and education programmes to increase people’s access to computing and digital making.

 

Source: What is a Raspberry Pi? | Opensource.com

 

 2. Support innovation and market access

The potential of Industry 4.0 to provide information and open new markets for informal manufacturers is huge. Using internet tools, artisans can find designs they would otherwise not have access to or can even crowdsource designs. A crafts worker who wants to produce multipurpose use furniture can download designs from the internet. In Kenya, for instance, roadside artisans used this approach to design a multipurpose bench (Mireri, 2020). They also used social media tools to showcase their design which eventually went viral, leading to a flood of orders (ultimately, the artisans made additional investments in production and recruited more employees to help fulfil orders). Ironically, the slowdown in the artisans’ business due to the COVID-19 pandemic led them to think innovatively to remain afloat (Osanjo, 2020).

3. Shared services

4IR technologies provide an opportunity for roadside artisans and crafts workers to upgrade the quality of their products, to access more tools and to implement a suitable business model. For example, shared 3D printing services can help artisans build more complex components, allowing them to expand the range of their products. Moreover, Industry 4.0 services and tools can be employed anywhere, i.e. even artisans who reside and work in remote areas can access them. The Kwame Nkrumah University of Science and Technology (KNUST) in Ghana established a formal foundry and runs workshops in areas inhabited by artisans to help them improve their products (Gatune, 2016). KNUST has added 3D printers and other Industry 4.0 tools to expand its range of services.

4. Hybrid manufacturing models

New business models that leverage 4IR can also be developed. For example, rural-based artisanal food processors with expertise in resolving supply challenges (because they are farmers) can be linked with urban-based formal SME processors with expertise in business development and marketing (Gatune, 2018). In this regard, 4IR can provide the necessary tools to allow SMEs to assist artisanal processors in meeting certain standards. This can be achieved through remote quality assurance systems, web-based training and support, etc.

5. Moving towards open standards

One major challenge for both SMEs and the informal sector is the lack of standards for integrating Industry 4.0 into production processes. Weyer et al. (2015) argues that open and standardized solutions are essential if SMEs are to successfully adopt the Industry 4.0 paradigm. They advocate a ‘highly modular’ and ‘multi-vendor interoperable’ production system to reflect the diversity of solutions found on traditional SME shop floors. The emergence of open-source and cheap Industry 4.0 tools such as Raspberry Pi and Arduino[7] can help standardize SMEs’ operations.

Taking note of unintended effects

The impact of these developments on the informal economy could have some negative consequences, however. An example, is the collaboration between Twiga Foods and the e-commerce platform Jumia in Kenya resulted from the COVID-19 pandemic. Under the current arrangement, Jumia sells bundles of Twiga’s fresh produce on its e-commerce website. Jumia’s delivery fleet picks up orders from Twiga’s sorting and distribution centres and completes the last mile, contactless delivery.[8] Pre-COVID-19, Twiga Foods distributed foods produced by many small farmers (17,000) directly to informal food retailers (mama mboga). By selling the produce to consumers directly via the Jumia platform, the “mama mboga”, the retailer, is essentially marginalized and  his or her livelihood is at risk. 

A more sinister scenario would be the complete capture of the informal sector by emerging global platform monopolies. The first-mover advantage would imply that the network effect gives one big player an unassailable lead. For example, Safaricom has secured a dominant position in mobile money transfers in Kenya through its Mpesa platform. The platform has been implemented in other businesses as well, turning Safaricom into a key player in many sectors in which apps are being developed to digitize services, including banking, agriculture and media. The power of the emerging platforms means that they could extract all value created. Uber is a good example. It has used its power to squeeze margins, i.e. Uber drivers are barely breaking even (de Freytas-Tamura, 2017). The consequence has been frequent go-slows by drivers calling for better terms and conditions. Uber has been particularly adept at blunting regulations, asserting that it is a technology platform and not a transportation company and that it therefore lies outside any regulatory authority. Uber has also hired experienced lobbyists to influence legislation (Berjikian, 2019; Popper, 2015). And when all else fails, Uber even willingly violates laws (Moed, 2018).

Russo and Stasi (2016) argue that markets covered by shared economy platforms and their relationship to existing markets must be clearly defined so their new services can be effectively regulated within existing legislative frameworks. Competition law is of particular relevance in this regard. 

Towards inclusive and sustainable formalization

Johnson, Dunn & van Vuuren (2020) estimate that in 2018, indigenous digital platforms in seven African countries created income-generating opportunities for 4.8 million workers. However, many workers lack social protection, highlighting the need to further develop these platforms to become more than simply a place to post and find a job or service.

Platforms’ true potential will be unleashed if their structures are improved so they are used not only to post or find a job, but also to offer other services and opportunities for upgrading, which are usually not available to informal workers, primarily because the informal sector is not organized. When developing the next generation platform that targets the informal sector, Gatune et. al. (2019) propose incorporating the following features:

• Embedding a trust system: When a trust system is embedded in the platform, clients do not have to establish a personal relationship with service providers. The platform can vet service providers and monitor them through a rating system and other means. Similarly, service providers do not need personal referrals to find work, as the platform itself serves as their referral system.
• Upskilling and quality incentive: Clients should be able to rate service providers to ensure that good and reliable service providers get more work and can charge a premium. Such a system improves the quality of services being provided and may incentivize service providers to upgrade their skills. For example, a carpenter who has only completed apprentice training can obtain certification from a Technical and Vocational Education and Training (TVET) institution to demonstrate his or her ability to deliver higher quality work.
• Greater specialization: As platforms can bring together a large number of clients and service providers, they can more effectively match buyers and providers, thereby providing opportunities for greater specialization (another form of upskilling). This can further boost productivity.
• Provision of worker services: By bringing together many small service providers and freelancers, platforms also provide an opportunity for informal workers to access numerous services associated with formal employment, including health insurance, social security, etc. Providers of various human resource services (including the government) can use platforms to develop services targeted specifically at informal workers. This decreases the vulnerability of informal workers.
• Franchising opportunity: Platforms can also function as franchise systems, facilitating investment in monitoring systems as well as shared systems, thereby further improving the informal sector’s quality and productivity.

 

Conclusion

The COVID-19 crisis has opened up new opportunities for 4IR as entire industries have been forced to rethink their business models in the wake of closures and lockdowns. The pandemic has also accelerated the establishment of linkages between the formal and informal sectors in Africa. These trends will have positive effects if formal-informal linkages can be established and combined with equitable distribution of the value created.

COVID-19 has created momentum for far-reaching innovations that target the informal sector. The demonstration effects have sparked a rethinking, and policymakers and other stakeholders are now more receptive to ideas that seemed far-fetched not too long ago. This window of opportunity ought to be seized. It involves a search to identify beneficial innovations and the development of appropriate business models to scale them. Incentives for further innovation should also be promoted and a wide array of platforms established to drive the formalization of the informal economy innovations.

- It is now abundantly clear that the COVID-19 pandemic has had an impact on nearly all aspects of our lives and has caused us to rethink “business as usual”. As we adapt to the "new normal", appropriately channeled opportunities can help us improve the way we do business and the way we live. The United Nations Industrial Development Organization's latest flagship report, the Industrial Development Report 2022, provides a comprehensive assessment of the pandemic’s impact on global manufacturing and the prospects for the future of industrialization in a post-pandemic world. The report makes a key contribution to countries' national and international strategies for an inclusive, sustainable and resilient industrial recovery to build back better from the COVID-19 pandemic.

[1]The “informal sector” here refers to self-financed, under-capitalized, small-scale, unskilled labour-intensive production. An alternative definition is a “process of income generation” that is “unregulated by the institutions of society, in a legal and social environment in which similar activities are regulated” (Pratap and Quintin, 2006).

