Kathmandu-At the dawn of the 21st century, the world’s poorest nations were presented with a novel development opportunity and a dream: the potential for growth through the service sector.

This approach emerged as an alternative to the conventional path of industrialization, paving the way for expansion in the service sector, increased productivity, and export growth.

Countries like Nepal were at the forefront of this global development discourse. A United Nations trade agency has meticulously reviewed this development narrative and its current trajectory.

Initially, it was anticipated that these countries would reap the benefits of advanced economies, integrating into global value chains. However, progress in productivity, knowledge, and information has been elusive.

Over two decades later, the situation has taken a different turn. The world’s poorest nations now grapple with two significant crises, ensnared in a predicament.

On one hand, there is a severe lack of decent jobs. On the other hand, the number of unemployed and economically active individuals continues to rise. The demographic makeup of these countries necessitates the creation of an astonishing 13.2 million new jobs annually between 2025 and 2050. Yet, the reality diverges from this optimistic projection.

In the economic landscape of these countries, the dominance has shifted from agriculture to services. However, the industrial sector has undergone premature shrinkage. Despite the increase in the share of services, a substantial portion of the population still relies on agriculture for employment, mirroring the situation in Nepal.

According to data from 2023, the average share of services in the GDP of countries within the Least Developed Countries group stands at 48.9 percent. Nepal’s share is even higher. Nevertheless, the growth of the service sector remains in its infancy. Labor productivity in these countries is a mere 11 times lower compared to developed nations. Within the service sector, retail trade and repair collectively account for 38 percent of the economy.

Because of an immature service sector and low productivity, the alternative development path that was promoted 25 years ago is now at risk of becoming another trap for poor countries.

At the same time, these countries face a sharp rise in the migration of skilled and active workers. Job creation has not kept pace, and productivity remains low.

As a result, the dream of gaining benefits from the service sector is again close to failure.

These countries are not only ageing in poverty. They also face the burden of transition caused by an immature economic structure.