11 March 2011
General Assembly
GA/11053

Department of Public Information • News and Media Division • New York

Sixty-fifth General Assembly

Informal Thematic Debate

AM & PM Meetings


Secretary-General Calls for ‘Concrete Plan’ to Improve Plight of Most Vulnerable,


as General Assembly Holds Debate on Least Developed Countries

 


General Assembly President Cautions against Reliance

On Commodities as Ethiopia’s Deputy Prime Minister Gives Keynote Address


United Nations Secretary-General Ban Ki-Moon urged the international community today to hammer out a concrete plan during the Fourth United Nations Conference on Least Developed Countries to improve the plight of the world’s most vulnerable people and meet the 2015 deadline for realizing the Millennium Development Goals.


“We need a programme of action for the next decade that emphasizes sustained and inclusive economic growth, improved productive capacity and a structural transformation that will generate jobs, especially for the vast and growing population of young people,” he said, adding that it must be results-oriented in order to hold all stakeholders to account. 


That action programme must also help the world’s 48 least developed countries build resilience against internal and external shocks while meeting new and emerging challenges, he said.  Secretary-General Ban was speaking during the General Assembly’s “Informal thematic debate on investment in and financing of productive capacities in least developed countries”, as part of the preparations for the upcoming Conference, to be held in Istanbul, Turkey, from 9 to 13 May 2011.


Despite strong economic growths rates in recent years, three quarters of the men, women and children in least developed countries lived on less than $2 a day, causing great harm to their health, well-being and development, he said.  To make matters worse, recent global food price hikes threatened to create a new food crisis in those nations, where the poorest people often spent three quarters of their income on food.  Only through greater investment in sustainable agriculture — a long-neglected area — could those nations ensure both food security and competitiveness on the international markets.


He said those countries also needed more and better targeted support from the outside, be it official development assistance (ODA), private sector funds or technology, in order to build their manufacturing and services sectors, and to mitigate the impact of climate change — important tools for promoting economic diversification, achieving development objectives and enhancing productive capacity.  “We need to connect the dots between poverty, climate change, energy, food and water,” he said, adding that it was crucial to implement the development objectives of the Doha round of trade negotiations in order to enable least developed countries to trade fairly on global markets — an area in which follow-through was sorely lacking.


General Assembly President Joseph Deiss ( Switzerland) echoed those concerns, saying that all too often, economic success in least developed countries was fragile, with growth confined to extractive activities and commodities.  Those sectors created few jobs, were isolated from the rest of the economy and exposed to the vagaries of the global economic landscape, he noted, emphasizing that productive capacity-building and economic diversification were therefore vital.


Delivering the keynote address, Hailemariam Desalegn, Ethiopia’s Deputy Prime Minister and Minister for Foreign Affairs, said his country’s experience confirmed that a reasonably high level of sustained investment and financing could effectively use productive capacities to spur growth and development.  Through home-grown political reforms, rather than donor-driven priorities, Ethiopia had created an environment conducive to productive investment.  It had employed market-based regulatory policy to form a broad-based domestic private sector, with tax breaks and other incentives to foster development, while investing aggressively in roads, power, telecommunications and other infrastructure, as well as in education, training and primary health care in order to build up human capital.


As a result, Ethiopia had posted one of the world’s fastest growth rates — more than 11 per cent annually — for the past seven years after decades of decline, he said.  The remarkable feature was that “pro-poor” growth was not driven by booms in primary commodities, but rather by agricultural production, he pointed out, adding that in order to continue that success, the Government had recently launched a five-year plan to further transform the economy through more diversification, including support to the industrial sector as well as mainly small and medium-sized enterprises, while still focusing on agriculture.


During the morning panel discussion, on “National Development Strategies to Enhance Productive Capacities”, Bounthavy Sisouphanthong, Vice Minister for Planning and Investment of the Lao People’s Democratic Republic, discussed his Government’s mix of regulatory frameworks, strategic partnerships and strong political commitment to spurring economic growth and curbing poverty, with a focus on high export growth and rural development.


Erik S. Reinert, Chairman of Norway’s Other Canon Foundation, said least developed countries were locked into a vicious cycle of low productive capacity and lack of demand, but capital and trade would not solve the problem, because there were few profitable investments or products in the countries concerned.  Their route out of poverty and into affluence would not go through comparative advantages, but through emulation of the economic policies of wealthy industrialized countries, he said.


During the afternoon panel, “Reorienting International Support Mechanisms towards Enhancing Least Developed Countries’ Competitive Advantage”, James Zhan, Director of Investment and Enterprise at the United Nations Conference on Trade and Development (UNCTAD), proposed “Aid for Productive Capacity” as a helpful new programme to build on the “Aid for Trade” scheme.  It could focus on human resources development, technology transfer, regulatory frameworks and infrastructure development.  He also called for a regional approach to productive capacity-building.


Calestous Juma, of Harvard University’s John F. Kennedy School of Government, said least developed countries should focus on aid, science and technology to drive their economies, particularly as technology increasingly became less expensive, making it more feasible for African countries, for example, to develop vital rural infrastructure.


