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)
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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2. 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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3. 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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4. 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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5. 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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6. 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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7. 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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8. 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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9. 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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10. 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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11. 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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12. 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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13. 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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Industrial Development Organization
United Nations Industrial Development Organization, 2001.Building Productive Capacity for
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
13

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
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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
15

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.)
16