Least developed countries need to diversify their economies and build productive capacity to be more resilent. The world needs to help. / ©Burin
By Paul Akiwumi, Director for Africa and Least Developed Countries, UNCTAD
As the world seeks to recover from the COVID-19 pandemic and the ensuing global recession, there is a temptation to prioritise domestic health and economic concerns, especially in advanced economies.
But resorting to inward-looking policies or protectionism threatens to leave behind the world’s most vulnerable economies or least-developed countries (LDCs). In responding to the global challenge posed by COVID-19 and building back better for long-term prosperity, the international community must not forget LDCs.
Why LDCs matter
An estimated 1.06-billion people live in the world’s 47 LDCs and by 2030 over 15% of humanity will be living in them. Despite their large demographic weight, LDCs account for less than 1.5% of global GDP. In 2019, the average GDP per capita in LDCs was only $991, compared with a world average of $11 069.
The number of people living in extreme poverty in these countries has virtually stalled at nearly 36% over the past 10 years. They account for the 53% of people living on less than $1.90 per day and nearly 40% of humans who live on less than $3.20 a day.
Currently, 39% of the people in LDCs are younger than 15 years old. These countries account for over 20% of the world’s youth, a trend likely to continue in the coming decade.
With a steadily rising young population, new and good jobs will need to be created quickly in LDCs. Rapid job creation, especially in high-productivity sectors, requires more investment in education and skills training, but these countries lack the resources to do so.
The Istanbul Programme of Action (IPoA) signed in 2011 sought to double the share of LDCs in global trade, a target reiterated in the United Nations’ Sustainable Development Goals (SDGs) adopted in 2015.
However, LDCs have accounted for only 1% of world trade since 2008.
Even for primary commodities that underpin LDCs’ highly concentrated export structures, such as fuels and, to a lesser extent, ores, metals and agricultural raw materials, LDCs’ share of the global total remains below 3.5%.
Persistent current account deficits, driven by large food import bills, fluctuating exchange rates and inconsistent revenue streams further restrict the fiscal space of LDCs.
COVID-related travel bans, movement restrictions and protectionist employment policies have cut migrant remittances to LDCs significantly, a situation likely to endure for the foreseeable future.
Multifaceted shocks hit LDCs hard
LDCs have so far been spared the worst effects of the health emergency, yet the fallout from COVID-19 has taken its toll on their economic performance, threatening to roll back progress towards sustainable development, worsening entrenched inequalities and possibly leading to long-term damage.
The fallout from the pandemic has triggered multifaceted shocks to both supply and demand worldwide. Sudden stops to production activities, value chain disruptions, uncoordinated border closings and travel bans have taken a huge toll on output.
Meanwhile, reduced working hours, layoffs, shrinking trade flows and heightened uncertainties have dampened demand. The fall in output is expected to reduce the public revenue available for development in many countries.
For LDCs, this is compounded by a collapse in global commodity prices such as oil, which are important sources of external revenue. Official development assistance is the largest source of external finance for LDCs, which heavily rely on it due to difficulties in attracting other external sources, including foreign direct investment.
Heavy dependence on aid increases LDCs’ vulnerability to economic shocks and fluctuations in the sectoral allocation, volume and concessionality of official development assistance.
Furthermore, declining foreign direct investment and increasing levels of public debt are raising the development risks facing the most vulnerable countries.
A decade of action
The UN’s 2030 Agenda for Sustainable Development hinges on the international community’s commitment to leave no one behind. Even before the current CoOVID-19 crisis, there were signs that many LDCs would neither meet the ambitious SDG targets nor achieve their own national development plans.
The number of LDCs able to meet the 7% GDP growth target set in the IPoA has been steadily declining in recent years. Therefore, much of the IPoA remains unachieved, and given these countries’ acute vulnerability to external shocks such as COVID-19, this looks likely to continue.
LDCs truly are the battleground where the 2030 Agenda for Sustainable Development will be won or lost. The next decade will witness the overlap of the remaining horizon of the 2030 Agenda with the next global plan for LDCs, to be adopted in 2022.
What can be done?
The ongoing crisis has brought back to the fore the pivotal role of productive capacities in enhancing resilience to shocks. One of the key lessons of the pandemic is that productive capacities should be developed in LDCs to enable them to achieve structural transformation, reduce exposure to external shocks and build resilience.
Central to this will be the design of concerted policies and programmes that build new capacities and leverage the existing productive resources, production linkages and entrepreneurial capabilities of the LDCs.
This can be achieved through a rethink of how economies engage and the international community’s renewed commitment to ensuring LDCs are not left behind. Bold, concerted policies to strengthen LDC productive capacities are as imperative as ever and they should constitute a key pillar of any sustainable recovery and development strategy.
UNCTAD has long championed the role of productive capacities and explores their further potential for LDCs in its forthcoming publication, entitled The Least Developed Countries Report 2020, to be released on 3 December.
At this time of heightened uncertainty, LDCs need special development support more than ever, and the right mix of productive policies must be at the core of this approach.
This opinion piece was first published in the Mail & Guardian on 11 November 2020.