Axel van Trotsenburg, Vice-President of the World Bank, said there had generally been an increased focus on least developed countries in the institution’s financing of country priorities, but innovative approaches were needed to improve competitiveness.  In that vein, the Bank was introducing risk-sharing and credit guarantees for small enterprises, agricultural risk insurance facilities, and catastrophic risk insurance, although there was a need to pursue such efforts further.


In closing remarks, Cheick Sidi Diarra, Under-Secretary-General and High Representative for the Least Developed Countries, said the need to scale up ODA for productive capacity would remain a recurring theme, particularly as delegates devised the action programme for least developed countries to cover the next decade.  While substantial, ODA had been insufficient and had largely neglected the productive sectors, he said, calling for renewed ODA, better tailored to countries’ differing circumstances.


During the meeting, participants expressed their sympathy and condolences to the people of Japan, especially those who had lost family and friends in today’s earthquake and subsequent tsunamis.


Also participating in the opening session were the representatives of Turkey and Finland, the first in his capacity as representative of the host country for the Istanbul Conference, and the second as Chair of the Preparatory Committee.


In the morning panel, moderated by Mr. Deiss, were Gyan Chandra Acharya, Permanent Representative of Nepal and Chair of the Group of Least Developed Countries, and Jyrki Koskelo, Vice President of the International Finance Corporation.


Also participating were representatives of Argentina (on behalf of the “Group of 77” developing countries and China), Switzerland, Indonesia, Israel, Japan, Republic of Korea, Morocco, Burkina Faso, Brazil and Norway.


A representative of the European Union delegation also took part.


Panellists in the afternoon, moderated by Hugo Beteta, Director of the Economic Commission for Latin America and the Caribbean’s Subregional Headquarters in Mexico City, were Mr. Juma and Mehmet Arda of Galatasaray University in Istanbul, and Turkey’s substantive coordinator for the Fourth United Nations Conference on Least Developed Countries.


Also participating were representatives from India and Cuba.


A representative of the European Union also spoke.


Also participating were representatives of the Non-governmental Organizations Federation of Nepal and the Jubilee USA Network.


Background


The General Assembly held an informal thematic debate today on “Investment in and financing of productive capacities in least developed countries” in preparation for the Fourth United Nations Conference on Least Developed Countries, to be held in Istanbul, Turkey, from 9 to 13 May 2011.


Opening Remarks


JOSEPH DEISS ( Switzerland), President of the General Assembly, said that in order to speed up progress towards realizing the Millennium Development Goals, it was essential that least developed countries must have framework conditions that were conducive to investment and job creation.  Facing structural challenges and severely impacted by the recent economic, food and energy crises, least developed countries, which had suffered disproportionately from the effects of climate change, were at risk of being further harmed by the current spike in oil prices.


He said that despite such constraints, some least developed countries had enjoyed strong growth rates before the crises, even surpassing the 7 per cent target set by the Brussels Programme of Action.  But all too often such success was fragile, with growth confined to extractive activities and commodities, sectors that created few jobs, were isolated from the rest of the economy and exposed to the vagaries of the global economic landscape.  Productive capacity-building and economic diversification were therefore vital, he emphasized.


Inviting participants to consider today how that could be achieved through national strategies and international assistance, he said it was clear that it would be necessary to intensify the strengthening of the rule of law, respect for human rights as well as democratic institutions and measures to combat corruption.  Guarantees of property rights and sound market structures were also needed to stimulate investment, mobilize domestic resources, boost productive capacities and generate employment, he said, adding that those concerns would be the subject of today’s first panel discussion.


The second panel would focus on the international environment that must support those efforts, he continued.  Official development assistance (ODA) should support national strategies, with productive infrastructure, agriculture, industry and services such as tourism accorded particular attention.  In the interest of policy coherence for development, the international framework for trade, investment and technology transfer must also contribute to the effort, he said, emphasizing that it was essential to conclude the Doha round of World Trade Organization negotiations, extend preferences for unrestricted, quota-free access for all products from the least developed countries, and adopt investment agreements.


BAN KI-MOON, Secretary-General of the United Nations, said the world had been shocked and saddened by the images coming from Japan.  Expressing his condolences to those who had lost family and friends in the earthquake and subsequent tsunamis, he said Japan had long been one of the most generous benefactors of the United Nations.  The Organization stood by the Japanese people, ready to help in every way possible.


Turning to the debate, he recalled that there had been 25 least developed countries in 1971 and now there were 48.  Three quarters of their populations lived on less than $2 a day, and more than half on less than $1.  But while the challenges to their health, well-being and development were profound, the situation was not as bleak as it sounded, he said, pointing out that poverty had declined over the past two decades.  In recent years, least developed countries had experienced high rates of growth in gross domestic product (GDP), driven largely by global expansion.  The upcoming Fourth United Nations Conference on the Least Developed Countries was an important opportunity to explore how to consolidate and accelerate that progress, he said.


Noting that many least developed economies were heavily dependent on subsistence agriculture and extractive mining, he said few had managed to diversify or add value to their products before export, making them highly vulnerable to swings in commodity prices and other upheavals.  Economic diversification had been on the least developed countries’ agenda since the 1982 adoption of the Paris Plan of Action, he said.  Trading partners had presented some measures to facilitate market access, while donors had provided substantial ODA.  Resources for Aid for Trade had increased to almost $40 billion a year, he said, adding, however, that least developed countries received only a quarter of that.


