Asia-Pacific Regional Review of the Istanbul Programme of Action: Session 5 – Structural transformation and resilient infrastructure for sustained economic growth, poverty alleviation and decent work for all

Statement by Isabelle Durant, Acting Secretary-General of UNCTAD

Your Excellencies,

Dr. A. K. Abdul Momen, Foreign Minister of Bangladesh
Mr. Ali bin Ahmed Al-Kuwari, Minister of Commerce and Industry of Qatar
Distinguished Panellists,

Ladies and Gentlemen,

Structural transformation lies at the heart of the development process. The movement of labour and other productive resources from low-productivity to high-productivity economic activities is the engine that delivers higher wages and – ultimately - poverty reduction.

However, despite its central importance, structural transformation has remained elusive for many LDCs in the Asia-Pacific region and is at best only incipient. While these LDCs have generally outperformed their peers in Africa and in the Caribbean in terms of growth and poverty reduction, only few of them have seen the expected shift of labour and resources from agriculture to manufacturing and high-productivity services.

Agriculture still accounts for a large share of employment, but only accounts for 21% of GDP. Only a few countries have managed to establish some internationally competitive manufacturing industries, especially in the textiles and clothing industry. Bangladesh has even developed a pharmaceuticals industry. However, overall, the share of the manufacturing sector is declining in the LDCs of the region. Services represent the largest share of GDP, but remain largely informal.

Many Asian LDCs, unlike their island counterparts, have managed to significantly expand their exports of low-tech manufactures. However, lacking greater domestic value addition, stronger intersectoral linkages and sustained upgrading, this only goes so far. It may help reducing commodity dependence (or reliance on tourism) but not avoiding the “middle income trap”, leaving countries vulnerable to shocks and limiting the potential for growth and poverty reduction.

The challenges faced by these countries in fostering diversification and structural transformation are demonstrated by their performance on UNCTAD’s new Productive Capacities Index (PCI). The PCI measures the levels of productive capacities of a country in eight core components: natural capital, human capital, energy, private sector, structural transformation, transport, institutions and information and communications technologies.

On average, Asian LDCs achieve higher PCI scores than their peers in all components except natural capital. In particular, they outperform the LDC average in areas such as energy, transport, and ICTs. In contrast, their lead in terms of human capital and institutions is relatively smaller. In the area of private sector facilitation, they only match the LDC average. In the area of structural transformation, their lead is fast eroding.  And, across the board, they continue to lag behind the levels achieved by other developing countries.

Thus, while Asian LDCs have been relatively more successful than other LDCs at strengthening basic infrastructures, they have not yet been able to harness this fully.

So what are the policies and measures needed to strengthen productive capacities and foster structural transformation in these LDCs?  While the prescriptions will differ between Asian LDCs and Pacific Islands, some common elements could include the following:

1. LDCs in the region should provide support to strategic sectors with export potential and higher value-added, especially agro-processing, mining-related processing, tourism and light manufacturing, and promote inclusion into global and regional value chains along with denser input-output linkages at a domestic level. In pursuing related industrial policies, it is important to ensure that incentives are performance-based, rather than general, thereby pushing for continued improvements in competitiveness. 
2. LDCs in the region should build on the success achieved in extending access to electricity among the population, by focusing on the reliable provision of electricity for productive uses and enterprises that can support economic diversification.

3. they should align their transport infrastructure planning with broader industrial policy objectives, and take into account the potential impact of natural disasters as well as climate change.

LDCs could identify priority projects for funding and extend efforts to attract private investment in the road network through public-private partnerships (PPPs).

They should also harness initiatives such as the Belt and Road Initiative, while addressing some of its challenges, including the potential risk of indebtedness, as well as the need to ensure national ownership. 

6. they should consider strengthening logistics services and reducing related costs, including through stronger competition and trade facilitation.
7. LDC should improve access to finance to support productive upgrading. Beyond addressing this through SME support measures, LDCs should improve access to finance/banking services in rural areas through mobile money applications. Particular attention should be paid to women’s economic empowerment.
8. governments should work to reduce the high cost of internet services, and support the creation of designated ICT-schools, to strengthen the ICT-skill base, including the use of ICTs for entrepreneurship.
9. there is a need to increase productivity in agriculture through irrigation, better extension services, and greater employment of modern technologies. Particular attention should also be paid building the capacity to meet food safety standards in export markets and enhancing linkages with the tourism sector.

These are only some of the measures to consider. UNCTAD stands ready to support LDCs in the region in designing and implementing policies to foster productive capacities and structural transformation, including through our Least Developed Countries Reports, our Productive Capacities Gap Assessments and related technical assistance.

Thank you.