AI Opportunity: Will Developing Nations Rise or Be Left Behind?

The conversation around Industrial policy is back, baby! After years of being brushed aside – especially for those nations still developing – it's roaring back into the spotlight. And honestly, it's about time. The driving force? Artificial intelligence and renewable energy. These emerging fields are giving industrial policy a much-needed shot in the arm, particularly as the world grapples with climate change and the rapid advancements in AI technology.

AI Opportunity: Will Developing Nations Rise or Be...

But for developing countries, this resurgence is more than just good news; it's a potential game-changer. That is, *if* they can overcome some pretty significant hurdles. We're talking about a trifecta of challenges: crumbling infrastructure, limited policy autonomy, and, of course, those ever-present fiscal constraints. It’s easy to think Industrial policy is all about throwing subsidies and tax breaks around, but it’s so much bigger than that. Developing economies need a holistic approach. Without reliable internet, consistent power, strong data protection, and a skilled workforce, all the AI dreams in the world will just stay dreams.

Adding to the complexity, these countries often find their hands tied by World Trade Organization (WTO) regulations. Rules limiting things like export subsidies and local-content requirements – the very tools that fueled the industrial revolutions of East Asian nations – are now significant roadblocks. It's like being asked to run a race with one leg tied behind your back.

Meanwhile, the big players – the U.S., the EU, and China – are writing their own rules and forging ahead with massive industrial policies. They're bending, sometimes even breaking, the very rules they expect everyone else to follow. The numbers don't lie: nearly half of the 2,500+ industrial policy measures introduced globally in 2023 came from these three economies. Seems a little unfair, doesn't it?

Even modest innovation requires funding, and frankly, venture capital in developing countries is often as rare as hen's teeth. Private wealth tends to flow *out* of these countries, not in. But governments aren’t helpless. They can set up institutions to attract more private capital. Think blended finance, sovereign innovation funds, targeted guarantees, regional tech hubs – the works. And donors need to step up their game too. The OECD says that a measly 2% of aid-for-trade money goes to information and communication technology. That's nowhere near enough to build the digital infrastructure these countries desperately need.

Here's a bright spot: digital technologies can be a game changer for efficiency, especially in revenue collection. UNCTAD's work on customs digitalization, through ASYCUDA, is proof. Take Angola, a major oil producer in Africa. By switching to digitalized customs, they saw a whopping 44% revenue increase in the first year, followed by another 13% jump the next! Iraq saw even more impressive results after digitizing its borders. The key takeaway? Getting rid of those analog bottlenecks unlocks serious fiscal gains. And that's the kind of boost developing countries need to really make the most of the AI revolution.