Chapter 3: Readiness for the Future of Production Assessment Results
The Readiness for the Future of Production Assessment 2018 evaluates the readiness of 100 countries and economies for the future of production on a scale of 0 (worst score) to 10 (best score) across both the Drivers of Production and Structure of Production components. In this chapter, we present the global results, and then examine the results by archetype, highlighting the performance of selected countries from each of the four archetypes. Please refer to the online reader (http://wef.ch/fopreadiness18) and the end of this report for the detailed Country Profiles. Results are intended to help catalyse structured dialogue between the public and private sectors in order to inform the development of the next generation of industrial development strategies. Furthermore, since the assessment will be repeated on an annual basis it will equip leaders with the tools to monitor and track issues that are most relevant for the future of production.
Global Results Overview
As stated above, the framework has been applied to conduct an analysis of 100 countries and economies, which represent over 96% of global Manufacturing Value Added (MVA) and over 96% of global Gross Domestic Product (GDP). Countries were then plotted to four archetypes—Leading, Legacy, High-Potential and Nascent countries—based on their weighted Structure of Production and Drivers of Production scores, as shown in Figure 3.1 and Table 3.1.
Figure 3.1: Global Map of Readiness Assessment Results 2018
Table 3.1: Readiness for the Future of Production Assessment Results, 2018
Of the 100 countries and economies included in the assessment, there are 25 Leading countries, 10 Legacy countries, 7 High-Potential countries/economies and 58 Nascent countries. The assessment reveals that all countries can do more to prepare for and shape future production paradigms. It is important to note, for example, that no Leading country has achieved a perfect score of 10 on either the Drivers of Production or Structure of Production components.
Furthermore, the assessment highlights the potential for widened disparity between countries, as well as the challenge of achieving inclusive growth in the future through production alone. This is most apparent when comparing the varying levels of readiness across geographic regions and economic income groups. The countries with the highest levels of readiness for the future of production are concentrated in Europe, North America, and East Asia; 20 of the Leading countries are situated in Europe and North America and five are in East Asia. All Leading countries are high-income countries except for China and Malaysia.18 Since labour is typically a more significant production cost in high-income countries, these countries stand to potentially realize the highest productivity gains from the emerging technologies. Overall, the 25 Leading countries already account for over three quarters of global Manufacturing Value Added today19 and are poised to do well in the future—which could lead to increased global disparity in production.
Overall, the majority of countries in the assessment exhibit a low level of readiness for the future of production, as 58 of the 100 countries in the assessment fall within the Nascent archetype. Approximately 90% of countries from Latin America, Middle East and North Africa, Sub-Saharan Africa and Eurasia are classified as Nascent countries. As Nascent countries only account for one-tenth of global MVA, significant investments in these countries will be required to prepare for and capitalize on opportunities in the future of production. For additional analysis of results of specific country groupings, see Box 3.1 and Box 3.2.
Box 3.1: G20 Readiness for the Future of Production
G20 countries are responsible for over 80% of global Manufacturing Value Added. On average, G20 countries display greater levels of readiness for the future of production than other groups, with the average Structure of Production score of 6.5 out of 10, and average Drivers of Production score 6.1 out of 10. The G20 countries displaying the highest levels of readiness for the future of production—or the highest combined Structure of Production and Drivers of Production scores—are Germany, Japan and the United States. The G20 countries displaying the lowest levels of readiness are Argentina, Brazil and South Africa. Japan has the strongest Structure of Production among G20 countries and ranks first among all 100 countries and economies included in the assessment. Australia has the weakest Structure of Production among G20 countries and ranks 61st globally. The United States performs the best across all Drivers of Production and ranks first among all 100 countries and economies included in the assessment, whereas Argentina scores the lowest and ranks 75th globally.
Box 3.2: The Future of Production in ASEAN
ASEAN, a regional bloc of 10 Southeast Asian countries— Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam—is the fifth-largest manufacturing economy in the world when combined. It accounts for 5% of global manufacturing activity, measured in terms of global MVA, and 60% of its activity is concentrated in just five sectors: food and beverage, chemicals and chemical products, electronics, motor vehicles, and rubber and plastic products. In four of these key sectors, the region holds at least the fifth spot in terms of global manufacturing outputs.
