Industrial Development
Report 2024

Turning challenges into sustainable solutions

The New Era of Industrial Policy

UNIDO’s flagship publication, the Industrial Development Report (IDR), is one of the organization’s key research outputs and advocacy tools. The IDR series has become a leading international reference source on industrialization, innovation and sustainable development.

The biennial report, now in its 22nd year with a total of 11 editions to date, covers a broad range of topics including innovation, capacity development, energy efficiency, jobs creation, technology absorption, digitalization, economic resilience and industrial policy.

Setting the scene

The world has experienced a series of shocks in recent years which have put the achievement of the SDGs at risk. In addition to these shocks, four megatrends are reshaping how we produce and consume goods, with important implications for industrial development.

Global polycrisis hits the world

COVID-19 pandemic

Armed conflicts

Climate-induced catastrophes

The COVID-19 pandemic’s lasting impacts, compounded by a growing number of armed conflicts and climate-related catastrophes, has had devastating global consequences. Mass lay-offs and price surges driven by these events have led to a rise in extreme poverty and food insecurity. In parallel, economic losses due to climate-related disasters have increased sevenfold since 1970.

Low-income countries have been hit the hardest by this polycrisis. While global unemployment rates and production have largely returned to pre-COVID-19 levels in many countries, recovery has been much slower in low-income countries. In addition, the surge in food prices has been particularly severe in low-income countries, which are more dependent on food imports. Moreover, these countries are estimated to lose 1% of their annual gross domestic product (GDP) due to climate-attributed disasters compared to 0.2% in high-income countries.

Initial shock

Industrial production index of Low-income countriesrelative to theWorld(2019 q4=100)

Index

Polycrisis

Source

Consequences

Unemployment rate index of Low-income countriesrelative to theWorld(2015 = 100)

Index

Polycrisis

Source

SDG progress at risk

The combined effects of the polycrisis are jeopardizing the achievement of all SDGs. At the midpoint of the 2030 Agenda, it appears increasingly unlikely that the goals will be fully realized. According to recent United Nations (UN) estimates, only 15% of the 140 SDG indicators are on track to meet their targets by 2030.

A course correction is urgently needed. To mitigate the dramatic consequences of the polycrisis and reverse its negative impacts, bold actions targeted at reigniting investments and directing them towards inclusive and sustainable solutions are necessary.

Source

Megatrends reshaping the world

In addition to the polycrisis, the so-called ‘megatrends’ are reshaping global production and consumption patterns. These changes, driven by technological advancements, socio-demographic transitions, global production restructuring and humans’ carbon footprint, have major implications for industrial development.

Capacity to generate renewable energy multiplied by 4 in the last 20 years

Global renewable electricity- generating capacity

watts per capita

Source

To effectively address climate change, the modes of production must be fundamentally transformed, with the aim of significantly reducing emissions and curbing environmental degradation. Developing countries, which are disproportionately affected and more vulnerable to the impacts of climate change, have the lowest financial capacity to implement mitigation and adaptation measures.

The energy transition hinges on the transition from fossil fuels to renewable energy. The transition has picked up tremendous speed, with renewable energy generation quadrupling over the last 20 years. Countries and firms that can master the technological and production capabilities associated with dynamic industries will benefit from new forms of green competitive advantage. However, new models built around net zero-carbon emissions and circular production processes require the development of new skills and capabilities.

Industry brings solutions

Investing resources into the activities that produce the strongest multipliers is crucial for accelerating progress towards achieving the SDGs. Manufacturing industries are particularly well-suited for this purpose.

Accelerating the SDG through industry

Hover over the different parts of the image to get detailed information.

Manufacturing industry plays a key role in accelerating growth, fostering innovation, generating jobs, reducing poverty and hunger, promoting equality and fighting climate change. When resources are limited, investments should target activities with the strongest multipliers. Industry is particularly well-positioned to accelerate progress on the SDGs, as it directly and indirectly impacts all of them.

Industry’s direct effects include the provision of essential goods (SDGs 2, 3 and 12); the development of industrial skills (SDG 4) and new technologies (SDG 8) to accelerate growth and reduce emissions (SDG 7); the creation of decent jobs (SDGs 5 and 8); the expansion of the middle class (SDG 10); and the establishment of industrial clusters (SDG 11).

Hover over the different parts of the image to get detailed information.

New industrial policies are urgently needed

Industrial policy is on the rise...

Industrial Policy has doubled in the last 10 years

Proportion of industrial policy over total policies

Source

Industrial policy is on the rise...

