the middle-income countries perspective on sustainable development in cis, eastern and southern...
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The Middle-Income Countries Perspective
on Sustainable Development in CIS, Eastern and Southern Europe
Olga MemedovicChief, Europe and NIS ProgrammeBureau for Regional ProgrammesProgramme Development and Technical Cooperation Division, UNIDO
Regional Conference16-17 May 2013, Minsk, Belarus
Addressing challengesMiddle income countries (MICs)
of Europe and Central Asiaare facing in the context of the post-
2015 development agenda
I. Middle income countries classificationsII. MICs confront a wide range of challenges
simultaneously III. Is there a Middle Income trap or there
are various traps? IV. Post 2015 agendaV. MICs development priorities and Role of
UNIDO
Outline
I. Middle income countries classifications
EUR & NIS Programme: country coverage28 countries, diverse in terms of geography, population, history, endowments , political systems and the levels of socio-economic development. The region extends over 25 million square km, and includes around 480 million people
Country Classifications
Sub-groups Eastern Europe, Central Asia and Caucasus South East Europe EU New Member States
High Income Countries(HIC) >$12,476
Croatia Cyprus, Czech Republic, Hungary, Malta, Poland, Slovakia, and Slovenia
Middle Income Countries(MICs)$1,026 -$12,475
Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Russian Federation, Turkmenistan, Uzbekistan, and Ukraine
Albania, Bosnia & Herzegovina, FYR Macedonia, Montenegro, Serbia, and Turkey
Bulgaria Romania
Low Income Countries(LIC) <$1,025
KyrgyzstanTajikistan
World Bank country income groups (GDP per capita)Low income: $1,025 or less Lower middle income: $1,026 to $4,035 Upper middle income: $4,036 to $12,475 High income: $12,476 or more
II. MICs confront a wide range of challenges simultaneously
Challenges of transition, post-transition and middle-income economy
Regional challengesGeopolitical issues
Global challenges (globalization, international rules and regulations, climate change, environmental degradation
Post 2015 Agenda
.
New realities of globalizationNew rules and regulation: liberal trade and investment regimes;
international environmental agreements, conventions, initiatives ICT and modularization leading to functional and geographical
fragmentation of value chains in production and services, and rising demand to comply with plethora of internationally agreed and private standards
Early and late developers did not face all these issues
National
Quality
Infrastructure
Testing
Standardization
Metrology
Accreditation
Certification
GVC mediated trade accounts for around 80% of global tradeGlobal trade in intermediate, consumption and capital goods1962 – 2011
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
Billi
ons
Imports Intermediate Goods Imports Consumption Goods Imports Capital Goods
Imports
Global trade in intermediate, consumption and capital goods, 1962 – 2011
Exports
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
Bill
ion
s
Exports Intermediate Goods Exports Consumption Goods Exports Capital Goods
.
MICs Dilemma: What industrial development path to choose?
Engaging in GVC-mediated division of labour dynamics, or in nationally or regionally bounded division of labour
Engaging in international and regional DoL (GVC and GPNs) creates opportunities for fast track technological learning and catching up, for more efficient use of resources, and for reaching welfare gains
Stages of catching-up Industrialization
STAGE ZERO
Monoculture, agriculture, aid
dependency
STAGE ONESimple
manufacturing under foreign
guidance
STAGE TWOHave supporting
industries but still under foreign
guidance
STAGE THREEManagement &
technology mastered, can produce high quality goods
STAGE FOURFull capability in innovation and design as global
leader
Pre - industrialisation
Arrival of manufacturing
FDI
Agglomeration(acceleration of
FDI)
Technologyabsorption
Creativity
Japan, US, EU
Korea, China
Initial FDI absorption
Internalizing parts and
componentsInternationalizing
skills and technology
Internationalizing innovation
Middle Income Trap
. New realities of globalizationinnovation
MICs Dilemma: What industrial development path to choose?
but Engaging in international and regional DoL (GVC and GPNs) compress development time and stages; Sequential developments now occur simultaneously, and forces
MICs need to address a number of challenges at the same time, Simultaneous de-industrialization and re-industrialization Extreme wealth and poverty The social frictions associated with the co-mingling of pre-
industrial, industrial, and post-industrial societies
This is challenging sequential and liner model of development
Trade in intermediate goods 1992-2011
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Billi
ons
Industrialized Developing CIS
III. Is there a Middle Income trap or there are various traps?
Multiple traps facing Europe and Central AsiaModern market economy(non-state-owned enterprises)
Planned economy(state-owned enterprises)
Econ
omic
dev
elop
men
t (in
dust
rializ
ation
)Slower economic growth
Tran
sitio
n to
a m
arke
t ec
onom
y
Middle-income trap Transition trap Stagnating growth Slow structural transformation Lack of innovationWeak institutions Ageing population and shrinking labour forceLoss of competitiveness
Slow transition to market economyPoor market regulationsPolitical reforms and democratization before economic and educational reforms
Sustainable development issues
Where do MICs in the region stand in terms of facing various traps?
