Arguments for Industry Development in Low Income Countries


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Arguments for Industry Development in Low Income Countries

  1. 1. 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) 20081. Introduction Most developing countries including low income countries are committed to transforming orchanging their rural-based agricultural economies to urban-based industrial ones. There may bedifferences in the level of industrialization they wish to achieve, the speed at which they wish toindustrialize or in their industrialization strategies, but nearly all of them are strongly committedto their goal of industrialization. Global advances in economic development and overall progressof developing countries have largely bypassed ties, which are struggling to overcome chronicpoverty but lack productive capacities to move out of the poverty trap of low income, lowinvestment and low growth. With 10.4 per cent of the world‘s population, the 53 Low Income Countries account for only0.4 percent of global manufacturing value added. With a few exceptions, there has been little or noprogress over recent decades and many Low Income Countries have been faced with industrialdecline. GDP growth in Low Income Countries accelerated during the 1990s, but annual averageper capita growth still remained only about one per cent reflecting a significant divergence inperformance within the Low Income Countries group.It is therefore, necessary to find means to promote role of industry in alleviating poverty withemphasis on low income countries in order to enable them to effectively integrate into globaleconomy. The objectives of this paper are to study characteristics of low income countries linkingwith arguments to promote its industry development. Then, the key structure of this paper arecovered industrialization and development, argument for industry development, progress,challenges, prospects of industrial development as well as specific policies/strategies for guidingindustrialization in low income countries.2. Industrialization and Development2.1 Definitions Rajesh (1992) defines Industrialization refers to an increase in the share of the grossdomestic product (GDP) contributed by the manufacturing sector. It is a process that involves achange in the structure, or make-up, of the economy. Industrial growth in itself is not sufficient forindustrialization, 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 economymore rapidly than other sectors. The composition of an economy is measured by broad groups of economic activity usingthe International Standard Industrial Classification of All Economic Activities (ISIC). The main 1
  2. 2. ISIC groups are: 1 Agriculture, fisheries, forestry; 2 Mining and quarrying, 3 Manufacturing; 4Utilities; 5 Construction; 6 Wholesale, retail, restaurants and hotels; 7 Transport andcommunications; 8 Finance, insurance and real estate; 9 Community and personal services; 10Activities not elsewhere classified.2.2 Low Income Countries (Least Developed Countries) are lowest income group having percapita income at $905 or less The World Bank broadly classifies economies by using gross national income (GNI) percapita. Based on its GNI per capita, the analytical income categories are low income, middleincome (subdivided into lower middle and upper middle), or high income. Low-income andmiddle-income economies are sometimes referred to as developing economies.Source: World Bank, 2007Figure 1. World Map displaying country income groupsFor geographical distribution, it is shown in the Figure above. In 2006, the World Bank dividestotal 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 countriesPlease 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. 2
  3. 3. The contribution to industrial production of developing countries has increased from 7 percent in 1975 to 22 per cent in 1995. While the share of GDP, MVA and exports of manufacturedproducts will increase substantially in developing countries, the share of developed countries isexpected to decline. Economies in transition are expected to stabilize during the next decade andto register steady industrial growth thereafter. The growth of manufacturing in developingcountries has been very unevenly distributed and is a matter of growing concern. The gapbetween developing countries and between developed and developing countries in terms of percapita income and manufacturing output has widened considerably and it will be vital to achieveaccelerated industrial growth in the developing countries and regions, particularly sub-SaharanAfrica, which is lagging significantly behind. The industrialized countries have benefited from these economic dividends mostly throughproductivity gains realized as the growth of industrial output surpassed that of industrial jobs. Thedeveloping countries have benefited both through productivity gains and an expansion of industryrelative to the