[2] Ranging from a low of between 20 per cent to 25 per cent of formal sector output in countries such as Mauritius, South Africa and Namibia, to a high of between 50 per cent to 65 per cent in countries including Benin, Tanzania and Nigeria (Medina et. al. (2017).

[3] See: http://researchictafrica.net/wp/wp-content/uploads/2018/12/DInfo_V11.pdf

[4] According to Microsoft’s CEO, “We’ve seen two years’ worth of digital transformation in two months.” (Marr, 2020).

[5] This situation could change following intense lobbying, as the Central Bank has set very high capital requirements for payment banks which may slow the pace of progress in financial inclusion.

[6]https://www.capitalfm.co.ke/business/2020/04/centum-subsidiary-develops-zero-contact-covid-19-food-distribution-app/

[7] Arduino - Home

[8] https://techcrunch.com/2020/04/28/goldman-backed-venturesjumia-and-twiga-partner-on-produce-in-kenya/

References

Berjikian, K (2019). AB 5: “California follows in Europe’s footsteps in a bid to regulate apps like Uber.” EuroNews 13/09/2019. https://www.euronews.com/2019/09/13 /ab-5-california-follows-in-europe-s-footsteps-in-bid-to-regulate-apps-like-uber

 

Chitavi, M.,  Cohen,  L. & and Hagist S.C. N. (2018). “Kenya Is Becoming a Global Hub of FinTech Innovation.” Harvard Business Review (HBR). February 18, 2021

 

Dunn, M. & and van Vuuren P. J. (2020). Digital platforms’ role in African digitization and gig work on the back of Covid-19. FinMark Trust. https://finmark.org.za/ knowledge-hub/blog/digital-platforms-role-in-african-digitisation-and-gig-work-on-the-back-of-covid-19?entity=blog

 

de Freytas-Tamura, Kimiko (2017), “Kenya’s Struggling Uber Drivers Fear a New Competitor”: Uber. New York Times, May 22, 2017.

 

Gatune, Julius (2016). “Suame Magazine: The Evolving Story of Africa’s Largest Industrial Cluster.” In Olugbenga Adesida, Geci Karuri-Sebina, Joao Resende-Santos (Eds). Innovation Africa Emerging Hubs of Excellence. Emerald Publishing, 30 March 2016

 

Gatune, J. (2018). “Upgrading Africa’s Agricultural Value Chains-Catalyzing Business Model Innovations.” Latin America Report. Vol 34 (2018)  

 

Gatune, J.,  Karuri-Sebina, G. and de Boer, D. (2019). Different Strokes of the 4th Industrial Revolution: Could technological change level the playing field in Africa. Working Paper No. 2019/04. Maastricht School of Management (MSM)

 

Kola-Oyeneyin, Kuyoro, M. & Olanrewaju T. (2020). Harnessing Nigeria’s fintech potential. Mckinsey. September 23, 2020. Retrieved https://www.mckinsey.com/ featured-insights/middle-east-and-africa/harnessing-nigerias-fintech-potential 

Marr, B. (2020). “What’s Been the Impact of Covid-19 on the 4th Industrial Revolution?” Forbes https://www.forbes.com/sites/bernardmarr/2020/12/21/whats-been-the-impact-of-covid-19-on-the-4th-industrial-revolution/?sh=283065775c0d

 

Medina, L., Jonelis, A. and Cangul, M (2017). The Informal Economy in Sub-Saharan Africa: Size and Determinants. IMF Working Paper. WP/17/156. 2016 International Monetary Fund

Mireri, Junior (2020). “DP Ruto meets carpenters behind convertible picnic table bench, buys 10 units at Sh150,000.” The Standard Newspaper, June 26, 2020, DP Ruto meets carpenters behind convertible picnic table bench, buys 10 units at Sh150,000 - The Standard (standardmedia.co.ke)

 

MSM (18 June 2020). “Covid-19 updates: Food Security Initiative: Emergency Food Flows.” SGD Series Maastricht School of Management https://www.msm.nl/news-events-and-blogs/covid-19-updates/emergency-food-flows

Moed, J. (2018). “Uber’s Wild Ride to Make Latin America its Fastest Growing Region.” Forbes, December 20, 2018 https://www.forbes.com/sites/jonathanmoed/2018/12/20/is-uber-operating-illegally-in-its-fastest-growing-region/#572a6c8e1925

Osanjo, L (2020). “Garden Bench Innovation from the Ngong Road Furniture Entrepreneurs, Nairobi.” Research, Innovation and Enterprise Blog. University of Nairobi,  July 2, 2020  Garden Bench Innovation from the Ngong Road Furniture Entrepreneurs, Nairobi - Research, Innovation and Enterprise Blog (uonresearch.org).

Pratap, S. & Quintin, E. (2006) The Informal Sector in Developing Countries: Output, Assets and Employment. Research Paper 2006/130. Helsinki: UNU-WIDER.

Popper, B (2015). “Uber can’t be stopped. So what happens next?” The Verge on July 27, 2015 09:21 https://www.theverge.com/2015/7/27/9035731/future-of-uber-regulation-illegal-violations

Russo, F. & Stasi, M. L. (2016). “Defining the relevant market in the sharing economy.” Internet Policy Review, 5(2). DOI: 10.14763/2016.2.418

Weyer, S., Schmitt, M., Ohmer, M., & Gorecky, D. (2015). Towards Industry 4.0: Standardization as the Crucial Challenge for Highly Modular, Multi-Vendor Production Systems. IFAC-PapersOnLine, 48(3):579-584.

Woo‑Kyun, Jung, Dong‑Ryul, Kim, Hyunsu, Lee, Tae‑Hun, Lee, Insoon, Yangyeng, D. Youn,·Daniel Zontar, Matthias Brockmann, Christian Brecher, Sung‑Hoon, Ahn (2020). “Appropriate Smart Factory for SMEs: Concept, Application and Perspective”. International Journal of Precision Engineering and Manufacturing. https://doi.org/10.1007/s12541-020-00445-2 

By Julia Paranhos, associate professor at the Economics Institute, Federal University of Rio de Janeiro (IE/UFRJ), Brazil. She is also the coordinator of the Economics of Innovation Research Group at IE/UFRJ

and

Fernanda Steiner Perin, Lecturer in Economics at Birmingham City University, UK, and an associate researcher at the Economics of Innovation Research Group at IE/UFRJ

- This opinion piece is part of a series of articles commissioned by UNIDO's Department of Policy Research and Statistics. The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more). 

Innovation-driven growth is indispensable for addressing the tremendous social, environmental and economic challenges both developed and developing countries face in the 21st century (Mazzucato, 2018). Innovation has played a key role in transforming the position of developing countries in the international division of labour, and is a priority in the national strategies of countries that have successfully managed to catch up with developed countries (Cimoli et al., 2009; Dahlman, 2009; Lee & Malerba, 2017). The COVID-19 pandemic has compounded the challenges of the 21st century and demonstrated that countries with a manufacturing sector capable of responding quickly and successfully to mitigate the pandemic’s adverse effects had long-term industrial and science, technology and innovation (STI) policies in place, including for the pharmaceutical industry. This group of countries includes the United Kingdom, the United States, China and India.[1]

When implemented properly, innovation policy modifies a country’s economic structures and the institutions involved in developing, disseminating and applying knowledge, ultimately leading to economic growth (Lee & Malerba, 2017; Lundvall et al., 2009). To achieve economic development, innovation policies must be integrated in a systemic framework; moreover, innovation policies must be driven by a long-term strategic perspective, far beyond the momentary market signals, to create and sustain economic growth based on the development of manufacturing firms’ productive and innovative capacities (Edquist, 2005; Freeman, 2004). Such systemic policies should not only focus on resolving the failures (or problems) within the innovation system, but should assume a more proactive role, with the state taking the lead and the manufacturing sector following to co-create new markets (Mazzucato, 2018). That is, the state should be responsible for creating value and for orchestrating the pace and direction of innovation so new products, processes and services can meet society’s needs (public and individual) (Kattel & Mazzucato, 2018).

