Enhancing industrial policy capabilities: A multilateral approach to knowledge-sharing

The renewed global interest in industrial policy coincides with rising concerns about the sluggish pace of industrialization in several developing countries. The share of low-income economies in world manufacturing output continues to shrink, from 0.6 per cent in 1990 to 0.4 in 20211, while that of industrial economies stood at around 91 per cent in 2021. With the exception of a handful of dynamic middle-income economies, particularly in Asia, the industrial development gap continues to grow.2

Novel approaches to industrial policy are necessary to address the heterogeneous and complex industrial development challenges the world is facing. In line with the United Nations 2030 Development Agenda and its Sustainable Development Goals (SDGs), opportunities to accelerate sustainable industrial transformation in developing countries exist3, namely building on a new generation of sustainable industrial policies that effectively reconcile national interests, regional coordination and collaboration as well as international governance around industrialization.456No country acting in isolation can effectively address the ongoing challenges shaping the trajectory of industrial development.

Knowledge-sharing and multilateral learning, networking and the cultivation of partnerships need to be encouraged to better and more systematically inform innovative approaches to industrial policymaking. How can existing multilateral knowledge-sharing mechanisms be leveraged to foster industrial policymaking capacities and accelerate progress towards the achievement of SDG9?

Novel approaches to the formulation of industrial policies require capable policymaking institutions.

Governments can set in motion systems that underpin industrialization by establishing appropriate policy frameworks and conducive institutions. Similarly, government institutions with a mandate in industrial development must build and strengthen their capacity to engage in increasingly complex industrial policymaking processes. Hence, policy learning plays a crucial role in capacity development processes that support industrialization.

While usually difficult to measure, developing countries and former transition economies that engage in active policy learning tend to outpace others in terms of governance performance7 (see figure below8). This, among others, demonstrates a country’s ability to establish and steer policymaking in certain directions, allocate resources efficiently, and/or engage in meaningful collaborations, both domestically and internationally.

From an industrial policy perspective, policy learning and strong governance tend to also correlate with industrial competitiveness, as measured by UNIDO’s Competitive Industrial Performance (CIP) Index. The figure below shows that most countries characterized as active policy learners and that outperform others in terms of policy governance tend to rank higher in the CIP Index.

But what is policy learning? For simplicity's sake, policy learning encompasses systematic processes that include, among others, effective monitoring and evaluation to draw lessons from past experiences and the ability to observe and engage in knowledge exchange to enhance awareness and understanding of good practices in policymaking9. Policy learning provides governments with the necessary flexibility to modify a set course of action and implement innovative solutions to policy problems. Policy learning takes place through interactions with academic experts and practitioners via consultancy or broader professional services. By engaging in international cooperation and knowledge-sharing activities, governments can gain useful insights to improve their policymaking processes. Multilateral organizations such as UNIDO can learn, integrate and scale up different policy learning mechanisms to enhance the industrial policy advisory services offered to developing countries.

Multilateral knowledge-sharing to inform policy practice

Closing the industrial development gap raises several questions for policymakers, particularly in developing countries. Which industrial strategies to pursue? How to sustain and accelerate progress? What sectors to prioritize? Which capability gaps to address to achieve the intended goals?

There is no one-size-fits-all answer to these questions. There is, however, value in activities that enable industrial policymakers to learn from their counterparts, subject matter experts and industry practitioners by exchanging know-how on industrial policymaking in a wide range of crosscutting areas related to industrialization. Understanding the context and other framework conditions around those experiences can help policymakers assess their relevance and adapt lessons from case studies to local conditions and practices.

Several policy learning mechanisms and platforms exist that foster knowledge exchanges around policies on trade, science, technology and innovation (STI), investment flows and other areas. While some of these mechanisms touch on industrial policy issues, they usually play a secondary role only.

Existing mechanisms to promote policy learning can be classified into two broad categories: (i) Policy analysis, networks and tools and (ii) Policy (peer-) reviews with different degrees of binding recommendations for participating entities.