rest of the economy. The impact of expansion combined with productivity growthconsiderably improved the living conditions of many developing countries. Among them, ahandful of champions were pulled from poverty and technological backwardness to relativeaffluence and state-of-the-art technology. The tidal surge of industry in most parts of the world leftstranded a group of about 50 countries, the Low Income Countries. This can be seen withappalling clarity when considering Figures 3 and 4, which show, for most of those countries thatin 1997 were classified as Low Income Countries, plus two other country groups, aggregate levelsof GDP per capita, on the one hand, and of per capita manufacturing value added, on the other, asthey 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 worldFigure 3. Gross domestic product (GDP) per capita, by country group, 1970 to 1998 3
  4. 4. Source: Ghislain Robyn, 2001, Aspects of Marginalization Growth, Industry and Trade of theLeast Developed Countries, Discussion Paper No1, Statistics and Information Networks Branch.United Nations Industrial Development Organization, quoted from UNIDO calculations based ondata from the UNIDO Statistics Database.Note: The figure shows weighted group averages of real levels of per capita GDP with populationas 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 farbehind the other developing countries as far as GDP per capita is concerned: the gap was a littleover one-and-a-half. Now, the other developing countries are over three-and-a-half times betteroff than the Low Income Countries. While the income gap between industrial countries and theother developing countries narrowed from over 20/1 to under 18/1 that between industrialcountries and Low Income Countries widened from around 30/1 to over 60/1. The Low Income Countries performed poorly with respect to the other developingcountries which seem puzzling, given that both groups were at similar income levels thirty yearsago. A clue to the cause of the divergence can perhaps be found in the initial conditions ofmanufacturing in the two groups of developing countries displayed in Figure 3. Thirty years ago, avisible difference between Low Income Countries and other developing countries was that theformer group had attained only 2/5 of the level of MVA per capita of the latter group. Given whatwe know of the dynamics specific to industry, it is quite plausible that the initial gap in the level ofindustrialization has geared the two groups onto divergent path. Anyway, whereas the otherdeveloping countries industrialized ever faster, to the point of outpacing markedly the developedcountries, the Low Income Countries stagnated. Certainly, the divergent trajectories played like opening scissors on the respectiveindustrial gaps between the two groups and industrialized countries. Thirty years ago, the LowIncome Countries were at two-fifths of the level of MVA per capita of the other developingcountries. Now, the other developing countries are nearly nine times more productive in themanufacturing field than the Low Income Countries. Over the last thirty years, the otherdeveloping countries have been converging towards the industrial countries‘ per capita levels ofmanufacturing output. The ‗industrial gap‘ - measured by the ratio of per capita MVA - narrowedfrom over 25/1 in the beginning to around 15/1 today. In sharp contrast, divergence between the industrial countries and the Low IncomeCountries led to an increase in the per capita MVA-ratio from over 60/1 to over 130/1 during thepast three decades. Some marginalization indeed and not an accidental one at that for the statisticalevidence is clear: the marginalization is not an artifact resulting from the choice of the beginningand end-years of the period. Figures 3 and 4 show that what have been illustrated are long-termtrends. 4
  5. 5. Figure 4. Manufacturing value added (MVA) per capita, by country group, 1970 to 1998Source: Ghislain Robyn, 2001, Aspects of Marginalization Growth, Industry and Trade of theLeast Developed Countries, Discussion Paper No1. Statistics and Information Networks Branch.United Nations Industrial Development Organization, quoted from UNIDO calculations based ondata from the UNIDO Statistics Database.Note: The figure shows weighted group averages of real levels of per capita MVA with populationas 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 reasonshave been put forward to explain why Low Income Countries are so committed toindustrialization. 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 historicalassociation with development. Because of the absence of any other demonstrable model ofdevelopment, historically, it is taken for granted that development entails industrialization.3.2 Industrialization is also favored by developing countries because they have exhausted thepossibilities of agricultural development and because prices of agricultural products havefluctuated wildly in the past. These prices have also not kept pace with the prices of manufacturedgoods. 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 ofagricultural products; that is, the income demand elasticity of agricultural products is low, 5
