From Africa Recovery, Vol.12#2 (November 1998), page 3

Uncertain prospects for LDC growth

UNCTAD calls for measures to prevent further marginalization of poorest countries

By Jacqueline Irving

The prospects for sustaining the recent growth momentum of least developed countries (LDCs), especially in Africa, are "highly uncertain," according to the UN Conference on Trade and Development (UNCTAD) in its Least Developed Countries 1998 Report, released on 13 October. The report adds that strong LDC growth has not been accompanied by increased integration in the world trading system.

According to preliminary estimates in the report, gross domestic product (GDP) growth for the 33 African LDCs averaged 4.7 per cent in 1997, down from 5.3 per cent in 1996. In contrast, global output growth averaged 3.2 per cent in 1997 versus 3.0 per cent in 1996. UNCTAD attributes the solid economic performance figures for African LDCs in 1997 to prudent fiscal and monetary policies in many countries, some delayed effects of recent reform efforts and strong export demand from Europe and North America.

However, African LDCs' lack of export diversification renders many of them especially vulnerable to external shocks such as fluctuations in world commodity prices and the recent El Niño weather phenomenon. Commodity price falls and other contagion effects of the Asian financial crisis have already been felt by many African LDCs and these effects are expected to intensify in the coming year. The slowdown in demand from Asia (the fastest-growing export market for African LDCs before the crisis hit) and the related global slowdown are expected to cause African export markets to contract. Inbound investment and aid flows also are expected to slow significantly. Risks of policy reversal and the threat of armed conflict in many countries are other factors that could jeopardize the sustainability of recent strong performance.

In spite of the solid economic growth achieved as a group in recent years, LDCs' relative share in world production and trade has remained small (see table). LDCs accounted for just 0.9 per cent of total world output in 1996, up a negligible amount from an average 0.7 per cent in the 1985-96 period. The share of LDCs in world exports and imports stagnated at an average 0.4 per cent and 0.6 per cent respectively in the 1991-96 period, as compared with an average 0.5 per cent and 0.7 per cent respectively in the 1985-90 period. Their integration into world trade has actually declined in the last decade relative to that of other developing countries.

Limited LDC participation in WTO

African LDCs risk being further marginalized in the multilateral trading system if they fail to implement their World Trade Organization (WTO) agreements effectively. The provision of "technical assistance programs to enhance the participation of LDCs in the multilateral trading system" is, therefore, among the "priorities for the international community in the immediate future," says UNCTAD Secretary-General Rubens Ricupero in the report's foreword.

To facilitate LDC participation in the WTO, UNCTAD recommends making certain provisions in the trade agreements more "LDC friendly." For example, the report acknowledges a need for flexibility with regard to staple foods and disciplines on domestic support.

UNCTAD also urges LDCs to improve their ability to define their own interests in the international trading system in order to better prepare themselves in advance of new negotiations.

LDCs will face a major challenge in future as issues of strategic importance for them, notably on trade in agriculture and services, come up for negotiation. In view of the fact that the agriculture sector accounts for some 40 per cent of LDCs' total output, the agriculture negotiations involve high economic stakes. The report highlights trade in services as another area holding significant new opportunities for LDCs.

Many of those LDCs that have joined the WTO are not equipped to cope with the resource-intensive processes that membership entails, UNCTAD says. A lack of the necessary legal, administrative and communications infrastructure and a poor understanding of membership commitments are some of the obstacles to fulfillment of those commitments.

For example, many LDC members of the WTO have encountered special difficulties in setting up institutions to carry out certain watchdog functions and in formulating procedures and enacting legislation, as mandated by WTO agreements. While acknowledging that these difficulties tend to stem directly from insufficient human and financial resources, Mr. Ricupero warns that delays in establishing these institutions and processes may prove even more costly.

UNCTAD emphasizes that the 19 LDCs that are not members of the WTO will continue to miss out on opportunities if they remain outside. "Membership of WTO allows countries to design their development strategies and trade policies in a more predictable, transparent and stable environment," states Mr. Ricupero. "It also allows them to advance their trade and economic interests through effective participation in multilateral trade negotiations, thereby obviating the need for a series of bilateral trade agreements with trading partners."

Mr. Ricupero acknowledges the "exceptionally heavy burden that the accession process imposes on the limited human and institutional capacity of LDCs," and he proposes a review of the process that would result in a reduction of the obligations "without compromising the transparency and integrity of the WTO multilateral rules and disciplines." He views expediting the accession process as an important step toward ensuring full LDC integration in the world trading system -- a prerequisite for a "truly global framework for the management of the world economy."

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