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 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 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.

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