Habib Ouane,Habib Ouane,Director, Division for Africa,Director, Division for Africa,

Least Developed Countries and Special ProgrammesLeast Developed Countries and Special ProgrammesUNCTADUNCTAD

http://www.unctad.org/ UNCTAD

Economic Resilience ConferenceEconomic Resilience Conference

Islands and Small States Institute,Islands and Small States Institute,

Malta: 23-25 April 2007Malta: 23-25 April 2007

UNCTAD's approach toUNCTAD's approach todeveloping productive capacitiesdeveloping productive capacities

in LDCs and SIDSin LDCs and SIDS

UNCTADhttp://www.unctad.org/

Economic resilience and Economic resilience and vulnerability of SIDSvulnerability of SIDS

United Nations: UNDESA, UNCTAD United Nations: UNDESA, UNCTAD work for over 20 yearswork for over 20 years

Barbados Programme of Action 1994Barbados Programme of Action 1994

Mauritius Strategy 2005Mauritius Strategy 2005

Malta International Workshops Malta International Workshops 2004-20072004-2007

Conceptual and policy work in international fora on SIDS

UNCTADhttp://www.unctad.org/

Outline of PresentationOutline of Presentation

Economic resilience and Economic resilience and vulnerability of SIDS and the vulnerability of SIDS and the vision of UNCTADvision of UNCTAD

Developing productive Developing productive capacitiescapacities

International policy initiativesInternational policy initiatives

UNCTADhttp://www.unctad.org/

Economic resilience and Economic resilience and vulnerability of SIDSvulnerability of SIDS

small size => scarce natural and human resources, small size => scarce natural and human resources, diseconomies of scalediseconomies of scale

remoteness from large markets => high transport costsremoteness from large markets => high transport costs

high degree of openness high degree of openness

• dependence on strategic importsdependence on strategic imports

• strong export concentrationstrong export concentration

susceptibility to natural disasters exacerbated by susceptibility to natural disasters exacerbated by climate change and sea level riseclimate 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

UNCTADhttp://www.unctad.org/

The vision of UNCTADThe 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=> remains the exception

Key to resilience-building => Developing productive capacities

UNCTADhttp://www.unctad.org/

The vision of UNCTADThe 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

UNCTADhttp://www.unctad.org/

The vision of UNCTADThe vision of UNCTAD

UNCTAD8

UNCTAD

http://www.unctad.org/

1.1. low incomelow income=> under $900 per capita=> under $900 per capita

2.2. weak human assetsweak human assets=> measured through a composite Human => measured through a composite Human Assets Index Assets Index

3.3. economic vulnerabilityeconomic vulnerability=> measured through a composite Economic => measured through a composite Economic Vulnerability Index, composed of:Vulnerability Index, composed of:

a.a. instability of agricultural productioninstability of agricultural production

b.b. instability of exports of goods and servicesinstability of exports of goods and services

c.c. diversification from traditional economic diversification from traditional economic activitiesactivities

d.d. merchandise export concentrationmerchandise export concentration

e.e. economic smallness economic smallness

Economic characteristics of LDCs

The vision of UNCTADThe vision of UNCTAD

UNCTAD9

UNCTAD

What are productive capacities?

http://www.unctad.org/

1.1. Productive resources – natural resources, Productive resources – natural resources, human resources, financial capital, human resources, financial capital, physical capital.physical capital.

2.2. Entrepreneurial capabilities – core Entrepreneurial capabilities – core competences; technological capabilities.competences; technological capabilities.

3.3. Production linkages – exchange of goods Production linkages – exchange of goods and services; flows of information; and services; flows of information; human and financial resource flows – human and financial resource flows – between sectors and between between sectors and between enterprises.enterprises.

Developing productive capacities: Developing productive capacities: ConceptConcept

UNCTAD10

UNCTAD

What is required to develop productive capacities?

http://www.unctad.org/

Capital accumulationCapital accumulation

Structural changeStructural change

Technological learningTechnological learning

Developing productive capacities: Developing productive capacities: Driving processesDriving processes

UNCTAD11

UNCTAD

http://www.unctad.org/

Institutions: Institutions: Weak domestic private sector and domestic financial and knowledge systems.

Demand Demand constraints.

Weak physical infrastructure. infrastructure.

Developing productive capacities: Developing productive capacities: ConstraintsConstraints

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:

UNCTAD12

UNCTAD

http://www.unctad.org/

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: Developing productive capacities: InstitutionsInstitutions

UNCTAD13

UNCTAD

http://www.unctad.org/

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: Developing productive capacities: DemandDemand

UNCTAD14

UNCTAD

http://www.unctad.org/

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: Developing productive capacities: InfrastructureInfrastructure

UNCTAD15

UNCTAD

http://www.unctad.org/

Developing productive capacities: Developing productive capacities: Conclusion: The paradigm shift required 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

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UNCTAD

http://www.unctad.org/

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 International initiatives Recommendaitons for actionRecommendaitons for action

in favour of LDCsin favour of LDCs

UNCTAD17

UNCTAD

http://www.unctad.org/

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:International initiatives:UNCTAD's work on SIDSUNCTAD's work on SIDSand vulnerable economiesand vulnerable economies

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UNCTAD

http://www.unctad.org/

Thank youThank you