“Least developed countries need more support and it needs to be more effectively targeted,” he continued.  In addition to relying on ODA to achieve their development objectives, they depended on domestic resource mobilization, South-South cooperation and the private sector, he said, emphasizing that a dynamic, thriving private sector was necessary for enhanced productive capacity.  The Private Sector Task Force of the Conference on Least Developed Countries was a welcome platform for businesses to demonstrate leadership and build the markets of the future, he said.  To achieve that, they would need the support of least developed countries in order to create the necessary enabling environment.


He went on to say that the donor community could support that through much-needed aid, foreign direct investment (FDI) and technical assistance.  To generate growth and strengthen their economic resilience, least developed countries needed more investment to improve their capacity in agriculture in particular, as well as in manufacturing, services and other productive sectors.  For too long, agricultural investment had been ignored, while the cost of importing food into least developed countries had tripled over the past decade.  Global food prices had reached record levels, and least developed countries faced a real prospect of a new food crisis, he warned, pointing out that millions of people had already been pushed into poverty by the latest food price rises.


“I am especially concerned about the poorest households that often spend three quarters of their income on food,” he continued.  “They have no buffer.  When prices go up, they go hungry.  Women and children are the worst hit.”  He said his High-level Task Force was coordinating United Nations system responses to meet immediate needs, build up local food markets and stimulate increased production.  More investment was needed in sustainable agriculture, especially in smallholder farming and the requisite infrastructure, he said.  That was important both for food security and competitiveness in international markets.


It required the transfer of appropriate technologies and investment in climate change adaptation and mitigation as well as in the ecosystem services underpinning agriculture, he said, adding that his Panel on Global Sustainability was looking at all those areas in preparation for the 2012 United Nations Conference on Sustainable Development, to be held in Rio de Janeiro.  “We need to connect the dots between poverty, climate change, energy, food and water,” he emphasized, adding:  “We also need to deliver on the development objectives of the Doha round of trade negotiations.”


He went on to stress that while least developed countries needed to grow food and other commodities, manufacture products and develop other services, they must also be able to trade fairly in the global marketplace.  The international community had failed to follow through on global commitments enshrined in the Monterrey Consensus and the Doha Declaration on Financing for Development.  “I call again for a successful conclusion to the Doha Development Round of multilateral trade negotiations,” he said.


“Aid for Trade is vital, but will do little good if global markets are blocked or intrinsically unfair,” he continued.  “A true partnership for development means a combination of investment, trade, aid, debt relief and global economic governance reforms.  We must make the most of the Istanbul Conference to respond to the plight of the world’s most vulnerable people and meet the Millennium Development Goals deadline,” he said.  “We need a programme of action for the next decade that emphasizes sustained and inclusive economic growth, improved productive capacity and a structural transformation that will generate jobs, especially for the vast and growing population of young people.”


That programme must help least developed countries build resilience to internal and external shocks as well as meet new and emerging challenges, he said.  Most importantly, it must be concrete and results-oriented so that all stakeholders could be held mutually accountable.  The United Nations system was making good progress on developing an integrated implementation framework to help the international community fulfil its commitments, he said.  “I count on all other partners — least developed countries, their development partners and the multilateral system — to uphold their end of the bargain,” he said.


Keynote Address


HAILEMARIAM DESALEGN, Deputy-Prime Minister and Minister for Foreign Affairs of Ethiopia, said his country’s experience confirmed that a reasonably high level of sustained investment and financing was central to the effective use of productive capacities to accelerate growth and development.  Democratization based on a federal, decentralized arrangement opened possibilities for Ethiopia’s different nationalities to exercise self-rule and be empowered.  The radical political reforms had been internally generated rather than donor-driven priorities, which was critical to the creation of an environment conducive to productive investment, he said.


On the economic front, the country had undertaken a radical shift from the command system of economic management pursued for nearly two decades, which had stifled the private sector, to a market-oriented one, he said.  An appropriate regulatory policy and regulatory environment had been created for a broad-based domestic private sector, with tax incentives and other motivations to promote development.  In concert, Ethiopia had invested aggressively in roads, power, telecommunications and other infrastructure, as well as in education, training and primary health care in order to build up human capital.  It was also critical to ensure macroeconomic stability, particularly in the face of inflationary pressures and foreign exchange constraints following the recent financial crisis, he said.  The end result was that the domestic private sector, though still small, had begun to play an important role in trade, real estate, banking and insurance, tourism and construction.


The Government also had an indispensable role, particularly in delivering social and economic infrastructure, supporting smallholder farms and small urban enterprises, and developing a vibrant domestic financial sector.  Only transparent, selective and well-designed Government intervention was promoted to stave off bad outcomes and ensure that Government activity did not displace private investment or distort the market, he said.  As a result of implementing home-grown development strategies after decades of decline, Ethiopia had been registering one of the world’s fastest growth rates for the past seven years, growing on average by more than 11 per cent per annum between 2004 and 2010, in a broad-based manner not driven by booms in primary commodities.  In fact, agricultural production had been the major source of growth, he pointed out, adding that it had been “largely pro-poor growth”.


