# International trade in developing economies

SDG indicators
Target 17.11: Significantly increase the exports of developing countries, in particular with a view to doubling the least developed countries’ share of global exports by 2020.
Indicator 17.11.1: Developing countries’ and least developed countries’ share of global exports (Tier I)

Target 8.9: By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products.
Indicator 8.9.1: Tourism direct GDP as a proportion of total GDP and in growth rate (Tier II)

Trade is recognized as a key factor for the 2030 Agenda, including poverty reduction and economic growth (Tipping and Wolfe, 2016). SDG target 17.11 aims to significantly increase the exports of developing countries, and in particular with a view to doubling the LDC’s share in global exports by 2020. Reaching this target is likely to be implausible. As will be seen below, there has not been a substantial increase in the share of exports for LDCs or for developing economies in general since 2012. The COVID-19 pandemic poses additional challenges for developing economies in fulfilling not only international trade goals but also various other SDGs.

## COVID-19 pandemic poses a significant challenge to the world trade

World merchandise exports rose by just over 50 per cent over the ten years from 2009 to 2019, reaching US$18.9 trillion in 2019. Nevertheless, this was also a three per cent decline on 2018. In 2017-2018, exports showed signs of recovery after more sluggish performances in 2015 and 2016. In 2019, global services trade was valued at US$6.1 trillion, recording a slight increase of two per cent on 2018, and of almost 70 per cent on ten years earlier (UNCTAD, 2020a).

2020 got off to a rocky start due to the COVID-19 pandemic. Preliminary UNCTAD-WTO estimates (UNCTAD, 2020a) for the first quarter of 2020 show a decline of 2.8 per cent in world merchandise exports on the corresponding quarter in 2019. The seasonally adjusted figures enable comparison with the previous quarter and show a drop of 2.0 per cent for world export volume indices. Most of the impact of COVID-related confinement measures affected global trade during the second quarter of the year, for which UNCTAD estimates a decline of 26.9 per cent from the previous quarter (UNCTAD, 2020b). UNCTAD also forecasts growth in merchandise trade for the year as a whole at -20 per cent.

## Trade openness of developing economies

As shown in figure 1, developing and developed economies’ trade openness indices are converging. LDCs’ trade openness, i.e. the ratio of exports and imports to GDP, has been consistently lower than in other developing economies. The global dip of 2009, associated with the financial crisis, was followed by a short recovery in trade openness for developing economies, but since 2011 their trade openness has drifted downward, bouncing back only slightly after 2016.

From 2014 to 2017, LDCs experienced a persistent decline in trade openness with the index dropping from 59 to 47 per cent (see figure 1). In 2018 this number rose to 53 per cent. This highlights the increasing influence of trade in LDCs’ economies, which might exacerbate the challenges of coping with the economic impacts of the COVID-19 pandemic.

(Percentage)
Notes: This index measures the relative importance of international trade in goods and services relative to the domestic economic output of an economy. It compares the sum of exports and imports to GDP.

## Current drift of trade in developing economies

After the 2008 global financial crisis and the more recent trade downturn in 2014-2016, developing economies have seen a strong recovery since 2017. Goods trade increased at annual growth rates of 11.7 and 10.0 per cent in 2017 and 2018, respectively (figure 2). Trade in services grew by 9.0 in 2017 and 11.6 per cent in 2018. While trade in services in developing countries continued to grow by 2.7 per cent in 2019, trade in goods decreased by 3.5 per cent.

