By Linda Calabrese, Kunal Sen, Chisom Ubabukoh, Dirk Willem te Velde, and Steve Wiggins
The COVID-19 pandemic has revealed the fragility of many African economies, which are not diversified and lack resilience to economic crisis. One of the main ways to promote diversification and economic transformation is through promoting innovation. This essay brings together findings from a Development and Economic Growth Research Programme (DEGRP) synthesis report on innovation in low-income countries, drawing lessons from research in African countries for a high-quality recovery from COVID-19.1 Strategic policies can protect innovation, diversification of economic structures and productivity growth to enable both a general and targeted response to the current downturn. Evidence from research promotes paying attention to manufacturing with coordinated public policies, for example, to strengthen the capacity to supply medical goods, as well as building more flexible firm capabilities.
The COVID-19 pandemic has revealed structural vulnerabilities of many low- and middle-income countries. Despite having lower rates of COVID-19 infections and deaths compared to other regions, African economies have already faced incredible challenges and are likely to experience a longer path to recovery. Many economies across the African continent are not well diversified, relying mostly on agriculture and natural resources extraction for their employment and exports. Over the past three decades, most African and low-income countries have experienced economic growth, but have also seen limited structural change and achieved low productivity growth, remaining reliant on traditional sectors such as extensive agriculture, unprocessed natural resources, and low quality services.
Supporting and maintaining a strong, steady economic transformation process is crucial to COVID-19 recovery. Therefore, sources of productivity growth such as innovation and investment must be protected. However, evidence for 2020 suggested the contrary. For instance, in South Africa high-quality services and manufacturing were affected disproportionally by the COVID-19 downturn compared to other sectors. If high productivity activities do not get support and are lost permanently, Africa will again face growth-reducing structural change in the recovery.
With its contribution to productivity growth, innovation can drive the process of economic transformation, thus allowing low- and middle-income countries to deliver a broad-based, sustainable and resilient growth. Economic transformation consists of structural change as resources are moved from one sector to another, as well as raising productivity within sectors. Within Africa, the structural change process has fluctuated in recent decades, decelerating or reversing in the 1990s, but then getting somewhat back on track in the 2000s.2
This is where innovation comes in. By bringing in new products, production processes, and technology, innovation can contribute to transformative economic growth by boosting productivity, creating jobs, and enabling businesses to expand into new sectors. For instance, firms tend to grow, expand their business, and hire more people when they are producing a new product, or producing the same products through new or more efficient processes. This could be through better use of digital technologies to organize production processes more efficiently or to market products. Therefore, innovation goes hand in hand with economic transformation, promoting the creation of more vibrant, diversified, and ultimately resilient economies.
Innovation is sometimes difficult to spot. In some cases, changes in working practices within firms can be very important, even if “under the radar” and not easily visible or measurable through innovation indicators such as patents or research and development.3 Sometimes, innovative practices take a long time to generate results. For instance, in agriculture, most farmers still do not apply the full range of technical options on offer, for reasons that often include information failures in markets for inputs, credit, and insurance.4
A quality recovery from COVID-19 in Africa starts by supporting innovation and economic transformation. Without transformation, a growth recovery will not be sustained or resilient to future shocks. DEGRP research evidence suggests strategic policy actions that can help with:
Linda Calabrese is a Research Fellow with the International Economic Development Group at ODI, and the China-Africa lead for DEGRP. Her research interests include trade, investment, industrialization, and global China.
Kunal Sen is Director of the United Nations University World Institute for Development Economics Research (UNU-WIDER), and Professor of Development Economics at the Global Development Institute, University of Manchester.
Dirk Willem te Velde is Director of the International Economic Development Group at ODI, and the Innovation Technical lead for the DEGRP.
Chisom Ubabukoh is Senior Tutor at the Global Development Institute, University of Manchester.
Steve Wiggins is Principal Research Fellow in the Climate and Sustainability Programme at ODI, and the Agriculture Technical lead for DEGRP.
Policy experts and researchers from the African Center for Economic Transformation (ACET) and the Development and Economic Growth Research Programme (DEGRP), in partnership with ODI, explore the critical role of innovation in Africa’s recovery from COVID-19. Essays identify areas in which innovation can contribute to effective responses and offer high-level policy recommendations.