Setting the direction of health innovation to pursue the “public health value” involves choosing missions, selecting priority health areas and identifying unmet health needs that require new treatment options. The public sector should provide long-term financing but must also introduce and promote incentives to attract and leverage long-term private investments. Such financing must be aligned with public health needs and the reduction of business risks (Edquist, 2019; Kattel & Mazzucato, 2018; Mazzucato & Roy, 2019).

The crucial role of sustained industrial and STI policies for the pharmaceutical industry

We use the case of Brazil to illustrate the importance of sustained industrial and STI policies for innovation-driven growth in the health sector, particularly in developing countries. The global interdependence of the pharmaceutical market and the global dependence on active pharmaceutical ingredients (API)—inputs needed to produce medicines and vaccines—from China and India became vividly clear during the pandemic. The dependence of Brazil’s pharmaceutical industry in this regard has intensified since the country’s economic opening in the early 1990s. As shown in Figure 1, the deficit of Brazil’s pharmaceutical industry has increased since the 1990s and became a structural problem. Most of the country’s imports consist of finished products, including medicines. API imports increased four-fold between 2003 and 2020, amounting to around USD 2 billion per year.

When looking at the history of industrial and STI policies in Brazil, we find that the government prioritized the pharmaceutical industry from 2003 to 2016, introducing three major industrial and three STI policies specifically targeting the industry. The Brazilian government systematically promoted manufacturing and innovative activities in the health sector during this period by matching supply and demand actors within the Health Industrial Complex (CIS) and guiding their development. It aimed to align industrial and STI policies with health policies to strengthen local production and reduce external dependence.

We focus on three of the public policy programmes and instruments launched during this period. First, the Programme to Support the Development of the Pharmaceutical Productive Chain (Profarma) was introduced by the Brazilian Development Bank (BNDES) in 2004 to provide loans with special interest rates and improved payment conditions for innovation projects. The second instrument was the Subvenção Econômica Programme, managed by the Brazilian Innovation Agency (FINEP) since 2006, initially offering non-reimbursable resources for firms, and later integrated into the Inova Saúde Programme in 2013, which combined reimbursable and non-reimbursable resources for firms. Finally, the third instrument was the Productive Development Partnerships (PDPs) which were introduced by the Ministry of Health in 2008. Public procurement was used to promote local production to supply the Unified Health System (SUS). The PDPs acquired products listed as strategic to SUS that had been manufactured domestically by public-private partnerships and transferred the new technologies and pharmaceutical products to local firms.

Between 2004 and 2018, the Subvenção Econômica, Inova Saúde and Profarma financed a total of 298 projects in 142 national pharmaceutical firms, totalling USD 1.6 billion (BRL 8.3 billion[2]). Of these firms, 11 also participated in PDPs, which is an indirect articulation of the public policy instruments introduced by the Brazilian government (Paranhos et al., 2021).

Public policy impacts on Brazil’s pharmaceutical industry

The Brazilian pharmaceutical industry partially responded to the policies adopted by the government between 2003 and 2016 and they are an exception in the face of declining industrial production (Nassif & Castilho, 2020). The revenues of Brazil’s pharmaceutical companies in 2017 amounted to USD 13.9 billion (BRL 70 billion), with the share of national companies increasing. The number of large national pharmaceutical firms along with their product portfolios grew as well; five national pharmaceutical firms were among the top ten in the Brazilian market in 2017 compared to only one in the early 2000s (ANVISA, 2018).

During that period, Brazil’s national pharmaceutical firms witnessed strong growth. The expansion of their manufacturing resources focused primarily on the development of generic drugs, and later national companies entered in the production of biological drugs (biossimilars) stimulated by PDPs agreements. An attempt, albeit incipient, was also made to link industrial manufacturing with health demand. The two largest public pharmaceutical firms (or public pharmaceutical laboratories as they are referred to in Brazil), Biomanguinhos/Fiocruz and Butantan, were key actors in PDPs for biological products and successfully increased their overall manufacturing capacity. They were therefore able to conclude agreements on the local production of COVID-19 vaccines.

Despite these achievements, Brazil’s pharmaceutical industry continues to be afflicted by unresolved deficiencies and structural problems. The country’s national pharmaceutical firms still lag far behind the dynamic pharmaceutical firms currently operating at the global level, although Brazil has made significant strides in terms of regulatory compliance (good manufacturing practice – GMP), local production and participation in the generic pharmaceutical market based on API imports (see Figure 1). However, the innovation results were concentrated in a small number of large firms. The pharmaceutical industry’s value added grew by 3 per cent annually, on average, between 2000 and 2019, but its share of value added in gross production value has fallen from 60.7 per cent to 55.9 per cent over the last 20 years (IBGE, 2019). The performance is particularly negative when it comes to a technology intensive industry. Only 40.6 per cent of pharmaceutical firms in Brazil have recently implemented product or process innovation (IBGE, 2020).

The Brazilian government did not design a specific programme or instrument to promote the API industry. The pharmaceutical industry’s output increased but was based on imported inputs, representing 45.5 per cent of its total inputs used– the largest share among all manufacturing industries in Brazil (CNI, 2019). The API industry faces fierce price competition, and therefore does not automatically expand as a result of the pharmaceutical industry’s growth. The participation of Brazil’s API industry in supplying local pharmaceutical firms declined amidst strong competition from Chinese and Indian imports. The global pharmaceutical industry is made up of large enterprises that operate in markets around the world, make high investments in research and development (R&D) as well as marketing, and have a strong manufacturing structure and distribution channels. To participate in this global market, Brazil’s burgeoning local industry needs to be strengthened based on policy measures driven by a long-term perspective, as have been introduced in India, China and the Republic of Korea.

The Brazilian government prioritized the national pharmaceutical industry and fostered local production for 13 years by introducing strategic industrial and STI policies, but no notable achievements were made in terms of innovation or the reduction of external dependency. The government suspended the policy initiatives introduced for the pharmaceutical industry in 2016. Although BNDES financing is still available, it is not aligned to the pharmaceutical industry’s particularities. PDPs face immense legal uncertainty and FINEP is fighting for survival. The Executive Group of the Health Industrial Complex (GECIS), which used to play a central role in identifying and matching actors and in proposing public procurement for pharmaceutical firms to promote local production under the guidance of the Ministry of Health, became defunct in 2019. Continued and sustained industrial and STI policies will be necessary if Brazil’s pharmaceutical industry is to grow and succeed.

When the COVID-19 pandemic broke out, BNDES launched the Programme of Emergency Support for Combating the Coronavirus Pandemic and provided financial assistance to firms. The budget set aside for such assistance amounted to USD 396 million (BRL 2 billion), with the aim of increasing the supply of medical and hospital equipment without delay. In addition, FINEP launched three subsidy schemes to support innovative solutions in the fight against COVID-19, one public tender for the laboratory infrastructure projects, as well as the COVID-19 Emergency Actions Programme with reimbursable resources, totalling USD 65.5 million (BRL 331 million). These instruments are being implemented ad hoc, with the sole objective of addressing the most pressing problems and are not part of a long-term strategy by the government to strengthen Brazil’s pharmaceutical industry.

The path forward for Brazil’s pharmaceutical industry

To bolster Brazil’s pharmaceutical industry, we propose a resumption of negotiations with a focus on rebuilding the state capacity to shape the direction of innovation and equitably disseminate its benefits. Industrial and STI policies open up the possibility to transform manufacturing structures (Santiago, 2020), to determine the future trajectory of capabilities accumulation and the patterns of productivity and trade.