The seven ASEAN countries included in the assessment are spread across three different archetypes: Leading—Malaysia and Singapore; Legacy—Philippines and Thailand; and Nascent— Cambodia, Indonesia and Viet Nam. The range of positions across the three archetypes reflects the reality of the heterogeneous region. Member states have varying degrees of economic development and readiness for the Fourth Industrial Revolution. Singapore, the only high-income ASEAN country included in the assessment, ranks the highest in the region across all Drivers of Production.
To keep pace with developments in other countries, there are many opportunities for ASEAN member states to collaborate and use regional cooperation to accelerate readiness. For more on this topic, please see the Shaping the Future of Production in ASEAN project (https://www.weforum.org/projects/the-future-of-production-in-asean). A study on the Future of Production in ASEAN will be launched at the upcoming World Economic Forum on ASEAN event in the fall of 2018.
Archetype Analysis and Select Country Highlights
As noted above, countries were plotted to archetypes based on their weighted Structure of Production and Drivers of Production scores. Given the evolving nature of readiness for the future of production, archetypes will likely resonate more strongly with countries at the extremes of the various archetypes. Similarly, countries that are positioned near the borders of other archetypes may have attributes of more than one archetype. Based on specific research questions, the assessment allows for any desired clusters within or across archetypes to be formed and analysed. See Box 3.3 for more information on potential cluster analysis.
The aspirations of specific countries are not incorporated into the analysis, and a country’s trajectory in the future depends partially on how much production figures into their national economic strategy going forward. To advance readiness, countries should seek to improve performance across all Drivers of Production (or shift up, as shown in Figure 3.1) and expand their Structure of Production (shift right, as shown in Figure 3.1). Thus, each archetype has its own best/worst case scenario.
The best case for Leading countries is to push towards the frontiers of their archetype and convert readiness into transformation by adopting and fully harnessing the potential of emerging technologies. The worst case is for Leading countries to rely too much on current success and not create a burning platform for transforming production practices, potentially resulting in a shrinking production base in the future as other countries leapfrog.
The best case for Legacy countries is to improve performance across the Drivers of Production so that they have the right factors in place to transform current production systems and maintain and grow their Structure of Production. The worst case for Legacy countries is to underinvest across key drivers and have this result in a shrinking production base.
The best case for High-Potential countries is to use their strong Drivers of Production to expand, both in scale and complexity, their Structure of Production, particularly in areas of advanced manufacturing. However, not all countries in this archetype may want to pursue manufacturing as part of their economic strategy, as services or other opportunities may be more attractive given comparable advantages.
The target movement for Nascent countries is to first invest in drivers to create the right conditions in their environment and then develop and execute a strategy to expand their Structure of Production.
Box 3.3: Cluster Analysis
Additional cluster analysis of different economies within and across archetypes can reveal new insights. For example, within the Leading archetype there are several different sub-clusters. Japan, Germany and Republic of Korea have the strongest Structure of Production and have excelled in production over the past several decades as other Leading countries have trended towards services. However, these countries are not quite as high-performing across the Drivers of Production, and additional investment will be required to transition to the new production paradigm. Another cluster—Australia, Canada, New Zealand, United Kingdom and the United States—includes both Leading and High-Potential countries. This is an under-leveraged cluster, as the countries perform very well across the Drivers of Production and exhibit high readiness, but underperform in terms of their Structure of Production. As production shifts to new paradigms, it will be important for these countries to understand the missing link and convert readiness into output. Lastly, the Nordic cluster—Denmark, Finland, Norway and Sweden—represents another group that displays a high level of readiness for the future of production, as all countries perform well across the Drivers of Production.
Leading Country Results
As shown in Figure 3.2, the Leading archetype consists of 25 countries from Europe, North America, and East Asia and the Pacific that are responsible for over 75% of global MVA today.