To continue that success, he continued, the Government had recently launched a five-year plan aimed at further transforming the economy through further diversification, including support to the industrial sector and mainly small and medium enterprise, while still focusing on agriculture.  An important part of the plan was increasing the financing of development programmes from domestic sources, he said, recalling that in 2010, domestic revenue had accounted for more than 81 per cent of total revenues.  That did not diminish the importance of development grants, but indicated rather their effective use, he stressed.  In addition, strict public-investment priorities had been pursued in granting allocations to agriculture, education, health, water supply and infrastructure, particularly in the areas of transportation, power and rural electrification.


For the past five years, Ethiopia had been spending more than two thirds of its budget on pro-poor sectors, with nearly 55 per cent spent on capital investment to enhance productive capacities, he said.  The Government had been mobilizing resources for those investments without undermining the long-term sustainability of its fiscal systems, he said, noting that the 2010 deficit had been restricted to 1.3 per cent of gross domestic product.  That stability further encourages private investment, he added.  Yet, given the developmental challenges facing Ethiopia, the domestic resources mobilized remained small, he said, pointing out that the share of tax revenue in GDP was only about 11 per cent, low even among developing countries.


The economy was also constrained by foreign exchange shortages, he said, adding that in order to overcome that challenge, the Government was putting a strategy in place to promote faster, more sustained and broad-based growth to generate income for taxation and savings.  Tax reform, awareness-raising and policies to encourage domestic savings through the modernization of the financial and banking systems were also important parts of the equation, he said, adding that export diversification and expansion were also critical.


Foreign direct investment could also benefit Ethiopia by further enhancing its ability to finance efforts to sustain growth and diversify further, he said, emphasizing also that his country was “absolutely” committed to the transparent use of whatever ODA it received and in such a way as to strengthen its productive capacities further.  Expressing gratitude for that assistance, he emphasized, however, that it was still low in per capita terms, when compared with many other developing countries, and had often been unpredictable, sometimes undermining bold development initiatives.  “Things have to change in this regard, and this is amply justified by our track record and our performance,” he said.


Statements


GYAN CHANDRA ACHARYA ( Nepal), Chair of the Group of Least Developed Countries, said they should be the principal stakeholders in the Istanbul Conference, noting that one of its priorities should be to help more than half of them graduate from least-developed status.  While different in many ways, all least developed countries faced structural constraints caused by high levels of poverty, a limited economic base, high unemployment, low economic development and low human development indicators, as well as reliance on one or two exports.  In addition, they were all extremely vulnerable to external shocks, he said.  “Sector intervention or sectoral progress will not make a dent in poverty.”  That was why more than half the people in least developed countries still lived on less than $1 a day and only three of them had graduated in the last decade.


He said that spoke volumes about the problems those countries faced.  “We must not just take the issue in a light manner,” he emphasized, declaring:  “Business as usual is not a solution.”  Despite some progress, economic growth had been uneven, insufficient or unstable, and the global economic crisis had reversed many of the gains made.  Least developed countries needed rapid and sustainable progress moving forward, he said, describing that as a “moral imperative” necessary for global peace and security.  “Least developed countries are looking forward to a focused, ambitious, forward-looking and results-oriented outcome from the Istanbul Conference,” he added.  “This is possible and this is doable.”


Stressing the need to build productive capacity, infrastructure and energy, he said human and social development could not occur without enhanced productive capacity and sustainable economic growth.  “At the end of the day, healthy, educated people must have some work to do,” he noted.  The global economic crisis had affected all countries, but least developed countries had been disproportionately undermined.  While domestic resource mobilization was critical to development, international support was equally critical to lift the status of least developed countries, he said, calling for strong and coherent policies.


While ODA was critical, better market access for least developed countries was also important, he said, noting that market access and supply-side capacity must go together.  Priority must be given to helping least developed countries build trade infrastructure, he said, adding that finding ways to leverage investment was equally important.  He called for a strong commitment on debt sustainability, noting that least developed countries had paid $14 billion to service external debt in 2010, money that really should have gone towards socio-economic development.  He also called for the transfer of technology to least developed countries and for strong follow-up to the Istanbul Conference.


ERTUĞRUL APAKAN (Turkey), speaking for the host country, encouraged all participants today to share their views in order to provide important input for the Istanbul Conference.  Noting that least developed countries had enjoyed only uneven economic development in the last decade, driven mainly by the extractive and commodity sectors, he said their structural challenges — dependence on commodities and external resources as well as the lack of productive capacities — were further aggravated by environmental degradation, climate change and disruptive weather patterns which left them marginalized in the world economy.  Transforming their productive capacities was crucial for economic development, he said, adding that with stronger productive resources, entrepreneurial capacity and production links, least developed countries could rely on domestic resources to finance economic growth, reduce their dependence on aid and attract private capital.


