RROJAS DATABANK Volumen 2, Number 8   /1996

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    Last Change: Wednesday, 01-Nov-95 19:35:15 MET  
    United Nations Industrial Development Organization                      
         Services and Resources
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                 INDUSTRIAL DEVELOPMENT GLOBAL REPORT 1995                  
                                New Delhi, 15 October 1995.  
Contents    
* Introduction    
* Forecasts    
* Issues and influences    
* Background
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IDO/1581  

Introduction  

A surge in manufacturing activities world wide is leading the global 
economy steadily out of recession, says UNIDO's latest report on the 
state of world industry, Industrial Development Global Report 1995, 
released here today. Developed countries' manufacturing grew 4.2 per 
cent in 1994 compared to the average decline of 0.2 per cent in the 
previous four years.  

Their recovery was outpaced, however, by developing countries, whose 
output rose again last year with an annual growth of 7.6 per cent.  
But while all groups are expected to sustain both their industrial and 
overall economic performance throughout this year, the UNIDO review 
raises doubts on the sustainability of this growth impetus even in the 
short run.  

It is important that the main driving forces for global recovery 
- economic liberalization and globalization accompanied by accelerated 
trade, investment and technology flows - are not just implemented, but 
implemented at an accelerated pace in both developed and developing 
countries, the report says.  

The international community will have to pay particular attention to 
the needs of countries that may turn out to be net losers. 
Deterioration in the terms of trade and the need to increase food 
imports will hurt the group of least developed countries (especially 
sub-Saharan Africa), the UNIDO report warns.
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Forecasts  

UNIDO predicts that world manufacturing growth will drop back again 
this year to 3.2 per cent. Mainly responsible is a slow down in 
developed market economies (2.4 per cent) where the former East 
Germany is the only area with a double-digit increase and only 
Finland, Ireland and Malta likely to exceed 5 per cent.  

Further negative growth is forecast in Eastern Europe and the former 
USSR (minus 8.5 per cent) mainly because of a 19.5 per cent 
contraction in Russia and newly independent states, still in deep 
recession, and ongoing negative growth in Albania, Bulgaria, Romania 
and former Yugoslavia.  

Industrial decline swept across all branches of industry in the former 
USSR, particularly in transport equipment, machinery and industry 
chemicals. The UNIDO report nevertheless finds some signs that policy 
reforms on industrial production, enterprise restructuring and 
employment are shifting the region to a more open economy.  

Among developing countries, except for China and East and South East 
Asia, industrial progress has not been impressive, the UNIDO report 
says. Moreover, the prospects for least developed countries remain 
discouraging in the short term. The world share of these countries 
remained almost stable and structural changes in the composition of 
industrial activity have been negligible. Low-technology industries 
still account for the bulk of industrial output, and the share of 
machinery in total manufacturing ranges from 10 per cent in Latin 
America to a mere 3 per cent in tropical Africa.  

In least developed countries, manufacturing often contributes to less 
than 15 per cent of GDP and both capacity utilization and labour 
productivity remain low.  

Thus, the gap between the least developed countries and those moving 
towards NIC (newly industrializing country) status seems to be 
widening considerably. High manufacturing growth will continue 
in China (up 14 per cent this year) and East and South East Asia 
(up 9.5 per cent). Double-digit growth is expected in Indonesia, 
Republic of Korea, Singapore, Thailand and Vanuatu. Malaysia, Papua 
New Guinea, Philippines and Taiwan Province of China will exceed 5 per 
cent. The increase in the world share of developing countries in 
manufacturing is almost entirely explained by the increases in these 
two areas, the UNIDO report finds. Their increases moreover, derive 
equally from low- and higher technology industries - indicating that 
industrialization is broadly based and the structure of industry 
already resembles that in developed countries.  

