Three vital sectors that could hold the key to how well the region recovers to suit the post-pandemic global economy
COMMENT | HARDEEP SOUND | As East Africa opens its economy following two years of pandemic-related disruption, the region needs to prioritise digitisation and innovation. This can help countries across the region boost their recovery and establish stronger foundations for continued growth and advancement in the coming decades while also improving the overall capabilities and competitiveness of key industry sectors.
Countries across East Africa are breathing a sigh of relief as pandemic-related challenges finally ease and the prospect of some form of normalcy emerges.
While the region avoided the worst of the health-related impacts of the pandemic, East Africa was the hardest-hit region in Africa in terms of labour impact, and most East African countries experienced negative real GDP growth.
The impact of the pandemic has prompted renewed calls for a transformation of East African economies to better suit the challenges and opportunities in the global economy.
However, the latest Foresight Africa 2022 report by the Brookings Institute points out that a lack of investment in science and technology has hampered Africa’s economic transformation at a structural and sectoral level, and stifled innovation.
But following a two-year period of disruption, the region has an opportunity to rebuild in a way that not only aids its economic recovery but also establishes a powerful foundation for the region’s growth over the coming decades.
Three vital sectors could hold the key to how well the region recovers over the coming years, namely manufacturing, tourism, and pharmaceutical.
Manufacturing sector: a $1-trillion opportunity
Business-to-business spending in the African manufacturing sector is predicted to reach $1-trillion by 2050.
Considering the important economic role that manufacturing plays in East Africa, investments into technologies that can foster greater global competitiveness in the region’s manufacturing sector could unlock much of this potential to the benefit of East African economies.
The focus should be on building Industry 4.0 capabilities that bring together next-generation technologies – such as artificial intelligence, robotic process automation, Industrial Internet-of-Things and predictive analytics – integrated to an intelligent core that can bring unprecedented control, predictability and efficiency to manufacturing operations.
Aspects such as quality control, plant consumption and energy management, smart warehousing, factory asset intelligence and overall performance management can be transformed with Industry 4.0 capabilities. Integrating manufacturing facilities with digital supply chains could further help alleviate some of the present challenges with the global supply chain and bring greater stability to manufacturing operations.
In a recent global study, 21% of manufacturers said they increased profitability by more than 10% by building Industry 4.0 capabilities, while 19% cited productivity improvements of more than 10%.
As the region reboots a manufacturing sector vital to its economic prospects, smart investment into Industry 4.0 technologies could help the sector accelerate its growth and boost its global competitiveness.
Special attention, however, must be paid to developing innovative supply chain solutions, especially considering the global supply chain crunch that has seen shortages of goods in markets around the world.
Any efforts at digitising the manufacturing value chain through Industry 4.0 technologies must include interventions and innovations that bring greater transparency and predictability to the supply chain.
Pharmaceutical sector: closing the R&D gap
Research and development initiatives hold the potential of unlocking tremendous economic advantages and stimulating foreign direct investment.
However, Africa lags far behind the more developed nations in their R&D spending, with the result that the majority of product and service innovations driving African economies stem from outside the continent.
This R&D gap and lack of local capacity was on full display during the early stages of the pandemic when Africa’s lack of local pharmaceutical production and manufacturing capacity left most of the continent without access to life-saving vaccines.
Policymakers and industry leaders should look at the opportunities for greater regional investment into R&D and draw on international best practices. For example, 18 of the world’s 20 largest vaccine producers run their production facilities using SAP technologies, so local production facilities could draw on learnings from their global peers to avoid costly mistakes and fast-track success.
As with the manufacturing sector, pharmaceutical companies should support investment into digital transformation with efforts at gaining greater visibility over their supply chain.
While it is unlikely the pandemic will disrupt the global supply chain as it has over the past two years, other disruptive events are bound to emerge. Investing in tools that bring predictability to the supply chain will enable pharmaceutical companies to more easily adapt to further disruptions.
Tourism sector: safely opening the doors to international visitors
Prior to the pandemic, the tourism sector was a key economic driver for East African countries and contributed 8.1% to the region’s GDP in 2019.
However, travel restrictions implemented to help curb the spread of COVID-19 in the region resulted in losses of 92% of tourism revenues, with arrivals dropping sharply from seven million in 2019 to little over two million in 2020. Further global travel restrictions as a result of the Omicron variant have only compounded the losses.
With Western countries now lifting many of their travel bans – and in some cases removing all mandated restrictions – East Africa needs to urgently work to re-establish the region as a prime tourist destination.
The introduction of the EACPass, which integrates the testing and vaccination data of regional countries could help ease movement across East Africa and stimulate greater tourism industry revenues.
Using digital technologies to remove some of the friction inherent in post-lockdown international travel could further encourage international arrivals, while innovation in tourism experiences built on technological innovation could turn the region into a test case for how countries attract tourists in the year ahead.
Hardeep Sound is Regional Sales Director: East Africa at SAP; a market leader in enterprise application software.