The integration of lower- and middle-income countries (LMICs) into global and regional value and supply chains has significantly contributed to the economic development and poverty reduction of the last 30 years. However, mere integration is insufficient – it matters what countries produce, and how they produce it.
Countries that merely export raw materials and unprocessed commodities have seen slower paths to economic transformation,1 while those that produce and trade higher value-added goods and services – from food products to textiles to complex batteries – have seen more sustained growth rates and higher incomes per capita. UNIDO’s SDG 9 tracker shows that Morocco has almost doubled the share of high-tech manufacturing value added in just 10 years, landing far above the average for middle-income industrializing countries. Côte d’Ivoire has also made significant advances, almost doubling manufacturing value added per capita in the same period. These numbers translate into better jobs, higher wages and faster poverty reduction: Côte d’Ivoire’s extreme poverty rate fell below 10% for the first time in 2022.
At the heart of this transformation lies sustainable industrialization: the process of shifting from low-productivity, informal sectors to higher-value-added manufacturing and services. This shift is essential for long-term development, and it is central to the mandate of the United Nations Industrial Development Organization (UNIDO), which promotes Inclusive and Sustainable Industrial Development (ISID) globally.
Structural Transformation Through Regional Value Chains
Structural transformation is more than a buzzword—it is a development imperative. In many Arab and African economies, the majority of workers are employed in low-productivity sectors, often in informal or subsistence-level jobs. According to the World Bank, fewer than 20% of workers in Africa hold wage-paying jobs, and over 90% of firms are micro-enterprises with fewer than five employees. These firms often lack the scale, technology, and capital to grow.
Sustainable industrialization offers a way out of this trap. By integrating into regional and global manufacturing value chains, countries can move up the ladder of economic complexity. This means not only attracting foreign direct investment (FDI) but also ensuring that local micro, small, and medium-sized enterprises (MSMEs) are included through backward and forward linkages. When MSMEs become suppliers, service providers, or distributors within larger value chains, they gain access to markets, technology, and finance—key ingredients for growth.
Morocco and Egypt: Industrial Success Stories
Some countries in the Mediterranean have already begun to chart this path. Morocco, for instance, has emerged as a regional industrial hub, particularly in the automotive and aerospace sectors. The country’s Industrial Acceleration Plan has focused on building integrated industrial ecosystems, attracting global manufacturers, and linking them with local suppliers. Morocco’s success in renewable energy—especially solar and wind—has also enabled greener industrial growth.
Egypt, too, has made significant progress. The development of the Suez Canal Economic Zone has attracted investment in textiles, chemicals, and food processing. The government has prioritized industrial zones and infrastructure, while also working to integrate MSMEs into formal supply chains. These efforts are helping to diversify the economy and reduce reliance on volatile sectors like tourism and hydrocarbons.
UNIDO’s Role in the Mediterranean Industrial Landscape
UNIDO has been a key partner in supporting these transformations. Across the Mediterranean, the organization has implemented a range of programmes that promote sustainable industrialization, environmental stewardship, and inclusive growth.
One of the flagship initiatives is SwitchMed, a regional programme that supports the transition to circular and resource-efficient economies in eight Southern Mediterranean countries. Through its MED TEST III component, SwitchMed helps SMEs adopt cleaner production techniques, reduce waste, and improve energy efficiency. This not only lowers environmental impact but also enhances competitiveness.
Another important initiative is Creative Mediterranean, which fosters entrepreneurship and job creation in creative industries such as fashion, crafts, and design. Active in countries like Algeria, Egypt, Jordan, Lebanon, Morocco, Palestine, and Tunisia, the programme supports value chain development and market access for creative entrepreneurs.
UNIDO has also supported the development of Eco-Industrial Parks (EIPs) in the region. These parks promote industrial symbiosis, where companies share resources, energy, and infrastructure to reduce costs and environmental impact. EIPs are a practical example of how industrial development can align with sustainability goals.
In Lebanon and other countries, UNIDO’s Enterprise Development and Investment Promotion (EDIP) programme has helped build entrepreneurial ecosystems through linking financial services with non-financial support. EDIP is a package approach that provides capacity building, mentorship, and investment readiness support to MSMEs, linking them with financial institutions and investors. It also contributes to broader financial inclusion efforts, particularly through its integration with the IFETAA programme.
Financial Inclusion: Unlocking Capital for MSMEs
Despite these advances, access to finance remains a major bottleneck for MSMEs across the Mediterranean. According to the International Monetary Fund (IMF), only 20% of firms in Africa and the Arab region have access to a bank loan or line of credit. Interest rates are often prohibitively high averaging 25% in some African countries, compared to 9% in India or Vietnam.
To address this challenge, UNIDO has launched the IFETAA programme—Islamic and Arab Finance for Economic Transformation in Africa, the Arab Region and beyond. IFETAA aims to mobilize Islamic finance to support MSME growth, resilience, and competitiveness. With nearly $4 trillion in Islamic financial assets globally (expected to reach $6 trillion by 2026), there is significant untapped potential to channel this capital into the real economy.
IFETAA works by identifying and screening investment-ready projects, providing technical assistance to improve bankability, and setting up de-risking mechanisms such as guarantees and revolving funds. It also delivers capacity building to Islamic financial institutions and supports policy reforms to improve the enabling environment. The programme is implemented in partnership with the Union of Arab Banks (UAB), the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and other stakeholders.
Importantly, IFETAA is not a standalone initiative. It is closely linked with EDIP and other UNIDO programmes that build the capacity of MSMEs, enhance financial literacy, and promote inclusive entrepreneurship. Together, these efforts aim to create a self-sustaining ecosystem where MSMEs can access the capital, skills, and markets they need to thrive.
The Way Forward: A Shared Industrial Future
The Euro-Mediterranean region stands at a crossroads. On one hand, it faces shared challenges: youth unemployment, climate vulnerability, and economic fragmentation. On the other, it holds immense potential for industrial cooperation, innovation, and inclusive growth.
Sustainable industrialization—anchored in regional integration and inclusive finance—offers a pathway to unlock this potential. But it requires coordinated action. Governments must align industrial and financial policies with sustainability goals. Development partners must invest in infrastructure, skills, and innovation. And financial institutions must expand access to affordable, long-term capital for MSMEs.