To achieve those objectives, they and their development partners should take robust policy steps, he continued.  The State could play a critical role in guiding, coordinating and stimulating the private sector to achieve national development objectives, while fostering strong public-private partnerships.  The private sector could act as an engine for growth and development as it created jobs and investment, developed new technologies and fostered sustained, inclusive economic growth.  The expansion and growth of specific sectors, such as agriculture, manufacturing and services, should be pursued in order to achieve economic diversification, he said, emphasizing that development partners must help the strategic integration of least developed countries into the global economy, in accordance with their development objectives.


He went on to state that predictable and flexible ODA was vital for those countries to overcome specific vulnerabilities and bottlenecks, adding that regional integration and South-South cooperation could increase productive capacity.  Better market access, the transfer of technology and technical collaboration would also benefit them, as would a conclusion of the Doha Trade Round, which would make development central to the trade agenda.  “We believe the Istanbul Conference presents a unique opportunity to revisit the deficiencies of development patterns adopted so far, and to produce an agenda for actions towards a better international development architecture,” he said in conclusion.


JARMO VIINANEN (Finland), Chair of the Preparatory Committee for the Istanbul Conference, said that while there was strong evidence that the common development efforts of the past 10 years had brought about results, more than half the populations of least developed countries still lived below the poverty line and had been disproportionately affected by recent crises.  The best use must be made of the Istanbul Conference to redress that situation, he said.  Dedicated national policies and actions were needed, in addition to significant international support, he said, adding that the partnership between the countries concerned and the international community was the core of the programme of action currently under negotiation.  Work on that text was off to a good start, with the first reading now progressing, but it was clear that some issues would require a lot of work and that it would be important to prioritize, he said.


He went on to say that least developed countries had identified the development of productive capacity as their number-one priority, and there was broad agreement among all countries that promoting and sustaining economic growth should be the primary goal.  That should translate into improvements in the lives of their people, he said, cautioning, however, that such accelerated progress called for an integrated and coherent approach, with all partners listening to the perspectives of least developed countries.  Emphasizing that he aimed to conclude the negotiations by the end of the second meeting of the Preparatory Committee in April, he said a challenging three weeks lay ahead, adding that the elements uniting the international community must prevail over those dividing it.  “This is not the time for petty politics but for constructive engagement.”


Panel 1


Assembly President DEISS (Switzerland) moderated the first panel, on “National Development Strategies to Enhance Productive Capacities”, which featured:  Bounthavy Sisouphanthong, Vice Minister for Planning and Investment of the Lao People’s Democratic Republic; Gyan Chandra Acharya, Permanent Representative of Nepal and Chair of the Group of Least Developed Countries; Jyrki Koskelo, Vice President, International Finance Corporation, Washington, D.C.; and Erik S. Reinert, Chairman, Other Canon Foundation, Norway.


Mr. SISOUPHANTHONG outlined the achievements of his country’s Sixth National Socio-Economic Development Plan (2006-2010), saying that growth had increased by 1.08 per cent and gross domestic product per capita had risen from $573 to $1,069 during the period, with an estimated 7 per cent reduction in poverty.  Even so, inequality persisted and public investments were unfocused, some lacking adequate funding, and the labour market did not match available needs and opportunities.  The Seventh National Plan (2011-2015) would aim to develop all aspects of the national economy and to build a strong base for sustained economic growth, with dynamic measures for rural development and poverty eradication, he said, adding that all those measures would reinforce each other.


In order to accomplish those goals and achieve an annual growth rate of at least 8 per cent, total investment of 32 per cent of GDP, or about $15 billion, was needed, he said.  The Plan projected that about 70 per cent of the work force would be employed in agriculture, about 7 per cent in industry and about 23 per cent in services.  For that purpose, the Plan targeted a high export growth rate.  Poor districts were targeted for development through production and services that generated high value-added and competitive advantages, he said, adding that the mobilization of funds, technology, human-resource development, effective management and cooperation with development partners were all critical concerns.


Mr. ACHARYA said least developed countries needed improved productive capacity across the board, coupled with development in infrastructure, information and communications technology and energy, in order to realize sustainable growth and graduate from least-developed status.  That was particularly important in agriculture and in the eventual move from an agriculture-based economy to one based on manufacturing.  It was vital to promote skills development, market access, technology transfer, capital investment in development sectors and economies of scale, he said, adding that supportive Government policy frameworks and institutions would be crucially important.  Despite efforts over the last several years to stabilize their macroeconomic situations, least developed countries had not been able to sustain development and growth, due in part to their lack of domestic savings to meet investment needs.


Describing the development of infrastructure and energy as the defining features of rapid economic expansion in any country, he said the international community must help least developed countries eliminate constraints on infrastructure and energy so they could produce more.  Major reforms were needed to generate domestic revenues, particularly in the area of taxation, he said, adding that Governments and the international community, notably donors, must help least developed countries strengthen their tax administration capacities.  Social safety nets were also critical to helping release savings for productive purposes, he said, noting that domestic capital markets could also channel savings.  Better trained human capital and improved regulatory regimes were also important.


Emerging challenges such as the recent food and fuel price hikes had undermined the capacity of least developed countries to invest in their own economies, he said, adding that the global economic crisis had caused a drop in their exports, tourism and remittances.  Moreover, they were forced to spend excessively on addressing climate change issues, such as growing levels of desertification and drought, as well as natural disasters.  He called for the creation of a crisis management and resilience fund to help least developed countries respond to crises and enhance their productive overall capacity.  He said that even a 7 per cent annual growth rate would have a limited impact when inflation was taken into account.  Least developed countries were forced to funnel more than 25 per cent of gross domestic product into investment so as to sustain rapid and effective economic growth, he said.


