The least developed countries (LDCs) are a group of countries that have been classified by the United Nations as least developed in terms of their low gross domestic product (GDP) per capita, weak human assets and high degree of economic vulnerability.

This Report argues that the LDCs need to go beyond business as usual in order to promote inclusive and sustainable development and it suggests how South–South cooperation supports such a transformational agenda.

The Report shows that despite strong GDP growth during the last decade, the benefits of growth were neither inclusive nor sustainable, mainly because growth was not complemented by structural transformation and employment creation. Growth and trade has not-recovered to pre-crisis levels after the global recession of 2009. Most LDCs continue to deepen their specialization in exports of primary commodities and low-value, labour-intensive manufacturing, rather than diversifying into more sophisticated products. Growth projections also indicate that the poorest countries of the world could face a more volatile and less expansive global economic environment in the coming decade.

Further, the Report examines how South–South cooperation could support development LDCs against this background. It shows that there are intensifying economic relationships between the LDCs and other developing countries and that these helped to buffer LDCs from the downturn in advanced economies. A major new trend in the pattern of integration over the last decade or so has been the deepening and intensification of economic and political ties with more dynamic, large developing countries, acting as growth poles for the LDCs. While intensifying South–South relations presents major new opportunities for LDCs in terms of markets, foreign direct investment, remittances and official financing, they also bring many challenges, ranging from extreme competition to de-industrialization. Therefore, the long-term impact of South–South economic relations on the LDCs still remains a puzzle.

The Report explores how the potential of South–South cooperation can be turned into a reality that promotes the development of productive capacities, structural transformation and decent employment in the LDCs. It argues that the benefits of South–South cooperation will be greatest in the LDCs when a dynamic two-way relationship is established in which policies carried out by catalytic developmental States in the LDCs and South–South cooperation reinforce each other in a continual process of change and development. In such a dynamic relationship, the catalytic developmental State in the LDCs enhances and shapes the benefits of South–South cooperation, and South–South cooperation supports both the building of the catalytic developmental State in the LDCs and the successful achievement of its objectives.

New modalities and structures are required to strengthen the interdependence between the two phenomena in the post-crisis environment. In this regard, the Report claims that developmental regionalism is particularly important. Given that financing productive capacities still remains a major challenge for most LDCs, the Report revisits the role of regional development banks and proposes new modalities through which a small part of the reserves that have accumulated in developing countries and that are managed by sovereign wealth funds could support the financing of development in the LDCs. South–South cooperation should be a complement to North–South cooperation.