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UNCTAD Regional Course on Key Issues on the International Economic Agenda

Statement by Mr. Supachai Panitchpakdi, Secretary General

UNCTAD Regional Course on Key Issues on the International Economic Agenda

Belgrade
09 July 2012

Your Excellency, Mr. Nebojša Ciric [Minister for Economy and Regional Integration]Professor Branislav Boricic [Dean of the Faculty of Economics]

Excellencies, Ladies and Gentlemen,

It is a great pleasure for me to open UNCTAD’s 24th Regional Course on Key International Economic Issues. First of all, I would like to express our gratitude to the Government of Serbia and the University of Belgrade for kindly agreeing to host this seminar.  

The Course on Key International Economic Issues is UNCTAD's flagship training programme tailored to the needs of national policy-makers at senior levels.  It is designed to give policy-makers a birds-eye view of different economic policy issues, but also to draw attention to the links between them. Indeed, the recognition of the interrelated nature of the issues covered by the course lies at the heart of UNCTAD's mandate and our work on trade and development.  Allow me therefore to say a few words about some of the policy-issues that you will be addressing. 
As you embark on this course, the world economy is still reeling from the fallout of the financial crisis, and the pace of global recovery has been slowing down in 2011.  Indeed, the world economy may be on the brink of another major downturn. According to our baseline scenario, global output is expected to grow by only 2.5 per cent in 2012, down from 4.1 per cent in 2010 and 2.8 per cent in 2011. Growth will remain particularly low in developed countries, but it is also likely to decelerate in developing and transition economies. 
 
The path of economic crisis and semi-recovery has varied across countries, and one important part of our training sessions over the coming days will be to learn more from each other about how events unfolded in our respective countries, what policy measures were tried and what was their effect.  Some general themes are the same in all countries, however.  As unemployment remains high, and incomes stagnate, the recovery is stalling owing to low aggregate demand. As workers remain out of a job for longer periods, medium-term growth prospects also suffer because of the detrimental effect on workers’ skills and experience. Private demand is also weakened by the on-going deleveraging process, which inhibits lending and borrowing within developed economies despite low interest rates and abundant liquidity provided by Central Banks.
 
As we will describe in the training sessions and debates to follow, the failure of policymakers to address the jobs crisis, stimulate domestic demand, and strengthen the financial sector could send the global economy into another recession.  A worsening of the situation in Europe or in the United States of America would seriously affect developing countries and economies in transition through trade and financial channels. A robust, balanced, and sustained global recovery requires much more pervasive and coordinated policy action from the largest economies. These policies should concentrate on fiscal stimuli with an orientation towards jobs creation and accelerated reforms of the financial regulatory system and of the international monetary system.
           
The slowdown in the recovery is also making itself felt in global trade flows.  If trade, particularly trade among the developing countries, rebounded quickly after the crisis, the impact of slow demand-growth is now making itself felt.  In this context, we must prevent a fallback into protectionism, through continued commitment to the global trading system.  Developing and transition economies should also explore new opportunities for trade integration.  Many transition economies have been participating in the Doha round negotiations since 2001, while others do so as recently acceded members to the WTO. For them, trade in services under the WTO/GATS agreement, presents an enormous opportunity in terms of export creation and employment generation.
 
The temporary movement of natural persons under Mode 4 of the GATS, for example, remains a key area for economies in transition, which account for one-third of all developing country emigration. Migrant remittances in the region are relatively large by world standards and, thus, further liberalization of the movement of natural persons is likely to bring gains for these economies.
 
Given the slow progress in the Doha round, however, it is only natural for transition economies, like many other regions, to pursue regional solutions to their trade and development issues. Regional integration and cooperation has become an increasingly important tool for developing larger markets, supply capacity, and trade-related infrastructure. 

One particular such opportunity arises for transition economies from the growing role of developing countries in global trade and investment. Already, exports from economies in transition to developing countries increased by 290% between 2000 and 2006; even in the crisis year of 2008, they expanded by over 50%, though much of this is due to the very high level of primary commodity prices during the first half of 2008. 
 