Mr. KOSKELO said everyone was grappling with the fact that the private sector was necessary to supporting public-sector investments and accelerating development in least developed countries.  That change represented the nature of the current challenge, he said, noting that there was a need for access to markets and finance for entrepreneurs.  Growth would come from emerging markets, he said, noting that the crisis in developed ones had led to a decrease in funding, and a reduction in available cash was foreseen.  “We absolutely need development of the capital markets in the least developed countries,” he stressed.


The alignment of investment and assistance was therefore critical, he continued.  Employment opportunities were important for stability, so job growth should be the focus, he said, noting that 90 per cent of the jobs that had lifted people out of poverty in recent years were in the private sector.  In the effort to increase employment, the World Bank Group supported private sector engagement in such a way as to complement public-sector funding and resources.  The International Finance Corporation was focusing on under-funded countries in that light, but mobile-phone enterprises had placed a huge amount of funds in least developed countries and private-sector funding would remain an important factor.


Mr. REINERT said least developed countries were locked into a vicious cycle of low productive capacity and lack of demand.  Capital and trade would not solve the problem, because there were few profitable investments or products in the countries concerned.  Asking how others had escaped from that cycle, he maintained that there were some blind spots in economic theory.  The route from poverty to affluence did not go through comparative advantages, but through emulation of the structures of wealthy countries, he said, recalling that from 1950 to 1973, there had been much “catching up” on the part of poor countries going through transformation by emulation, but the focus had changed and their growth had slowed.


He said economic activities were qualitatively different, pointing out that washing dishes would never lead to the same prosperity as the practice of law, for example.  Only a large division of labour between economic activities subjected to increasing returns created economic welfare.  All failed States had a very low percentage of manufacturing activities while economies in countries with economies in transition had continued industrialization and done well.  The importance of high wages for development was also under-recognized, he said.


In illustration of those ideas, he contrasted the Morgenthau Plan for de-industrializing Germany after Second World War to the Marshall Plan that had followed it and supported re-industrialization.  The first had been devastating and the second a great success.  Free international trade could not be relied upon to break the “bad cycle”, he stressed, noting that countries subjected to boycotts had often benefited from the subsequent increase in national production.  He recommended therefore that countries be restored with tariff autonomy because some protectionism could be beneficial at a certain stage, noting that in the case of some developed countries that stage had lasted hundreds of years.  He concluded by advising, “don’t do what the Europeans and Americans tell you to do, do as the Europeans and Americans did” in terms of economic policy.  The key was emulation.


Discussion


During the ensuing question-and-answer period, speakers asked about the best way to attract domestic and foreign investment, particularly in the agricultural sector, given that investment in that area could have unintended consequences for social cohesion, food security and land rights.  They also asked about the role of property rights in ensuring responsible agricultural investment.  They sought to know how Governments and other stakeholders could better coordinate agricultural projects to spur broader economic development, and how to help least developed countries graduate from that category.


Some speakers lauded the recent impressive economic growth in the Lao People’s Democratic Republic and asked what specific measures its Government would adopt in its next five-year development plan to spur grassroots involvement and bolster productive capacity.  Others asked Mr. Reinert to elaborate on his suggestion that least developed countries emulate the successful economic policies of Europe and the United States so as to move from poverty to affluence, and to comment on the economic successes of East Asia.  One speaker asked other panellists to comment on Mr. Reinart’s views.


Mr. REINART, responding to questions about property rights, said they did not solve all problems for all societies, explaining that Venice had been the first city to establish them because it had created the first capitalist economy.  However, a nomadic tribe did not need them.  Economic structures created the need for institutions, he said, noting that without the former, the latter were not necessary.  Japan, which had employed economists from Germany and the United States to spur economic development after the Second World War, was a prime example of emulating in the right way and industrializing early to achieve success.  While many East Asian countries maintained that protectionism was better than communism, their success was due more to their willingness to embrace Western policy, he said.  Furthermore, the lesson from Asia was to create demand for educated people and to match that with supply.


Mr. ACHARYA, however, disagreed with that assessment, saying the world was a different place today from what it had been after the Second World War.  There was less policy and fiscal space and least developed countries could not embrace the same model that Western economies had embraced in the past.  Rather, they needed strong international support for domestic efforts.


Mr. SISOUPHANTHONG said the Lao People’s Democratic Republic’s strategy involved pursuing a market economy and working with grassroots organizations representing women, youth and other groups to ensure people had access to school, health care and recreation, as well as poverty eradication programmes at the local level.  To spur productive capacity, the Government was relying on foreign direct investment and human development programmes, particularly vocational training, as part of its overall strategy to industrialize and modernize the economy.


Mr. KOSKELO, discussing investment in agriculture, said sovereign wealth funds interested in major land acquisitions for agricultural development had largely failed, in part because they had not considered formal property rights and their impact on local economies.  Success in agricultural development had little to do with money and more to do with how agriculture was supported, he said.  Growth-oriented agriculture yielded more positive results than subsistence agriculture, while protectionism in least developed countries constrained development.


