This article will highlight underdeveloped economies and some reasons for their lagging. If you want to skip our analysis on how certain countries are stuck in a rut in this hyper-globalized economic landscape, head straight to the Top 8 Most Underdeveloped Countries In The World In 2023.
Historical data suggests that underdeveloped countries exhibit low positions on Human Development Index (HDI), a marker delineating quality of life, education, and income. Economic incompetence is a complex problem in these countries, crystallized by domestic challenges, including corruption, political instability, and weak institutions, which act as impediments to attracting foreign investments. These dynamics are especially evident in the most underdeveloped countries in the world in 2023.
External factors further complicate the development of struggling economies; a haunting legacy of resource exploitation and imposed conflicts is there for everyone to see. For instance, the extraction of gold and other valuable minerals in Africa has historically been executed in ways that perpetuate economic oppression and environmental degradation, with the lion’s share of profits flowing out of the continent.
Beyond formal gold exports, gold worth billions is reportedly smuggled out of Africa without tracking records, further hurting the continent's economies. Consequently, countries like the Democratic Republic Of Congo (DRC), classified as least economically developed, record significantly fewer exports than the amount actually extracted.
Indeed, multinational corporations often engage in a scramble for resources in low-income countries, crafting asymmetrical agreements that predominantly favor their interests. Such agreements usually leave host countries in cycles of debt and dependency. Low-income economies also face issues such as child labor, worker exploitation, and unfair wages due to their inability to capitalize on their resources effectively.
Many underdeveloped African countries, despite being among the countries with the most natural resources, have mining sectors riddled with child labor. Reports suggest that over 40,000 children work in the Democratic Republic Of Congo's artisanal mining sector for cobalt, rare earth elements, and lithium. China has been a significant investor in the DRC over the past decade, with a landmark infrastructure-for-mineral agreement signed in 2008 between a Chinese consortium (comprising China Railway Group Limited and Sinohydro Corporation) and the DRC. This deal, initially worth $9 billion, but later reduced to $6.2 billion following IMF guidelines, allowed China access to extensive copper and cobalt deposits in exchange for infrastructure construction in the DRC. To date, China has invested $2.74 billion in the DRC.
However, deals between mega-economies and countries with the highest rates of poverty often disadvantage the latter. This dynamic is evident as DRC's current president, Felix Tshisekedi, criticized the aforementioned deal for not sufficiently benefiting the world's largest producer of cobalt, the key battery metal. Tshisekedi has expressed intentions to revise the agreement to better serve the DRC's interests, according to reports.
Apart from the DRC, many other poor countries in the world sell critical assets without reaping the expected benefits. A notable example is the proposed 2008 deal between Madagascar and South Korea's Daewoo Logistics. According to the deal, Madagascar was to allocate 1.3 million hectares of arable land to Daewoo Logistics for corn cultivation. In return, Daewoo would invest $6 billion in Madagascar's transportation network, schools, and infrastructure. This deal would have greatly reduced South Korea's corn imports from the USA and South America. However, public outcry in Madagascar and subsequent government opposition led to the deal's cancellation. This instance illustrates that underdeveloped countries often worsen their conditions when selling major assets to wealthier economies.
Aside from potentially exploitative projects in the least developed countries in Africa, like unregulated mining, there are certain corporate investments in underdeveloped economies aimed at empowering the people. For example, Alphabet Inc (NASDAQ:GOOG)'s Google Africa initiative aims to improve access to information and technology across the continent to foster digital literacy. The project by Alphabet Inc (NASDAQ:GOOG) also provides digital skills training to individuals and businesses to enhance their technical proficiency. Eventually, when there's more literacy and an innovative culture in these impoverished countries, their workforce's employability increases. As part of the project, Alphabet Inc (NASDAQ:GOOG) committed to spend $1 billion to support innovation across the continent in the next five years.
Another corporation with big stakes in Africa's least developed economies is Ford Motor Company (NYSE:F). Besides South Africa, Ford Motor Company (NYSE:F) expanded its foothold to Nigeria in 2017 by opening a production plant in the country and cemented its access to the continent's two biggest economies. The plant is located in Lagos State, about 750 km from Nigeria's capital, Abuja. Ford Motor Company (NYSE:F)'s Nigeria chapter created around 180 jobs in the country and has a production capacity of 5000 units per annum.
Countries with low economic development require more intelligent planning and increased foreign direct investment to develop their projects. Ironically, while most underdeveloped countries possess ample resources to improve their economic status, issues like corrupt governance, disease burden, and population surges hinder progress. Fortunately, there are funds that invest in less developed countries, like the Asia Frontier Capital Fund and the International Finance Corporation, aiming to empower these economies by providing accessible free cash flows and strengthening basic infrastructure.
Let's now discuss the top 20 most underdeveloped countries in the world in 2023!
Top 20 Most Underdeveloped Countries In The World In 2023
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Our Methodology
We used three metrics to identify underdeveloped economies: GDP per capita, GNI per capita, and extreme poverty rates. After grading the shortlisted economies with low economic development based on these parameters, we averaged their rankings to obtain composite scores. Then, we ranked these struggling economies in ascending order of their composite scores.