These policies and actions must be aligned with the population’s health needs to ensure that the public funds are invested in projects with economic and social returns (Torreele et al., 2021). This also requires close collaboration with the Ministry of Health to clearly define priorities.

Public policies should further promote the innovative capacity of national firms, focusing on more complex and robust innovation projects. It is therefore crucial to create new instruments for financing high-risk and uncertain innovative activities aimed at meeting public health needs. Non-reimbursable resources and public procurement are recognised as instruments to direct innovative projects to the public interest. 

Finally, the importance of monitoring and evaluation when formulating industrial and STI policies and instruments cannot be overemphasized. The monitoring of policies targeted at public health needs is essential, while evaluation mechanisms assess the instruments’ and measures’ effectiveness in achieving the social and economic objectives and policy goals.

The COVID-19 crisis has demonstrated that countries’ domestic capacity to develop and produce vaccines and medicines makes all the difference during a health crisis. Recovery from the pandemic will require a review of the growth model adopted in recent years and additional support for strategic industries for the benefit of society as a whole. As the case of Brazil demonstrates, the government’s past industrial and STI policies were effective in increasing the manufacturing capacities of national pharmaceutical firms. Clearly defined, sustained and long-term policies are necessary to limit the risks associated with innovative activities that focus on the weakest links and unmet health needs. The COVID-19 pandemic has taught us that sustained innovation policies aligned with public health needs are crucial to create productive and innovative capacities to meet unmet demands.

 

- Note: It is now abundantly clear that the COVID-19 pandemic has had an impact on nearly all aspects of our lives and has caused us to rethink “business as usual”. As we adapt to the "new normal", appropriately channeled opportunities can help us improve the way we do business and the way we live. The United Nations Industrial Development Organization is preparing its latest flagship report, the Industrial Development Report 2022, which will provide a comprehensive assessment of the pandemic’s impact on global manufacturing and the prospects for the future of industrialization in a post-pandemic world. Scheduled to be launched on 1 December 2021, the report will make a key contribution to countries' national and international strategies for an inclusive, sustainable and resilient industrial recovery to build back better from the COVID-19 pandemic.

[1] Despite the difficulties the Indian government encountered in containing the pandemic during the second wave of COVID-19 in the country, it is the world’s largest producer of vaccines, led by the Serum Institute of India (SII) and Bharat Biotech International Limited (BBIL) (WHO, 2020).

[2] Currency exchange BRL/USD = 5.04 (02 July 21).

References

ANVISA. (2018). Anuário Estatístico do Mercado Farmacêutico—2017. https://www.gov.br/anvisa/pt-br/centraisdeconteudo/publicacoes/medicamentos/cmed/anuario-estatistico-do-mercado-farmaceutico-2017.pdf/view

Cimoli, M., Dosi, G., Nelson, R., & Stiglitz, J. E. (2009). Institutions and Policies Shaping Industrial Development: An Introductory Note. In Industrial Policy and Development. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199235261.003.0002

CNI. (2019). Indicadores CNI: Coeficientes de Abertura Comercial. CNI. https://static.portaldaindustria.com.br/media/filer_public/1a/10/1a10608b-0dc1-40b1-abf6-3d2d0eeb4133/coeficientesdeaberturacomercial_serie-recente_precosconstantes_numero1_2019_v1.xlsx

Dahlman, C. J. (2009). Growth and Development in China and India: The Role of Industrial and Innovation Policy in Rapid Catch‐Up. In Industrial Policy and Development. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199235261.003.0012

Edquist, C. (2005). Systems of Innovation: Perspectives and Challenges. In Oxford Handbook of Innovation (pp. 181–208). Oxford University Press.

Edquist, C. (2019). Towards a holistic innovation policy: Can the Swedish National Innovation Council (NIC) be a role model? Research Policy, 48(4), 869–879. https://doi.org/10.1016/j.respol.2018.10.008

Freeman, C. (2004). Technological infrastructure and international competitiveness. Industrial and Corporate Change, 13(3), 541–569.

IBGE. (2019). Pesquisa Industrial Anual—Empresa. IBGE. https://sidra.ibge.gov.br/pesquisa/pia-empresa/quadros/brasil/2019

IBGE. (2020). Pesquisa de Inovação—2017. IBGE. https://sidra.ibge.gov.br/pesquisa/pintec

Kattel, R., & Mazzucato, M. (2018). Mission-oriented innovation policy and dynamic capabilities in the public sector. Industrial and Corporate Change, 27(5), 787–801. https://doi.org/10.1093/icc/dty032

Lee, K., & Malerba, F. (2017). Catch-up cycles and changes in industrial leadership:Windows of opportunity and responses of firms and countries in the evolution of sectoral systems. Research Policy, 46(2), 338–351. https://doi.org/10.1016/j.respol.2016.09.006

Lundvall, Vang, J., Joseph, K. J., & Chaminade, C. (2009). Innovation System Research and Developing Countries. In Handbook of Innovation Systems and Developing Countries (p. 416). https://www.e-elgar.com/shop/gbp/handbook-of-innovation-systems-and-developing-countries-9781847206091.html

Mazzucato, M. (2018). The Entrepreneurial State: Debunking Public vs. Private Sector Myths (1st edition). Penguin.

Mazzucato, M., & Roy, V. (2019). Rethinking value in health innovation: From mystifications towards prescriptions. Journal of Economic Policy Reform, 22(2), 101–119. https://doi.org/10.1080/17487870.2018.1509712

Ministry of Economy/Brazil. (2020). Exports and Imports Dataset [Dataset]. Comex Stat. http://comexstat.mdic.gov.br/pt/home

Nassif, A., & Castilho, M. R. (2020). Trade patterns in a globalised world: Brazil as a case of regressive specialisation. Cambridge Journal of Economics, 44(3), 671–701. https://doi.org/10.1093/cje/bez069

Paranhos, J., Perin, F. S., Vaz, M., Falcão, D., & Hasenclever, L. (2021). Articulação de políticas e instrumentos de produção e inovação para o Complexo Industrial da Saúde no Brasil, 2003-2017: Os casos do Inova Saúde e do Profarma (p. 147) [Partial research report]. Federal University of Rio de Janeiro/Open Society Foundations.

Santiago, F. (2020). Turning health challenges into industrialization opportunities for developing countries [Opinion Piece]. UNIDO - Industrial Analytics Platform. https://iap.unido.org/articles/turning-health-challenges-industrialization-opportunities-developing-countries

Torreele, E., Kazatchkine, M., & Mazzucato, M. (2021, April 1). Preparing for the next pandemic requires public health focused industrial policy [Opinion Piece]. The BMJ. https://blogs.bmj.com/bmj/2021/04/01/preparing-for-the-next-pandemic-requires-public-health-focused-industrial-policy/

WHO. (2020). Global Vaccine Market Report 2020. https://www.who.int/publications/m/item/2020-who-global-vaccine-market-report

 

 

By Steve Kayizzi-Mugerwa, Adjunct Professor, Edmund A. Walsh School of Foreign Service, Georgetown University.

- This opinion piece is part of a series of articles commissioned by UNIDO's Department of Policy Research and Statistics. The views expressed in this article are those of the author based on his experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

 

 

Background

This opinion piece addresses the anxieties that have arisen in resource-rich African countries in response to the strengthening of the global decarbonization agenda in the wake of COVID-19. The closure of industries (albeit only temporarily) across continents at the height of the COVID-19 pandemic and the concomitant reduction in greenhouse gas emissions for the first time in recorded history have had a powerful demonstration effect on global thinking about environmental and climate change issues, and have more determinedly nudged decarbonization strategies forward than ever before. These developments raise serious questions about the paths to development that low-income and emerging economies should pursue as markets respond to the realities of “Net Zero”. For decades, development has unequivocally been pursued through the deployment of human and natural resources to promote industrialization, a thesis that is now being challenged by the green economy approach.  