  6. 6. reducing its long term developmental potential. On the other hand, manufactured goods havehigher income demand elasticity. Moreover, many agricultural products are facing major problemsof reduced consumption due to changes in lifestyle such as reduced consumption of sugar andrelated products, or from the rise of synthetic products.3.4 Even when manufacturing is not seen as an alternative to agricultural development, it isencouraged because it complements the agricultural sector. Most developing countries areagricultural societies. The development of manufacturing can help the agricultural sector in manyways. The processing of agricultural commodities, which is part of manufacturing, increases theincome of a country because the more processed a commodity is, the higher is its value. TheUnited Nations Conference on Trade and Development has estimated that further processing ofagricultural commodities exported by developing countries could increase their income by at least50 per cent. Manufacturing also encourages efficient forms of production and marketing in theagricultural sector, provides agricultural inputs such as machinery and fertilizer, and improves theavailability of food items by making them available as processed foods. Food processing can alsoeliminate the problem of market surplus by providing an outlet for excess production.Furthermore, increased industrialization can improve the bargaining position of regional states andnational governments because processing makes commodities less perishable. Manufacturing canalso help the agricultural sector by absorbing labor from the rural sector, thus enabling themechanization and rationalization of agriculture. A degree of mechanization is essential forincreased productivity in the agricultural sector.3.5 The populations of most developing countries are increasing rapidly. Employment generationhas not kept pace with population growth, and unemployment and underemployment are high andincreasing. Manufacturing has been seen as a major source of additional employment. This isespecially so as the traditional sources of employment, such as agriculture, mining, services andconstruction, have become employment saturated. Manufacturing does provide for a reasonablyhigh proportion of the employed labor force in many developing countries, but many critics ofLow Income Countries industrialization policies have argued successfully that the highly capital-intensive nature of industrialization has diminished its contribution to the reduction ofunemployment and underemployment.3.6 Manufacturing is also favored as a development strategy because of its efficient use of landresources. Agriculture is an extensive user of land, which is a finite quantity. Indeed, the amountof land available to a society can and does decrease with time as more and more of it is lost todeserts or becomes only marginally productive. Manufacturing becomes attractive because of itsmore efficient use of land. Thus, for small countries, such as Hong Kong and Singapore, there wasno alternative but to industrialize.3.7 One of the important development goals of developing countries is to evolve into integratedsocieties both economically and spatially. A society with a sense of shared identity, and oneclosely knit together, is more likely to succeed in development than one without these attributes.Industrialization promotes national integration. Manufacturing involves a large number oftransactions both within the country and outside it, which help to develop stronger and greaterlinks. The greater the degree of linkage, the greater is the interdependence and the possibility ofbuilding a spatially integrated society. 6
  7. 7. 3.8 The initial justification for industrialization in many instances was that it would save foreignexchange by producing what was previously imported. In fact, most developing countries begantheir industrialization through this import-substitution strategy. However, in the final analysis, thesavings in foreign exchange were limited or absent, since foreign exchange was spent onmachinery imports, license fees and the import of raw materials instead of on the import offinished manufactured goods, as happened previously. Industrialization was also seen as having the potential to earn foreign exchange withexports after entrepreneurs had acquired the necessary expertise and met domestic demand. Insome cases this did indeed happen; in others it did not, because most manufacturers were satisfiedwith the returns they made on the domestic market and because their goods, in any case, were notcompetitive in regional and international markets in terms of price or quality.3.9 Many Low Income governments pursue