Despite strong economic growth, human development in the world’s least-developed countries is still lagging and can jeopardize the post-2015 agenda, according to a new report by the U.N Conference on Trade and Development that urges donors to help LDCs get back on the road to economic transformation by living up to their official development assistance commitments.
“The LDCs are the battleground on which the post-2015 agenda will be won or lost”, David Woodward, UNCTAD senior adviser and and co-author of the study, told Devex on the sidelines of the report’s launch last Friday at the European Commission’s headquarters in Brussels.
Of the 48 countries designated by the U.N. as LDCs, two-thirds are in sub-Saharan Africa and the rest are in Asia (9), the Pacific (4) and Haiti in the Caribbean. Most of them have been reporting strong economic growth over the last decade, but many remain far from meeting the Millennium Development Goals.
“Even after the global economic crisis hit in 2008, their growth is still stronger than other developing countries and even developed countries”, Woodward said. “But they are falling behind when you look at human development, and many are well short of achieving the MDGs.”
This could have a knock-on effect for the sustainable development goals, expected to succeed the MDGs after the 2015 deadline. For example, one of the present goals is to halve poverty, an aim that is being achieved even without the LDCs, as China on its own has been responsible for a huge reduction of the number of poor people.
“But if we want to fully eradicate poverty in 15 years, as is planned in the post-2015 agenda, we need to do this in all countries,” Woodward noted. “Success will therefore depend on the lessons learned from the MDGs in the LDCs.”
Structural transformation to achieve labor productivity
LDCs show a varied record on progress toward meeting the MDGs.
Overall, Asian LDCs are on track to accomplish the goals, while progress has been much slower in most African countries and in Haiti. Another difference is that countries that export food and agricultural products and minerals improved their economic performance in 2013, while fuel-exporting countries saw their growth rate drop, due to the lower international oil prices.
The problem for many LDCs is that growth figures have not been built on labor productivity, which — together with job creation — are the prime drivers for sustainable economic growth. Achieving this requires structural transformation of their economies, especially to create greater labor productivity.
“A systematic problem for many LDCs is that they are unable to translate economic growth into productive employment, which is ultimately the best way out of poverty,” Woodward said.
This has caused LDCs to be caught in a vicious circle. Poverty, undernourishment, poor health and limited access to education hampers their social and economic progress, which in turn limits the capacity for these countries to break out of poverty and free the means to promote health and education. However, there is also a virtuous circle at hand, whereby the growing productive potential in these countries would lead to better levels of health, nutrition and education.
“What has been missing in the MDGs is the lead back, allowing these factors to push for poverty reduction,” Woodward explained. “Productive employment can generate fiscal revenues to create social programs to help the poor. Otherwise, we would just go on pouring aid into programs.”
Financial support from official development assistance, the largest source of external financing for LDCs, is crucial to push for transformation and productivity. But ODA flows are stagnating as a result of cuts and austerity measures in the development budgets of many developed countries in the past years.
“Under the Istanbul Program of Action, donors are committed to spend 0.15 to 0.20 percent of their gross national income on LDCs. This would lead to an injection of 64 [billion] to 116 billion U.S. dollars from all donors,” Woodward said. “This is money that is badly needed for infrastructure and restructuring to help the development of these countries.”
The MDGs focused too narrowly on ultimate ends, defined by human outcome indicators, according to the UNCTAD expert. But they neglected the means to achieve this, notably the factor of economic development — and this should be factored in for the next phase of development.
“The post-2015 agenda must pursue both an improvement of human development, and strive to stimulate economic development and structural transformation, and it must fulfill these goals together and at the same time,” he noted, adding that the question, of course, is how to do this. “Every country is unique with its own particular circumstances, and initial conditions differ in each of the LDCs. Still, there are a number of general principles that can be derived.”
Woodward proposes a holistic vision, whereby policies are embedded in a coherent overall strategy that is also pragmatic.
“Do what works, adapt your policy instruments and institutional arrangements to the particular circumstances in each of the countries concerned,” he said.
Furthermore, liberalization of the economy should be approached in a gradual and strategic manner, allowing some cushioning when integrating LDCs into the global economy. For investments, look out for various sources in financing, using both public and private investments, including remittances and investments from diaspora communities abroad back to the home country.
A final, crucial principle is the primacy of rural development.
“This was the momentum for development in China and even in predominantly urban Chile, and it will be for the LDCs as well. Two-thirds of the population in these countries live in rural areas, and most of them will still be there in 15 years time,” Woodward said. “Cities can’t absorb them all, and industry is not capable to create jobs for all of them.”
In order to achieve this, the least developed countries must work at upgrading their agriculture and move towards diversification of the rural economy that would allow to absorb surplus labor from agriculture. In this way, diversification would produce more and better goods that respond to the market, where higher incomes earned in the agricultural sector would boost demand for these goods, and likewise lead to higher yields for investments and financial inputs in the agricultural sector.
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