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Factory in Nigeria ;

Could COVID-19 present opportunities for revitalising manufacturing in Africa?

Dr Eka Ikpe

Senior Lecturer in Development Economics, African Leadership Centre

03 November 2020

Dr Eka Ikpe asks whether the COVID-19 pandemic could energise the Nigerian syringe manufacturing industry and what this suggests about the potential to strengthen Africa’s industrial development at large.

Since the emergence of the COVID-19 pandemic there have been widespread efforts to energise manufacturing, particularly in the production of medical devices and health supplies. Industrial policy responses have included mandating the private sector to fire up the factories and shift production priorities ­­– especially to health supplies – alongside imposing export bans across North America, Europe, Africa (in Senegal, South Africa and Kenya), Asia, South Korea and India, among others.

At the same time, extensive attention has been given to the importance of the manufacturing sector and the role it plays in the production of vaccines. Arguing for the adequate supply and equitable distribution of vaccines globally, Dr Ngozi Okonjo Iweala (Board Chair of GAVI, the Vaccine Alliance), has called for collaborative action across trade policy, manufacturing and research communities to protect against the risk of hoarding in so-called developed countries at the expense of access in Global South contexts. The Director General of the World Health Organisation, Dr Tedros Adhanom Ghebreyesus, has likewise been clear on the significance of manufacturing to ensure global vaccine availability.

It follows that the production of syringes, one of the most widely used medical devices globally, constitutes a significant manufacturing response to the pandemic. Syringes are essential for the treatment of non-communicable diseases such as diabetes and heart disease and for the administration of future vaccines. Despite the immense challenges the COVID-19 pandemic brings, it also presents opportunities to strengthen industrial development in the African context.

Africa’s re-orientated trade goals

The recently established African Continental Free Trade Area (AfCFTA), the world’s largest free-trade area, calls for prioritisation of the domestic African market in the continent’s journey towards socio-economic transformation. This heralds promise for industrial development given that intracontinental trade tends to be more diversified, with greater representation of continentally manufactured goods than Africa’s trade with the rest of the world.

In January 2020, as a panellist at the APPG Africa and APPG for Trade Justice symposium: UK-Africa Trade and Brexit, I listened to Dr Vera Songwe of the United Nations Economic Commission for Africa and Dr Akinwunmi Adesina, President of the African Development Bank, highlighting the recentring of the continental market as a key component of the promise of the AfCFTA. Prioritising domestic markets has been central to critical political economist Samir Amin’s call for socio-economic transformation in Africa. Domestic markets could challenge the continent’s colonial legacy of supplying raw materials to the global economy rather than investing in manufacturing.

The problem of unequal exchange between Africa and the rest of the world

Unequal exchange between parts of Africa and the rest of the world presents a challenge, especially around lower value natural resource exports and an overreliance on volatile commodity prices as a basis of economic growth and development. Indeed, the continent holds the vast majority of commodity dependent countries that are deemed as relying substantially on resources for their exports. As a result, it is disproportionally impacted by commodity price collapses. This occurred in 2014-15 when the continent’s largest economies, Nigeria, South Africa and Angola, fell into recession with wider adverse impacts. More recently, the COVID-19 pandemic has moved resource prices from the quarterly average of 49.4 USD over January to March 2020 to 30.4 USD in May 2020. Major declines in petroleum prices led to a May 2020 downward revision in the budget benchmarking oil price to 20 USD per barrel by Nigerian Finance Minister, Zainab Ahmed, with implications for its fiscal space.

Classical economic development theory offers a well-established logic for the significance of structural transformation of the economy. It also underscores the links between manufacturing and its dependence on raw materials from the agricultural and mineral sectors. Understanding these processes additionally highlights the importance of interactions between the state and the private sector, including foreign capital in the Global South.

Pile of used syringes

Syringe manufacturing and Nigeria’s industrial development

Looking at the case of syringe production in Akwa Ibom State in Nigeria reveals potential for supporting responses to the COVID-19 pandemic. It is one of Nigeria’s largest oil producing states and has access to one of the highest levels of government revenue, standing at 15.8 billion Naira in 2019. This large influx of resources to a relatively small state of about 5.5 million people can be associated with ‘resource curse’ narratives. Since 2017, it has pursued an industrial strategy promoting manufacturing activities across agro-industry, shipbuilding and medical supplies, i.e. syringes.

Manufacturing firm Jubilee Syringes is reported as having the largest production capacity in Africa and is in my hometown Onna. Since 2017 it has supplied a domestic national market, including hospitals in Nigeria’s commercial capital of Lagos with its syringes made using polypropylene, a by-product from local Indorama Eleme Petrochemicals.

The complex role of the market and the state

These manufacturing activities have been underscored by complex interactions across the state and the market, particularly foreign private capital. Industrial policy has been defined by tax breaks as well as import substitution policies, such as tariffs on imported syringes which rose from 5% to 70% in 2018. This prioritisation indicates Nigeria’s view that syringe production can address domestic market needs, preventing the need for imports while also setting its sights on regional and continental markets. This latter point reinforces the potential importance of these developments within the AfCFTA.

Additionally, raw material supply and manufacturing activities are underscored by foreign capital from the Global South: Singaporean-Indonesian capital to Indorama Eleme and Turkish capital to Jubilee Syringes. While the literature on the benefits of foreign investment is vast, it is important to reflect on how the surplus generated interacts with domestic development, including how science and technology transfers may or may not encourage wider learning and change. The instability and unreliability of foreign investment flows, especially during the pandemic, has been highlighted by the IMF’s Director of Fiscal Affairs, Vitor Gasper, who reported in April 2020 how potential capital flight may impact on economic recovery.

However, it is promising to see the Central Bank of Nigeria responding to the challenge of COVID-19 by prioritising manufacturing, vowing to financially support the real economic sectors of agriculture and manufacturing by providing 1 Trillion United States Dollars in loans. This commitment includes supporting links between domestic raw materials and manufacturing, and better access to capital equipment. Yet this must be reinforced by interventions in the energy sector, vital for industrial development, including managing electricity demand vis-à-vis supply. There should also be some ambition to transition within manufacturing, turning attention to higher value sectors such as science and technology, so that over time, engagement with these sectors moves beyond consumption to production – as has been seen in the most significant contemporary transitions in the Global South.

Email: ekaette.ikpe@kcl.ac.uk.

 

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Eka  Ikpe

Eka Ikpe

Senior Lecturer

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