The 1990s have become the decade of increasing marginalization for the least developed countries (LDCs), reports the Least Developed Countries 1999 Report (1) just published by UNCTAD. These 48 countries, whose population accounted for about 13 per cent of the world’s total population in 1997 -- had a share in world exports and imports that year of only 0.4 per cent and 0.6 per cent, respectively, representing a decline of more than 40 per cent since 1980.
Three quarters of the LDCs derive their export earnings predominantly from merchandise exports, and in more than half of these countries the value of merchandise exports was triple that of services exports, says the Report, the fifteenth in the series. The majority have a highly concentrated merchandise export structure, in which one export product -- usually agricultural or mineral -- predominates, accounting for over half the total value of exports of goods. The bulk of LDC merchandise is exported with little or no value added. These countries attract less than 1 per cent of total FDI flows.
As a contribution to the preparatory process for the Third United Nations Conference on the LDCs, to be hosted by the European Union in Brussels, 13-20 May 2001, the Report raises a number of important questions in an attempt to identify the critical constraints underlying LDCs’ poor performance in international trade and the global economy. The Report’s analysis of these issues reveals that underlying LDCs’ poor productive capacities and competitiveness are structural and supply-side constraints, including the lack of linkages within and between productive, service and infrastructural sectors, which limits the potential for specialization and gains in productivity; insufficiently developed human resources; deficiencies in physical infrastructures and other support services; shortcomings in productive units related to weak technological capability and adaptive research; and the inability of the least developed economies to generate adequate resources for investments in alleviating these constraints.
The Report makes recommendations on how to improve productive capacities and competitiveness in LDCs through appropriate domestic policy measures to enhance the structural transformation of their economies and through international support measures to complement national efforts. Policy issues for enhancing productive capacities and promoting competitiveness in LDCs are analysed from a cross-sectoral perspective.
The Report argues that public policy in LDCs has a pivotal role in this regard. Macroeconomic policies – and the stability and predictability of those policies in particular -- are critical, but sectoral and micro, or firm-level, policies are also necessary to facilitate the development, and sustain the competitiveness, of productive capacity in specific sectors, industries and firms. In addition, LDC governments have to provide an enabling environment to foster private sector development. To nurture and sustain dynamic comparative advantage, an integrating process is needed that involves the formulation and implementation of government policy linked to actions by private enterprise and other institutions.
In the area of international support measures, the Report advocates increased official development assistance; broader, deep and faster debt relief; and technical assistance. It argues that, with ODA accounting for up to 70 per cent of LDCs’ development budgets, these countries cannot by themselves address the structural weaknesses that undermine their productive capacities and competitiveness. The Report provides a detailed account showing how:
- The paucity of resources to finance the enhancement of productive capacities is among the most critical constraints on the development of LDCs.
- Internal mobilization of adequate development resources, through domestic savings and the production of adequate exportable surpluses, remains a distant prospect, in spite of the widely implemented economic reforms that aim to create an environment conducive to the revival of production of tradeables. While ODA, the traditional source of development finance for LDCs, has been on the decline since the beginning of the decade, access by these countries to private investment finance remains limited. The situation is further aggravated by the burden of international debt, the servicing of which is a major drain on meagre LDC resources.
- In real terms, ODA flows to LDCs have fallen by 23 per cent since the beginning of the decade. Against a backdrop of a series of austerity budgets in developed countries, there has been a steady decline in the aid budgets of most donor countries, especially since 1992. The average share of aid to LDCs in the gross national product of the Development Assistance Committee (DAC) countries of the OECD fell from 0.09 per cent in 1990 to 0.05 per cent in 1997. Only a third of the DAC countries met the Programme of Action threshold of 0.15 per cent of GNP as ODA to LDCs in 1997.
- Given competing demands on aid resources, especially from the many humanitarian crises in different parts of the world, the future outlook for traditional ODA programmes is uncertain. The declining trend can be reversed only if there is a renewed commitment on the part of the international community to accord special priority to the development needs of the world’s poorest countries.
- Long-term financial and technical assistance should be provided to finance major investments in physical and social infrastructure, which are crucial to “crown in” private investments in LDCs, the Report adds.
In his overview of the Report, the Secretary-General of UNCTAD, Mr. Rubens Ricupero, said that the Third UN Conference on the Least Developed Countries –will provide an important opportunity for LDCs and their development partners to evolve a new strategy of development cooperation in favour of LDCs. This new strategy should be underscored by a desire to search for innovative approaches to mobilizing additional resource flows -- ODA and private capital -- in order to complement LDCs’ own efforts to enhance their productive capacities and competitiveness in a rapidly evolving global context.
