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Emerging Challenges for LDCs UN-OHRLLS Brainstorming meeting in preparation for UNLDC IV New York, 14 – 16 July 2010 Presentation by Dr. Frannie A. LEAUTIER Executive Secretary, ACBF Distribution of LDCs: Mainly an African Problem Today Majority of LDCs are on the African continent, particularly Sub-Saharan Africa: Income levels remain low, despite impressive economic growth Progress in meeting the MDGs, but remaining weaknesses in nutrition, health, education and adult literacy Economic vulnerabilities still present: agricultural production, pattern of exports, size of economies share of population impacted by shocks (natural disasters, food prices, fuel shocks, financial crises) New vulnerabilities emerging: Global: climate change; contagion in economic and financial systems; technological transformation; communicable diseases Regional: demographic; arable land; water and energy shortages; challenges of economic integration; logistics and infrastructure issues Country: implementation for service delivery; governance challenges; ethnic, religious, political violence 2 Impressive Economic Transformation Before Crisis: Real GDP Growth (%) 2005 2006 2007 2008 2009 2010 Capacities to project short-term economic growth, manage indebtedness in (estimated) (projections) the face of financial crises, obtain market access under changing consumer behavior, times of4.9 sharp retrenchment Africa secure external 5.9 financing 5.9 in 6.0 1.3 4.3 Central Africa 5.0 2.6 5.6 4.5 0.9 3.8 East Africa 7.4 6.8 7.5 6.4 3.9 5.3 North Africa 6.0 5.9 5.3 4.7 3.5 4.1 Southern Africa 6.0 6.6 6.7 4.6 -1.6 4.1 West Africa 5.1 5.3 5.9 5.3 2.4 4.7 Oil-exporters 6.8 6.0 6.9 5.6 2.5 4.9 Oil-importers 4.9 5.9 5.1 4.2 0.5 3.6 Source: UNECA (2010). Economic Report on Africa. Addis Ababa: UNECA. 3 Emerging Challenges for LDCs • Post-financial crisis economic models • Demographic shifts and their implications • Balancing effects of more open borders (trade, remittances) • New challenges of urbanization and global connectivity • Emerging and re-emerging disease patterns in humans and animals • Scarcity of water, energy, and land • Climate change and pressure on natural resources • Geographical and temporal patterns of economic growth • Transforming agriculture and food security issues • Technological and business model shocks • Challenges of integration (labour and capital markets, logistics and infrastructure) 4 Pre and Post Crisis Economic Growth Recovery in Africa 2008-2010 Capacities: to decide on R&D, industrial and competition policies in light of the financial crisis and growing competition from BRICs; maintain good fiscal governance and accountability for and get consensus on policy adopted; protect consumers in light of growing complexity of financial and business decisions; tap into the potential of nascent SMEs; regulate financial and commercial markets; effectively choose among integration options and their governance implications; shape investment policy to ensure allocative efficiency; strengthen macroeconomic management and redefine the role of the central banks Source: Calculated using data from UNECA, 2010. Demographics: What do the patterns of growth imply? Capacities: to manage demographic transitions (employment creation, pension management); tap into creative potential of agglomerations and manage twin challenges of access to services and food security Source: United Nations Can LDCs in Africa balance the effects of trade and migration to their advantage (2005-2008)? Angola Benin Burundi Congo, R Djibouti Ethiopia Gambia Ghana Guinea Bissau Kenya Lesotho Liberia Mali Morocco Niger Nigeria Rwanda Nigeria Sao Tome & Princi Sierra Leone South Africa Swaziland Tanzania Togo Uganda Zambia Growing remittances (current US$) Cameroon Cape Verde Cote d’Ivoire Gabon Guinea Mozambique Senegal Sudan Declining exports Chad Equatorial Guinea Eritrea Mauritania Mauritius Somalia Growing exports (%growth) Burkina Faso Central African Republic Comoros Congo, DRC Madagascar Malawi Namibia Zimbabwe Declining remittances Source: Ranked using data for 2000 and 2005 from the World Development Indicators Global connectivity of the leading 123 world cities measured in terms of networks of accountancy, advertising, banking/finance, insurance, law, and management consultancy firms. Only six of the global cities are African. Capacities: to manage global integration during economic slowdown; to deal with urbanization stresses on land use, access