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Unctad Policy Brief No. 20F/2011: Development Challenges Facing LDCs in the Coming Decade

Policy brief by UNCTAD, 2011

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This policy brief examines the development challenges faced by LDCs in the following decade, namely the employment challenge, the globalization and climate change challenge and the governance deficit challenge.

N° 20/F, May 2011


Least deveLoped countries series
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The Employment Challenge
The central employment challenge in the LDCs is
to create productive jobs and livelihoods for the
millions of young people who are entering the
labour force each year. The scale of this challenge
will be greater in the coming years than in the past.
ILO statistics indicate that during the period 2005
to 2015, the labour force - i.e., the people seeking
work, not those with work - will increase by 10.2
million people per year. During the period 1990-
2005, it was 7 million per year.


It is worth illustrating what this increasing trend
actually means for individual LDCs. Using
demographic projections, in Mali the new entrants
to the labour force in 2005 were 171,800, which will
increase to a peak of 447,800 per annum in 2045.
After that, the annual additional labour force will
start to decline. Similarly in Madagascar, the new
entrants to the labour force in 2005 were estimated
to be 286,200 and their number will increase to
473,400 per annum by 2035. These are the numbers
of productive and ‘decent’ jobs and livelihoods,
which have to be created in these countries each
year if people are to be able to live in dignity. The
alternatives, if this is not achieved, are either grinding
poverty and increasing immiserization, on the one
hand, or increasing international outmigration on
the other hand.


It is also clear that the magnitude of the employment
challenge is not only growing, but also becoming
increasingly complex to address. In the past, the
main way in which the growing labour force was
absorbed in LDCs was in agriculture, largely through
people cultivating new land. But with population
growth, agricultural farm sizes are declining and
farms are now more likely to be located on marginal
land. Mass poverty also means that many cannot
afford the means for sustainable intensification
of agricultural production. Thus more and more
people are seeking work outside agriculture and
urbanization is accelerating, and this trend will
accelerate in the coming decade.


The problem is that LDCs have not been able
to generate sufficient productive off-farm jobs to
absorb the growing labour force seeking work
outside agriculture. Most find work in survival urban


informal activities. The failure to increase agricultural
productivity coupled with the failure to develop
sufficient productive off-farm jobs in local industries
and services is the main reason for the slow pace of
poverty reduction.


The Globalization and Climate Change
Challenge
The employment challenge must also be addressed
in a highly competitive global environment in which
new product standards and minimum scales of
production are being required, global investors are
seeking fast money with low risk, and the ability to
access, use and create knowledge and technology
are increasingly important bases for competition.
Productivity levels in LDCs are far below those
of competitors. Preliminary data for 2009 in the
Millennium Development Goals Report show that
GDP per person employed was $2974 in LDCs,
compared with $11,559 in developing regions and
$69,841 in developed regions (in 2005 US PPP
dollars). The LDCs, which constitute one-eighth
of the world’s population, produce just one-one
hundredth of the world’s output.
The LDCs have undertaken deep and fast trade
liberalization since the 1990s, but local industries
have found it difficult to withstand the competition.
Moreover, rising food imports show that in many
LDCs local farmers also find it difficult to compete in
global markets. The LDCs are now highly integrated
into a global economy which is characterized by
increasing market volatility. Recent food and fuel
prices hikes have underlined their vulnerability to
external shocks, rooted in both high exposure to
shocks and low domestic resources and capacities
to deal with their consequences.
Climate change is going to add a further twist to the
new global context of the LDCs. It is apparent that
the frequency and magnitude of natural disasters
is increasing in LDCs. Moreover, loss of water
supplies could adversely impact agriculture further
accelerating urbanization trends and out-migration
pressures.


The Governance Deficit Challenge
Addressing the employment challenge in this
global context requires good governance at both
national and international levels. What this means in


Development Challenges facing
LDCs in the coming decade
A critical issue for the UNLDC IV Conference in Istanbul is the nature of the development challenges
LDCs will face in the coming decade. There could be different answers to this question but UNCTAD
believes that the major challenge will be an employment challenge, and the central policy issues
relate to how to address this in a global environment characterized by accelerating globalization and
climate change and with governance deficits at the national and global levels. This policy brief will
look at each of these dimensions in turn.




