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Habib Ouane, Director, Division for Africa, Least Developed Countries and Special Programmes UNCTAD UNCTAD Economic Resilience Conference.

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Presentation on theme: "Habib Ouane, Director, Division for Africa, Least Developed Countries and Special Programmes UNCTAD UNCTAD Economic Resilience Conference."— Presentation transcript:

1 Habib Ouane, Director, Division for Africa, Least Developed Countries and Special Programmes UNCTAD UNCTAD Economic Resilience Conference Islands and Small States Institute, Malta: 23-25 April 2007 UNCTAD's approach to developing productive capacities in LDCs and SIDS

2 UNCTAD Economic resilience and vulnerability of SIDS  United Nations: UNDESA, UNCTAD work for over 20 years  Barbados Programme of Action 1994  Mauritius Strategy 2005  Malta International Workshops 2004- 2007 Conceptual and policy work in international fora on SIDS

3 UNCTAD Outline of Presentation  Economic resilience and vulnerability of SIDS and the vision of UNCTAD  Developing productive capacities  International policy initiatives

4 UNCTAD Economic resilience and vulnerability of SIDS  small size => scarce natural and human resources, diseconomies of scale  remoteness from large markets => high transport costs  high degree of openness dependence on strategic importsdependence on strategic imports strong export concentrationstrong export concentration  susceptibility to natural disasters exacerbated by climate change and sea level rise Vulnerability of SIDS: Exposure to adverse external shocks beyond countries' domestic control and structural handicaps: Resilience: countries' ability to economically cope with its inherent vulnerability

5 UNCTAD The vision of UNCTAD Singapore paradox: inherently economically vulnerable small state that manages to cope with its inherent vulnerability through deliberate economic development policies => remains the exception Key to resilience-building => Developing productive capacities

6 UNCTAD The vision of UNCTAD => devoted to LDCs, but most elements and recommendations also valid for most SIDS:  common economic features between SIDS and LDCs  10 SIDS are LDCs The Least Developed Countries Report 2006: Developing Productive Capacities

7 UNCTAD The vision of UNCTAD

8 UNCTAD8 UNCTAD 1.low income => under $900 per capita 2.weak human assets => measured through a composite Human Assets Index 3.economic vulnerability => measured through a composite Economic Vulnerability Index, composed of: a.instability of agricultural production b.instability of exports of goods and services c.diversification from traditional economic activities d.merchandise export concentration e.economic smallness Economic characteristics of LDCs The vision of UNCTAD

9 UNCTAD9 UNCTAD What are productive capacities? 1.Productive resources – natural resources, human resources, financial capital, physical capital. 2.Entrepreneurial capabilities – core competences; technological capabilities. 3.Production linkages – exchange of goods and services; flows of information; human and financial resource flows – between sectors and between enterprises. Developing productive capacities: Concept

10 UNCTAD10 UNCTAD What is required to develop productive capacities?  Capital accumulation  Structural change  Technological learning Developing productive capacities: Driving processes

11 UNCTAD11 UNCTAD  Institutions:  Institutions: Weak domestic private sector and domestic financial and knowledge systems.  Demand  Demand constraints. infrastructure.  Weak physical infrastructure. Developing productive capacities: Constraints What are the key constraints and policy priorities? These are country-specific but the Report identifies three broad areas which are likely to applicable in most countries:

12 UNCTAD12 UNCTAD  Weak development of formal sector SMEs, particularly medium- sized domestic enterprises, as typically informal sector enterprises do not develop into formal sector firms and small firms do not grow into large firms.  Investment climate reforms (to reduce red tape and costs of doing business) are not enough in a context of radical firm and structural heterogeneity.  Need to foster the development of domestic medium-sized firms and production linkages  Need to develop the domestic financial system  Disarticulation between traditional and modern knowledge systems; modern knowledge systems (universities, national research institutes, etc.) are not functioning as an integrated system, not demand-driven, not well-integrated internationally.  Develop national technology learning strategies to increase access to/effective use of foreign technology. Developing productive capacities: Institutions

13 UNCTAD13 UNCTAD  Need to address dynamics of domestic demand as well as international competitiveness and access to international markets.  Sluggish domestic demand must be identified as a central deficiency of the investment climate.  The demand-side contribution of exports has been seriously reduced by declining terms of trade and currecy depreciation.  For exports – focus on upgrading the export structure towards more dynamic products. Developing productive capacities: Demand

14 UNCTAD14 UNCTAD  Trade-related infrastructure alone is not enough (export growth but not economy-wide poverty reduction)  Best approach is a "joined-up" approach to infrastructure investment three elements:  1. Rural infrastructure (vital for agrarian commercialization and prodcutiviy growth and development of off-farm activities).  2. Large-scale national infrastructure (enables structural transformation, exercise of entrpreneurial capabilities and developemnt of production linakges).  3. Cross-border infrastructure (for regional trade)  Closing the electricity divide is as significant for economic growth and poverty reduction as closing the digital divide. Developing productive capacities: Infrastructure

15 UNCTAD15 UNCTAD Developing productive capacities: Conclusion: The paradigm shift required TO  Production  Employment  Ingredients  Supply and Demand  Tradables and Non-tradables  Private Domestic Investment plus FDI  Development State Focusing on the development and utilization of productive capacities requires a paradigm shift in national and international policy FROM  Integration/Exchange  Consumption  Framework  Supply-side  Tradables  FDI  Welfare State

16 UNCTAD16 UNCTAD  Increase share of aid for in-country programmes and direct support for programmes run by LDC governments.  Re-balance the sectoral composition of aid towards production.  Advance beyond trade preferences.  International policy innovation to support the development and full utilization of productive capacities in the LDCs. International initiatives Recommendaitons for action in favour of LDCs

17 UNCTAD17 UNCTAD  Support in formulating national strategies to secure "smooth transition" modalities in anticipation of the loss of concessionary treatment due to likely graduation from the LDC category => Cape Verde, Maldives, Samoa, Vanuatu  Technical cooperation on trade-related and investment-related policy matters => Cape Verde, São Tomé and Príncipe, St. Lucia, Samoa, Papua New Guinea, Vanuatu  Ad Hoc Expert Group Meeting on Structurally Weak, Vulnerable and Small Economies (Geneva, 25 June 2007) International initiatives: UNCTAD's work on SIDS and vulnerable economies

18 UNCTAD18 UNCTAD Thank you

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