Another external shock to expose the frailties of developing economies

Two of the main Western producers of COVID-19 vaccines plan to open manufacturing plants in Africa. Moderna is to invest up to USD500m for the construction of a state-of-the-art facility in an unspecified location within two to four years. Over time the plan is to produce 500 million vaccines per year. BioNTech, the German partner of Pfizer, is to start the construction of a plant in Rwanda or Senegal in mid-2022. Its operations are scheduled to begin sooner than Moderna’s yet its plans are less ambitious, targeting 50 million doses per year. Together with a local medical institute, the company also intends to open a plant to fill vials with imported vaccines in South Africa next year.

Relief on a modest scale is therefore scheduled but for now Africa is struggling to push up its vaccination rates through a combination of government purchases in the market, several international schemes involving the World Health Organization, the AU and others, and bilateral supplies from China and Russia. By mid-September South Africa, easily the worst affected country on the continent with 90,000 deaths attributed to COVID and 2.9 million cases to date, reported that 18 per cent of the population had been fully vaccinated.

For Rwanda the ratio is about 7 per cent and for Africa on average perhaps as low as 4 per cent. The AU has an agreement with Johnson and Johnson of the US to provide 400 million doses by mid-2022. Other proposals to boost availability include patent waivers from existing manufacturers and the establishment of an African drug regulator. The AU has also set a target of up to 60 per cent for the proportion of staple vaccines (including those for COVID) supplied from within Africa by 2040.

Logistic challenges and financial constraints, along with the absence of manufacturing capacity, explain the low vaccination rates in Africa. Polls taken in South Africa suggest that three quarters of the population want to be vaccinated. The limited access of the majority to vaccination centres and the reluctance to take time off work without pay would appear to be the main hurdles. Anti-vax sentiment may or may not be a significant factor. President Paul Kagame of Rwanda is on record as saying that a debate on mandatory jabs is academic when vaccines are in short supply.

Forecasts from the multilateral agencies, led by the IMF’s World Economic Outlook, are based upon the uneven vaccination rates and policy support across the world. A low rate means a slow recovery according to this argument, which we have oversimplified. This is most relevant for developed economies and the more advanced emerging markets (EMs).

For other developing economies, the story may be more complicated. Tourist destinations, for example, have seen a slump in bookings for reasons beyond their control. Oil producers took a sizeable hit in March and April 2020 from the crash in the oil price: that price has since rebounded impressively but producers, at least those within OPEC+, are living with quota constraints justified by the uncertainty overhanging demand for crude and related fears of the resurgence of the pandemic in the leading economies.

Whenever the dust settles over COVID at its worst, we can be sure that opposition politicians, the investigative media and the think-tank industry will come up with analysis that is painful for those in power across the world

Most African governments introduced lockdown in some form. If the data for reported cases are reliable, some of them may have overreacted and inflicted economic self-harm that with hindsight was not warranted. Whenever the dust settles over COVID at its worst, we can be sure that opposition politicians, the investigative media and the think-tank industry will come up with analysis that is painful for those in power across the world.

Read also: African leaders must urge G20 to stop Covid-19 vaccines apartheid to save our world

We are saying that domestic vaccination rates have not been the main drivers of growth in most African countries. As for domestic policy support, it was inadequate in most cases and sometimes misdirected. The pool of resources was generally too small to allow for wastage. In advanced economies, in contrast, fraudulent applications for furlough support, the award of supply contracts to firms unable to deliver and flawed IT systems to trace the spread of the virus have been embarrassing, if predictable, but have not been crippling to the macro-economy.

The extent of external policy support is a charged subject. The IMF’s rapid response in Q2 ’20 with conditionality-free loans and its largest ever general allocation of SDRs in August this year do not amount to inaction or indifference on its part. If it was to “do more”, the Fund needed the go-ahead from its principal shareholders.

COVID has highlighted the fault lines in many developing countries and demonstrated their vulnerability to the power of globalization at the time of a seismic external shock. The transmission mechanism can be a movement in commodity prices, disruption to global supply chains or the withdrawal of foreign portfolio investment. Whatever form it takes, the case for structural reform to build buffers to absorb such shocks is compelling.