Helping the world’s Least Developed Countries

Debapriya Bhattacharya previews the issues to be discussed at the Fourth United Nations Conference on Least Developed Countries (LDCs) which will be held in Istanbul, Turkey, in May 2011. A central dilemma, he explains, is that economic growth in the LDCs has failed to lift enough poor people out of poverty.

Debapriya Bhattacharya is a special advisor to the Secretary-General of the United Nations Conference on Trade and Development, and is tasked with preparing the strategy documents which will feed into the preparatory process for the 2011 UN LDC conference.

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How is it decided which country is an LDC and which isn’t?

Within the United Nations system, and in general within the community which is dealing with the definition and the concept of the LDC group, there is a lot of debate about criteria which can really definitively distinguish these countries from the rest of the countries in the world. And these criteria have undergone various metamorphoses that have evolved over time. The current three major criteria which are used to identify LDCs are the following:

• A low-income criterion, based on a three-year average estimate of the gross national income (GNI) per capita (under US$905 for inclusion, above US$1,086 for graduation);
• A human capital status criterion, based on indicators of nutrition – the percentage of population undernourished; health – the mortality rate for children aged five years or under; education – the gross secondary school enrollment ratio; and  the adult literacy rate;
• An economic vulnerability criterion, based on indicators of population size; remoteness; merchandise export concentration; share of agriculture, forestry and fisheries in gross domestic product; homelessness owing to natural disasters; instability of agricultural production; and instability of exports of goods and services.

So, income, human assets, and vulnerability – these are the three sets of criteria which essentially identify the list of LDCs. The UN has a mechanism where every three years this list is reviewed and new countries are included, and if we are lucky, some countries graduate from the list.

You said that the UN has its processes, its standards and its numbers, and assesses who is in and who is out. Why does it matter who has LDC status?

Among the developing countries, these least developed countries have been singled out to receive more focused public support and international support measures, and to give them more attention so that they can overcome their structural problems, their structural handicaps, or their impediments to development. So, it is basically for targeting those countries that need the most international support.

Are there enough benefits to being an LDC that if I was president of a country I would want that, or is there so much stigma attached that I wouldn’t want it?

There is a stigma attached to it because you are somehow perceived as one of the ones amongst the poor. When this category was introduced, two countries really didn’t want to be there. One of them was Ghana. The other was Zimbabwe. They were allowed to opt out because, if you don’t want to be there, nobody can force you to be there. But on the other hand, you also exclude yourself from the benefits or the preferences which are associated with being included.

Although there is a bit of a stigma, the idea is that you are going to utilize this window of opportunity provided by the support measures and get off that list as soon as possible. So, the issue is rather that by being recognized as structurally handicapped, you use what is being made available to you in the way of support measures, and you make good use of this.

Unfortunately – and that is the whole issue now – notwithstanding the use of support measures over a period of 30 to 40 years, only two countries have graduated from this group. Cape Verde recently, and before that, it was Botswana.

And now there are three countries in the pipeline which might graduate next year. One of them is the Maldives, again a small island country which is threatened by climate change and other things. Samoa is the second one, and the third is Equatorial Guinea. The latter has a lot of oil, and its current per capita income is in the world’s highest income category.

How is this group of countries different or the same from Paul Collier’s “bottom billion” description of the world’s poorest people?

The issue is that this ‘bottom billion’ cuts across many countries. It is a set of populations who are the poorest of the poor. But we are not talking about poor people here. We are talking about poor countries. The most important thing here is that these countries are handicapped in certain ways which are not easy to overcome by relying solely on their domestic efforts. Some handicaps can never be overcome. For example, you have dozens of landlocked countries, like Bhutan, Nepal, and some in Africa – low income, but at the same time landlocked. This is a major problem for them. Similarly, you have island countries, with very small populations, which can get washed away by every tidal wave.

