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

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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 Oluseye Jegede, South African Research Chair in Entrepreneurship Education, College of Business and Economics, University of Johannesburg, South Africa

 

- 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).

COVID-19 has ushered in the Fourth Industrial Revolution in South Africa

South Africa, which is beset by the triple challenge of income inequality, unemployment and poverty, amidst a prematurely deindustrializing economy, is now facing the realities of a paradigm shift in the way business is done and how we live and work as a result of the disruptions caused by the COVID-19 pandemic. Prior to the outbreak of the pandemic, concerns about the disruptive force of the Fourth Industrial Revolution (4IR) and fears of robots displacing workers were widespread in Africa. Calls in South Africa intensified for government to create more employment and protect jobs in labour-intensive industries from automation. These demands continued until COVID-19 broke out first in China and then rapidly spread around the world. In response to the pandemic, the South African government introduced pivotal measures, including a national lockdown, to contain the spread of the virus. Since the way we work, live and socialize has changed significantly, South Africa has been left with little choice but to embrace the much-dreaded 4IR technologies. 

In the meantime, even those at high risk of losing their jobs to automation have come to appreciate the benefits 4IR technologies can offer. South Africans welcomed the possibility of ordering food and medicine online and have them delivered directly to their doorstep. Moreover, artificial intelligence (AI) and mobile technology integrate data collection tools that can be used for contact tracing, symptom monitoring, detection of outbreaks and risk assessment. Employers relied heavily on video conferencing tools such as Zoom, Google Meet and Microsoft Teams. Instead of face-to-face learning, universities and schools moved online using various technological platforms including Ikamva, Blackboard, etc. Researchers continue to use Webex to organize conferences. There are strong indications that many platforms for e-commerce, video conferencing, remote working and telemedicine will continue to flourish long after the pandemic comes to an end.

The 4IR technologies that saw the biggest surge in South Africa during the COVID-19 pandemic include AI in medical diagnosis, the Internet of Things (IoT) for consumer goods, and mobile applications for financial transactions, transportation and utility vending. Other important technologies include digital learning platforms used by universities and schools, augmented and virtual reality in teaching and learning, as well as in entertainment, drones for delivering medicine to rural areas, and 3D printing for medical use.

The history of industrial revolutions and their impacts in South Africa

History has recorded four paradigm shifts in the way industry is structured and in the way we work. The first such shift, the First Industrial Revolution, was premised on scientific discoveries which produced the steam engine and introduced the mechanization of production. The use of steam power in South Africa increased efficiency in mining, agriculture and manufacturing, and accelerated the transportation of goods from manufacturing plants and farms, as well as of diamonds from the mines to the market. The First Industrial Revolution increased productivity in manufacturing and accelerated transportation.

The Second Industrial Revolution integrated scientific knowledge into technological developments, leading to electrification used to power equipment, machinery and tools, thereby introducing the assembly line and mass production. Electricity in South Africa was first used to light up mine tunnels to increase workers’ productivity. Mine workers could now work extended hours and run more shifts. The use of electricity eventually spilled over into industry, cities and private homes.

The Third Industrial Revolution was largely based on the discovery of the semiconductor chip, making the digital revolution possible. IBM set up its first major office in South Africa in 1952, signifying the advent of the Third Industrial Revolution in the country. The next industrial revolution, also known as the ‘second wave of the internet’ was already on the country’s heels by the time South Africa had finally caught up and could contribute to the development of Third Industrial Revolution technologies.

The Fourth Industrial Revolution is characterized by intelligent machines, enabling human-machine interaction to achieve ever higher productivity. It is fuelled by an increasing number of digital connections between people and machines and has led to new technologies including artificial intelligence, augmented reality, blockchain, drones, the Internet of Things, robotics, virtual reality, 3D printing and simulations. COVID-19, in turn, has accelerated these technology trends in South Africa and beyond, but their use remains limited. It can be argued that South Africa is still stuck in the Second and Third Industrial Revolutions.

Has the COVID-19 pandemic spurred South Africa’s preparedness for the Fourth Industrial Revolution?