Industry in the Indian Sub-continent will also grow by over 5 per cent, 
ahead of Western Asia and sub-Saharan Africa (both 3.8 per cent). 
Western Asia is buoyed by Kuwait's 12 per cent industrial expansion. 
In Africa, Botswana, Mozambique, Seychelles will top 10 per cent. 
In Latin America and the Caribbean growth will be down (2.4 per cent 
compared to 4.8 per cent last year); however, Chile, Dominican 
Republic, El Salvador, Guyana, Monserrat, Netherlands Antilles and 
Peru will exceed 5 per cent.
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Issues and influences  

The trend to liberalization and globalization will benefit developing 
countries through greater access to foreign markets, particularly 
their exports of traditional light manufactures. But the highest gains 
will go to countries benefiting from clear, well-focused industrial 
restructuring, and an export development programme consistent with the 
shift in international comparative advantage. Exporters of goods 
benefiting from large tariff cuts will also gain. For the same 
reasons, least developed countries, especially those in sub-Saharan 
Africa may turn out to be net losers.  

But, also as a result of increasing liberalization, a strong 
resurgence of regionalism has given rise to three major trading blocks 
centred around Europe, North America and Asia and the Pacific. There 
will be significant adverse impact on world industries, particularly 
for non-member countries, if such groupings and their sub-regional 
equivalents become inward looking, the UNIDO report warns. Because of 
the risk that trade will be diverted from non-member countries, 
Article XXIV of GATT needs to be further tightened to safeguard and 
improve the treatment of non-member countries. Further, the monitoring 
and review mechanism of the World Trade Organization needs to be 
strengthened to focus on the discriminatory elimination of rights, 
rather than on the preferential creation of rights under regional 
arrangements.  

Currently manufactured goods account for almost 60 per cent of 
developing countries' total exports - a significant improvement on 
the 5 per cent they managed in 1955. Their share of world exports of 
manufactures only reached 5 per cent in 1970: last year they reached 
22 per cent, the UNIDO report notes. Because of globalization and 
falling trade barriers, developing countries' production and trade 
are expected to increase substantially. 
 
Trade can be one of the key avenues for poverty alleviation, but it 
works well only for countries having a substantial industrial base 
and a competitive export sector in manufactures. Thus trade as an 
avenue of growth is irrelevant to many countries of sub-Saharan Africa 
and South Asia where poverty is pervasive. A different set of 
policies is needed for these countries, says the UNIDO report, 
focusing on creation of productive employment. One such approach is to 
promote labour intensive industries through development of micro-, 
small- and medium-scale industries.  

In the coming decades, however, much will also depend on the ability 
of developing countries to build technology capabilities and to 
innovate the new products and processes essential to maintaining an 
edge in the global market. The effects of new technologies are likely 
to be positive and negative, the report says. Policy measures should 
be directed to mitigate the latter and maximize the former. For 
example, the shift to high technology evident in some countries could 
pose problems because high-tech industries tend to be poor employment 
generators. It is important for such countries to maintain their 
competitivity in low-tech manufacturing because of its impact on 
employment generation.  

Another factor is developing countries' need for more capital to 
finance growth. Most will continue to depend on foreign capital 
inflows for some time. And although this is increasing, many 
developing countries have not benefited. It is important, therefore, 
for developing countries to look for other ways to finance their 
growth, the UNIDO report concludes promotion of domestic savings and 
investment, private sector participation, and prudent use of capital 
and resources. 

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Background  

The 242-page report is published in English by Oxford University 
Press and retails for $40 in hard cover and $20 in paperback. 
French  and Spanish versions are in preparation.  
The contents are divided into three parts:  

Part I  
highlights major issues relating to changes in the world taking place
today - world economic trends and key influences, GATT and the gains  
from trade, regional integration and the implications for developing 
countries, new concepts of industrial competitiveness,  
industrialization and poverty alleviation, and UNIDO's role in a  
changing global context.  

Part II  
provides a regional perspective of the status and prospects of the 
manufacturing sector, including a discussion of key development issues
in each of ten regions - NorthAmerica, Japan, Western Europe, Eastern
Europe and the former USSR, Latin America and the Caribbean, Tropical 
Africa, North Africa and western Asia, Indian Sub-continent, China,
East and South-East Asia.  

Part III  
contains statistical information on industrial development indicators
for 185 countries and territories.
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