Impact of COVID-19

The coronavirus (COVID-19) pandemic has severely affected industries and economic fundamentals (e.g. demand, supply and production) in Africa and globally. It has resulted in massive business closures, production disruptions and job and income losses. Travel and trade restrictions have disrupted international production networks and value chains. Demand and prices for African raw materials and commodities have declined seriously affecting the continent’s commodity-dependent countries. Access to industrial components and manufactured goods from Europe and Asia has also been hampered, slowing production processes.

Governments have introduced a range of measures to reduce the impact of COVID-19 on lives, livelihoods and the economy at large. The impact of COVID-19 has swept across all sectors, especially tourism, sea, air and road transport, freight forwarding, logistics. However, some online businesses (e.g. Zoom, Uber Eats, Mr. D) have experienced tremendous growth during the pandemic. Food insecurity, in many African countries that are net food importers, has been exacerbated by restrictions on trade in staples such as rice, wheat and maize. The economic impact of COVID-19 will continue well beyond the pandemic, creating a new reality with challenges that demand new policy approaches, including industrial policy interventions.

Industrial development and policy – what are we learning from COVID-19?

Some 6 months into the pandemic, it is clear that concerted efforts will be required mitigate the effects of this crisis, and also to support necessary reconstruction and economic recovery. Industrial policy must play an important role in the overall policy and support package to complement fiscal, monetary, trade, competition and other policy interventions. As we’re witnessing COVID-related casualties across economies, there are important lessons to take forward. Our contention is that industrial policy should be designed to leverage linkages across sectors. We’re noting the crucial role that infrastructure (water, energy, communication, transport, etc.) and related regulation play in enabling industrial development. These infrastructure services are important to all economic activities. Appropriate policy and regulatory interventions are necessary to ensure access to competitively priced, reliable supply of services such as water and energy. COVID-19 may, in some instances, be an opportune time to focus on implementing sustainable solutions, for water and energy services. Industrial development powered by renewable energy and supporting water-wise production methods is essential now. COVID-19 has served as a push towards digitalization. The restrictions we operate under now, have provided an opportunity to consider and leverage the benefits of digital solutions. Digitally enabled government services related to basic business processes, including company registrations, applications for services and payments can make a significant contribution to support industrial and broader economic development. Such improvements will significantly reduce transactions costs for micro, small and medium enterprises. Delays and time spent in queues are unnecessary and costly, disproportionately eroding efficiency and competitiveness, especially for micro, small and medium enterprises.

Development of tech and digital skills in areas such as artificial intelligence and machine learning must be prioritized. Public and private education training institutions should explore collaborative initiatives to respond to the needs of business in these areas. Immigration policies must enable access to skills that are not available domestically. That said, travel and related restrictions, including quarantine requirements, during the pandemic, have also provided a push toward increased adoption of flexible production arrangements, both within and across borders, and where possible to leveraging skills and inputs virtually.

Trade policy with special focus on trade facilitation measures is a necessary complement to industrial policies. The discussion of the trade-industrial policy interface takes on special significance during the pandemic, and for post-crisis recovery and reconstruction. Concerns about access to ‘essential goods,’ such as medical equipment, pharmaceutical products and food prompted governments to introduce restrictions on exports, in particular. We’ve seen these restrictions also being applied to intermediate goods. South Africa has recently published details of the proposed introduction of export taxes on scrap metals. If all countries adopt such restrictive trade measures, cross-border production linkages will be adversely affected, and all will lose.

Trade policy is important for facilitating access to inputs to support industrialization, and also for creating improved access to markets, offering opportunities for achieving greater economies of scale. Both impact channels important to enhancing Africa’s investment environment. Attracting investment is a critical requirement to expand and diversify industrial capacity or more broadly productive capacity. This will be particularly important for post-COVID recovery and transformation. Trade facilitation, including improving customs and border management and eliminating non-tariff barriers deserves particular attention. It is here that digital trade solutions which can reduce the time and transaction costs of trade are important. Digitalization of border management processes, electronic payments, the use of digital certificates of origin and standards, as well as other measures should become standard not only during the pandemic, but post-COVID-19 too. They are an essential part of the policy package to support industrial development, by making access to inputs and enhanced market access for final products and services easier and more cost effective.

We have also learned that midst the many losers from the pandemic, there are also winners. Companies and sectors that are finding new opportunities and opportunities to expand during the pandemic include some traditional sectors such as pharmaceuticals, personal protective and other medical equipment, as well as e-commerce and digitally enabled services sectors such as education, entertainment and other personal services. These developments need to be studied closely to take lessons about production organization and service delivery post-pandemic. While digital solutions can definitely bring efficiency gains and improve competitiveness, experiences during the pandemic are also highlighting the challenges of the digital divide, the lack of energy security and the lack of digital skills in many African countries. These deficits – as regards necessary infrastructure and facilitative regulation – must be addressed. They are necessary foundations for industrial development in the 21st century, and their importance is being magnified during the pandemic.