Also participating in the discussion were representatives of Argentina (on behalf of the “Group of 77” developing countries and China), Switzerland, Indonesia, Israel, Japan, Republic of Korea, Morocco, Burkina Faso, Brazil and Norway.


A representative of the European Union delegation also took part.


Panel 2


HUGO BETETA, Director of the Economic Commission for Latin America and the Caribbean Subregional Headquarters in Mexico City, moderated the afternoon panel, entitled “Reorienting International Support Mechanisms towards Enhancing Least Developed Countries’ Competitive Advantage”, which featured the following panellists:  James Zhan, Director, Investment and Enterprise Division, United Nations Conference on Trade and Development (UNCTAD); Calestous Juma of the John F. Kennedy School of Government, Harvard University, United States; Axel van Trotsenburg, Vice-President, World Bank; and Mehmet Arda, Galatasaray University, Istanbul, and Turkey’s substantive coordinator for the Fourth United Nations Conference on Least Developed Countries.


Mr. BETETA said global investment levels were not yet back to pre-crisis levels, although trade had recovered and there was still growth in emerging economies.  Increased productive capacity and employment was needed to make a substantial dent in poverty, and for that reason, productivity growth and demographics must be the focus.  No longer could free trade be seen as the cure-all, he cautioned, stressing the need to focus also on mobilizing domestic resources to achieve sustainable gains in production.  ODA and regional financial mechanisms were also important in helping to create an atmosphere conducive to productive growth, he noted.


Mr. ZHAN said foreign direct investment had risen greatly over the past decade, but had declined following the financial crisis.  Such flows were an important part of capital formation and economic development in least developed countries, and had been higher than bilateral assistance since 2006.  While it was true that the greatest volume of such investment had been directed at countries with extractive industries, a high percentage had targeted manufacturing and services in terms of numbers of enterprises funded.  Surprisingly, a substantial portion of investment had gone to enterprises that were not labour intensive, he said, noting that South-South investment was also significant.


He proposed that “Aid for Productive Capacity” might be a helpful new programme, building on “Aid for Trade”.  It could focus on human resources development, technology transfer, regulatory frameworks and infrastructure development.  He also called for a regional approach to productive capacity building.  Outlining steps that had already been taken in that direction, he said integration at a corporate level was needed, noting that the Association of Southeast Asian Nations (ASEAN) had seen inter-country investment boom in that context.


Non-equity modalities of transnational corporations, such as contract manufacturing, licensing and franchising, also benefited host countries and must receive policy attention, he said.  There was also a need for an effective interface between investment policies and industrial policies in order to ensure sustainable development.  New business models must be created to ensure that the poor were targeted by investment funds, for increasing productive capacity that would serve them and make use of their talents, he said.


Mr. JUMA recalled that a decade ago, most of the least developed countries had already defined aid, science and technology as economic drivers.  Noting that industrialized countries had made efforts to focus on their own scientifically and technologically underdeveloped regions, he said the focus should be on “science and technology diplomacy” moving forward.


The absence of science advisory mechanisms had been an obstacle, but today, there was access to large pools of scientific and technological knowledge, much of which was not being adequately harnessed for development, he said.  New technologies were increasingly cheaper than previous ones, he said, pointing out that the cost of fibre optic cables was one tenth of what it had been a decade ago, making it more feasible for African countries, for example, to build rural infrastructure.  Capacity to harness that knowledge depended on the level of investment in engineering sciences, he added.


Managing businesses and creating new ones was just as interesting and important for least developed countries as foreign direct investment, he said.  Regional integration was replacing traditional methods of spurring development in Africa, such as relying on the United States Agency for International Development.  Many Member States were appointing science advisers to Presidents and Prime Ministers, he noted, emphasizing that being well advised was necessary for effective leadership.


Mr. VAN TROTSENBURG, outlining the World Bank’s funding, said more than 20 per cent went to institution-building and 30 per cent to infrastructure such as roads, energy and water.  There was also significant funding for investment in climate reform and financing for micro, small and medium-sized enterprises.  Regional integration in West and Central Africa was a focus, but more must be done in that area, he said.


He went on to say that there was generally an increased focus on least developed countries in the World Bank’s financing of country priorities.  However, innovative approaches were needed to improve competitiveness.  In that vein, the institution was introducing risk-sharing and credit guarantees for small enterprises, agricultural risk insurance facilities, and catastrophic risk insurance, but there was a need to pursue such efforts further.  Public-private partnerships for infrastructure and output-based aid were also being employed, he said, adding that there was clearly a need to move on quickly to leverage and mobilize multiple finance flows.


Mr. ARDA said that in order to improve competitiveness, the focus must be on bolstering existing businesses and encouraging diversification.  Incentives were needed to encourage risk-taking, which was necessary for promoting diversification.  Reorienting international support was needed to do that, he added.  The lack of market access remained an obstacle for least developed countries, although that situation was improving, he said, citing the example of a coffee farmer in a least developed country who had accepted any price offered until he had learned about coffee prices on the international markets in London.  Empowering exporters with such information was vital, he stressed.