Yet, as is often the case when it comes to changes in global development sentiment, low-income African countries have played only a cursory role in influencing the “Net Zero” agenda, the internationally agreed upon goal to mitigate global warming by 2050. Although Africa as a continent contributes less than 4 per cent (i.e. 1.43 billion tonnes) to total global greenhouse gas (GHG) emissions of 36.44 billion tonnes (according to 2019 data), given its low level of industrialization, the estimated mitigation and adaptation costs for African countries are expected to greatly exceed the continental GDP of USD 2.2 trillion (in 2020). In the post-COVID-19 push for green growth, the “gradualism” that once informed some of the earlier thinking on phasing out hydrocarbons and other polluting industries to allow low-income countries to “catch up” seems to have been abandoned.

While richer countries and specialized agencies are now calling for the frontloading of “Net Zero”, including raising the Nationally Determined Contributions to GHG reduction, there is little or no scenario analysis with respect to what a deindustrialized African economy (in the sense of eliminating industrial activities, i.e. heavy industry that has negative implications for “Net Zero”) portends for the welfare of its population as well as its SDG commitments – especially job creation and the goal of lifting people out of poverty. 

We examine the asymmetric impacts of the decarbonization agenda on resource-rich African countries drawing on examples from Uganda, which is working tirelessly to bring its crude oil (discovered in the early 2000s) to the market in the face of a projected reduction in global demand for hydrocarbons; and Zambia, a key copper exporter (8th largest globally), which is currently enjoying brighter prospects as a result of copper’s emergence as a pillar of the electric car industry. Both Uganda and Zambia view their natural resources as pathways to sustainable industrialization, although COVID-19 and its aftermath have implied serious and multifaceted discontinuities.  

“Net Zero” anxiety among Africa’s resource-rich countries

Global concerns over the environmental and climate change impacts of mining activities and the production of hydrocarbons have elicited numerous policy responses. They include the World Bank’s concept of climate-smart mining (incorporating climate mitigation and adaptation, decreasing material impacts, and creating new market opportunities) and the related issue of “decoupling” natural resource use and environmental sustainability by reducing global material extraction (by at least 25 per cent) which has been promoted, among a broader set of interventions, by the United Nations Environmental Programme (UNEP). Both concepts have principally been published as policy guidance documents and lack tangible implementation strategies.

While the future seems bright for countries that produce minerals such as copper and cobalt which feed directly into the green economy, the future looks outright gloomy for those producing hydrocarbons and coal. Hence, countries such as Uganda, Kenya and Mozambique, once elated about the discovery of oil and gas on their territories and investing several billion dollars in their development, are now worried by the very real prospect of “stranded assets”, as once enthusiastic investors, including oil majors, are backtracking on their plans under post-COVID pressure from emboldened domestic lobby groups. In Uganda, part of the plan is to use the oil sector as a catalyst for industrialization and economic modernization through the establishment of energy and petrochemical industries and the associated infrastructure, with links to both the agriculture (fertilizer) and manufacturing (industrial chemicals, paints, plastics and cooking gas) sectors.

Curtailing oil production and mining activities without compensatory long-term financing would be catastrophic for many African countries, even within a 10-year adjustment window. For example, South Sudan, one of the last countries in Africa to achieve independence (2011) and reputedly one of the world’s lowest contributors to GHG due to its lack of large industries and modern agriculture, depends almost entirely on oil revenue (90 per cent) to make ends meet. Likewise, oil generates the bulk of its foreign exchange and contributes to the building of the infrastructure required to link regions and generate spatial economies across the vast country.

Not far from South Sudan lies Somalia, a country that is gradually returning to normalcy after decades of civil war. It, too, contributes little to GHG emissions, but might not be able to develop its offshore oil and gas finds (nor the synergies these would engender for the rest of the economy) if the “Net Zero” agenda is pushed to its logical conclusion. Under the ‘normal’ scenario, hydrocarbons would have been bound to provide a ready source of development money in both countries, while alternative greener scenarios largely remain on the drawing board. The push to eliminate GHG has so far been more spirited than that of helping countries cope with the necessary adjustments to meet the demands of “Net Zero.” 

Not all countries in Africa will be losers, however. On the Copperbelt, countries such as Zambia and the DRC that have experienced low growth in recent years (including potential debt distress), have received a new lease of economic life as copper prices have recently witnessed an unprecedented upsurge, based on projections of strong global demand for electric cars, which require copper wiring. This notwithstanding, mining is an environmentally destabilizing operation locally, far from the climate-smart business advocated by the World Bank. Ironically, the intensive search for more copper deposits will consume even more energy and water, raising the same concerns over climate change as those of hydrocarbon operations. There is an undeniable path dependence in Africa’s resource exploitation, which will take decades to change and even longer to turn into profit.

Oil and copper post-COVID-19: trading places?

Africa’s relationship to its rich natural resources might never be the same again post-COVID-19, and in the wake of the global decarbonization agenda, as shown by the region’s oil, gas and copper prospects. During the past 20 years or so, prior to the outbreak of COVID-19 in 2020, oil and gas explorations contributed to Africa’s economic optimism and sense of self-determination, i.e. “Africa rising.” The industrialization of Africa, notably of low-income sub-Saharan Africa, was suddenly no longer considered a remote prospect. In the early 2000s, no African country was actively being discouraged by the international community from developing its oil and gas assets due to climate change concerns. This change in approach is thus quite drastic.

Oil and gas deposits were discovered in most corners of the African continent, from coastal countries, such as Cameroon and Kenya, to hinterland economies including Uganda and Malawi, owing to the activities of small but adamant oil prospectors such as Tullow Plc (UK), Hardman Resources Ltd (Australia) and Lundin Energy (Sweden). Not entangled in the old geopolitical trysts of post-colonial Africa and expressly tied to the continent’s globalization push, they went where their search for “value” led them.

Although there were strong local lobbies in African countries advocating the rights of local communities, with an emphasis on ensuring that they receive a fair share of the oil and gas profits, as well as with an emphasis on the environment (Kayizzi-Mugerwa, 2020), none were strong enough to stop the drilling operations altogether, even in seemingly pristine parts of the countries. Consequently, in a matter of two decades, starting from the late 1990s, the African Savannah—except for established producers such as Angola and Nigeria—had become a giant region for oil and gas prospecting and drilling. Even Malawi, Africa’s classical agrarian outpost, had discovered oil and gas near Lake Malawi and was awaiting investor interest to move the process forward. All of this happened well before the outbreak of COVID-19 in 2020.

Since the pandemic, the mood surrounding Africa’s future oil houses has been much less ebullient. The trailblazing oil miners mentioned above have retreated from several African projects, although some staggering—and disputed—deals have been concluded, notably French major Total’s plan to develop a USD 3 billion Uganda-Tanzania oil pipeline, traversing some 1,445 kms. Still, few could have predicted that Africa would experience such a sharp oil discontinuity only two decades after vast parts of Africa’s hinterland were opened to exploration, with local communities harbouring hopes of becoming the “new Middle East”.

On Africa’s Copperbelt, notably in Zambia and to some extent in the DRC, on the other hand, the situation has evolved quite differently. Pre-COVID-19, Zambia’s economic prospects had diminished perceptibly, with copper as an industrial metal roundly thought to be in secular decline; the situation in the DRC was only salvaged by relatively lower production costs.