According to South Africa’s 1996 and 2019 White Papers on Science and Technology, the country follows a ‘linear model of innovation’ with a focus on increasing investment in research and development (R&D) and on creating strong science and technology institutions with an emphasis on linkages and interactions within the national innovation system. The COVID-19 pandemic has opened a unique opportunity for closer collaboration between the key actors of South Africa’s innovation system.

 

Following the outbreak of the pandemic, the government, industry and universities rushed to cooperate to mitigate the impacts of the crisis. South African universities collaborated with the national and local governments and industry to produce personal protective equipment (PPE) and ventilators. For instance, among others, the Cape Peninsula University of Technology cooperated with the provincial government of the Western Cape and the Department of Trade and Industry to develop and manufacture PPE for frontline workers and the general public. The Central University of Technology’s Centre for Rapid Prototyping and Manufacturing (CRPM), the Product Development Technology Station (PDTS), the Centre on Quality of Health and Living (CQHL) and CUT Innovation Services (CUTis) have been working together with the Free State Provincial Departments of Health and Education and the private sector to develop hospital equipment and protective gear for public use. An engineering team of the University of Johannesburg designed and developed portable 3D-printed mechanical ventilators with a customizable base plate to simultaneously treat multiple patients. Other tangible outcomes include the production of non-invasive ventilators, oxygen connectors and splitters, mouthpieces/masks, ventilation helmets, shields and hand sanitizer. Some of the intangible outcomes of this collaboration include insights into the socio-economic consequences of COVID-19, technical advice for disease control, health policy advice and healthcare training for local government officials.

 

South Africa’s national and local governments have played an essential role in creating an enabling environment for knowledge development and innovation. This has been achieved by providing tax and loan repayment holidays, cutting costs, increasing social security grants and making funds available to build health infrastructure. However, the role of universities in knowledge generation throughout the pandemic can also not be overemphasized enough. While South African universities were already engaged in applied R&D before the outbreak of the pandemic, with some of the universities’ research outputs being integrated into the country’s manufacturing system, the accumulated research, knowledge and technology was not adequately being incorporated into the country’s broader innovation system. Increased integration of research outputs can only be achieved in cooperation with industry, which ensures that research conducted at universities is demand-driven and problem-based.

 

The COVID-19 pandemic resulted in changes in South Africa’s private sector as well. 4IR technologies are being implemented to varying degrees depending on the firms’ capabilities. Those that could not deploy these technologies have either shut down or had to close temporarily. Although digitization and automation already began developing during the Third Industrial Revolution, we are now witnessing an increasing integration of such technologies in how we work and live.

Overall, the South African government, industry and universities have weathered the storm unleashed by COVID-19 quite well. The responses to the pandemic’s disruptions are just the beginning of South Africa’s experience with 4IR. Yet the interventions developed by universities in collaboration with the government and industry might not be sustainable when looking at South Africa’s current innovation and industrial policies. The country’s research intensity (gross expenditure on R&D as a percentage of its gross domestic product (GDP)) hovers at around 0.7 per cent. This figure is much lower compared to countries that are already successfully deploying 4IR technologies, e.g. the UAE (1.3%), Brazil (1.26%), China (2.19%), Japan (3.36%), the Republic of Korea (4.81%) and Israel (4.95%) (UNTAD, 2020).

 

Time-tested strategies for building technological capability for industrialization

Many African countries do not yet have the technological capability to deploy 4IR technologies effectively and efficiently. African policymakers should adopt some time-tested approaches and strategies in their post-COVID-19 recovery plans. Some of the possible approaches and strategies are:

Foreign direct investment (FDI)

Foreign direct investment (FDI) can help promote the exchange of scientific and technological knowledge and accelerates the national diffusion of imported technologies. The highest FDI inflows in South Africa are from Beijing Automotive Industry Holding, BMW, Nissan and Mainstream Renewable Energy, primarily to special economic zones (SEZs). Several European countries (the United Kingdom, Netherlands, Belgium, Germany and Luxembourg), as well as the United States, Japan, China and Australia are active investors in South Africa. Most investments are directed at the financial, mining, manufacturing, transportation and retail sectors. FDI has enhanced labour productivity and promoted the diffusion of skills, knowledge and competencies from SEZs to the rest of the country. Many developments in South Africa’s automotive industry (e.g. competence building) are attributable to FDI inflow.

