# Towards sustainable industrialization and higher technologies

SDG indicators

Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries.
Indicator 9.2.1: Manufacturing value added as a proportion of GDP and per capita (Tier I)
Indicator 9.2.2: Manufacturing employment as a proportion of total employment (Tier I)

Target 9.b: Support domestic technology development, research and innovation in developing countries, including by ensuring a conducive policy environment for, inter alia, industrial diversification and value addition to commodities.
Indicator 9.b.1: Proportion of medium and high-tech industry value added in total manufacturing value added (Tier I)

Target 9.5: Enhance scientific research, upgrade technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging innovation and increasing the number of research and development workers per 1 million people and public and private research and development spending.
Indicator 9.5.1: Research and development expenditure as a proportion of GDP (Tier I)
Indicator 9.5.2: Researchers (in full-time equivalent) per million inhabitants (Tier I)

Structural transformation has been an important driving force of economic development over the last decades. According to the theory of structural transformation -—
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development is driven by a shift from the extraction of raw materials and primary sector activities to increasingly complex technical transformation processes, commonly referred to as manufacturing. On the supply side, the sources of that transition include the development of know-how, increase in high-skilled labour and technological advancement, and enabling the application of new production methods. On the demand side, rising standards of living induce a shift in consumption from food and other primary commodities towards consumer goods, that are usually manufactured. This transformation leads to higher value added and greater economic welfare. In line with this thinking, SDG target 9.2 promotes inclusive and sustainable industrialization and aims to significantly raise industry's share of employment and GDP by 2030.

During the later phases of economic development, a sectoral shift from manufacturing to services has typically been observed. Once a certain standard of living is reached, the demand for services increases relative to the demand for physically produced goods. According to -—
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this level is reached when GDP per capita amounts to around US$13 000 at 2005 prices. At that stage, manufacturing usually accounts for around one fifth of value added. Based on these estimates, -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- considers countries to be industrialized when their manufacturing value added, adjusted to purchasing power parities, exceeds US$2 500 per capita.

## Rapid industrialization in developing economies of Asia and Oceania over the last decades

In 2020, manufacturing value added per capita amounted to US$5 075 at constant 2015 prices in developed economies (see Figure 1). It was 2.8 times higher than in developing Asia and Oceania (US$1 322) and 4.2 times higher than in developing Latin America and the Caribbean (US$973). It exceeded the value in Africa (US$204) by almost 24 times.

Over the last 20 years, manufacturing value added per capita in developing Asia and Oceania has steadily increased – by the factor 3.4 since 2000. In 2016, the region overtook Latin America and the Caribbean where the indicator has remained constant over the last 20 years. Africa has seen some increase, by 17 per cent over 20 years. Developed economies have recorded modest steady growth, disrupted only by the economic downswings from 2000 to 2002, from 2007 to 2010, and, very recently, in 2020.

Figure 1. Trends in manufacturing value added per capita (SDG 9.2.1)
(US$in constant 2015 prices) Source: UNCTADstat -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- . ## Disruptions in industrial output by the COVID-19 pandemic The outbreak of COVID-19 led to considerable disruptions of the long-term trends in manufacturing outlined above, all over the world. The containment measures introduced in response to the pandemic affected manufacturing both from the supply and demand side. Pressures on the demand side included the sudden drop out of many workers due to sickness, factory closures as part of the containment measures, and value chain disruptions. Pressures on the demand side included a decline in consumption as a consequence of the restrictions to day-to-day life, decreasing salaries and entrepreneurial income, as well as causing a halt in investment due to an increased uncertainty. Some industries proved more robust in coping with these shocks and more equipped to recover than others. Enterprise surveys carried out by -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- show that producers of essential goods, such as food, and producers of goods aimed at meeting the health emergency, such as pharmaceuticals, computers and medical equipment, as well as firms in capital-intensive high-tech industries got relatively well through the crisis, whereas firms in labour-intensive industries and in capital-intensive industries, strongly relying on inputs from abroad, were hit harder. Some businesses adopted new digital technologies and thereby mastered the difficulties caused by the pandemic better than others. In total, growth in manufacturing output dropped considerably from 2019 to 2020 in all regions of the world, as figure 2 shows. The developed economies and the developing economies of Africa and America saw their manufacturing value added shrink as the pandemic extended across the globe. In the developing economies of Asia and Oceania, manufacturing output continued increasing, albeit at a significantly reduced pace compared to before. This also applies to LDCs. Figure 2 also reveals that manufacturing value added was equally hit by the pandemic when compared to the primary sector and services. Figure 2. Annual growth of value added by economic sector, 2016-2020 (Percentage) Source: UNCTADstat -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- . Note: In constant 2015 prices. -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- traces infra-annual developments of manufacturing output. In industrialized economies and in emerging and developing economies, excluding China, a sudden slowdown of growth was observed in the first quarter of 2020, followed by a substantial drop of manufacturing output in the second quarter. In that quarter, in emerging and developing economies, manufacturing output lost more than one fifth of its level of one year before. It took until the first quarter of 2021 in both groups of economies that growth in manufacturing output resumed. The development in China, which was first hit by the pandemic, was different: the recovery began already in the second quarter of 2020, and ample growth of nine per cent was reported during the second half of that year. While the report reveals that, globally, all sectors of manufacturing were equally affected by the pandemic, higher technology sectors showed a faster recovery than lower technology sectors. ### Intermittent catching up of LDCs In 2020, the LDCs’ manufacturing sector produced on average US$146 per head, at 2015 prices, almost 35 times less than the average produced in the developed world. However, LDCs’ manufacturing value added per capita has steadily increased over the last 20 years, at a higher rate than in developing countries in general. The level in 2020 was already 3.6 times higher than the level of 2000 (see Figure 1). This is equivalent to a growth of eight per cent each year.

