Launch of UNCTAD’s Least Developed Countries Report 2020
03 December 2020
The COVID crisis is leading LDCs to their worst economic performance in 30 years, with per capita GDP for the group expected to fall 2.6% this year amidst widespread employment loss, widening fiscal deficits, and record current account deficits. We project that absolute poverty in the LDCs will expand by 32 million and the extreme poverty rate in these countries as a group will to rise from 32.5% to 35.7% in 2020. The pandemic is reversing years of progress making prospects for reaching the SDGs even less likely.
The LDCs that have been most active and innovative in combating the pandemic have been those with the most developed productive and institutional capacities, which could be mobilized in the face of the pandemic. For example, Senegal developed a rapid and cheap COVID-19 testing kit and Bangladesh repurposed garment factories to produce PPEs.
The development of productive capacities – which is the theme of this year’s LDC Report –has been too slow in most LDCs to overcome their major development challenges and they are falling behind other developing countries. To date, structural transformation in LDCs has been restricted to just a handful of LDCs, e.g. Bangladesh, Ethiopia, Cambodia, Lao PDR, Myanmar, Nepal and Rwanda. Only this small handful of LDCs have experienced sufficient industrial growth and an expansion of modern service sectors, leading to strong labour productivity gains.
By contrast, structural transformation has been much slower in most African LDCs, island LDCs and Haiti, where agriculture and traditional service sectors are relatively more important in generating employment and output. There low productivity levels and growth continue to constrain living standards. LDCs as a group have been diverging over the long term from other (non-LDC) developing countries (ODCs). In 1990, the gross national income (GNI) per capita of ODCs other developing countries was three times higher than that of LDCs. Nowadays, it’s almost six times higher.
UNCTAD’s Productive Capacities Index (PCI) shows that the majority of LDCs have low productive capacities, and that these productive capacities have been worsening, not improving in most LDCs. Over the past decade, LDCs average PCI level was 40% below that of other developing countries from 2011 to 2018. The number of LDCs with a higher PCI rating fell from 11 countries in 2001 to six countries in 2018, while the number of LDCs with lower PCI scores rose from 18 in 2001 to 26 in 2018.
And future development of productive capacities is becoming ever more difficult due to the digital divide. The digital revolution has brought increased attention to hopes of leapfrogging, but firms do not automatically transform into digital enterprises because of the costly and sequential process of learning and acquisition of technological capabilities. The digital revolution in the productive sphere of LDCs will only take place with active industrial policies that strengthen and develop the technological capabilities of firms and farms to master and apply these technologies to production. The main challenge for LDCs to enter the Fourth Industrial Revolution (4IR) and the digital economy is that most of them have not yet fully integrated the previous three industrial revolutions into their productive base.
Policy priorities for LDCs going forward are:
- countercyclical policies to cushion the impact of the COVID-19 crisis;
- an investment push to redress long-standing infrastructural gaps and support employment creation;
- forward-looking STI policies to upgrade the skill basis in line with market needs;
- industrial and sectoral policies to promote domestic value addition and deepen productive linkages.
The fallout from the pandemic highlights the pivotal role of the state as “investor”, “rule setter” and “coordinator”, emphasizing the importance of institutional capacities to steer development strategies and fuse stable fundamentals with a concerted investment push supporting employment creation and shift towards higher productivity activities. But LDC governments are hard pressed to do this effectively without sufficient international support and financing.
Sadly, international support to LDCs has mostly been ineffective in assisting them to achieve structural transformation and reaching the development goals set out in the Istanbul Plan of Action a decade ago. News forms of support need to be devised which tackle, especially, their widening technological divides and weakening productive capacities.
This new form of support – focused on productive capacities – should be reflected in the next international plan of action for LDCs, to be adopted during the Fifth UN Conference on LDCs, which will be held in January 2022 in Qatar. In our interdependent post-pandemic world, UNCTAD’s call for strengthening the global partnership in support of LDCs goes well beyond the moral commitment to “leave no one behind”, it is also a step towards building back differently and investing in systemic resilience.
Thank you.
