Arguments for Industry Development in Low Income Countries

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Arguments for Industry Development in Low Income Countries

By

Choen Krainara Doctoral Student

Regional and Rural Development Planning Field of Study School of Environment, Resources and Development

Asian Institute of Technology (AIT) 2008

1. Introduction

Most developing countries including low income countries are committed to transforming or

changing their rural-based agricultural economies to urban-based industrial ones. There may be

differences in the level of industrialization they wish to achieve, the speed at which they wish to

industrialize or in their industrialization strategies, but nearly all of them are strongly committed

to their goal of industrialization. Global advances in economic development and overall progress

of developing countries have largely bypassed ties, which are struggling to overcome chronic

poverty but lack productive capacities to move out of the poverty trap of low income, low

investment and low growth.

With 10.4 per cent of the world‘s population, the 53 Low Income Countries account for only

0.4 percent of global manufacturing value added. With a few exceptions, there has been little or no

progress over recent decades and many Low Income Countries have been faced with industrial

decline. GDP growth in Low Income Countries accelerated during the 1990s, but annual average

per capita growth still remained only about one per cent reflecting a significant divergence in

performance within the Low Income Countries group.

It is therefore, necessary to find means to promote role of industry in alleviating poverty with

emphasis on low income countries in order to enable them to effectively integrate into global

economy. The objectives of this paper are to study characteristics of low income countries linking

with arguments to promote its industry development. Then, the key structure of this paper are

covered industrialization and development, argument for industry development, progress,

challenges, prospects of industrial development as well as specific policies/strategies for guiding

industrialization in low income countries.

2. Industrialization and Development

2.1 Definitions

Rajesh (1992) defines Industrialization refers to an increase in the share of the gross

domestic product (GDP) contributed by the manufacturing sector. It is a process that involves a

change in the structure, or make-up, of the economy. Industrial growth in itself is not sufficient for

industrialization, because other sectors of the economy may increase their output at the same rate.

It is necessary for the manufacturing sector to increase its relative importance in the economy

more rapidly than other sectors.

The composition of an economy is measured by broad groups of economic activity using

the International Standard Industrial Classification of All Economic Activities (ISIC). The main

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ISIC groups are: 1 Agriculture, fisheries, forestry; 2 Mining and quarrying, 3 Manufacturing; 4

Utilities; 5 Construction; 6 Wholesale, retail, restaurants and hotels; 7 Transport and

communications; 8 Finance, insurance and real estate; 9 Community and personal services; 10

Activities not elsewhere classified.

2.2 Low Income Countries (Least Developed Countries) are lowest income group having per

capita income at $905 or less The World Bank broadly classifies economies by using gross national income (GNI) per

capita. Based on its GNI per capita, the analytical income categories are low income, middle

income (subdivided into lower middle and upper middle), or high income. Low-income and

middle-income economies are sometimes referred to as developing economies.

Source: World Bank, 2007

Figure 1. World Map displaying country income groups

For geographical distribution, it is shown in the Figure above. In 2006, the World Bank divides

total 209 world economies into 4 income groups. They are:

Low Income ranging at $905 or less representing 53 countries

Lower Middle Income ranging at $906 - $3,595 representing 55 countries

Upper Middle Income ranging at $3,596 - $11,115 representing 41 countries

High income ranging at $11,116 or more representing 60 countries

Please find details of country income group categories in Figure 2.

2.3 State of World Industrialization

The faster growth of developing countries has been primarily achieved through

the rapid growth of the manufacturing sector in East Asia and stable growth in certain Asian and

Latin American countries, together with the major expansion of exports of manufactured products

that has occurred, particularly from East Asia, with the percentage of manufacturing exports to

total exports increasing significantly.

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The contribution to industrial production of developing countries has increased from 7 per

cent in 1975 to 22 per cent in 1995. While the share of GDP, MVA and exports of manufactured

products will increase substantially in developing countries, the share of developed countries is

expected to decline. Economies in transition are expected to stabilize during the next decade and

to register steady industrial growth thereafter. The growth of manufacturing in developing

countries has been very unevenly distributed and is a matter of growing concern. The gap

between developing countries and between developed and developing countries in terms of per

capita income and manufacturing output has widened considerably and it will be vital to achieve

accelerated industrial growth in the developing countries and regions, particularly sub-Saharan

Africa, which is lagging significantly behind.