The manufacturing share in value added, the focus of SDG target 9.2 for LDCs, increased from 10.5 per cent in 2000 to 13.1 per cent in 2020. Most of that progress was made between 2014 and 2019; until 2010, the share had remained constant at just below 11 per cent; and in 2020 the expansion of the manufacturing sector stalled again (see Figure 3). Extrapolating the trend into the future, the growth achieved after 2005 on average appears to be too slow to achieve the SDG target of doubling the manufacturing share in value added by 2030.1 From 2005 onwards, an average annual increase of 0.42 percentage points would have been required to reach the target. The actual annual average increase until 2020 was 0.18 percentage points.

It is striking that the faltering development in the share of manufacturing in value added is not reflected in the manufacturing share in employment. On the contrary, the employment share of manufacturing has steadily increased over the last 25 years, at a pace higher than required to reach by 2030 the SDG target 9.2.2 set up for employment. The findings above − in particular, the modest growth of the manufacturing share in value added compared to employment − suggest that new industrial innovations and policies are needed in LDCs to foster productivity in manufacturing and thereby accelerate structural transformation in output and income.

Figure 3. Development of the manufacturing share of value added (SDG 9.2.1) and of employment (SDG 9.2.2) in LDCs compared to the target
(Percentage)

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; UNCTAD calculations based on SDG Indicators Database -—
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and INDSTAT 2 -—
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Note: Target and target path set with reference to the base year 2005.1

## Structural transformation more in employment than output

How has structural transformation changed the sectoral distribution of employment and value added? Between 2000 and 2020, the share of manufacturing in employment increased only in developing Asia and Oceania (from 10.7 to 13.2 per cent) and in Africa (from 6.1 to 8.4 per cent) (see Figure 4). In developing Asia and Oceania, in contrast to Africa, this increase was combined with an increase of the manufacturing share in value added (from 19.3 to 23.4 per cent). This highlights a growing disparity in productivity growth between the regions, in line with the above diverging trends in manufacturing value added per capita (see Figure 1). In LDCs, increases in manufacturing value added per capita, discussed above, were strongly employment driven. The share of manufacturing in employment almost tripled in that group of economies, from 3.8 per cent in 2000 to 9.5 per cent in 2020.

These figures suggest that during the last two decades, among the broad regions compared, only Asian and Oceanian developing economies have gone through a process of structural transformation as described in the literature. The LDCs as a group have also followed that path. Latin America and the Caribbean, like the developed economies, recorded shrinking proportions of manufacturing in both employment and value added. This development is not what is aspired to by the SDG target, which aims at significantly raising industry's share of employment and value added. Many of these counties may nevertheless have changed their economic structure towards higher value-added activities, by raising the share of services, in particular telecommunication and ICT services, or by a structural transformation within manufacturing from lower-tech to higher-tech production. Below, the analysis is extended to investigate to what extent such digitalization and transformation to higher technologies is happening.