Competition was not only important in global markets, but in domestic ones as well, he said.  Another problem facing least developed countries was that international buyers did not wish to buy on a small-scale, which made it difficult for small-scale producers to compete, he said.  There was a trend by which companies spoke of selling services rather than products, for example, “building solutions” rather than “cement”.  Exporters in least developed countries needed help in such marketing, he said.


The mining and extractive industries, as well as renewable natural resources were crucial for development in least developed countries, he said, adding that agriculture was equally crucial.  However, international support mechanisms must give priority to non-agricultural employment in rural areas since the agricultural sector could only generate so many jobs, he said.  ODA could be successfully linked to the private sector and foreign direct investment, with the local private sector continuing what was initiated through ODA, he said.


Discussion


Mr. ZAHN, asked what lessons had been learned from previous industrial policies, stressed that it was important to “pick the right winners”, by prioritizing industries themselves, not the players in those industries.  Countries must also be willing to give up “losers”, and there must be coherence between domestic policy and international commitments.  He expressed concern over the world’s capacity to absorb export-related growth.


Mr. JUMA, responding to questions about venture capital in agriculture, noted that the sector was even more risky than manufacturing, hence the need for venture-financing mechanisms.  New models were being conceived on the basis of standard funding models, he added.


Mr. VAN TROTSENBURG said future challenges included overcoming the risks of post-conflict and other fragile States.  Also, climate change would require additional resources, he said, noting that there were climate investment funds that heavily leveraged available resources.  Getting rid of remaining economic blind spots was a challenge for the future, he said.


Mr. ARDA, asked whether progress could be made without market access, said further liberalization of international trade could bring down the preferential margins of least developed countries, so market access was not the key issue, although it did help in attracting investment.  As preferential margins were reduced, transport and logistical issues would become more important, he said, adding that they should be given greater attention.


Speakers from the floor described their national experiences with development finance, agreeing on the importance of industrial policy, noting the diversity of challenges in combating poverty and the delicate situation of many least developed countries.


The representative of India said it was important to focus more on the development challenges of growing economies populated by many poor people.  The representative of Cuba emphasized the need to meet aid commitments without conditions.  Other speakers stressed the importance of eliminating unsustainable debt burdens.


Also taking part in the discussion were representatives of India and Cuba, as well as a representative of the European Union delegation.


Representatives of the Non-Governmental Organizations Federation of Nepal and the Jubilee USA Network also spoke.


Concluding Remarks


CHEICK SIDI DIARRA, Under-Secretary-General, Special Adviser on Africa and High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, said Mr. Sisouphanthong’s morning presentation on economic growth in the Lao People’s Democratic Republic gave hope that least developed countries could grow their own economies, given the right framework, strategic partnerships and strong political commitment.  He emphasized the need to scale up the manufacturing sector, which could in turn increase productive capacity, and to provide a more enabling environment for the private sector.  Inclusion and participation by all stakeholders was paramount, he said, as was the willingness of the international community and development partners to live up to their commitments to increase ODA.


He went on to note that the need for ODA in productive capacity was a recurring theme and would remain so in Istanbul as countries worked on a programme of action for the next decade.  “Bilateral and multilateral donors have provided substantial official development assistance, but funds have not been enough in amounts and effectiveness,” he noted.  Moreover, they had largely neglected the productive sectors.  Many least developed countries had improved governance and macroeconomic stability, but not enough to strengthen productive capacities, build economic resilience and generate inclusive economic growth.  There was, therefore, a need for renewed support, better tailored to countries’ circumstances and the removal of structural factors impeding progress.


Stressing the important link between agricultural productivity and economic growth, he said it was encouraging that development partners recognized the link and continued to give support, including for capacity-building.  Investment in the productive capacities of least developed countries would require appropriate national policy guidance and innovative international support, such as increased aid, particularly for infrastructure and skills development, he said.  There was also a need to match that with equally bold initiatives to encourage foreign direct investment, such as more funding for multilateral risk insurance agencies dedicated to covering political and non-commercial risk.


Mr. DEISS (Switzerland), highlighting some points of the discussion, said it was important to remember basic economics and not see high prices as anomalies, adding that there was no doubting the importance of the private sector for development.  Countries that had managed to escape the “underdevelopment trap” had done so by developing productive capacities and addressing mass poverty through structural transformation and expanding employment opportunities.  Given their differences, however, it was difficult to identify a single productive capacity for all the poorest countries, he said.  The proper mix of sectoral production would therefore vary among them, he said, citing a combination of agriculture, manufacturing and services.


However, they all needed a business climate conducive to investment and private-sector development.  Investments to overcome infrastructure bottlenecks would also be important, as would enhancement of human capacity and the fostering of innovation, the dissemination of knowledge and the transfer of technology.  Open markets and regional integration were other key elements, he said, adding that it would be difficult for least developed countries to succeed in building productive capacities without the support of the international community.   Partnerships must be strengthened in the areas of investment, trade, aid and debt relief, he said, emphasizing also the need to foster policy coherence at the international level.


Looking forward to the upcoming conference in Istanbul, he then closed the meeting.


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For information media • not an official record