The global shift towards emerging economies poses significant opportunities and challenges for developing countries with many looking towards industrial policy to address these, Organisation for Economic Cooperation and Development (OECD) senior economist Annalisa Primi said on Monday.

Speaking at the launch of the OECD report titled ‘Perspectives on Global Development 2013: Industrial Policies in a Changing World’, hosted by the Department of Trade and Industry (DTI), in Johannesburg, Primi explained that new forms of foreign direct investment (FDI) to and from developing countries, the increase in South-South trade and the demands from the new middle classes were opening up new growth opportunities for emerging economies.

“Developing countries are still accumulating capital and labour but they are also improving their capabilities and increasingly using and producing innovations. However, mastering technology and knowledge in order to move up the value chain is still a goal to be achieved for most of them,” she added.

Also speaking at the launch, DTI director-general Lionel October pointed out that South Africa and the rest of the continent were still at the bottom of the value chain and had to find ways in which to move up.

He added that the shift towards emerging markets provided a significant opportunity as it was not a cyclical occurrence, but would be a permanent situation.

To position themselves to benefit from the opportunities presented by the new economic environment many developing countries were showing a renewed interest in industrial policy, Primi stated. 

“Globally, we are faced with a scenario where we are rediscussing the role of the State in the economy of a country, whether it is developed or emerging,” Primi said, adding that there were four main challenges that emerging countries were aiming to address through industrial policy.

Firstly, while developing countries were increasing their innovation capabilities, they still lagged behind OECD countries, and capacity to create new products and services was increasingly needed to compete effectively in global markets.

To address this, developing countries were, through policy, targeting specific technological and scientific areas for development, working towards attracting more knowledge intensive FDI, while also promoting the start-up of new businesses, Primi said.

Emerging economies also recognised that investment in innovation, the creation of new firms and increasing productivity in small and medium-sized enterprises were often constrained by a lack of financing.

“Developing countries are putting policies in place to address this, and development banks are re-emerging, to provide support,” Primi said.

Further, industrial policies implemented also targeted skills and infrastructure development.

“Infrastructure gaps remain a major bottleneck to increasing competitiveness, with about 60% of the world’s infrastructure located in high-income countries. Developing countries are recognising that, to advance on this front, it is necessary to not only invest in infrastructure, but also to improve decision-making,” she added.

Meanwhile, Primi pointed out that successfully implementing industrial policy in a developing country required mobilising a large amount of resources.

Countries also had to take into account that the results from industrial policy changes would only be seen in the medium- to long term and, therefore, patience was required.

Lastly, emerging economies should also be careful not to let their policies be dominated only by established voices in the country’s economy. “Opening the space for the emergence of new voices in the economy is a major challenge faced by developing countries,” she concluded.