In 2018, total exports of goods and services reached US$10.4 trillion and amounted to US$10.2 trillion in 2019. Thus developing economies’ trade finally exceeded US$10 trillion, a level last achieved in 2014. Their trade has increased by almost 15 per cent since 2015, the year the 2030 Agenda began. In 2020, global trade is expected to fall as the COVID-19 pandemic disrupts economic activity around the world. These disruptions will have profound implications for the most vulnerable economies, including developing economies and LDCs (UNCTAD, 2020c). Figure 2. Trends of goods and services trade in developing economies (Millions of United States dollars) ## Developing countries’ performance with respect to SDG 17.11.1 The evaluation of progress towards SDG target 17.11, to significantly increase the exports of developing countries, and to double the LDCs’ share of global exports by 2020, requires a choice of a baseline year. According to the IAEG-SDGs (United Nations, 2019), the default baseline year for each indicator should be 2015. However, some exceptions may be necessary to allow a longer review of trends. Five years is hardly enough time to double the LDCs’ share of global exports. Therefore, for SDG 17.11.1, an earlier baseline year is arguably more appropriate. Yet, whatever the baseline is for the past 20 years, developing countries’ share of global exports has not increased significantly, nor has LDCs’ share doubled. However, at a country level, performances differ and will vary depending on the chosen baseline year (see map 1). The baseline selected for MDGs, for instance, was 1990 – ten years before their adoption in 2000. This gave time for countries to achieve progress and allowed for a more ambitious agenda. If a similar approach was applied to the SDGs, a comparable baseline (ten years prior to adoption) would be 2005. Table 1. Evolution of LDCs' and developing economies' share of global trade (Different baselines scenario, in percentage) Alternative baselines Share of global trade (percentage) 2019 Change from baseline (percentage points) Group of economiesMeasure20052010201520192005-20192010-20192015-2019 LDCsService exports0.460.610.740.770.300.150.03 Goods exports0.721.000.890.960.24-0.040.07 Total exports0.680.920.860.910.23-0.010.06 Developing economiesService exports23.1327.6529.5230.046.912.390.52 Goods exports36.2642.0844.7944.268.002.19-0.53 Total exports34.6039.1141.2640.796.191.68-0.47 Another measurement issue to consider is the composition of LDCs. Several LDCs are likely to graduate from this status in the coming years. According to the UNDESA (2020), Vanuatu is expected to graduate in 2020, and several others will follow after the end of the target year, 2020. MacFeely (2020) has discussed the implications of the changing group composition for assessing progress towards the SDG target. Will the rates of change be calculated using the original composition of LDCs or developing economies at the baseline (say 2010/2011 or 2015), or the group as it will be composed in 2020? These choices leave considerable room for the interpretation of success. Some soon-to-graduate countries have only a marginal contribution on the group performance, and whether they are included or not will have little impact, whereas the weight of some other countries is considerable, like that of Bangladesh (see map 1) and will have a significant impact on the performance of the group as a whole. For the reasons outlined above, the 2010 has been selected as an appropriate baseline year for the scenario discussed in this chapter. Data for additional years are available also. Map 1 shows developing countries’ share of global trade goods exports as well as services exports by country. Map 1. Developing countries’ share of global trade of good and services (Percentage of total trade) Several countries doubled their share of global trade from 2010 to 2019. Viet Nam’s share of world exports of goods grew from 0.47 per cent in 2010 to 1.4 per cent in 2019. Its share of world exports of service also grew from 0.19 per cent to 0.45 per cent. Thailand almost doubled their share of world services exports (from 0.87 to 1.34 per cent), and United Arab Emirates multiplied by 4 their share of service exports (from 0.3 to 1.2 per cent). Bangladesh almost doubled their share of total services exports as well as total goods exports (from 0.13 to 0.20 per cent for goods and from 0.06 to 0.1 for services). ## Developing economies keeping pace with world exports Over the last two decades, developing economies have recorded a notable increase in their share of world trade. Though the value of exports of goods and services from developing countries has increased notably since 2000, since 2012 this growth has no longer outpaced the developed world. Developing countries’ share of global exports of goods and services has risen from 29.7 per cent in 2000 to 41.4 per cent in 2012 but has stagnated ever since. If the baseline selected is 2015, there would be a 0.47 percentage point decrease by 2019. From 2010, developing economies’ share of global trade has increased by 1.68 percentage points and, from 2005, 6.19 percentage points. As far as exports of goods is concerned, developing economies’ share in world exports of goods has plateaued at just above 44 per cent since 2012 (see figure 3). In 2019, developing economies’ share of world services exports (US$6.1 trillion) was 30 per cent (US$1.83 trillion). The highest share of world services exports was recorded by developing Asia at more than 24 per cent. The top three services exporters are China (4.6 per cent), India (3.4 per cent) and Singapore (3.5 per cent). They account for more than 40 per cent of developing economies’ services exports. Figure 3. Developing economies' shares of global exports (SDG 17.11.1) of goods and services (Percentage) Source: UNCTAD (2020a). Note: Statistics on trade in services are preliminary, annual estimates based on the most recent quarterly figures (BPM6). Statistics on trade in goods are estimates based on Comtrade, international and national sources. LDCs are a small player in world trade with a 0.91 per cent share in 2019. The 2030 Agenda sets a target to double LDCs’ share in global exports by 2020. LDCs’ share of global exports of goods and services was 0.92 per cent in 2010, slightly above the 2019 level. Taking 2005 as the base, their share in global trade increased by 0.23 percentage points from 0.68 per cent to 0.91 in 2019. LDCs have a long way to go before doubling their share. In 2019, the value of merchandise exports from LDCs was US$180.9 billion, accounting for about one per cent of world exports. Their share in world merchandise exports almost doubled from 0.54 per cent in 2000 (US$35 billion) to over one per cent in 2011-2013 (see figure 4). Since then, this trend has reversed slightly, and it seems unlikely that LDCs will achieve the target in 2020. Figure 4. LDCs' share of global exports (SDG 17.11.1) of goods and services (Percentage) The key driver of export growth over this period was the massive rise in the price of fuels, ores and metals, reflecting high demand in developing countries, most notably China. With 2005 taken as the baseline, the growth is more notable, 0.3 percentage points from 0.5 per cent to 0.8 in 2019 (UNCTAD, 2016). ## China, EU28 and the United States of America are the top trading partners of LDCs In 2018, developing economies shipped most of their exports to the United States of America (US$1.4 trillion), China (US$1.1 trillion) and other Asian economies. For LDCs, the top export destination was China (US$36 billion). LDCs in Africa and Haiti delivered goods worth US$25.7 billion to China, more than to any other economy in the world (see figure 5). LDC exports in Asia were oriented towards China and the United States of America in 2018. The importance of the European Union as a trading partner for LDCs in Asia has increased significantly since the turn of the century, with exports reaching US$49.9 billion in 2018. Intra-regional trade is also high for LDCs from East Asia and the Pacific, and low but rising for LDCs from most other regions.