to services, food prices and riots, youth unemployment, urban-rural linkages; for effective connectivity of leading and lagging areas through labor migration policies and infrastructure investments; for containing contagion in crime, violence, security issues; to manage effects of increased frequency/severity of disasters Source: Taylor (2003) Successfully tackling current communicable diseases can build readiness for handling emerging diseases in the future Capacities: set up “smart surveillance” measures in the hotspots indentified; generate dynamic responses to communicable diseases that are based on effective collection and monitoring of outcomes with replication of solutions worked out from in-country trials Dynamics of change impacting LDCs: Water is at the nexus of many risks Build secondary networks Chronic diseases Identify & remove critical path Science & technology Pandemic Hedge against shocks Control for natural or induced risks Balance between local & global actions Agricultural Productivity & food prices Infectious diseases Water Extreme weather events Infrastructure provision Capacities: to develop regional strategy and policies for water Urbanization Biodiversity & basin management and managing migration the suite of risks related to water shortages Source: Adapted from World Economic Forum 2009 Africa: Electrification Rate in 2005 (%) 50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Oil Exporting Middle Income Countries Countries Low Income Countries Fragile States •Capacities: Energy trade: Limited atsupport present, no regional to develop and regional energymarkets, markets,no put in place and interconnectivity maintain interconnected transmission grids, and improve the level of of current network operations; investment innovative alternatives •efficiency Inefficiency: In operations and maintenance of in existing systems for energy generation and sales; enhancing capabilities for cross-country •conflict Innovation: Little innovation on alternatives with negative pressure on prevention, resolution and management to ensure existing resources forest desertification reach the and demand centres across the continent Source: Calculated using data from UNDP 2007/2008 and OECD classification Dynamics of change impacting LDCs: Agricultural dependency and arable land. Top 10 Countries over 5 Years Country Ag. Value Rank in Availability: in 2003 2003 Arable land makes(%GDP) up 11% of total global Liberia land area (1.4 billion 1 68 hectares globally) Guinea 2 62 has the EuropeBissau and Central Asia highest arable land per capita (0.57 ha Central African 3 56 per person) Republic Arable land per capita has declined by 19% inDR low income countries over Congo, 4 the 51 past two decades Lao PDR Technology: 49 5 Sierra Leone 6 47 Fertilizer in Tanzania use per hectare 7 45 is highest East Asia and Pacific and lowest SubEthiopia Africa (by a factor 8 Saharan 44 of 17) During the past 30 years, Africa has Rwanda 41 major9 experienced at least one drought each decade 41 Togo 10 Country Ag. Value in 2008 (%GDP) Rank in 2008 Liberia 61 1 Guinea Bissau 56 2 Central African 3 53 Republic Capacities: agricultural productivity, Congo, DR in drought resistant 5 46 innovation technologies, managing Lao PDR 10 34food security, regional food markets and agricultural Sierra 4 50 supplyLeone chains Tanzania 6 45 Ethiopia 45 7 Rwanda 37 9 Togo 44 8 Source: World Development Indicators, World Atlas Dynamics of change impacting LDCs dependent on Agriculture: The Case of Ethiopia and rainfall patterns Ethiopia – a relatively water rich country, but with GDP still tied to yearly rainfall variations 25 20 15 10 5 0 % 0 -40 year 2000 -10 -15 rainfall variability -60 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 -20 1982 -5 GDP growth -20 -25 Ag GDP growth -80 Source: A Country Water Resources Assistance Strategy for Ethiopia (Sadoff) Capacities: for multi-Sectoral policies that recognize the complex interconnection between climate change, environment and development -30 LDCs can leverage a Portfolio of Assets: natural, produced, human and social capital Per Capita Wealth Share of Wealth by Category (US$1000) (%) 450 80 400 60 350 40 300 250 20 200 0 OECD 150 100 50 0 OECD Low Income SSA Low Income SSA (no oil) Natural Capital Produced Capital Human&Social Capital Capacities to balance development of human, social and produced assets while consuming and preserving natural assets Source: World Bank (2006) Where is the Wealth of Nations Dynamics of change