Can Services Drive Structural Transformation in Africa’s Least Developed Countries?

In 2025, the United Nations classified 44 countries as Least Developed Countries (LDCs), 32 of which are in Africa. The UNCTAD Least Developed Countries Report 2025 examines the evolving geography of LDCs and asks a central question: can the services sector (now accounting for nearly half of GDP in many LDCs), become a genuine driver of structural transformation?

The urgency of this question is underscored by the LDCs demographic trajectory. By 2050, the combined population of such countries is expected to reach 1.95 billion, with the working-age population (15–64) projected to expand by 76%. Annual labor force growth will be especially pronounced in African countries such as the Democratic Republic of the Congo (1.9 million new entrants per year), Ethiopia (1.8 million), and the United Republic of Tanzania (1.4 million). Generating productive employment at this scale represents one of the most pressing development challenges that the continent faces.

Yet, current outcomes remain sobering. Despite the growing weight of services in GDP, a large share of workers in African LDCs remain trapped in low-productivity, informal service activities that ensure subsistence rather than sustained prosperity. In 2024, average per capita income growth in LDCs stood at just 1%, and no LDC achieved the 7% annual growth target set under Sustainable Development Goal 8.

The structure of services exports further limits their transformative potential. In African LDCs, exports are heavily concentrated in travel and transport, with tourism alone accounting for roughly one-third of total services exports. While tourism can generate foreign exchange, it often produces limited local value addition and weak spillovers to the broader economy.

At the same time, LDCs are being sidelined in the fastest-growing segment of global trade: the digital economy. Collectively, they account for only 0.16% of global digitally deliverable services exports (the lowest share ever recorded) highlighting a widening digital divide.

Still, the report points to notable national successes that demonstrate what is possible with targeted policy choices. Ethiopia has experienced strong growth in services exports, which accounted for more than 65% of its total exports in 2023–2024, driven largely by Ethiopian Airlines. Rwanda has positioned itself as a regional services hub through the Kigali International Financial Centre and attracted substantial investments in technology-based services. On the other hand, Togo and Djibouti are leveraging their coastal locations to develop maritime logistics platforms and strategic transport corridors, in an attempt to position themselves as regional gateways for landlocked economies and capture value from transit trade, port services, and related logistics activities.

Building on these experiences, UNCTAD argues that African LDCs must move beyond treating services as a residual “buffer” that merely absorbs low-skilled labor. Instead, governments should pursue integrated strategies that combine investment in physical and digital infrastructure, human capital development, and regulatory reform. A central objective should be to strengthen linkages between services, manufacturing, and agriculture, thereby raising productivity and fostering innovation across sectors.

The African Continental Free Trade Area (AfCFTA) is also highlighted as a critical platform for scaling up trade in services and securing market access for smaller and more vulnerable economies. However, while the AfCFTA provides an opportunity for scaling intra-African trade in services, domestic reform and regional trade alone will not be enough. Global cooperation remains critical to complement these efforts, through enhanced trade preferences, technology transfer, and concessional finance, so that LDCs can overcome structural constraints, access global markets, and fully realize their development potential. In other words, the report admits that once the AfCFTA and domestic reforms will be fully in place, they can improve intra-African trade, regulatory quality, and regional integration, but they cannot fully overcome structural barriers such as limited technology, financing gaps, and small domestic markets that will continue to require external support (global cooperation) to scale services, raise productivity, and integrate into global value chains. In short: regional solutions alone are not enough. External engagement will continue to be a critical part of Africa’s path to structural transformation.