PRESS BRIEFING BY UNCTAD

16 April 1996

Press Briefing

19960416 FOR INFORMATION OF UNITED NATIONS SECRETARIAT ONLY

At a Headquarters press briefing this morning to launch The Least Developed Countries 1996 Report published by the United Nations Conference on Trade and Development (UNCTAD), Khalil Rahman, senior economist of UNCTAD, said that after years of stagnation and decline, the poorest countries of the world, which were classified as least developed countries by the United Nations, registered a modest growth rate in 1995.

The 48 least developed countries registered an average growth rate of 3 per cent in 1995, he said. The growth rate for those in Africa leapt by four times to 2.2 per cent in 1995 as against 0.6 per cent in the first four years of the 1990s. That was a very significant development for the African least developed countries; sub-Saharan Africa accounted for 33 of the 48 least developed countries worldwide.

The Asian least developed countries continued to do well, with the growth rate dropping from 4.2 per cent in 1994 to 4 per cent last year.

Mr. Rahman attributed the improved growth performance by the African least developed countries to better economic policies, adding that it seemed that the adjustment and reform efforts being pursued by those countries since the mid-1980s were finally paying off. There was also favourable weather for much of Africa, except for the southern Africa region where there was drought in some countries. In addition, there was improved commodity prices which led to higher export earnings for many of the African least developed countries.

On Asia, he said that the governments in that region continued to open up their economies and to encourage private sector participation. Economic management had been improving in many of the Asian least developed countries. The overall regional economic environment in Asia played a role in transmitting the impulses of good growth through south-east Asia into other parts of the continent.

Mr. Rahman said that the prospects for African least developed countries in terms of growth was encouraging in 1996. Growth performance similar to that recorded in 1995 was expected this year. Commodity prices were expected to weaken somewhat in summer and beyond this year but other factors, such as economic renewal in countries that were torn by war, including Angola, Mozambique and Ethiopia, which were expected to improve their growth rates, were expected to help make up for the shortfalls created by the falling commodity prices.

* Reissued to correct the passages indicated.

Economic prospects also seemed stable in Asia this year, he continued. Export sector performance was expected to continue to be good.

He said that UNCTAD was not too sure that the improved growth rate and performance implied a better chance for the least developed countries to integrate into the world economy. The current performance and the short-term prospects of the least developed countries should be seen in the light of their longer-term trends. Since the 1980s, the economic performance had been very poor and, in several years, had been punctuated by decline, both in terms of overall aggregate growth and export performance. The UNCTAD expected that in the short run, the processes of globalization and liberalization would not do much to help the least developed countries integrate into the world economy. "In fact, our apprehension is that the least developed countries might get more marginalized in the short run."

In the medium to longer runs, new opportunities would arise, but the basic problem with the least developed countries was the lack of supply capacity which was rooted in their structural deficiencies, he said. Unless those were removed, the long-term opportunities might remain untapped. Much of the structural difficulties were not susceptible to changes through government's policy intervention alone. It would depend on the type of external help that those countries received. As an example, he noted that the improved commodity price which acted as an external stimuli to improved performance last year showed the importance of the external environment for the poorest countries of the world.

He said that the issue of the impact of globalization and liberalization on growth and sustainable development, particularly their implication for marginalization of the least developed countries, would be examined at the upcoming ninth session of UNCTAD to be held in South Africa from 27 April to 11 May.

In response to a question from a correspondent, Mr. Rahman said that there had been an overall reduction in aid flows to the least developed countries because of budgetary difficulties in the donor countries. Priority was also not focused on the least developed countries. "In fact, aid allocation is shifting in favour of certain other purposes like emergency assistance and certain other groups of countries."

He noted that the international community invested heavily in the least developed countries by assisting them in carrying out adjustment and reforms. "We are now seeing that these efforts by the rest of the world and the least developed countries are beginning to pay off in terms of better growth. If you withdraw assistance at this point, it will mean abandoning much of what has been done in the last 10 years or so."