Several studies (Liu & Daly, 2011; Liu, Daly & Varua, 2012; Liu, Daly, & Varua, 2014) examine China’s successful foreign investment policies to attract FDI, leading to the diffusion of advanced technologies in the country and subsequently to an increase in manufacturing exports, especially high-tech manufactured goods. China used SEZs and national economic and technology development zones (NETDZ) to advance its economic development by attracting FDI. This is one possible avenue South Africa could pursue to accelerate the diffusion of 4IR technologies in the country.

Acquisition of external knowledge

Patents and other intellectual property rights (IPRs) (industrial designs, trade secrets) are eventually transferred from the technological frontier to developing countries. Developing countries thereby gain access to knowledge and technology developed at the global frontier (Saggi, Maskus, & Hoekman, 2004; Hutchison, 2006). The OECD (2018) classifies intellectual property acquisition as an ‘innovation activity’, while the adaptation and modification of such intellectual property is considered ‘innovation’. South Africa is well positioned to leverage intellectual properties and imported technologies from Europe, the United States and Asian countries to spur the spread of 4IR technologies.

Trade of technology-intensive products

Several studies link the trade of new products and production technologies to industrialization. The pioneering study of Dagenais, Mohnen & Therrien (1997) on Canada’s manufacturing sector finds that the output elasticity of foreign R&D trade is more important than that of domestic R&D. The study of Bernstein, & Mohnen (1998) concludes that significant knowledge transfers occurred between the United States and Japan through trade in technology-intensive products between the two countries. A similar study by Eaton and Kortum (1995) involving 19 OECD countries shows that trade in technology-intensive products facilitated technology-intensive spillovers. A low technological gap and high absorptive capacity are crucial if imported technologies are to be absorbed with the aim of advancing industrial development. Sjöholm (1996) asserts that technology proximity and international trade positively influenced the inflow of knowledge to Sweden. South Africa should therefore focus more heavily on the trade of new technologies to ensure that it is not left behind by the 4IR.

Reverse engineering and imitation

Lee & Lim (2001) highlight the importance of imitation and reverse engineering for industrial growth and innovation. Frost (1997) explores the Republic of Korea’s remarkable development from a subsistent agricultural economy to a newly industrialized economy within just 30 years based on imitation and reversed engineering in the automobile, electronics and semiconductor industries and the active promotion of small and medium enterprises (SMEs). Today, the Republic of Korea is a major global player in the semiconductor industry. Semiconductor firms in the Republic of Korea started copying imported technologies until they acquired sufficient knowledge and competence to develop their own brand based on their own technology. Hikino & Amsden (1994) highlight one of the benefits of late industrializing economies: the possibility to adopt and adapt technologies imported from industrialized countries. They explore the cases of Japan, the Republic of Korea, Brazil and Mexico, which succeeded to industrialize by borrowing and improving technologies developed by more experienced firms in more advanced economies. South Africa could also leverage reverse engineering to advance industrialization and the diffusion of new technologies.

R&D and technology consortia

Establishing R&D and technology consortia with countries at the frontier of 4IR technologies is another viable option for South Africa. This approach proved particularly effective in Asia. Mu & Lee (2005) and Lee (2005) investigate the development of R&D consortia in the Republic of Korea and in China. China’s telecommunication industry was able to catch up based on knowledge diffusion from Shanghai Bell to the CIT-led R&D consortium and Huawei.

R&D consortia minimize both the risks and high costs associated with new technology development. The objective of R&D collaboration in South Africa should be the bringing together of firms, research institutes, government agencies and the financial sector within a distinct institutional framework. Studies of Asian countries (Lee, Park & Krishnan, 2014; Lee, Gao & Li, 2017; Lee, 2019; Lee, 2021) show that technological capabilities continue being built through technology transfers and spillovers that result from collaborative R&D and collaborative technology developments. South African policymakers should support the establishment of such consortia to drive the country’s industrialization.