As merchandise exports of LDCs are concentrated in a few markets, including those worst affected by the COVID-19 health crisis (China, France, Germany, the United States of America), it makes them even more vulnerable to decline in demand in these countries. At individual country level, LDCs are even more exposed to COVID-19 related economic disruptions. For example, in 2018, Angola exported around 57 per cent of its merchandise to China, Benin around 41 per cent to India, Burkina Faso around 54 per cent to Switzerland, Haiti around 82 per cent to the United States of America and Rwanda around 65 per cent to the United Arab Emirates (WTO, 2020a).

Figure 5. Top 5 partners for LDCs in merchandise exports
(Ranked by 2018, US$billions) Finally, it's worth noting that the current health crisis has also challenged developing economies to boost their intra-regional trade and strengthen international trade agreements to harmonize their trade-related regulations, customs controls, and reduce both tariff and non-tariff barriers (see New protectionism versus inclusive trade). ## Developing economies’ trade hit by the downswing of the Chinese economy The coronavirus pandemic has instigated a global economic downturn the likes of which the world has not experienced since the Great Depression. GDP in the world's second largest economy – China, fell by 6.8 per cent year-on-year between in January-March (WEF, 2020). In the first quarter of 2020, China’s exports and imports dropped sharply in volume terms compared to the previous quarter, by 21 per cent and 11. 5 per cent, respectively (UNCTAD, 2020a). The economic consequences of the economic downturn in China were quickly felt in other economies. China is a major player in international trade as a manufacturer and exporter of consumer products, and as a key supplier of intermediate inputs for manufacturing companies globally. Today about 20 per cent of global trade in manufactured intermediate products originate in China (up from 4 per cent in 2002). UNCTAD (2020d) has analysed the UN Comtrade dataset for about 200 countries and 13 manufacturing sectors to measure each country’s and industry’s integration with the Chinese economy using the GLI of intra-industry trade. According to this analysis, the economic downturn in China will lead to disruptions in GVCs and diverse spill-over effects across economic sectors and countries. The crisis may impact the supply of critical parts from Chinese producers, affecting economic output and trade in any country depending on their dependency of the Chinese economy. These impacts may spread faster than expected due to the common strategy of limited inventories and just-in-time production. While the European Union, United States of America and Japan would be hit hardest, the Republic of Korea (US$3.8 billion) would be worst hit among developing economies. The GVCs most affected by China span across sectors, especially communication equipment, different types of machinery and electronics as well as automotive industry. For the Republic of Korea, machinery and communication equipment are the sectors most dependent on China.