As per our findings, here are the top 20 most underdeveloped countries in the world in 2023:
20. Rwanda
Composite Ranking: 20
Emerging from the shadows of a genocidal past, Rwanda grapples with long-standing economic vulnerability. Although it has made significant improvements in social indices, the nation relies heavily on foreign aid, which constitutes about 15-20% of its annual budget. Agriculture, the primary source of livelihood, employs over 70% of the workforce but contributes only 30% to the GDP due to rudimentary practices and limited access to markets. Currently, Rwanda has an external debt of $8.994 billion and is among the heavily indebted poor countries. Notably, the nation aspires to become a middle-income country by 2035 and a high-income country by 2050.
19. Uganda
Composite Ranking: 19
With limited resources for economic development due to its growing population and a GDP of $45 billion, Uganda faces challenges. Over 40% of its population lives in adversity, resulting in a significant percentage of unskilled manpower. Being among landlocked developing countries, Uganda is making substantial efforts to improve its transport network and regional partnerships to facilitate smoother trade routes. Uganda also faces one of the world’s highest population growth rates, with a median age of around 16 years. Such a youthful demographic presents opportunities and challenges simultaneously, as it necessitates significant investments in education, healthcare, and employment generation.
18. Togo
Composite Ranking: 18
Togo predominantly depends on subsistence farming and faces developmental hurdles, including high poverty rates and a fragile economy. Approximately 55% of its rural population lives in poverty with limited access to basic economic opportunities, perpetuating a cycle of impoverishment. The country also struggles with widespread malnutrition due to persistent issues with food security and quality.
17. Gambia
Composite Ranking: 17
Gambia, one of Africa's smallest and economically constrained nations, grapples with poverty and underdevelopment. Facing a high external debt burden, over 48% of Gambians live in poverty. Limited employment opportunities, a low ease of doing business ranking, and an informal economic structure further exacerbate the country's economic challenges.
16. Mali
Composite Ranking: 16
Mali, among the top gold producing countries in the world, contends with an informal economy and unregulated mining sector. According to ISS Africa, gold mining in Mali adversely affects environmental sustainability and human health. With a 14.8% extreme poverty rate and a current external debt of $6.460 billion, the nation faces substantial economic challenges.
15. Burkina Faso
Composite Ranking: 15
Approximately half of Burkina Faso's population lives below the poverty line, facing severe developmental challenges. Food insecurity and insufficient investment in education result in wasted human potential. The economy, heavily reliant on gold and cotton, is vulnerable to market fluctuations and climate change, impacting food security and employment. Currently, Burkina Faso has over $10 billion in external debt.
14. Guinea-Bissau
Composite Ranking: 14
Over two-thirds of Guinea-Bissau's population lives in poverty, and its economy, highly dependent on cashews, is vulnerable. Limited diversification within the agriculture sector hinders sustainable growth and development. According to the World Bank, the main constraints on economic growth are a weak human capital base and a virtually non-existent private sector.
13. Sierra Leone
Composite Ranking: 13
Emerging from a debilitating civil war, Sierra Leone grapples with entrenched poverty and underdevelopment. Over 60% of its workforce is engaged in subsistence agriculture, which is hampered by inadequate infrastructure. The 2014 Ebola outbreak further strained the nation, reducing the urban area's working population from 75% to 67%, according to the International Growth Centre (IGC).
12. Madagascar
Composite Ranking: 12
Pervasive poverty afflicts Madagascar, with 70% of the population living below the poverty line. The country's reliance on subsistence farming, political instability, and frequent natural disasters combine to create a myriad of developmental challenges, contributing to sustained high levels of food insecurity. Madagascar has an external debt of $5.347 billion, primarily used for hunger relief and education.
11. Malawi
Composite Ranking: 11
Approximately 50% of Malawi's population lives in poverty, facing significant developmental challenges, including corruption that affects its $17 billion economy. With a largely unskilled workforce primarily employed in the informal agriculture sector, the country struggles. Despite progress and an external debt of $3.185 billion, Malawi's human development indicators remain low, reflecting deep socio-economic inequalities.
10. Afghanistan
Composite Ranking: 10
Afghanistan is one of the most indebted countries due to a war that has damaged every aspect of its economy. Nearly 54% of its inhabitants live below the poverty threshold, with ongoing violence and insecurity impeding access to basic services and economic opportunities. These issues, coupled with Taliban leadership, limit budget spending on education, intensifying the humanitarian crisis. Besides the massive foreign aid received in the past two decades, mainly from the US, Afghanistan's external debt stocks are also big, currently standing at $3.531 billion.
9. Chad
Composite Ranking: 9
Chad faces crises of poverty, food insecurity, and political turmoil. Over 66% of its population endures multidimensional poverty, with 30% living in extreme poverty. Environmental factors like desertification jeopardize the country's subsistence agriculture, while the drying of Lake Chad critically affects those dependent on fishing and freshwater irrigation. Although oil constitutes a crucial part of Chad's economy, it has not led to significant improvements in living standards for the majority of the population.
