Dependence on a few commodities or sectors leaves countries highly vulnerable to price volatility and global shocks. Diversification is key to building more sustainable and resilient economies.
As UN Trade and Development (UNCTAD) celebrates its 60th anniversary, it’s crucial to examine issues that will shape the future of trade and development.
The "Forward together" series explores pivotal topics for developing countries, such as economic diversification, a cornerstone for building more sustainable, inclusive and resilient economies.
Historically, many developing economies have relied on a few commodities, such as oil, copper, cocoa and wheat, hindering growth and well-being. A staggering 85% of the world's least developed countries are considered commodity dependent, compared to only 13% of advanced economies.
Overreliance on a few commodities or sectors also leaves countries highly vulnerable to price volatility and global shocks.
For instance, sudden drops in global oil prices significantly impact oil-dependent economies, while travel restrictions like those during the COVID-19 pandemic hit tourism-dependent economies hard. Climate change further risks economies reliant on climate-sensitive sectors like agriculture. At total of 19 of the 20 countries most vulnerable to climate change are commodity dependent.
“The path to diversification that is inclusive and more sustainable is within our reach,” UN Trade and Development Secretary-General Rebeca Grynspan says. “But it demands strong political commitment from developing countries and their development partners.”
While diversification is essential, the process must be carefully managed to avoid worsening inequalities, particularly in communities reliant on industries like mining, gas and oil.
Harnessing new diversification opportunites
UN Trade and Development has identified over 45,000 new products with export potential to help diversify many developing economies. Their identification is based on each country's productive structure and global demand.
Technological advancements and emerging high-growth sectors like digitally delivered services, renewable energies and environmentally friendly products, also offer diversification opportunities. The services sector, especially knowledge-intensives ones like telecommunications and financial services, can help drive economic transformation by providing essential productive inputs, supporting critical physical and digital infrastructure and fostering innovation.
Harnessing these opportunities requires significant investment, new skills and better access to technology, along with gender-inclusive approaches to ensure women’s full participation.
Developing countries must also build and strengthen their productive capacities across multiple sectors. UN Trade and Development defines these as “the productive resources, entrepreneurial capabilities and production linkages that together determine the capacity of a country to produce goods and services and enable it to grow and develop.”
UN Trade and Development’s role in supporting economic diversification
UNCTAD has been at the forefront of advocating for economic diversification since its creation in 1964. We support developing countries to tackle economic diversification in a sustainable and inclusive manner through research and analysis, technical cooperation and consensus-building.
Research and analysis
UN Trade and Development has been advocating for economic diversification since its creation in 1964. We help developing countries diversify sustainably and inclusively through research and analysis, technical cooperation, and consensus building.
Key report series include:
- The State of Commodity Dependence: Provides statistical profiles detailing each economy’s commodity import and export dependence and the socioeconomic impact.
- Commodities and Development Report: Offers in-depth analysis on the links between commodities and development, focusing on how commodity-dependent developing countries can diversify their economies and enhance resilience.
- Commodities at a Glance: Each report focuses on a specific commodity or group of commodities, detailing production, consumption, trade, and price trends, along with policy considerations.
- The Least Developed Countries Report: Provides detailed socioeconomic analysis and data on the world's most impoverished and least diversified countries.
- The Economic Development in Africa Report: Analyses major aspects of Africa's development, including economic and export diversification, value addition and enhanced regional integration.
- Creative Economy Report: Highlights the significant role of creative industries in global economic growth and development, including its potential to help economies innovate and diversify.
- The Trade and Environment Review: Explores the development dimensions of key trade and environment issues, including export diversification.
Additionally, The UN Trade and Development Productive Capacities Index – covering 194 economies from 2000 to 2022 – measures countries' abilities to produce goods and services, capturing key drivers of economic growth and diversification.
In line with the index, UN Trade and Development conducts national productive capacities gap assessments for developing countries, such as this example for Zambia.
Technical cooperation
UN Trade and Development provides technical assistance and advice to help countries identify new sectors for growth and design and implement diversification strategies.
Through workshops, training programs and knowledge-sharing platforms, the organization helps build the capacity of governments and institutions to manage the diversification process effectively. Examples include:
- The EU-UNCTAD Joint Programme for Angola: Supports the country’s efforts to diversify its oil-dependent economy and better integrate into regional and global value chains.
