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The Least Developed Countries

Report 2008

Growth, Poverty and the Terms of Development

Partnership

Rolf Traeger, UNCTAD

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What are LDCs?

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Where do LDCs stand?LDCs' place in the world

(Share of world, 2006)

11.9

0.9 0.8 0.7

0

2

4

6

8

10

12

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Population Exports GDP Inward FDI

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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

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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

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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

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Growth in LDCs - 1

GDP growth in LDCs, 1975-2007

0

1

2

3

4

5

6

7

8

9

1975 1980 1985 1990 1995 2000 2005

target

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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

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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

– 64% of total export increase in 2004-06 was attributable to oil exporters.

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• Most FDI is concentrated on natural resource extraction with low employment content

ODA from all sources to individual LDCs (2006)

Afghanistan

Sudan

Dem. Rep. Congo

Others

High concentration of flows

Foreign direct investment (2006)

Sudan

Equatorial GuineaChad

Bangladesh

Cambodia

Others

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Is LDCs' growth sustainable?

• 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

Constraints:

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Little structural change

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LDCs need a new development model shifting from commodity-price led growth to catch-up growth

Implication

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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

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Impact of growth on poverty and human development, 1

Poverty in LDCs (2005)

< $1/day

between $1 and $2/day

> $2/day

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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

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Impact of growth on poverty and human development, 3

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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

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Food crisis in LDCs - 1

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Food crisis in LDCs - 2Rapidly 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 already-existing food emergencies

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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

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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.

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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 &

development effectiveness

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Ownership in Paris Declaration

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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 5-

year development planning, not simply pro-poor public expenditure plans

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Ownership in PRSPs

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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

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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

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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

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Thank you

Rolf Traegerwww.unctad.org/ldcr