 

Closing remarks

South Africa’s response to the COVID-19 pandemic has for the most part been quite effective, but is not yet in a position to deploy the entire range of currently available 4IR technologies to assuage the pandemic’s large-scale disruptions and improve the efficiency of its manufacturing sector (with the exception of its automobile industry). While South Africa’s research and innovation system is characterized by strong institutions, the relatively low level of interaction among the innovation system’s key actors continues to hamper South Africa’s capacity to fully deploy 4IR technologies. The country’s innovation policies must be aligned with its innovation system, which encourages collaborative production of knowledge, technology and innovation. Closer coordination between South Africa’s internal resources (financial, human, natural, physical and institutional) and its external ones (FDI, trade in technology-intensive products, acquisition of external technologies, reverse engineering and R&D consortia) could help South Africa build more capacity to leapfrog, and to become a global contributor to the Fourth Industrial Revolution.

 

 

- 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 channelled 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

 

 

 

Bernstein, J. I., & Mohnen, P. (1998). International R&D spillovers between US and Japanese R&D intensive sectors. Journal of international economics, 44(2), 315-338.

Dagenais, M. G., Mohnen, P., & Therrien, P. (1997). Do Canadian firms respond to fiscal incentives to research and development?, Montreal: CIRANO.

Eaton, J., & Kortum, S. S. (1995). Trade-in Ideas: Patenting and Productivity in the OECD. NBER Working Paper, (w5049).

Frost, C. A. (1997). Disclosure policy choices of UK firms receiving modified audit reports. Journal of Accounting and Economics, 23(2), 163-187.

Hikino, T., & Amsden, A. H. (1994). Staying behind, stumbling back, sneaking up, soaring ahead: late industrialization in historical perspective. Convergence of productivity: Cross-national studies and historical evidence, 285-315.

Hutchison, C. (2006). Does TRIPS facilitate or impede climate change technology transfer into developing countries. U. Ottawa L. & Tech. J., 3, 517.

Lee, K. (2005). Making a Technological Catch‐up: Barriers and opportunities. Asian Journal of Technology Innovation, 13(2), 97-131.

Lee, K. (2019). The art of economic catch-up: Barriers, detours and leapfrogging in innovation systems. Cambridge University Press.

Lee, K. (2021). Economics of technological leapfrogging. The Challenges of Technology and Economic Catch-up in Emerging Economies, 123.

Lee, K., & Lim, C. (2001). Technological regimes, catching-up and leapfrogging: findings from the Korean industries. Research Policy, 30(3), 459-483.

Lee, K., Gao, X., & Li, X. (2017). Industrial catch-up in China: a sectoral systems of innovation perspective. Cambridge Journal of Regions, Economy and Society, 10(1), 59-76.

Lee, K., Park, T. Y., & Krishnan, R. T. (2014). Catching‐up or leapfrogging in the Indian IT service sector: Windows of opportunity, Path‐creating, and moving up the value chain. Development Policy Review, 32(4), 495-518.

Liu, K., & Daly, K. (2011). Foreign direct investment in China manufacturing industry transformation from a low tech to high tech manufacturing. International Journal of Business and Management, 6(7), 15.

Liu, K., Daly, K., & Varua, M. E. (2012). Regional determinants of foreign direct investment in manufacturing industry. International Journal of Economics and Finance, 4(12), 178-192.

Liu, K., Daly, K., & Varua, M. E. (2014). Analysing China's foreign direct investment in manufacturing from a high–low technology perspective. Emerging Markets Review, 21, 82-95.

Mu, Q., & Lee, K. (2005). Knowledge diffusion, market segmentation and technological catch-up: The case of the telecommunication industry in China. Research Policy, 34(6), 759-783.

OECD, E. (2018). Oslo Manual 2018. The Measurement of Scientific, Technological and Innovation Activities, guidelines for collecting, reporting and using data on innovation, 258.