Zambia had privatized its mines, but politicians and the population were discontented with the relatively few jobs created by the new owners of their national industry and the lower-than-expected revenue streams (Mwaba and Kayizzi-Mugerwa, forthcoming). While earlier projections of strong copper prices (in the 2010s) had sent the government on a borrowing spree of mainly Eurobond loans (of relatively short duration and high coupon rates), the country’s indebtedness had already become cumbersome by 2015, and the country was subsequently forced to enter a technical default, as it had failed to service some of its loans without yet declaring a full stop to regular repayments. The COVID-19 pandemic pushed Zambia over the edge, the country finally defaulting on all Eurobond coupons and subsequently embarking on negotiations with China. The authorities resisted approaching the International Monetary Fund (IMF) in the early phases of the COVID-19 pandemic, fearing its “remedy”. They decided that they could resolve the issues on their own with the assistance of a French investment bank in the role of adviser.

Although the post-COVID-19 impact has been detrimental for new oil and gas producers such as Uganda for the reasons discussed above, it has been surprisingly positive for copper and the Zambian economy. In the second year (2021) of the pandemic, Zambia’s prospects have improved markedly, given copper’s crucial role in the electric car revolution – indeed, copper is now being referred to without any irony as the “new oil”. Copper prices are skyrocketing compared to just a few years ago (now close to USD 10K per metric tonne, with projections of USD 15K per metric tonne in the medium term). Zambia’s leadership eventually found the courage to approach the IMF and to request assistance and discuss debt rescheduling with its creditors from a position of relative strength. The new Zambian government, which assumed office in September 2021, has pledged to prioritize the country’s mines, illustrating that COVID-19’s unintended consequences have had both negative and positive effects for Africa.

Policy responses and conclusion

Several African countries have been caught in a policy bind over the past couple of years. For example, should the Government of Uganda, having spent billions to develop the country’s oil assets in the Albertine Graben to the west of the capital Kampala, treating it as a springboard for eventual industrialization, simply walk away from these investments in the wake of “Net Zero”? Ugandan authorities are pushing ahead under the premise ‘where there is a will, there is a way’. One of the strategies Uganda has adopted is to involve several of its neighbours in the oil project, thereby reducing its risk exposure and creating a regional market for future petrol production. It is intent on extracting as much oil as possible before “Net Zero” kicks in in earnest.

Still, Uganda’s government must bear in mind that oil is in secular decline, and the country will have to start thinking about serious long-term alternatives to drive its future development. Uganda was once a copper producer and could reassess whether it could revive its once dynamic copper industry, using new technologies to revisit former practices and techniques and prospect for new mines. Given its temperate climate and lush environment, modern agriculture (bearing in mind that cows release a considerable amount of GHG), and tourism could represent serious alternatives to a deflated oil sector.

All things considered, Zambia and the DRC are bound to emerge as clear winners in the expanding green economy if they find ways to extract copper in an ecologically acceptable manner in line with the stringent regulations of “Net Zero”. A booming copper sector has never been a powerful enough engine of growth in either Zambia or the DRC. Besides creating white elephants on Zambia’s side of the Copperbelt, copper production has also been known to distort the country’s expenditure patterns, encouraging the development of a decidedly capital-intensive industrial development strategy with limited job creation. A new approach to managing booms in the emerging green economy will be necessary if the benefits are to be sustainable.

Among the questions that have arisen in mineral-rich African countries is who will compensate them for the serious fall-off in potential income from their oil and gas resources as they transition to a decarbonized future which the COVID-19 pandemic has helped to frontload? Is there enough copper (and other less polluting minerals) in the ground to unleash a cleaner extractive environment for Africa that can sustain its participation in the green economy? Is a return to agriculture, as proposed by some, a viable strategy for creating an alternative and greener approach to development in Africa? These questions and many more need to be addressed as Africa embraces the “Net Zero” agenda in coming decades.

Thus, while the COVID-19 pandemic has had serious socio-economic and demographic impacts on African countries (in terms of infections and deaths), the longer-term economic and structural effects of the shift in global production chains that the pandemic has caused and fortified, are bound to be much more significant for Africa’s future development than those witnessed over the past couple of years. If the “Net Zero” agenda becomes a stringent determinant of the global development path, it is worth considering which development vehicles have the capability of pushing African countries forward, including the shape industrialization and manufacturing, the foundations of earlier waves of global prosperity, should take on the continent.    

- Note: It is now abundantly clear that the COVID-19 pandemic has had an impact on nearly all aspects of our lives and has caused us to rethink “business as usual”. As we adapt to the "new normal", appropriately channeled opportunities can help us improve the way we do business and the way we live. The United Nations Industrial Development Organization is preparing its latest flagship report, the Industrial Development Report 2022, which will provide a comprehensive assessment of the pandemic’s impact on global manufacturing and the prospects for the future of industrialization in a post-pandemic world. Scheduled to be launched on 1 December 2021, the report will make a key contribution to countries' national and international strategies for an inclusive, sustainable and resilient industrial recovery to build back better from the COVID-19 pandemic.

References

 

Kayizzi-Mugerwa, S. (2020) “Uganda’s nascent oil sector: revenue generation, investor-stakeholder alignment and public policy”, WIDER Working Paper, 2020/175, UNU-WIDER, United Nations University, Helsinki.

Mwaba, A. and Kayizzi-Mugerwa, S. (forthcoming) “Boosting Mineral Revenues in Zambia: Policy Options for a Sustainable Fiscal Regime”, Draft WIDER Working Paper, UNU-WIDER, United Nations University, Helsinki.

By Alina Sorgner, John Cabot University (Rome), Institute for Labor Economics (IZA, Bonn), Institute for the World Economy (IfW, Kiel).

- This opinion piece is part of a series of articles commissioned by UNIDO's Department of Policy Research and Statistics. The views expressed in this article are those of the author based on her experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

Digital technologies are widely perceived as a promising means to promote gender equality in education, the labour market, access to financing and healthcare, among others. The COVID-19 crisis has accelerated digitalization processes in both services and manufacturing in most countries, albeit at varying speeds, triggered by the requirements for social distancing and other COVID-19-related regulations imposed by governments around the world, and by changing consumer demand throughout the pandemic. The COVID-19 pandemic has adversely affected women by exposing them to higher health risks and higher risk of becoming unemployed in addition to the burden of household and caregiving responsibilities during the lockdown. We explore some of the lessons learned about the impacts of the pandemic on gender equality and, more generally, in how far digital transformation can potentially benefit women.

The COVID-19 crisis has accelerated digitalization, but has had adverse impacts on women

 

The COVID-19 crisis has accelerated the digital transformation trends around the globe, as evidenced in the development and expansion of digital infrastructure; the shift to digital delivery of services by firms and within organizations, for instance, in education, healthcare and retail; and increased implementation of digital technologies in manufacturing. Although the pandemic has had a negative impact on many businesses, it has also uncovered new opportunities for entrepreneurship. It has boosted digital entrepreneurship, for instance, reflecting changing consumer behaviour during and in the aftermath of the pandemic.

 

The recession associated with the COVID-19 pandemic is often referred to as a “shecession”, as it has taken a disproportionate toll on women in most countries. Although the pandemic has affected women around the world differently, it has exposed previously overlooked gender biases, such as the gender-racial-gap. Looking at health risk, for instance, we find that Black women in the United States are more vulnerable and at higher risk of dying from COVID-19 than Black men or White women (Bertocchi and Dimico, 2021). The authors attribute this to higher exposure of Black women to the risk of contagion in low-wage jobs in essential services, such as the healthcare, transportation and warehousing sectors, where they are overrepresented and which preclude remote working. Historically, Black women have been engaged in precarious work. Moreover, mothers suffered significantly more job losses than fathers and women without children (Alon et al., 2021). The working hours of self-employed women—and consequently their income—decreased to a greater extent than self-employed men’s. That is, self-employed women lost working hours and income at a higher rate in addition to fulfilling family obligations, including home schooling, facing industrial gender segregation, and being more inclined to run non-employing businesses and to working part time (Reuschke et al., 2021).

