UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD) ISSUES 'LEAST DEVELOPED COUNTRIES 1997 REPORT'
Press Release
TAD/1849
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD) ISSUES 'LEAST DEVELOPED COUNTRIES 1997 REPORT'
19970923 ADVANCE RELEASE Finds Institutional, Economic Reforms Generating Growth in Some Countries; Cites Impact of Agricultural Sector, Effects of State CollapseGENEVA, 1 September (UNCTAD) -- "The determined efforts to implement economic policy reforms have led to improved economic performance in about half the least developed countries (LDCs)," the United Nations Conference on Trade and Development (UNCTAD) states, in its new Least Developed Countries 1997 Report. The report is 213 pages and includes a 42-page statistical annex.
The fact that the performance of many LDCs remained relatively robust in 1996, despite generally unfavourable commodity prices and stagnating external resource flows, is testament to the progress of these economies, the report indicates. In the short run, the external economic environment facing LDCs is expected to be fairly stable. Thus, peace, security and competent governance will be crucial if the economic recovery which has begun for some LDCs is to be sustainable and replicable throughout the LDC group.
Growth among the world's LDCs remained relatively robust at an average of 4.7 per cent in 1996 compared with 5.2 per cent in 1995, according to preliminary estimates. The slight decline is due mainly to a slow down in the average growth rate of the 33 African LDCs, from 5.4 per cent in 1995 to 4.6 per cent in 1996. For the group of Asian and Pacific island LDCs, the average growth rate rose slightly, from 4.6 per cent in 1995 to 4.8 per cent in 1996.
The LDCs are, however, an extremely heterogeneous group and the most significant disparities in performance exist not at a regional but at a country level, with very large differences between the highest and lowest gross domestic product (GDP) growth rates for LDCs. It is also noteworthy that the 4.7 per cent GDP growth figure excludes several countries experiencing internal conflicts, for which reliable data are not available.
Growth in 1996 in the LDC group was mitigated by the fall of several key commodity prices during the last three quarters and, more broadly, the continuing steep decline in aid flows to LDCs.
After a more or less stable first quarter in 1996, the combined dollar index of primary commodity prices steadily weakened during the remainder of the year due to sluggish industrial activity in the major importing countries, oversupply and speculative trading. The index fell from an annual average growth rate of 2.6 per cent between 1990-1995, to -4.3 per cent in 1995-1996.
Despite some successful attempts at diversification -- for instance in Bangladesh, Madagascar, Uganda and the United Republic of Tanzania -- many LDCs, including Burundi, Somalia and Zambia, continue to be highly vulnerable to commodity price movements. Of particular concern to LDCs were declines in tropical food prices (15 per cent) and minerals (13 per cent). Precipitous falls in the prices of coffee and copper (over 20 per cent) were of special concern, although the fall in the price of coffee (26 per cent) was not as catastrophic as had been feared, because of low stocks and voluntary production ceilings set by the members of the Association of Coffee Producing Countries.
In 1992, the members of the Development Assistance Committee, which comprises countries of the Organization for Economic Cooperation and Development allocated 0.09 per cent of their gross national product (GNP) to LDC development assistance. In 1995, that share had fallen to just 0.06 per cent, the lowest on record. This was despite a commitment in 1990 at the Second United Nations Conference on LDCs to increase the aid flow level. The LDCs have also suffered because the purpose of aid flows has shifted towards short-term emergency relief projects, away from longer-term development programmes.
The LDCs' external debt burden continues to be a constraint on their capacity to accelerate development. It limits imports and dampens prospects for larger private capital inflows. In almost half of the LDCs, outstanding debt continues to exceed GDP.
The most important recent development in debt relief for LDCs came at the annual meeting of the World Bank and International Monetary Fund (IMF) in September 1996, with the endorsement of "the HIPCs initiative" -- the heavily indebted poor countries initiative. Unfortunately, few LDCs appear likely to benefit from the initiative in the first instance. This delay will represent a lost opportunity for the revival of output growth in many of them.
