Pan­demic puts coun­tries’ re­silience to the test

...Gov­ern­ments must re­sist the urge to­wards pro­tec­tion­ism

Business Day (Nigeria) - - THE BIG READ -

The pan­demic has forced com­pa­nies and gov­ern­ments to re­learn some ba­sic les­sons. In this case, the three “Rs” are re­silience, reshoring and re­pur­pos­ing. In­sti­tu­tions ev­ery­where are ex­am­in­ing how pre­pared they are for the worst. The an­swer for all has been: not very. The early scramble for na­tional sup­plies of per­sonal pro­tec­tive equip­ment as gov­ern­ments re­alised they did not have enough to cope with the scale of the health emer­gency was fol­lowed by fears over a short­age of crit­i­cal medicines and key in­gre­di­ents. The cur­rent fo­cus is on se­cur­ing ac­cess to a po­ten­tial vac­cine, with the US govern­ment on Fri­day agree­ing a $2.1bn deal with Sanofi and Glax­osmithk­line to buy 100m doses.

More than any other health or eco­nomic cri­sis in re­cent years, coro­n­avirus has ex­posed the de­vel­oped world’s re­liance on im­ports and the fragility of long global sup­ply chains. Self-suf­fi­ciency is the new mantra. The UK govern­ment has launched Project De­fend to en­sure the coun­try re­tains ac­cess to crit­i­cal goods while di­ver­si­fy­ing its trad­ing re­la­tion­ships. In France, Pres­i­dent Em­manuel Macron is ex­plor­ing bring­ing home the man­u­fac­ture of key medicines and has pledged to reshore parac­eta­mol within three years. The EU’S €750bn re­cov­ery fund in­cludes a re­quire­ment for na­tional plans to re­in­force the bloc’s eco­nomic and so­cial re­silience. Com­pa­nies, too, are hav­ing to re­con­sider their sup­ply chains and are look­ing to shift their mod­els from “just in time” to “just in case”.

These re­sponses are un­der­stand­able. There is noth­ing wrong with gov­ern­ments want­ing to en­sure that they have the abil­ity to pro­tect their cit­i­zens in a na­tional emer­gency. Long-term re­silience plan­ning, in­clud­ing the mon­i­tor­ing of sup­ply chains and in­ven­to­ries, is a le­git­i­mate am­bi­tion for gov­ern­ments, as well as com­pa­nies. Health­care is a case in point. As the man­u­fac­ture of the ac­tive phar­ma­ceu­ti­cal in­gre­di­ents (APIS) for many drugs has shifted to lower-cost Asian coun­tries, so Europe’s de­pen­dency on im­ports has in­creased. Re­cent es­ti­mates sug­gest any­where from 50 to 80 per cent of APIS for so-called small mol­e­cule drugs in Europe were sourced from In­dia and China. In the UK, aca­demics have called on the govern­ment to re-eval­u­ate the case to en­cour­age greater do­mes­tic man­u­fac­ture of crit­i­cal medicines.

Pol­i­cy­mak­ers, how­ever, should tread with cau­tion. While it makes sense for a govern­ment to en­sure it has the ca­pac­ity to pro­duce crit­i­cal medicines or goods, or the abil­ity to source them quickly from al­lies, this should not be at the greater price of glob­al­i­sa­tion. The risk is that coun­tries’ re­sponses to the pan­demic lead to a rush to­wards pro­tec­tion­ism.

There are rea­sons to be scep­ti­cal of the mer­its of Mr Macron’s pro­posal to reshore parac­eta­mol pro­duc­tion to France. This is a com­mod­ity that is pro­duced more cheaply in Asia. To make the plan suc­ceed, the govern­ment would have to of­fer sub­si­dies to do­mes­tic com­pa­nies to man­u­fac­ture the drug’s APIS in France. Sanofi and UPSA, which sell about 90 per cent of the parac­eta­mol in the coun­try, cur­rently source their APIS from the US, China and In­dia.

Gov­ern­ments should be wary of adopt­ing self-suf­fi­ciency as the over­ar­ch­ing aim of new poli­cies. Even do­mes­tic sup­ply chains are at risk of dis­rup­tion. Busi­nesses, too, re­quire the economies of scale pro­vided by global mar­kets to help gen­er­ate the cap­i­tal needed to in­vest in in­no­va­tion. True re­silience will only come from true di­ver­si­fi­ca­tion. This is some­thing pol­i­cy­mak­ers should bear in mind as they seek to re­build their economies af­ter the pan­demic.

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