Towards sustainable industrialization and global access to high technologies
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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—-. has been an important driving force of economic development, initiated by developments in sciences centuries ago, and driven by technological progress, as Kuznets -—
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—- describe. Technology and innovation skills, including through international cooperation, are key components for driving structural transformation -—
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—-, Technical progress has led to a shift of economic activity from the extraction of raw materials and other primary sector activities to transformation processes, commonly referred to as manufacturing. This is often continued by a sectoral shift from manufacturing to services. According to -—
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—-, this level is reached 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 amounts to around US$13 000 at 2005 prices and manufacturing accounts for around one fifth of value added. -—
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—- considers countries to be industrialized when their 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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—-., adjusted to purchasing power parities, exceeds US$2 500 per capita.
Structural transformation helps raise productivity levels and factor incomes, but also promotes diversification of production, thereby limiting the exposure of the economy to demand or supply shocks in specific markets. The Bridgetown Covenant -—
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—- considers “transforming the economies through diversification” as one of the key transformations needed for an inclusive world of shared prosperity. Access to the technologies needed for the emergence of high value-added manufacturing or service activities is a crucial factor for successful structural transformation, especially in an increasingly digitalized world. The Bridgetown Covenant -—
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—- underlines that “to ensure industrialization contributes to the 2030 Agenda, its sustainability and inclusiveness, as well as the harnessing of its benefits, must be assured”.
No sign of further industrialization in Africa and LDCs
In 2021, manufacturing value added per capita amounted to US$5 265 at constant 2015 prices in developed economies (Figure 1). It was 2.7 times higher than in developing Asia and Oceania (US$1 436) and 4.2 times higher than in developing Latin America and the Caribbean (US$1 005). It exceeded the value in Africa (US$204) by almost 25 times.
Over the last 20 years, manufacturing value added per capita in developing Asia and Oceania has steadily increased, to 3.6 times its value of 2001. In 2016, the region overtook Latin America and the Caribbean where the indicator has remained constant over the last 20 years. Africa has seen an increase of 14 per cent over 20 years, with a very low starting value. Developed economies have recorded modest steady growth, disrupted however by the economic downswings in the global financial crisis, from 2007 to 2010, and, very recently, in 2020, during 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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Source: UNCTADstat -—
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Temporary pandemic-related disruptions to most regions, longer recovery for LDCs
In Figure 1, the COVID-19 pandemic shows up as a dent in the longer-term trends of manufacturing value added in all world regions. In fact, the related containment measures caused a sharp temporary drop of output in 2020 in all economic sectors -—
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—-. In developed economies, in Latin America and the Caribbean, and in LDCsLeast developed country, this drop was more accentuated for manufacturing and services than for the primary sector (Figure 2). Only in the developing economies of Asia and Oceania, manufacturing value added recorded still positive, albeit considerably reduced, annual growth (+1.6 per cent) in 2020, while output in the other sectors declined slightly, with a fast recovery in 2021 (+9.4 per cent). It is notable that the recovery has been long for many vulnerable countries, like LDCs which had not yet reached pre-pandemic levels in 2021.
Source: UNCTADstat -—
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Note: In constant 2015 prices.
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—- describes the relocation of industrial production to Asia as a long-term trend. The pandemic has also led to revaluation of the risks involved in globally diversified production and a rearrangement of global value chains. Many multinational enterprises now try to shorten their value chains, to regionally diversify the sourcing of inputs, and to build up more stocks, to avoid that a default of production at, or delivery from, one location does not stall production in the successive links of the chain.
Digitalization, and especially the use of the Internet, was notably accelerated by the pandemic -—
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—-. According to data collected through UNIDO’s COVID-19 firm-level survey, one third of the responding firms in Africa, Asia and Latin America reported having started new or increased online business activity. Most of these firms, from 86 per cent in Asia to 95 per cent in Latin America, expected that change to remain in the future -—
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LDCs falling behind the target path towards industrialization
In 2021, the LDCs’ manufacturing sector produced on average US$160 per head, at 2015 prices, almost 32 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. The level in 2021 was already 3.6 times as high as the level of 2001, averaging to a growth of eight per cent each year (Figure 1).
The manufacturing share in value added, the focus of SDG target 9.2 for LDCs, increased from 10.4 per cent in 2001 to 14.2 per cent in 2021. Most of that progress was made between 2014 and 2019. In 2020, during the COVID-19 pandemic, the expansion of the manufacturing sector was interrupted, when it stagnated at about 14 per cent (Figure 3). Extrapolating the trend into the future, the growth achieved since 2005 on average appears to be too slow to achieve the SDG target of doubling the manufacturing share in value added by 2030. 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 0.24 percentage points.
The development of the share of manufacturing in employment has been closer to the target path than the manufacturing share of value added. Until 2015, growth in that indicator was even slightly higher than needed, on average, to reach the SDG target 9.2.2 set up for employment by 2030. Due to stagnation for three successive years, from 2013 to 2016, and with a halt in growth again in 2021 including a slower recovery from the COVID-19 crisis in manufacturing than in other sectors of the labour market, meeting the target now requires further impetus.
