Fostering productive capacities for more resilient, sustainable, and inclusive development
The Bridgetown Covenant emphasizes UNCTAD’s critical role in “formulating and promoting policies fostering productive capacitiesUNCTAD defines productive capacities as consisting of the productive resources, entrepreneurial capabilities and production linkages that together determine a country’s ability to produce goods and services that will help it grow and develop -—
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—- and structural transformationStructural transformation or change can be broadly defined as the reallocation of economic activity across three broad sectors, agriculture, manufacturing and services, which accompanies the process of economic growth -—
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—-. It usually refers to the transfer or shift of production factors — especially labour, capital and land — away from activities and sectors with low productivity to those with higher productivity, which are typically different in location, organization and technology -—
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—-. in developing countries” -—
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—-. Productive capacities are key to achieving the SDGsSustainable Development Goal in a multidimensional and coherent manner. They enable kick starting structural economic transformation, which adds value to the economy and, if properly managed, leads to economic diversification, accelerated growth, greater resilienceThe ability of a system, community or society exposed to hazards to resist, absorb, accommodate, adapt to, transform and recover from the effects of a hazard in a timely and efficient manner, including through the preservation and restoration of its essential basic structures and functions through risk management -—
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—-. and ultimately faster poverty reduction and improved standard of living, with resources and space to ensure environmental sustainability and social cohesion.
Productive capacities are more specifically defined as “the productive resources, entrepreneurial capabilities and production linkages, which together determine the capacity of a country to produce goods and services and enable it to grow and develop” -—
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—-. From this definition, which hints at the latent nature of productive capacities, it is clear that measuring productive capacities is a complex endeavour. However, UNCTAD stands out as the pioneer in taking on this measurement challenge.
The Productive Capacities Index (PCI)
To measure productive capacities, UNCTAD developed a multidimensional PCIProductive Capacities Index (PCI) is a multidimensional composite index that measures productive capacities of economies by using eight categories: natural and human capital, energy, institutions, private sector, structural change, transport and information, and communication technologies, which together yield the multidimensional productive capacity index -—
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—- which assists in identifying gaps and limitations in productive capacities -—
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—-. Within the PCI, there are eight categories – human capital, natural capital, energy, transport, ICTInformation and communications technology (ICT) is a diverse set of technological tools and resources used to transmit, store, create, share or exchange information. These resources include computers, the Internet, live broadcasting technologies, recorded broadcasting technologies and telephony -—
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—-., institutions, private sector, structural changeStructural transformation or change can be broadly defined as the reallocation of economic activity across three broad sectors, agriculture, manufacturing and services, which accompanies the process of economic growth -—
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—-. It usually refers to the transfer or shift of production factors — especially labour, capital and land — away from activities and sectors with low productivity to those with higher productivity, which are typically different in location, organization and technology -—
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—-. – measured by 42 indicators. Each of the categories refers to a particular aspect of productive capacities development and organic links between and among the categories. Out of these 42 indicators, 11 relate directly to SDGSustainable Development Goal indicators (Table 1), thus contributing to the important interdependence between the PCI and the SDG indicators. PCI is also highly correlated with other conventional measures of economic and sustainable development -—
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In June 2023, UNCTAD released a second-generation PCI to help countries make more accurate diagnostics and measurements of their economic performance in that regard. In turn, this can shape the formulation of sound policies and their effective implementation. The PCI is available through a dedicated online portal with publications, manuals, resources and tools -—
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—-. It maps the productive capacities of 194 economies over the period 2000-2022 and provides a better measure of development outcomes than other traditional benchmarks such as GDPGross domestic product (GDP) is an aggregate measure of production, income and expenditure of an economy. As a production measure, it represents the gross value added, i.e., the output net of intermediate consumption, achieved by all resident units engaged in production, plus any taxes less subsidies on products not included in the value of output. As an income measure, it represents the sum of primary incomes (gross wages and entrepreneurial income) distributed by resident producers, plus taxes less subsidies on production and imports. As an expenditure measure, it depicts the sum of expenditure on final consumption, gross capital formation (i.e., investment, changes in inventories, and acquisitions less disposals of valuables) and exports after deduction of imports -—
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—-.. It is multidimensional and measures economic inputs and potential as opposed to outputs.
