Industrial subsidies are reshaping global competition by giving governments with greater financial resources more scope to support strategic industries, while developing economies face tighter fiscal constraints in their efforts to build manufacturing capacity and compete for investment.
The disparity is becoming more consequential as governments direct support towards industries considered critical to future economic growth and national security, including semiconductors, artificial intelligence, clean energy and advanced technologies. These sectors are attracting an increasing share of international investment, but access to the capital, technology and infrastructure needed to compete remains concentrated among a relatively small group of economies, according to UN Trade and Development’s Trade and Development (UNCTAD) Report 2026.
The report says governments are increasingly using industrial, financial, trade and technology policies to pursue economic and security objectives, making access to markets and the ability to move into higher-value industries more dependent on financing, technological capabilities and geopolitical relationships.
The scale of the investment shift illustrates the challenge. Strategic industries accounted for 44% of global greenfield investment in 2025, up from 16% in 2020, while the value of announced projects in those sectors rose from $109 billion to $576 billion over the five-year period, according to UNCTAD’s World Investment Report 2026.
Low-income and lower-middle-income economies attracted only about 10% of global greenfield investment in strategic sectors between 2020 and 2025, compared with more than 20% in other sectors. The figures point to a widening gap between the industries attracting the most capital and the economies best positioned to participate in them.
For developing countries, the disadvantage is not simply a shortage of investment opportunities. It is also the limited capacity of governments to finance the infrastructure, research, skills development and business incentives needed to attract investors into more sophisticated manufacturing and technology-intensive activities.
Major economies can deploy grants, state-backed loans, tax incentives and other forms of financial support to help domestic companies expand production and strengthen their position in international markets. Countries with narrower tax bases, high debt-servicing costs and competing demands for public spending have less room to use similar measures at comparable scale.
UNCTAD has previously identified this gap in industrial policy capacity, noting that more than two-thirds of industrial policy announcements in 2023 came from developed economies. Its analysis linked the difference partly to the fiscal and institutional constraints confronting developing countries, many of which have substantial public financing needs and limited resources for industrial transformation.
The result is a more difficult environment for countries seeking to use manufacturing as a route to higher productivity, export growth and job creation. When investment and government support concentrate in strategic industries, economies that lack the capital, technical expertise and supporting infrastructure risk remaining suppliers of raw materials or low-value inputs rather than becoming producers of finished goods and advanced components.
Africa faces a particular challenge in converting its natural-resource base into a larger share of the value generated by global technology and energy-transition supply chains. UNCTAD’s 2026 report says the continent mines most of the world’s cobalt but retains less than 1% of the value in global green supply chains. That gap illustrates the difference between supplying a strategically important resource and capturing the processing, manufacturing and technology-related returns associated with it.
The shift is also taking place as traditional routes into manufacturing become less accessible. UNCTAD reported that the value of announced greenfield investment in manufacturing outside strategic sectors was 17% lower in 2021–2025 than in 2015–2019, with the decline sharper in developing economies and steepest in least developed countries.
For governments, this creates a policy dilemma. Attempting to match the subsidy spending of larger economies can place additional pressure on public finances, particularly where debt costs are high and spending on infrastructure, education and healthcare remains essential. Yet failing to develop productive capacity can leave domestic businesses less able to enter the industries receiving the strongest investment flows.
The policy challenge, therefore, is not simply to increase subsidies or attract more foreign capital. It is to direct limited resources towards industries where countries can develop credible competitive advantages and build stronger connections between investment and the domestic economy.
UNCTAD recommends coordinating industrial, financial and technology policies, linking foreign investment to local suppliers and increasing the share of value retained domestically. For developing economies, that can mean prioritising specific opportunities in processing, manufacturing, energy services, logistics and supplier networks rather than attempting to establish a presence across every strategic industry.
Regional integration could also help address the limitations of small domestic markets. By reducing trade costs and expanding access to neighbouring economies, regional arrangements can give businesses a larger market in which to build scale, develop suppliers and support cross-border production networks.
The stakes extend beyond the distribution of investment. As industrial policies increasingly shape where production takes place and which companies gain access to strategic markets, the capacity to finance industrial development is becoming an important determinant of countries’ positions in global value chains.
For developing economies, the central question is whether they can translate their resources, workforce and market access into productive capabilities before investment and technological advantages become further concentrated in established industrial centres. The challenge is to build industries that retain more value at home without undermining fiscal stability in an increasingly competitive global economy.
