Pandemic puts countries’ resilience to the test
...Governments must resist the urge towards protectionism
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.