Global solidarity and the least developed countries
High global growth rates mask sharp income inequalities across countries
The level of the world’s income has grown impressively since the start of the new Millennium, from $31.8 trillion in 2000 to $48.2 trillion in 2006, at annual rates of above four percent on average, with some of the emerging economies such as China and India attaining growth rates between eight and nine percent. Regrettably, the media focus on these impressive income growth rates masks the tremendous imbalances in the income levels across different groups of countries.
In 2006, the total income of countries with a per-capita income of $905 or less and 37 percent of the world’s population was $1.6 trillion, a mere 3.3 percent of world income. High-income countries, those with per-capita incomes of $11,115 or above and home to 15 percent of the world’s population, received 76 percent of world income.
Various shortcomings in the global economic and financial system and a series of human, material and other constraints on development in particular groups of countries combine to maintain a highly unequal distribution of world income. Globalization has not led to the convergence of incomes across groups of countries. Despite the high growth rates among the poorest countries, income levels continue to diverge.
Least developed countries, thirty-four of which are in Africa, are among the most disadvantaged among low-income nations. The continued existence of the category of 49 LDCs, is an important indicator of the presence of systemic imperfections and the need for concrete action. The persistent difficulties of the LDCs to overcome structural impediments to development serve as a spur to renewed action aimed at building systems for global solidarity, as exemplified in Millennium Development Goal Eight (MDG-8), the global partnership for development.
Since the LDC category was created in 1971, it has provided a basis for the world community to provide official development assistance and special treatment in trade for these countries, which otherwise would be further marginalized from the global development process.
Currently, the Committee for Development Policy uses three criteria to determine LDC status, all of which had to be satisfied for the General Assembly to add a country to the list. They are: (1) gross national income per capita under $745 (in 2006); (2) limited human development as evidenced by indicators of nutrition, health, education, and adult literacy; and, (3) signs of economic vulnerability as documented by economic smallness, remoteness, lack of economic diversification and acute exposure to economic and natural shocks. Additionally, the country’s population must not exceed seventy-five million. To qualify for graduation, a country must meet graduation thresholds for two of the three criteria in two consecutive triennial reviews by the Committee.
Climate change is increasing the vulnerability of all countries, but the least developed are also the least able to take action to adapt to climate change in the absence of additional aid flows. At its upcoming session, the Committee will take up specifically the question of considering climate change in assessing the heightened vulnerability of LDCs. The Committee also regularly reviews the economic and social performance of the LDCs.
The World Economic Situation and Prospects 2008 reports that the growth of the least developed countries was strong in 2006, at 8.1 percent, moderated in 2007 to 6.7 percent, and is expected to reach 6.9 percent in 2008. However, their growth is driven by increased demand for commodities, including oil, which will tend to abate when international conditions slow down, as currently anticipated. In other words, LDC growth may not be sustained and these countries still face severe structural obstacles to development, although they are following proactive and supportive national development policies.
This high average rate of growth for the group conceals a wide divergence in growth rates across the LDCs. Indeed, eight countries experienced declines in per capita GDP in 2006, seven did so in 2007 and two are expected to suffer decreases in 2008. The high average reflects the performance of some sixteen countries whose growth exceeded three percent in 2006. Eighteen countries grew at more than three percent in 2007 and an estimated eighteen countries may do so again in 2008.
Most LDCs have used the increased revenues and aid inflows well to expand public expenditure for the social sectors and infrastructure, in order to relieve supply side bottlenecks and achieve the internationally agreed development goals, including the MDGs. In Burkina Faso, Ethiopia and the United Republic of Tanzania, vibrant agricultural growth has also fueled expansions in construction, manufacturing and services. Mining has driven growth in Sierra Leone and oil production has done so in Angola.
Nevertheless, fiscal positions remain precarious in most LDCs, because government revenues depend heavily on aid flows and commodity prices. Prospects for the LDCs in the near-term may be compromised by severe weather shocks, serious security threats and political instability in several countries, including Chad, Haiti, Mali, Nepal, Niger and in the Darfur region of Sudan. A deceleration of growth in the rest of the world would cut sharply the demand for exports from LDCs.
