Trade and Development Board, seventieth session: Item 7 – Productive Capacities Index (PCI) for Evidence-Based Policymaking
21 June 2023
Ladies and gentlemen,
These are challenging times, especially for developing countries that are more vulnerable and more marginalized in the global economy. The multiple crises we are going through - including the COVID pandemic, the war in Ukraine with hikes in food and energy prices, and the climate crisis - have heavily affected their economies.
The challenges in these countries are multiple: Widespread poverty; lack of sufficient decent jobs and unemployment; indebtedness which impedes investing in productive sectors to spur growth and create jobs; or high transport costs which exacerbates their marginalization, especially of landlocked developing countries and small island developing states.
While there is not a magical solution for these challenges, there is a path: Building productive capacities.
UNCTAD has been at the forefront of defining, advocating and supporting countries in building productive capacities.
Productive capacities are the productive resources, entrepreneurial capabilities and production linkages that together determine a country's ability to produce goods and services that will help it grow and develop. They are key to structural transformation and export diversification, and hence to sustainable and inclusive development.
Therefore, productive capacities should be at the centre of domestic development policies and also be an important component in global development partnerships.
This calls for actions at the national and global level:
At the national level, it means that countries need to foster industrialization and technological upgrading of production as well as strengthen backward and forward linkages in their economies.
It requires that countries enhance the enabling environment at all levels, such as boosting energy, especially electricity, ICTs and the private sector, or strengthening domestic institutions to mobilize private savings and improve the tax collection system.
Moreover, it is important that resource rich developing countries can capture more value from their natural capital and use rents from that capital for transformations, value addition, employment generation and poverty reduction.
For the international community, it means that they must reorient and revamp development partnerships to go beyond the confines of Official Development Assistance (ODA), market access and technical assistance, and include transfer of technology and know-how, as well as building technological capabilities and innovations. Rebalancing the sectoral distribution of ODA with a focus on productive sectors should be a top priority.
It is a big agenda.
To support countries in understanding the status of their productive capacities, the gaps and limitations thereof, and how they can be improved, UNCTAD developed a Productive Capacities Index – the PCI.
This index is multi-dimensional. It consists of eight components with 46 indicators: Natural capital, Human capital, Transport, Energy, ICT, Private Sector, Institutions, and Structural change.
We have developed this index with the guidance of a Statistical and Technical Advisory Group to ensure the statistical robustness of the index and to address some challenges related to data availability across countries. We have recently refined the index to reflect the evolving importance of various factors on productive capacities such as climate change and environmental degradation.
The PCI enables policymakers actions in four main areas: (i) Assess how far productive capacities have been developed in a country; (ii) Benchmark country performance over time, or across countries; (iii) Monitor the effectiveness of past policies; and (iv) contribute to enhancing policy choices.
The index thus provides a basis for data-driven, evidence-based policy interventions. This is key, as an index on its own is not sufficient, it must be policy relevant.
With the PCI we enable a comprehensive, transformative approach to addressing development challenges, and shifting from the practice of short-term and fragmented interventions towards long-term, integrated and holistic policies of development.
Given its contribution to analysis and policy making, the index is now used by the Committee for Development Policy of ECOSOC in its list of supplementary indicators to assess a country’s economic vulnerability.
And the index has also turned into a practical tool for technical assistance. It is the centre piece for National Productive Capacities Gap Assessments. We have already completed such assessments for Angola, Kenya, Ethiopia and Zambia, and an assessment for Nigeria and a regional study for ECOWAS are in the pipeline.
No nation has succeeded in achieving sustainable development without building productive capacities. They go hand in hand.
The PCI is a multi-dimensional tool that can guide countries in formulating and implementing policies and strategies that lead them to sustainable development. We stand ready to support countries on this journey.