Meeting the MDGs in the Least Developed Countries

Meeting the MDGs in the Least Developed Countries Giovanni Valensisi UNCTAD, 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 2000 s PROGRESS has been MIXED across regions and varied with the nature of each MDG indicators (different scope for state intervention). 3 Examples from the UN MDG Report 2010 Globally the poverty target is likely to be exceeded (“China effect”), but we are off track for productive employment and hunger.

The progress towards the MDGs (2) Gender gaps in education are shrinking globally, and most regions are on track. Globally progress has been insufficient, and most regions are off 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.

The progress towards the MDGs (4) Ø Only a few LDCs are on track for a broad set of indicators (more effort required → MDG 8); Ø "Conflict states" lag behind, while Island LDCs tend to do better; Ø Very slow progress on health-related indicators; Ø Slow progress on access to water and sanitation (→infrastructure gap, urbanization, climate change); Ø Insufficient progress on poverty reduction, in spite of the acceleration before the crisis (food crisis? ); Ø 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. Despite some apparent “macroeconomic resilience”, social costs are likely to be serious and long-lasting. Ø The global economic crisis came on top of the food and fuel crisis; Ø 21 LDCs in need of external food assistance, and food prices on the rise again in various LDCs (FAO, 2010); Ø Many coping strategies of vulnerable households affect their long-term wellbeing (hysteresis!).

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 a number of downside risks. If poverty reduction rates achieved during the 2000 s 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 1990 s, 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 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 2000 s

Lessons from the past experience (3) Not all patterns of growth are the same (continued) • 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 intersectoral linkages; poverty is deeper in rural areas. • INEQUALITY MATTERS Poorest 20% of pop. in LDCs consumes 6 % of income, while the richest 20% gets 48% (Mc. Kinley, 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 runup to the crisis, LDCs continue to diverge from other developing countries.

LDCs in the global context (2) International Support Measures (ISM) had limited success Progress 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 Ro. O, 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 panacea Trade 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?

Concluding remarks Based on past experience, meeting the MDGs in LDCs will require a shift in development thinking FROM TO Ø Targeting and service delivery Ø Holistic developmental strategies Ø Macroeconomic stabilization Ø Inclusive growth and productive capacities Ø Getting prices right (AS) Ø Domestic resource mobilization (AD + AS) Ø One-size-fits-all Ø Policy space and ownership Ø Aid-dependence and Ø Mutual accountability and voluntary contribution adequate representation

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)