Figure 6. Top 15 developing economies’ estimated losses in intermediate exports to China due to the COVID-19 crisis in 2020
(US$millions (top axis) and percentages (bottom axis)) Source: UNCTAD estimations based on UN Comtrade (United Nations, 2020). Note: The impact of other disruptions than those relating to the Chinese economy are not considered. Data refer to 2020 estimates based on 2018 data. The products used in the analysis are products that are categorized as manufacturing intermediate inputs at the industry level, HS 4-digit, aggregated to sectoral levels. The blue dot for each country refers to the share of exports of manufacturing intermediate products to China relative to exports of all products to the world. While Asian developing economies occupy the top of the list of countries most directly linked to China through GVCs, the effects would also be felt in Mexico (US$1.3 billion), Turkey (US$0.4 billion) and Brazil (US$0.08 billion). In Mexico and Brazil, the automotive industry is most directly linked with Chinese value chains, while in Turkey the sector taking the brunt of the Chinese downturn would be textiles and apparel. Considering the wide-ranging impacts, the quick recovery of the Chinese manufacturing (see Towards sustainable industrialization and higher technologies) in March-April 2020 has brought some good news (UNCTAD, 2020e).

## LDCs’ export product mix becoming more diverse

The concentration of LDC exports, as measured by the Herfindahl-Hirschman Index1, increased from 2000 to 2008. Since then concentration has gradually declined, converging with patterns typical of developing economies (see figure 7). Developing economies excluding LDCs have followed a similar trend. In other words, their export mix has become more diverse with a slight sustained set-back from 2016 to 2018.

Angola, Botswana and Guinea-Bissau are the three developing African countries with the highest concentration index, reaching an index value of more than 0.9, which indicates that their trade is concentrated on a very few products. Angola is highly dependent on trade in petroleum, Botswana on precious stones, and Guinea-Bissau on fruits and nuts.2 In 2018, LDCs as a group recorded an average index of 0.23. Bangladesh had a relatively high export concentration index in 2018 (0.4), the highest index among Asian LDCs (UNCTAD, 2020a). Of developing economies, the product mix of exports is most concentrated in African countries. The export mix is more varied in the developing economies of America, with Guatemala, Mexico and Panama recorded the lowest concentration index in 2018, and Asia, where Turkey, Thailand and China are the top three most diversified countries.

It is worth mentioning that diversifying the strategic economic sectors of LDCs, such as food and health sectors, and empowering both productions and services, such as banking, retailing, and public services with high-level of digitization, represent possibilities for these countries to build more resilient and sustainable economies (World Bank, 2020).

Figure 7. Product concentration index of exports in LDCs and developing economies
(Percentage)
Notes: An index value closer to one indicates that a country’s exports or imports are highly concentrated in a few products. On the contrary, values closer to zero reflect a more homogeneous distribution of exports or imports among a series of products.

The structure of exports by product group has changed significantly in LDCs and developing economies over the last ten years (see figure 8). In 2018, manufactured goods accounted for 36 per cent of total exports in LDCs – a notable increase from 2008. However, only six LDCs—Bangladesh, Cambodia, Haiti, the Gambia, Nepal and Lesotho—received more than 50 per cent of their export revenue from exporting manufactured goods in 2018. Fuels formed the second largest product group in 2018 (27 per cent), while in 2008 they accounted for over half of the exports. The share of ores, metals, precious stones and non-monetary gold increased from almost 12 per cent to 20 per cent in the ten years from 2008 to 2018. The proportion of food items in exports also increased from eight to almost 12 per cent during the same period.

Figure 8. Export structure by product group in LDCs and developing countries
(Percentage)
Notes: For the composition of product groups please refer to UNCTAD (2020f).