The industrialized countries have benefited from these economic dividends mostly through

productivity gains realized as the growth of industrial output surpassed that of industrial jobs. The

developing countries have benefited both through productivity gains and an expansion of industry

relative to the rest of the economy. The impact of expansion combined with productivity growth

considerably improved the living conditions of many developing countries. Among them, a

handful of champions were pulled from poverty and technological backwardness to relative

affluence and state-of-the-art technology. The tidal surge of industry in most parts of the world left

stranded a group of about 50 countries, the Low Income Countries. This can be seen with

appalling clarity when considering Figures 3 and 4, which show, for most of those countries that

in 1997 were classified as Low Income Countries, plus two other country groups, aggregate levels

of GDP per capita, on the one hand, and of per capita manufacturing value added, on the other, as

they have developed over the past three decades. Over the last thirty years, the Low Income

Countries appear to have lost considerable ground with respect to the rest of the world.

Figure 3. Gross domestic product (GDP) per capita, by country group, 1970 to 1998

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Source: Ghislain Robyn, 2001, Aspects of Marginalization Growth, Industry and Trade of the Least Developed Countries, Discussion Paper No1, Statistics and Information Networks Branch.

United Nations Industrial Development Organization, quoted from UNIDO calculations based on

data from the UNIDO Statistics Database.

Note: The figure shows weighted group averages of real levels of per capita GDP with population

as the weighting variable. Values are in 1990 US dollars per person and are plotted on a natural-

logarithmic scale.

As Figure 3 shows, thirty years ago, today‘s Low Income Countries were not so far

behind the other developing countries as far as GDP per capita is concerned: the gap was a little

over one-and-a-half. Now, the other developing countries are over three-and-a-half times better

off than the Low Income Countries. While the income gap between industrial countries and the

other developing countries narrowed from over 20/1 to under 18/1 that between industrial

countries and Low Income Countries widened from around 30/1 to over 60/1.

The Low Income Countries performed poorly with respect to the other developing

countries which seem puzzling, given that both groups were at similar income levels thirty years

ago. A clue to the cause of the divergence can perhaps be found in the initial conditions of

manufacturing in the two groups of developing countries displayed in Figure 3. Thirty years ago, a

visible difference between Low Income Countries and other developing countries was that the

former group had attained only 2/5 of the level of MVA per capita of the latter group. Given what

we know of the dynamics specific to industry, it is quite plausible that the initial gap in the level of

industrialization has geared the two groups onto divergent path. Anyway, whereas the other

developing countries industrialized ever faster, to the point of outpacing markedly the developed

countries, the Low Income Countries stagnated.

Certainly, the divergent trajectories played like opening scissors on the respective

industrial gaps between the two groups and industrialized countries. Thirty years ago, the Low

Income Countries were at two-fifths of the level of MVA per capita of the other developing

countries. Now, the other developing countries are nearly nine times more productive in the

manufacturing field than the Low Income Countries. Over the last thirty years, the other

developing countries have been converging towards the industrial countries‘ per capita levels of

manufacturing output. The ‗industrial gap‘ - measured by the ratio of per capita MVA - narrowed

from over 25/1 in the beginning to around 15/1 today.

In sharp contrast, divergence between the industrial countries and the Low Income

Countries led to an increase in the per capita MVA-ratio from over 60/1 to over 130/1 during the

past three decades. Some marginalization indeed and not an accidental one at that for the statistical

evidence is clear: the marginalization is not an artifact resulting from the choice of the beginning

and end-years of the period. Figures 3 and 4 show that what have been illustrated are long-term

trends.

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Figure 4. Manufacturing value added (MVA) per capita, by country group, 1970 to 1998

Source: Ghislain Robyn, 2001, Aspects of Marginalization Growth, Industry and Trade of the Least Developed Countries, Discussion Paper No1. Statistics and Information Networks Branch.

United Nations Industrial Development Organization, quoted from UNIDO calculations based on

data from the UNIDO Statistics Database.

Note: The figure shows weighted group averages of real levels of per capita MVA with population

as the weighting variable. Values are in 1990 US dollars per person and are plotted on a natural-

logarithmic scale.