Source: UNCTAD calculations based on UNCTADstat -—
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Note: Target and target path set with reference to the base year 2005.1
Productivity-driven and employment-driven transformations
Between 2001 and 2021, developing Asia and Oceania saw a considerable increase of the share of manufacturing in value added (from 19.4 to 24.2 per cent), underlining the growing importance of that region in global industrial production and the resolute growth in manufacturing output per capita outlined above, while the share of manufacturing in employment declined (from 14.2 to 12.0 per cent). By contrast, in Africa, the manufacturing share increased in employment (from 7.1 to 8.2 per cent) and declined in value added (from 12.7 to 10.9 per cent), over the same period. These trends indicate different transformations: one driven by high manufacturing productivity growth with higher value added and lower employment share, and the other driven by increasing manufacturing employment share, while productivity remained low. In Latin America and the Caribbean, the share of manufacturing decreased in both value added and employment. In the developed economies, the share in value added remained almost constant, while the share in employment fell.
Source: UNCTAD calculations based on UNCTADstat -—
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Persistent technology gap 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 industryMedium and high-tech industry is an industry in which producers of goods incur relatively high expenditure on research and development (R&D) per unit of output. The distinction between low, medium, and high-tech industries is based on R&D intensity, i.e. the ratio of R&D expenditure to an output measure, usually gross value added. For a list of the particular economic activities, considered to be medium and high-tech -—
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—-. value added in total manufacturing value added (SDG indicator 9.b.1). A positive change in this means a shift from lower to higher technology value added, usually raising the average value added per worker. 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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—-. and innovation play a crucial role in this transformation by providing the grounds for the use of new and more efficient technologies.
In 2020, medium and high-tech industry accounted for higher shares of manufacturing value added in developed than in developing economies. The weighted regional averages, represented by the dots in Figure 5, reveal that 50 per cent of developed economies' manufacturing output was obtained in medium and high-tech industries. Among developing countries, this share varied considerably across regions. In developing Asia and Oceania, it was 42 per cent, while it reached 33 per cent in developing America and only 22 per cent in Africa.
From 2010 to 2020, the share of medium and high-tech manufacturing increased in all regions. While developed economies managed to raise this share by 2.1 percentage points, it increased 1.7 percentage points in developing Asia and Oceania, 1.6 percentage points in developing America and only 1.3 percentage points 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, a region that encompasses, on one hand, the two economies with the world's most innovative manufacturing sectors, namely, Singapore (82 per cent in 2020) and Taiwan Province of China (71 per cent), and, on the other hand, several countries in which the share of medium and high-tech industries in value added has persistently remained below three per cent, such as Cambodia, Tonga, Yemen, Macao SARSpecial Administrative Region, and Maldives.
Source: UNCTAD calculations based on the Competitive Industrial Performance Index dataset -—
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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 indicates the distribution of individual countries, smoothed by kernel density estimation, around the regional average (white dots). The wider the violin shape, the higher the possibility to find a country around the corresponding indicator value.
High-tech intensity of exports increasing globally
Looking at international trade, we can observe a convergence of the share of medium and high-tech manufacturing exports in total manufacturing exports throughout world regions. In 2021, almost two thirds (62 per cent) of the manufacturing exports from developed economies consisted of medium- or high-tech products. This share has increased over the last ten years by one percentage point. By contrast, in Africa, only 41 per cent of manufacturing exports were high- or medium-tech in 2021, with an increase of 7 percentage points from 10 years before.
Source: UNCTAD calculations based on the Competitive Industrial Performance Index dataset -—
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R&D spending increasingly concentrated in a few economies
Global R&D spending was estimated at 1.93 per cent of GDP in 2020, a not insignificant increase compared to 1.70 per cent of GDP recorded over five years before the pandemic -—
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—-. That means, around US$1.6 trillion of the US$85.3 trillion global GDP -—
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—- was spent on R&D in 2020. Between 2015 and 2021, world R&D expenditures grew strongly, by 6.2 per cent, on average, annually. Spending on R&D obtained an impetus by the COVID-19 pandemic, due to high innovation needs in the medical sector. Large proportions of funding for research were reallocated to IT, electronic equipment, pharmaceutical and biotechnology companies.
