Sustainable industrialization
Structural transformation to mitigate persistent technology gap
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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—-., 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 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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—-. 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 addedManufacturing value added (MVA) is the net-output of all resident manufacturing activity units. It is obtained by adding up their outputs and subtracting intermediate inputs -—
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—-. Manufacturing can broadly be understood as "the physical or chemical transformation of materials, substances, or components into new products" -—
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—-, consisting of sector C in the International Standard Industrial Classification of all Economic Activities (ISIC) revision 4 -—
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—-. 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-19COVID-19 is an infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 -—
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—-. pandemicCommonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans
• Minimal or no population immunity
• Causes serious illness; high morbidity/mortality
• Spreads easily from person to person
• Global outbreak of disease.
The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision -—
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—-.. 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 LDCsLeast developed countries 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 intensityR&D intensity is defined as the ratio of gross domestic expenditure on research and development (GERD) to GDP -—
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—-. − that is R&DResearch 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 -—
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—-. spending in proportion to GDP (SDG indicator 9.5.1) − was estimated at 2.0% in 2022 for the world, according to the UNESCOUnited Nations Educational, Scientific and Cultural Organization 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 PPPPurchasing power parity US$, 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&DResearch 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 -—– ‒
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—-. funding relative to the private sector
Source: OECDOrganization for Economic Cooperation and Development 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 SDGsSustainable Development Goals, 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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