impacting LDCs: Geographical pattern of projected real GDP growth rates for the year 2010 • • • • • • • • • • • • 5 Fastest growth: Mongolia 12.8% China 9.5% India 8.1% Mozambique 7.8% Ethiopia 7.7% Slowest growth: Germany 1.2% Italy 1.3% Spain 1.7% Japan 1.7% Congo, R 1.9% Capacities to sustain significant growth patterns over time and speed growth in other sub-regions, while ensuring the polity owns the growth agenda Transforming Agriculture: Top 20 Producing Countries of Cotton Lint in 2007 by Value in $ 1000 Rank Country Value ($1000) Rank Country Value ($1000) 1 China 11,317,680 11 Australia 406,747 2 India 6,531,712 12 Egypt 335,492 3 USA 6,207,813 13 Nigeria 228,609 4 Pakistan 2,942,239 14 Burkina Faso 218,367 5 Brazil 2,013,801 15 Argentina 215,249 6 Uzbekistan 1,677,462 16 Mexico 215,249 7 Turkey 1,425,101 17 Tajikistan 206,342 8 Syria 541,835 18 Kazakhstan 163,992 9 Turkmenistan 460,188 19 Benin 161,748 10 Greece 445,344 20 Mozambique 139,884 Source: FAOSTAT, 2010. Technological and Business Model Shocks: Global Brands-Top 20 Wool Exporters 1994 to 2004 by Value in 2004 (US$ 000) 1994 Australia New Zealand Argentina South Africa Kazakhstan Russian Federation Uruguay France United Kingdom Ireland Kyrgyzstan Italy Mongolia Germany Spain Chile Brazil Lesotho China Netherlands Wool Tops Wool Scoured Wool Greasy 2004 Australia New Zealand South Africa Germany Argentina United Kingdom France United States of America Italy Uruguay Ireland Hungary Romania Belgium Spain Norway Brazil Chile Peru Czech Republic 1994 2004 1994 2004 Australia New Zealand United Kingdom Argentina France Russian Federation South Africa Germany Uruguay Malaysia Spain Ireland Kazakhstan Pakistan Italy Azerbaijan Netherlands Romania United States of America Greece New Zealand Australia United Kingdom China Germany Turkey South Africa Belgium France Argentina Spain Uruguay Italy Mongolia Saudi Arabia Russian Federation Portugal United States of America Romania Syrian Arab Republic France Germany Australia Uruguay United Kingdom South Africa Argentina Thailand Malaysia United States of America Italy Brazil China Spain Czech Republic Netherlands Portugal Republic of Korea Iran (Islamic Republic of) Bulgaria Germany Italy France Australia Czech Republic Argentina China South Africa Thailand Spain United Kingdom Bulgaria India United States of America Chile Brazil Hungary Austria Malaysia Republic of Korea Source: FAO, Key Statistics of Food and Agricultural Trade, 2007 Capacities to transform primary products, manage complex supply chains, and negotiate appropriate trade agreements Challenges of Economic Integration • Improve trade within borders (rural-urban) and outside borders by: – Mitigating for geographic characteristics: country size; proximity to other countries; common borders and landlockedness – Rethinking trade policies in place: domestic (connectivity through transport and communication investments; competition and reliance on markets) and international (trading agreements, barriers and tariffs) – Adjusting for income levels: richer countries to interact more with other countries (regional trade) • Other factors for consideration: – Import and export policy reforms – Functioning of the labour markets 18 Key elements of the logistics revolution: access, inventory, supply chain logistics, risk management ACCESS INVENTORY Opportunity for LDC economies: •Many LDCs are still tackling first generation infrastructure, transport and trade facilitation constraints •Few firms in LDCs have internalized the issue of supply chain management •There is room for LDCs to learn from countries in Asia (Malaysia) and Africa (South Africa) SUPPLY CHAIN LOGISTICS RISK MANAGEMENT Source: Images from Google Images Conflict and Security Challenges Poverty & access to services: Threat from climate change: • • Droughts, desertification, land degradation, depletion of forests and fisheries • Threat to coastal populations, increase in forced migration • Speed and scope of addressing chronic poverty and broadening access to basic needs Horizontal inequalities (ethnic, religious, group, clan, race, geographical, gender distinctions) Challenge from weak states: Economic/Political Competition: • Low ability to generate jobs, poor • Growing insurgency distribution of natural resources • Networks of crime, drugs, • Weak inclusion and poor representation illicit trade, human trafficking 20 Three Potential Scenarios for Africa and LDCs in other Regions Continental Ownership and Leadership Sub-Regional Mosaic