Economic Reforms in Africa Bear Fruit
The economic performance of African LDCs in 1996 was shaped by "the positive impact of economic reforms, the 1994 devaluation of the CFA (African Financial Community) franc and more favourable weather for agriculture,
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especially in East and Southern Africa". The report explains that the overvalued CFA franc had long stifled growth in the economies of the CFA franc zone and had, to some extent, undermined the credibility and effectiveness of economic reform in the region. That all nine members of the CFA franc zone achieved positive growth in 1996 and that several CFA countries also boosted production of cotton, their principal export crop, suggests that reforms have been successful.
Asian LDCs Benefit from Economic Spill-over
Asian LDCs have benefited from their location in the world's fastest-growing region. The recent dynamism of the larger Asian economies, in particular India and China, has spilled over into neighbouring LDCs. The average growth rate across the Asian LDC subgroup has thus increased, with especially rapid output expansion in Cambodia and the Lao People's Democratic Republic. The largest LDC, Bangladesh, has not performed as well as might have been hoped. This is partly due to delays in the implementation of economic reforms.
Cautious Optimism
In light of the complex factors noted in the report, "there is reason to be cautiously optimistic about the prospects for the majority of the LDCs". Growth in the world economy is expected to remain steady during 1997, and the current sharp rise in tropical beverage prices will benefit many LDCs.
The UNCTAD adds, however, that internal factors are likely to be at least as important as the external environment in determining the economic performance of most LDCs. In this regard, it notes that reform programmes have been successfully implemented and savings and investment performance has improved, which suggests that the present LDC growth rates will be sustained for some time to come.
The report draws attention to the fact that many African LDCs have experienced higher growth rates since 1994. Nineteen African LDCs have had growth rates in excess of 4 per cent, and 10 of those have had GDP growth rates higher than 5 per cent. The UNCTAD foresees that "this trend is set to continue ... at least for those countries which are able to avoid civil strife and political instability". In many countries, export production has been increased, inflation rates have been reduced and reform has been constantly well implemented since the 1990s. Their future, therefore, is looking decidedly brighter.
However, the most significant reservation to these generally optimistic facts, is that many of the LDCs have suffered civil strife leading to the regress of their economies. In large part due to this conflict and the collapse of State structures, one quarter of the 48 LDCs suffered falls in per capita GDP of over 20 per cent between 1980 and 1994, while 22 suffered declines of over 10 per cent.
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Problems of State Collapse Require Urgent International Attention
"Urgent action by the international community to help least developed countries (LDCs) tackle the widespread problems of economic and social regress, State failure and internal conflicts in LDCs should be a priority", UNCTAD states in its report.
"The potential human and economic costs of regress are enormous, and are not confined to the regressed economies themselves. Effective action to tackle these problems will require the investment of substantial resources by the international community to strengthen institutions and State structures in LDCs, support peacekeeping, provide humanitarian assistance and rebuild war-torn economies."
A significant number of LDCs have suffered a serious retardation of development over the last decade -- a phenomenon the report terms "economic and social regress". Their economies have declined, social conditions have worsened markedly, and they have become increasingly marginalized from the mainstream of the world economy. Regress is not the result of a temporary cyclical economic downturn but is a chronic process with important structural characteristics, particularly the degradation of State and social institutions. In the worst cases of regress, the entire State apparatus has disintegrated amid civil strife.
Some of the countries in the Great Lakes region of Africa (Burundi, Rwanda, Democratic Republic of the Congo), together with Somalia, Liberia and Afghanistan, provide the most extreme and well-publicized examples of regress. The phenomenon is not confined to these cases, however. Over one third of the countries in the LDC group have experienced some form of violent civil strife since 1980, with high predominantly civilian mortality, the displacement of large numbers of people from their homes and livelihoods, and the destruction of infrastructure and productive assets.