industrialization because they wish to reduce theirtechnological dependence on the developed countries. Technology is the chief basis of economicproduction and, in particular, of increasing productivity. To some extent, some Low IncomeCountries have indeed developed considerable technological capacity; in many other cases,however, industrialization has made these countries more dependent on developed countries bylocking them into technology licensing agreements and debt relationships.3.10 The most powerful countries of the world are also the most industrialized. This is nocoincidence—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 borneout by their commitment to large-scale heavy industry and now, increasingly, to the developmentof advanced electronics. It is for these varying reasons that industrialization has such appeal andelicits 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 countrieshave largely bypassed Laces, which are struggling to overcome hopeless poverty but lackproductive capacities to move out of the poverty trap of low income, low investment and lowgrowth. With 10.4 per cent of the world’s population, the 53 Low Income Countries account foronly 0.4 percent of global manufacturing value added. With a few exceptions, there has been littleor no progress over recent decades and many Low Income Countries have been faced withindustrial decline. GDP growth in Low Income Countries accelerated during the 1990s, but annualaverage per capita growth still remained only about one per cent reflecting a significantdivergence in performance within the Low Income Countries group. Fluctuations in growth rates reflect vulnerability to external shocks and dependence onprimary commodity markets. The manufacturing sector has been an important contributor toaggregate GDP growth in the relatively successful Low Income Countries, especially in Asia.Manufactured exports have grown rapidly in these Low Income Countries, which benefited fromeven faster industrial sector growth than their developing country neighbors. However, for LowIncome Countries as a whole, the manufacturing sectors share of GDP has typically remained lessthan 10 per cent and their share of global MVA is below 0.4 per cent. Productivity growth withinmanufacturing has been low and gross margins modest. Agro-industries typically account formore than 50 per cent of national MVA in Low Income Countries. The manufacturingperformance of Asian Low Income Countries is clearly superior to that of African Low IncomeCountries. Asian industry is more diversified and its export performance is significantly superior 7
  8. 8. to other Low Income Countries. Bangladesh, Myanmar and Nepal have made considerableprogress in this respect especially in clothing and food manufacturing. Many African Low IncomeCountries 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 asfollows:5.1 Spreading the benefits of globalization The economic stagnation and decline in many Low Income Countries is linked to theinsufficient attention paid to the potential development contribution of industry and, in particular,manufacturing. Without enhancing the role of industry, a sustainable path of economicdevelopment will not be achieved. It is industry – more than any other productive sector – thatdrives the economic growth process, provides a breeding ground for entrepreneurship, fosterstechnological dynamism and associated productivity growth, creates skilled jobs and, throughinter-sectoral linkages, establishes the foundation for both agriculture and services to expand. Furthermore, prices of manufactured exports are both less volatile and less susceptible tolong term deterioration than those of primary goods, thus, providing the potential for sustainableexport growth and integration into the global industrial economy. Low Income Countries will beable to benefit from liberalized trade flows and become integrated into the global industrialeconomy only if existing supply-side constraints for industrial growth are removed andcompetitive productive capacities are developed. Macro-economic stabilization and institutionalreforms 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 themobilization of information, knowledge, skills and technology required to equip industry with themeans to compete effectively in global markets.5.2 How to promote industrial growth and at the same time directed toward povertyalleviation 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 enhancingthe kind of productivity that stimulates growth throughout the economy, especially throughindustries linked to agriculture including food security. Productivity enhancing measures – skills,knowledge, information, technology and infrastructure – can facilitate a strengthening of domesticmanufacturing capacities for upgrading technology, developing comparative cost advantages andintroducing new management and organizational structures needed to ensure effective integrationin