Transcript Strengthening the trade-growth-poverty

UNITED NATIONS
CONFERENCE ON TRADE AND
DEVELOPMENT (UNCTAD)
CONFÉRENCE DES NATIONS
UNIES SUR LE COMMERCE ET LE
DÉVELOPPEMENT (CNUCED)
Strengthening the Trade-Growth-Poverty Relationship in
Least Developed Countries I:
Beyond Supply Capacities:
The Role of Productive Capacities
(Based on LDC Report 2006)
Michael Herrmann
Division for Africa, LDCs and Special Programmes
UNCTAD, Geneva, Switzerland
The LDCs
This Presentation
• Introduction
• The concept of productive capacities
– Elements
– Development
• Drivers of productive capacities
– Capital accumulation
– Technological progress
– Structural change
• Constraints on productive capacities
– Infrastructure
– Institutions
– Demand
• Policy implications
Introduction
Chart 9. $1/day and $2/day poverty curves
100
80
60
40
B
A
20
0
100
400
700
1000
1300
1600
1900
Annual average private onsumption
c
per capita (1985 PPP $)
$1-a-day
Source: UNCTAD, The Least Developed Countries Report 2004.
$2-a-day
2200
Introduction
The Concept of Productive Capacities:
Elements
The Concept of Productive Capacities:
Development
• Productive capacities are determined by 3 processes
– Capital accumulation (physical, financial)
– Technological progress (low- to medium-tech)
– Structural change (agriculture to industry, low to high productivity jobs)
• Productive capacities are impeded by 3 constraints
– Infrastructure (transport, utilities, etc.)
– Institutions (firms, financial institutions, knowledge system)
– Demand (external and domestic)
Drivers of Productive Capacities:
Growth experienceOverview
and structural change
Growth experience, capital accumulation and structural change
Converging Weak-growth Regressing
Converging
Weak-growth
Regressing
economies
economies
economies
economies
economies
economies
Capital accumulation
Capital accumulation
Domestic
savings
Domestic
savings
Domestic
investment
Domestic investment
FDI
FDI
ODA
ODA
Economic
transformation
Structural
change, production
Agriculture/
GDP
Agriculture/
GDP
Industry/
GDP
Industry/
GDP
Manufacturing
Manufacturing/ GDP
Non-manufacturing/ GDP
Non-manufacturing
Services/
GDP
Services/
GDP
Structural change,
labor productivity
Employment
transition
Agriculturelabor productivity
Agricultural
Non-agriculturelabor productivity
Non-agricultural
Total
Total
labor productivity
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Note: Economies classified, based on growth experience between 1980-2003.
Converging economies (9 LDCs): GDP/ capita growth >2.15% p.a.
Weak-growth economies (15 LDCs): GDP/ capita growth <2.15% p.a.
Regressing economies (17 LDCs): GDP/ capita growth <0% p.a.
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Drivers of Productive Capacities
Process I: Capital Accumulation
Drivers of Productive Capacities
Process I: Capital Accumulation
• Over the 1990s investment rates declined in many LDCs.
– Public fixed investment declined in 8 of 12 LDCs
– Private fixed investment also declined in 8 out of 12 LDCs
• In 1999--2003 investment rates were relatively low in LDCs.
– Average investment rate was 22 % GDP,
– Average savings rate was 14% GDP,
– Average resource gap was about 8% of GDP.
• In 1999--2003 almost 40% of investments was financed by
external sources
– Net FDI inflows to LDCs were about 2.6% of GDP
– Net ODA disbursements to LDCs were about 9% of GDP (in 2004).
Drivers of Productive Capacities
Process I: Capital Accumulation
• Aid can be major source for capital formation.
– In 2004 it accounted for more than 10% of GDP in 36 out of 43 LDCs.
• Aid targeted at capital formation has declined over past years.
– The share of ODA to LDCs associated with debt relief, emergency
assistance and social sectors development increased from 34.6% in
1992-1994 to 62.1% in 2002-2004
– The share of ODA to LDCs associated with development of economic
infrastructure and production sectors decreased from 47.9% to 23.5%
over the same period.
Drivers of Productive Capacities
Process I: Capital Accumulation
• Formation of human capital is weakened by low levels of
education
– In 2000 the average years of schooling of the adult population was
only 3 years in the LDCs, less than in other developing countries in
1960.
– In 2001 technical and vocational education constituted only 2.6% in
total secondary enrolment in the LDCs, as against 10.4% in
developing countries.
– In recent years only 6% of the population aged 20-24 in LDCs was
enrolled in tertiary education, compared with 23% in other
developing countries.
• … and high levels of brain drain
– About one in five of the high-skill workers (persons with 13 years
schooling and above) were working in OECD countries in 2000
– The intensity of the brain drain from African and Asian LDCs
increased significantly in the 1990s
Drivers of Productive Capacities
Process II: Technological Progress
• Limited investment in technological development
– In 2003 gross expenditures on R&D were only 0.2% of GDP in the
LDCs. Between 1980s and 1990s public expenditures for
agricultural R&D declined in 8 out of 13 LDCs.
• Limited licensing of technology
– In recent years only 7% of domestic firms in LDCs licensed foreign
technology, compared with 27% of foreign firms, and only 21% of
domestic firms in LDCs use a website for business, compared with
44% of foreign firms.
• Limited import of technology
– Firm-Level Investment Climate Surveys (World Bank) show new
machinery and equipment is the most important channel of
technological acquisition in the LDCs. Yet, they have not increased
over the last two decades in real per capita terms.