3. Argument for Industry Development in Low Income Countries

The relationship between industrialization and development is varied and many reasons

have been put forward to explain why Low Income Countries are so committed to

industrialization. Rajesh Chandra (1992) proposed some of the principal arguments are as follows:

3.1 Industrialization is seen in Low Income Countries as necessary because of its historical

association with development. Because of the absence of any other demonstrable model of

development, historically, it is taken for granted that development entails industrialization.

3.2 Industrialization is also favored by developing countries because they have exhausted the

possibilities of agricultural development and because prices of agricultural products have

fluctuated wildly in the past. These prices have also not kept pace with the prices of manufactured

goods. In other words, the terms of trade for agricultural commodities have deteriorated.

3.3 In addition, as incomes increase, there is no proportionate increase in the consumption of

agricultural products; that is, the income demand elasticity of agricultural products is low,

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reducing its long term developmental potential. On the other hand, manufactured goods have

higher income demand elasticity. Moreover, many agricultural products are facing major problems

of reduced consumption due to changes in lifestyle such as reduced consumption of sugar and

related products, or from the rise of synthetic products.

3.4 Even when manufacturing is not seen as an alternative to agricultural development, it is

encouraged because it complements the agricultural sector. Most developing countries are

agricultural societies. The development of manufacturing can help the agricultural sector in many

ways. The processing of agricultural commodities, which is part of manufacturing, increases the

income of a country because the more processed a commodity is, the higher is its value. The

United Nations Conference on Trade and Development has estimated that further processing of

agricultural commodities exported by developing countries could increase their income by at least

50 per cent.

Manufacturing also encourages efficient forms of production and marketing in the

agricultural sector, provides agricultural inputs such as machinery and fertilizer, and improves the

availability of food items by making them available as processed foods. Food processing can also

eliminate the problem of market surplus by providing an outlet for excess production.

Furthermore, increased industrialization can improve the bargaining position of regional states and

national governments because processing makes commodities less perishable. Manufacturing can

also help the agricultural sector by absorbing labor from the rural sector, thus enabling the

mechanization and rationalization of agriculture. A degree of mechanization is essential for

increased productivity in the agricultural sector.

3.5 The populations of most developing countries are increasing rapidly. Employment generation

has not kept pace with population growth, and unemployment and underemployment are high and

increasing. Manufacturing has been seen as a major source of additional employment. This is

especially so as the traditional sources of employment, such as agriculture, mining, services and

construction, have become employment saturated. Manufacturing does provide for a reasonably

high proportion of the employed labor force in many developing countries, but many critics of

Low Income Countries industrialization policies have argued successfully that the highly capital-

intensive nature of industrialization has diminished its contribution to the reduction of

unemployment and underemployment.

3.6 Manufacturing is also favored as a development strategy because of its efficient use of land

resources. Agriculture is an extensive user of land, which is a finite quantity. Indeed, the amount

of land available to a society can and does decrease with time as more and more of it is lost to

deserts or becomes only marginally productive. Manufacturing becomes attractive because of its

more efficient use of land. Thus, for small countries, such as Hong Kong and Singapore, there was

no alternative but to industrialize.

3.7 One of the important development goals of developing countries is to evolve into integrated

societies both economically and spatially. A society with a sense of shared identity, and one

closely knit together, is more likely to succeed in development than one without these attributes.

Industrialization promotes national integration. Manufacturing involves a large number of

transactions both within the country and outside it, which help to develop stronger and greater

links. The greater the degree of linkage, the greater is the interdependence and the possibility of

building a spatially integrated society.

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3.8 The initial justification for industrialization in many instances was that it would save foreign

exchange by producing what was previously imported. In fact, most developing countries began

their industrialization through this import-substitution strategy. However, in the final analysis, the

savings in foreign exchange were limited or absent, since foreign exchange was spent on

machinery imports, license fees and the import of raw materials instead of on the import of

finished manufactured goods, as happened previously.

Industrialization was also seen as having the potential to earn foreign exchange with

exports after entrepreneurs had acquired the necessary expertise and met domestic demand. In

some cases this did indeed happen; in others it did not, because most manufacturers were satisfied

with the returns they made on the domestic market and because their goods, in any case, were not

competitive in regional and international markets in terms of price or quality.

