UNCTAD flags premature deindustrialization risk across least developed countries

The United Nations Conference on Trade and Development (UNCTAD) has raised concerns that many of the world’s Least Developed Countries (LDCs) are experiencing “premature deindustrialization,” a trend that could undermine long-term economic transformation.

The warning was contained in its latest publication, The Least Developed Countries Report 2025: Are Services the New Path to Structural Transformation?.

The report highlights widening disparities in development pathways, as most low-income countries bypass manufacturing-led growth in favour of service-driven economies.

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While some Asian and African economies have followed a traditional industrialisation path, UNCTAD notes that the majority of LDCs are shifting directly from agriculture into services, raising concerns about productivity and sustainability.

What the report is saying

The report identifies a growing divergence in how LDCs are transitioning economically, with only a few countries maintaining manufacturing-led growth patterns. These differences are shaping long-term development outcomes across regions.

• Countries such as Bangladesh, Cambodia, Myanmar, and Nepal have partially replicated the classical industrialisation model, absorbing labour from agriculture into manufacturing.
• In most LDCs, however, labour is moving directly from agriculture into low-productivity service sectors instead of industry.
• Manufacturing’s share of employment and output is declining at early stages of development, a phenomenon described as _“premature deindustrialization.”  _

In some cases, countries are experiencing “pre-industrial deindustrialization,” where industrial decline begins before a viable industrial base is established.

These trends highlight concerns that many LDCs are undergoing structural shifts at low income levels, potentially limiting future growth prospects.

**More Insights **

UNCTAD notes that while the services sector presents new opportunities, overreliance on it without a strong industrial base could create long-term vulnerabilities. The expansion of services must be carefully managed to avoid economic imbalances.

• Many LDCs are pursuing similar service-led strategies, particularly in logistics, finance, tourism, and digital services, raising the risk of global overcapacity.
• Competition is intensifying in sectors such as logistics, where countries are positioning themselves as regional hubs.
• In West Africa, over 100 ports now compete along the coastline, with facilities like the Port Autonome de Lomé facing pressure from neighbouring countries, including Côte d’Ivoire, Ghana, Nigeria, and Senegal.

Maintaining efficiency, cost competitiveness, and infrastructure quality has become critical for survival in increasingly saturated service markets.

The report warns that without diversification and strategic planning, service-led growth alone may not deliver sustainable development outcomes.

**What you should know **

UNCTAD emphasises the need for a balanced and context-specific development strategy that integrates both industrial and service sector growth.

In January, the Federal Government introduced the Nigerian Industrialisation Policy, an initiative designed to drive value addition, industrial growth, and employment creation across the country.

Also, in August 2025, the federal government said it was finalizing a comprehensive new Nigerian Industrial Policy aimed at reversing the country’s dependence on imported goods and strengthening its domestic manufacturing base.

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