The COVID-19 pandemic caused the most acute decline in global economic growth since the financial crisis of 2008–2009. Yet data show that the impact of COVID-19 on industrial activity was less pronounced and shorter in duration than that of the financial crisis (figure below). While early predictions in mid-2020 about the expected global economic downturn looked particularly grim, most countries had already bounced back by the end of 2020, and the majority continued on a path of growth throughout 2021, exceeding their pre-pandemic output levels. The most recent data presented in the International Yearbook of Industrial Statistics 20221 confirm that the pandemic’s effects—which were neither homogeneous for industrial sectors nor for country groups—are weakening, albeit at a different pace. Middle-income industrial economies have demonstrated the highest dynamism and are leading the recovery.
The global financial crisis had a more severe effect on industrial activity than COVID-19
Data indicate that compared to the financial crisis, the pandemic had a slightly stronger impact on the economy as a whole than on the manufacturing sector alone. This is attributable to the fact that demand for manufactured goods—at least in some key and strategic industries—was sustained, even during the height of the crisis. Although the mining and utilities sectors are usually less volatile than manufacturing, the negative effects of the COVID-19 pandemic on these sectors were stronger—particularly in high- and middle-income countries (with the exception of China)—than on manufacturing due to the severe demand and supply constraints. By contrast, the growth rates of both the manufacturing and the mining and utilities sectors were relatively high in low-income economies in 2020 (figure below).
The figures above and below show that manufacturing (reflected by the contribution of Manufacturing Value Added, MVA, to industrial growth) clearly drives overall industrial growth in industrial economies, which can be explained by the higher relative share of manufacturing in industrial activity in this particular group of economies, while the mining and utilities sectors (reflected by the contribution of Mining and Utilities Value Added, MUVA, to industrial growth) play a more important role in the industrial performance of low-income economies.
Industrial production in most country groups is expected to decelerate significantly in 2022, as the world grapples with the aftermath of the pandemic and uneven recovery, in addition to other sources of uncertainty, including continued disruptions in global supply chains and the armed conflict in Ukraine.
The impact of COVID-19 on industry-related SDG targets: What prospects for LDCs?
Numerous studies have demonstrated the positive relationship between industrialization and overall economic development deriving from the manufacturing sector’s role as a key driver of productivity growth, which in turn promotes technological advancement and innovation, thereby benefitting the entire economy and society. Industrialization can also directly or indirectly support the achievement of the socioeconomic and environmental objectives embedded in the Sustainable Development Goals (SDGs) through job creation, improvements in working conditions and the development of new and greener production technologies.
The COVID-19 crisis reconfirmed that manufacturing remains the backbone of economies and that industrial capabilities play a fundamental role for resilience. Data substantiate that countries with stronger capabilities and more diversified industrial sectors weathered both the pandemic’s economic and health impacts better than others. Least developed countries (LDCs)2, defined as “low-income countries suffering from the most severe structural impediments to sustainable development”3, have made only limited progress in industry-related SDG targets over the last three decades (figure below). Although the weight of the primary sector has gradually declined, it still accounts for 20.8 per cent of total value added in LDCs. The share of manufacturing has practically remained the same since 1990 (13.6 per cent vs 13.4 per cent in 2020), indicating that not much has changed in terms of structural transformation and industrialization.
Promoting inclusive and sustainable industrialization by raising industry’s share in GDP and employment4
Despite the widespread disruptions caused by the pandemic, the global share of MVA in GDP recovered quickly, reaching 17 per cent in 2022 (from 16.7 per cent in 2020). However, uneven recovery of employment and income across population groups has increased the inequalities within and between countries. This same trend is observed in countries’ manufacturing sectors. While according to UNIDO estimates Europe and Northern America recorded an all-time high MVA per capita in 2021 (US$ 5,000 at constant US$ 2015), it decreased in LDCs to US$ 134 (at constant US$ 2015), which is comparable to their value in 2018. The recovery prospects for LDCs thus remain ambiguous and could jeopardize their achievement of many SDG targets by 2030 (figure below). Continued economic support for those hit hardest is essential for containing the consequences of the COVID-19 pandemic and other external shocks and strengthening overall recovery.
According to the very limited data available, LDCs were hit hardest by the pandemic during the second quarter of 2020, with manufacturing output dropping to 16.9 per cent below pre-pandemic levels. This result was slightly worse than that of other low- and middle-income economies. Still, the manufacturing sector of both country groups already exceeded their pre-pandemic levels by the third quarter of 2020, and the most recent data showcased in the International Yearbook of Industrial Statistics indicate that LDCs recovered faster than other low- and middle-income economies, registering a manufacturing output level of 18.4 per cent above their pre-pandemic level. There is evidence, however, that trade in manufactured goods did not recover at the same pace5. There is concern about the longer term impact of the crisis on LDCs’ sustainable development and graduation prospects through a variety of channels, including international trade, remittances, tourism, terms of trade and external finance6. This could represent a setback in the fight against poverty and inequality and more generally the SDGs in this group of economies.
Getting LDCs back on track to achieving SDG 9 with reliable industrial statistics
Manufacturing activities in LDCs tend to be concentrated in low-technology activities, e.g. wearing apparel and food production. They mainly export primary commodities and low-tech manufactured goods and are also underperforming in terms of industrial competitiveness, as measured by UNIDO’s CIP Index. This lack of export diversification and production leaves them more vulnerable than other country groups to external shocks and trade imbalances.
In other words, LDCs have not made significant progress in structural transformation in recent decades, a fact that is also verified when looking at the relative size of their manufacturing sector. They are still lagging behind in terms of achieving SDG 9, a Goal that has interlinkages with many other SDGs and targets, including those related to job creation, food security, sustainable livelihoods and the benefits of digitalization. If SDG 9 is to be achieved by 2030, substantially accelerating progress—which has so far been insufficient to meet the Goals—and stepping up action in coming years is indispensable.
Yet data availability remains low in LDCs in many areas, including in industrial statistics. Although the production of industrial statistics is a costly exercise, National Statistical Offices should give it high priority within a general effort to implement evidence-based policy programmes. Robust industrial development and the economic transformation towards higher-productivity activities are important steps for creating sustained growth opportunities in LDCs, a process that should be accompanied by strong policy support. A complete set of industrial statistics could provide the evidence base required to guide policy initiatives, monitor their effectiveness and design corrective measures. Improving the capacity of LDCs to generate and use available data to ensure effective decision-making is an important step in achieving (and measuring) progress towards ISID and SDG 9, which will otherwise continue to be compromised.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
Have your say
What is your opinion on the IAP?