Externally Driven Nation States Scenario 1: Continental Leadership and Ownership (Optimistic: high on inspiration, aspiration, and coordinated action ) LDCs Leadership & Ideas International Parity Domestic Results •Polity owns the growth •LDC standards of •LDCs resolve conflicts agenda governance internationally and prevent violence •LDC countries lead accepted and crime innovation •LDC countries contribute •Service solutions •Homegrown democracies to international (health, gender, water, flourish architecture (trade, finance, education) are effective •Leadership & representation environment, migration, in international institutions and debates debt) Scenario 2: Sub-Regional Mosaic (Realistic: focused on performance and results, managing interdependency, mastering strategic planning) Sub-Regional Prominence •Models of success in Differentiated Performance •Some RECs with Visible but uneven Outcomes •Isolated success in service some RECs but limited respectable performance, provision (heath, education, continental learning but others not gender, water) •Variable quality of •Ad hoc cooperation driven •External aid driven by democratic and by bilateral strategies external security needs and economic governance •Few prominent countries donor-based evaluations of driving the external agenda capacity and need Scenario 3: Externally Driven Nation States (Gloomy, with attention to adaptability and resilience, managing uncertainty from conflict, climate, global events) Reacting to external threats Weak capacity to manage Country Conditionality •New technologies and •Weak capacity to handle ethnic, •Service provision business models threaten religious, and political violence variable with heavy domestic production •Weak country institutions lack dependence on •Governance standards capacity to react to international international civil externally set imperatives society •Under-representation in •Access to globalization •Selective aid provision international fora and determined by bilateral and multi- with specific conditions debates lateral organizations Scenarios for Africa and LDCs in other Regions and Capacity Implications Continental Ownership and Leadership •Capacity to manage across sectors, geographies & generations •Capacity to engage civil society, private sector, and international community Sub-Regional Mosaic •Capacity to decide on investment priorities •Capacity to observe, collect and analyze facts and data Externally Driven Nation States •Capacity to negotiate and manage conflict •Capacity to transform agriculture Three key aspects of critical capacities regardless of scenario • Abilities to formulate, implement, analyze, evaluate and revise the appropriate policies • Skills to observe, collect, analyze and evaluate outcomes, trends, and patterns in a variety of macroeconomic, sectoral and cross-sectoral issues, including the requisite leadership skills to move perspectives, transform societies, unite diverse perspectives, or oversee implementation • Tools to know where you are, track where you are going, tap into opportunities, and handle the challenges at hand Financing Capacity Development and the Patterns of ODA Source: MDG Report 2010 - UN 27 Implications for ACBF • • • • • Philosophy: develop a philosophy and approach that is suitable to the contexts and realities of different countries on the continent, drawing on local knowledge and practical skills, and embedding work programs in country priorities Entry Points: select areas for strategic long-term support to particular countries, sub-regions, or group of institutions in partnership with critical institutions to build sustainable capacity—for example supreme audit institutions, procurement agencies, policy units, data collection and analysis agencies, leadership development, and entrepreneurship skills building Partnerships: give priority to finding partnerships in tackling policy issues that can help evolve from one scenario to the next—policies on agriculture, climate change, investment and trade---and give priority to partnerships with institutions that can stretch geographies—(WB, IMF, IMF) (AfDB, AU, ECA, NEPAD) (bilateral donors) (private sector) Piloting: put in place a more experimental “test and learn” approach to capacity building, drawing out lessons from experience horizontally across sectors and themes and vertically across levels of engagement Scaling-up: speed up success by supporting regional learning institutions, policy institutes, regional NGOs, private sector associations 28