Are we on track to achieving SDG-9 industry-related targets?

The COVID-19 pandemic has demonstrated that manufacturing continues to be the backbone of the economy, and that industrial capabilities are crucial for resilience and recovery. Recovery across the world remains uneven, however. Countries with stronger manufacturing capabilities and more diversified industrial sectors have weathered both the economic and health impacts of the pandemic better than others1. In mid-2022, we reached the halfway mark between the adoption of Agenda 2030 and its Sustainable Development Goals (SDGs) in 2015, and the target deadline for its implementation. Inevitably, the question arises: how has the COVID-19 crisis impacted the targets related to inclusive and sustainable industrialization (SDG-9).

Manufacturing has rebounded, leaving least developed countries behind

Global manufacturing production increased by 7.2 per cent in 2021, ultimately surpassing pre-pandemic levels after witnessing a decline of 1.3 per cent in 2020. However, recovery remains piecemeal and unequal. While high-income countries benefitted from massive policy support for firms and households and rapid vaccine rollouts, the manufacturing sector in least developed countries (LDCs) stagnated due to subdued and volatile global demand and disruptions to global trade, in addition to tighter domestic economic policies.

Although all regions registered high manufacturing growth rates throughout 2021, significant differences in the pace of recovery were evident. For instance, while middle- and high-income industrial economies achieved a growth rate of 7.8 per cent and 7.0 per cent, respectively, low-income economies grew at a rate of only 3.9 per cent. The performance of emerging industrial economies (EIEs) is worth noting; in 2020, at the height of the pandemic, this group’s manufacturing value added (MVA) grew by 2.6 per cent, while it picked up speed and reached 8.0 per cent in 2021. The pandemic also accelerated the process of global redistribution of manufacturing, one of the megatrends currently being observed2.

The uneven recovery of employment and income has increased inequalities within and between countries. The share of MVA in gross domestic product (GDP) and of MVA per capita has been stagnating in African LDCs. Asian LDCs, on the other hand, made significant strides towards achieving inclusive and sustainable industrialization. The global health crisis has slowed down manufacturing growth in all LDCs, reversing much of the progress made towards achieving the SDG-9 targets.

The COVID-19 pandemic disrupted labour markets around the world at an unprecedented scale. The manufacturing sector was among the hardest hit at the outset of the pandemic, initially due to supply chain disruptions and containment measures, followed by a decline in demand. The International Labour Organization (ILO) estimates that nearly one in three jobs in global manufacturing supply chains was lost. The working conditions in garment supply chains, which employ large shares of women workers, deteriorated. Women, especially young women, have been among those most affected by a reduction in working hours or payment3. In this regard, we have taken a few steps backwards in terms of achieving inclusive and sustainable industrialization.

The lack of credit or other support has dealt a death blow to many small-scale industries

Many small firms recorded a decrease in employment and working hours, with some having to shut down during 2021 as economic activity waxed and waned in response to resurgent virus waves and containment measures. Small firms in low- and lower middle-income countries are particularly vulnerable, because they benefit less from government assistance programmes than larger firms. Moreover, small informal firms fared worse than formal ones, partly because they were unable to access formal lines of credit or COVID-19-related government support4.

Small firms operating in manufacturing and manufacturing-related services faced extraordinary challenges due to the decline in demand and supply chain disruptions. According to the most recent available data, nearly one in three small manufacturing firms has a loan or line of credit. Yet access to credit remains uneven across countries and regions. For example, only 15.7 per cent of firms in sub-Saharan African countries and 17 per cent in LDCs have access to financial services, which is well below the global average. The largest shares of small manufacturing firms with a loan or line of credit are found in Latin America and the Caribbean and Oceania (44.2 per cent and 45 per cent, respectively).

To increase access of small-scale enterprises to affordable credit, policymakers will have to develop and implement programmes to make formal lines of credit more accessible, increase financial literacy among small-scale business owners and introduce lending programmes in underserved communities.

Global emissions rebounded to a record high in 2021, erasing pandemic-related declines

COVID-19 has also had an impact on how energy is produced, supplied and consumed. Global carbon dioxide (CO₂) emissions from energy combustion and industrial processes declined by 5.2 per cent or almost 2 billion tonnes in 2020 – the largest ever drop, and nearly five times greater than in 2009 following the global financial crisis. Global CO₂ emissions fell more than energy demand in 2020, because demand for oil and coal was much lower than for other energy sources while demand for renewables increased. Yet despite this decrease in CO₂ emissions, global energy-related CO₂ emissions in 2020 amounted to 36.3 billion tonnes, their highest ever annual level5.

The gradual phasing-out of restrictions and widespread vaccination campaigns boosted economic recovery, resulting in increased energy demand in 2021. Global energy-related CO₂ emissions grew by 6 per cent as demand for coal, oil and gas rebounded, the second largest absolute increase in history, wiping out two-thirds of the pandemic-related reductions observed in 2020. We can generally conclude that countries with a higher MVA per capita and which possess advanced industrial capacities, have lower CO₂ emission rates, i.e. lower manufacturing intensity, regardless of population size.

Higher-technology industries are proving far more resilient in crises than their lower-tech counterparts

Medium- and high-technology manufacturing products accounted for 45.1 per cent of total manufacturing in 2019. This share was 47.7 per cent in North America and Europe compared to 21.4 per cent in sub-Saharan Africa at the time the COVID-19 pandemic broke out. The impacts of the pandemic differed depending on industry, and the recovery paths vary in terms of speed and intensity.

Higher technology industries performed better and therefore also recovered faster than others, which was primarily attributable to computers, electronics and optical products, electrical equipment as well as pharmaceuticals. Most industries using medium- and high-technology have already reached their pre-pandemic levels, except for motor vehicles and other transport equipment due to supply chain disruptions and a decrease in resources and intermediate goods.

By contrast, lower-technology industries, such as textile and clothing or coke and refined petroleum products, have remained below their pre-pandemic production levels. The manufacturing of basic consumer goods, such as food products, has followed a stable growth trajectory with limited losses since the onset of the pandemic.

Final remarks

There is limited data availability and timeliness of sustainable industrialization indicators, which makes measuring progress on this objective particularly problematic. Investing in statistical capacity-building and improving existing statistical procedures is necessary to help policymakers make critical and time-sensitive decisions.

Despite significant data gaps in the monitoring of progress on inclusive and sustainable industrialization (SDG-9), the pandemic’s main impacts on this target can be outlined. Global manufacturing was only temporarily affected by the pandemic and rebounded in 2021, although recovery remains incomplete and uneven. Nearly one in three manufacturing jobs was negatively impacted by the crisis, with women, youth and low- and middle-skilled workers suffering the highest losses. Higher-technology industries performed better than lower-technology ones, and have helped countries recover faster, demonstrating that technological innovation plays a crucial role for achieving sustainable industrialization by 2030 .

Increased domestic and international resources as well as political commitment are essential for strengthening national statistical offices and enhancing statistical capacity, particularly in developing countries. Producing disaggregated data can better help track the inclusiveness of industrial development, the integration of small industrial enterprises in value chains and the role of women in industry. To achieve SDG-9 by 2030, substantive progress will need to be made on these specific indicators.