Figure 3.2: Map of Readiness Assessment Results 2018, Leading Countries
Leading countries are leaders in manufacturing today that are also well positioned for the future of production. They have the most complex economies in the world and account for the majority of global MVA. Leading countries are top performers across all Drivers of Production. The key opportunity for Leading countries is to achieve a ‘first mover’ advantage. Those that most effectively push the frontier and convert readiness into actual transformation can reap tremendous benefits. True transformation is still nascent, but Leading countries are at the forefront of designing, testing and pioneering emerging technologies. Many have developed government-led strategies to capitalize on the Fourth Industrial Revolution. As global manufacturing output is highly concentrated among Leading countries, these countries have the most current economic value at stake.
Furthermore, Leading countries are best positioned to facilitate global cooperation to usher in the next production paradigm. Readiness requires global, not just national, solutions given the interconnectedness of global production systems. It will be important for Leading countries to work together to establish standards and norms, promote interoperability, facilitate data flows and prevent other potential bottlenecks that could slow progress.
Lastly, one key challenge for Leading countries will be to accelerate sustainable production practices to counteract environmental damage from previous industrialization, as Leading countries are the world’s largest contributors of carbon emissions today.
After surpassing the United States in 2010, China’s manufacturing sector is the largest in the world, with a total global MVA of nearly US$ 3 trillion in 201620, representing approximately one-quarter of global Manufacturing Value Added. While China performs very well on the scale of its production base, it still can improve on the Complexity component, as it is the 26th most complex economy in the world.21 Over the last two decades China has evolved its capabilities from producing low-cost goods to more advanced products. However, due to its size, the levels of modernization within its manufacturing sector vary greatly, with striking differences between pockets of excellence and less sophisticated manufacturers, thus reducing its average readiness. Across the Drivers of Production, China performs particularly well on the Demand Environment and Global Trade & Investment drivers. China ranks in the top third for both Technology & Innovation and Human Capital, but will need to continue to strengthen the capabilities of its labour force to develop the skills required in the future and improve the levels of innovation within companies. China’s greatest challenges are the Institutional Framework and Sustainable Resources drivers. Though China is the world’s largest contributor of carbon emissions, it has stated a commitment to become more energy-efficient and sustainable in the future. Adopting emerging technologies can help accelerate this goal. In 2015, the government launched “Made in China 2025” to upgrade the country’s manufacturing sector and fund manufacturing innovation.22
France’s manufacturing sector is the 8th-largest in the world, with a total Manufacturing Value Added of over US$ 280 billion in 2016.23 Like other developed countries, the relative contribution of France’s manufacturing sector to GDP has declined, to approximately 10% today, half of its contribution in 1970.24 France performs well across all Drivers of Production—ranking in the top quartile of all countries for every driver—and performs particularly well on the Global Trade & Investment, Demand Environment and Sustainable Resources drivers. The main challenge for France is to convert readiness and capacity into a strengthened Structure of Production. With the launch of The New Face of Industry initiative in 2015, France has followed European peers by launching a new strategy to accelerate an industrial renaissance.25
Germany has the 4th-largest manufacturing sector in the world—with a total MVA of nearly US$ 775 billion in 201626 —and the third most complex economy.27 With over half of Germany’s manufacturing output being exported, Germany’s history of manufacturing excellence is globally renowned. Germany ranks in the top quartile across all Drivers of Production and in the top ten for the Technology & Innovation, Human Capital, Global Trade and Investment and Demand Environment drivers. Germany stands out for strong education outcomes, advanced technical training programs, a highly capable current workforce and a proven ability to innovate. With the launch of Industrie 4.0 in 2011, Germany was one of the first countries to increase digitization and the interconnection of products, value chains, and business models to drive digital manufacturing forward.28 Germany is widely acknowledged as a pioneer in the Fourth Industrial Revolution and is taking a leading role in building global standards and norms for international adoption.29
Japan’s manufacturing sector is currently the 3rd-largest in the world with a total MVA of over US$ 1 trillion in 2016, representing nearly 9% of global Manufacturing Value Added.30 Combined, China, the United States and Japan account for nearly half of global MVA. Since 1984, Japan has been ranked as the most complex economy in the world.31 Across the Drivers of Production, Japan performs particularly well on Demand Environment, due to a sophisticated consumer base, robust corporate activity and large market size. Japan also ranks in the top 20 on Technology & Innovation and Institutional Framework. In 2016, the government launched Society 5.0, as a strategy to use emerging technology to not only transform production, but all of society.32 In addition, the government added Connected Industries in 2017 to support Japanese industries including manufacturing and other sectors that create new added value through connecting things, people, technologies, organizations and other societal elements. Japan faces challenges related to human capital, with an ageing and shrinking population as well as lower migration than comparable countries. Japan has room for improvement on the Sustainable Resources driver as well.
