Fifth Meeting of Trade Ministers of Landlocked Developing Countries
23 June 2016
Good morning,
Many thanks for the invitation to be with you today.
With few exceptions, the world's landlocked countries are poor.
Of the 15 lowest-ranking countries in the Human Development Index, 8 have no coastline.
In spite of technological progress, landlocked developing countries still face impediments to access world markets.
These impediments are well known to you.
The common wisdom is that geography is destiny. And, indeed, the heavy hand of geography poses challenges. But it's not deterministic. Switzerland and Austria are two cases in point. Or take Botswana - a striking example of an LLDC that has a record of strong economic performance in recent decades.
In the end, development is entirely possible everywhere. But to develop, to transform the fabric of one's economy and to modernize, it is critically important to, on the one hand, tackle one's handicaps and, on the other hand, fully exploit the opportunities for sustained growth. And for all LLDCs, relatively high trade costs are one key handicap.
In fact, LLDCs face much higher trade costs than other developing countries. In parts of Africa, they can be up to 40% higher than the global average.
Add to this the fact that LLDCs are often highly dependent on commodity exports. In fact, primary commodity exports account for more than 50% of total exports in all but 5 of 32 LLDCs. And many of these exports are high-volume and low-value. This magnifies the problem of trade costs.
As a result, high trade costs and low economic diversification trap LLDCs in a vicious cycle. In this cycle, the bulk of FDI flowing into these countries continues to flow to extractive resources. This handicap also directly undermines the full exploitation of the opportunities offered by both trade and investment. It tend to make it harder for LLDCs to diversify and to transform their production and trade patterns, for example by integrating into regional and global value chains.
So, what are the remedies to this? How can we better ensure that trade can be a powerful engine of growth and development for LLDCs?
I would like to highlight three broad areas of priority where UNCTAD also directly supports LLDCs to better harness the potential of trade for the Vienna Programme of Action and for Agenda 2030.
First, LLDCs need to focus on developing infrastructure and transport policy at the regional level.
LLDCs lack access to ports for their goods. This is a serious handicap for any developing country. LLDCs often have treaties with neighboring countries to facilitate legal access to the sea, but the bigger problem is that transit countries have little incentive to invest in infrastructure that would mainly benefit their neighbors.
This problem underscores the need for stronger transport corridors and enhanced connectivity at the national and regional levels. LLDCs will not be able to harness trade without promoting, for instance, regional efforts at harmonizing rail and road networks.
But in the end, money matters. And financing is a major challenge. It's often difficult to find adequate sources and mechanisms of finance to meet the scale of investment required. This is why we, in UNCTAD, promote public-private partnerships as a vehicle for financing sustainable transport systems in the developing world.
The second area where LLDCs can focus is on integrating into global value chains. For that, LLDCs need more productive investment, including FDI, outside the usual extractive sectors. They need to invest in their services economies, not least infrastructural services and ICT, which function as lubricants for both trade and production. And they need to promote, much more aggressively, connectivity of regional markets through regional integration.
As global economic integration has advanced, production has increasingly dispersed across countries. Some 60% of world trade today consists of trade of intermediate goods and services.
This fragmentation has made it possible for developing countries to capture value along the value chain by specializing in areas of comparative advantage. Accessing and climbing regional and global value chains is an essential means of acquiring capital and know-how.
What else can LLDCs do to facilitate integration into value chains?
LLDCs can help their firms integrate into global value chains by reducing trade costs and administrative burdens. And by improving governance, LLDCs can create more attractive investment climates for foreign firms.
If done right, integration into regional and global value chains can accelerate economic transformation away from dependence on commodities. This can be the first step to a more diversified and resilient economy. Finally, the third area where LLDCs can focus is on trade efficiency in general and trade facilitation in particular. This also includes ratifying the WTO's Trade Facilitation Agreement.
The TFA would be a clear win for development and for LLDCs in particular. On average, it still takes 47 days to import and 49 days to export - double the time that it takes in transit countries. The average cost of exporting a container from an LLDC is $3,200, whereas for a transit country the average cost is $1,300.
If ratified, the TFA could lead to an average reduction of trade costs of 15%. Among other things, it would ease trade across borders by speeding up customs procedures, improving the transit of goods, and providing technical assistance for implementation.
This would benefit everyone: consumers, companies, governments, and the global trading system that we all depend on.
But for LLDCs to take full advantage of the agreement, they need to carry out needs assessments before implementation. And they need to ensure that special and differential treatment provisions are enforced. In the context of Agenda 2030, financial and technical assistance to LLDCs needs to be the center of development partnerships.
Ladies and Gentlemen,
It is clear to all of us that LLDCs can play a leading role in achieving the SDGs. But it is equally clear that they will only be able to do so if they properly harness trade as an engine of inclusive growth. For LLDCs and their development partners, harnessing the potential of trade demands: (1) regional infrastructure, (2) integration into global value chains, and (3) efforts on trade facilitation, including the WTO's TFA.
Working together in pursuit of these goals, we are convinced that we can make progress in each of these areas.
Thank you for your attention.