3.9 Many Low Income governments pursue industrialization because they wish to reduce their

technological dependence on the developed countries. Technology is the chief basis of economic

production and, in particular, of increasing productivity. To some extent, some Low Income

Countries have indeed developed considerable technological capacity; in many other cases,

however, industrialization has made these countries more dependent on developed countries by

locking them into technology licensing agreements and debt relationships.

3.10 The most powerful countries of the world are also the most industrialized. This is no

coincidence—the two are closely related. Many Third World countries, such as Brazil, India,

China and Israel, are all conscious of the military role of industrialization. This is especially borne

out by their commitment to large-scale heavy industry and now, increasingly, to the development

of advanced electronics. It is for these varying reasons that industrialization has such appeal and

elicits such strong commitment from Low Income Countries planners and politicians.

4. Progress of Industrial Development: Marginalization of Low Income Countries

Global advances in economic development and overall progress of developing countries

have largely bypassed Laces, which are struggling to overcome hopeless poverty but lack

productive capacities to move out of the poverty trap of low income, low investment and low

growth. With 10.4 per cent of the world’s population, the 53 Low Income Countries account for

only 0.4 percent of global manufacturing value added. With a few exceptions, there has been little

or no progress over recent decades and many Low Income Countries have been faced with

industrial decline. GDP growth in Low Income Countries accelerated during the 1990s, but annual

average per capita growth still remained only about one per cent reflecting a significant

divergence in performance within the Low Income Countries group.

Fluctuations in growth rates reflect vulnerability to external shocks and dependence on

primary commodity markets. The manufacturing sector has been an important contributor to

aggregate GDP growth in the relatively successful Low Income Countries, especially in Asia.

Manufactured exports have grown rapidly in these Low Income Countries, which benefited from

even faster industrial sector growth than their developing country neighbors. However, for Low

Income Countries as a whole, the manufacturing sector's share of GDP has typically remained less

than 10 per cent and their share of global MVA is below 0.4 per cent. Productivity growth within

manufacturing has been low and gross margins modest. Agro-industries typically account for

more than 50 per cent of national MVA in Low Income Countries. The manufacturing

performance of Asian Low Income Countries is clearly superior to that of African Low Income

Countries. Asian industry is more diversified and its export performance is significantly superior

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to other Low Income Countries. Bangladesh, Myanmar and Nepal have made considerable

progress in this respect especially in clothing and food manufacturing. Many African Low Income

Countries have faced industrial stagnation or decline.

5. Challenges of Industrial Development in Low Income Countries

There are broad challenges governing industrial development in low income countries as

follows:

5.1 Spreading the benefits of globalization

The economic stagnation and decline in many Low Income Countries is linked to the

insufficient attention paid to the potential development contribution of industry and, in particular,

manufacturing. Without enhancing the role of industry, a sustainable path of economic

development will not be achieved. It is industry – more than any other productive sector – that

drives the economic growth process, provides a breeding ground for entrepreneurship, fosters

technological dynamism and associated productivity growth, creates skilled jobs and, through

inter-sectoral linkages, establishes the foundation for both agriculture and services to expand.

Furthermore, prices of manufactured exports are both less volatile and less susceptible to

long term deterioration than those of primary goods, thus, providing the potential for sustainable

export growth and integration into the global industrial economy. Low Income Countries will be

able to benefit from liberalized trade flows and become integrated into the global industrial

economy only if existing supply-side constraints for industrial growth are removed and

competitive productive capacities are developed. Macro-economic stabilization and institutional

reforms are necessary and have been carried out in many Low Income Countries. By themselves,

however, they do not trigger a growth process unless followed up by building capacities for the

mobilization of information, knowledge, skills and technology required to equip industry with the

means to compete effectively in global markets.

5.2 How to promote industrial growth and at the same time directed toward poverty

alleviation

Building productive capacities for industrial growth is crucial for alleviating poverty.

Industry is a driver of economic growth in the development process and is essential for enhancing

the kind of productivity that stimulates growth throughout the economy, especially through

industries linked to agriculture including food security. Productivity enhancing measures – skills,

knowledge, information, technology and infrastructure – can facilitate a strengthening of domestic

manufacturing capacities for upgrading technology, developing comparative cost advantages and

introducing new management and organizational structures needed to ensure effective integration

in the global industrial economy. Without such integration, especially through foreign direct

investment and transnational corporations, it will be difficult for Low Income Countries to

develop a dynamic and competitive industrial sector, which is so essential for achieving

sustainable development. Industry is at the heart of the modern knowledge-driven economy. A

Low Income Countries economy with a stagnant manufacturing sector cannot achieve sustainable

development in a globalizing world, let alone alleviate poverty.