Slower economic growth
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
European Union Middle income EECA MICs EU NMS
Source: World Bank
GDP growth (current US$)
Sustainable development challenges(details are in Annex)
Rising inequality
Rising poverty: almost 30% of the people are living in poverty
35% of population is excluded from the formal economy
Business environment conditions in some countries need
significant improvements
Shallow regional integration processes in EECCA countries
Tertiarisation since 1970
Deterioration of competiveness in NMS and marginal
improvements in other countries
Material efficiency rising but still significantly below the EU-15
average
Gender inequality (index) Western Europe 0.13 Eastern
Europe: 0.21
Eco innovation capabilities low: Import dependency of environmental goods
Little investment in innovation and technological development
Renewables represent smaller shares in total energy generation, but have demonstrated growth
Youth unemployment rates vary from 10 to 35% Waste and water quality issues
Industrial diversification based on high value added goods still elusive development goal
Still one of the most energy intensive region in the world, but with progress in energy efficiency
Industrial modernization too slow
Social Environmental Economic
Structural changes in the region: strong tertiarisation process in economy
Value added by sub-sectors, based on UNIDO database (INDSTAT2 2011).Note: shares in current prices and exchange rates, in US$.
Structural transformation- Increasing urbanization in MICs
Growing urban populations
Patterns of export specialization
For many countries in the region, the share of competitive high value-added manufacturing sectors in manufacturing exports remain low
0
10
20
30
40
50
60
Bulga
ria
Cypru
s
Czech
Rep
ublic
Estonia
Hunga
ry
Latvia
Malta
Poland
Roman
ia
Slov
ak R
epub
lic
Slov
enia
Alban
ia
Bosnia an
d He
rzeg
ovina
Croatia
Maced
onia, F
YR
Turkey
Armen
ia
Azerb
aijan
Belaru
s
Georg
ia
Kazak
hstan
Kyrgy
z Rep
ublic
Moldo
va
Russian
Fed
eration
Ukrain
e
2005 2009NMS SEE EECCA
Source: UNIDO; Share in % of medium and high technologies in exports
Economic - Intra-industry trade (IIT) scores (0-10) – two way trade of products within the same sector
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
NMS EECA MICs
IIT growth is associated with and expansion in trade through greater specialization and economies of scale, foreign direct investment, innovation and the accumulation of knowledge.
Source: UNIDO, based on UN Comtrade
Share in world manufactured intermediate goods exports and imports The share in world manufactured intermediate goods exports and imports remains very low. > economic diversification still remain elusive development goals for many countries in the region
Imports
0 10 20 30 40 50 60 70 80 90
100
1988 1994 2000 2010
%
Industrialized countries Developing countries
CIS
Exports
0 10 20 30 40 50 60 70 80 90
100
1988 1994 2000 2010
%
Country/Economy Score (0-100)
Rank(1-125)
Income Rank Region Rank GII Past Years
2010 2009
Switzerland 63.82 1 HI 1 ECS 1 4 7
Sweden 62.12 2 HI 2 ECS 2 2 3
Singapore 59.64 3 HI 3 EAS 1 7 5
Estonia 49.18 23 HI 23 ECS 14 29 29
Hungary 48.12 25 HI 25 ECS 16 36 47
Czech Republic 47.30 27 HI 27 ECS 17 27 33
Cyrus 46.45 28 HI 28 ECS 18 32 45
Slovenia 45.07 30 HI 29 ECS 19 26 36
Latvia 39.80 36 HI 34 ECS 23 44 60
Slovak Republic 39.05 37 HI 35 ECS 24 37 35
Moldova, Rep. 38.66 39 LM 2 ECS 25 n/a 116
Lithuania 38.49 40 UM 3 ECS 26 39 42
Bulgaria 38.42 42 UM 4 ECS 27 49 74
Poland 38.02 43 HI 36 ECS 28 47 56
Croatia 37.98 44 HI 37 ECS 29 45 62