Overall, the share of trade between the two groups in total world trade increased from 0.7 per cent in 2000 to 1.9 per cent in 2008.  This growth highlights the great potential for further exchanges within the developing world.  
There is reason to be optimistic about the growing importance of developing countries as a market for the exports from economies in transition. Infrastructure investment and urbanization are likely to continue growing rapidly in some of the most populous developing countries, particularly China and India. This means that export prospects are bright, particularly for resource-rich transition economies.
 
Nonetheless, economic policies must not lose sight of the ultimate goal of attaining a diversified economic structure.
One key obstacle faced by many transition economies in their trade integration derives from their status as landlocked countries. Among the 31 landlocked developing countries in the world, 10 are located in Eastern Europe, Central Asia and the Caucasus. On average, the overall international trade transaction costs for landlocked developing countries in this region remain three times higher than those of maritime countries in the region. With an average distance between several Central Asian countries and the closest seaport of 3350 km, these countries are among the most remote from world markets. Transport and trade facilitation therefore play a crucial role in enabling countries to take advantage of trade opportunities.
 
Unnecessary delays and higher transaction costs have a major impact on trade efficiency. Traders in landlocked developing countries often need to submit almost twice as many trade documents to border control authorities, than traders in their coastal neighbours. However, many transition economies have been improving their performance through customs automation and modernization programmes. With Russia's joining of the WTO, the issue of a multilateral WTO trade facilitation agreement becomes more important also for many Central Asian countries.  UNCTAD is actively supporting its member countries in the negotiation and implementation of this agreement.  
Despite these disadvantages, many transition economies have been doing comparatively well in attracting Foreign Direct Investment (FDI), and there are marked signs of a recovery in FDI inflows in 2011 both in South-East Europe and the Commonwealth of Independent States. This recovery comes after a sharp decline in 2009, and no growth in 2010. The region is also an increasingly important source of outward FDI, which reached an all-time record level in 2011. We released the World Investment Report 2012 on 5 July with the definitive numbers, just in time for use by participants of this course.
 
From our findings, both inflows and outflows are expected to remain dynamic in the future, despite all the uncertainties of the current economic situation, especially in Europe. Investors are attracted to transition economies by their solid macroeconomic record, an investor-friendly environment in various countries, and privatization opportunities. The accession of the largest economy of the region, the Russian Federation, to the WTO will open additional investment opportunities, especially in services. For policy makers of the region, this situation raises the issue of how to ensure that FDI inflows lead to development benefits in areas such as employment creation, technology transfer, economic diversification, and integration into global value chains. Putting in place the right policies and creating the right regulatory-environment is a major policy challenge faced by many transition economies.  I hope that this course can be of assistance in addressing this challenge.
This course will also include a discussion on science, technology and innovation, which is a fundamental component of sustainable growth and economic development. Through innovation – the process of transforming technology into new and marketable products and services – countries can increase economic diversification, improve investment attractiveness, create employment, and reduce their environment footprint.  In doing so, we should not forget that not all innovation is technological.  Furthermore, not all innovation is on the frontier of science and technology. Innovative products and services can also be adapted from existing technologies or products, so as to add particular value in a particular area. This is particularly true in sectors such as energy, information technology or agriculture, where there are numerous existing technologies that can be adapted and contextualized to the specific conditions of economies in transition. The course module on science, technology and innovation will therefore emphasize the role of national innovation systems in development policy.
 
Ladies and gentlemen,
 
These are only a few of the many issues that you will discuss in the coming days.  The task ahead of you is a difficult one, but also stimulating.  Managing the successful integration of your countries into the global economy requires a sound understanding of the complex international economic environment and the inter-linkages between different areas, which UNCTAD aims to highlight.  I am sure that this course will be of use to you in your current position and for your future career development as well.

Thank you very much.