the global industrial economy. Without such integration, especially through foreign directinvestment and transnational corporations, it will be difficult for Low Income Countries todevelop a dynamic and competitive industrial sector, which is so essential for achievingsustainable development. Industry is at the heart of the modern knowledge-driven economy. ALow Income Countries economy with a stagnant manufacturing sector cannot achieve sustainabledevelopment in a globalizing world, let alone alleviate poverty.6. Prospect for Industrial Development Major industries appropriate for low income countries should be encouraged. Foodmanufacturing is the most important industry in many African Low Income Countries. Emphasiscould be placed on increased processing of coarse grain, such as maize, millet, sorghum and 8
  9. 9. cassava, both as a means for enhancing food security and expanding employment. High valueexport-oriented processed-food products also hold significant potential. Storage and transportationfacilities for food crops could be expanded to counter vulnerability to shortages. The increasedsubstitution of imported for locally produced grain in urban centers constitutes a major drain onforeign exchange resources. Meanwhile, increased dependence on food aid has an adverse impacton employment and weakens rural-urban linkages. Improvements in local grain millingtechnology and an effort to stimulate demand for coarse grain-based food products in urban areasare urgently required. Increased fish processing is feasible in many African and Asian Low Income Countriesand can make an effective contribution to both poverty reduction and export growth.Improvements in riverine boating technology and significant increases in low income countrieslandings of deep water fishing supplemented by assistance for technical upgrading of processingand storage facilities can contribute to foreign exchange earnings and employment. Likewise, there is scope for rehabilitation of the sugar industry and greater utilization of itsby-products, especially bagasse and molasses, in several industries ranging from energy to animalfeed. Adopting small-scale milling technology in the oil-seeds branch can increase employmentopportunities. There are opportunities for effective integration into the global value chain of thefruit processing industries provided adequate canning and marketing capacities are developed.Expanding food processing and exports also require a rapid expansion in the biotechnologicalcapabilities of the low income countries. There is an urgent need for major rehabilitation and restructuring of the agricultural toolsand machinery industries. Without this, increases in agricultural productivity cannot be sustained,water resources cannot be conserved and repair and maintenance of imported machinery becomesimpossible. Ensuring food security in low income countries low income countries dependscrucially on the rehabilitation of the agricultural tool and machinery industry. Some Asian lowincome countries low income countries - most importantly Bangladesh - have made considerableprogress in the clothing industry. The phasing out of the Multi-Fiber Arrangement and the new conditions facing the globaltextile and clothing industry will benefit mainly China and India. Nevertheless, the global apparelvalue chain is buyer-driven and, hence, technology and skill diffusion is widespread. There areopportunities for many low income countries low income countries to benefit from linkages toglobal activities of textile manufactures and marketers based in neighboring countries. Equallyimportant is the prospect for developing a domestic demand-oriented textile and clothing industrythat 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 exportmarkets and for its effective integration in the global value chain. Low income countries can also benefit from application of information andcommunication technologies (ICTs) in a wide range of manufacturing activities. Most important isthe utilization of relatively cheap telecommunication technology to facilitate business-to-businesstransactions and enhance connectivity. Since low income countries cannot expect a major inflowof multinational investment for enhancing ICT applications, initiatives will have to be taken.Official Development Assistance (ODA) support is required for application of ICT in productionand distribution processes of food crops, as well as for infrastructural investments. Withoutinvestment in the information and communication technologies industry, the competitiveness of 9
