Review of Progress in Implementation of the 2001-2010 Programme of Action for LDCs
Ladies and Gentlemen:
Welcome to the discussion on the LDC Programme of Action for 2001 to 2010.
In light of the uncertainties clouding the economic horizon, all of you are certainly interested in the implications for LDCs and for the implementation of the Programme of Action. During this session, we shall share with you some suggestions for how governments and the international community might act to confront the difficulties faced by LDCs. And how LDCs can be helped to take advantage of the opportunities.
In my introductory remarks, I would like to concentrate on a few of the major findings of the Least Developed Countries Report 2008, which was released in July. This is the first time delegates have had a chance to discuss this study, and we are looking forward to hearing your views.
The good news from this report is that there are some encouraging signs.
For example, in 2005-2007, LDCs as a group attained the 7% Brussels Programme of Action growth target, thanks to a combination of favourable conditions:
- Higher export prices for commodities (most LDCs are commodities exporters)
- Increased ODA (from $17bn in 2000 to $ 28bn in 2006) - a global partnership-induced factor, as was also:
- Debt relief (16 LDCs received significant debt relief in 2006).
In addition, in 2007, LDCs attracted a record US$13 billion worth of Foreign Direct Investment. And, as the recent MDGs Report showed, some LDCs made progress in poverty reduction, with a few nearing graduation to non-LDC status.
Those were the positives. However, there were also many disturbing findings.
In one third of LDCs, income per capita has been growing only 1% p.a., and some countries have gone backwards in terms of attaining the MDGs. Indeed, higher growth has been accompanied by an increase in absolute poverty in most African LDCs. This shows a worrying disconnect between growth and poverty reduction.
In 2005, according to UNCTAD´s newly estimated poverty statistics, 36 % of LDC populations lived on less than a dollar a day, and 76% on less than two dollars a day. UNCTAD´s research also shows growing income inequality in LDCs, a trend that poses serious questions for the sustainability of growth over the longer term. This is a key issue examined by the Report.
Moreover, LDCs - already fragile - are highly vulnerable to economic fluctuations. As a result, many gains are being eroded rapidly by higher food and energy prices, by the credit crunch, and by the uncertain economic outlook.
All of the above danger signals have led us to question again the sustainability of commodity-based growth for LDCs.
The 2008 LDC Report stresses the urgent need to deliver more effective solutions in order to ensure sustainable - and inclusive - growth and equitable income distribution.
A guide to some possible solutions lies in examining regional differences between African LDCs (commodity-based) and Asian LDCs (manufacturing-based) development. The latter model illustrates the benefits of value-added diversification as a more solid means of integration into the global economy. This has helped Asian LDCs promote a limited degree of structural transformation in which manufacturing is increasing as a share of GDP and poverty is declining through employment creation.
However, Asian LDCs, like those elsewhere, still encounter serious obstacles in developing viable private sectors, SMEs, productive capacity, quality assurance systems and infrastructure - both physical and social. Innovation, value adding and technological change is too slow, and cost-competitiveness is difficult to achieve without economies of scale. Dynamic change requires significantly increased investment in R&D, learning and innovation.
So what are the policy suggestions that the LDC Report offers?
LDC economies can only benefit from the trade, investment and growth opportunities of globalisation if they build up their productive capacity through technology upgrades, capital accumulation and structural change.
For this to occur, the state has to take on a more proactive and catalytic function to stimulate productive activities. It also must deliver stronger enabling environments for business and investment. The Secretary-General, in opening the Trade Development Board, spoke of the important role of the ´enabling state´ in achieving such objectives. (The 2007 LDC Report contains concrete policy suggestions for building productive capacity.)
Donors must also reorient their priorities to better target infrastructure and productive activities, including agriculture.
As Dr Supachai said in opening the High-Level Segment on Monday morning, "There is a worrying trend among donors to emphasise social sectors at the expense of aid to productive sectors and infrastructure. In the decade since 1996, the proportion of ODA earmarked for productive activities declined from 48% to 35%. What is even worse, in LDCs, assistance to productive sectors accounted for just 25% of total aid disbursements in 2006. Equally disturbing is the sharp decline in overall assistance to the agricultural sector. Most crucially, donors appear to have neglected technical assistance for science, technology and innovation."
In fact, many of the underlying causes of the food crisis are to be found in the longstanding neglect of agriculture in developing countries. In many LDCs, agricultural productivity is lower today than it was 50 years ago.
The declines in ODA for productive activities are exacerbated by LDCs´ generally excessive aid dependence and low degree of ownership over their own development strategies. Echoing the Paris Declaration on Aid Effectiveness and the Accra Action Agenda, the 2008 LDC Report reiterates the critical importance of country ownership of national development programmes for more effective aid delivery and management practices.
The LDC Report shows that despite recent progress, country ownership of aid design and delivery remains undermined by conditionality and donor funding practices. A workable mechanism to strengthen country ownership and enhance mutual accountability is an urgent priority.
To this end, the Report offers - and recommends adoption of - a detailed Aid Management Policy tool for integrating donor preferences with the real needs of recipients and building government capacity to design and manage their own development programmes.
The Report also calls for improved aid effectiveness through better alignment between assistance programmes and development targets, including the MDGs. This implies a change in the way development partnerships are structured and delivered, and requires increased sourcing of home-grown solutions to development issues. Yesterday, in the Civil Society Hearings, several civil society representatives referred to the importance of ´endogenous´ solutions - learning from best practices and applying that knowledge in designing applications tailored to local needs and conditions.
UNCTAD can play an enabling role in assisting LDCs to implement these ideas and increase the effectiveness of aid management.