Republic of Korea
The Republic of Korea has experienced a remarkable economic rise over the past several decades, progressing from a poor agricultural society in the 1960s to one of the premiere production countries today. It now has the 6th-largest manufacturing sector in the world—with a total MVA of over US$ 380 billion in 201633 – and the fourth most complex economy.34 The Republic of Korea performs well across the Drivers of Production with the exception of Sustainable Resources. The country is particularly strong on Technology and Innovation, and ranks in the Top 5 for R&D expenditures and patent applications per million people. Its well-documented ability to innovate has helped to fuel its historic rise, and can be a boon in ushering in the next production paradigm. To improve its readiness for the future of production, the Republic of Korea will need continue to enhance labour force capabilities, particularly in critical thinking skills, digital skills and knowledge-intensive employment. Furthermore, sound, transparent and trusted institutions can help steer the vision for the future and build the trust required for global connectivity.
The contribution of Singapore’s manufacturing sector to its GDP rose from roughly 11% in 1960 to a high of approximately 28% in 2000; it currently is at 20% today.35 Singapore’s manufacturing capabilities have evolved considerably, with strong competencies today in high-value areas of manufacturing such as R&D and product design. The country ranks in the top 20 for economic complexity36 and performs well across all Drivers of Production, except Sustainable Resources. Singapore is a leader on the Global Trade & Investment driver as one of the most open and trade-friendly countries in the world. A strong Institutional Framework propels Singapore’s success in many areas, including the future of production. The government continues to be future-oriented and recently announced the Singapore Smart Industry Readiness Index, a tool to help industrial companies harness the full potential of the Fourth Industrial Revolution.37 Within the Sustainable Resources driver, Singapore contributes less emissions than other Leading countries, but has challenges related to baseline water stress and alternative energy sources.
The UK has a long history of manufacturing dating back to the late 18th century and the beginning of the first Industrial Revolution. However, the share of manufacturing in its economy has declined steadily in recent decades, from over 25% in the 1970s to less than 10% today.38 This trend has been accompanied by a loss of manufacturing facilities, capacity, capabilities and jobs, though the UK’s manufacturing sector still employs over 2.7 million people and makes up 45% of UK exports today.39 While the UK’s Structure of Production is weaker than other comparable Leading countries, the country performs well across all Drivers of Production. A strong technology platform and ability to innovate has positioned the country well to specialize in high-tech manufacturing industries such as aerospace and pharmaceuticals. The UK performs solidly on overall education outcomes, but could further develop technical training. It has a strong Institutional Framework but, historically, the government has intervened less in directing industrial development. However, at the end of 2017, the government launched a new industrial strategy developed through public-private collaboration.40
The United States’ manufacturing sector is the 2nd-largest in the world, with an MVA of nearly US$ 2 trillion in 2016, representing close to 16% of global Manufacturing Value Added and 12% of US GDP.41 The United States has the world’s eighth most complex economy.42 Over the last two decades, however, the competitiveness of locally manufactured products and the attractiveness of the United States as a manufacturing location have been strongly challenged. The country is well positioned for the future, holding the top score on the weighted Drivers of Production component and scoring in the Top 5 across all drivers except Sustainable Resources and Institutional Framework. The United States is globally renowned for its ability to innovate and is currently at the forefront of major developments surrounding the emerging technologies of the Fourth Industrial Revolution. Furthermore, its ability to develop, attract and retain advanced human capital capabilities is supported by strong higher education institutions. Notably, the United States is making efforts to reinvigorate its manufacturing sector. Tax reform at the end of 2017 cut the corporate tax rate to 21% from 35%, making it more attractive for companies to shift some of their production to the United States. However, policy and regulatory uncertainties, relating to immigration and free trade agreements, for example, still remain. As one of the world’s largest contributors of carbon emissions, improvements in the efficiency and sustainability of its energy sources should be prioritized.