  10. 10. low income countries exporters in their traditional markets of textiles, clothing, footwear, cannotbe 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 countriescould be adopted as follows:7.1 Industrial strategies and governance Poverty alleviation through productivity growth and increased factor inputs, especiallylabor, requires development of the skills and knowledge base as well as the physical assets of thepoor. An integrated industrial policy implies the establishment of an institutional network linkingpublic and private decision makers and entrepreneurs and organizing a continuous dialogue andflow of information between them. Policy co-ordination of different actors has now become essential as design of industrialpolicy must take account of newly established international norms, especially in the field ofstandards, environmental regulations and intellectual property rights. Policy could target a widediffusion 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 naturalresource-intensive production. Technologies should not lead policy makers to the conclusion thatinstitutional support is of secondary importance. Production technologies, distributivemechanisms, policy perspectives and market conditions are changing rapidly in foodmanufacturing, textiles and leather. Therefore, policy must be designed to encourageentrepreneurs 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 partnershipmechanisms, as well as fostering clusters and networking among enterprises both at national andinternational levels. This requires development of appropriate regulatory regimes, appraisal ofexisting institutional structures and firm- and branch-level diagnostic surveys for promotion ofinternational institutional linkages.7.3 Entrepreneurship, enterprise development and the role of SMEs A comprehensive policy framework for small and medium enterprise sector developmentand rural industrial development requires emphasis on employment creation, poverty alleviationand improvement of the role of women in industrial development. SME strategy should focus onenterprise upgrading – enhancing the productivity capacity of SMEs to ensure that they graduateinto the formal sector. A cluster strategy is important because it provides a basis for disseminationof 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 institutionsenabling them to invest in technology upgrading.7.4 Technology upgrading and learning The primary responsibility for technological upgrading rests with Low Income Countriesprivate sector, institutions and governments. They need to develop a national policy frameworkthat 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 nationaltechnology system is an unavoidable policy imperative for every low income countries. Everysuccessful economy today, rich or poor, large or small, is knowledge-driven. The information and 10
  11. 11. communications technology revolution is permeating a widening range of production anddistribution technologies. Even such low technology industries as food manufacturing, textiles andclothing, leather and footwear, have been profoundly affected. Low income countries need to build capabilities that allow them to attract foreigninvestment and achieve sustainable growth. Capability building means learning. This requires aneffort on the part of the firms, their intermediate institutions, and governance, all interacting in theformation 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 ofliberalization. In order to learn and upgrade capabilities, low income countries firms have toutilize existing knowledge effectively. One way of doing so is to link with capable partners, eitherlocally 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 flowsaccounting for a high share of gross domestic investment, especially those in Africa. Aid flows tolow income countries have declined including resources for productive projects and industry. Atthe same time, net private capital flows have declined. There is a heavy concentration of foreigndirect investment in a small number of low income countries low income countries, mainly inAfrica, 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 buildingproductive capacities for industrial growth and rehabilitation. Such resources could be directedtowards productive capacity building and linked to technology upgrading, learning and improvingcompetitiveness.7.6 Industry, trade and market access Low income countries need to take advantage of increased market opportunities indeveloped countries following the Cotonou Agreement and the United States-African Growth andOpportunity Act. To do so, they must develop mechanisms for complying with developed marketquality standards and regulations. Improving national capacity for quality control and marketingcapabilities will be extremely important in boosting low income countries exports. Tradeliberalization will be effective only if it is accompanied by reforms and investment that buildcompetitive capacities and ease supply-side constraints for industrial growth.7.7 Regional integration Low income countries can benefit significantly from participation in regional integrationschemes and international industrial cooperation. This is especially likely if such schemes includecountries – especially resource-rich developing countries, such as Malaysia and Thailand. Gainsfrom participation in regional arrangements can be of particular benefit for the ICT industry inLow Income Countries as it is often constrained by limited usage. A larger market can stimulatedemand and provide a more effective basis for pooling manpower resources and skilldevelopment. Creating an ICT physical infrastructure on a regional basis also allows for moreefficient exploitation of economies of scale and scope. Regional integration schemes can facilitatethe flow of international finance to Low Income Countries through regional stock exchanges andventure capital funds. But effective macroeconomic policy harmonization is required for thispurpose. 11
