Services now account for nearly half of economic output in least developed countries
Most new jobs remain informal, low-productivity and poorly paid
Weak links to industry, exports and technology limit development gains
Skills gaps and digital divides hold back higher-value services growth
Services are now a major source of growth and employment across the world’s least developed countries (LDC), but the expansion has yet to translate into higher productivity, rising incomes or broad-based development, a new United Nations report has found.
The Least Developed Countries Report 2025, released by the UN Conference on Trade and Development (UNCTAD), said services account for nearly half of economic output in the average LDC. Yet most new jobs remain informal, low paid and concentrated in activities that sustain livelihoods but do not generate prosperity at scale.
Despite the growing role of services, average per capita growth in LDCs remained weak in 2024, underscoring what the report describes as a widening gap between job creation and decent work.
The report warned that employment creation is now a defining constraint for development in the world’s poorest economies .
Between now and 2050, least developed countries will need to create around 13.2 million jobs every year to absorb new labour market entrants. While services have absorbed much of this growing workforce, income gains have not kept pace.
Employment remains dominated by informal retail, personal services and subsistence activities. Working poverty is widespread, reinforcing the report’s central finding that the challenge is not just more jobs, but better ones.
Labour productivity in the average LDC is 11 times lower than in the median developed economy, limiting the scope for services to raise living standards without wider structural change.
UNCTAD said services can support structural transformation only when they are embedded in coherent national development strategies and linked to other productive sectors.
In many LDCs, services growth remains weakly connected to manufacturing, exports and technological upgrading. Without stronger forward and backward linkages, services expansion risks deepening marginalisation rather than reducing it.
Manufacturing, which historically played a central role in productivity growth, has largely stagnated across LDCs, leaving services to expand as a buffer for surplus labour rather than as a driver of transformation.
Tourism is the single largest services export sector for least developed countries, accounting for about one third of services exports. However, the report finds that high tourism revenues often fail to translate into substantial job creation, local value addition or economic transformation.
Infrastructure constraints, weak domestic supply chains and high import dependence mean that much of the value generated by tourism leaks out of local economies.
Digitally deliverable services are among the fastest-growing segments of global trade, but LDCs account for just 0.16 per cent of global exports in these services — their lowest share since records began. Exports are concentrated in a handful of countries, reflecting persistent gaps in skills, connectivity and technological capacity.
The report identified skills and digital infrastructure as make-or-break factors for higher-productivity services.
Across least developed countries, women are 42 per cent less likely than men to use mobile internet, while rural populations are 50 per cent less likely than urban residents to be connected. These divides sharply limit access to better-paid services jobs.
Targeted initiatives demonstrate what is possible. Rwanda’s Digital Ambassadors Programme has trained thousands of young people to deliver digital literacy in rural areas, while Malawi’s mHub supports women-led rural businesses. However, UNCTAD notes that such programmes remain limited in scale relative to the size of the challenge.
UNCTAD concludes that services are not a shortcut to development. Services-led strategies can support industrialisation and competitiveness only if they raise productivity, strengthen links with manufacturing and agriculture, and are backed by investment in digital infrastructure, reliable energy, education and skills.
Without targeted policies, the report warns, service-led growth risks reinforcing existing inequalities rather than reducing them.
Closing digital divides, strengthening capabilities and actively supporting services exporters – particularly small and medium-sized firms – will be essential if least developed countries are to turn economic growth into broad-based development, the report said.