| PCI Categories* | SDG indicators included |
|---|---|
| Energy | 7.1.1: Proportion of population with access to electricity |
| 7.2.1: Renewable energy share in the total final energy consumption | |
| Human capital | 9.5.1: Research and developmentResearch and development (R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available knowledge -— – ‒ - – —--— – ‒ - – —--— – ‒ - – —--— – ‒ - – —- -— – ‒ - – —--— – ‒ - – —--— – ‒ - – —--— – ‒ - – —-. expenditure as a proportion of GDP |
| 9.5.2: Researchers (in full-time equivalent) per million inhabitants | |
| 1.a.2: Proportion of total government spending on essential services (education, health and social protection)** | |
| ICTsInformation and communications technology (ICT) is a diverse set of technological tools and resources used to transmit, store, create, share or exchange information. These resources include computers, the Internet, live broadcasting technologies, recorded broadcasting technologies and telephony -— – ‒ - – —--— – ‒ - – —--— – ‒ - – —--— – ‒ - – —-. | 17.6.1: Fixed Internet broadbandA general term meaning a telecommunications signal or device of greater bandwidth, in some sense, than another standard or usual signal or device. In data communications, this refers to a data transmission rate of at least 256 kbit/s. In the context of Internet, this can be delivered via fixed (wired) or mobile networks -— – ‒ - – —--— – ‒ - – —--— – ‒ - – —--— – ‒ - – —-. subscriptions per 100 inhabitants, by speed |
| 5.b.1: Proportion of individuals who own a mobile telephone, by sex** | |
| 17.8.1: Proportion of individuals using the Internet | |
| Institutions | 16.1.3: Proportion of population subjected to (a) physical violence, (b) psychological violence and (c) sexual violence in the previous 12 months** |
| Natural capital | 15.1.1: Forest area as a proportion of total land area |
| Transport | 9.1.2: Passenger and freight volumes, by mode of transport |
** The SDG indicator is taken in a slightly different form in the PCI.
Source: UNCTAD
Ensuring high-quality PCI requires availability of reliable and harmonized source statistics that are consistent over time. In the years ahead, concerted efforts are necessary to improve data availability which calls for statistical capacity building, particularly in low-income countries.
Global disparities in productive capacities: developed economies are leading while some developing economies are gradually converging
The PCI reveals that developed economies have higher productive capacityUNCTAD defines productive capacities as consisting of the productive resources, entrepreneurial capabilities and production linkages that together determine a country’s ability to produce goods and services that will help it grow and develop -—
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—- scores (Figure 1), with economies such as Denmark, Australia and the United States of America leading the pack with an average score of 70 out of 100 on the composite index.
Among developing regions, Asia and Latin America, overall, perform better than the African region. Some economies like China, Hong Kong Special Administrative Region and Qatar gradually converge towards the performance of developed economies with the average score of 63. On the other extreme are African economies such as Chad, Malawi, and Niger, which each register an overall PCI score of below 20.
Economies such as Rwanda, Senegal and Togo showed improved PCI scores from 2018 to 2022, but this better performance has not substantially altered their overall global ranking.
In Latin America and the Caribbean, Barbados, the Dominican Republic, and Panama made notable progress in developing their productive capacities during the same period. Similarly, Asian economies such as Bangladesh, Saudi Arabia and Timor-Leste made notable performance gains on the composite index.
But several developing economies from various regions regressed on their productive capacities. These include Brunei Darussalam, Guatemala, Kyrgyzstan, Lebanon, Namibia, Suriname, and Uganda.
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—-. hit productive capacities globally, but some regions showed resilience
Source: UNCTAD calculations based on UNCTADstat -—
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20 economies show a PCI score below 60 per cent of the world median
In terms of their productive capacities, 20 economies are notably lagging behind, with overall PCI scores falling below 60 per cent of the global median which stands at around 28 out of 100. They include Benin, Cameroon, Sudan, Afghanistan, Haiti, Guinea-Bissau, Burundi, the Central African Republic, Eritrea, Burkina Faso, the Yemen Arab Republic, South Sudan, Somalia, the Democratic Republic of the Congo, Mali, Uganda, Sierra Leone, Chad, Malawi, and Niger. 17 of these economies (85 per cent) are located in Sub-Saharan Africa, 13 are LDCsLeast developed country (65 per cent) and 4 are LLDCsLandlocked developing country (20 per cent). Economies with a history of past or ongoing conflicts are also disproportionately present in this assembly. Lastly, the majority of economies in the list are acknowledged for their susceptibility to the adverse impacts of climate change, stemming from factors such as extreme weather events, severe droughts, and the looming threat of rising sea levels.