Legacy Country Results
As shown in Figure 3.3, the Legacy archetype consists of 10 countries from Europe, Eurasia, East Asia and the Pacific, Latin America, Middle East and North Africa, and South Asia. They are responsible for approximately 10% of global MVA today.
Figure 3.3: Map of Readiness Assessment Results 2018, Legacy Countries
Legacy countries currently have a strong Structure of Production, but display a low level of readiness for the future of production, characterized by weak performance across the Drivers of Production. Historically, many Legacy countries benefited from globalization as more developed economies outsourced lower pieces of the value chain to places with lower labour costs. As a result, Legacy countries received foreign direct investment, increased market access and developed a strong Structure of Production. Whereas Leading countries score very well on Complexity, Legacy countries’ strength within the Structure of Production tends to be on Scale. With rising production costs, Legacy countries risk losing traditional manufacturing share to Nascent countries that can offer even cheaper labour. By underinvesting across drivers, Legacy countries risk not being as prepared as Leading countries to capture advanced manufacturing share in the future. Combined, these risks could lead to premature de-industrialization if they are not managed effectively.
To avoid being squeezed between Leading and Nascent countries, Legacy countries need to carve out a strategy for the future. Legacy countries underperform across all Drivers of Production, on average, and their three most pressing challenges are Institutional Framework, Human Capital, and Technology & Innovation. Legacy countries have a solid production base today, but need to reskill and upskill workers, upgrade their technology platform, seek frugal innovations and ensure the fundamental building block of good governance is in place to perform well in the future of production.
India is the 5th-largest manufacturer in the world—with a total Manufacturing Value Added of over US$ 420 billion in 201643– and ranks 45th in economic complexity.44 Over the last three decades, India’s manufacturing sector has grown by more than 7% per year, on average, while accounting for between 16% to 20% of India’s GDP. Home to the second-largest population in the world and one of the fastest growing economies, the demand for Indian manufactured products is rising. India has room for improvement across the Drivers of Production, except for Demand Environment where is ranks in the Top 5. Two key challenges for India are Human Capital and Sustainable Resources. India needs to continue to raise the capabilities of its relatively young and fast-growing labour force. This entails upgrading education curricula, revamping vocational training programs and improving digital skills. Furthermore, India should continue to diversify its energy sources and reduce emissions as its manufacturing sector continues to expand. In 2014, the government launched the “Make in India” initiative, with the primary goal of making India a global manufacturing hub.45 The government has made a significant push to improve key enablers and move towards a more connected economy, most recently announcing a US$ 59 billion investment in infrastructure in 2017.46
Mexico has the 12th-largest manufacturing sector in the world47 and ranks 24th in economic complexity.48 Manufacturing productivity in Mexico varies dramatically across sectors, geographies and company size. There is room for improvement across several Drivers of Production, most notably Technology & Innovation, Human Capital and Institutional Framework. A stronger technology platform is needed to boost connectivity, and increased industry and research activity can spur innovation. Human capital is one of Mexico’s most pressing challenges, as the education curriculum needs to be adapted to develop future skills and the current labour force needs to be retrained on skills that will be critical for the future of production. Increased transparency, effectiveness and accountability of institutions will help Mexico to further enhance readiness. In addition, investments in Mexico’s infrastructure, targeted support for SMEs to promote their integration to global value chains and multi-sector collaboration schemes should also be a priority. Mexico is a top destination for greenfield investments and should seek to leverage its global linkages to continue to facilitate knowledge and technology transfer.