In 2018, manufactured goods accounted for about 70 per cent of total merchandise exports from developing economies – almost as much as from developed economies. The share of fuels has reduced from almost 27 per cent in 2008 to 16 per cent in 2018. Food continues to be strongly represented in the exports of some economies in South America and Eastern Africa in particular, and ores, metals, precious stones and non-monetary gold in the exports of several Southern and Western African and Central Asian economies.

Figure 9. Commodities price index and LDC’s total exports
(commodity price index at 2015=100, exports in millions of US$) Source: UNCTAD (2020a). Notes: Total all products refer to (SITC 0 to 8 + 961 + 971). Primary commodities, precious stones and non-monetary gold refer to (SITC 0 + 1 + 2 + 3 + 4 + 68 + 667 + 971). LDCs are oriented towards commodity exports, accounting for more than 63 per cent of their goods exports. The periods when LDCs’ exports declined more strongly than world exports (2008-2009 and 2014-2016) coincided with falls in commodity prices. During the period between 2000 and 2019, LDCs recorded a first peak of exports in 2008 with more than US$152 billion followed by a strong decrease caused by the financial crisis in 2008-2009. The second peak was recorded in 2013 with almost US$194 billion. Thus, the global financial crisis of 2008 did not cause sustained declines (even though the commodity prices was connected with the financial crisis). Nevertheless, LDCs’ exports seem to follow commodity price index trends (see figure 9). The decline in commodity prices has caused a more persistent decrease since 2014. The current situation with COVID-19 should play out similarly, as the current decrease of commodity price index (29.3 per cent in March 2020) (UNCTAD, 2020g) will impact LDCs’ exports. LDCs will need to diversify their exports to reduce their exposure to such crises. ## Services exports had been increasing across economies Before services were severely affected by the COVID-19 pandemic, the growth of services exports was a general trend across all economic regions, but mainly benefiting developed economies. In 2019, this group still accounted for 67.7 per cent of all traded services. With US$1.8 trillion worth of services exported in 2019, developing economies took only 30 per cent of the global services market. LDCs’ share amounted to almost 0.8 per cent of total services exports.

2019 recorded an increase of 24 per cent in exports of services compared with 20.7 per cent in 2005 (UNCTAD, 2020a). This trend might be explained by factors, such as the increasing commercialization of intangibles, the larger role of services in global value chains and the gradual liberalization of this sector.

Among broad service categories, travel has the most prominent role in developing economies’ exports. At more than US$578 billion, it accounted for 31.5 per cent of the services supplied internationally by developing economies. Transport is also an important export sector for the developing world, worth US$366 billion in 2019. Grouped together, insurance and financial services, and business and intellectual-property-related services account for US$822.6 billion of developing economies’ exports. Smaller in dollar value than transport and travel, but linked to travel, – exports of personal, cultural and recreational services have been the most dynamic sector in LDCs’ services exports. They grew, on average, by over 13 per cent annually between 2010 and 2019. In the same period, notable annual average increases were recorded for charges for the use of intellectual property, transport and travel services (11.5 per cent, 10 per cent, and 6.8 per cent, respectively). Of the broad services items (Other service sector) which accounts for almost 45 per cent of the total traded services in the region, only construction services saw a downturn in the same period (-4.6 per cent). Figure 10. Annual average growth of services exports in LDCs, by service category, 2010-2019 (Percentage) Source: UNCTAD (2020a). Travel is the only type of service export where LDCs and other developing economies have a revealed comparative advantage3. The revealed comparative advantage of travel services for LDCs reached 1.75 in 2019 and was 1.3 for other developing economies(see figure 11). The value is also slightly greater than 1.34 for transport services. Figure 11. Revealed comparative advantage in service exports, 2019 (Proportion) Source: UNCTAD calculations based on data from UNCTAD (2020a). Notes: The revealed comparative advantage is measured as the proportion of a country group’s exports by service category, divided by the proportion of world exports in each category. A country or region is considered to have a revealed comparative advantage for a product or sector if the index is greater than one. ## Exports of services requiring proximity worst hit in the time of COVID-19 There are four different modes of supply for traded across borders: (mode 1) cross-border trade mainly for services transacted via the internet; (mode 2) consumption abroad covering mainly health and education service for foreigners; (mode 3) commercial presence which is specific to locally-established entities like hotels, banks and construction; and finally (mode 4) movement of natural persons which involve for example foreign IT consultants or health workers4. Figure 12 shows the distribution of global service trade by mode of supply. The data refer to 2017, but give a quite good idea about the mode of supply of services worldwide. More than US$10 billion are exported via mode 1 and 3. Naturally, a big part of services provided by mode 1 continue to be exported in the time of COVID-19, but these services, including telecommunications, computer and information services account for less than 10 per cent of total service exports of developing countries.