6. Prospect for Industrial Development

Major industries appropriate for low income countries should be encouraged. Food

manufacturing is the most important industry in many African Low Income Countries. Emphasis

could be placed on increased processing of coarse grain, such as maize, millet, sorghum and

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cassava, both as a means for enhancing food security and expanding employment. High value

export-oriented processed-food products also hold significant potential. Storage and transportation

facilities for food crops could be expanded to counter vulnerability to shortages. The increased

substitution of imported for locally produced grain in urban centers constitutes a major drain on

foreign exchange resources. Meanwhile, increased dependence on food aid has an adverse impact

on employment and weakens rural-urban linkages. Improvements in local grain milling

technology and an effort to stimulate demand for coarse grain-based food products in urban areas

are urgently required.

Increased fish processing is feasible in many African and Asian Low Income Countries

and can make an effective contribution to both poverty reduction and export growth.

Improvements in riverine boating technology and significant increases in low income countries

landings of deep water fishing supplemented by assistance for technical upgrading of processing

and storage facilities can contribute to foreign exchange earnings and employment.

Likewise, there is scope for rehabilitation of the sugar industry and greater utilization of its

by-products, especially bagasse and molasses, in several industries ranging from energy to animal

feed. Adopting small-scale milling technology in the oil-seeds branch can increase employment

opportunities. There are opportunities for effective integration into the global value chain of the

fruit processing industries provided adequate canning and marketing capacities are developed.

Expanding food processing and exports also require a rapid expansion in the biotechnological

capabilities of the low income countries.

There is an urgent need for major rehabilitation and restructuring of the agricultural tools

and machinery industries. Without this, increases in agricultural productivity cannot be sustained,

water resources cannot be conserved and repair and maintenance of imported machinery becomes

impossible. Ensuring food security in low income countries low income countries depends

crucially on the rehabilitation of the agricultural tool and machinery industry. Some Asian low

income countries low income countries - most importantly Bangladesh - have made considerable

progress in the clothing industry.

The phasing out of the Multi-Fiber Arrangement and the new conditions facing the global

textile and clothing industry will benefit mainly China and India. Nevertheless, the global apparel

value chain is buyer-driven and, hence, technology and skill diffusion is widespread. There are

opportunities for many low income countries low income countries to benefit from linkages to

global activities of textile manufactures and marketers based in neighboring countries. Equally

important is the prospect for developing a domestic demand-oriented textile and clothing industry

that caters to the needs of growing populations in low income countries. Furthermore,

opportunities exist for development of the footwear industry, both for domestic and the export

markets and for its effective integration in the global value chain.

Low income countries can also benefit from application of information and

communication technologies (ICTs) in a wide range of manufacturing activities. Most important is

the utilization of relatively cheap telecommunication technology to facilitate business-to-business

transactions and enhance connectivity. Since low income countries cannot expect a major inflow

of multinational investment for enhancing ICT applications, initiatives will have to be taken.

Official Development Assistance (ODA) support is required for application of ICT in production

and distribution processes of food crops, as well as for infrastructural investments. Without

investment in the information and communication technologies industry, the competitiveness of

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low income countries exporters in their traditional markets of textiles, clothing, footwear, cannot

be sustained.

7. Policies/Strategies for Industrial Development with Emphasis on Low Income Countries

A set of specific policies/strategies for industrial development in low income countries

could be adopted as follows:

7.1 Industrial strategies and governance

Poverty alleviation through productivity growth and increased factor inputs, especially

labor, requires development of the skills and knowledge base as well as the physical assets of the

poor. An integrated industrial policy implies the establishment of an institutional network linking

public and private decision makers and entrepreneurs and organizing a continuous dialogue and

flow of information between them.

Policy co-ordination of different actors has now become essential as design of industrial

policy must take account of newly established international norms, especially in the field of

standards, environmental regulations and intellectual property rights. Policy could target a wide

diffusion of technological learning and strengthening of technological capabilities at firm level.