UNCTAD Briefing - 3 - 16 April 1996/Rev.1

Also, in the wake of the Uruguay Round, he went on, the trade prospects of least developed countries was expected to become a bit constrained because of losses in preferential margins as well as difficulties arising from higher food import prices. Least developed countries had been recognized as the only group for special and differential treatment within the Uruguay Round. Since the results of the Uruguay Round were binding, it was the responsibility of the international community to assist the least developed countries in that area.

"We argue that it is a pity to abandon these countries at a time when international assistance that has been made over a long period of time is beginning to pay off and at a time when the world has made a commitment within the World Trade Organization and elsewhere to assist those countries", he said.

Asked how much of the growth in 1995 was as a result of commodity prices, Mr. Rahman said that UNCTAD was tracking performances of least developed countries which had done well in Asia and Africa in the last few years. It was too early to differentiate the individual impact of commodity prices, and other factors on the growth performance of the least developed countries because the data was still coming in. However, commodity prices helped improve the export earnings of many of those countries. At the same time the economic progress of a number of countries in Africa like Botswana, Lesotho and Uganda, showed that they had made major strides in the area of policy reform and economic adjustment and were showing better growth rates even before 1995.

He said that if those countries were isolated from the rest of the African countries, Africa would have shown a negative growth rate in 1994. Their strong performance was responsible for the overall growth rate among African least developed countries remaining positive in the 1990s. That showed that although commodity prices played an important role in the growth performance, the policy reform processes were paying off. In many least developed countries, including those in Asia, there was "an irreversible thrust toward marketization of the economy". They had understood that premium on good policies were very high and penalty on bad policies were very great.

Mr. Rahman said that the economy of many least developed countries were characterized by dependence on one or two commodities. Also, the scale of the economies was such that the scope did not exist for large-scale production of manufactured goods and services.

As an example, he said, Bangladesh, up until the early 1980s, was dependent on jute and one or two commodity-related export items but it successfully diversified into the manufacture of garments and a number of other non-traditional export areas. In three to four years, export of garments became the predominant export item. Eventually new areas of exports

UNCTAD Briefing - 4 - 16 April 1996/Rev.1

accounted for 50 to 60 per cent of its export earnings. The country could do it because it was located in a region that was adjacent to a dynamic growth area. It also took full advantage of the Multi-Fibre Arrangement where it had a quota.

Such advantages were, however, not present in many African contexts, but there was a growing tendency towards regional trading and production arrangements, he said. That opened up some escape possibilities and attracted foreign investment. Investors saw that production was not limited to the very tight domestic scale. The weaker economies had difficulties because they were not quite well diversified, and cost tended to be higher because in many cases there were start-off costs involved as opposed to the case of other partners in a regional trade arrangement.

The UNCTAD was trying to get across the point of the need to provide those countries with a transitional arrangement as a safety net to help them tide over the initial difficulties arising out of liberalization and globalization in the wake of the Uruguay Round phase. Structural difficulties were not always amenable to policy intervention alone.

He said that the past 10 years, the net inflow of resources into the least developed countries had been positive. Even with that, those countries had severe difficulties rooted in both structural deficiencies and political difficulties. In addition to regular development assistance, many of them were in urgent need of help for reconstruction and relief.

He said that the international community had not forgotten the African continent. There was a new initiative on Africa within the United Nations where many of the major actors in the United Nations system would play an important role. In addition, the World Bank and the International Monetary Fund (IMF) had come out with a debt package for Africa which would provide substantial amounts to many of the debt-stricken African countries.

Also, the number of conflicts were getting fewer, he said. The Secretary-General of UNCTAD, Rubens Ricupero, had said that UNCTAD would continue to give priority to the least developed countries in Africa.

He predicted that Asian least developed countries would continue to generate good growth rates. However, because they had enormous population density, it would be a very daunting task for them to eradicate poverty. On the other hand, the African least developed countries were at a stage where they could register growth rates similar to that of 1995.

* *** *