Regress involves varied and often complex processes. There are important differences between individual LDCs in terms of the nature of regress, its scale and its causes, which means that generalizations are not always appropriate. Regress is best understood as a process in which the deterioration of State capacities, the weakening of civil society and economic decline interact to reinforce one another, fueling a downward spiral of economic, social and political decline.
The deterioration of political and social institutions -- the State and civil society -- is central to the process of regress in most cases. Indeed, it is a crisis of governance that characterizes most of the economies in regress.
Regress Not Irreversible
Analysis of regress is essential, states UNCTAD, in order to devise appropriate policies for halting and reversing it. Just as we have learned
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from the experience of successful development in developing countries, so it is important to draw lessons from those developing countries in which development has been retarded.
While recognizing that many of the problems faced by economies in regress are highly complex and intractable, UNCTAD stresses that the international community cannot afford to ignore the problems of regress. Nor can it afford to delay effective action until regress has degenerated into a humanitarian crisis. The experience of several LDCs, such as Uganda, has demonstrated that peace can be restored and that economies and State structures can be rebuilt, even after prolonged and devastating civil war.
Providing support for the building and strengthening of institutions is clearly an important area in which the international community can play a positive role. Where institutional deterioration is not too advanced external assistance can help to prevent State collapse in LDCs.
In countries afflicted by internal conflicts, the regional and international community can play a vital role in brokering peace and supporting the reconstruction of social and economic structures necessary for development. The reconstruction of war-torn economies will require the international community to provide major financial and technical assistance programmes.
Higher Priority Needed for Agriculture
The world's most impoverished nations will have to prioritize their often neglected agricultural sector if they want to attain and then sustain high growth rates, UNCTAD stresses in its report. Agriculture is the most important economic activity in the LDCs. It provided about one third of their collective GDP and employed two thirds of the labour force at the start of the 1990s, but its performance has failed to keep pace with population growth.
"A strong and well-developed agricultural sector is a means to broader developmental ends", Rubens Ricupero, Secretary-General of UNCTAD, says in an overview of the report. A dynamic agricultural sector will make for healthier populations with higher nutritional intakes. By increasing rural incomes, it will also lead to an expansion of domestic markets. A robust agricultural policy is also a key to an integrated poverty alleviation strategy, given that the poorest people in LDCs tend to live in rural areas.
The report focuses on five issues of importance to the 48 LDC countries: the causes of agricultural sector stagnation; the impact of the Uruguay Round Agreement on Agriculture; the question of food security; environmental aspects
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of agriculture in the LDCs; and rural credit markets.
Agricultural Stagnation
The long-term problems of LDC agriculture are partly explained by historical factors. Traditional production relations, rudimentary technology, the mode of access to and ownership of land, and low and unreliable rainfall (particularly in African LDCs) have all played a part in the underdevelopment of the sector.
The primary weakness of LDC agriculture, however, lies in an interlocking set of government policies that have been inimical to the development of a strong agricultural sector. These include overvalued domestic currencies, State intervention in agricultural marketing, the over-taxation of agricultural exports, and an urban bias -- the consequence of which has been poor rural infrastructure and lack of basic facilities in rural areas.
There has also been a lack of political commitment to an efficient institutional agricultural framework. Consequently, agricultural extension systems have frequently proved ineffective and inefficient, and research into high-yielding varieties and environmental management has been negligible.
Impact of Uruguay Round Agreement
The Uruguay Round of the General Agreement on Tariffs and Trade negotiations, which initiated a programme of agricultural trade liberalization, was predicted at the time to have significant consequences not only for the resolution of the problems mentioned above, but also for more general agricultural development in LDCs. However, analysis of the impact of the Uruguay Round on traditional export commodities, which represent the bulk of LDCs' agricultural exports, suggests that the effects are likely to be modest. This is mainly because the Uruguay Round Agreement on Agriculture proved to be less comprehensive than had been expected when negotiations began. While significant reforms of the rules governing agricultural regimes in developed countries have been carried out, the degree of overall trade liberalization achieved has been limited.