Drivers of Productive Capacities
Process III: Structural Change: Production
Drivers of Productive Capacities
Process III: Structural Change: Employment Transition
Changing size and locus of labor force
1990
Size of LDC labor force (million)
2000
2010
242
312
401
in non-agriculture (% total)
24
29
35
in urban areas (% total)
21
25
30
19801990
Increase of labor force (million)
19902000
20002010
51
71
88
in agriculture (million)
32
37
39
in non-agriculture (million)
19
34
49
Drivers of Productive Capacities
Process III: Structural Change: Labor Productivity
• Fact 1:
– Relatively large increase of labor force in non-agriculture
(indicated by large growth of economically active population),
• Fact 2:
– Relatively small expansion of economic activities in nonagriculture (indicate by small growth of value added)
• Implication:
– Decline of non-agricultural labor productivity (indicated by the
ratio of value added to labor force).
Drivers of Productive Capacities
Process III: Structural Change: Labor Productivity
Drivers of Productive Capacities
Process III: Structural Change: Employment Challenge
Rapid increase of non-agricultural labor force
• Push factors: Growth of agricultural labor force > agricultural
land.
–
–
–
–
–
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Land holdings per agriculturalist decline
Dependency on fragile land increases.
Productivity of agricultural workers increase slowly or decrease.
Yield of land increase slowly or decrease.
Few prospects to overcome rural poverty.
Decision to leave rural areas/ agricultural sector.
• Pull factors: Growth of non-agricultural labor productivity >
agricultural labor productivity.
– Potential to earn higher wages.
– Decision to migrate to urban areas/ non-agricultural sector.
Drivers of Productive Capacities
Process III: Structural Change: Employment Challenge
Weak absorption of non-agricultural labor force
• In Tanzania the non-agricultural labor force grew 2.26 million;
wage employment outside agriculture grew by 172 thousand
between 1990/91 and 2000/01.
• In Uganda the non-agricultural labor force grew by 428
thousand, wage employment outside agriculture grey by 82
thousand between 1992 and 1999/2000.
• In Burkina Faso only 5% of males and 3% of females found
their first paid job in private formal sector in 2000.
• In sub-Saharan Africa about 93% new employment
opportunities are in informal sector, in recent years.
Drivers of Productive Capacities
Process III: Structural Change: Employment Challenge
TABLE 45. UNEMPLOYMENT AND UNDEREMPLOYMENT IN URBAN LABOUR MARKETS
OF SELECTED AFRICAN LDCS, 2000-2001 (% EMPLOYED POPULATION)
Cotonou
(Benin)
Unemployment rate:
ILO definition
Enlarged definition
Visible underemployment rate
Invisible underemployment rate
Global unemployment rate
5.5
6.8
13.4
61.1
69.2
Ouagadougou
(Burkina Faso)
15.4
22.4
10.6
66.5
73
Bamako
(Mali)
7.1
12.5
17.1
45.4
58.8
Dakar
(Senegal)
Average
11.7
18.9
16.2
57.8
69.4
Unemployment rate: Unlike ILO definition, enlarged definition includes discouraged workers.
Visible underemployment: Those who work less than 35 hours per week.
Invisible underemployment: Those who work long hours but have wages below national minimum wage.
9.9
15.2
14.3
57.7
67.6
Constraints on Productive Capacities:
Overview
Weak Infrastructure
•
ICT and beyond
Weak Institutions
•
•
•
Firms (and farms)
Financial institutions
Knowledge systems
Weak Demand
•
•
External
Domestic
Policy Implications
• Productive capacities help to strengthen trade performance:
– Allow for vertical diversification (upgrading in value chains)
– Allow for horizontal diversification (expansion of export baskets).
– Support competitiveness (product quality, quantity, price)
• Productive capacities help to achieve sustained growth
– Ensure more stable and remunerable export revenues
– Lead to higher revenues from domestic sales
• Productive capacities help to reduce poverty
– Create more productive employment opportunities
– Allow for rising household incomes
– Enable sustained poverty reduction
Current approach
•
Policy Implications
Current approach PLUS
External demand
(Liberalization of trade stimulates
domestic production)
•
Supply-side constraints
(Improvements of transport
infrastructure, trade finance and
insurance, customs procedures
stimulates exports)
•
Framework conditions for
investment
(Improvement of macroeconomic
stability, investment climate,
governance helps to promote
investment)
•
Consumption
•
(Development of domestic markets, creation
of linkages stimulates production)
•
Tradables
FDI
Human and social development
•
International welfare system
Ingredients for investment
(Improvements of transport infrastructure and
other physical infrastructure, banking
system, business-support institutions and
knowledge system will help to promote
investment)
•
Employment
(creation of productive employment
opportunities and rising household
incomes will reduce poverty).
•
•
•
(e.g., health and education)
•
Productive capacities
(more and better utilization of productive
resources, entrepreneurial capabilities,
production linkages results in more
competitive exports)
(access to cheap, imported consumer
goods will help to reduce poverty).
•
•
•
Internal demand
Non-tradables
Domestic investment
Economic development
(i.e., growth, production, employment)
•
National development state
Policy Implications
• Trade can support the development of productive
capacities, but productive capacities are the engine of
economic growth.
• Trade can contribute to the creation of employment
opportunities, but only productive capacities can
ensure the lucrative and sustainable employment
opportunities for people.
To strengthen trade-growth-poverty relationship, it is
necessary to develop productive capacities. They help
to improve trade performance, achieve sustained
economic growth and sustainable poverty reduction.
Therefore, the development of productive capacities
should be at heart of trade, growth and poverty
reduction strategies.