Romania 36.83 50 UM 8 ECS 30 52 69
Serbia 36.31 55 UM 10 ECS 31 101 92
Russian Federation 35.85 56 UM 11 ECS 32 64 68
Ukraine 35.01 60 LM 6 ECS 33 61 79
Turkey 34.11 65 UM 15 ECS 35 67 51
Global Innovation Index rankings (INSEAD)
Euro
pe a
nd N
IS R
egio
n
Country/Economy Score (0-100) Rank(1-125)
Income Rank Region Rank GII Past Years
2010 2009
Macedonia 33.47 67 UM 16 ECS 36 77 89
Armenia 33.00 69 LM 11 ECS 37 82 104
Georgia 31.87 73 LM 12 ECS 38 84 98
Bosnia & Herzegovina 30.84 76 UM 18 ECS 39 116 n/a
Albania 30.45 80 UM 22 ECS 40 81 121
Kazakhstan 30.32 84 UM 25 ECS 41 63 72
Kyrgyzstan 29.79 85 LI 2 ECS 42 104 122
Azerbaijan 29.17 88 UM 26 ECS 43 57 57
Tajikistan 24.50 116 LI 13 ECS 44 115 112
Yemen 20.72 123 LM 32 MEA 15 n/a n/a
Sudan 20.36 124 LM 33 SSF 24 n/a n/a
Algeria 19.79 125 UM 30 MEA 16 121 108
Source: INSEAD (2011)
Note: World Bank Income Group Classification (January 2011): LI = low income; LM = lower-middle income; UM = upper-middle income; and HI = high income; World Bank Regional Classification (January 2011):ECS = Europe & Central Asia; MEA = Middle East & North Africa; SSF = Sub-Saharan Africa; EAS = East Asia & Pacific; SAS = South Asia; NAC = North America; and LCN = Latin America & Caribbean
Global Innovation Index rankings (INSEAD)
(continued)
unable to compete with low income, low wage economies in manufacturing exports and unable to compete with advanced economies in high skill innovations
unable to compete with low income, low wage economies in manufacturing exports and unable to compete with advanced economies in high skill innovations
Economic - World Bank Doing Business 2010/2013
rankings
DOING BUSINESS 2010 DOING BUSINESS 2013
Georgia 11 9 Georgia
FYR Macedonia 32 23 FYR Macedonia
Azerbaijan 38 32 Armenia
Armenia 43 49 Kazakhstan
Bulgaria 44 51 Montenegro
Romania 55 58 Belarus
Belarus 58 66 Bulgaria
Kazakhstan 63 67 Azerbaijan
Montenegro 71 71 Turkey
Turkey 73 72 Romania
Albania 82 83 Moldova
Serbia 88 85 Albania
Moldova 94 86 Serbia
Bosnia & Her 116 112 Russian Fed
Russian Fed 120 126 Bosnia & H.
Ukraine 142 137 Ukraine
Uzbekistan 150 154 Uzbekistan
• Georgia and FYR Macedonia best performing countries in 2010 and 2013
• Many EECCA countries have improved their rankings between 2010 and 2013, but remain near the bottom of the table
Social - % population aged 65 and aboveMany MICs in the region have rapidly ageing populations
Source: Word Bank
Social - % population below the poverty line in MICs
Social - Youth unemployment, % of labour force ages 15-24
Source: World Bank 2012
Income inequality: distribution of income by quintile
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Albania
Armenia
Azerbaijan
Belarus
Bosnia and Herzegovina
Bulgaria
Croatia
Georgia
Hungary
Kazakhstan
Kyrgyz Republic
Latvia
Macedonia, FYR
Moldova
Montenegro
Poland
Romania
Russian Federation
Serbia
Tajikistan
Turkey
Ukraine
Poorest 20% Second 20% Third 20% Fourth 20% Richest 20%
Environment - CO2 emissions (metric tons per capita)
Source: Word Bank
0
2
4
6
8
10
12
14
16
18
Cro
atia
Cyp
rus
Cze
ch R
epu
blic
Lith
uan
iaH
un
gary
Po
lan
dSl
ova
k R
epu
blic
Slo
ven
iaA
rmen
iaA
zerb
aija
nB
elar
us
Bo
snia
an
dB
ulg
aria
Geo
rgia
Kaz
akh
stan
Mac
edo
nia
, FYR
Mo
ldo
vaM
on
ten
egro
Ro
man
iaR
uss
ian
Turk
eyTu
rkm
enis
tan
Ukr
ain
eU
zbek
ista
nK
yrgy
z R
epu
blic
Tajik
ista
n
1992
2009
Material productivity –rising material and energy efficiency, but not enough
to close gap with EU 15
Source: UNIDO and SERI
Source: UNECE 2011
‘Green economy’ patents filed under Patent Cooperation Treaty, 1992-2010, annual average per technology type.