Figure 4. Share of manufacturing in value added (SDG 9.2.1) and employment (SDG 9.2.2)
(Percentage)

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## Technology gap persists in manufacturing

The 2030 Agenda promotes technological development through research and innovation, especially in developing economies. Progress towards the achievement of that target is measured by the proportion of medium and high-tech industry value added in total manufacturing value added (SDG indicator 9.b.1). This indicator shows a shift from lower to higher technology value added, raising the average value added per worker. R&D and innovation play a crucial role in this transformation by providing the grounds for the use of new and more efficient technologies.

In the developed world, medium and high-tech industry accounts for higher shares of manufacturing value added than in developing economies. The weighted regional averages, represented by the dots in figure 5, reveal that half of developed economies' manufacturing output is obtained in medium and high-tech industries. Among developing countries, this share varies considerably across regions. In developing Asia and Oceania, it was 42 per cent in 2019, almost as high as in developed economies, while it reached 32 per cent in developing America and only 21 per cent in Africa.

From 2009 to 2019, the share of medium and high-tech manufacturing increased in all regions except in Africa. While developed economies managed to increase the share of medium and high-tech manufacturing from 48 to 50 per cent, developing Asia and Oceania only moved from 41 to 42 per cent, and developing America from 30 to 32 per cent, and the share remained constant at 21 per cent in Africa. These figures suggest that Africa has become increasingly uncoupled from the global technological advancements in manufacturing. Figure 5 also shows considerable variation across individual economies of the same region, especially in developing Asia and Oceania. This region encompasses, on one hand, the two economies with the world's most innovative manufacturing sectors, namely, Singapore (85 per cent in 2019) and Taiwan, Province of China (68 per cent); on the other hand, it includes several countries, primarily LDCs and SIDS, in which the share of medium and high-tech industries in value added has persistently remained below three per cent, such as Cambodia, Kyrgyzstan, Maldives, Tajikistan and Mongolia.

Figure 5. Proportion of medium and high-tech industry in manufacturing value added (SDG 9.b.1), by development status and region
(Percentage)

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Notes: A violin plot shows the distribution of individual countries’ medium and high-tech industry shares in manufacturing value added within each country group and year. The coloured area illustrates the distribution of individual countries around the regional average (white dots). In Africa, for instance the majority of countries are well below the regional average (indicating their low share of medium and high-tech industry). The coloured areas depict the distribution of countries’ rates smoothed by kernel density estimation, a non-parametric way to estimate the probability density function of a variable. The wider the violin shape, the higher the possibility to find an observation, in this case a country, in that location. The dots within the shapes represent the weighted average of countries’ medium and high-tech industry shares in manufacturing value added.

Considerable spread in the medium and high-tech industry share of manufacturing value added is also found among developed economies. Some of them reach less than one third of the rates recorded by the developed countries at the highest ranks, such as, Switzerland (65 per cent) and Germany (62 per cent).

Many LDCs and SIDS are characterized by low shares of medium and high-tech manufacturing. However, this is changing. Noteworthy exceptions among SIDS include Trinidad and Tobago and Barbados, where the medium and high-tech share in manufacturing value added was at 40 and 38 per cent in 2019, respectively -—
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## Developing economies’ medium and high-tech exports increasing

Looking at international trade, the share of medium and high-tech products in manufacturing exports has been increasing in developing countries during the last ten years, while it has remained almost constant in the developed world (see figure 6). In developing America and in developing Asia and Oceania, the share of medium and high-tech exports reached almost 60 per cent in 2019, whereas in developed economies it stood at 64 per cent. Africa has increased its medium and high-tech export share from 31 to 38 per cent between 2009 and 2019. Thereby, the region has caught up in structural transformation of manufactured exports, and the overall gap between the developing and developed world has narrowed.

Figure 6. Share of medium and high-tech manufactured exports in total manufacturing exports
(Percentage)

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## R&D investment and international cooperation are vital for fighting the COVID-19 pandemic

As COVID-19 threatened human health across the globe in 2020, R&D investment in biomedicine witnessed an unprecedented surge. Coupled with increased international collaboration, the biomedical innovation responded to that threat. Within only 12 months, tests and treatments for millions of persons were developed and produced. The lockdowns made it necessary to also reallocate R&D funds to the ICT sector, following the demand for advanced digital working methods and digital economy -—
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. A precise assessment of R&D levels during the pandemic needs to await more complete data from countries and from enterprises.

