Transcript Growth in LDCs

The Least
Developed
Countries
Report 2008
Growth, Poverty and the
Terms of Development
Partnership
Rolf Traeger, UNCTAD
1
What are LDCs?
2
Where do LDCs stand?
LDCs' place in the world
(Share of world, 2006)
14
12
11.9
10
8
6
4
2
0.9
0.8
0.7
Exports
GDP
Inward FDI
0
Population
3
This presentation
1. Sustainability of the LDCs' strong growth
2. Poverty in the LDCs and progress towards
MDGs
3. LDC's ownership & development
partnerships: The role of aid management
4
Basic Message
• Rapid growth BUT not sustainable and not
inclusive
• Need for a different development model
• BUT weak country ownership constrains
policy-making
• Positive solutions to this problem
country-level aid management policies
5
This presentation
1. Sustainability of the LDCs' strong growth
2. Poverty in the LDCs and progress towards
MDGs
3. LDC's ownership & development
partnerships: The role of aid management
6
Growth in LDCs - 1
GDP growth in LDCs, 1975-2007
9
8
target
7
6
5
4
3
2
1
0
1975
1980
1985
1990
1995
2000
2005
7
Growth in LDCs - 2
• Uneven growth: Income per capita grew by
less than 1% in one third of the LDCs
• How LDCs integrate into the world
economy matters for performance
• Asian LDCs following different growth
trajectory
8
What is driving growth?
Favourable factors
• Increased Overseas Development Assitance (ODA)
– $28 billion in 2006
– Finances social services and social infrastructure (42%) rather than
productive sectors
• Debt relief
– MDRI: 16 LDCs: $29 billion debt reduction (2005 and 2006)
• Commodity boom
• High export growth in 2006
– Worth $99.3 billion (77% of which primary commodities) mostly driven by
high prices of minerals, metals and oil
9
– 64% of total export increase in 2004-06 was attributable to oil exporters.
High concentration of flows
ODA from all sources to individual LDCs (2006)
Afghanistan
Sudan
Dem. Rep. Congo
Others
Foreign direct investment (2006)
Others
Sudan
Cambodia
Bangladesh
Chad
Equatorial Guinea
• Most FDI is concentrated on natural resource extraction
with low employment content
10
Is LDCs' growth sustainable?
Constraints:
• High economic vulnerability to external shocks
• High dependence on commodities and volatility of
commodity prices
• High reliance on external savings
• Undynamic productive and export structure
• Little structural change, with noted regional variations
(between African and Asian regions)
• High dependence on food imports (4.4% of GDP)
• Restricted access to capital for investment and growth
• Limited employment generation
• Limited upgrading of exports through innovation
11
Little structural change
12
Implication
LDCs need a new development model
shifting from commodity-price led
growth to catch-up growth
13
This presentation
1. Sustainability of the LDCs' strong growth
2. Poverty in the LDCs and progress towards
MDGs
3. LDC's ownership & development
partnerships: The role of aid management
14
Impact of growth on poverty and
human development, 1
Poverty in LDCs (2005)
> $2/day
< $1/day
between $1 and
$2/day
15
Impact of growth on poverty and
human development, 2
• The rate of extreme poverty has decreased since
1994, BUT the number of poor is higher than in
2000: 277 million
• Poverty incidence is higher in African LDCs than
in Asian LDCs
• Poverty is particularly high in oil and mineral
exporters
16
Impact of growth on poverty and
human development, 3
17
Other MDGs
• Over half of LDCs on track to ensure that
children are able to complete a full course of
primary schooling
• Between ⅓ and ½ of LDCs are on track to halve
population without access to safe drinking water
• Success depends on well funded and targeted
government programmes
• Rapid economic growth is associated with slow
progress of poverty reduction and human
development
18
Food crisis in LDCs - 1
19
Food crisis in LDCs - 2
Rapidly rising international food prices in 2007 and
early 2008 will have negative effects on poverty
and economic trends
– Restricting the ability of households to meet essential
subsistence needs
– Second-round effects on economic growth with farmers
squeezed because of rising input and transport costs
– For 20 LDCs, the price rises will exacerbate alreadyexisting food emergencies
20
This presentation
1. Sustainability of the LDCs' strong growth
2. Poverty in the LDCs and progress towards
MDGs
3. LDC's ownership & development
partnerships: The role of aid management
21
LDCs’ aspirations
African countries should be allowed to negotiate
on where the money can be best put in order to
kick start the economic growth. There should be
respect. They (donors) should listen to our best
interests. And the Africans should also be mindful
of their (rich nations) interests. Together, we can
have mutual relationship that is respectful of each
other.
Mr Ezra Suruma, Ugandan Minister of Finance,
Kampala 6th July 2008.
22
The argument
• Major steps are being taken to enhance LDC ownership
within the partnership approach to development
cooperation
• Various processes undermine country ownership of
development aid and policy agenda in LDCs
• Strengthening development partnership
improve aid effectiveness
• The degree of ownership of development strategies and
policies depends on the nature of aid relationships
• The Report proposes practical measures to improve aid &
23
development effectiveness
Ownership in Paris Declaration
24
PRSPs
Poverty reduction strategy papers are the main
operational instrument for implementing
development partnership and enhancing
national ownership of policies:
• 35 LDCs have prepared full PRSPs, and 17 have
finalized a second PRSP
• Most PRSPs include actions for the development of
productive sectors and infrastructure
• Second generation PRSPs appear to return to a 5year development planning, not simply pro-poor
public expenditure plans
25
Ownership in PRSPs
26
What weakens ownership
•
•
•
•
Policy formulation
Policy conditionality
Donor financing choices
Aid misalignment
Consequences:
– Weak integration of the macroeconomic framework
with sectoral and trade polices
– Downscaling of ambition in relation to increased aid
inflows which undermines aid effectiveness
– Inadequate level of financing of productive sectors
and economic infrastructure
27
Strengthening country
ownership, 1
Local development solutions
• Rebuild State capacity in relation to a broader agenda
of growth & development
• Policy conditionality should be subject to LDC
ownership & tailored to its underlying rationale
• Address systemic bias against aid for productive
sectors
• Enhance the production of local knowledge solutions
to development problems & support LDC ownership
28
Strengthening country
ownership, 2
Aid Management Policy should:
– Provide a framework where technical assistance is
demand-driven and oriented to recipient capacity
development needs
– Improve coordination and reduce uncertainties
– Avoid proliferation of sources of assistance
– Increase policy space of LDCs, reduce conditionalities
– Reduce transactions costs
– Provide a platform for greater mutual accountability
– Increase aid predictability and reduce its volatility 29
Thank you
Rolf Traeger
www.unctad.org/ldcr
30