  12. 12. 7.8 Environmental concerns Environmental degradation is a serious problem in Low Income Countries. Povertyinduces rapid expansion in farming practice, which, in turn, accelerates the pace of deforestationand desertification. Urban pollution grows as a consequence of the deteriorating conditions inslums. The key initiatives required to combat environmental degradation in Low IncomeCountries are: (a) growth of non-farm employment that can reduce the pressure on the land andavoid environmentally unsustainable farming practices and (b) growth of SMEs that can increasethe income of the poor and, thus, lead to an improvement in living conditions. Environmentaldegradation can also be reduced by introducing cleaner production technologies from externalsources and though domestic innovation.7.9 Energy development An increase in the supply and reliability of energy, especially electricity, is important foralleviating poverty. This is particularly essential for education, health, communication and SMEand rural industries. This requires increasing access to and more rational use of energy, increasedfinancing and special measures related to hydrocarbons in Low Income Countries. Developmentof new energy sources is equally critical including new renewable energy technologies in the formof solar, wind and biomass, especially rural areas, as well as small, regionally-dispersedhydropower stations. Increasing awareness of the benefits of efficient energy technologies andpractices can be promoted through awareness campaigns.7.10 Latecomer advantage Low Income Countries are in a position to benefit from the advantages of being latecomersin the process of catching up with other developing countries. In this regard, they have theopportunity to learn from the experience of developing countries that have successfully developedtheir 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 IncomeCountries could initiate a process of benchmarking through linkages, and learning and, thus,convert their perceived disadvantage into advantage in pursuing their industrial developmentaspirations.Conclusion Relieving poverty in Low Income Countries is a global concern agreed in the UnitedNations Millennium Declaration as a commitment to build capacities for effective participation byall in global economic prosperity. Productive capacity building and poverty alleviation areinextricably linked. Capacity building requires rapid industrialization of Low Income Countriessince industrial development is the main driver of productivity growth and technologicalupgrading. Poverty cannot be eradicated in Low Income Countries unless they are rapidlyindustrialized. Requirements for learning and technological upgrading in those industries predominate inLow Income Countries are rising. Moreover, Low Income Countries – like all other economies inthe world – have been profoundly affected by revolutionized production and marketing systemsnationally and globally. Every successful economy today – rich or poor, large or small – isinformation- and knowledge driven. This means that low-wage, low-productivity development isno longer a viable option. Capacity building and rapid technological advancement is a prerequisiteboth for domestic market growth and for export success. Relieving supply-side constraints forindustrial growth is a prerequisite for benefiting from access to global markets. It is also a 12
  13. 13. prerequisite for meeting the competitive challenge mounted by transnational corporations in LowIncome Countries domestic markets. Low Income Countries, themselves, do not possess the financial, technological and humanresources to meet the globalization challenge. The international community needs to coordinateefforts to support LDC initiatives. Synergies must be developed between public and private, aswell as national and global policies, focusing on investment in areas that are of vital importancefor capacity building in Low Income Countries: food security, agricultural productivity growth,learning, technological upgrading and foreign exchange earnings and savings. Strategies are alsorequired to put in place policy and institutional infrastructures for facilitating rapid growth ofinvestment in those areas. Capacity building is, thus, related