“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”
(SDG target 9.2)
Selected Sustainable Development Trends in the LDCs 2019
6
Agriculture and the extraction of raw materials are still mainstays of LDC economies, which makes them vulnerable to exogeneous shocks, such as price volatility and weather-related losses. Hence, the importance for these countries of undergoing a structural transformation of their economies, not only to attenuate these vulnerabilities, but particularly because this is the only viable process by which t these countries will have the means to reach the Sustainable Development Goals (UNCTAD, 2014). Since 2000 the major contribution to the economy shifted from the primary sector (agriculture, hunting, forestry and fishing) towards the services sector and, to a minor extent, non-manufacturing industry (which includes mining) and manufacturing (Figure 7).
There is substantial heterogeneity among LDCs in the process of structural transformation. In six African LDCs, the primary sector generated more than 40 per cent of GDP in 2016, while in another 14 LDCs, this sector contributed less than 20 per cent. Manufacturing can have a particular role in transformation, as was seen historically in the industrialization process undergone by present-day developed economies and a small
number of developing countries, which have been successful in their process of structural transformation.
The importance of manufacturing in the development process of the LDCs is also recognized by target 9.2 of the Sustainable Development Goals: “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”. However, most LDCs are not advancing towards reaching this target. Since 2000, the share of the manufacturing sector in GDP has expanded in only 17 LDCs (Figure 8). A higher number of LDCs experienced an expansion in the manufacturing share of total employment (29), but progress was very uneven. The share rose by more than 3 percentage points in only ten countries (equally divided between Africa and Asia), while in 60 per cent of LDCs it stagnated or declined (Figure 9). The pace of expansion of the manufacturing share should, therefore, be much stronger and widespread for LDCs as a group to reach target 9.2.
Figure 7
Share in LDC total value added of the main economic sectors, 2000-2016, selected years
0 10 20 30 40 50
2000 2010
2016 Services Non-manufacturing industry Manufacturing Agriculturea
Industry
Source: UNCTAD, UNCTADstat database (accessed November 2018).
Note: a Also includes hunting, forestry and fishing.
Figure 8
Share of manufacturing in total value added in LDCs, 2000 and 2016 (Per cent) Dem. Rep. of the Congo
Central African Rep.
Myanmar Sao Tome and Principe
Un. Rep. of Tanzania Gambia
Lao People’s Dem. Rep.
2000
Source: UNCTAD, UNCTADstat database (accessed November 2018).
Note: Sudan includes South Sudan in 2000.
Figure 9
Share of manufacturing in total employment in LDCs, 2000 and 2017 (Per cent)
Senegal South Sudan Lesotho
Djibouti
Togo Sudan Dem. Rep. of the Congo
Myanmar
Gambia Comoros
Malawi
Sao Tome and Principe Mali Central African Rep.
Liberia Madagascar Haiti Somalia
Guinea Sierra Leone Afghanistan Un. Rep. of Tanzania Angola
Nepal Uganda Chad
Source: ILOstat - Trends Econometric Models, ILO estimates and projections (accessed November 2018).
Note: Excluding Kiribati and Tuvalu for which data are unavailable. Sudan includes South Sudan in 2000.
Selected Sustainable Development Trends in the LDCs 2019
8
These different developments in the share of manufacturing in total GDP and in employment raise the question of the evolution of labour productivity.
Its rise is an essential feature of the process of structural transformation. It reflects efficiency gains in the economy and allows workers’ earnings to rise and thereby, progress towards the achievement of several of the Sustainable Development Goals. For these reasons, productivity growth is pursued by target 8.2 of the Goals: “Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors”. For this publication, labour productivity growth has been measured by the annual growth rate of real GDP per employed person.
Since the beginning of the century, the pace of labour productivity in LDCs accelerated, but this process was briskly interrupted by the outbreak of the economic and financial crisis of 2008. Since then, productivity growth has been subdued, in spite of a minor uptick in 2015 and 2016 (Figure 10). Throughout this period, the pace of labour productivity expansion has been higher in Asian LDCs than in African LDCs, which is likely associated with the stronger pace of industrialization in the former countries. By contrast, productivity growth has been much slower in island LDCs, which have experienced a decline threetimes since 2000.
Given the critical importance of developing productive capacities for LDCs to achieve structural transformation and thereby reach their development goals, member States have requested UNCTAD to develop a
measurement tool for the state of development of productive capacities in individual countries.
In response, UNCTAD has developed the Productive Capacities Index (PCI), which measures the level of development of productive capacities by country. It is a composite index based on the following components:
1. natural capital, 2. information and communication technology (ICT), 3. structural change, 4. institutions, 5. energy, 6. private sector, 7. transport, and 8. human capital. The Index has a potential range from 1 to 100. It is intended to serve policymakers as a tool for measuring the extent of progress in the development of productive capacities, as well as an indicative diagnostic of which factors are driving forward – or, alternatively, holding back – the development of productive capacities in each country.
The PCI indicates that virtually all LDCs for which data are available (44) have been developing their productive capacities since the beginning of the century, but progress has been very uneven, both among countries (Figure 11) and within them. For 40 per cent of these LDCs, the PCI rose by less than 4 per cent between 2000 and 2016.
Ten LDCs, by contrast, have achieved an increase in their PCI of 7 per cent or more over the same period:
Cambodia, Lao People’s Democratic Republic, Lesotho, Liberia, Myanmar, Rwanda, Sierra Leone, Uganda, United Republic of Tanzania and Zambia.
The analysis of developments in these countries’ PCI reveals that progress has typically been drivenby just three or four components, with the remainder lagging behind the overall Index. More specifically, in seven of these ten LDCs, the strongest contribution to the rise came from the human capital component, i.e. mainly improvements in education and health indicators. In two other cases, this component provided the second or third largest contribution. The strong impact of the human capital component largely reflects LDCs’ and donor countries’ prioritization of social development during the period of pursuit of the Millennium Development Goals (2000–2015) (UNCTAD, 2014).
The second most important contributor to the rise of the PCI in these ten countries was ICT. As it is a general purpose technology, ICT can potentially make a direct contribution to the development of countries’
productive capacities in all sectors of economic activity.
In some post-conflict LDCs, institutions also provided a boost to the growth of the PCI between 2000 and 2016.
The analysis of the PCI of LDCs highlights, once again, the need for these countries to adopt effective development strategies centred on the accumulation and upgrading of productive capacities, which aim at Figure 10
Growth of gross domestic product per person employed in LDCs and country groups, 2002-2017
-4
LDCs African LDCs and Haiti Asian LDCs Island LDCs 2017
Source: UNCTAD Secretariat calculations, based on data from World Bank, World Development Indicators database (accessed January 2019).
Note: Excluding Kiribati, Timor-Leste and Tuvalu for which data are unavailable.
Figure 11
Growth in the Productive Capacities Index of LDCs, 2000-2016
-0.1 12.4
Source: UNCTAD, Productive Capacities Index database (accessed January 2019).
the structural transformation of their economies. This has been the case in only a limited number of countries, which is reflected in the very slow level of development of productive capacities among LDCs. Moreover, where there has been progress, it has generally not been balanced, but rather concentrated in a few areas.
These features of most LDCs’ current development strategies can strongly stymie progress towards their broader development goals.
In order to allow a more detailed evaluation of the progress of individual LDCs in developing their productive capacities, the Annex reports the level of the PCI of LDCs in selected years since 2000.