Meeting the MDGs in the Least Developed Countries

Giovanni ValensisiUNCTAD, Africa Least Developed Countries Division

Short course for Diplomats on MDGs; UNCTAD, Geneva, 26 October 2010

Presentation structure

• The progress towards the MDGs;

• MDGs outlook after the crisis;

• Lessons from the past experience;

• LDCs in the global context;

•Concluding remarks.

The progress towards the MDGs (1)

Despite the acceleration in the mid 2000s PROGRESS has been MIXED across regions and

varied with the nature of each MDG indicators (different scope for state intervention).

Globally the poverty target is likely to be exceeded (“China effect”), but we are off track for productive

employment and hunger.

3 Examples from the UN MDG Report 2010

The progress towards the MDGs (2)

Globally progress has been insufficient, and most regions are off track.

Gender gaps in education are shrinking globally, and most regions are on track.

The progress towards the MDGs (3)

Focusing on the LDCs, three caveats apply:1. given their starting point, LDCs had the hardest challenge;

2. heterogeneous size and socio-economic structure;3. dearth of data is still a big problem.

Number of LDCs progressing or regressing on selected MDG indicators

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45

1.1 - Proportionof people livingbelow $1.25 per

day

1.9 - Share ofundernourished

population

2.1 - Netenrolment ratio

in primaryeducation

4.1 - Under-fivemortality rate

4.2 - Infantmortality rate

7.8 - Share ofpopulation usingimproved water

source

7.9 - Share ofpopulation using

improvedsanitationfacilities

Setbacks/Stagnation Insufficient progress On track

The progress towards the MDGs (4)

Only a few LDCs are on track for a broad set of indicators (more effort required → MDG 8);

"Conflict states" lag behind, while Island LDCs tend to do better;

Very slow progress on health-related indicators;

Slow progress on access to water and sanitation (→infrastructure gap, urbanization, climate change);

Insufficient progress on poverty reduction, in spite of the acceleration before the crisis (food crisis?);

Significant progress in the access to primary education, and closing gender gaps, though less so for secondary and tertiary levels (role of donors).

MDGs outlook after the crisis (1)

The global economic crisis resulted in a severe growth slowdown for LDCs, with significant job losses.

The impact of the crisis on domestic economy varied considerably according to structural conditions.

The global economic crisis came on top of the food and fuel crisis;

21 LDCs in need of external food assistance, and food prices on the rise again in various LDCs (FAO, 2010);

Many coping strategies of vulnerable households affect their long-term wellbeing (hysteresis!).

Despite some apparent “macroeconomic resilience”, social costs are likely to be serious and long-lasting.

MDGs outlook after the crisis (2)

The crisis may have resulted in 9.5 mln. additional people living in extreme poverty in the LDCs (Karshenas 2009).

As a result of the crisis, in Africa there have been additional 30’000-50’000 infant deaths in 2009 (WB, 2010).

The social costs of the crisis in LDCs will ultimately depend on world recovery and on future ODA trends, but there are a

number of downside risks.

If poverty reduction rates achieved during the 2000s are maintained until 2015, the incidence of extreme poverty in LDCs will be 46%. But if recovery does not take off and poverty reduction slows down to the speed of the 1990s,

headcount ratio will be 51% in 2015.

Lessons from the past experience (1)

There is a need to reconnect the MDGs to inclusive development, especially where a large share of the

population is poor.

• MDGs ARE INTER-CONNECTED

Progress is stronger where social objectives are part of a shared, coherent and holistic developmental strategy (UNDP 2010 case studies).

• STABILITY , BUT “DEVELOPMENT-FRIENDLY” MACROEC.

Fiscal policy central to crowding in private funds (→ infrastructure gap), away from over-restrictive inflation targeting, capital control if needed, economic diversification (→ industrial policies), and strategic integration.

• THE STATE HAS A COORDINATION ROLE TO PLAY

All actors are important in developing productive capacities.

Lessons from the past experience (2)

Economic growth is “a key driver in MDG progress” (WB, 2010), but not all patterns of growth are the

same.

• STRUCTURAL CHANGE IS IMPORTANT

Structural change and the composition of output(% of GDP; period average)

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2000-2002 2006-2008 2000-2002 2006-2008 2000-2002 2006-2008 2000-2002 2006-2008

Agriculture Manufacturing Industry, excl.Manufacturing

Services

LDCs total LDCs: Africa and Haiti LDCs: Asia LDCs: Islands

Recent boom in oil and mining had little effect on employment creation, thus weak benefits for poverty reduction.

