Ladies and Gentlemen,
It is a great honor to address this conference on inclusive and sustainable industrialization in the middle income countries.
I would like to express my gratitude to the Ministry of Foreign Affairs of the Republic of Belarus for the invitation.
I also would like to express my thanks to UNIDO and UNDP for co-organizing the conference.
The topic of the conference is most pertinent and timely for many middle income countries (MICs). As you are aware, the UN Open Working Group has already proposed “inclusive and sustainable industrialization” as one of the Sustainable Development Goals.
Against this backdrop, let me address four related issues:
Frist, what do we mean by sustainable industrialization?
Second, what are the sustainable development challenges confronting the middle income countries, particularly those in Europe and Central Asia?
Third, the role of innovation and industrial policies to foster sustainable industrialization;
Fourth, the imperatives of global partnerships for promoting sustainable industrialization;
Sustainable industrialisation is a gradual process of transformation towards an industrialised economy to create employment and wealth, promote social development and ensure environmental sustainability. It is therefore deeply rooted in the broader concept of sustainable development.
Sustainable industrialization includes not only production but also innovation, design, marketing, distribution and recycling. It is driven by acquisition and diffusion of new technologies, development of skills, modernization of services and diversification of economic activities. At the heart of sustainable industrialization is innovation. It is especially critical for middle income countries, as they compete for market shares in the global economy.
Ladies and gentlemen,
102 middle income countries account for more than half of UN memberships and nearly two-thirds of the world population. Their share of global output reached nearly 32% in 2013, increasing from 13% in 1990. In purchasing power parity terms, their share is over 50%.
On average, MICs grew twice as fast as the global economy during this period. They also managed to reduce their income gap with high income economies.
Despite their impressive growth performance, MICs face myriad development challenges, including widespread poverty, rising inequality in income and growing environmental pollution and degradation. They also confront the prospects of growth deceleration and falling into the so-called Middle Income Trap.
Middle income countries in Europe and Central Asia – 18 in total – face the further challenges of low productivity growth and de-industrialization.
11 among 18 MICs in Europe and Central Asia are landlocked, constraining their ability to expand international trade. They are also more vulnerable to external economic shocks, compared to the MICs in other regions. In the aftermath of the global financial crisis, outputs in many of these economies contracted sharply, while growth rates of MICs elsewhere remained resilient. Conflicts and geo-political tensions also pose significant challenges to the MICs in these two regions.
Economic growth largely depends on enhancing productivity, upgrading industrial structures and improving “hard” and “soft” infrastructure to reduce transaction costs. These require innovation. While low income countries can rely on low wages, MICs need to constantly innovate to remain competitive. Innovation involves improving products and processes in existing industries, as well as competing in higher value added and technologically more complex sectors.
Fostering innovation will require MICs to adopt long-term industrial development strategies. Their industrial development strategies would, however, need to strike a balance between achieving rapid economic growth and ensuring social and environmental sustainability. A well targeted industrial policy can play an important role in increasing demand for jobs and skills, stimulating productivity growth and wages and reducing income inequality. A strong focus on SMEs can be an important strategy to promote jobs and social development. A targeted industrial policy can also incentivize innovation to promote environmental sustainability.
Successful industrial policies typically support industries that can effectively harness a country’s comparative advantages. The experience of East Asia shows that these countries generally “followed” their comparative advantages to industrialize their economies. They enabled industries to compete with countries that had similar endowments but somewhat higher per capita income.
A the same time, new industrial policies will require enabling governance structure and supportive institutions to promote sustainable industrialization. Effective state capacities will remain essential to facilitate innovation, industrial upgrading, and economic diversification. They will also be needed to address market failures and externalities, particularly environmental externalities.
Strengthened global partnership is an imperative for facilitating sustainable industrialization. Three factors:
- easier access to, and transfer of technology, including technologies for environmental sustainability;
- higher levels of investment, including FDI, in human capital and physical infrastructures; and
- enhanced market access and integration of global value chains – is likely to facilitate sustainable industrialization worldwide, including in MICs. These will require more effective global partnerships in the areas of intellectual property rights, trade, finance and environmental issues.
As you are aware, 2015 is an important year in international development cooperation. The third International Conference on Financing for Development in July this year will lay the foundation for renewed global partnerships for sustainable development. It is expected that Member States of the UN will adopt an ambitious and universal post-2015 development agenda in September.
The UNFCCC COP 21 in Paris later this year will hopefully reach an accord on climate change, while the WTO Ministerial meeting in Nairobi is expected to make progress on market access for developing countries, including MICs.
At the United Nations, we remain committed to strengthening development cooperation with the middle income countries. Our commitment extends to supporting sustainable industrialization in the MICs. My Department will continue to partner with other UN agencies, funds and programmes and governments in MICs to promote inclusive and sustainable industrialization.
The United Nations system is also well positioned to facilitate South-South and Triangular Cooperation to promote sustainable industrialization in the middle income countries. MICs in Europe and Central Asia stand to benefit greatly from the experiences of their counterparts in East Asia. They can gain from exchange of knowledge and skills, transfers of technology and development cooperation with MICs in East Asia and other regions.
Excellencies, Ladies and Gentlemen
In conclusion, let me reiterate that sustainable industrialization will remain a key to achieving sustainable development worldwide. This will require us to re-think our development strategies and adopt new industrial policies that are well-targeted and socially and environmentally sustainable. Governments must play an important role to facilitate sustainable industrialization. An effective global partnership will be equally important.
I wish the conference a resounding success.