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reinforced, including aid targets (0.15 or 0.20% of donor country
GNI, which were inscribed as MDG8), commitments to untie aid
to LDCs, the (Enhanced) Integrated Framework for trade-related
technical cooperation, the LDC Climate Fund for adaptation
projects, TRIPs Article 66.2 obliging rich countries to provide
incentives to their enterprises to transfer technology to LDCs,
market access preferences and special consideration for WTO
accession.


But in practice, the terms of development partnership continued to
be skewed towards donor concerns and it proved very difficult for
both donors and recipients to enable genuine country ownership
of national development strategies. LDCs were particularly
concerned with getting aid into production sectors and economic
infrastructure but donors were focusing more and more on social
sectors.


The implementation of the impressive array of LDC-specific
international support measures was also weak, particularly where
financial resources were required, and LDC-specific constraints
were not adequately addressed. UNCTAD’s evaluation of
these measures in its Least Developed Countries Report 2010
shows that they have had largely symbolic rather than practical
developmental effects. Similarly the Committee of Development
Policy of ECOSOC found that they ‘generated limited results’.


The UN system has increasingly focused its activities on LDCs.
Expenditure on operational activities for LDCs rose from $2.4
billion in 2000 to $7 billion in 2008, and the share of UN in-country
expenditure on operational activities in LDCs, including peace-
keeping operations, went up from 39% in 2003 to 50% in 2008.
But whilst the LDC category has been strongly recognized by the
UN system and also in the international trade and climate change
regimes, there is incomplete recognition of the category. Neither
the World Bank nor the IMF use the category in their resource
allocations and instead have focused on low-income countries
and fragile states. The overall global economic regimes have not
been development friendly for the LDCs and there have been key
missing elements in relation to the global commodity economy
and also technology transfer.


UNCTAD has called for a New International Development
Architecture for LDCs in order to reverse the marginalization
of the LDCs in the global economy and to help them in their
catching-up efforts, to support a pattern of accelerated growth
that would improve the general welfare and well-being of all
people in LDCs, and to help LDCs graduate from LDC status. The
UNLDC IV Conference provides another opportunity to correct
past mistakes and agree on a Programme of Action that will
enable the LDCs deal with the challenges which they will face in
the coming decade, in particular the need to generate enough
productive jobs for the thousands of people entering the labour
force each year.


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practice is inevitably contested. But what needs to be stressed
is that the simple economics of being a poor country means that
it is increasingly difficult for LDCs to achieve the governance
standards of rich countries.


We can see the simple economics of national governance
challenges by examining national accounts statistics. They
show that the average GDP per capita per day in LDCs in 2009
was $1.59 and that household consumption per capita per day
was $1.14. What this means is that on average the LDCs had
45 cents per person per day as domestic resources available for
financing both public and private investment and also for running
the government, including paying the wages and salaries of all
government workers and also to purchase the goods and services
required to operate the economy smoothly. These numbers are
in market prices and at current exchange rates and obviously
there are purchasing power differences which allow money to
go further. But there is only 45 cents per person per day for all
investment needs as well running the police, judicial system, and
administration at local and national levels.


In practice, the national accounts show that government final
consumption expenditure (i.e. expenditures on wages and
salaries of government workers and purchses of goods and
services) in the LDCs in 2009 was actually 20 cents per person per
day in LDCs compared with $20 per person per day in developed
countries. The developed countries spent a higher percentage of
their GDP (19%) on governance than the LDCs (12%). But even if
the LDCs increased the share of GDP spent on governance to the
developed country level, this would only mean that they would
be able to spend 30 cent per person per day. What kind of good
governance can this amount buy?


Inevitably, LDCs must rely on external resources both for domestic
investment and also governance. But here the question of the
‘goodness’ of global governance arises.


Since 1981, three special Programmes of Action have been
agreed by the international community for the LDCs. Neither
the first, agreed at the first UNLDC I Conference in Paris, nor the
second agreed at UNLDC II in the same city, worked. The first
was ideologically sidelined because it was based on a State-led
development model which became obsolete after the introduction
and implementation of structural adjustment programmes in the
1980s. The second was characterized by highly asymmetrical
implementation. LDCs undertook deep economic liberalization
and market reforms in the expectation of increasing aid and debt
relief. But in practice, real aid per capita fell 45% between 1990
and 2000, and the debt relief was simply too little too late.


The Brussels Programme of Action has been characterized by
much more effective partnership. Aid doubled in real terms from
2000 to 2008, and LDCs continued to implement economic
reforms and improve governance. A series of LDC-specific
international support measures were also put in place or




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