The fact that low income countries industrial structures will be mainly based on labor- and natural

resource-intensive production. Technologies should not lead policy makers to the conclusion that

institutional support is of secondary importance. Production technologies, distributive

mechanisms, policy perspectives and market conditions are changing rapidly in food

manufacturing, textiles and leather. Therefore, policy must be designed to encourage

entrepreneurs to take advantage of and keep up-to-date with new technological developments.

7.2 Institutional infrastructure

Policy should focus on development of public-private consultation and partnership

mechanisms, as well as fostering clusters and networking among enterprises both at national and

international levels. This requires development of appropriate regulatory regimes, appraisal of

existing institutional structures and firm- and branch-level diagnostic surveys for promotion of

international institutional linkages.

7.3 Entrepreneurship, enterprise development and the role of SMEs

A comprehensive policy framework for small and medium enterprise sector development

and rural industrial development requires emphasis on employment creation, poverty alleviation

and improvement of the role of women in industrial development. SME strategy should focus on

enterprise upgrading – enhancing the productivity capacity of SMEs to ensure that they graduate

into the formal sector. A cluster strategy is important because it provides a basis for dissemination

of information and technologies from large- to small-sized firms linked to product value chains.

Equally important is the provision of finance that links SMEs to major financial institutions

enabling them to invest in technology upgrading.

7.4 Technology upgrading and learning

The primary responsibility for technological upgrading rests with Low Income Countries

private sector, institutions and governments. They need to develop a national policy framework

that promotes a culture of skills for upgrading technology progress, innovation and learning.

Technological growth cannot be left exclusively to the market. Developing a system-wide national

technology system is an unavoidable policy imperative for every low income countries. Every

successful economy today, rich or poor, large or small, is knowledge-driven. The information and

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communications technology revolution is permeating a widening range of production and

distribution technologies. Even such low technology industries as food manufacturing, textiles and

clothing, leather and footwear, have been profoundly affected.

Low income countries need to build capabilities that allow them to attract foreign

investment and achieve sustainable growth. Capability building means learning. This requires an

effort on the part of the firms, their intermediate institutions, and governance, all interacting in the

formation of industrial learning systems. It is contrasted with passive development, through

―transfer‖ of technology, or with the idea that growth follows automatically in the wake of

liberalization. In order to learn and upgrade capabilities, low income countries firms have to

utilize existing knowledge effectively. One way of doing so is to link with capable partners, either

locally in a cluster or with firms beyond its immediate environment.

7. 5 Finance and investment

Low income countries remain strongly dependent on official development assistance flows

accounting for a high share of gross domestic investment, especially those in Africa. Aid flows to

low income countries have declined including resources for productive projects and industry. At

the same time, net private capital flows have declined. There is a heavy concentration of foreign

direct investment in a small number of low income countries low income countries, mainly in

Africa, especially linked to the mining and energy sectors.

Increasing financial resources to low income countries– through Foreign Direct Investment

(FDI), ODA, build-operate-transfer, debt cancellation and reversal of capital flight from Africa -

combined with improved investment efficiency would make an important contribution to building

productive capacities for industrial growth and rehabilitation. Such resources could be directed

towards productive capacity building and linked to technology upgrading, learning and improving

competitiveness.

7.6 Industry, trade and market access

Low income countries need to take advantage of increased market opportunities in

developed countries following the Cotonou Agreement and the United States-African Growth and

Opportunity Act. To do so, they must develop mechanisms for complying with developed market

quality standards and regulations. Improving national capacity for quality control and marketing

capabilities will be extremely important in boosting low income countries exports. Trade

liberalization will be effective only if it is accompanied by reforms and investment that build

competitive capacities and ease supply-side constraints for industrial growth.

7.7 Regional integration

Low income countries can benefit significantly from participation in regional integration

schemes and international industrial cooperation. This is especially likely if such schemes include

countries – especially resource-rich developing countries, such as Malaysia and Thailand. Gains

from participation in regional arrangements can be of particular benefit for the ICT industry in

Low Income Countries as it is often constrained by limited usage. A larger market can stimulate

demand and provide a more effective basis for pooling manpower resources and skill

development. Creating an ICT physical infrastructure on a regional basis also allows for more

efficient exploitation of economies of scale and scope. Regional integration schemes can facilitate

the flow of international finance to Low Income Countries through regional stock exchanges and

venture capital funds. But effective macroeconomic policy harmonization is required for this

purpose.