In the OECD countries, R&D expenditure grew by 1.8 per cent in 2020 -—
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. Although this marks a slowdown from 5 per cent average annual growth observed during the pre-pandemic years, it represents a historical precedent, as R&D expenditure grew in parallel to a decline in GDP. Although businesses remained the biggest R&D investors in value terms, the R&D funding growth was mostly driven by public spending in 2020, contrary to previous years when it was led by enterprise investments. This shows the importance of public funds and concerted international efforts in coping with a regional and global crisis -—
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. Various international organizations have emphasized the crucial role of public support for sustainable research targeting socially beneficial projects with wide spill-over effects. They also reiterated the significance of global cooperation and inter-disciplinary connections in science, aimed to build more resilient societies and avert future threats. Moreover, supporting innovation should facilitate progress towards achieving the SDGs -—
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Looking at trends among the main global players, R&D investment gained strength in the United States of America and China in 2020, while it slowed down in Japan and the European Union, according to -—
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. In the European Union, public R&D funds followed the increasing global trend, while corporate investment declined more than in other regions, indicating that business innovation in the European Union is linked to industries more affected by the pandemic. -—
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data further reveal that the R&D intensity, the domestic expenditure on R&D as a percentage of GDP, went up in 2020 in the OECD member states, not necessarily reflecting a rise in R&D but rather a decline in GDP. Early indicators suggest a solid increase in R&D investment by businesses and a slowdown in public funding budgeted for R&D in 2021. The shrinkage of public R&D budgets is not projected to induce an overall drop in R&D funds, so R&D should be on the rising track -—
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In a sample of two thirds of the largest corporate R&D spenders, -—
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also finds that investment of businesses in innovation increased in 2020. Expectedly, the largest rise was observed in ICT hardware and software and in electrical equipment, followed by pharmaceuticals and biotechnology. Most visible declines were reported in the automobile industry and in sectors closely linked to travel, leisure, and personal goods. The studies suggest that ICT software, biomedicine, and alternative energy represent the three sectors that should not face difficulties in attracting innovation funding in the near future. They further estimate that the United States of America and China will see their R&D rise more rapidly than other states, owing to the fact that these two countries host some of the world’s largest science and technology clusters (e.g., the Beijing cluster, or the San Jose - San Francisco cluster), and due to government policies suited to encourage R&D investment.

Already before the COVID-19 pandemic, governments were encouraged to increase spending on R&D in the context of the 2030 Agenda. In 2018, the latest year with globally comparable innovation statistics, the world invested US$2.2 trillion in R&D, PPP-adjusted. Over the five-year period from 2013 to 2018, absolute R&D spending increased by 5.4 per cent each year on average. Not surprisingly, investment was highly concentrated in a few economies. In 2018, some 75 per cent of R&D investment was made by only 10 countries. In PPP-adjusted value terms, the leaders in R&D spending were the United States of America (US$582 billion), China (US$465 billion), Japan (US$171 billion) and Germany (US$141 billion). Remarkably, the United States and China accounted for almost half of global R&D investment (see Figure 7 and Table 1). Among developing economies, relatively high growth in R&D spending was recorded for Iran (the Islamic Republic of), Indonesia, Macao SAR, El Salvador, and Panama: above 25 per cent average annual increase -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- . Figure 7. Leaders in global R&D spending Source: UNCTAD calculations based on -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- . Despite the growth of world R&D investment in absolute terms, global R&D intensity – SDG indicator 9.5.1 – remained at 1.7 per cent of GDP from 2013 to 2018 (see Figure 8). Israel (4.9 per cent) and the Republic of Korea (4.5 per cent) were the most prominent R&D investors relative to GDP, followed by Switzerland (3.4 per cent) and Sweden (3.3 per cent). The United States of America invested 2.8 per cent of its GDP in innovation, and China 2.1 per cent. Only a few developing economies have managed to develop into ‘R&D powerhouses’, such as, China and the Republic of Korea. For some of these countries, that process took around two decades. Participation in global value chains and R&D networks is essential for moving up the innovation ladder. Looking at regional averages, Northern America invested most in R&D in proportion to GDP. However, Eastern, South-Eastern and Western Asia were the regions in which R&D spending relative to GDP grew fastest from 2013 to 2018. The Global Innovation Index -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- shows Switzerland, Sweden and the United States of America as top performers in innovation in 2020, considering both invested inputs and the return on that investment. Among developing economies, Singapore, China, and the United Arab Emirates ranked highest, followed by Malaysia, Turkey, Thailand, Viet Nam, and India – the later five described as progressing fast or above expectations based on their income level. The -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- estimates that, besides China, most progress in R&D was achieved by India, the Philippines and Vietnam. Europe recorded only a slight increase in R&D funding. At 1.9 per cent of GDP in 2018, R&D intensity remained well below the three-per-cent goal set by the EU -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- . Only Austria, Denmark, Germany and Sweden reached or surpassed this target, as well as Switzerland (not an EU-member). The AU has also established an R&D intensity objective for its member states, set at one per cent -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- -— – ‒ - – —- . According to available statistics, among AU member countries, only South Africa was close to that target, recording an R&D intensity of 0.8 per cent in 2018. Egypt and Tunisia registered R&D intensity of 0.7 and 0.6 per cent, respectively. Other African states remained below 0.5 per cent. Table 1. Leading investors in R&D, ranked by investment levels in 2018 (SDG 9.5.1) InvestorsBillion US$-PPP
Annual average growth,
2013-2018 (percentage)b
Percentage of GDPPercentage of world total
United States of America5825.02.826.0
China4657.32.120.8
Japan1710.23.37.7
Germany1416.73.16.3
Korea, Republic of987.54.54.4
Top 10 developing countries, excl. China
India595.10.72.6
Brazil36-2.41.21.6
Turkey229.91.01.0
Iran (Islamic Republic of)1224.51.00.6
Thailand103.01.90.5
Malaysiaa10...0.80.5
Mexicoa95.51.00.4
Singaporea810.81.30.4
Indonesia85.10.70.4
Egypt8-2.60.30.4
a Refers to 2017.
b Growth is estimated for Malaysia, Singapore, Thailand, Turkey, United Arab Emirates.