The Russian Federation’s manufacturing sector is the 13th-largest in the world49, but manufacturing’s share of national GDP has declined over the last decade. This has constrained both the Scale and Complexity of the Structure of Production. The country’s performance across the all drivers is mixed, with Human Capital and Demand Environment as its greatest strengths. It has a highly educated workforce and its education system places a premium on STEM (science, technology, engineering and mathematics) subjects. However, soft and creative skills should be further developed within the labour force. Transforming these strengths into long-term benefits will require sustained measures to improve the country’s ability to innovate through higher levels of competition; enhanced collaboration between government, industry and education spheres; and development of regional innovation and R&D hubs.
As shown in Figure 3.4, the High-Potential archetype consists of seven countries and economies from Europe, East Asia and the Pacific, and the Middle East and North Africa. This group is responsible for less than 2% of global Manufacturing Value Added today.
Figure 3.4: Map of Readiness Assessment Results 2018, High-Potential Countries
High-Potential countries and economies have a limited production base today but score well across the Drivers of Production—indicating a promising future. This group contains high-income economies that are less diversified than those in other archetypes; several are resource-rich while others are primarily focused on the services sector. The key opportunity for High-Potential countries is to convert capacity across the Drivers of Production into an advanced manufacturing base. The challenge for these countries and economies is to first determine their appetite at the national level for developing industry, and to then identify the right set of opportunities and establish an effective strategy to capture these opportunities.
The future of production presents opportunities for High-Potential countries to leapfrog and expand their production bases in shorter timeframes than were historically possible. One potential advantage for High-Potential countries is they have lower levels of capital locked into legacy production systems. This allows late adopters to quickly bypass old approaches and directly adopt new technologies, given a minimum level of capability.
Australia has a significantly weaker structure of production compared to most other high-income economies, as its economy focuses primarily on the services sector and extraction. The services sector accounts for over 70% of Australia’s GDP 50, and Australia is a significant exporter of natural resources, energy and food.51 Australia’s manufacturing sector contributes less than 7% to its GDP, and about 0.8% to global MVA. Australia is the 65th most complex economy in the world 52 and is in a strong position to potentially improve its production base in the future, as it performs well across all 31 drivers of production. It ranks among the top 15 economies on Technology & Innovation, Human Capital, Global Trade & Investment, and Institutional Framework. Embracing digitalization is a key policy agenda in Australia. In 2017, the Prime Minister’s Industry 4.0 signed a cooperation agreement with Germany’s Plattform Industrie 4.0. Building on Taskforce recommendations, and the government’s Testlabs for Australia Initiative will establish five new Industry 4.0 testlabs at selected educational institutions. In 2018 Australia will release its Digital Economy Strategy, a forward-looking plan to maximize the potential of digital technologies to improve productivity and competitiveness.53
United Arab Emirates
The United Arab Emirates has a limited Structure of Production today, but the country has continued to diversify its economy beyond oil and gas and is aiming to increase manufacturing share of GDP to 25% by 2025.54 The UAE is positioned well for the future as it ranks in the top quartile of countries across all Drivers of Production, with the exception of Sustainable Resources. The country should focus on improving sustainability practices and continue to invest across all Drivers of Production. Given that the UAE has relatively few workers employed in manufacturing today, it will be particularly important to develop the right set of labour force capabilities to capitalize on the transformation occurring within production.
As shown in Figure 3.5, the Nascent archetype consists of 58 countries from all regions except North America. This group is responsible for less than 10% of global Manufacturing Value Added today.
Figure 3.5: Map of Readiness Assessment Results 2018, Nascent Countries
This is the largest group of countries in the assessment, and all display a low level of readiness for the future of production, as evidenced by weaker performance across the Drivers of Production as well as a limited Structure of Production. There are several different clusters that can be analysed within the Nascent archetype. One key distinction that can be made across countries in this archetype is their current level of industry and ambitions related to industrialization. Nascent countries have an array of production bases, ranging from a significant production base that is either shrinking or at risk of shrinking, a small base that is growing, or a small base due to limited industrialization.
