by Karishma Banga

In recent years, African countries have made promising progress towards industrialisation, emphasised in Agenda 2063 – the continent’s strategic framework for leveraging the pan-African drive for achieving inclusive and sustainable development. The COVID-19 pandemic has, however, created unprecedented economic disruptions, bringing into question the future of development models in Africa. Shutdowns in China, the US and Europe, notably in the apparel, machinery and footwear subsectors, are hitting manufacturing global value chains, with some services subsectors also hit hard – particularly transport and travel, tourism, aviation and hospitality. In contrast, there seems to be increased demand for e-commerce, IT services and IT-enabled services. The global pandemic has rapidly accelerated some parts of the digital economy, creating new opportunities for realising Agenda 2063 but also threatening to create and/or exacerbate existing inequalities. African economies will need to actively leverage digitalisation in their response to the pandemic.

As of 1 June 2020, there are 149,418 total cases of COVID-19 reported in Africa. According to the International Labour Organisation, the crisis is expected to wipe out 10.5% of working hours globally in the second quarter of 2020 – equivalent to 305 million full-time workers, with a 9.6% drop estimated for Africa. The demand for African products has been deteriorating due to a sharp decline in global manufacturing – a result of measures such as national lockdowns and social distancing policies, introduced in many countries to curtail the spread of the virus. In the worst-case scenario, ECA estimates that Africa’s average GDP growth will decline by up to 2.6% in 2020. African firms producing goods are now operating, on average, at 30–40% of their capacity, due to logistics and shipping challenges and lower availability of raw materials during the COVID-19 crisis. Emerging evidence from Kenya, for instance, shows that 21% of its imports originate from China, with the country now facing reduced imports of crucial products, including consumer and industrial products, motor vehicles, machinery, electronic equipment, appliances and accessories due to pandemic disruptions. Some sectors in Kenya have witnessed an increase in turnover, including Metal & Allied, Chemical & Allied, Paper & Paperboard and Food & Beverage. The worst hit sectors are Textiles & Apparel, Timber, Wood & Furniture, followed by Leather & Footwear. Overall, 30,000 formal jobs have been lost in the Kenyan manufacturing sector.

African manufacturing may also be hit indirectly, with COVID-19 accelerating digitalisation and ‘datafication’ of production. To mitigate supply chain risks and increase flexibility during and post COVID-19, global lead firms may increasingly rely on automation and digital technologies along their supply chains, which is expected to accelerate re-shoring of some parts of production. Currently, there exists a two-pronged digital divide in Africa: African countries are not only lagging in the deployment of digital technologies but also benefit less from these technologies, due to poorer absorptive capacity and infrastructure. For instance, average internet penetration in sub-Saharan Africa is 25%, which is half of the global average, and the impact of doubling of internet penetration on manufacturing labour productivity is also significantly lower in these countries. This persistent digital divide may lead to an increase in re-shoring of jobs from and limited future offshoring of production, leading to loss of ‘could-have-been’ jobs in low and middle-income countries. A 10% growth in robotics investment corresponds to a 0.54% drop in offshoring, with a higher (negative) correlation for labour-intensive jobs.

However, automation is concentrated in specific sectors, such as computers, electronics and the automotive sector. African economies can mount an export push and build up industrial capabilities in sectors which are less affected by global and technological changes, such as paper and paper products, non-metallic minerals and garments. Three proposals that could help support the garments industry in Africa during COVID-19 include a worker subsidy scheme, a subsidies training package to retain workers and manufacturing capabilities and a retooling of garments factories to satisfy medical needs. Manufacturing firms in some African countries have started re-purposing production to address shortages in capabilities medical equipment. Examples include testing kits in Senegal, face masks in Ethiopia and hand sanitisers in Kenya.

African manufacturing firms also need to shift from a passive to an active approach towards digitalisation in order to mitigate the economic losses from COVID-19. Evidence from Kenya suggests that digitalisation can open up new opportunities within manufacturing in terms of increases in efficiency, diversification into more value-added products, expansion in regional and global trade, lowering production costs and increasing export competitiveness. An ODI-KAM report on digital transformation finds that there is a significant digital divide across manufacturing firms in terms of ‘use’ of internet: while over 90% of Kenyan firms have access to internet and computers, a mere 54% have a web presence and only 27% are engaged in online selling. As a response to the crisis, 30% of KAM members surveyed are now aiming to increase online capabilities. Jumia has partnered with the  Kenya Private Sector Alliance to enable local businesses to set up their e-shop on the Jumia platform at no start-up costs, with Jumia halving its commission on vendors for locally manufactured goods to 1%. KAM has also launched a digital directory for locally manufactured goods to help customers shop online.

Actively promoting and scaling-up local production in Africa for job-creation will require increased focus on domestic integration, linking global productive firms with potential local suppliers and domestic labour. This will, in part, require targeted skills-development strategies to ensure that manufacturing workforce is re-equipped with skills for the future. Leveraging the African Continental Free Trade Agreement will ultimately be an important vehicle in mitigating the effects of COVID-19, including through building continental digital and production capabilities.

This is part of a series emerging from a workshop on ‘Mediterranean Production Networks and the Export Economies of North Africa‘ held at LSE on 17 January 2020. Read the introduction here, and see the other pieces below.

In this series:

• Introduction by Shamel Azmeh
• The Scandal of Seamless Linkages: Global Value Chains and Women Argan Oil Producers in Morocco by Kate Meagher
• Is Automation Stealing Manufacturing Jobs? Evidence from South Africa’s Apparel Industry by Jostein Hauge and Christian Parschau
• Luxury Brands’ Roles in Pathways to Sustainable Growth: Prospects for Egypt’s Cotton Sector by Rachel Alexander
• Have North African countries upgraded and diversified in apparel and automotive GVCs? by Thomas Bernhardt
• Varieties of Digitalisation in Automotive Supply Chains and Upgrading Prospects of Supplier Firms by Merve Sancak