Facts & Figures
This year’s Least Developed Countries Report provides an abundance of insights into how businesses are started and grown in the world’s 47 most disadvantaged countries. Between them, least developed countries (LDCs) have over 1 billion people – 13% of the world’s population – accounting for just 1.3% of global GDP and 1.1% of world trade.
Entrepreneurial landscape in Least Developed Countries
• Nearly 270 million workers in LDCs were self-employed in 2017, which is usually considered as a form of entrepreneurship. This amount corresponds to 70% of total employment, compared with 50% in other developing countries.
• Close to half of the adult population in LDCs is engaged in some form of entrepreneurial activity, of which 29% in early-stage entrepreneurial activity and 18% in established businesses. Adults in LDCs are twice as likely as those in other developing countries to be engaged in (broadly defined) entrepreneurial activities.
• The shadow economy (economic activities hidden from official authorities for monetary, regulatory or institutional reasons) accounts for, on average, 35% of GDP in LDCs.
• There are 1.7 times as many early entrepreneurs in LDCs that describe themselves as opportunity-driven rather than necessity-driven, compared with 2.8 times as many in other developing countries and 3.6 times as many in developed economies and transition economies taken together.
• 63% of early entrepreneurs in LDCs and 57% of established businesses are engaged in consumer-oriented services, typically activities which imitate already existing businesses, with low margins.
• Survival rates for start-ups are low; more than 50% of new firms exit the market within the first five years.
• 28% of early entrepreneurs in LDCs are young adults (18–24 years), while those aged 25–34 account for another 35%.
• While women participate nearly as much as men in early-stage entrepreneurship, they are five times less likely to own a company.
• Rural households closer to large population centres are more likely to be engaged in non-farm entrepreneurship because they have easier access to market, credit and telecommunications facilities.
• The distribution of formal firms in LDCs is heavily skewed towards smaller establishments and displays a “missing middle”: 58% of firms have less than 20 employees, while only 12% have more than 100 employees.
• Smaller and younger firms are critical for creating jobs, yet larger firms play a key role in deepening capital and upgrading productivity.
Local entrepreneurship in global production systems
• LDC participation in global value chains (GVCs) remains low and concentrated in goods that are vulnerable to global demand shocks.
• LDC exports linked to GVC participation grew only slowly between 2010 and 2017 (average annual growth of 2 per cent), in contrast to the expansion in total exports of manufactures, which increased by 8 per cent annually over the same period.
• The predominant mode of entry by LDCs in GVCs is foreign direct investment rather than through the growth of local entrepreneurship.
• LDC participation in GVCs is primarily downstream (i.e., raw material exports that become inputs to other countries’ manufacturing), while the share of foreign value added used in producing LDC exports — 9%— is the lowest among developing countries. This shows that GVC participation is not yet a significant source of economic diversification and structural change for most LDCs.
• Several LDCs have expanded exports through participation in clothing GVCs, but the potential to increase value addition and expand local entrepreneurship remains constrained by heightened competition and lead firms’ strategies to maintain a competitive advantage.
• Nearshoring strategies favours skills development and upgrading of local labour and small entrepreneurs in Asian and Southern African LDCs.
• Evidence suggests that high-impact local entrepreneurs do exist in LDCs and have the necessary capabilities to overcome barriers and successfully unlock and exploit entrepreneurial opportunities in LDC domestic markets. However, this potential is not fully exploited.
Constraints to the emergence and growth of firms
• Three quarters of firms in LDCs are affected by electrical outages, with ensuing additional costs particularly for micro- and small enterprises.
• In 2017, 17.5% of the population in LDCs used the internet, compared with 41.3% in developing countries and 81% in developed countries.
• The gender gap in internet use is wider in LDCs than in other developing and developed countries, with 14.1% of women using the internet, compared with 21% of men.
• 32 LDCs have laws that prevent women from working in specific jobs, potentially constraining the performance of women-owned firms.
• Median start-up costs in LDCs were 40% of per capita income in 2015–2017, compared with a world average of 26%.
• In 21 out of 46 LDCs, the number of procedures required to start a business exceeds the world average.
• In relation to the ease of doing business (as conventionally captured by the corresponding index of the World Bank), 32 of the 47 LDCs are in the lowest quartile, pointing to a challenging business environment.
Current policy frameworks
• In just one-third of development plans in LDCs, micro-enterprises and SMEs are viewed as potential engines of economic growth and sources of employment and income to reduce poverty.
• Entrepreneurship is explicitly mentioned in 36 national development plans and poverty reduction strategic frameworks reviewed, but specific policy actions are generally limited and sometimes vague.
• At least 20 LDCs have national industrial policies which articulate, to a various extent, the interface between entrepreneurship and structural transformation; however, much less attention is devoted to the determinants of entrepreneurship, and to tailoring support adequately across all the life cycles of enterprises.
As well as the Least Developed Countries Report 2018, UNCTAD also publishing an updated comprehensive set of economic and social statistics on LDCs, available here.