Source: UNCTAD calculations based on UNCTADstat -—
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Figure 2 compares the historical evolution of the median PCI score of the 20 lowest-ranking economies with that of other LDCs and all developing economies. While their median PCI score has consistently remained below that of LDCs, the gap remained relatively stable between 2000 and 2008, with similar growth in productive capacities overall. However, starting in 2009, likely due to the effects of the 2008 crisis, these economies began to lag behind other LDCs. Between 2009 and 2019, other LDCs showed rather robust growth, significantly narrowing the gap with other developing economies, while the PCI score of the 20 lowest-ranking economies stagnated. As a result, the gap between the two groups increased by 5 points between 2000 and 2022.
Figure 3 shows that the 20 lowest-ranking economies perform far below other LDCs and developing economies in all PCI categories, except natural capital. The largest gap is observed in the Energy category, which assesses the availability, sustainability, and efficiency of power sources, with an almost 20-point difference from the median for all developing economies. Subsequently, the ICT sector exhibits a 24-point difference, followed by Institutions, measuring political stability and efficiency, with a gap of 20 points, and Transports with a difference of 19 points.
Source: UNCTAD calculations based on UNCTADstat -—
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UNCTAD Programme on Fostering Productive Capacities and Structural Economic Transformation: completed
Weak productive capacities lead to economic vulnerability to shocks, making the fostering of productive capacities crucial for socioeconomic resilience. Developing countries in the three regions have sought support for new policies focused on productive capacities and structural transformation due to past policy failures in delivering inclusive growth and sustainable development.
In this regard, UNCTAD has developed a comprehensive programme on fostering productive capacities and structural economic transformation in support of developing countries. The project is structured around four main activities, co-led by UNCTAD and relevant ministries in the country:
- Strengthen countries’ statistical capacity for improving data collection on and measurement of productive capacities and related vulnerabilities.
- Develop National Productive Capacities Gap Assessments (NPCGAsNational Productive Capacities Gap Assessments) by applying PCI to identify gaps, limitations, and challenges to foster productive capacities, structural transformation, and economic diversification.
- Formulate Holistic Productive Capacities Development Programmes (HPCDPsHolistic Productive Capacities Development Programmes), which are holistic, economy-wide, and long-term roadmaps to address the gaps and facilitate the development of critical economic sectors based on comparative advantages
- Train policymakers, national technical experts, private sector entities, academia, and civil society stakeholders in addressing gaps in productive capacities and facilitating structural transformation and economic diversification.
HPCDPs have been designed for Angola, Ethiopia, Kenya, and Zambia and are being prepared for Malawi, Mozambique, Nigeria, and Zimbabwe. Moreover, the gaps in productive capacities have been assessed for Cambodia, Comoros, Djibouti, and Senegal, while a number of other countries, including Honduras, Jamaica, and Mongolia, have expressed interest in the programme.
Building on the HPCDPs and by applying the PCI, UNCTAD has finalized a new strategy for SIDSSmall island developing states (SIDS) were recognized as a distinct group of developing countries at the Earth Summit in Rio de Janeiro in June 1992. More information on UNCTAD official page.. The holistic UNCTAD strategy for SIDS is designed to effectively address the multiple and systemic vulnerabilities of SIDS by sustainably harnessing their comparative advantages and unlocking key binding constraints to their development. It articulates a new development approach in SIDS, combined with a revamped global partnership in support of their development efforts.
In October 2023, UNCTAD launched the programme in Malawi with a statistical training and a policy-level workshop. The former trained around 20 statisticians from a wide range of ministries, organizations, and the academic sector, enabling them to compute and interpret the PCI scores and facilitating knowledge-sharing on statistical, methodological, and computational aspects of the PCI. The primary objective of the policy-level workshop was to set the ground for the NPCGA of Malawi.
References
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