Food Security
Although food security is primarily a problem of access by individuals or households to food (entitlements), agricultural growth -- and especially food production -- has a significant impact on food security in LDCs. This is because the majority of populations affected by food insecurity live in rural areas, earn a substantial share of their income from agriculture, and obtain at least some of their nutritional requirements directly from their own food production.
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Based on the most widely available measure of food security at the national level -- the daily per capita energy supply, or calories per day -- very few LDCs are able to provide even the barest minimum level of food necessary for ensuring that all of their populations have access to adequate nutrition. Daily energy supplies are very low in more than half of the LDCs for which data are available. In many LDCs, access to food has become more difficult since the mid-1980s.
The main reason for chronic inadequate nutrition is widespread poverty, household or individual incomes being insufficient to enable people to command access to their daily food needs.
Equitable income growth is essential for the reduction of chronic food deficiencies in LDCs. As the majority of the poor are rural farmers, policies that promote agricultural and rural development will also enhance food security by raising incomes and reducing poverty. This is demonstrated by Burkina Faso, which has made significant progress in improving food security through rural development.
The LDCs should put in place mechanisms to protect the food security of individuals and households in the event of adverse shocks, such as droughts, by protecting the productive assets and livelihoods of vulnerable groups. Recently, however, the most significant threat to the food security of the populations of LDCs has come not from deficiencies in agricultural policy, but rather from complex emergencies caused by internal conflict.
The most effective policy to increase food security in certain LDCs is therefore the promotion of peace.
Environmental Aspects
Sustainable agricultural development in LDCs is inextricably linked not only with food security issues but also with environmental concerns. The greatest level of environmental degradation in LDCs is to be found in those areas where population pressure, poverty and food insecurity are intense.
The absence of any simple solution reflects the complexity of the problem. A traditional response to agricultural land degradation has been to increase the area of land under cultivation, thus increasing the extent of environmental destruction. Unless resources can be used more intensively and sustainably, environmental degradation will almost certainly continue in many LDCs, particularly in the more densely populated areas of Ethiopia, Madagascar and Uganda and in the Sahel.
Rural Credit Markets
A serious impediment to innovation in LDC agriculture is the limited supply of formal agricultural credit. Despite extensive policy efforts to enhance rural credit supply in LDCs, rural financial markets remain very poorly developed, with the majority of the rural population, including small
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farmers, having very limited access to formal sector credit. The UNCTAD report calls for the establishment of sustainable rural financial institutions, in contrast to existing policies whereby governments attempt to control directly resource allocation in financial markets.
Creating a Viable Strategy According to UNCTAD, a viable long-term agricultural strategy would include at least six main components: -- Sound macroeconomic policies, which stress the need for liberalization and a realignment of exchange rates to realistic levels;
-- The development of appropriate agricultural technology, to facilitate productivity increases in an environmentally sustainable, socially and economically sensitive way; -- Removal of structural constraints on agricultural innovation, such as credit shortages and weak rural physical and social infrastructure; -- Reduced direct taxation of agricultural output, particularly of export crops; -- An efficient agricultural marketing system, including well-functioning markets for inputs and outputs; and -- Strengthened institutional support.
These policy measures are interdependent and react synergistically with each other. While private investment may be required in areas such as marketing of inputs and outputs and credit provision, LDC governments must take the lead in providing other facilities such as research and extension services. Such services are public goods and, moreover, are unlikely to be provided by the underdeveloped private sector in the LDCs.
However, UNCTAD recognizes that almost all LDCs lack the necessary skills and resources to undertake the huge investments involved in the agricultural development strategy outlined above without external assistance. Hence the need for enhanced financial and technical assistance by the international community.
The 48 least developed countries are: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Sierra Leone, Solomon Islands, Somalia, Sudan, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.
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