The Covid-19 pandemic will push global enterprises to find new, inexpensive ways to pursue local manufacturing, using technologies to reduce their reliance on low-cost labour in other countries, industry experts say.
Meanwhile, developing countries must respond by evolving their own capabilities and expanding in local markets, experts said at the opening debate at this year's Global Manufacturing and Industrialisation Summit, which is being held virtually, with several sessions taking place over the next month.
Mass automation of industrial processes could erode the “comparative advantage that low-cost labour gives developing countries over developed countries”, said Cecilia Ugaz Estrada, special adviser, directorate of corporate management and operations at United Nations Industrial Development Organisation.
This could lead to “production being brought closer to the headquarters of multinational corporations”, she said.
“We are facing severe economic repercussions and World Trade Organisation economists estimate that global merchandise trade may fall by 13 per cent to 32 per cent,” said Xiaozhun Yi, its deputy director general.
“We believe this pandemic may accelerate the trend of production automation … this trend may reduce some opportunities in low-skilled manufacturing.”
However, the severity of the crisis depends on how fast the Covid-19 pandemic is brought under control, said Mr Xiaozhun. More than a third of the predicted decline in world trade brought on by the outbreak was caused by a rise in trade costs and temporary disruptions to transport and logistics, he said.
Bright Simons, founder and president of Africa-based technology company mPedigree, said the pandemic had affected regional trade in Africa as much as global trade.
He mentioned a number of barriers to expanding regional trade across the continent, including high transport costs, which can make it more expensive to trade within Africa than to trade externally.
“It’s not that easy, even if you wanted to … to maintain a sourcing regime that involves cutting yourself off from global value chains,” he said.
Developing economies should focus on improving their technology competencies and becoming self-sufficient and accelerate efforts towards greater regional integration, Ms Estrada said.
“Governments of developing countries can still attract multinational companies by introducing measures to limit trade costs, such as lifting tariffs and minimising travel restrictions and border controls,” said Mr Xiaozhun.
This is the third edition of GMIS, a joint initiative by the UAE and Unido. The event had been scheduled to take place in Hannover in April but was cancelled because of the coronavirus outbreak.
The first edition of GMIS was held at Paris Sorbonne University Abu Dhabi in 2017, and attracted more than 3,000 leaders from government, business and civil society.