Source: UNCTAD estimates based on -—
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The bulk of global R&D investment is concentrated in a few economies. Estimates indicate that China and the United States of America alone accounted for half of it in 2021 (Figure 7). Four fifths were spent in only ten countries, compared to three quarters in 2010. This indicates that R&D spending is becoming more concentrated, contrary to the SDG target 9.5.1, which calls for upgrading of technological capabilities of industrial sectors in all countries. The COVID-19 pandemic influenced the trend heavily. For example, to fight the pandemic in the United States of America, more funds were directed to R&D than before. Measured in proportion of GDP, the United States’ R&D investment increased from 2.8 per cent, on average, before the pandemic, to 3.1 per cent in 2020, and further to 3.2 per cent in 2021. Thereby, the country caught up with the rapid growth of R&D expenditure observed in China over the last seven years of around 8 per cent annually. In the rest of the world, R&D spending grew on average by 4.5 per cent annually between 2015 and 2021.
| Gross domestic expenditure on R&D (Percentage of GDP) | Gross domestic expenditure on R&D (Millions of US$-PPP) | R&D-related services exports 2,3 (Millions of US$) |
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| Global top 5 | |||
| Israel | 5.4 | 21 146 | 10 207 |
| Republic of Korea | 4.8 | 111 116 | 4 826 |
| Sweden | 3.5 | 20 281 | 13 294 |
| Belgium | 3.5 | 21 121 | 6 622 |
| United States of America | 3.4 | 730 329 | 95 331 |
| Top 10 developing economies | |||
| China 2 | 2.4 | .. | 12 426 |
| Singapore | 1.9 | 12 370 | 1 457 |
| United Arab Emirates | 1.5 | .. | 966 |
| Thailand | 1.3 | .. | 71 |
| Brazil | 1.2 | .. | 766 |
| Türkiye | 1.1 | 25 391 | 355 |
| China, Hong Kong SAR | 1.0 | .. | 533 |
| Egypt | 1.0 | .. | 2 |
| Malaysia | 1.0 | .. | 636 |
| Iran (Islamic Republic of) 1 | 0.8 | .. | 6 |
1 Figure refers to 2019.
2 UNCTAD estimates.
3 Figures include R&D services and IP charges related to R&D.
Sources: -—
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—-; UNCTAD estimates.
Notes: Economies are ranked by gross domestic expenditure on R&D as percentage of GDP.
The economies investing the highest proportion of GDP in R&D, globally, are Israel, the Republic of Korea, Sweden, Belgium, and the United States of America (Table 1). Most of these economies report steady and proportionally important international trade in R&D-related services, namely R&D servicesResearch and experimental 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. (The OECD Frascati Manual) The definition used for international trade (MSITS 2010) includes testing and product development that may give rise to patents, as an addition. and charges for the use of intellectual property resulting from R&D activities. Among developing economies, China had the highest R&D investment equivalent to 2.4 per cent of GDP in 2020. In all other developing economies, the indicator remained below two per cent. Only nine recorded an 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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—-. of one per cent of GDP or above.
The findings correlate highly with the Global Innovation Index -—
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—- that relies on invested inputs related to innovation and the return on that investment as main indicators. The index shows Switzerland, the United States of America and Sweden as top performers in innovation in 2020. Among developing economies, Singapore, China, Hong Kong SAR and the United Arab Emirates ranked highest, followed by Malaysia, Türkiye, India, Thailand, Mauritius and Viet Nam. According to -—
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—- Türkiye and India entered the top 40 for the first time. In Africa, Botswana took the biggest leap forward, reaching the 86th position, overtaking Kenya (88th) among the top 3 countries for the region. Other notable improvers within the region are Mauritius (45th), Ghana (95th), Namibia (96th) and Senegal (99th).
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—-. expenditure in proportion to GDP
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Note: Regions as defined by UNESCOUnited Nations Educational, Scientific and Cultural Organization.
Northern America recorded the highest increase in R&D intensity from 2.7 in 2015 to 3.3 per cent of GDP in 2020. Eastern and South-Eastern Asia maintained their strong progression, and Europe’s R&D investment intensified further. Western Asia and Northern Africa also gained in R&D intensity, while other regions recorded either stagnating (Sub-Saharan Africa) or declining trends. In LDCs, R&D expenditure as percentage of GDP remained constant at 0.3 per cent. 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. saw slight decrease from 1.1 per cent in 2015 to just below one per cent in 2020. These figures suggest that many developing economies face difficulties to allocate more resources to increase their R&D intensity.
The number of persons directly employed in R&DEmployed in R&D in FTE is the ratio of working hours spent on R&D during a specific reference period (usually a calendar year) divided by the total number of hours conventionally worked in the same period by an individual or by a group -—
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—-., as FTEFull Time Equivalent (FTE) unit of labour is the hours worked by one employee on a full-time basis. The concept is used to convert the hours worked by several part-time employees into the hours worked by an equivalent full-time employee (ideally the comparison is standardized for gender and industry sector)., per million inhabitants, is measured by SDG indicator 9.5.2. The top performers in 2020 were the Republic of Korea (8 714), Sweden (7 930), Denmark (7 692), Finland (7 527), and Singapore (7 280). Besides Singapore, other highly ranked developing economies included Hong Kong SAR (4 352), Macao SAR (4 283), the United Arab Emirates (2 443), Thailand (2 070), and Türkiye (1 775). These statistics consider not only researchers, but also R&D technical and supporting staff. According to figures available for 50 countries, on average, 40 per cent of the R&D workforce were women, in 2020. Interestingly, developing economies registered higher percentages of female R&D staff than developed economies. -—
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Notes
- 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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