Imports of environmental goods
IV. Post 2015 agenda
Environmental sustainability
Peace & Security
Inclusive social development
Inclusive economic
development
Post 2015 agendaLeveraging globalization and deepregional integrationIndustrial diversification /modernization CompetitivenessInnovation
Poverty reductionEqualitySocial and economic inclusionJob creation
Energy efficiencyRenewable energy Material efficiencyEnergy and Water accessEco-innovation
Global/regional governanceAddressing public goods/bads
V. MICs development priorities and UNIDO role
Development priorities of MICs and LICs, by sub-regionRegion Thematic priorities
Bulgaria Romania Environmental protection
Social inclusion
Albania Bosnia and
Herzegovina FYR Macedonia Montenegro Serbia Turkey
Renewable energy Environmental protection Cleaner production Trade capacity building Eco-tourism Social inclusion of
disadvantage group, including youth and ethnic minorities
Textile industry upgrading
Cent
ral &
Eas
tern
Eur
ope
–
EU
mem
ber s
tate
sSo
uth
East
ern
Euro
pe –
no
n-EU
mem
ber s
tate
s
Region Thematic priorities
Caucasuso Armeniao Azerbaijano Georgia
Energy efficiency SME development Agro-industry Social inclusion of disadvantage group,
including youth and ethnic minorities Industrial parks Trade capacity building Light industry
Central Asiao Kazakhstano Turkmenistano Uzbekistan
o Kyrgyzstano Tajikistan
Agro-industry Waste management Environment protection Cleaner production Trade capacity building Investment and technology promotion SME development Diversification of economy
Russian Federation Environment protection Trade capacity building Automotive industry Energy efficiency Investment and technology promotion Waste management
Western NISo Belaruso Moldovao Ukraine
Industrial energy efficiency Renewable energy RECP Automotive industry upgrading Environment protection Technology foresight
MICs are recipients and donors of development assistance Matching donor and recipient needs: UNIDO solutions
UNIDO Thematic Priorities
Donor country priorities(including MICs donors)
Recipient country development priorities (UNDAF-14 / DAO- 4),
MICs and LICs
International financial institutions priorities Regional Communities prioritiesMultilateral funds requirements
Poverty ReductionTrade Capacity-buildingEnergy & Environment
UNIDO solutions
tailored to the country and sub- regional context and
priorities ( HIC, MIC and LIC)
42
Global challenges
Transition and post transition economy challenges
Regional challenges
Middle income trap
UNIDO TC responseSME Development
Women &Youth entrepreneurship
Industrial upgrading and modernization
Agribusiness strengthening and upgrading
Innovation and technology promotion
Industrial Energy Efficiency
Green industry and green jobsWater and waste managementCleaner ProductionTrade capacity-buildingSkills development
UNIDO response Normative and standard setting
Analysis & Policy Advice
Knowledge dissemination and networking
UNIDO solutions for inclusive growth
Securing jobs for marginalized and vulnerable groups
The empowerment of poor and vulnerable in rural areas
Youth employment SME development and women entrepreneurship
Addressing challenges and UNIDO solutions:
Securing jobs through industrial diversification and upgrading
Automotive industry supply chain upgrading
Trade capacity buildingIndustrial modernization Agribusiness upgrading
Achieving sustainable production and consumption using smart business models
Greening of industry and green industry Waste and water management Eco industrial parks
Greening of industry under the Montreal Protocol
Leveraging new opportunities for IEE under GEF-6
Thematic Focus:
Industrial energy efficiency: ISO 50001 and system optimization
Low-carbon technologies (Hydrogen and Carbon Capture and Storage-CCS)
Renewable energy for industrial applications
46Industrial energy efficiency
Ensuring commitment to sustainable development through partnership with private sector
2. UNIDO and H&M Cooperation on sustainable supply chain development in the textile industry (applying Corporate Social Responsibility (CSR) principles and practices): pilot project in Turkey
3. AEON, Auchan Group, Migros and Walmart Current Negotiation with leading retailers and manufacturers to establish partnerships for sustainable supplier development in Malaysia, Russian Federation.
1. UNIDO and METRO Group agreement Joint commitment to more efficient supplychains and better food supplies
Countries: Egypt, India and in Russian Federation; Planned: Armenia, China, Indonesia, Kazakhstan, Pakistan, Turkey and Viet Nam
Funding possibilities and prospects• East- East (South-South) cooperation • BRICS UNIDO platform and triangular cooperation • EU financial instruments: Eastern Partnership on Cleaner Production and Resource
Efficiency (co-financing requirements) • Partnerships with regional groupings: Economic Cooperation Organization-ECO on
thematic areas such as TCB, SMEs development, woman entrepreneurship, WTO accession, FDI inflows, and technology transfer); Regional economic integration initiatives (Eurasian Economic Community-EurAsEC)
• Strengthening partnerships with national and regional institutions, other international organizations (UNDAFs and DAOs) and civil society for joint fund mobilization.
• Multilateral Funds (Montreal and GEF-co-financing requirements)• Self-funding through trust funds
