Economic Boom Worsened Deindustrialization of Least Developed Countries

Geneva – Least developed countries (LDCs) in Africa did not use the commodity export boom of the mid-2000s to diversify their economies from commodity dependence to manufacturing value-added products. Significantly, the agricultural sector has also not benefited, with the result that LDC reliance on imported food has become even worse.

These are some of the findings of the United Nations Conference on Trade and Development (UNCTAD), which released its 2010 report on least developed countries (LDCs), entitled “Towards a new international development architecture for LDCs”, on Nov 25.

Dr Supachai Panitchpakdi, UNCTAD secretary-general, referred at the launch of the report to the average growth rate of seven percent per year that least developed countries (LDCs) experienced during the boom period of 2002- 2007.

“But higher commodity prices — of mainly oil and gas — have not solved the issues of price fluctuation and dependence on commodity export,” he noted. This pattern of growth is “non-sustainable” and “non-inclusive”.

“Globalisation has not treated everyone equally,” added Zeljka Kozul-Wright, chief of the LDCs section at UNCTAD. “LDCs are on the losing side because of their dependence on commodities export. During the boom period, dependence on commodities export increased while manufacturing sectors declined.

“This issue of de-industrialisation is a major concern for us.”

Panitchpakdi pointed out that one of the reasons for LDCs’ economic woes has been excessively rapid market opening: “In order to benefit from full liberalisation, governments have to implement industrial policies.

“In Africa, countries under structural adjustment programmes could not have industrial policies and therefore there was no preparation of industries for them to benefit from liberalisation. In Zambia, for example, there has been a complete demise of the textile industry. Liberalisation must be (correctly) sequenced,” he added.

For Kozul-Wright, Asian LDCs have succeeded in diversifying more than African ones, especially with regards labour-intensive manufactures. But that approach also has its problems because today they cannot increase their value addition. “The promotion of a ‘one-size-fits-all’ development strategy has not helped,” she said.

The consequence of these problems has been an increase in poverty. The report estimates that the number of people in extreme poverty in LDCs increased by three million annually during the boom years, reaching an estimated 421 million in 2007 – twice as many as in 1980.

This figure represents 53 percent of the total population of the LDCs, where one billion people are expected to be living in 2017.

During the same time, “food import dependence has been devastating”, said Panitchpakdi, rising from nine billion dollars in costs in 2002 to 24 billion dollars in 2008.

Believing that “business as usual will not deliver inclusive growth in the LDCs”, UNCTAD proposes a “New International Economic Architecture” that goes beyond aid and trade to include technology, commodities and climate change.

In the area of finance, UNCTAD bemoans the shortfall of 23 billion dollars per year in official development assistance and advocates a balanced distribution of aid between social uses and productive capacity.

It proposes innovative ways of financing and supports co-financing initiatives with the private sector, particularly in the field of infrastructure. Debt relief programmes will have to be enhanced in the post-crisis situation, as the number of heavily indebted LDCs is on the rise.

Regarding trade, UNCTAD reiterated the call for “an early harvest in the Doha Round for LDCs, with measures such as 100 percent duty-free and quota-free market access and conditionalities being minimised”.

On the question of whether the Doha Round would not exacerbate de- industrialisation in LDCs, Panitchpakdi answered that it “depends on the ultimate composition of the final deal of the Round.

“In NAMA (the non-agricultural market access negotiations) we have to be able to maintain the (original) developmental perspective of the Round to help countries diversify; get value addition; deal with tariff peaks and escalation; and eliminate all trade distortions. We should not add and add agendas in NAMA.”

As for commodities, the report suggests rethinking the way counter-cyclical financing is done to cope with the adverse effects of fluctuating prices. Counter-cyclical financing is financing that does not follow the current predominant economic cycle.

There is a need for transaction tax on trade in commodity derivatives (financial instruments linked to future prices of underlying assets) and for more schemes to deal with the stabilisation of commodity prices. Panitchpakdi indicated concern over the excess of liquidity driving up the prices of maize and wheat in 2010.

In the field of technology, the World Trade Organisation’s Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement should be carefully looked at, for it has not been implemented in a way that benefit developing countries.

Industrialised states have to adopt policies to incentivise technology transfer to LDCs. It is a moral obligation, not a legal one, but the agreement does not specify incentives, according to UNCTAD.

Finally, in the area of climate change — where LDCs contribute only one percent of total greenhouse emissions, but suffer most heavily from the consequences — an adequate financing of the already existing mechanisms is necessary.

“Cutting across all these measures is the need for LDCs to work more with fellow countries from the South,” Panitchpakdi reiterated, like many times before.

“They should benefit more from South-South cooperation and triangular cooperation with the North. The new global governance cannot be dominated by powerful countries, like in the Group of 20. LDCs must participate in global governance.”

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