unctad.org | The Third China Beijing International Fair for Trade in Services - High-Level Ministerial Workshop on Development Strategies
Statement by Mr. Mukhisa Kituyi, Secretary-General of UNCTAD
The Third China Beijing International Fair for Trade in Services - High-Level Ministerial Workshop on Development Strategies
Beijing
30 May 2014

 

"The state of the world economy and South-South knowledge exchange to empower the Least Developed Countries "

 

[As prepared for delivery]

Excellencies,
Distinguished Colleagues,
Friends,

It is my great pleasure to share with you some thoughts on the state of the world economy and on the pressing needs facing Least Developed Countries, as we open this High Level Ministerial Workshop on Development Strategies organized on the occasion of the Third China Beijing International Fair for Trade in Services. As you may know the Fair is sponsored by the Chinese Government and is permanently supported by UNCTAD, the WTO and the OECD.

We at UNCTAD are proud to support this annual gathering of policymakers, practitioners and researchers in the field of trade in services. International trade in services has been growing faster than the trade in goods recently, opening up new opportunities for development to all, including the Least Developed Countries.

However, even as we celebrate the 50th anniversary of UNCTAD in a couple of weeks, we continue to argue that developing countries need a greater voice in global economic decision-making. This greater voice can help developing countries - in particular, the LDCs - to enjoy the benefits of the growing trade in services and in that way help relieve pressures on employment. The employment issue has become more urgent recently as the growth of the world economy has slowed.

For almost a whole decade before the global financial crisis erupted, strong global economic growth benefitted most countries and regions of the developing world. A remarkable expansion of trade, investment and growth was the product of an exceptionally buoyant external environment. Strong demand, improving terms of trade, and significant increase in external resources, resulted in the strongest and longest growth acceleration of the LDCs since the early 1970s. Indeed, most developing countries improved their economic performance during that period.

Unfortunately, the boom was associated with a pattern of global expansion that was economically unsustainable, and a pattern of national expansion that was not inclusive. The pattern of global expansion was unsustainable because it was founded on increasing global imbalances, widening income inequality, rising levels of private debt, and the growing financialization of economic activity. The pattern of national expansion was not inclusive in many developing countries -- LDCs included -- since economic growth translated only weakly into poverty reduction and structural transformation. The main explanations for this lack of inclusiveness are twofold: on the one hand, growth in the LDCs did not generate enough productive jobs, and, on the other, there has been little structural change in their economies. It is no wonder, then, that not even one LDC will be able to meet all Millennium Development Goals.

The fragility and the unsustainable nature of the global expansion led to the global crisis in 2008-2009, and to a period of much slower growth afterwards. Six years after the onset of the global financial crisis, the world economy is still struggling to return to a strong and sustained growth path. Expansionary monetary policies in the major developed economies have not succeeded in fostering credit creation and strengthening aggregate demand. Fiscal austerity and wage compression have further darkened the outlook.

The LDCs continue to be marginalized in the global financial system and in global trade. Their total trade of goods and services still account for only 1.1% of world trade. They remain extremely vulnerable to external shocks. Financial flows, in the form of official development assistance (ODA), remittances and FDI, have partially cushioned the negative effects originating from the financial crisis and the continuing uncertainty that has followed it. But, there are signs that the economic recession that followed the financial crisis has affected many traditional and non-traditional development partners, raising doubts on the future sustainability of these external flows to the LDCs.

Given that the growth of demand in developed countries is likely to remain weak for an extended period of time, strengthened regional integration and intensified efforts to spur South-South trade offer one promising strategy for LDCs. Importantly, however, this must be accompanied by economic diversification, productive capacity-building and structural transformation, which should be given a renewed emphasis in national development strategies.

Although the agricultural sector still accounts for the majority of LDC employment, its share of employment and GDP has been declining since 2000. Only in the services sector has employment raised substantially. This reflects a shift of labour out of low-productivity activities - mainly agriculture - into low-productivity services in urban areas and informal trade. Average output per worker of LDCs, which in 2005 amounted to 60% of the average output per worker of China, at present represents only 34% that of China and it is projected to fall even further to 26% by 2018. So while the structure of the economy in LDCs has begun to change - it is not transforming in a manner that provides for decent and productive employment.

Lessons from the experience of emerging economies, such as China, suggest that deliberate industrial policy as well as targeted investments -- both private and public, domestic and international -- are needed to attain the structural change and development-led inclusive growth, which can create better quality and higher productivity jobs.

South-South cooperation and regional integration, or "developmental regionalism" as we at UNCTAD call it, can foster the needed structural change, economic diversification and technological development both as goals per se, and as a means of collectively linking the region into the international markets.

A successful example of development regionalism has been implemented in Asia through the Greater Mekong Subregion, a programme coordinated and spearheaded by the Asian Development Bank. This programme has in its core ambitious forms of intervention, such as policy coordination for industrial development and regional integration through regional value chain mechanisms.

South-South cooperation that spurs structural transformation could also acquire a significant boost with the creation of the BRICS development bank. The fact that the leaders of the BRICS nations have committed to the creation of a new Development Bank for infrastructure and sustainable development is indeed very good news! There are large unmet needs in the field of infrastructure and more environmentally sustainable forms of development. An investment shortfall in these areas of upwards of UD$1 trillion annually has been identified beyond what is likely to be financed with currently existing financial institutions.

Ladies and Gentlemen,

It is my firm belief that your deliberations over the next two days are one small but important example of South-South cooperation in action. Indeed your exchanges over the next two days constitute a continuation of UNCTAD's 50-year tradition of empowering independent thinking, consensus building and technical cooperation. I hope that your conclusions and your takeaways from this conference will provide a powerful demonstration of how multilateral policy dialogue can play an important part brightening development prospects in your respective countries. I offer you my very best wish for your continued successes in this endeavor.

Thank you.



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