Saggi, K., Maskus, K. E., & Hoekman, B. (2004). Transfer of technology to developing countries: Unilateral and multilateral policy options. The World Bank.

Sjöholm, F. (1996). International transfer of knowledge: the role of international trade and geographic proximity. Weltwirtschaftliches Archiv, 132(1), 97-115.

UNTAD (2020) World Investment Report. [Online] Available at https://unctad.org/system/files/official-document/wir2020_en.pdf  accessed 19/08/2021

Universities South Africa report.  Engagement and Research in Response to COVID-19 [Online] Available at https://www.usaf.ac.za/covid-19-fosters-a-need-to-re-imagine-the-university-as-a-social-institution/ accessed 19/08/2021

 By Abiodun Egbetokun, Science Policy and Innovation Studies Department, National Centre for Technology Management, Federal Ministry of Science, Technology and Innovation, Nigeria

 

 

 

 

- 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).

 

Africa’s COVID-19 paradox

At first glance, it seems that the COVID-19 pandemic has hit Africa less severely than other countries. The infection and fatality rates in Africa have been significantly lower than in other more developed regions. As of 15 July 2021, Africa had recorded less than six million COVID cases compared to over 51 million in Asia, 74 million in America and 56 million in Europe. For every recorded death in Africa by 15 July 2021, there were five in Asia, 13 in America and eight in Europe. The pandemic’s economic impact is disproportionately worse in Africa, however. First, it has resulted in high income losses on the continent. In a mid-August 2020 telephone survey of over 24,000 adults in 18 African Union Member States, 70 per cent of respondents reported that their present household income had fallen compared to the same period in 2019. Second, existing income inequalities have intensified because a reduction in income is more likely among people with an already low income. While six out of every 10 households with a monthly income of at least US$500 experienced a loss of income, this figure increased to nearly eight out of 10 households among those with a monthly income of less than US$100.

COVID-19 has exacerbated an already bad situation in a continent with already high poverty and unemployment rates. A higher number of people engaged in informal employment have become jobless since the outbreak of the pandemic. Survey data from Burkina Faso, Mali and Senegal, for instance, show that around 25 per cent of workers had lost their jobs, and 50 per cent had experienced a reduction in income by April 2020. Moreover, the number of hours worked by those who were still employed at the time decreased since the pandemic started. The job and income losses have primarily affected informal workers, revealing the disproportionately high risks they are exposed to. Manufacturing jobs are particularly at risk, and the manufacturing sector has been the worst affected sector, according to the International Labour Organization.

Informality and the policy dilemma

Informal employment is associated with unacceptable wages, poor working conditions, and a lack of social protection or employment benefits. Yet informal employment is a means of survival for the largely poor and unemployed population in most developing countries, including the youth. The International Labour Organization estimates that over 60 per cent of all workers aged 15 years and up were engaged in informal employment worldwide in 2018. As Figure 1 illustrates, this number is substantially higher in Africa at around 86 per cent and up to 90 per cent across all African sub-regions, with the exception of Northern Africa (67.3 per cent) and Southern Africa (40.2 per cent). Informal employment was even higher among young people aged 15-24 years, namely around 77 per cent globally and 95 per cent in Africa. With the exception of Southern Africa, at least 9 out of every 10 employed persons aged 15-24 years in all other African regions were employed informally (Figure 1). These figures contrast sharply with those elsewhere: in 2018, informal employment among youth ranged from a high of 86.3 per cent in Asia and the Pacific to a low of 35.7 per cent in Europe and Central Asia (Figure 2).

 

 

 

 

 

Globally, agriculture accounted for the largest share of informal employment (approximately 94 per cent). Informal employment in industry—including manufacturing, construction and mining—as a per cent of total employment was around 10 per cent higher than in services which had a share of 47.2 per cent. In all African regions (with the exception of Southern Africa), the share of informal employment in industry was higher than in services (Figure 3). That is, Africa’s manufacturing sector could have potential, but does not offer sufficient and decent employment options for youth. Poverty and limited opportunities for decent employment compel many young people to enter into informal employment, which, however, does not necessarily enhance their welfare. Their precarious situation has deteriorated since the outbreak of COVID-19. African governments are facing a policy dilemma: moving young people out of informal employment without first exacerbating unemployment. The urgency to resolve this dilemma has intensified because young people are entering the labour market at a rapid rate. According to a 2016 estimate of the African Development Bank, 10 million to 12 million youths enter the labour market annually, but only 3.1 million jobs are created, resulting in a huge employment gap.

