When an economy relies too heavily on a particular industry or industries, sustaining economic growth can be challenging. Any downturn in these sectors can leave a country vulnerable economically if other industries can’t sufficiently support it.
This is why diversification is such an important economic strategy, helping countries to spread their risk and become more economically robust overall. But what is economic diversification exactly, and how does it work?
Economic diversification is defined by the United Nations as “the process of shifting an economy away from a single income source toward multiple sources from a growing range of sectors and markets.”
It typically falls into one of two categories: product diversification and export diversification. The former refers to diversifying an economy in regards to the goods and services it produces, while the latter is about introducing new products into an economy’s export portfolio and breaking into new markets.
The main advantages of economic diversification include:
All of these come with their own benefits, including reduced unemployment, increased government spending, and enhanced innovation.
Economic diversification is most associated with the attempts by lower and middle income countries to transform their economies. An example of this would be diversifying away from lower productivity sectors like agriculture to higher productivity industries in the industrial or service sectors.
That said, many countries have diversified within existing industries to help diversify their economies overall. For example, Malaysia has broadened its agricultural industry away from mainly rubber to become one of the world’s biggest palm oil producers. Meanwhile, Chile leveraged its previously local-only salmon sector to become a leading exporter of the fish, accounting for over a quarter of the planet’s production.
Economic diversification is a key strategy for high income countries too, with the likes of China, the UK, and Switzerland scoring highly on the Global Economic Diversification Index (EDI). In particular, those with service-led economies perform well on the index, helping such countries catch up with more industrialised nations.
According to the World Bank, the following strategies are a vital foundation to successful economic diversification:
Funding for economic diversification comes from many sources, and an increasingly large one is citizenship by investment (CBI) programmes. With investors contributing huge amounts of money to a nation’s economy in return for citizenship, these programmes can help fund economic diversification efforts, with many actually having dedicated diversification funds applicants can invest in. For example, Dominica’s CBI programme has an Economic Diversification Fund that helps the country transition away from agricultural reliance.
CS Global Partners is a leading government advisory and marketing firm that can help individuals invest in a citizenship by investment programme. Not only does this give you all of the benefits of dual citizenship, but it also contributes to the diversification of a country’s economy. Read about our services in detail here, and feel free to get in touch with us to find out more or make an enquiry.