These are major handicaps which have to be taken into account. Haiti is a classic example of how vulnerable these economies are. A country can be hit, not only by man-made disasters, but also by natural shocks. The same thing happened with the tsunamis in the Pacific a couple of years back. So, even if you are developed, but you are very vulnerable, your achievements are very fragile and any one external shock can wipe them out, just like that. So, it is more than just a matter of national income.

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So this class of countries, with these particular problems, will be the focus of the conference that you are responsible for preparing for in May 2011. How is this – the Fourth UN LDC conference – going to be different, and what are the things that you would hope that might be achieved there that would help these countries in ways they haven’t been helped before?

In order to design new methods, new interventions, new support measures, or the new generation of public policies to accelerate the growth process of development in these countries, we need to understand how they have been performing during the last decade.

If we take a very close look at these countries, we see that during the last decade before 2006/07, before the food crisis, the fuel crisis, and the financial and the economic crises set in, they were doing pretty fine in terms of growth. They were expanding exports, and receiving relatively high levels of foreign direct investment (FDI). Official development assistance flows had also increased at a certain level. But what was very curious was that notwithstanding all the apparently improved performances of these countries, and the improved macroeconomic indicators as well, we saw that the role of the manufacturing sector, the processing industries which can provide good quality jobs and even incremental jobs, was not growing. So there was growth, but there was no modern sector growth.

Then, in terms of exports, there was no product diversification. It was one commodity which was dominating, either the manufacturing of textiles or extractive industries – fuel or other minerals, in the case of most of African countries. There was no diversification. In the case of FDI, most of the investment went into mining and the extractive industries.

So, the question we must address is how new support measures can change these circumstances in order to achieve inclusive, even broad-based, productive growth. Productive growth means manufacturing growth and agriculture sector growth because agriculture was very neglected during the last decade before the latest food crisis. And it also means services which can support the investment environment and all these other areas by creating jobs for people.

Is the enabling environment for the growth of these sectors largely in the control of the rich countries or the larger developed countries, or is this mostly about domestic policy decisions that would be made by the leadership within the LDCs themselves?

What we are talking about here is a compact, a development understanding between the developed countries and the LDCs. And now we have a third party, the emerging economies. So, you have the developed countries, the advanced developing countries, and the least developed countries. So, these three will come together with what we call ‘shared but differentiated responsibility’. The objectives are shared, but in terms of how to deliver them, there is a differentiated responsibility, depending on the sector.

Domestic policy, good governance, anti-corruption measures, a good legal system, all these things are very important, and are in the control of the LDCs themselves. But in order to modernize them, they might need resources, and these resources and expertise are not always available internally. And given the competing nature of their investment demands or their public expenditures for health and education, in order to meet that gap they would need some kind of support. One way obviously is of course to get more foreign aid. The second way is to get into new markets where they can sell their products. And the third is to bring in investment into the areas which creates good jobs – sustainable development by way of investment in areas other than the extractive sectors.

All these issues will be coming together in terms of how to precipitate a structural change in these countries so that they can become better integrated into the globalized world, so that the benefits of development trickle down to the poorest of the poor, and to meet some of the Millennium Development Goals, too.

When we think of aid, trade, and investment, we usually focus on the policies of the high income countries, but of course, as you point out, we now have these big emerging market economies that are increasingly powerful, with markets that are sometimes larger than those of the rich countries. How do they factor into this discussion with the LDCs?

One of the major areas that has changed, the new context for the development challenges facing the LDCs that has changed since 2001 when the last conference took place, is the emergence of the global south, the new emerging economies. LDCs now sell more than 50% of their exports to the developing economies. But the problem is that most of these exports are minerals and fuels. The less than 50% of their exports that go to the developed countries are all manufactured goods, including textiles.

There is a question of quality versus quantity here. The issue now is how the LDCs can get access to these new emerging markets with better products, and whether this can help with diversification and also in terms of technology transfer. This is the new context, and this is where the shared responsibility issue comes back again.

• The above is an edited and abridged version of an interview conducted by Lawrence MacDonald for the Centre for Global Development, and broadcast as part of the Centre’s Global Prosperity Wonkcast series.