By Sabine Schlorke
Manufacturing plays a vital role in spurring growth in emerging economies but too often the share of manufacturing in these economies is low, hindering economic development that can increase prosperity. What’s needed are more investments in manufacturing enterprises that are equipped to harness new technologies and foster viable, well-integrated regional value chains to create sustainable markets.
At IFC, we invest in and advise companies engaged in producing base materials and manufacturing in emerging markets, including chemicals, construction materials, automotive parts, textiles and more. We work not only to help clients expand the scale of production, but also to develop the more complex manufacturing processes and products that are critical to the growth of companies and the economic development of countries (listen to economist Ricardo Hausmann discuss this at our first Global Manufacturing Conference in 2017) .
At the heart of our global approach is the belief that investment needs to take into account three critical parts of manufacturing: the product, the process and the domestic or regional value chain. By looking at what is happening at the firm level and asking key questions about the economic complexity of production, we are able to identify opportunities to invest in manufacturing in a way that builds skills, capabilities and creates markets.
This approach allows us to target our work to maximize our impact on the World Bank Group’s twin goals of boosting shared prosperity and reducing poverty, while supporting the Sustainable Development Goals. The investments we make and the work we do with partners also help manufacturing enterprises to generate safer working conditions, improve food and water safety, reduce greenhouse gas emissions, boost recycling and renewables usage, create better pricing, and foster innovation via new technologies.
In East Africa, for example, where we recently have financed several glass bottle manufacturers, we are supporting the development of a base industry in a growing cluster previously served through imports. These manufacturing companies, which work with recycled glass, are using energy-saving manufacturing process technologies. Not only will East African countries save much needed foreign exchange by importing fewer glass bottles, but the manufacturing cluster also gains access to new industrial skills, from engineering to labor and environmental standards, while linking deeper into value chains serving local and regional markets.
In Bangladesh, we are engaged in the textile value chain through investments and advisory work. We are helping companies apply manufacturing process technologies to improve labor conditions and reduce the use of water, energy and harmful chemicals. At the same time, we are helping these companies produce more complex products that are better integrated into regional supply chains.
As we are looking at investment opportunities in different countries, we are exploring questions such as how to start and grow manufacturing clusters. Investing in a stand-alone company that imports parts from Europe and then assembles these parts may make sense for job creation, skills development and standards setting. But there can be a bigger development and economic impact in taking a more comprehensive value chain approach. This can mean financing a company that makes certain automotive parts because another company in the country makes different automotive parts. At the country level, we may look into how to create stronger production links to the local market through backward and forward integration and firm level skills creation to improve production processes.
The success of our interventions for increasing economic complexity cannot be just about a sector, a value chain, a region or a country. It is really about all these things. By asking only country and sector specific questions we may not understand where we should apply our tools to unlock production and increase industrialization for development. We need to make sure we also are developing more complex — or sophisticated — manufacturing processes, products and value chains, while increasing the scale of production. In this way, we will be able to unlock the potential of manufacturing to promote development in emerging markets, reaching our climate and environment goals while fostering sustainable growth.
Join us at the 2nd IFC Global Manufacturing Conference on Harnessing Technology for Development taking place in Marrakech, Morocco, on November 13–14, 2019. Please visit www.ifc.org/manufacturing-conference for registration information.
Sabine Schlorke is IFC’s Global Manager for Manufacturing.