What is of particular concern is that gendered attitudes seem to have changed during the pandemic, certainly not in favour of women. For instance, West German fathers’ egalitarian attitudes towards maternal employment had been steadily increasing in the pre-pandemic period but dropped considerably during the pandemic. This development is troubling, as it suggests that the COVID-19 crisis has not only influenced the short-term allocation of household chores, it has also reversed the positive trend towards more egalitarian gender roles. The reversal of this trend could leave women with less time to engage in productive remunerated work and inhibit female empowerment in the post-pandemic period (Danzer et al., 2021).  

Adoption of Industry 4.0 technologies will likely accelerate in the post-pandemic era, potentially putting women at risk of losing their jobs

A trend that was already evident before the outbreak of the pandemic and which is expected to intensify in the post-pandemic period is the adoption of Industry 4.0 technologies. These technologies can broadly be classified into four types: 1) connectivity, data and computational power; 2) analytics and intelligence; 3) human-machine interface; and 4) advanced engineering. According to a recent McKinsey study (Agrawal et al., 2020), the role of Industry 4.0 technologies for achieving resilience has become even more critical in the aftermath of the pandemic, with 90 per cent of surveyed manufacturing and supply chain professionals reporting that they plan to invest in talent for digitization. Adoption of certain Industry 4.0 technologies, for instance, the use of industrial Internet of Things or operator assistance through augmented reality in digital performance management, can be realized without massive technology investments, irrespective of a firm’s existing technology infrastructure.

The accelerated adoption of Industry 4.0 technologies will likely affect workers who perform tasks that can be replaced or modified by using these technologies. Some Industry 4.0 technologies will have labour-displacing effects, while others will enhance workers’ productivity or improve occupational safety. Major gender gaps are evident in terms of the effects of digital technologies on workers’ jobs. Women in developing and transition economies are considerably less likely than men to possess the necessary skills that can safeguard them from the detrimental effects of digitalization, namely analytical, non-routine manual, interpersonal, advanced ICT and socio-emotional skills (Sorgner, 2019, 2021). This observation is robust across sectors, but gender differences are more pronounced in the manufacturing sector than in services, a sector that is witnessing defeminization trends. At the same time, women are also less likely to benefit from the labour-reinstating effects of digital technologies.

 

Teleworking is less accessible to women and creates obstacles to their thriving

 

During the lockdown and with social distancing measures in place, teleworking was the only option for non-essential workers to continue working, demonstrated in the increased share of tasks performed remotely during the height of the pandemic. The ability to telework was a strong predictor of job loss during the pandemic. Teleworking opportunities vary greatly across occupations, industries and types of workers. A study conducted in the United States and in the United Kingdom found that the share of job-related tasks that can be carried out outside the workplace is industry-specific, ranging between around 18 per cent in “Accommodation and Food Service Activities” and 70 per cent in “Information and Communication”, whereas only about 45 per cent of tasks in “Manufacturing” can be performed remotely (Adams-Prassl et al., 2020). Teleworking is possible for approximately 20 per cent of manufacturing jobs in EU countries (Sostero et al., 2020). Workers’ ability to telework varies considerably within the manufacturing sector. For instance, workers in certain STEM occupations of the manufacturing sector, including “Computer and Mathematics”, “Architecture and Engineering” and “Life, Physical, and Social Science”, report that they can carry out either a “very high” or “well-balanced” amount of their tasks remotely, while teleworking is not an option for most workers in low-skill occupations of the manufacturing sector, such as “Construction and Extraction” or “Building and Grounds Cleaning and Maintenance”, which is characterized by a high prevalence of manual tasks (Adams-Prassl et al., 2020).

Even within different occupations and industries, women had less opportunity than men to work remotely, and a higher number of women also lost their job during the pandemic (Adams-Prassl et al., 2020). The ability to telework might partially explain the current gender gap in labour force participation rates. A study involving EU countries shows that the potential for women to perform their jobs remotely is actually relatively high, and that a large share of their jobs can be organized in a way that allows for more flexibility (Sostero et al., 2020). Despite the high potential for jobs commonly occupied by women to be carried out remotely, this is not always possible due to the workers’ and firms’ low digital capabilities as well as firms’ organizational culture which might not be particularly supportive of personal autonomy. Given the growing trend to perform work remotely, the obstacles to the realization of teleworking must be removed to prevent the widening of the gender gap.

While teleworking has the potential of increasing women’s participation in the labour market, it remains to be seen whether it will open up opportunities for women to thrive in the digital work environment. The following two considerations appear particularly relevant in this regard.

First, the rise of the gig economy is a cause of concern, as digital labour platforms, which allow firms to outsource certain tasks to a pool of workers (“crowdsourcing platforms”), might create less favourable working conditions compared to more traditional forms of employment, for instance, by encouraging informal work and weakening social security protection. The number of gig workers in manufacturing is currently quite low, with only about 9 per cent of all such workers in the United States engaged in the manufacturing sector before the outbreak of the pandemic (Statista, 2018). It is expected that this figure will grow in the future due to, among others, the difficulty of finding skilled workers to fill full-time manufacturing jobs. Consequently, manufacturing firms might increasingly hire gig workers on a project-by-project basis. Furthermore, current trends in Industry 4.0, such as cloud manufacturing, might lead to higher demand for IT and cybersecurity experts who can be recruited via digital labour platforms. A study on platform workers in Ukraine, the country with the largest platform workforce in Europe, finds that gig workers tend to be young and have a high level of formal education. The most common tasks performed by platform workers are work related to texts and IT (web programming and management); around 25 per cent state that the platform economy provides their primary income. Male platform workers in Ukraine earn more than twice as much as women, a gap that is considerably higher than in Ukraine’s offline economy, and which can largely be explained by occupational segregation and differences in workers’ choices to serve local vs. international markets (Aleksynska et al., 2019).

The gender wage gap also exists in non-remote jobs in the “gig economy”. A study of Uber drivers in the United States, for example, identifies a 7 per cent gender wage gap amongst the drivers. This gap may be attributable to experience with digital platform work and certain preferences, for instance, preference to only provide services in safer neighbourhoods and to drive at lower speeds (Cook et al., 2018). Non-remote gig economy workers on a project-by-project basis might become a new trend in manufacturing if the problem of the skilled trades gap continues in the future.

Secondly, employment flexibility is often considered to benefit working women, the assumption being that women can thereby better combine work and childcare responsibilities, improving their work-family balance. In fact, the pandemic has revealed that gender gaps in the labour market were relatively low among teleworkers compared to workers who could not work remotely. At the same time, female teleworkers also spent more hours performing childcare duties during working time and experienced higher reductions in productivity than male teleworkers (Alon et al., 2021). There is an additional risk that teleworking could lead to a rearrangement of job tasks, i.e. that female teleworkers might be assigned or may prefer to perform less “valuable” work, which could further widen the gender wage gap. Finally, teleworking might adversely affect women’s mental health, weaken their social ties with peers and diminish promotion opportunities.

In short, the digital workplace trend is likely to continue in the post-pandemic ‘new normal’ and will open up more opportunities for flexible employment. The trend will likely also include manufacturing industries that have thus far been reluctant to recruit gig workers or to provide opportunities for teleworking. Yet teleworking is here to stay, and the biggest concerns include the ability of individual workers to perform work remotely; the impact of teleworking and digital platforms on the quality of work and on workers’ well-being; and the social and gender inequalities this trend might intensify.