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7.8 Environmental concerns

Environmental degradation is a serious problem in Low Income Countries. Poverty

induces rapid expansion in farming practice, which, in turn, accelerates the pace of deforestation

and desertification. Urban pollution grows as a consequence of the deteriorating conditions in

slums. The key initiatives required to combat environmental degradation in Low Income

Countries are: (a) growth of non-farm employment that can reduce the pressure on the land and

avoid environmentally unsustainable farming practices and (b) growth of SMEs that can increase

the income of the poor and, thus, lead to an improvement in living conditions. Environmental

degradation can also be reduced by introducing cleaner production technologies from external

sources and though domestic innovation.

7.9 Energy development

An increase in the supply and reliability of energy, especially electricity, is important for

alleviating poverty. This is particularly essential for education, health, communication and SME

and rural industries. This requires increasing access to and more rational use of energy, increased

financing and special measures related to hydrocarbons in Low Income Countries. Development

of new energy sources is equally critical including new renewable energy technologies in the form

of solar, wind and biomass, especially rural areas, as well as small, regionally-dispersed

hydropower stations. Increasing awareness of the benefits of efficient energy technologies and

practices can be promoted through awareness campaigns.

7.10 Latecomer advantage

Low Income Countries are in a position to benefit from the advantages of being latecomers

in the process of catching up with other developing countries. In this regard, they have the

opportunity to learn from the experience of developing countries that have successfully developed

their industrial economies, such as the second generation of newly industrializing countries,

including Thailand and Malaysia and others, such as Mauritius. In this context, the Low Income

Countries could initiate a process of benchmarking through linkages, and learning and, thus,

convert their perceived disadvantage into advantage in pursuing their industrial development

aspirations.

Conclusion

Relieving poverty in Low Income Countries is a global concern agreed in the United

Nations Millennium Declaration as a commitment to build capacities for effective participation by

all in global economic prosperity. Productive capacity building and poverty alleviation are

inextricably linked. Capacity building requires rapid industrialization of Low Income Countries

since industrial development is the main driver of productivity growth and technological

upgrading. Poverty cannot be eradicated in Low Income Countries unless they are rapidly

industrialized.

Requirements for learning and technological upgrading in those industries predominate in

Low Income Countries are rising. Moreover, Low Income Countries – like all other economies in

the world – have been profoundly affected by revolutionized production and marketing systems

nationally and globally. Every successful economy today – rich or poor, large or small – is

information- and knowledge driven. This means that low-wage, low-productivity development is

no longer a viable option. Capacity building and rapid technological advancement is a prerequisite

both for domestic market growth and for export success. Relieving supply-side constraints for

industrial growth is a prerequisite for benefiting from access to global markets. It is also a

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prerequisite for meeting the competitive challenge mounted by transnational corporations in Low

Income Countries domestic markets.

Low Income Countries, themselves, do not possess the financial, technological and human

resources to meet the globalization challenge. The international community needs to coordinate

efforts to support LDC initiatives. Synergies must be developed between public and private, as

well as national and global policies, focusing on investment in areas that are of vital importance

for capacity building in Low Income Countries: food security, agricultural productivity growth,

learning, technological upgrading and foreign exchange earnings and savings. Strategies are also

required to put in place policy and institutional infrastructures for facilitating rapid growth of

investment in those areas. Capacity building is, thus, related to growth of investment and

productive capacities, which are important for reducing the marginalization of Low Income

Countries within the global industrial economy.

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Poverty Alleviation in Least Developed Countries (LDC’s): The Role of Industry, Vienna.UNIDO

Internet Website

www.worldbank.org/data/countryclass/classgroups.htm retrieved on 7 September 2007

14

Figures 2. World Country Group C Low Income Countries Categories Arranged by the

World Bank, 2007

East Asia and Pacific (developing only: 24) American Samoa Malaysia Philippines

Cambodia Marshall Islands Samoa

China Micronesia, Fed. Sts Solomon Islands

Fiji Mongolia Thailand

Indonesia Myanmar Timor-Leste

Kiribati Northern Mariana Islands Tonga

Korea, Dem. Rep. Palau Vanuatu

Lao PDR Papua New Guinea Vietnam

Europe and Central Asia (developing only: 26) Albania Kazakhstan Russian Federation