Depending on a country’s position, competitive advantages and aspirations, various growth paths may be pursued. Countries with larger production bases today may be more likely to pursue opportunities to expand into advanced manufacturing; whereas countries with limited production bases may initially try to capture traditional industrialization opportunities to develop greater levels of scale and capabilities. Given that some Nascent countries are emerging as attractive low-cost manufacturing locations, another potential growth path may be to capture existing opportunities in traditional manufacturing in the short term. However, this strategy has risks, as it is unclear the extent of opportunities that will exist in traditional manufacturing and for how long.
Many countries that have yet to industrialize are underprepared for traditional manufacturing, let alone advanced manufacturing. Regardless of the strategy each individual country pursues, Nascent countries will benefit from improving performance across all Drivers of Production. The most pressing area for these countries to address is their Institutional Framework—the bedrock for future economic growth—followed by Human Capital. An attractive and skilled labour force is critical for accelerating growth in both traditional and advanced manufacturing. Further, increased global trade and investment and the attraction of multinational companies can accelerate development through transfer of knowledge, capabilities and technology.
Indonesia’s manufacturing sector is currently the 11th largest in the world and accounts for over 20% of national GDP.55 With mining and agricultural products contributing a large share of Indonesia’s exports, the country’s Structure of Production is relatively low in complexity. Indonesia has room for improvement across the Drivers of Production, with the exception of Demand Environment where it ranks in the Top 20. Fueled by a population of over 260 million, the domestic and foreign markets for Indonesian manufactured products are vast. Yet human capital is both a strength and challenge for Indonesia. One of the country’s biggest challenges is developing the right skill sets within its current workforce as production shifts from a labour-intensive to a knowledge-intensive environment. To further stimulate the adoption of emerging technologies into its production systems, targeted measures to improve Indonesia’s ability to innovate through increased spending on R&D, broader access to the internet and enhanced cybersecurity protection should be prioritized. Indonesia benefits from relatively high levels of foreign direct investment, but infrastructure gaps and lack of openness to trade may impair its rate of transformation. Furthermore, a strengthened institutional framework and governance will need to be a crucial enabler.
Brazil’s manufacturing sector is the 9th-largest in the world and accounts for approximately 10% of national GDP56, almost a third of its contribution of over 30% in the 1980s.57 Brazil’s Structure of Production is relatively low in complexity. The country’s performance across the Drivers of Production is mixed. Sustainable Resources and Demand Environment are its two highest-ranked drivers. Brazil is a top destination for foreign direct investment and greenfield investments and should seek to leverage global linkages to facilitate knowledge and technology transfer. One of Brazil’s main challenges is its Institutional Framework, and regulatory efficiency and future oriented governance should be a priority. With the fifth-largest population in the world, Brazil has a wealth of human resources, but current labour force capabilities lag in digital skills, engineering, critical thinking and other key areas that are critical for success in the future. In 2017, a new labour law was passed seeking to create a more flexible system and increase the rule of law.
Over the last several decades, Saudi Arabia’s manufacturing share of GDP increased from less than 5% to approximately 12%, as of 2016.58 As the largest exporter of petroleum in the world, Saudi Arabia’s economy is highly concentrated, with oil and gas contributing over 50% of Saudi Arabia’s GDP.59 Growing the manufacturing and industrial sectors within its economy will be important for the country to successfully diversify its economy away from petroleum production. Saudi performs strongly on the Demand Environment driver, but has room for improvement across the other Drivers of Production. The country has a strategic opportunity to improve its performance to be competitive in the future of production. Several reforms aimed at improving key enablers for the economy are currently underway as part of Saudi Vision 2030 and the National Transformation Program.60
South Africa’s manufacturing share of GDP has decreased since the early 1990s to approximately 12% today as its services sector has expanded.61 Nevertheless, the country has the strongest Structure of Production within Africa. Across the Drivers of Production component, South Africa’s performance is mixed. On the one hand, the ability to innovate is one of South Africa’s greatest strengths, as the country has a strong innovation culture, and entrepreneurial activity is supported by a sophisticated financial sector. On the other hand, human capital remains the most pressing challenge in preparing for the future of production, as there is a shortage of engineers and scientists as well as digital skills. It will also be critical for South Africa to improve its Institutional Framework to effectively respond to change, offer a stable policy environment and direct innovation.