The process of structural transformation – reallocation of production factors from low-productivity, labour-intensive, and polluting activities to higher-productivity, skill-intensive, and sustainable ones -—
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—- – is central to enhancing productivity and incomes to mitigate vulnerability to market shocks. With no sign of further industrialization in Africa and LDCs and stalled progress in manufacturing in most vulnerable economies, coupled with challenges in their digitalization, the role of digital technologies becomes even more important in diversifying economies and building resilient systems that are open, inclusive, and secure and benefit everyone. “Transforming the economies through diversification” is a critical element for inclusive prosperity -—
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The two sections of this chapter discuss these issues drawing on SDG indicators and other official statistics:
- Structural transformation to mitigate persistent technology gap
- Digital technologies are key to economic diversification
LDCs not on track to meet their SDG 9.2 target by 2030 in manufacturing value added and employment.
In 2024, the price of a mobile broadband subscription was equivalent to 5% of per capita GNI in LDCs.
References
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Structural transformation, a pivotal driver of economic development, traces its roots in scientific advancements centuries ago, inducing a differentiation of economic activity and a shift from raw material extraction to manufacturing, followed by a transition to services as economies mature -—
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—-. Technological innovation, underscored by international cooperation, plays a vital role in this process -—
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—-. According to -—
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—-, the transition to manufacturing is completed when GDP per capita reaches around $13 000 at 2005 prices and manufacturing accounts for around one fifth of value added. An that basis, -—
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—- defines industrialized economies as those with manufacturing value added exceeding $2 500 per capita, adjusted to purchasing power parities.
Structural transformation enhances productivity and incomes while fostering diversification of production, thereby mitigating vulnerabilities to market shocks. The Bridgetown Covenant -—
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—- identifies “transforming the economies through diversification” as a critical element for inclusive prosperity. Access to requisite technologies, particularly in an increasingly digitalized landscape, is vital for successful structural transformation. The Covenant emphasizes that industrialization must align with sustainability and inclusiveness to realize the goals of the 2030 Agenda while ensuring equitable distribution of its benefits.
No sign of further industrialization in Africa and LDCs
In 2023, manufacturing value added per capita in developed economies amounted to $5 379 (at constant 2015 prices), significantly surpassing other regions (figure 1). It was 3.5 times higher than in developing Asia and Oceania ($1 522) and 4.5 times higher than in developing Latin America and the Caribbean ($1 186). It exceeded the value in Africa ($212) by 25 times.
Over the past two decades, manufacturing value added per capita in developing Asia and Oceania has steadily risen to 3.2 times its 2003 value. Latin America and the Caribbean experienced a slower decline over the last decade. As a result, the region was overtaken by Asia in 2018. Africa has seen an increase of 20% over 20 years. Its manufacturing value added per capita only recovered to $215 in 2022, about the same level as before the COVID-19 pandemic. Developed economies, despite disruptions from the global financial crisis and the COVID-19 pandemic, have generally exhibited modest and steady growth.
Figure 1. Manufacturing value added per capita: stable in most regions, rapid growth in Asia and OceaniaSource: UNCTAD calculation based on UNCTADstat -—
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LDCs behind the target path towards industrialization
In 2023, manufacturing value added per capita in LDCs averaged $178, at 2015 prices, 30 times less than the average of the developed world. Despite this gap, LDCs have seen steady growth, with manufacturing value added per capita already 3.8 times higher in 2023 compared to 2005, with an average annual growth rate of 7.8% (figure 1).
Regarding SDG target 9.2, with a focus on the manufacturing value added as a proportion of GDP, LDCs made progress, increasing from 10.5% in 2005 to 14.5% in 2023. However, during the COVID-19 pandemic, the share stagnated at around 15% (figure 2). If the SDG target of doubling LDCs manufacturing share in value added by 2030 is applied to the LDCs of today, this target is unlikely to be reached. The required annual increase from 2005 onwards was 0.4 percentage points, but the actual average increase until 2023 was only 0.2 percentage points.1
While the manufacturing employment share in the current LDCs has followed a trajectory closer to the target path than its value added share until 2013, the gap between the actual and target paths expanded since. Since 2013, the employment share of manufacturing in LDCs has remained stagnant at around 7.6%. The relatively constant employment shares in LDCs alongside increasing value added imply an overall improvement in productivity, which can be considered as encouraging. However, it is essential to recognize that these are weighted averages, and incomplete data coverage likely masks variations in manufacturing employment and value added among different LDCs.
Figure 2. LDCs far from reaching the target of doubling the manufacturing share of value added and employment by 2030Source: UNCTAD calculations based on Global SDG indicators database -—
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Note: Target and target path set with reference to the base year 2005.2
Global R&D intensity increased, with high concentration in a few economies
The R&D intensity − that is R&D spending in proportion to GDP (SDG indicator 9.5.1) − was estimated at 2.0% in 2022 for the world, according to the UNESCO Institute of Statistics. This represents a more than insignificant increase in R&D intensity, from 1.6% recorded for 2010. The highest intensity in 2022 was registered in Israel (6.0%), the Republic of Korea (5.2%), and the United States of America (3.6%). Among developing economies, the leading economy was China (2.6%). -—
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R&D investment is highly concentrated in a few economies. Valued in PPP dollar, in 2022 and 2023, about a half of all measured R&D investment was spent in the United States of America and China alone -—
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—-. Innovation attracts further innovation, and these two economies host the world’s largest innovation hubs (cities or areas). Regions with lower R&D intensity were Sub-Saharan Africa, Central and Southern Asia, and Latin American and the Caribbean. LDCs as a group invested an estimated 0.3% of their GDP into R&D in 2022 -—
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Figure 3. Declining government contribution to global R&D funding relative to the private sectorSource: OECD Main Science and Technology Indicators database -—
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Notes: 2023 figures are UNCTAD estimates based on OECD statistics.
