Towards a New International Development Architecture for

LDCs

Presentation to DelegationsIn the framework of courses organized by UNCTAD Virtual Institute

on International Economic Relations, 18 March 2011

Charles GoreHead, Research and Policy Analysis Branch

Division for Africa, LDCs and Special Programmes

Is there still a case for international support for LDCs?

Resilience in the global recession of 2009 is deceptive

• Heterogeneity. GDP per capita declined in 19 LDCs in 2009

• Channels of impact. Some direct financial contagion but more through lower export revenues (26% decline in merchandise exports WTO, 34%decline to major partners ITC); also falling FDI (13% decline); slowdown in remittances

• Offsetting factors. Recovery of commodity prices in 2009. Large inflows of official financial flows from IMF, World Bank and regional development banks. “Walmart effect” for some manufactures.

The boom is not as good as it looks

• Despite strong growth performance in the past decade, LDCs still diverging

• Very weak development of productive capacities

• Slow poverty reduction and MDG achievement

LDCs long-term growth performance

Weak development of productive capacities during the boom

• Investment up from 20% of GDP (2000) to 23% (2008) but declining savings in LDCs excluding oil exporters. Savings in LDCs adjusted for natural resource depletion were close to zero in 2008.

• Manufacturing accounted for 10% of GDP at start and end of the boom. 27 LDCs experienced de-industrialization during the boom

• Imports of machinery and equipment increased only marginally in boom years except in oil exporters

Weak development of productive capacities during the boom

• Agricultural productivity growth slow. Agric value-added per worker grew at one-third of GDP per worker. Agric exports stagnated.

• Food imports grew from US$7.6 billion in 2000 to US$24.8 billion in 2008

• Share of fuel and mineral exports in total merchandise epxorts increased from 43% in 2000 to 67% in 2007

• Export concentration increased

Trends in Extreme Poverty in LDCs – 1980-2007(Source: UNCTAD Least Developed Countries Report 2010: under embargo

until Nov 25)

Off-target to meet MDG-1:Poverty Reduction

Progress towards MDG-1 on poverty reduction in LDCs

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1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Source: UNCTAD based on data for 33 LDCs from M. Karshenas 2010

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LDCs MDG goal

Impressive progress MDG on primary school enrolment

But most LDCs not on track to meet most MDGs

• Only half of LDCs on track to meet net primary school enrolment target

• One-third of LDCs on track to meet target on access to safe water

• One-quarter of LDCs on track to reach targets on infant mortality and child mortality

• Mixed performance on undernourishment (pre-2008)

The central development challenge facing LDCs is to create productive jobs and

livelihoods for a rapidly growing labour force

• In Mali, the new entrants to the labour force were 171,800 in 2005 and they will increase to a peak of 447,800 per annum in 2045, when the annual additional labour force will start to decline.

• In Madagascar, the new entrants to the labour force in 2005 are estimated as 286,200 and their number will increase to 473,400 per annum by 2035, when the additional labour force will begin to decline.

MOST LDCs ARE EXPERIENCING A BLOCKED STRUCTURAL TRANSITION

• In the past, the major way in which the growing labour force was absorbed was in agriculture (mainly on new land)

• With population growth, agricultural farm sizes are declining and farms are more located on marginal land.

• Mass poverty means that many cannot afford the means for sustainable intensification of agricultural production.

• More and more people are seeking work outside agriculture and urbanization is accelerating.

• Most LDCs have not been able to generate sufficient productive off-farm jobs to absorb the growing labour force seeking work outside agriculture.

• Most find work in survival urban informal activities

How have successive POAs worked

• UNLDC I. Ideologically sidelined. State-led development model. Obsolete after introduction of implementation of SAPS

• UNLDC II. Asymmetrical implementation. LDCs undertook deep econ. Liberalization; real aid per capita fell 45% 1990-2000, very little debt relief

• UNLDC III. More effective partnership (aid doubled in real terms 2000-2008, LDCs continued to implement economic reforms and improve governance BUT – Increasing though incomplete recognition of LDCs as a category– LDC-specific international support measures had symbolic

rather than practical developmental effects– Global economic regimes not development-friendly and working

at cross-purposes with ISMs (aid architecture, lack of international commodity policy, technology)

International Support in BPOA

• BPOA. Commitments to 156 actions by LDCs and 178 by development partners

• Compare evaluations of 8 key measures– ODA targets– Untying aid– LDC WTO accession– SDT in WTO agreements– Preferential market access for LDC goods– TRIPS Article 66.2– (Enhanced) Integrated Framework– LDC Fund for climate change adaptation

Common Failings of LDC-specific Measures

• Design – exclusions eg market access preferences, failure to take account of LDc characteristics (untying aid)

• Very little action on WTO accession and SDT in WTO agreeements

• Development benefits stymied by inertia in existing practices (aid untied de jure but not de facto)

• Many studies but little financial follow-through• BUT (painfully slow) learning process (eg EIF)

Aid targets continuously not metGap based on 0.15% of GNI target

Technology: TRIPS Article 66.2

• “Developed country members shall provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to LDCs in order to enable them to create a sound and viable technological base”

• Problems– “Technology transfer” not defined– No institution to enable LDCs to create a “sound and

viable technology base”– Only 22% of reported programmes actually promoted

technology transfer specifically targeted at LDCs