Underdevelopment of manufacturing industries

[Industrialized countries] The world economic crisis in the beginning of 1980s has halted the previously steady progress made by developing countries in increasing their manufacturing output. It has brought many developing countries to the brink of disaster. Outside of food-processing and textiles the modern manufacturing sector is highly import intensive. A consequence of this dependence on imported inputs is that there is a lack of linkages between the industrial sector and the rest of economy. Once the least developed countries started to experience balance of payment deficits, as they have done throughout the 1980s with commodity prices being low, then there simply is not the foreign exchange to obtain the inputs, and hence there is a reduction in capacity utilization if not outright closure. The manufacturing sector depends for the supply of raw materials in part on local agriculture and for the sale of local manufactured goods in domestic markets, the income of farmers is vital, because the markets are very small. But the farming sector has failed to grow to levels beneficial to the economy. Besides weak infrastructure in least developed countries there is a shortage of entrepreneurs and qualified labour in science and technology, management, finance, accountancy and marketing. Manufacturing is dependent on external financial resources, but the huge losses in the wake of the international debt crisis have made export credit agencies more cautious.

[Developing countries] An important objective of an industrialization strategy should be to create additional employment opportunities in non-traditional activities for the growing labour force. However, the experience of developing countries indicates that demand for labour in the manufacturing sector has not expanded at a satisfactory rate, given the rate of growth of output. Among the reasons for this lack of employment expansion are: the labour-saving bias embedded in modern industrial technology; changes in the composition of manufacturing output; the evolution of relative factor prices; and the growth in production.

In the end of 1980s MVA (Manufacturing Value Added) accounted for no greater percentage of total GDP (Gross Domestic Product) in the least developed countries than it did in the 1970s. If the rapid growth of population is taken into account, than the picture becomes even more dismal: sixteen least developed countries experienced negative growth rates in MVA per capita during the first half of the 1980s.