The industrial sector’s capacity to drive transformation, competitiveness and sustained progress is not automatic, however, and hinges on deliberate industrial policy actions. A resurgence of industrial policy has emerged in recent years, bringing it to the forefront of the global political agenda. This trend is grounded in the recognition of the industrial sector’s crucial role in promoting economic resilience and growth.

Countries are therefore increasingly adopting policies to bolster their industrial base and to address economic vulnerabilities and strategic dependencies. Industrial policy measures between 2009 and 2019 have doubled worldwide.

...but it is primarily driven by high-income economies

Average number of industrial policies implemented from 2009 to 2019

High-income economies

Low- to middle-income economies

Source

The resurgence of industrial policy is primarily driven by industrialized countries and reflects their strategic emphasis on reinforcing their domestic industrial capabilities and securing technological leadership. High-income economies implemented industrial policies at a rate five times that of developing countries in the last decade.

While highly industrialized countries continue to invest substantial resources in their industrial sector, developing countries are struggling to maintain financing amid high levels of debt and inflation. This investment imbalance hampers industrial firms in developing countries, making competition with their counterparts in advanced economies increasingly difficult. These trends are likely to exacerbate existing disparities, making it even more problematic for developing countries to strengthen and upgrade their industrial ecosystems.

Average number of industrial policies implemented from 2009 to 2019

High-income economies

Low- to middle-income economies

Source

The next generation of industrial policy

A new approach to industrial policy is needed to address today’s grand challenges. Modern industrial policy should be SDG-oriented, future-ready, collaborative and regionally coordinated.

Putting the SDGs at the forefront

An SDG-oriented industrial policy should begin with a comprehensive assessment of the country’s progress towards the SDGs. The most relevant SDGs for immediate action in the context of industrialization are SDG 7 (affordable and clean energy), SDG 8 (decent work and economic growth) and SDG 9 (industry, innovation and infrastructure). IDR 2024 introduces a new approach to assessing progress in these SDGs, focusing both on the current situation and the pace of progress made so far.

The assessment of SDG progress in the developing world indicates that global advancements in industry-related SDGs are lagging, and that they have been further derailed by the ongoing polycrisis. Three critical areas urgently need attention: the adoption of clean energy (SDG 7), the creation of decent jobs (SDG 8) and innovation (SDG 9). Accelerating progress in these areas through industrial policy means supporting industrial decarbonization, job creation and industrial digitalization. Each of these dimensions requires targeted industrial policy instruments to effectively address their unique challenges.

Source

Hover over the different parts of the chart to get detailed information.

The most immediate SDGs for action are:

Industrial decarbonization

to accelerate clean energy adoption

Priorities	Challenges	Policy Instruments
Deployment of renewable energy	Capital constraints	Global climate funds and international development assistance
		Public investment and long-term loans in renewable energy
		Preferential interest rates for renewable energy
	Sunk costs	Just transition programmes
	Sunk costs	Phasing out of subsidies for carbon-based facilities
	Lack of technical expertise	Consultancy services
Greening of existing production	Production is still linear	Taxes on plastics
	Production is still linear	Awareness-raising tools
	Lack of green skills	Apprenticeships and training in green industry
	Lack of green skills	Tax credits for 'environmental jobs'
Development of green technologies	Lack of emission-free technologies	Setup of environmental research agencies
	Lack of emission-free technologies	Support for green technology transfer
	Low research capabilities	Public funding for basic research on green technologies
	Low research capabilities	Development of research networks

Looking into the future

The four major megatrends currently shaping our world present significant challenges for developing countries, but create new opportunities as well. IDR 2024 identifies eight areas of opportunity to accelerate progress towards the SDGs through the next generation of industrial policy.

Energy transition products

Establish industrial clusters focused on rare minerals extraction and the production of new goods required for the energy transition.

Clean energy production

Promote industrialization around clean energy production (e.g. wind, photovoltaic, green hydrogen).

Markets or governments cannot tackle today’s challenges on their own. The complexity of modern challenges exceeds the capabilities of either the private or public sector to ‘go it alone’. While markets are dynamic, they often fall short in facilitating knowledge sharing. On the other hand, governments often struggle to identify and support ‘winners’ in the rapidly evolving industrial landscape and may lack the ability to effectively promote emerging technological sectors.
Collaboration is therefore essential. Modern industrial policy relies less on top-down incentives and more on fostering sustained partnerships between the public and private sectors. Engaging with relevant stakeholders is crucial for achieving a higher level of policy implementation.
Public-private collaboration is a foundational component of modern industrial policies. These partnerships must foster a shared sense of responsibility, risk and reward. Mutual investments ensure that both sectors align their efforts towards the common goal of sustainable and inclusive industrial development.

