June 01, 2021

Putting the capacity to produce front and center to spur LDC trade

Looking ahead to the next decade of action to transform economies

Thriving economies produce. What they produce could be export commodities, human enterprises, linkages to supply chains, data innovations, i.e. the whole range of things that generate profit today.

Some countries are able to create a lot, benefiting from skilled labor forces, the best in technology, effective transportation and more. But for others, including the least developed countries (LDCs), what is termed their “productive capacity” may be quite limited. According to a recent discussion, it is time to change that.

At the “Productive Capacities for the New Decade” event on 26 May 2021, held alongside the preparatory meetings for the Fifth United Nations Conference on the Least Developed Countries (LDC5) in January 2022, panelists discussed the kinds of support needed to improve the ability of LDCs to create and develop and grow. In the context of Agenda 2030 and COVID-19, speakers agreed about the urgency for action.

According to UNCTAD’s LDC Report 2020, between 2001 and 2018, improvements in the productive capacity of LDCs has been “lackluster”. During that time period, only Rwanda and Myanmar moved from the low-capacity category to average, and five countries fell from the high-productive group.

A prior set of meetings in 2011, or LDC4, resulted in the Istanbul Programme of Action. It established the goal of half the LDCs meeting the criteria for graduation by 2020, as well as setting priority action areas that included productive capacity but also agriculture, food security, trade and others.

With the upcoming LDC5 in Doha to chart the next Programme of Action for LDCs, and many of the aims of the previous decade now out of reach, the international community is readying to plan for an critical next decade.

Here’s what the group discussed.

1) Use productive capacity as a framework

UNCTAD Acting Secretary-General Isabelle Durant said, “Given the importance for the future and present of LDCs, productive capacities should form the overarching framework for the next Programme of Action.”

All strategies and related policies to be developed for the next 10 years should fall under the broad goal to improve productive capacity in LDCs, she said.

Panelist Taffere Tesfachew, United Nations Committee on Development Planning member and Principal Advisor to the Ethiopian Investment Commission, echoed that point, saying that productive capacity as the framework used for future action would provide the right foundation to incorporate other priority areas like infrastructure, technology and trade – now treated as separate categories.

2) Improve monitoring

Using productive capacity as the pivot for LDC development requires comprehensive monitoring across the many sectors involved.

Durant flagged UNCTAD’s Productive Capacities Index, a way for countries to see where they stand and where they can improve along eight criteria, including the private sector, energy and institutions. LDCs can track progress along these indicators, and the index helps countries and development partners to target their efforts accordingly.

Durant noted failures to enhance productivity in key sectors like technology, intensive manufacturing and services. Enhanced Integrated Framework Executive Director Ratnakar Adhikari also discussed the index and its findings, highlighting that institutions have an important role to play in improving the climate for business, and the cross-cutting effects that a business climate has across other dimensions that affect a country’s ability to produce or not to.

3) Create the next generation of international support measures

Graduating LDCs are increasingly voicing concerns about the loss of international support measures when they graduate, Tesfachew said.

These measures were developed with the recognition that some countries need more support to engage in international trade and certain global processes, for example related to the United Nations. International support measures can come in the form of lower tariffs, quota-free access to certain markets, or targeted budgets from UN agencies and other international institutions.

Panelist Perks Master Ligoya, Permanent Ambassador of the Republic of Malawi to the United Nations and Chair of the LDC Group, flagged various ways productive capacities in LDCs need support, from labor productivity to diversification of production to building strong institutions.

 

“The crucial issue is then how LDCs can achieve these goals given the limited policy space available to these countries,” he said. “LDCs need the assistance of the international community in expanding, building and upgrading their productive capacities.”

This means overhauling old ways of doing things and devising a “new generation” of international support measures in the fields of trade, finance and technology, he said. These moves would be more coherent and more systematic, and address the root causes of the current limited productive capacities of LDCs, he added.

4) Invest in more technology  

Adhikari noted that increasing investment in digital technology could do a lot to build up LDCs, but that countries were also disproportionately affected by declines in foreign investment.

Foreign direct investment (FDI) to LDCs was already struggling before the pandemic, and is expected to drop by 30-50%, according to the OECD. And, according to UNCTAD’s 2020 World Investment Report, FDI to LDCs represents only 1.4% of global FDI.

Moshe Kao, Programme Management Consultant at the United Nations Technology Bank for Least Developed Countries, focused in on technology as a central driver of productive capacity, and stressed the unequal levels of technology access globally. He discussed technology transfer as important to stimulate technology adoption and diffusion, and noted that partnerships at national, regional, and global levels were essential to doing so.

5) Work to smooth graduation

“Graduation should be a time for celebration. Not apprehension and hesitation about the future,” Tesfachew said.

All panelists discussed LDC graduation and its potential pitfalls because of the loss of certain kinds of international support.

“The LDC group needs to make its priorities heard clearly by the international community,” Ligoya said about country concerns moving into the future.

He noted that the LDC category was created 50 years ago, and that very soon it would consist entirely of African countries, with Asian and Pacific countries on track to graduate.

This disparity highlights the need for more effective support targeted where it is needed the most. According to the panelists and in reference to the upcoming LDC5 and the new Programme of Action to be developed, using productive capacity as the framework for support may offer the best opportunity to make a difference, if it involves an integrated approach that is embedded in contemporary concerns, the biggest today being health and technology.

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This side event was organized by the United Nations Conference on Trade and Development (UNCTAD), the Enhanced Integrated Framework (EIF), the United Nations Committee for Development Policy (CDP), and the United Nations Technology Bank for Least Developed Countries (UN Technology).

 

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Any views and opinions expressed on Trade for Development News are those of the author(s), and do not necessarily reflect those of EIF.