to growth of investment andproductive capacities, which are important for reducing the marginalization of Low IncomeCountries within the global industrial economy. ReferencesGhislain Robyn, 2001, Aspects of Marginalization Growth, Industry and Trade of the LeastDeveloped Countries, Discussion Paper No., Statistics and Information Networks Branch. UnitedNations Industrial Development OrganizationHelmut Forstner, Anders Isaksson and Thiam Hee Ng, 2001, Growth in Least DevelopedCountries: An Empirical Analysis of Productivity Change, 1970 – 1992, Working Paper No.1,Statistics and Information Networks Branch. United Nations Industrial Development OrganizationKatherin Marton, 1995, Background Paper on Recent Industrial Policies in Developing Countriesand Economies in Transition: Trend and Impact. United Nations Industrial DevelopmentOrganizationRajesh Chandra, (1992).Industrialization and Development in the Third World. London.RoutledgeTakahiro Fukunishi, Mayumi Murayama and Tatsufumi Yamagata, 2006. Industrialization andpoverty alleviation: pro-poor industrialization strategies revisited. Vienna. United NationsIndustrial Development OrganizationUnited Nations Industrial Development Organization, 2001.Building Productive Capacity forPoverty Alleviation in Least Developed Countries (LDC’s): The Role of Industry, Vienna.UNIDOInternet retrieved on 7 September 2007 13
  14. 14. Figures 2. World Country Group C Low Income Countries Categories Arranged by theWorld Bank, 2007East Asia and Pacific (developing only: 24)American Samoa Malaysia PhilippinesCambodia Marshall Islands SamoaChina Micronesia, Fed. Sts Solomon IslandsFiji Mongolia ThailandIndonesia Myanmar Timor-LesteKiribati Northern Mariana Islands TongaKorea, Dem. Rep. Palau VanuatuLao PDR Papua New Guinea VietnamEurope and Central Asia (developing only: 26)Albania Kazakhstan Russian FederationArmenia Kyrgyz Republic SerbiaAzerbaijan Latvia Slovak RepublicBelarus Lithuania TajikistanBosnia and Herzegovina Macedonia, FYR TurkeyBulgaria Moldova TurkmenistanCroatia Montenegro UkraineGeorgia Poland UzbekistanHungary RomaniaLatin America and the Caribbean (developing only: 29)Argentina Ecuador PanamaBelize El Salvador ParaguayBolivia Grenada PeruBrazil Guatemala St. Kitts and NevisChile Guyana St. LuciaColombia Haiti St. Vincent and the GrenadinesCosta Rica Honduras SurinameCuba Jamaica UruguayDominica Mexico Venezuela, RBDominican Republic NicaraguaMiddle East and North Africa (developing only: 14)Algeria Jordan Syrian Arab RepublicDjibouti Lebanon TunisiaEgypt, Arab Rep. Libya West Bank and GazaIran, Islamic Rep. Morocco Yemen, Rep.Iraq OmanSouth Asia (8)Afghanistan India PakistanBangladesh Maldives Sri LankaBhutan NepalLow-income economies (53)Afghanistan India RwandaBangladesh Kenya São Tomé and PrincipeBenin Korea, Dem Rep. SenegalBurkina Faso Kyrgyz Republic Sierra LeoneBurundi Lao PDR Solomon IslandsCambodia Liberia SomaliaCentral African Republic Madagascar SudanChad Malawi Tajikistan 14
  15. 15. Comoros Mali TanzaniaCongo, Dem. Rep Mauritania Timor-LesteCôte dIvoire Mongolia TogoEritrea Mozambique UgandaEthiopia Myanmar UzbekistanGambia, The Nepal VietnamGhana Niger Yemen, Rep.Guinea Nigeria ZambiaGuinea-Bissau Pakistan ZimbabweHaiti Papua New GuineaLower-middle-income economies (55)Albania El Salvador NamibiaAlgeria Fiji NicaraguaAngola Georgia ParaguayArmenia Guatemala PeruAzerbaijan Guyana PhilippinesBelarus Honduras SamoaBhutan Indonesia Sri LankaBolivia Iran, Islamic Rep. SurinameBosnia and Herzegovina Iraq SwazilandCameroon Jamaica Syrian Arab RepublicCape Verde Jordan ThailandChina Kiribati TongaColombia Lesotho TunisiaCongo, Rep. Macedonia, FYR TurkmenistanCuba Maldives UkraineDjibouti Marshall Islands VanuatuDominican Republic Micronesia, Fed. Sts. West Bank and GazaEcuador MoldovaEgypt, Arab Rep. MoroccoUpper-middle-income economies (41)American Samoa Kazakhstan PolandArgentina Latvia RomaniaBelize Lebanon Russian FederationBotswana Libya SerbiaBrazil Lithuania SeychellesBulgaria Malaysia Slovak RepublicChile Mauritius South AfricaCosta Rica Mayotte St. Kitts and NevisCroatia Mexico St. LuciaDominica Montenegro St. Vincent and the GrenadinesEquatorial Guinea Northern Mariana Islands TurkeyGabon Oman UruguayGrenada Palau Venezuela, RBHungary PanamaHigh-income economies (60)Andorra France NetherlandsAntigua and Barbuda French Polynesia Netherlands AntillesAruba Germany New CaledoniaAustralia Greece New Zealand 15
  16. 16. Austria Greenland NorwayBahamas, The Guam PortugalBahrain Hong Kong, China Puerto RicoBarbados Iceland QatarBelgium Ireland San MarinoBermuda Isle of Man Saudi ArabiaBrunei Darussalam Israel SingaporeCanada Italy SloveniaCayman Islands Japan SpainChannel Islands Korea, Rep. SwedenCyprus Kuwait SwitzerlandCzech Republic Liechtenstein Trinidad and TobagoDenmark Luxembourg United Arab EmiratesEstonia Macao, China United KingdomFaeroe Islands Malta United StatesFinland Monaco Virgin Islands (U.S.) 16