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 worlds 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 1

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.

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
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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

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 naturallogarithmic scale. As Figure 3 shows, thirty years ago, todays 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.

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 naturallogarithmic 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, 5

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 capitalintensive 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.

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 coincidencethe 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 worlds 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 7

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 8

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

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 10

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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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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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.

References
Ghislain Robyn, 2001, Aspects of Marginalization Growth, Industry and Trade of the Least Developed Countries, Discussion Paper No., Statistics and Information Networks Branch. United Nations Industrial Development Organization Helmut Forstner, Anders Isaksson and Thiam Hee Ng, 2001, Growth in Least Developed Countries: An Empirical Analysis of Productivity Change, 1970 1992, Working Paper No.1, Statistics and Information Networks Branch. United Nations Industrial Development Organization Katherin Marton, 1995, Background Paper on Recent Industrial Policies in Developing Countries and Economies in Transition: Trend and Impact. United Nations Industrial Development Organization Rajesh Chandra, (1992).Industrialization and Development in the Third World. London. Routledge Takahiro Fukunishi, Mayumi Murayama and Tatsufumi Yamagata, 2006. Industrialization and poverty alleviation: pro-poor industrialization strategies revisited. Vienna. United Nations Industrial Development Organization United Nations Industrial Development Organization, 2001.Building Productive Capacity for Poverty Alleviation in Least Developed Countries (LDCs): The Role of Industry, Vienna.UNIDO Internet Website www.worldbank.org/data/countryclass/classgroups.htm retrieved on 7 September 2007

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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 Cambodia Marshall Islands China Micronesia, Fed. Sts Fiji Mongolia Indonesia Myanmar Kiribati Northern Mariana Islands Korea, Dem. Rep. Palau Lao PDR Papua New Guinea Europe and Central Asia (developing only: 26) Albania Kazakhstan Armenia Kyrgyz Republic Azerbaijan Latvia Belarus Lithuania Bosnia and Herzegovina Macedonia, FYR Bulgaria Moldova Croatia Montenegro Georgia Poland Hungary Romania Latin America and the Caribbean (developing only: 29) Argentina Ecuador Belize El Salvador Bolivia Grenada Brazil Guatemala Chile Guyana Colombia Haiti Costa Rica Honduras Cuba Jamaica Dominica Mexico Dominican Republic Nicaragua Middle East and North Africa (developing only: 14) Algeria Jordan Djibouti Lebanon Egypt, Arab Rep. Libya Iran, Islamic Rep. Morocco Iraq Oman South Asia (8) Afghanistan India Bangladesh Maldives Bhutan Nepal Low-income economies (53) Afghanistan Bangladesh Benin Burkina Faso Burundi Cambodia Central African Republic Chad Philippines Samoa Solomon Islands Thailand Timor-Leste Tonga Vanuatu Vietnam Russian Federation Serbia Slovak Republic Tajikistan Turkey Turkmenistan Ukraine Uzbekistan

Panama Paraguay Peru St. Kitts and Nevis St. Lucia St. Vincent and Grenadines Suriname Uruguay Venezuela, RB

the

Syrian Arab Republic Tunisia West Bank and Gaza Yemen, Rep.

Pakistan Sri Lanka

India Kenya Korea, Dem Rep. Kyrgyz Republic Lao PDR Liberia Madagascar Malawi

Rwanda So Tom and Principe Senegal Sierra Leone Solomon Islands Somalia Sudan Tajikistan

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Comoros Mali Congo, Dem. Rep Mauritania Cte d'Ivoire Mongolia Eritrea Mozambique Ethiopia Myanmar Gambia, The Nepal Ghana Niger Guinea Nigeria Guinea-Bissau Pakistan Haiti Papua New Guinea Lower-middle-income economies (55) Albania El Salvador Algeria Fiji Angola Georgia Armenia Guatemala Azerbaijan Guyana Belarus Honduras Bhutan Indonesia Bolivia Iran, Islamic Rep. Bosnia and Herzegovina Iraq Cameroon Jamaica Cape Verde Jordan China Kiribati Colombia Lesotho Congo, Rep. Macedonia, FYR Cuba Maldives Djibouti Marshall Islands Dominican Republic Micronesia, Fed. Sts. Ecuador Moldova Egypt, Arab Rep. Morocco

Tanzania Timor-Leste Togo Uganda Uzbekistan Vietnam Yemen, Rep. Zambia Zimbabwe

Namibia Nicaragua Paraguay Peru Philippines Samoa Sri Lanka Suriname Swaziland Syrian Arab Republic Thailand Tonga Tunisia Turkmenistan Ukraine Vanuatu West Bank and Gaza

Upper-middle-income economies (41) American Samoa Kazakhstan Argentina Latvia Belize Lebanon Botswana Libya Brazil Lithuania Bulgaria Malaysia Chile Mauritius Costa Rica Mayotte Croatia Mexico Dominica Montenegro Equatorial Guinea Gabon Grenada Hungary High-income economies (60) Andorra Antigua and Barbuda Aruba Australia Northern Mariana Islands Oman Palau Panama

Poland Romania Russian Federation Serbia Seychelles Slovak Republic South Africa St. Kitts and Nevis St. Lucia St. Vincent and Grenadines Turkey Uruguay Venezuela, RB

the

France French Polynesia Germany Greece

Netherlands Netherlands Antilles New Caledonia New Zealand

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Austria Bahamas, The Bahrain Barbados Belgium Bermuda Brunei Darussalam Canada Cayman Islands Channel Islands Cyprus Czech Republic Denmark Estonia Faeroe Islands Finland

Greenland Guam Hong Kong, China Iceland Ireland Isle of Man Israel Italy Japan Korea, Rep. Kuwait Liechtenstein Luxembourg Macao, China Malta Monaco

Norway Portugal Puerto Rico Qatar San Marino Saudi Arabia Singapore Slovenia Spain Sweden Switzerland Trinidad and Tobago United Arab Emirates United Kingdom United States Virgin Islands (U.S.)

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