Preliminary data for 2023 indicate that government support has been on the rise for energy and defense oriented R&D. Overall, government share of R&D spending was dropping while businesses' investment in R&D has been increasing. -—
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While governments tend to finance R&D activities oriented towards broader socio-economic goals, private funds may lean towards specific profit-oriented projects. In recent years, a major part of R&D funding was provided by business enterprises. Globally, their share was 58% in 2010, increasing to 65% in 2023 (figure 3). For some 8% of the total R&D value in 2023, the source of funds was not specified. The shares of private non-profit entities, higher education institutions, and sources abroad remained stable, accounting for 7%. The part provided for by governments dropped from 30% in 2010 to 19% in 2023 -—
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—-. In line with the SDGs, it would be worthwhile for governments to pay attention to steering the R&D funding towards social and development goals.
Notes
- Vanuatu, the Maldives, Cabo Verde, Samoa, Equatorial Guinea, Bhutan, and Sao Tome and Principe were LDCs in 2005 but have graduated since then, due to their progress in economic development -—
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—-. They are therefore not considered in the figures for LDCs above. - In this report, progress in target 9.2 is measured with reference to the base year 2005. This is in line with the practice applied in the monitoring of the Millennium Development Goals, where the baseline was set to the year 1990, thus ten years before the adoption of the Millennium Development Declaration -—
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—-. The 2030 Agenda for Sustainable Development does not specify any base year for target 9.2.
References
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Digitalization has changed the way people produce, consume, trade and live. Narrowing the technological gap and closing the digital divide between and within developed and developing countries provides opportunities for improving incomes and resilience, as well as reducing the vulnerabilities, of the poorest – and in particular of women and youth. Past and ongoing crises have highlighted the role of digital technologies in diversifying economies and building resilient systems that are open, inclusive, and secure and benefit everyone.
It all starts with getting people and businesses online
To be able to engage in and benefit from the digital economy and digital trade, individuals and businesses must first be online. This means being covered by Internet infrastructure that is sufficiently fast and reliable, and furthermore by electricity infrastructure to power digital devices. By 2024, 92% of world population was covered by 4G mobile networks, double the share in 2015 -—
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—-. However, there is considerable variation in 4G deployment between regions; while 4G is available to all in Eastern Asia and in Europe, only 54% of people in sub-Saharan Africa live in areas covered by 4G networks (map 1). Furthermore, mobile networks continue to evolve, with 4G being superseded by 5G technology which covered 51% of the global population as of 2024 -—
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—-. The widest roll-out was in Europe, where 72% of the population was covered, followed by the Americas (63%) and the Asia-Pacific (62%). However, deployment has barely begun in many countries.
Map 1. More than half of the world’s population now covered by 5G, but deployment lags in some regionsSource: UNCTAD calculations based on -—
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Coverage alone is not enough
While 96% of the world population is covered by mobile broadband (3G or above) networks, many other factors create a gap between those who could access the Internet and those who do use it. In 2024, two thirds of the world’s population used the Internet, leaving 2.6 billion people offline. Furthermore, while almost all people in developed countries are online, only 35% of those in the least developed countries (LDCs) use the Internet -—
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One key reason is that the costs involved in getting online can be prohibitive for many. In 2024, the annual cost of a mobile broadband subscription was equivalent to 4.6% of per capita GNI in LDCs while a fixed broadband subscription equated to one sixth of GNI per capita -—
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—- – both exhibiting a slight decrease compared to previous year. Given disparities in income distribution within countries, for many people connectivity will be even less affordable. Furthermore, the digital devices required to access the Internet, such as smartphones, also need to be available and affordable.
Additionally, the skills required to use the Internet must be sufficiently widespread and available amongst the population, and people need to be aware of the opportunities of the digital economy and of digital trade, especially those working at firms that stand to benefit from digital transformation. Finally, the speed provided by Internet connections and fixed line technologies, such as the fixed broadband, matters -—
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Digital technologies offer a vital opportunity for economic diversification
Digital technologies, including the Internet, underpin e-commerce – in which buyers place and sellers receive orders online. Additionally, they enable instantaneous remote delivery of services directly into businesses and homes. Both digitally ordered and digitally delivered transactions increasingly take place across borders. The possibility of engaging in such digital trade offers new opportunities for the diversification of developing economies. Digitally deliverable services now account for over half of all services exports worldwide. Their share grew especially during the disruptions of the COVID-19 pandemic, then declined as exports of other services recovered, and stabilized in 2023, at a higher level than before the pandemic (figure 1).
Figure 1. Digitally deliverable services have increased their share in total services trade over the last 5 yearsSource: UNCTADstat -—
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Note: Digitally deliverable services are services that can be delivered remotely through computer networks. The figures in the graph cover: insurance and pension services; financial services; charges for the use of intellectual property; telecommunications, computer and information services; other business services; and audio-visual and related services.
Seizing the opportunities of digital trade requires not only investments in ICT connectivity but also actions to boost digital skills and awareness of the opportunities and risks associated with digital trade. Measures to facilitate digitally ordered goods transiting the border and regulatory actions to encourage digital payments, ensuring privacy and data protection, as well as the establishment of channels for recourse in case of loss or detriment related to digital trade, represent further enabling factors -—
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References
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Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
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