In this specific context, manufacturing offers limited opportunities for decent employment. In Africa , manufacturing accounted for only around seven per cent of wage employment at the end of 2019, and the continent is currently the least industrialized region of the world. The share of manufacturing employment in total employment in low-income countries remained stagnant at six per cent between 1991 and 2018. In sub-Saharan Africa, only six per cent of all jobs created between 2000 and 2018 were in the manufacturing sector; manufacturing jobs accounted for just 6.2 per cent of total employment in 2019. By contrast, employment in Africa’s services sector registered strong growth, but the majority of jobs in the sector are characterized by low productivity and high informality. For instance, around 84 per cent of workers in the tourism industry and 87 per cent in transport, storage, communications, repair services and wholesale and retail trade in sub-Saharan Africa are informal workers. This notwithstanding, manufacturing remains a viable engine of growth and structural transformation.

 

The limits of entrepreneurship as a policy option

Governments have invested tremendous effort into developing high-quality entrepreneurship to create more decent employment and increase self-reliance. Several African countries have invested heavily into entrepreneurship support programmes that aim to stimulate job creation for young people. These programmes range from providing funding to non-pecuniary support, such as management consulting and business training. Nigeria’s Youth Enterprise With Innovation in Nigeria (YouWiN!) programme is a case in point. In its first year (2011), the programme provided an average of nearly USD 50,000 in equity funding to over 1,200 entrepreneurs aged between 18 and 40 years. These businesses created an additional 7,027 jobs at a programme cost of around US$8,500 per job.

Market failures influence the scope and direction of entrepreneurship. Infrastructure and credit constraints as well as a high level of uncertainty tend to deter entrepreneurs from engaging in manufacturing. For instance, only a small share of the businesses supported under the YouWiN! Programme are manufacturing firms. According to David McKenzie in the American Economic Review, manufacturing firms only make up around 13 per cent of total firms, with the remainder engaged in agriculture and services. One consequence is that only few additional jobs are created in manufacturing compared to other sectors. Moreover, skills mismatch and deficits means that manufacturing firms attract more informal than full-time, salaried employees. According to Lucy Heady, knowledge director of Education Sub-Saharan Africa (ESSA), young people in many African countries graduate from tertiary education without the skills they need to be able to work. This is connected to the lack of flexible learning and courses, excessive emphasis on theoretical rather than practical education, and the scarcity of formal apprenticeship and internship schemes that support skills development. Firms have to therefore often retrain highly educated workers—who have a higher contract wage premium—before they can effectively contribute to firms’ production processes. Such retraining is typically not required for less educated but adequately skilled workers, who participated in informal apprenticeship schemes and who are often subjected to poorer working conditions than their better educated counterparts.

Two downward-pulling mechanisms are at work here. First, despite an increase in entrepreneurship interventions, medium- to large-scale manufacturing is difficult to stimulate in countries overshadowed by market failure. Yet it is medium- and large firms that have a higher potential to create jobs. Larger firms tend to grow faster and, therefore, significantly contribute to employment creation, partly due to the strong positive relationship between firm size and productivity growth. By contrast, most micro- and small-sized firms are necessity-driven and exhibit limited desire or potential for growth. Secondly, recent evidence suggests that irrespective of sector, the majority of firms in sub-Saharan Africa—where at least 70 per cent of all private sector jobs are informal —have only one employee. In Nigeria, for instance, over 99 per cent of firms have fewer than 10 employees. There are some outliers, i.e. large firms that employ many workers and demonstrate sustained growth. Such firms disproportionately contribute to the process of economic development. Even among these firms, however, informal employment remains attractive, despite existing regulations.

