ONE OF THE SEMINAL global developments of the last three decades has been the phenomenal rise of China as an economic and military power. In terms of its economy, the World Bank places China’s Gross Domestic Product (GDP) at approximately USD 13.6 trillion, its manufacturing value-added at over USD 4 trillion and its exports of goods and services at over USD 2.8 trillion. Based on GDP by purchasing power parity (PPP), China’s economy is already the world’s largest and, in a few years, it is expected to overtake the United States (US) in nominal terms.
China now commands a central place in the global economy and is widely regarded as the world’s manufacturing hub. The World Economic Forum (WEF) has noted that China became an attractive manufacturing hub because initially, it had low-cost labour and materials, the required infrastructure, favourable policies, a large consumer base, and an established supplier network.
The current novel coronavirus (COVID-19) crisis which originated in China, and which has severely disrupted China-centric value and supply chains, has laid bare the limits of countries having outsourced their industrial policy to China. According to the United Nations Conference on Trade and Development (UNCTAD), the slowdown of manufacturing in China due to the COVID-19 outbreak is disrupting world trade and could result in a USD 50 billion decrease in exports across global value chains.
For most if not all Caribbean countries, we are likely to be harder hit than any other region because we control fewer resources and stages of the supply chain. Nonetheless, we now have an opportunity to contemplate how we can reclaim industrial policy space to support the sustainable growth and development of our economies.
I define industrial policy as a coherent set of actions that focus on industrial transformation, with the goal of sustainable and competitive production of goods and services. For the Caribbean, we must think of an approach to industrial policy which promotes what the Organization for Economic Cooperation and Development (OECD) refers to as ‘high-road competitiveness’, understood as the ability of an economy to achieve ‘Beyond-GDP’ Goals.
In essence, ‘High-road’ strategies are based on advanced skills, innovation, supporting institutions, environmental goals and social policy. In practical terms, as a Region, could contemplate moving to a scenario where individually and collectively, we do the following:
i. set incentives for innovation, energy efficiency, new and emerging technologies and the like;
ii. create a climate of cooperation between government, the private sector and the academic community on matters relating to innovation and industrial transformation;
iii. develop policies and programs that promote economic and export diversification;
iv. strengthen links between the agricultural and manufacturing sectors to encourage value-added food production;
v. build digital infrastructure and capacities;
vi. reform the education system to be more aligned to the needs of the business community; and
vii. create green growth policies considering the potential of the green economy to accelerate economic transformation.
The measures enunciated above are not a panacea for some of our structural problems, but they can assist us in becoming more competitive, even if they do not allow us to have full control of our supply chains. They can also help to cushion the blow from exogenous shocks like what we are experiencing now.
Furthermore, the current COVID-19 crisis has exposed and reinforced vulnerabilities in the economies of many Caribbean countries that need to be addressed. We remain vulnerable to disruptions in global supply and value chains partly because of the decimation of our industrial capabilities.
To build and strengthen economic and social resilience, we must encourage policies that lead to industrial development and economic diversification. This is a once in a generation opportunity to re-format our social and economic models for future prosperity.
Finally, as bad as the current crisis is, it does present opportunities for thoughtful conversation about how we can do things differently, including things that we probably should have been doing all along. Let us not waste this moment.