UNIDO highlights lessons from COVID-19, makes speculations about post-pandemic manufacturing sector

CAIRO – 20 December 2021: The United Nations Industrial Development Organization (UNIDO) issued its 2022 report on "The Future of Industrialization in a Post-Pandemic World," describing resilience factors, types of responses, and trends of the future.  

Resilience Factors

The crisis impacted supply and demand. Supply is hit by disruptions of operations, delivery, and supply chain; shortages and higher cost of inputs; shortage of cash flow and resources; and, halt of operations. On the other hand, demand becomes subject to change in customers' preferences; peaks and falls of demand; and uncertainty for investments. 

The report delineates the reasons why some industries were hard hit by the pandemic while others did not, and the reasons some others recovered fast while there are industries that are still struggling. The report compares between the fourth quarter of 2019, and the second quarter of 2021.

The "robust industries," which were barely affected or recovered fast, are food, chemicals, tobacco, paper, machinery, electrical equipment, computers and medical equipment. On the other hand, "vulnerable industries," which were hit hard with slow recovery, are basic metals, wood, metal products, non-metalic products, plastics, manufacturing, printing, petroleum, beverages, leather, apparel, textiles, beverages, furniture, transportation equipment, and motor vehicles.  In general, the vulnerable businesses were those that are labor-intensive, and that are SMEs.

With regard to country-level, countries with diversified economies were more resilient. Other factors shaping the intensity of impact include "degree of integration with global markets, importance of domestic demand, fiscal space to implement support policies, and level of industrial capabilities." Further, there are three factors that are expected to amplify the economic impact of the crisis. Those are severity of the health crisis, stringency of containment measures and reliance on vulnerable industries. Yet, there are three factors that can "buffer the impact." Those are the level of incomes, relative size of domestic markets, and level of industrial capabilities.

Speaking of the sector level, the factors are "labour intensity, degree of essentiality, and importance to address emergency." As for the firm level, businesses differ by "size, liquidity, skills, export orientation, and digitalization."

Firm resilience is further determined by robustness and readiness. The former is relevant to survival to closure, maintaining operating capacity, and maintaining employment, sales, and profits. The latter is pertinent to strategic changes in products, processes, organization, and skills.

UNIDO's Competitive Industrial Performance (CIP) Index consists of three factors that are: capacity to produce and export manufactured goods; technological deepening and upgrading; and, world impact.

Types of Response

UNIDO classifies responses to the economic impact of pandemic by manufacturing firms into five types. One is organizational change (64 percent of firms surveyed) such as remote work, and sanitary measures. Another is introducing or increasing business online activity (37 percent), such as online sales, new delivery modes, and new distribution channels.

A third type of change (30 percent) is the release of new product(s) to meet changing demands. A fourth one is repurposing (22 percent), which is a full or partial conversion of production to address the health emergency like producing medical equipment, masks, and sanitizers. The fifth type of change (20 percent) is introducing new equipment to reduce the number of workers, like automation of some production processes.

"These changes pursued two aims: a more proactive one, to exploit opportunities created by the shock, and a more defensive one, to cope with the constraints imposed by the crisis and thrive through the crisis to re-orient towards the new normal," UNIDO report suggests.

Trends of the Future

The organization anticipates three trends that will emerge in the future as a result of the pandemic. The first is the acceleration of the digitalization and automation of industrial production, enabling remote control of factories and less reliance on humans who get affected by health crises. The second is greening of the industrial production to ensure efficiency and sustainability. The third is global economic power shifts. The report estimates that Asia will become a dominant hub of industrial production, and China will count more knowledge turning into a high-income economy. Thus, "a major restructuring of trade flows and global value chains" is expected.

The figures pertinent to the first trend show that over the past 20 years, the adoption of robotics in the manufacturing sector rose fourfold. As for the third trend, the share of Asia-Pacific in world Manufacturing Value Added (MVA) hiked from 15 percent in 2000 to 45 percent in 2020.