Policy analysis, networks and tools provide inputs to various policies and contribute to learning how policy tools are designed, managed and assessed in different countries. Learning platforms differ in their focus, analytical approach and response to policy challenges. Examples include the Live Implementation Matrix: an online tool developed by UNCTAD within the framework of its Investment Policy Reviews (IPR), the Global Observatory of Science, Technology and Innovation Policy Instruments (GO-SPIN), a methodological tool created by UNESCO to map national STI landscapes and analyse STI policies and their implementation in developing countries. And the UNDP Accelerator Labs, the world’s largest learning network on wicked sustainable development challenges, providing rapid and innovative grassroots-led solutions covering all SDGs

Policy (peer-) reviews focus on specific policy challenges and opportunities. They provide policy recommendations for countries under review to improve the quality and outcomes of their policymaking processes. Existing review mechanisms differ significantly in nature and focus, but also in terms of lifetime, frequency, methodology, cooperation with other international organizations, follow-up post-policy review and long-term assessment.

In terms of lifetime, some policy reviews were introduced decades ago, as the UNCTAD’s STI Policy (STIP) Reviews and IPRs since 1998 and 1999, respectively; and WTO’s Trade Policy Reviews (TPRs) since 1988. Others are relatively new as the African Union’s African Peer Review Mechanism (APRM) since 2003, and the OECD’s Production Transformation Policy Reviews (PTPRs) since 2015. As for frequency, while APRM and TPRs are carried out regularly (APRM every 4 years and TPRM every 2, 4 or 6 years, depending on the country’s share in world trade), most reviews are conducted upon a country’s request. 

Regarding methodology, most formal peer review mechanisms involve desk research, background analyses, field missions and qualitative interviews with representatives of the government, private sector, academia and other specialized institutions. However, several peer review mechanisms additionally disseminate self-assessment questionnaires to the country under review (APRM, PTPRs, STIP Reviews), while WTO’s TPRM requires a policy statement to be issued by the government under review. 

For cooperation with other international organizations, while some organizations conduct policy reviews under the exclusive guidance of their Secretariats (WTO’s APRM), others (e.g. OECD, UNCTAD) may collaborate with other development partners (including UNIDO) to create synergies and avoid duplication of efforts.

Concerning follow-up post-policy review, usually, tailor-made policy recommendations emerge from policy reviews. Some organizations may also offer a road map or action plan for practical implementation of those recommendations, as well as possible follow-up technical assistance (APRM, IPRs and STIP Reviews), often, but not necessarily, in collaboration with other development partners. And for long-term assessment, while the implementation of recommendations may not entail further support from the international organization that conducted the policy review, it is common for review mechanisms (AU’s APRM or UNCTAD’s STIP Reviews) to include a second generation review to evaluate the extent to which the recommendations have been implemented in the country, as well as their impact.

Despite their differences, existing policy learning mechanisms share crucial elements, for instance, they are voluntary and initiated at a government’s request; involve lengthy processes (approx. 10-18 months); and cover all regions of the world. They also benefit from donor support and/or are financed via trust funds and share a similar methodology (i.e. field missions, background analyses, desk research, interviews and self-assessment questionnaires). Existing policy learning mechanisms utilize a case-by-case individualized approach for each country under review as well, and combine peer-to-peer events with capacity development activities and active multi-stakeholder engagement (e.g. introducing focal points, validating data obtained during reviews, presenting draft reviews for comment and inputs, etc.).

Final remarks

In conclusion, the policy (peer-) reviews landscape presents a wide range of approaches and characteristics. Despite their variations, these mechanisms exhibit a shared commitment to fostering policy improvement and collaboration, thereby underscoring the collective pursuit of inclusive and sustainable policymaking processes on a global scale

While novel approaches to industrial policymaking aim to help developing countries accelerate progress towards SDG9, the capacity for policy innovation requires open and active policy learning behaviours. Initiatives such as UNIDO’s recently established Multilateral Industrial Policy Forum, that promote knowledge-sharing and mutual learning between countries offer great potential to guide innovative approaches to industrial policy.

In this context, elements that add value to knowledge-sharing mechanisms centred around industrial policy include “real-time” learning with a focus on innovative approaches to industrial policy solutions geared towards accelerating progress on the SDGs. What is equally important is the promotion of action-driven dialogues that result in “actionable” recommendations linked to technical assistance offers. Moreover, as learning is also an accumulative process, the possibility of continuous rounds of knowledge-sharing should facilitate the development of follow-up and refined initiatives aimed at transforming national industrial policies. Taking initiative to establish partnerships with other international organizations is key for creating synergies and preventing duplication of efforts in industrial policy development.