Statement by Mr. Robert Piper, Resident & Humanitarian Coordinator, UN Nepal on the occasion of the launch of The Least Developed Countries Report 2008

17 Jul 2008

Statement by Mr. Robert Piper, Resident & Humanitarian Coordinator, UN Nepal on the occasion of the launch of The Least Developed Countries Report 2008 At Annapurna Hotel, Kathmandu, Nepal

17 July 2008

Statement by Mr. Robert Piper, Resident & Humanitarian Coordinator, UN Nepal on the occasion of  the launch of The Least Developed Countries Report 2008 At Annapurna Hotel, Kathmandu, Nepal
17th July 2008

Thank you for joining us today to help launch this year’s Least Developed Countries Report from the United Nations Conference on Trade and Development (UNCTAD). This year’s report on Growth, Poverty and the Terms of Development Partnership highlights a range of important policy issues for Government policy makers (in LDCs and in donor countries) many of which are highly relevant to the Nepal context.

UNCTAD’s Least developed Countries Reports provide an annual, comprehensive source of socio-economic analysis and data on the world’s most impoverished countries; the 50 ‘Least Developed’ countries so-classified on the basis of low income, weak human capital and economic vulnerability. Across these 50 countries, almost 80% of the population - or 580 million people - are living on less than US$ 2 per day. Because of this reality, the UN and its Member States have repeatedly committed themselves to prioritizing the needs of LDCs in our development efforts. To do so effectively requires an in-depth understanding of the development process at work in these countries, the medium and long-term trends underway and differentiated policy instruments that respond to the specific needs of different country contexts.

UNCTAD’s annual report is the only periodic publication that provides systematic coverage of LDCs as a group of countries. The Report is intended for a broad readership - by governments, policy makers, researchers and all of those involved with LDCs´ development policies. Dr. Shankar Sharma, former Vice Chair of the National Planning Commission has kindly agreed to make a presentation to you of the findings of the report, with a particular emphasis on its relevance to the Nepal context. Before he does so, let me frame our discussion with five of the key policy messages and analytical conclusions from this year’s analysis of the trends across 50 LDCs:

First, the last three years have been record-years in terms of economic growth rates in LDCs. In fact the highest rates in 30 years for this group of countries. The export performance of this group was particularly remarkable with the value of merchandise exports from LDCs rising by some 80% in nominal terms from 2004, reaching $99 billion in 2006. Three quarters of this total increase came from oilexporting LDCs (eg. Angola, Sudan, Chad) or mineral exporters (eg. DR Congo, Mozambique, Mauritania). Asian LDCs in contrast to the African LDCs continued to diversify away from commodities towards manufacturing and also enjoyed high growth rates.

Nepal continues to be an ‘outlyer’ in the Asian group however, falling in the lowgrowth category. On current trends, the report projects that Nepal is more than 50 years away from ‘graduating’ out of the LDC club. Surely this is a number none of us here can accept.

The second key message of the report is that the sustainability of this recent high LDC economic growth is highly questionable. The report argues that some of the conditions behind these recent growth rates – such as high commodity prices for oil and minerals, $27 billion in debt relief for 16 LDCs in 2006 and unprecedented aid flows – are not necessarily permanent fixtures. The report also argues that African LDCs in particular, with a growing dependence on commodities, are especially vulnerable to external fluctuations. The report calls for greater policy efforts to promote structural transformation of LDC economies in order to achieve an increase in manufacturing as a share of GDP and higher levels of domestic savings to reduce dependence on external finance. Commodity dependence has increased LDCs’ exposure to external shocks as illustrated by the recent food crisis. Hunger is chronic in many LDCs, where soaring food prices have hit the poorest hardest, who typically spend 70-80% of the income on food.

Third, these high rates of economic growth have generally been associated with a slow rate of poverty reduction and human development. The incidence of extreme poverty (people living on less than $1 day) has decreased from a peak of 44% in 1994 to 36% in 2005 but the proportion of people living on more than $1 a day but less than $2 a day has remained more or less constant at 40% of the population. Asian LDCs on the other hand, have registered much higher rates of poverty reduction than African LDCs. The type of growth countries experience has had a very different impact on levels of poverty. And high economic growth does not guarantee fast poverty reduction. Indeed, economic development of the type that emphasizes capital-intensive commodity producing sectors appears to increase income inequality. Whereas trade and output specialization in labourintensive manufacturing appears to have a much strong employment-generation and therefore poverty-reducing impact.

Without effective policy measures, with Asia’s highest levels of inequality, low levels of agricultural productivity, and a relatively weak manufacturing sector, Nepal is especially vulnerable to such patterns of growth that do not necessarily translate into poverty reduction.

Four - in light of these patterns of high growth with relatively low impact on reducing poverty – the report critiques current development models as insufficiently focused on developing productive capacities and productive employment. The report notes that most of the progress on the MDGs in LDCs has been made on targets that depend primarily on the level of public service provision such as universal primary school education. Progress towards targets that depend more on household incomes – such as reducing the incidence of extreme poverty and hunger - has been slowest. In the context of the food crisis, the report notes, for example, that labour productivity in LDC agriculture was higher 50 years ago than it is today, owing in part to low levels of investment, R&D, and the absence of physical and institutional infrastructure. Overall on the MDGs, the report concludes that broad-based success in achieving the Goals remains as yet, elusive in the LDCs and will likely remain so unless the achievement of the MDGs is placed in an economic development framework and greater effort is focussed on generating productive jobs and livelihoods, rather than just increasing the provision of public services.

Finally, given the high levels of aid dependence on the part of LDCs generally, the Report advocates for greater effort to reform the current aid system which in the authors’ view continue to undermine country ownership and leadership in the design and implementation of national development strategies. Against a backdrop of important international undertakings on aid effectiveness, such as the 2005 Paris Declaration (which will be reviewed in Ghana later this year), the report calls for improved alignment and harmonization of aid with Government plans, budgets and processes. The report points to the success of efforts measures by the Governments of Mozambique and Tanzania for example, to adopt aid management policies. The Government of Nepal has also recently started preparing its own aid management policy.

The key overall message in the Report is that the trends outlined above are ulimately related to policy choices, in particular the development model which has been pursued in most LDCs. The current model has sought to deepen the integration of the LDCs into the world economy, increase the efficiency of resource allocation and free markets. Global integration is vital for development and poverty reduction in LDCs. However, without the development of productive capacities and associated employment, external integration does not lead to inclusive development. Similarly, the Report shows that one principal lesson of past experience in progress towards achieving the MDGs is the need for a broad-based approach which encompasses pro-poor growth, creation of decent
work, comprehensive programmes of human development, improved physical infrastructure and developing productive capacities.

The LDC club is one club Nepal really doesn’t want to be a member of. We need a much greater sense of urgency amongst all those responsible to get Nepal out of it. Only effective economic policies that create employment, increase agricultural productivity and reduce dependence on commodities can ensure that growth – when it comes - will translate into poverty reduction. One third of Nepal’s population continue to live in some of the worst conditions to be found on the planet.

Thank you.