How to make the economies of the world’s 48 least developed countries1 (LDCs) stable and productive enough to graduate from the category will be the subject of a 24 April high-level debate during the UNCTAD XIII quadrennial conference.
UNCTAD, one of the key United Nations agencies mandated to assist LDCs, is encouraging a forward-looking approach that includes adopting national strategies – such as that now being developed by the Lao People’s Democratic Republic – for overcoming the constraints that have limited progress in the past.
The high-level session will focus on “graduation and structural transformation” – that is, durable economic changes such as broadening the variety and sophistication of goods and services produced so that LDCs are less vulnerable to external shocks, and so that more numerous and better-paying jobs are created.
The LDC category has seen far more countries join than leave. After the category was formally established and its membership criteria set by the United Nations in 1971, the number of LDCs expanded from 25 to 50 through 2007. Then it fell slightly, to 48. The next addition to the list – probably late this year or early in 2013 – is expected to be the world’s newest country: South Sudan.
Only three States have graduated from the LDC category: Botswana in 1994, Cape Verde in 2007 and Maldives in 2011.
An adopted outcome of the Fourth United Nations Conference on the Least Developed Countries (UNLDC-IV), held in Istanbul in May 2011, was the goal of enabling half the world’s LDCs to meet graduation criteria by 2020. The setting of that target reflected the concern of the United Nations about the low graduation rate, a fact that was cited in numerous news articles in the lead-up to the conference.
Now the hard part begins. While it in fact appears ambitious to anticipate that at least 24 LDCs will be in a position to start the six-year process of exiting LDC status by the turn of the decade, a great deal can be done to start such nations on the way. And the obstacles, after 40 years, are clear.
Years of strong economic growth will be needed to enable most LDCs to improve not only their per capita incomes but also their human assets and economic resilience. The continuing fallout from the global financial and economic crisis has hindered this process. LDCs grew by a healthy 7.1 per cent annually during the economic boom from 2002 to 2008. But their economic expansion fell to 4.6 per cent in 2009, reached 5.7 per cent in 2010 and was an estimated 4.9 per cent in 2011. These figures compare well with economic growth in many other countries, but they would probably not be enough to enable many LDCs to meet graduation criteria within the current decade, especially as most have high rates of population growth.
Moreover, “this group doesn’t include only poor countries”, explains Taffere Tesfachew, Director of the UNCTAD Division for Africa, Least Developed Countries and Special Programmes. “Many LDCs are very isolated and vulnerable to weather and other external shocks. And many of them are very small. Some meet the per capita income graduation requirement but remain highly vulnerable. If there is a small population and one cyclone comes along and damages the tourism industry, national income may be cut by half. If one large investor or business leaves, it can have a drastic effect".
Eight of the 48 LDCs are small island developing States2, combining the disadvantages of small size (Tuvalu, the smallest, has a population of 10,500), vulnerability (exposure to natural disasters and climate-related threats such as sea-level rise) and economic remoteness. Long distances from world markets add significantly to the costs of exports and imports, making domestic businesses less competitive and economic growth more difficult.
“Some economic factors you can change,” Mr. Tesfachew said, “but you can’t change geography”.
Sixteen of the current 48 LDCs are landlocked developing countrie3 (LLDCs), which frequently also suffer from economic remoteness. For most of these economies, transport-related difficulties are a major problem limiting economic growth. Goods are most efficiently and cheaply transported by sea, but LLDCs must ship goods to ports in neighbouring countries to have access to maritime transport. “They need railroads and roads, especially if they’re commodities exporters – and many are,” Mr. Tesfachew said. “Often the connections aren’t very good. They are at the whim of the will of their neighbours. They may have to pay taxes and transfer fees; there can be customs delays; or there may be political problems. To move a ton of a commodity from Rwanda to the port of Mombasa (Kenya) will cost more than to transport the same good from Europe to Mombasa”.
Graduation from LDC status requires passing the thresholds for at least two of the three criteria used for identifying LDCs: per capita income, human assets and economic vulnerability.
The income threshold for graduation, based on a three-year average of gross national income per capita, was set at $1,190 in the 2012 review of the list of LDCs.
The human assets criterion involves a composite human assets index based on indicators such as nutrition, health, school enrolment and literacy. The index incorporates indicators that echo two of the eight Millennium Development Goals – halving the proportion of those suffering from hunger by 2015 and reducing by two thirds the mortality rate of children under five.
The economic vulnerability criterion involves a composite economic vulnerability index based on indicators of the impact of natural and economic shocks, environmental and economic exposure to such shocks and geographical handicaps explaining this exposure, such as smallness and remoteness.
The 24 April round table will involve government ministers, other high-level officials and UNCTAD XIII participants in a dialogue on how to achieve progress toward graduation from LDC status as envisaged by the Istanbul Programme of Action. The challenge of accelerating the pace of LDC graduation is clearly daunting: a 2012 review of the list of LDCs revealed that only 10 countries currently exceed the graduation threshold relevant to the low-income criterion4. Only 4 of these 10 countries also meet the graduation threshold for the human assets criterion5, and no LDC meets the graduation thresholds for those two criteria and the third criterion on economic vulnerability. Given the graduation rule, not more than four countries are expected to be taken out of the list of LDCs before 2020. Two more countries are very likely to exit the category in the early 2020s, and similar prospects (towards graduation between 2020 and 2025) are foreseeable for a significant – though hardly measurable – number of other LDCs. Overall, continuous and sustained efforts by LDCs and their development partners will be required for the exit expectations to be realized.
Moreover, graduation, which implies a resolution by the General Assembly, can be a source of anxiety and dilemma for some LDCs, given the risk of losing the advantages associated with LDC status. LDCs qualify for duty-free, quota-free market access for their exports to the European Union and several other countries. LDC status also encourages more generous allocations of aid by donors. LDC officials have been worried about losing such benefits through graduation, and concern has been expressed that such countries might tumble below the thresholds and qualify again for LDC status. Among recent international strategies for encouraging graduation is the principle of smooth transition, under which some benefits would continue to apply to graduate countries for a number of years.
24 April high-level event at UNCTAD XIII in Doha, Qatar
The event will feature a Davos-style round table with a keynote address by UNCTAD Secretary-General Supachai Panitchpakdi and statements by Heads of Government, government ministers and other senior officials from selected countries. Also speaking will be the heads of some United Nations agencies and other international organizations. The LDC panellists are expected to explain their national strategies and efforts to achieve progress towards graduation. Other national representatives will share their experiences as ex-LDCs or countries at an early stage of implementation of the Istanbul vision. One objective of the event is to encourage development partners to support or further support the efforts of potential graduating countries, notably by offering smooth-transition concessions to ease the exit plans of these States. It is also expected that the role of South–South and triangular cooperation in supporting the progress of LDCs toward graduation will be an angle of discussion.