Armenia Kyrgyz Republic Serbia

Azerbaijan Latvia Slovak Republic

Belarus Lithuania Tajikistan

Bosnia and Herzegovina Macedonia, FYR Turkey

Bulgaria Moldova Turkmenistan

Croatia Montenegro Ukraine

Georgia Poland Uzbekistan

Hungary Romania

Latin America and the Caribbean (developing only: 29) Argentina Ecuador Panama

Belize El Salvador Paraguay

Bolivia Grenada Peru

Brazil Guatemala St. Kitts and Nevis

Chile Guyana St. Lucia

Colombia Haiti St. Vincent and the Grenadines

Costa Rica Honduras Suriname

Cuba Jamaica Uruguay

Dominica Mexico Venezuela, RB

Dominican Republic Nicaragua

Middle East and North Africa (developing only: 14) Algeria Jordan Syrian Arab Republic

Djibouti Lebanon Tunisia

Egypt, Arab Rep. Libya West Bank and Gaza

Iran, Islamic Rep. Morocco Yemen, Rep.

Iraq Oman

South Asia (8) Afghanistan India Pakistan

Bangladesh Maldives Sri Lanka

Bhutan Nepal

Low-income economies (53) Afghanistan India Rwanda

Bangladesh Kenya São Tomé and Principe

Benin Korea, Dem Rep. Senegal

Burkina Faso Kyrgyz Republic Sierra Leone

Burundi Lao PDR Solomon Islands

Cambodia Liberia Somalia

Central African Republic Madagascar Sudan

Chad Malawi Tajikistan

15

Comoros Mali Tanzania

Congo, Dem. Rep Mauritania Timor-Leste

Côte d'Ivoire Mongolia Togo

Eritrea Mozambique Uganda

Ethiopia Myanmar Uzbekistan

Gambia, The Nepal Vietnam

Ghana Niger Yemen, Rep.

Guinea Nigeria Zambia

Guinea-Bissau Pakistan Zimbabwe

Haiti Papua New Guinea

Lower-middle-income economies (55) Albania El Salvador Namibia

Algeria Fiji Nicaragua

Angola Georgia Paraguay

Armenia Guatemala Peru

Azerbaijan Guyana Philippines

Belarus Honduras Samoa

Bhutan Indonesia Sri Lanka

Bolivia Iran, Islamic Rep. Suriname

Bosnia and Herzegovina Iraq Swaziland

Cameroon Jamaica Syrian Arab Republic

Cape Verde Jordan Thailand

China Kiribati Tonga

Colombia Lesotho Tunisia

Congo, Rep. Macedonia, FYR Turkmenistan

Cuba Maldives Ukraine

Djibouti Marshall Islands Vanuatu

Dominican Republic Micronesia, Fed. Sts. West Bank and Gaza

Ecuador Moldova

Egypt, Arab Rep. Morocco

Upper-middle-income economies (41) American Samoa Kazakhstan Poland

Argentina Latvia Romania

Belize Lebanon Russian Federation

Botswana Libya Serbia

Brazil Lithuania Seychelles

Bulgaria Malaysia Slovak Republic

Chile Mauritius South Africa

Costa Rica Mayotte St. Kitts and Nevis

Croatia Mexico St. Lucia

Dominica Montenegro St. Vincent and the Grenadines

Equatorial Guinea Northern Mariana Islands Turkey

Gabon Oman Uruguay

Grenada Palau Venezuela, RB

Hungary Panama

High-income economies (60) Andorra France Netherlands

Antigua and Barbuda French Polynesia Netherlands Antilles

Aruba Germany New Caledonia

Australia Greece New Zealand

16

Austria Greenland Norway

Bahamas, The Guam Portugal

Bahrain Hong Kong, China Puerto Rico

Barbados Iceland Qatar

Belgium Ireland San Marino

Bermuda Isle of Man Saudi Arabia

Brunei Darussalam Israel Singapore

Canada Italy Slovenia

Cayman Islands Japan Spain

Channel Islands Korea, Rep. Sweden

Cyprus Kuwait Switzerland

Czech Republic Liechtenstein Trinidad and Tobago

Denmark Luxembourg United Arab Emirates

Estonia Macao, China United Kingdom

Faeroe Islands Malta United States

Finland Monaco Virgin Islands (U.S.)