“Employment challenge” esp. in African LDCs.

De-industrialization in 27 LDCs during the 2000s

Lessons from the past experience (3)

• MORE ATTENTION TO AGRICULTURE

Agriculture was largely by-passed by growth, but in LDCs it employs 60% of L, and is crucial for food-security and inter-sectoral linkages; poverty is deeper in rural areas.

Agriculture value added per worker (constant 2000 US$)

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LDCs (left scale) Middle-income countries (left scale)

High-income countries (right scale)

Not all patterns of growth are the same (continued)

• INEQUALITY MATTERS

Poorest 20% of pop. in LDCs consumes 6 % of income, while the richest 20% gets 48% (McKinley, Martins 2010).

Lessons from the past experience (4)

Given LDCs’ sluggish capital accumulation, improving the mobilization of domestic resources is imperative to

reverse aid-dependency.

• MORE ATTENTION TO PUBLIC REVENUES

Public revenues rose slightly as % of GDP, but are still low (≈ 15% on average in 22 African LDCs) and trade liberalization entailed significant revenue losses! → link ODA to tax revenue mobilization, broaden tax base, more efficient collection systems (border controls and exemptions), more effective negotiations on mineral rents, address capital flights.

• PRIVATE ACTORS ARE FUNDAMENTAL

Greater financial deepening (esp. in rural areas), Public-Private-Partnerships in strategic sectors (ex. ICT), diaspora-bonds and international bond issuance.

• INNOVATIVE SOURCES OF DEVELOPMENT FINANCE

Lessons from the past experience (5)

Successful development strategies are context-specific (no one-size-fits-all), and shared by all stakeholders.

• “ECONOMIC PRINCIPLES DO NOT MAP INTO UNIQUE INSTITUTIONAL ARRANGEMENTS” (Rodrik, 2003)

Institutional innovations and adaptations are crucial.

• POLICY SPACE IS NECESSARY

MDG progress is not only about “service delivery”, but also about innovative policies and institutions to foster inclusive growth (→ heterodox policies often proved successful).

• COUNTRY OWNERSHIP IS CRITICAL FOR SUCCESS

Conditionalities undermined ownership and policy coherence; recent “rethinking” by IMF brought little substantial change → still pro-cyclical conditionalities in many LDCs.

LDCs in the global context (1)

Relevance of the LDC category in the wake of the crisis

• Though most of the poor now live in MIC (“new bottom billion”), LDC challenges in poverty reduction remain of immense political relevance: the majority of pop. lives below poverty line and the number of poor continued to grow.

• LDCs medium-term outlook raises serious concerns, and they have limited resources to cope with adverse shocks.

• Despite rapid growth in the run-up to the crisis, LDCs continue to diverge from other developing countries.

Real GDP per capita in 1990 $(constant prices and exchange rates)

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1980

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Developing economies excluding LDCs

LDC weighted average

Developed economies (right scale)

LDCs in the global context (2)

International Support Measures (ISM) had limited successProgress on MDG 8 has been grossly insufficient: ex. ODA target of 0.15%-0.20% of donors GNI to LDCs was achieved only by 9 DAC donors out of 23 (0.09% in total); only 92% of LDCs exports is admitted free of duty in developed countries.

Lack of coherence between global econ. regime and ISM Preferential mkt. access (in itself insufficient to overcome LDCs weaknesses) is hampered by restrictive RoO, while preference margins are eroded → relative preference margin.

The emergence of Southern partners and climate-change-related industries offer new opportunities, but are not the panaceaTrade and FDI flows from Southern partners have been critical for LDCs, esp. during the crisis, but they may also reinforce commodity dependence. Technology transfer for climate change?

Based on past experience, meeting the MDGs in LDCs will require a shift in development thinking

FROM

Targeting and service delivery

Macroeconomic stabilization

Getting prices right

(AS)

One-size-fits-all

Aid-dependence and voluntary contribution

TO

Holistic developmental strategies

Inclusive growth and productive capacities

Domestic resource mobilization (AD + AS)

Policy space and ownership

Mutual accountability and adequate representation

Concluding remarks

Thank you for your attention!

This presentation draws on the forthcoming

Least Developed Countries Report 2010,

and on various other issues of the LDC Report(www.unctad.org/ldcr)