Why industry is essential, for LICs and LMICs?

Industrialization is fundamental to development for a number of compelling reasons. Traditionally, it has been recognized for its role as an engine of growth, job creation, and foreign exchange earnings. These benefits are rooted in the manufacturing sector’s ability to exploit economies of scale, create productive linkages and facilitate technological spillovers. By advancing into higher value-added, more sophisticated and diversified economic activities, industrialization serves as a cornerstone of socioeconomic progress. Furthermore, it generates more employment opportunities, thereby boosting household incomes, which in turn lead to increased domestic consumption and driving further economic expansion. Additionally, the rise of export-oriented industries generates an inflow of foreign exchange, which is essential for economic stability and sustained growth. In recent years, the focus has shifted to other factors associated with Industrialization, such as its role as an engine of innovation, a hub for green technologies, and a source of resilience against economic shocks. The manufacturing sector remains crucial for research and development (R&D), accounting for the majority of new technological patents and spearheading significant advancements in green technologies. Moreover, strong industrial capabilities have proven essential in times of crisis, as evidenced by the COVID19 pandemic, where countries with robust manufacturing sectors were better equipped to navigate economic disruptions. Recent research conducted by UNIDO outlined in the latest editions of the Industrial Development Report (IDR) provides compelling empirical evidence that underscores the critical role of industry in fostering development (see Table 1 for a summary). It should be noted, however, that expanding the industrial sector does not automatically lead to improvements across all dimensions discussed above. Countries can follow different industrialization pathways. The benefits of industrialization depend on how it is managed and integrated into national development strategies and policies. For instance, prioritizing heavily polluting industries without strong environmental regulations can result in severe ecological harm, while neglecting labour rights may result in poor working conditions and limited progress in poverty alleviation. For industrialization to foster sustainable development, it must follow an environmentally sustainable trajectory. This implies Weaving Sustainability into The design and implementation of industrial policies, ensuring that economic growth occurs without depleting natural resources or causing severe environmental degradation. Furthermore, sustainable industrial development should prioritize inclusive job creation by focusing on generating high-quality employment opportunities that provide fair wages and safe working conditions. This dual approach not only drives economic prosperity but also protects the health and well-being of both the environment and people. Given the projected high rates of extreme poverty and malnutrition in many LICs and LMICs, cultivating a vibrant and dynamic manufacturing sector in these countries will be indispensable. Industrialization must be at the heart of their domestic strategies, focused on sectors with high growth potential and the ability to generate a substantial number of jobs. By developing robust manufacturing capabilities, these countries can better integrate into diverse global and regional value chains, thereby increasing their economic resilience and growth prospects. As we reflect on the crucial role of the industrial sector in driving long-term growth in developing countries, one important question emerges: is industry growing sufficiently in these countries?