Asia-Pacific Regional Review of the Istanbul Programme of Action: Special session on productive capacities-induced structural transformation – on the road to 'graduation with momentum'

Excellencies,
Mr. Courtenay Rattray, UN High Representative for LDCs, LLDCs and SIDS,
Ladies and Gentlemen,

It is a pleasure to welcome you to this side-event on Accelerating Structural Transformation – On the Road to “Graduation with Momentum”.

I would also like to thank the Co-Chairs of the PrepCom for LDC V – the Ambassadors of Bangladesh and Canada - for co-organizing this event, which is testament to the importance of the debate on the modalities of graduation from the LDC category.

Ladies and Gentlemen,

In two months, we will celebrate the 50^th anniversary of the creation of the LDC category. Unfortunately, so far, our record on assisting these countries is disappointing.

While the number of LDCs more than doubled from the initial 25 to a maximum of 51 in 2003, only 6 countries have so far graduated from the list.  

Thanks to high economic growth in the new millennium, as well as renewed commitment to graduation since the Istanbul Programme of Action, we are now seeing a growing number of LDCs at various stages of the graduation process.

6 LDCs - including Bhutan, Kiribati, Solomon Island and Tuvalu, from the Asia-Pacific region, plus Angola and Sao tome and Principe - are expected to graduate in the coming three years. A further three Asian LDCs – Bangladesh, Laos PDR and Nepal – are slated to follow in 2026.

However, this “wave” of planned graduations is accompanied by considerable challenges, compounded by the uncertainties and lingering impacts of COVID-19.

Many LDCs are concerned that the loss of international support measures associated with LDC status will disrupt their development trajectory or lead them into a “middle-income-trap”.

These concerns are legitimate – even if they do not apply to all LDCs equally.

Various UNCTAD analyses, including our LDC reports, have shown that most LDCs have achieved the graduation point based on the development of a single sector (often commodities, or tourism).

Very few of them, however, have achieved significant progress in economic diversification and structural transformation.

And yet, structural transformation is the basis of sustained and inclusive growth.  It is also – and the Covid-19 pandemic underscores this – the foundation of economic resilience to shocks.  

If we are to ensure that graduation becomes a milestone in LDC’s development trajectories, we must harness it to equip graduating LDCs with a solid economic foundation for succeeding in the post-graduation environment. This is what we refer to by achieving ‘graduation with momentum’.

Furthermore, UNCTAD has long argued that for LDCs to achieve structural transformation and inclusive growth, they need to build productive capacities.   

Productive capacities measure the diverse competencies, resources, skills, infrastructure, technological capabilities, and institutions a country needs to produce more sophisticated goods and services. 

To measure them effectively, UNCTAD has recently developed a Productive Capacities Index (PCI), which reveals the continuing challenges faced by LDCs and the widening gap with other developing and developed countries. 

With the exception of natural capital, which indicates the rich resource endowment of countries, LDCs lag well behind other developing countries in all the categories of the PCI namely: human capital; energy; institutions; structural change; private sector development; ICT; and transport networks.

To make graduation a steppingstone for LDC development, we need a comprehensive strategy for graduation with momentum that places the building of productive capacities at the centre. 

One way to do this is by systematically carrying out Productive Capacity Gap assessments for LDCs meeting the graduation criteria for the first time, and designing policies on this basis. UNCTAD has already begun doing this for the five LDCs assessed to meet the criteria in 2021.

We also need longer and predictable transition periods for graduation, as well as a new generation of ISMs which focus on productive capacity development as their core objective. These measures could form the basis for self-sustaining growth towards LDC graduation and beyond, paving the way for the achievement of the SDGs.

Needless to say, UNCTAD stands ready to lend its analytical and operational support to LDCs in the design of their strategies for graduation with momentum.

Thank you.