The three other modes require proximity between importers and exporters. Thus, the related service sectors will be severely affected and most likely will take longer to recover.

As mentioned above, travel and transport are key sectors in driving developing countries service exports, accounting for more than 50 per cent of total service trade of the group. Those sectors are delivered mainly via mode 2, 3 and 4 and covering services such as education, travel, tourism and associated hotels, and restaurant services, as well as air passenger transport services and construction and other business services that require the movement of skilled and unskilled professionals across borders.

Figure 12. Composition of global services trade by modes of supply, 2017
(US\$ billions)
Source: UNCTAD calculations based on data from WTO (2020b).

Travel and transport restrictions due to COVID–19 are likely to negatively affect the trade in services in 2020 . Possible scenarios point to declines of 60 per cent to 80 per cent in international tourist arrivals in 2020. According to CCSA (2020), countries with the highest number of reported cases of COVID-19 (see In focus: COVID-19) account for about 55 and 68 per cent of global inbound and outbound tourism expenditure, respectively. The Joint Report (CCSA, 2020) warns that the effect of the crisis will spill out and be significantly more devastating for countries heavily dependent on tourism.

## Impact of COVID-19 on trade

Baldwin (2020) argues that 2020 will experience a more severe trade turndown than the demand shock of the 2008-2009 crisis, as the COVID-19 crisis creates both a demand and supply shock. From the supply side perspective, production is affected for two reasons, because of reductions in labour supply, and because of disruption to value chains. Countries that rely on equipment and components from regions affected by the virus may experience disruptions in the production process (EIF, 2020).

From the demand side, demand for manufactured goods could fall considerably. During confinement, many shops are closed, and people are reducing shopping in person to avoid social contacts. Workers who are required to stay at home in line with “social distancing” measures tend to prioritize saving over spending, thus, propensity to consume decreases. Secondly, firms that are experiencing disruptions in the production process may decrease their consumption of intermediate goods.

The economies of developing and developed countries are highly interlinked. Exports from developing economies to developed countries (the most likely to be affected severely by COVID-19) accounted for more than 43 per cent of developing economies’ total merchandise trade in 2018, while intra-trade exports accounted for almost 55 per cent. Imports from developed economies to developing economies accounted for more than 30 per cent. Trade in goods and services comprised, on average, around 45 per cent of GDP in SIDS, and up to 30 per cent for LDCs (UNCTAD, 2020a).

Small and vulnerable economies are likely to be hit hard because of their dependence on trade as a driver of economic growth, their small domestic markets and low levels of diversification (see figure 7 above), all of which increase their vulnerability to external shocks – as the global financial crisis demonstrated.

That said, the impact of supply and demand shocks on trade can manifest in different ways depending on the country or region. Economies like China, Europe and the United States of America are mostly affected by direct impacts; the majority of developing countries are mostly affected, as of June 2020, by indirect impacts relating to their level of trade dependency with countries affected by the coronavirus. However, as COVID-19 further spreads to developing countries (see In focus: COVID-19), the direct impacts on those countries are likely to increase.

It is plausible to assume that resource-rich developing countries will be also affected by the strong reduction in commodity prices, for example, petroleum and precious metals (see figure X above), caused by reduced international demand for such goods, and that developed countries have been experiencing a drop in the production of transformed manufactured goods (see Towards sustainable industrialization and higher technologies) (UNIDO, 2020).