Coordinating with neighbours

The most pressing challenges are global in nature, yet the policy solutions to address them are often crafted and implemented by individual countries. To maximize common benefits and avoid unintended negative impacts or harmful competition among policies, effective coordination at both global and regional levels is essential.
Supranational policies and programmes can establish a general framework for national industrial policy. Such frameworks can offer guidance, promote coordination and flexibility, enabling each country to align industrial policies with its national priorities and strategies while leveraging its comparative advantages.
International and regional cooperation can enhance the effectiveness of national policies and capitalize on existing networks such as those led by development organizations. These networks have significant potential to build and expand learning platforms for the sharing of best practices in industrial policy.

Turning challenges into opportunities

Well-crafted industrial policies might fall short during implementation unless certain conditions are met. The international community can assist developing countries in creating these conditions to accelerate progress towards the SDGs.

Three key ingredients for success

The review of policy cases done in IDR24 demonstrates three important ingredients for success in a modern industrial policy:

Strong government capabilities

Modern industrial policies set more ambitious targets than past ones while addressing new challenges. Their success lies in strengthening government capacities.

Adequate financing

A modern industrial policy can only achieve the necessary scale for meaningful change if it is backed by sufficient financial resources.

Broad societal consensus

Capacity development and financial support must be complemented by a broad societal consensus to ensure the continuity of industrial policy beyond political cycles.

A modern industrial policy that incorporates all these ingredients can unlock industry’s full potential and accelerate progress towards the SDGs. The international community can play a key role in supporting countries to achieve these goals.

The need for solidarity

Domestic efforts alone will not suffice. The international community must unite in solidarity to support the most vulnerable countries by:

Ensuring increased and sustainable financing, with a commitment to transform the global financial system to prioritize developing countries’ needs.
Bolstering government capabilities to design and implement modern industrial policies.
Facilitating the transfer of new technologies and supporting domestic efforts to adapt them to local conditions.
Promoting the development of new skills to reduce unemployment and underemployment, boost productivity and improve living standards.
Opening the policy space.

Regional perspectives

An assessment of regional progress reveals significant differences in investment and intervention priorities, a crucial factor to consider when designing future industrial policies. IDR 2024 provides region-specific assessments of SDG progress for Africa, Asia-Pacific, Eastern Europe and Latin America and the Caribbean (LAC). These assessments identify crucial areas for action and include discussions on opportunities to address challenges, along with concrete examples of industrial policies designed to tackle them.

From SDG assesment to policy solutions

SDG 7. Affordable and clean energy

SDG 8. Decent work and economic growth

SDG 9. Industry, innovation and infrastructure

Developing countries assessment

Source

Despite recent positive developments, Africa’s industrial sector lags behind other developing regions. Urgent actions are needed to accelerate industrialization while simultaneously advancing the SDGs.
Clean energy presents a unique opportunity for Africa to accelerate progress on the SDGs. With its abundant renewable resources, Africa has huge potential to leapfrog into green technologies.
To improve employment targets, it Is essential to implement more robust policies that specifically address youth unemployment, promote gender equality in the workforce, and support the transition of workers from the informal to the formal economy.
Infrastructure development is vital for Africa’s industrial growth. Investments in roads and digital infrastructure will facilitate interconnection, integration and transformation across the continent.
Innovation stands out as the most pressing challenge Africa faces. Without substantial investments in R&D, Africa risks falling behind in the global technological race.

Policy cases

Nigeria

Strengthening the automotive sector by leveraging electric vehicles

Uganda

Leapfrogging into solar buses

Kenya

Strengthening local capabilities to embrace the 4IR

Rwanda

Building an ICT hub to support economic transformation

The African Continental Free Trade Area

Advancing industrialization through regional integration

Ethiopia

Setting-up industrial hubs to foster development and job creation

Senegal

Boosting food production through special agro-industrial processing zones

Egypt

Fostering pharmaceutical production through industrial policy

Experts' views

Jeffrey Sachs

Director of the Center for Sustainable Development at Columbia University

There are fundamental shifts taking place in the world which are very disruptive and difficult to handle. The energy transition, the technological revolution, demographic transitions and the global rebalancing are changing industry dramatically. Responding to these megatrends will imply enormous transformations across sectors and throughout supply chains. A new framework, constructed around these trends, and supported by industrial strategies that are embedded more broadly in overall economic and demographic strategies will be crucial to harness these challenging transformations towards the acceleration of the SDGs.