- Creative economy programme: Promotes economic diversification by helping developing countries identify their potential for creative exports, such as media, design, arts and entertainment.
- National Green Export Reviews: Helps developing countries identify and promote green sectors with export and diversification potential, providing tailored policy advice and capacity building.
- Ocean Economy and Trade Strategies: Supports coastal developing countries, in particularly small island developing states to sustainably use their marine resources to, for example, diversify their exports.
- Blue BioTrade project: Empowers small-scale coastal producers from OECS member states to produce and trade queen conch products in domestic, regional and international markets under the Blue BioTrade environmental, social and economic sustainability criteria, including CITES.
- BioTrade Initiative: Provides a set of guidelines that can help countries promote export diversification in line with environmental, social and economic sustainability criteria.
- A project with Barbados to help the tourism-reliant island nation diversify its economy and build resilience for a sustained recovery from COVID-19.
- A project to help countries of the Caribbean Community (CARICOM) and members of the Organisation of Eastern Caribbean States (OECS) to build economic resilience.
Consensus-building
UNCTAD builds consensus and fosters partnerships between developing countries, international organizations and the private sector to mobilize resources and expertise for diversification.
A primary example is the annual meeting of experts on commodities and development, which monitors commodity market trends and briefs countries on opportunities and challenges in relevant sectors, helping them identify diversification strategies and navigate key market developments.
Key recommendations
UNCTAD encourages developing countries to integrate diversification into their growth strategies for long-term resilience, while giving close attention to social and environmental factors. Key recommendations include.
- Enhance global support for commodity-dependent developing countries: This includes easing market access, increasing the availability of technology and capital goods and making credit more affordable.
- Improve government coordination: Enhance coordination across different government areas, as diversification involves policies across trade, industrialization, export and investment promotion, infrastructure development, education, finance and energy.
- Reduce barriers to trade: Lowering trade costs can boost export diversification by providing access to new markets, reducing input costs, supporting technology transfer and technological upgrading, and increasing investments. It’s also important to address costs related to non-tariff measures through, for example, trade facilitation initiatives and regional integration agreements.
- Target appropriate sectors: Identify and target appropriate sectors and products based on each country's productive structure and global demand changes.
- Build, maintain and utilize productive capacities: They are essential for transforming economies towards production practices that have higher added value and are more knowledge-intensive and technology-driven.
- Move up value chains: Developing countries should advance in global value chains, especially in critical energy transition minerals like cobalt, lithium and copper. This not only enhances economic diversification but also strengthens supply chain resilience while contributing to climate change mitigation.
- Promote green industrial policies: These are essential for transitioning to more energy-efficient and low-carbon economies while also developing productive and technological capabilities, creating high-quality jobs, promoting social cohesion, ensuring a just transition and achieving gender equality.
- Ensure sustainable and fair trade of critical minerals: Establish principles for fair and sustainable production and trade of critical minerals to ensure the energy transition doesn’t undermine diversification efforts in mineral-rich countries.
- Bolster creative value chains: Craft and implement policies that support the entire creative value chain, from content creation to distribution, domestically and abroad.
- Integrate climate adaptation: This includes building infrastructure that withstands extreme weather, investing in sustainable agriculture and other biodiversity-based sectors, and developing renewable energy sources.
- Enhance access to finance: Improve access to capital coupled with financial literacy programs to empower small businesses and entrepreneurs, key to diversification efforts.
- Invest in digital Infrastructure and ensure widespread access to digital technologies.
- Strengthen social measures: This is key to supporting vulnerable groups and communities affected by diversification. Strategies should improve access to education, healthcare and skills-building programs.
- Incorporate a gender perspective: It’s important to understand the different ways economic diversification impacts men and women, and recognize the positive contribution of women’s increased participation in the economy.
Forward together towards diversify and resilient economies
As we look to the future, economic diversification and resilience will remain pivotal for the sustainable development in developing countries.
UN Trade and Development’s continued support and innovative approaches are vital in helping these nations navigate the complexities of the global economy, ensuring that they can build not just diverse but also inclusive and sustainable economies.
Together, we can harness the opportunities and overcome the challenges of tomorrow to achieve lasting progress.