Global export is still dominated by goods, with a 76 per cent share in 2019. Exports of goods account for 83 per cent of total exports in developing economies and have become more diversified with manufactured goods representing the largest item of merchandise exports (65 per cent of total goods exports in 2018). LDCs, on the contrary, are highly dependent on exports of commodities, which represent more than 70 per cent of their merchandise exports. High dependence on commodity exports makes most LDCs extremely vulnerable to global shocks, such as the current COVID-19 crisis.

However, the impact of the COVID-19 pandemic will be equally devastating for LDCs and other developing countries that do not rely on commodities as a primary source of their foreign revenues. Non-commodity dependent LDCs, such as Bangladesh, Cambodia and Haiti, rely mostly on low-skilled and labor-intensive manufacturing exports, which are at risk of contracting sharply if global demand for manufacturing exports remains depressed in 2020 and beyond. The lack of sufficiently large domestic demand to absorb excess supply as external demand drops is likely to lead to mass layoffs of the labor force in the manufacturing sector. Much of the exports of these countries rely on intermediate imports from abroad, meaning that if the disruption in global production and supply chains continues, these economies may not be able to procure intermediate production inputs, even if there is demand for their products.

## Tourism makes a significant contribution to sustainable development

One of the most important contributors to international trade in services is tourism. In addition to the direct service itself, tourism has large multiplier effects that extend to the domestic economy. It promotes growth and employment in a multitude of economic sectors, such as transportation, hotels and restaurants, retail trade, financial services and cultural services. It also attracts domestic and foreign investment and promotes the development of the private sector. For this is reason, UNCTAD has recognized that touristic services, if properly harnessed, can become an important engine for inclusive and sustainable economic growth in developing countries (UNCTAD, 2017).

For many developing countries, tourism is one of the most important exports and an essential source of revenue. Figure 13 shows that, on average, tourism contributes to the economy at comparable rates in developing, developed and transition economies. However, for LDCs and especially SIDS, this sector is responsible for a larger share of total economic activity. During 2015-2019, tourism accounted for,on average, 4.4 per cent and 13.7 per cent of LDCs and SIDs GDP , respectively. Moreover, the contribution of tourism to the economy seems to be increasing over time.

Figure 13. Direct contribution of tourism to GDP by country group, average
(Percentage of total GDP)
Source: UNCTAD calculations from World Travel & Tourism Council (2020).
Note: Averages include only countries with available data.

As mentioned above, tourism has a multiplier effect on the domestic economy through several channels. One of these, depicted on map 2, is through its direct contribution to employment creation. In addition to SIDS, many countries in all geographic regions, including South-East Asia (Cambodia, Philippines), North Africa (Tunisia, Morocco), the Caucasus (Georgia), the Americas (Belize, Uruguay, Mexico), Europe (Croatia, Montenegro, Iceland, Greece) and Oceania (New Zealand), benefit greatly from the employment generated across the tourism industries. Overall, current estimates place tourism’s direct contribution to worldwide GDP at 3.3 per cent and to global employment at 3.9 per cent (World Travel & Tourism Council, 2020).5

Map 2. Direct tourism contribution to employment, 2019
(Percentage of global employment)

Despite its increasing economic weight, touristic service supply is still relatively concentrated. More than 45 per cent of all international tourists were still travelling to European countries in 2019. As illustrated in figure 14, other regions of the world received a comparatively small share of international tourist arrivals. This is the case of Oceania, Central Asia, Sub-Saharan Africa and Latin America and the Caribbean, regions where many developing economies are located, including many LDCs. In many regions of the world, tourism still has unexploited potential as a means of development.

Figure 14. International tourist arrivals, distribution by region, 2018
(Percentage)
Source: UNCTAD calculations based on data from UNWTO (2020b).

However, this is gradually changing. Worldwide tourist arrivals increased by almost 50 per cent between 2010 and 2018. While tourists travelling to Europe and Northern America increased by only 41 and 32 per cent, respectively, over the same period they increased by 93 per cent in South and South-East Asia and by a remarkable 243 per cent in Central Asia. The only developing region that did not benefit from this dynamism in tourism was Sub-Saharan Africa, where the number of tourists fell by nine per cent over the period.