Apprenticeship as a policy option

Interventions that support job creation should aim to enhance existing firms’ potential to provide access to formal and quality jobs. Apprenticeship schemes could support post-COVID employment recovery in Africa. An apprenticeship entails the learning of a craft or occupation while in the service of a skilled practitioner or someone who is traditionally referred to as a “master”. In developed countries such as Germany, formal apprenticeship schemes consist of an integrated workplace- and school-based “dual” learning and training system. This contrasts sharply with the prevalent informal system found in African countries, which is based on direct training agreements between an apprentice and a master. Such informal schemes are known to underperform in terms of job creation and income generation. Formal apprenticeship systems, on the other hand, are particularly suited for manufacturing because they combine “part-time formal education with training and experience at the workplace, and results in an externally recognized vocational qualification”.

 

Apprenticeship and internship training schemes in Africa are mostly found in the informal sector, and certification or formal qualification are rarely awarded to apprentices. When incorporated into entrepreneurship programmes and interventions, formal apprenticeship programmes can mitigate market failures. Formal apprenticeship schemes, particularly when they involve firms, have demonstrated the potential to correct skill mismatches, information asymmetry and negative externalities. In UK manufacturing, for example, employers’ investments in apprenticeships are “paid back within three years...” and there are “significant benefits…through lower labour turnover, a better fit between the skills possessed by employees and the skills required by the company, and some control skill-shortages potentially pushing up wage rates”.

 

Making apprenticeship work

Programme design: Apprenticeship schemes and programmes can be designed in partnership with established manufacturing firms. Within the scope of such programmes, contracts that combine training and employment are concluded, allowing young people to develop a set of manufacturing-specific skills and competencies that are broad enough to be of relevance in other sectors as well in order to avoid lock-in. Training under apprenticeship contracts is co-financed by the government, firms and workers. Government involvement from the onset is crucial in the African context, where informality is high, legal institutions and contract enforcement are weak. Firms can recoup part of the training costs by paying employed apprentices less than the average wage for the duration of the training. Apprentices are incentivized to participate in such training by the employer’s commitment to pay a much higher wage upon completion of the training programme.

 

Contract design: The design of apprenticeship contracts should specify the expected vocational qualification and any associated certification, which will only be awarded at the end of the training period. This will discourage trainees from exiting early. At the same time, the employer’s commitment to pay a higher wage to apprentices who remain with the firm upon completion of the training programme will limit opportunism among firms. Firms can be further incentivized by regulations that provide for the possibility to extend the apprenticeship contract and by subsidies tied to the completion of the training scheme.

 

Incentives: Formal apprenticeship programmes are even more successful when deterrents to employee turnover are put in place. Programme efficiency increases significantly if apprentices who leave the firm prior to completing the training programme have to pay a fee. One way to achieve this is to ensure that the qualification awarded at the end of the apprenticeship scheme is highly valued in the labour market. A well-designed system of skill certification serves this purpose. Such systems already exist in most African countries in the form of trade tests, but need to be upgraded from their current focus on the artisanal informal apprenticeship system.  

 

Balancing demand and supply: A matching problem may arise within the apprenticeship system. Formal certification of acquired skills usually indicates higher quality and consequently generates higher returns on the labour market. This incentivizes trainees to contribute to the cost of training. Certification reduces asymmetric information by properly informing employees of their potentially higher value relative to their current employment. This, in turn, increases employee turnover and discourages firms from investing in apprenticeship programmes. Consequently, the supply of training may fall while demand increases, and the overall provision of formal apprenticeship schemes may become uncertain. This demand and supply conundrum can be easily balanced since the effectiveness of training strictly depends on the trainees’ active participation and completion of training. The current employer’s promise to pay higher wages is only realized if the apprentice completes the training; higher value is only attained through certification, which is awarded at the end of the training programme. Such delayed gratification induces apprentices to invest more efforts into skill acquisition since the benefits are only reaped upon completing the apprenticeship scheme.

