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Promoting inclusive and sustainable industrialization

The Addis Agenda commits to promoting industrialization for developing countries as a critical source of growth, economic diversification and value addition. Industralization continues attracting attention; being seen as a sector which when present has reliably improved economic diversification, helping countries to nurture, strengthen and uphold the conditions for competitive growth and development. Hallward-Driemeier and Nayyar (2018) note that some of the biggest development gains in history have been associated with industrialization. The East Asian economies and the “East Asian Miracle” continue to be used as an example of a successful manufacturing export-led model.

On the other hand, it has also been argued that manufacturing is diminishing in its importance, resulting in premature deindustrialization or non-industrialization in developing countries.  The empirical evidence claiming this trend is usually based on the nominal value added produced in the sector as a share of gross domestic product, and employment share.  Studies such as Haraguchi, et. al (2016) show that on the contrary, industrialization will likely continue to remain an important economic development path, and in particular for low-income countries. UNIDO (2017), presenting for the first time, a framework that captures the interactive nature of manufacturing consumption and industrial development points out that the decline in the nominal share of manufacturing in world GDP is a result of faster gains in productivity which are translated into declining relative prices.   It further notes that when examining the share of manufacturing using real values, the analysis reveals no evidence of global deindustrialization.

Industrial development is also shaped by the shifts in manufacturing opportunities and patterns of specialization as dictated by the various industrial revolution experienced (Hallward-Driemeier and Nayyar, 2018) 

 

Trends in manufacturing value added

Trends in MVA per capita generally remain positive, in developing as well as developed regions. MVA per capita increased in all country groups between 2010 and 2015.   MVA per capita in developed regions remain many times higher despite the positive average growth of MVA per capita in the other country groupings.  MVA per capita remained below 100 USD a year in LDCs compared to the other groupings. 

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Across most regions except in the Latin America region, annual average MVA growth rates were positive. In the Asia and Pacific region, annual average MVA growth climbed to almost 6 per cent in 2000–2016, believed largely to be driven by China.  Similarly, annual growth rates in Africa rose from 1.4 per cent in 1990–2000 to 4.0 per cent in 2000–2016.  However, on further examination, Africa’s MVA remains very low. Annual average MVA growth in Latin America slowed from 2.9 per cent in 1990–2000 to 1.2 per cent in 2000–2016.  

By income level, average annual growth rates of MVA were the highest for the upper-middle income countries, followed by the lower-middle income countries.  Positive growth was also observed for the low-income countries when its average annual growth rate of MVA grew from -1.4 per cent for the period 1990–2000 to 5.8 per cent in the period 2000–2016.

Sustainable industrialization

As countries shift to less energy-intensive industries, cleaner fuels and technologies, and stronger energy efficiency policies, almost all regions have shown a reduction in the carbon intensity of their GDP. The proportion of the world’s energy use covered by mandatory energy efficiency regulation has almost doubled over the last decade, from 14 per cent in 2005 to 27 per cent in 2014. More extensive deployment of clean technologies will increase the likelihood of achieving the proposed target of upgrading infrastructure and retrofitting industries to make them sustainable, with increasingly efficient use of resources and greater adoption of clean and environmentally sound technologies and industrial processes.

 

Research and development

Industrial diversification and the shifting of resources into new and more productive activities in economies is closely linked to learning and investments in research and development (see also chapter on Science, technology, innovation and capacity building

 

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In 2013, global investment in research and development (R&D) stood at 1.7 trillion US dollars (PPP), up from 732 billion US dollars in 2000. This represented an annual growth rate of 4.6 per cent, which suggests that 1.7 per cent of global GDP was devoted to R&D in 2013. While substantial, this global average masks wide disparities among regions: developed regions dedicated almost 2.4 per cent of their GDP to R&D in 2013, while the average for the LDCs and landlocked developing countries stood at less than 0.3 per cent.

 

International support to industrialization

Infrastructure and production has been a focus of south-South cooperation. Some Southern partners are particularly willing to support infrastructure and production, partly reflecting acknowledgement of the role of such sectors in their own development. Infrastructure predominates, and was previously estimated to make up around 55 per cent of South-South cooperation. Development banks also play a key role in providing financing for infrastructure, production sectors, and related areas (see respective sections on national and multilateral development banks, and Southern multilateral financial institutions).

 
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At the Hangzhou Summit in September 2016, the Group of 20 agreed on an Initiative on Supporting Industrialization in Africa and Least Developed Countries. Proposed by the Chinese presidency, this initiative consists of a range of voluntary policy options that members of the G20 will consider to support industrialization in Africa and LDCs. They include facilitation of technology transfer, under mutually agreed terms, in areas such as irrigation systems, water harvesting and conservation techniques, and sustainable agriculture technologies, improving financial and technical support for feasibility and project preparation to support infrastructural and industrial projects, and others. The G20’s Development Working Group will review progress on these actions in 2018.

Manufacturing employment as a proportion of total employment

UNIDO (2017) reports a falling share of manufacturing workers in total employment despite global manufacturing employment increasing at an average annual rate of 0.4 per cent.  It is however believed that this is due to the technological advances and the robotization of production processes that may have reduced the need for workers in manufacturing. The study by Hallward-Driemeier and Nayyar (2018) also note advancing technology as being one of the two trends with the biggest impact on how and where goods will be made.  

Co2 Emission from Manufacturing

Carbon dioxide emissions and the use of materials in manufacturing increased between 1995 and 2013.  Using, for the first time, a framework that captures the interactive nature of manufacturing consumption and industrial development, consumption-based emissions were found to be higher than production-based emissions.  

Medium and High-Tech Industries

Globally, most manufactured exports are medium-high and high-tech products, such as chemicals, machinery and equipment, communications equipment and motor vehicles. They accounted for 60 per cent of all manufactured exports in 2015.  Export of these goods by developing and emerging industrial economies increased by 12.6 per cent a year between 2000 and 2015, raising their contribution to world exports of these goods from 12.0 per cent in 2000 to 30 per cent in 2015.

Industrialized economies continue to hold the highest medium and high-tech manufacturing value added shares in total manufacturing.  It far exceeds that in low-income countries, 9 per cent in 2010 and decreasing to 7.3 per cent in 2015.

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