## Tourism remains vulnerable to global and regional risks

SDG target 8.9 aims to develop and implement policies to promote sustainable tourism that will result in more jobs and support of local cultures and products. However, even if tourism can bring substantial revenues and economic opportunities, it can also bring challenges for sustainable development. For example, tourism can help finance the preservation of historical and environmental treasures, but if poorly managed could also have the opposite effect (UNCTAD, 2016). Tourists also directly contribute to greenhouse gas emissions and climate change in many ways: through transportation by air, rail, road and sea, and by consumption of goods and services whose production is intensive in energy, water or other resources.

Tourism is a labour-intensive sector that could provide employment for a large share of people, including women and other underrepresented groups. It is also a sector with a high concentration of small and medium enterprises, self-employment and family businesses. For these segments, tourism-related economic activity could provide sustained livelihood opportunities and paths towards poverty reduction for women and local communities in developing countries (UNWTO and ILO, 2014).

However, as revealed by the precipitous decline in international travel and tourism in the aftermath of the COVID-19 outbreak, this is a pro-cyclical sector with high elasticity to global and regional economic trends. In addition, it is very sensitive to perceived security, health and environmental risks. Figure 15 shows the daily evolution of commercial flights during early 2020. We can start to detect a declining trend already at the beginning of the year. However, as more countries installed travel restrictions and encouraged the population to stay home, only a small fraction of scheduled flights were maintained, leading to an unprecedented decline in global flight activity. This fall had a large, direct impact on airlines and the air transportation sector at large. But it also negatively affected businesses and individuals that, directly or indirectly, benefit from providing goods and services to the tourists and business travellers that those cancelled flights would have brought. Although data are not yet available, a similar trend is expected in travel by other modes of transports.

Indeed, recent figures already show a catastrophic year for the sector. Tourist arrivals to Thailand fell by 52 per cent in the first four months of 2020, compared to the same period in 2019 (UNCTAD calculations based on data from Refinitiv (2020). Over the same period, the Republic of Korea recorded a fall of 62 per cent in the number of visitor arrivals (Korea Tourism Organization, 2020). UNWTO (2020a) expects an annual fall of between 60 to 80 per cent in international tourist arrivals in 2020, while OECD (2020) expects a 45 per cent decline in the international tourism economy in their most optimistic scenario and a 70 per cent fall in their most pessimistic. However, there is still a large degree of uncertainty surounding such estimates and the full impact of the coronavirus disease outbreak will only be known once countries start lifting travel restrictions and touristic activity gradually recommences.

These figures show that, while international tourism could provide substantial opportunities for many developing economies, it remains exposed to high global and regional volatility.

Figure 15. Worldwide number of commercial flights, 2020
(Number of flights)

## Notes

1. The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. A higher index value indicates a more concentrated export structure.
2. Products classification refers to three-digit level of SITC Revision 3.
3. The revealed comparative advantage is measured as the proportion of a country group’s exports by service category, divided by the proportion of world exports in each category.
4. Examples of the four Modes of Supply (from the perspective of an “importing” country A) (WTO, 2020c)
• Mode 1: Cross-border
A user in country A receives services from abroad through its telecommunications or postal infrastructure. Such supplies may include consultancy or market research reports, tele-medical advice, distance training, or architectural drawings.
Nationals of A have moved abroad as tourists, students, or patients to consume the respective services.
• Mode 3: Commercial presence
The service is provided within A by a locally-established affiliate, subsidiary, or representative office of a foreign-owned and — controlled company (bank, hotel group, construction company, etc.).
• Mode 4: Movement of natural persons
A foreign national provides a service within A as an independent supplier (e.g., consultant, health worker) or employee of a service supplier (e.g. consultancy firm, hospital, construction company).
5. WTTC also calculates that the total contribution of tourism to the economy. This includes, in addition to the direct impacts, the indirect contribution (tourism-related investment spending, government collective spending and domestic supply chain purchases of goods and services) plus the induced contribution (spending of those directly and indirectly employed by the tourism sector). According to these estimates, the total contribution of tourism is 10.4 per cent of GDP and 9.8 per cent of employment. For details on the methodology of these estimates, see WTTC and Oxford Economics (2018).
6. A country is considered to be export-commodity-dependent when more than 60 per cent of its total merchandise exports are composed of commodities.