 

Conclusion

Firms in countries such as Germany substantially contribute to apprentice training. This form of support creates well-designed formal apprenticeship schemes in manufacturing and could help improve the present skills gap in the African labour market, especially among youth. Apprenticeship schemes and programmes also have important implications for entrepreneurship policy – they have the potential of reducing unproductive entrepreneurship, increasing the likelihood of business success, improving access to formal accreditation and facilitating the creation of more decent employment. Apprenticeship schemes are especially suitable in the manufacturing sector because manufacturing jobs primarily involve codified skills. In the post-COVID 19 world, formal apprenticeship schemes offer a promising alternative to the status quo in terms of recovering lost manufacturing jobs and generating new ones.

 

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.

References

AfDB (2016). Jobs for Youth in Africa: catalyzing youth opportunity across Africa. Abidjan: African Development Bank

Balde, R., Boly, M. and Avenyo, E. (2020). Labour market effects of COVID‐19 in sub‐Saharan Africa: An informality lens from Burkina Faso, Mali and Senegal. UNU-MERIT Working Paper #2020-022

Brunello, G. and De Paola, M. (2004). Market failures and the under-provision of training. Available at SSRN 608944.

Cantore, N., Clara, M., Lavopa, A., & Soare, C. (2017). Manufacturing as an engine of growth: Which is the best fuel? Structural Change and Economic Dynamics, 42, 56-66.

ECDC (2021). COVID-19 situation update worldwide, as of week 27, updated 15 July 2021. European Centre for Disease Prevention and Control

Goedhuys, M. and Sleuwaegen, L. (2010). High-growth entrepreneurial firms in Africa: a quantile regression approach. Small Business Economics, 34:31–51

Hasluck, C., Hogarth, T., Baldauf, B. and Briscoe, G. (2008). The net benefit to employer investment in apprenticeship training. Warwick Institute for Employment Research.

ILO (2015). Five facts about informal economy in Africa. News 18 June 2015.

ILO (2018). Women and men in the informal economy: a statistical picture (third edition). Geneva: International Labour Organisation

ILO (2019a). Advancing Social Justice: Shaping the future of work in Africa. Geneva: International Labour Organization

ILO (2019b). World Employment and Social Outlook: Trends 2019. Geneva: International Labour Organization

ILO (2021). ILO Monitor: COVID-19 and the world of work – several editions. Geneva: International Labour Organization

Kokutse, F. More graduates, but what about skills and employment? University World News. 12 March 2020.

La Porta, R. and Shleifer, R. (2014). Informality and Development.  Journal of Economic Perspectives 28(3): 109-126.

Malcomson, J., Maw, J. and McCormick B. (2002). General training by firms, apprentice contracts, and public policy. European Economic Review, 47(1):197- 227.

McKenzie, D. (2017). Identifying and Spurring High-Growth Entrepreneurship: Experimental Evidence from a Business Plan Competition. American Economic Review 107(8): 2278–2307

Nguimkeu, P. and Okou, C. (2020). A Tale of Africa Today: Balancing the Lives and Livelihoods of Informal Workers During the COVID-19 Pandemic (English). Africa Knowledge in Time Policy Brief; Issue 1; no. 3 Washington, D.C.: World Bank Group.

Pagano, P. and Schivardi, F. (2003), Firm Size Distribution and Growth. Scandinavian Journal of Economics, 105: 255–274.

PERC (2020). Responding to COVID-19 in Africa: Using Data to Find a Balance (Part II). Partnership for Evidence-Based COVID-19 Response

Ryan, P. (2012). Apprenticeship: Between theory and practice, school and workplace, in M. Pilz (ed.): The future of vocational education and training in a changing world, Wiesbaden, VS Verlag Für Sozialwissenschaften, pp. 402–432.

Soy, Anne. Coronavirus in Africa: Five reasons why Covid-19 has been less deadly than elsewhere. BBC News 08 October 2020

Teal, F. (2016). Are apprenticeships beneficial in sub-Saharan Africa? IZA World of Labor 2016: 268

UNIDO (2014). Productive work for Youth in Africa. Vienna: United Nations Industrial Development Organization.

 

 

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

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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.

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