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Developing economies in America spent on average 0.6 per cent of their GDP on innovation in 2018. At 1.2 per cent, Brazil’s R&D intensity was more than two times higher than that of any other country in the region. In Oceania, R&D spending stood at 1.8 per cent of GDP, dropping from two per cent observed five years earlier. SIDS2 allocated on average one per cent and LDCs some 0.2 per cent of GDP to R&D.

Figure 8. R&D expenditure as a proportion of GDP (SDG 9.5.1)
(Percentage of GDP)

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Note: Based on UNESCO country classification.

SDG indicator 9.5.2 looks at the number of persons directly employed in R&D, as FTE, per million inhabitants. According to this measure, the topmost performers come from Europe, led by Denmark and followed by Switzerland, Iceland and Luxembourg. Among non-European states, the Republic of Korea, Singapore, and New Zealand rank at the top. In 2018, Denmark reported over 11 000 employed on R&D per million inhabitants, while the Republic of Korea and Switzerland recorded figures close to 10 000. These statistics include not only researchers, but also R&D technical and supporting staff. Between 2013 and 2018, stronger rise in R&D employment was observed in developing economies than in the developed world. Macao SAR, Kuwait, and Iran recorded highest R&D job growth. According to figures available for 50 countries, on average 40 per cent of the R&D workforce were women. Interestingly, developing economies registered higher percentages of female R&D staff than developed economies -—
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## R&D services in international trade

Innovation is increasingly traded internationally. Global R&D services exports expanded by an estimated 5 per cent annually, between 2015 and 2020, outpacing the average growth of total trade in services (2 per cent). In 2020, countries exported about US$172 billion worth of R&D services. Again, innovation exports and imports were concentrated in a small group of economies. The top-ten R&D exporters accounted for 77 per cent of the total; the top three held 49 per cent: the United States of America (US$45 billion), Germany (US$25 billion), and the United Kingdom (US$14 billion), see Table 2. Seven out of ten leading R&D services exporters also belonged to the top-ten R&D services importers. They were also part of the world leading recipients of charges for the use of intellectual property. Among developing economies, prominent exporters of R&D services include China, India, Singapore, Brazil, Turkey, and Malaysia.

Table 2. Leading R&D services exporters, 2020
(Ranked by exports values)
CountryExports
(Billion US$) Annual average growth of exports, 2015-2020 (Percentage) Imports (Billion US$)
United States of America454.833
Germany251.424
United Kingdom148.510
France110.012
Ireland1025.7-
Japana62.419
Belgium55.07
India532.21
Sweden56.06

a Estimated.

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Notes: Economies are ranked by exports value. China belongs to the leading R&D services exporters, according to estimates available for previous years. 2020 figures were not available.

## Notes

1. 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.
2. SIDS based on the UNESCO country classification: http://www.unesco.org/new/en/natural-sciences/priority-areas/sids/resources/sids-list/

## References

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Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.
Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Donec tincidunt vel mauris a dignissim. Curabitur sodales nunc id vestibulum tempor. Nunc tortor orci, sodales nec eros eget.