Moreover, increased food prices may exacerbate pressures in their current account – not to mention compromise achievements made in the area of health and nutrition – as most LDCs are net food importers. The WESP 2008 also shows much higher inflation for LDCs than anywhere else. More effective global action is clearly needed to support the national efforts of the LDCs. The current high average growth rate of the LDCs, therefore, should not be seen as a reason to diminish aid efforts or other partnership mechanisms under MDG-8.
At the international level, the LDC category reflects a continuing effort by the world community to define vulnerable groups of countries as a prelude to concrete national and international development action, somewhat analogous to efforts at the regional and national levels to define and promote vulnerable zones and social groups. Although governance and redistributive mechanisms are weaker at the global level than at the national or regional level, the LDC category provides a concrete platform from which global solidarity mechanisms can be discussed and designed.
The existence of the category of LDCs, therefore, is politically significant both to countries within the category as well as to donors. Even for countries that are not formally LDCs, the criteria of low GDP per capita, economic vulnerability, human assets, population size can be beneficial as these support their case for receiving commensurate ODA and trade preferences, even though their situation is not as dire as that of the LDCs. Specific thresholds separate these countries from the LDCs in a formal sense, but the criteria should be seen to measure a continuum. Countries above the thresholds can dip down below them as their economic situation fluctuates. Declines below the three thresholds may lead to the formal classification of a country as an LDC, as has happened in many cases since 1971.
The graduation of two countries, Botswana in 1994 and Cape Verde in 2007, and the inclusion of two others Senegal in 2000 and Timor Leste in 2003 in the list has maintained the number of LDCs steady at around fifty and keeps the case for ODA strong. The Maldives and Samoa are to be graduated in 2011 and 2010.
MDG-8, which emerged from the Millennium Summit in 2000, calls for a global partnership for development through concrete measures in trade, debt and aid to benefit the poorest countries. In 1970, 22 of the world's richest countries pledged to spend 0.7% of their national income on aid. Thirty eight years later, only five countries – Denmark, Luxembourg, the Netherlands, Norway and Sweden – have reached that target.
Three United Nations conferences on the Least Developed Countries were held in 1981, 1990, and 2001. The third conference (Brussels, 14-20 May 2001) agreed on the Programme of Action for the Least Developed Countries for the Decade 2001-2010. Both the 2001 Brussels Plan of Action and the 2002 Monterrey Consensus called for ensuring that of the original 0.7 percent target, 0.15 to 0.20 percent of national income would be channelled to LDCs and 0.50 to 0.55 percent to other developing countries. This would represent a de facto target of some twenty-nine percent of ODA to LDCs.
Overall ODA from the DAC countries has increased from $57.8 billion in 2000 to $104.4 billion in 2006, which represented 0.31 percent of their combined GNI, well short of the 0.7 percent goal. According to DAC, total ODA disbursements to LDCs reached $29.4 billion in 2006, up from 12.7 in 1995-96. Several countries did reach the 0.15 percent goal for LDCs: Belgium, Denmark, Ireland, Luxembourg, the Netherlands, Norway, Sweden, and United Kingdom. Some 28 per of DAC ODA was allocated to LDCs in 2006, up from 22 percent in 1995-96.
A significant portion of the increased total ODA is for debt relief, emergency and humanitarian or is concentrated in strategic and geo-political allies of donor countries and not necessarily in the poorest countries. Much aid favours short-term and immediate social needs over long-term capacity development. It also tends to be shaped by donor interests, priorities and suppliers.
All in all, there is strong justification for the continuation of the category of LDCs and for international support to them through aid and trade, particularly in the context of promoting global solidarity through the partnership for development called for by MDG-8. The long-term development of the LDCs is highly dependent on the expansion of their trading opportunities. Many studies, however, now confirm that completion of the Doha trade round may not sufficiently benefit this particular group of countries because of certain trade preferences they would lose and their overall lack of trade capacity.
In this context, the WTO Aid for Trade initiative to help LDCs build supply-related capacity and trade infrastructure, and the Integrated Framework, a multi-agency initiative for trade capacity-building in LDCs, will require greater political support and funding so that these countries may derive greater benefit from the strong growth of world trade. Negotiations at the upcoming High-Level Event at Doha on Financing for Development will also need to seek additional ways to realize MDG-8 by increasing resource flows to all developing countries and to LDCs in particular.
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