Digital gender divides are particularly large in developing countries, creating obstacles to the digital transformation of manufacturing

The pandemic has emphasized the importance of digital inclusion for economic resilience during crises, since many educational and work-related activities could only be performed remotely. In 2019, shortly before the outbreak of the pandemic, 58 per cent of EU population possessed at least basic digital skills (European Commission, 2020). The situation in less developed countries is complicated, however, by the lack of access to digital devices, often due to high acquisition costs, and poor digital infrastructure (Sorgner et al., 2017). Women around the world are less likely than men to use the internet, a gap that is much larger in least developed countries (LDCs) due to cultural, financial and skills-related barriers (Mariscal et al., 2019). In developing countries, where mobile technology represents the main internet access point, there is a pronounced gender gap of around 15 per cent, on average, in terms of both mobile phone ownership and mobile internet use (GSMA, 2021). These gaps are even larger in South Asia, sub-Saharan Africa, the Middle East and North Africa.

The situation is even more dire with regard to advanced digital skills. A study of the LinkedIn platform concludes that there are twice as many men as women employed in IT industries in the Americas, Europe, Asia and Oceania, while only very few women in Africa work in IT (ITU, 2020). There are a few exceptions, however; for instance, in Myanmar and Latvia, more women than men work in IT industries. Within the IT industry as a whole, a higher share of women works in the “Internet and Telecommunications” subsector, while they are less likely to work in “Computer Hardware” and “Computer Networking.” This digital gender divide could become a critical bottleneck to achieving greater gender equality in manufacturing, particularly in developing countries, and it might further exacerbate the skilled trades gap that manufacturing firms are already facing, which could potentially slow down the digital transformation of the manufacturing sector.

Implications of the COVID-19 crisis and accelerated digital transformation for the empowerment of women

Paying more attention to gender biases within certain population groups. While the recession caused by the COVID-19 pandemic is referred to as a “shecession” because it has indisputably affected women more severely than men, the pandemic has also revealed that some groups of women are more vulnerable than others. Particular attention must therefore be paid to measures directed at eliminating gender-racial gaps, gender biases within minority groups, and gender biases in families with children, among others. This calls for access to disaggregated data that allow for an analysis of more narrowly defined gender gaps.

 

Industry 4.0 is accelerating, but so is defeminization in the manufacturing sector. Women are more likely to be adversely affected by Industry 4.0 technologies designed to replace workers. Women are underrepresented in human-machine interface jobs, which are in high demand and offer opportunities for growth. With Industry 4.0 jobs becoming safer and more attractive for women, they need to acquire the necessary skills to benefit from Industry 4.0 advances. Failure to do so could exacerbate the skilled trades gap the manufacturing sector is already facing.

 

Realizing the potential for women to perform their jobs remotely. Teleworking seems to have a positive impact on women’s access to the labour market, and allowed many women and men to continue working during the lockdown. While existing technologies enable a large share of women to work remotely, opportunities for teleworking in manufacturing are relatively limited. In addition, firms’ organizational culture as well as firms’ and workers’ low digital capabilities continue to represent an obstacle to the full realization of engaging in teleworking.  

 

Being mindful of gender gaps in the gig economy. Recruiting gig workers on a project-by-project basis could become a new trend in manufacturing. Persistent gender inequality in the offline economy is reflected in the gig economy as well, where certain gender gaps, for instance, wage gaps, might intensify. While some of these gaps can be explained by women’s personal preferences or choices, others are clearly driven by the lack of experience with digital platforms and can be resolved with appropriate training programmes.

 

Digital work offers flexibility, but often also increases women’s burden. Flexible work arrangements are important for improving the inclusion of women in the labour market. At the same time, the burden of women teleworkers rose during the COVID-19 pandemic, as household chores and childcare duties were not equally distributed within the family. Thus, promoting flexible work arrangements, such as teleworking, is certainly important, but it by no means suffices to actually empower women.

 

Addressing the digital gender divide. Digitally excluded people were affected far more severely by the COVID-19 crisis than others. While the road to achieving the digital inclusion of the entire population is still long—even in the most developed countries—the digital gender gaps in LDCs are especially large. Women in these countries must gain equal access to the internet, digital technologies must become more affordable, and gender equality in at least basic digital skills must be achieved.

 

Monitoring reversed trends in egalitarian gendered attitudes. The COVID-19 crisis has revealed how fragile the positive achievements are that have been made in recent decades in terms of promoting more egalitarian attitudes towards gender-specific roles. The reversed trend in egalitarian gendered attitudes must be closely monitored to prevent a manifestation in increased gender inequality in economic outcomes.   

- Note: It is now abundantly clear that the COVID-19 pandemic has had an impact on nearly all aspects of our lives and has caused us to rethink “business as usual”. As we adapt to the "new normal", appropriately channeled opportunities can help us improve the way we do business and the way we live. The United Nations Industrial Development Organization is preparing its latest flagship report, the Industrial Development Report 2022, which will provide a comprehensive assessment of the pandemic’s impact on global manufacturing and the prospects for the future of industrialization in a post-pandemic world. Scheduled to be launched on 1 December 2021, the report will make a key contribution to countries' national and international strategies for an inclusive, sustainable and resilient industrial recovery to build back better from the COVID-19 pandemic.

References

Adams-Prassl, A., T. Boneva, M. Golin, and C. Rauh (2020): Work That Can Be Done from Home: Evidence on Variation within and across Occupations and Industries. IZA Discussion Paper # 13374.

Agrawal, M., K. Eloot, M. Mancini, and A. Patel (2020): Industry 4.0: Reimagining manufacturing operations after COVID-19. 

Aleksynska, M., A. Bastrakova, and N. Kharchenko (2019): Working Conditions on Digital Labour Platforms: Evidence from a Leading Labour Supply Economy. IZA Discussion Paper # 12245.

Alon, T., S. Coskun, M. Doepke, D. Koll, and M. Tertilt (2021): From Mancession to Shecession: Women’s Employment in Regular and Pandemic Recessions. IZA Discussion Paper #14223.

Bertocchi, G. and A. Dimico (2021): Covid-19, Race, and Gender. IZA Discussion Paper #14238.

Cook, C., R. Diamond, J. Hall, J.A. List, and P. Oyer (2018): The gender earnings gap in the gig economy: Evidence from over a million rideshare drivers. NBER Working Paper #24732.

Danzer, N., M. Huebener, A. Pape, C.K. Spiess, N.A. Siegel, and G.G. Wagner (2021): Cracking under Pressure? Gender Role Attitudes toward Maternal Employment in Times of a Pandemic. IZA Working Paper #14471.

European Commission (2020): Digital Economy and Society Index (DESI) 2020: Human Capital. 

GSMA (2021): Connected Women: The Mobile Gender Gap Report 2021. 

ITU (2020): Digital Skills Insights 2020. 

Mariscal, J., G. Mayne, U. Aneja, and A. Sorgner (2019): Bridging the Gender Digital Gap. Economics: The Open-Access, Open-Assessment E- Journal, 13 (2019-9): 1–12. 

Reuschke, D., A. Henley, E. Daniel, and V. Price (2021): Testing the Differential Impact of COVID-19 on Self-Employed Women and Men in the United Kingdom. IZA Working Paper #14216.

Sorgner, A., C. Krieger-Boden, and E. Bode (2017): Effects of Digitalization on Gender Equality within the G20 Economies. The Women20 Study.

Sorgner, A. (2019): The impacts of new digital technologies on gender equality in developing countries. Background Paper for the UNIDO's Industrial Development Report 2020. Inclusive and Sustainable Industrial Development Working Paper Series, Working Paper 20/2019.

Sorgner, A. (2021): Gender and Industrialization: Developments and Trends in the Context of Developing Countries. Inclusive and Sustainable Industrial Development Working Paper Series, Working Paper 1/2021.

Sostero, M., S. Milasi, J. Hurley, E. Fernandez-Macías, and M. Bisello (2020): Teleworkability and the Covid-19 crisis: a new digital divide? JRC Technical Report. JRC Working Papers Series on Labour, Education and Technology, 2020/05.

Statista (2018): Industries where gig economy workers are currently employed in the U.S. in 2018. Accessed online on August 3, 2021.