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Geneva — Least developed countries (LDCs) in Africa did not use the commodity export boom of the mid-2000s to diversify their economies from commodity dependence to manufacturing value-added products. Significantly, the agricultural sector has also not benefited, with the result that LDC reliance on imported food has become even worse.

These are some of the findings of the United Nations Conference on Trade and Development (UNCTAD), which released its 2010 report on least developed countries (LDCs), entitled "Towards a new international development architecture for LDCs", on Nov 25. Dr Supachai Panitchpakdi, UNCTAD secretary-general, referred at the launch of the report to the average growth rate of seven percent per year that least developed countries (LDCs) experienced during the boom period of 2002- 2007.

"But higher commodity prices -- of mainly oil and gas -- have not solved the issues of price fluctuation and dependence on commodity export," he noted. This pattern of growth is "non-sustainable" and "non-inclusive".

"Globalisation has not treated everyone equally," added Zeljka Kozul-Wright, chief of the LDCs section at UNCTAD. "LDCs are on the losing side because of their dependence on commodities export. During the boom period, dependence on commodities export increased while manufacturing sectors declined.

"This issue of de-industrialisation is a major concern for us."

Panitchpakdi pointed out that one of the reasons for LDCs' economic woes has been excessively rapid market opening: "In order to benefit from full liberalisation, governments have to implement industrial policies.

"In Africa, countries under structural adjustment programmes could not have industrial policies and therefore there was no preparation of industries for them to benefit from liberalisation. In Zambia, for example, there has been a complete demise of the textile industry. Liberalisation must be (correctly) sequenced," he added.

For Kozul-Wright, Asian LDCs have succeeded in diversifying more than African ones, especially with regards labour-intensive manufactures. But that approach also has its problems because today they cannot increase their value addition. "The promotion of a 'one-size-fits-all' development strategy has not helped," she said.

The consequence of these problems has been an increase in poverty. The report estimates that the number of people in extreme poverty in LDCs increased by three million annually during the boom years, reaching an estimated 421 million in 2007 - twice as many as in 1980.

This figure represents 53 percent of the total population of the LDCs, where one billion people are expected to be living in 2017.

During the same time, "food import dependence has been devastating", said Panitchpakdi, rising from nine billion dollars in costs in 2002 to 24 billion dollars in 2008.

Believing that "business as usual will not deliver inclusive growth in the LDCs", UNCTAD proposes a "New International Economic Architecture" that goes beyond aid and trade to include technology, commodities and climate change.

In the area of finance, UNCTAD bemoans the shortfall of 23 billion dollars per year in official development assistance and advocates a balanced distribution of aid between social uses and productive capacity.

It proposes innovative ways of financing and supports co-financing initiatives with the private sector, particularly in the field of infrastructure. Debt relief programmes will have to be enhanced in the post-crisis situation, as the number of heavily indebted LDCs is on the rise.

Regarding trade, UNCTAD reiterated the call for "an early harvest in the Doha Round for LDCs, with measures such as 100 percent duty-free and quota-free market access and conditionalities being minimised".

On the question of whether the Doha Round would not exacerbate de- industrialisation in LDCs, Panitchpakdi answered that it "depends on the ultimate composition of the final deal of the Round.

"In NAMA (the non-agricultural market access negotiations) we have to be able to maintain the (original) developmental perspective of the Round to help countries diversify; get value addition; deal with tariff peaks and escalation; and eliminate all trade distortions. We should not add and add agendas in NAMA."

As for commodities, the report suggests rethinking the way counter-cyclical financing is done to cope with the adverse effects of fluctuating prices. Counter-cyclical financing is financing that does not follow the current predominant economic cycle.

There is a need for transaction tax on trade in commodity derivatives (financial instruments linked to future prices of underlying assets) and for more schemes to deal with the stabilisation of commodity prices. Panitchpakdi indicated concern over the excess of liquidity driving up the prices of maize and wheat in 2010.

In the field of technology, the World Trade Organisation's Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement should be carefully looked at, for it has not been implemented in a way that benefit developing countries.

Industrialised states have to adopt policies to incentivise technology transfer to LDCs. It is a moral obligation, not a legal one, but the agreement does not specify incentives, according to UNCTAD.

Finally, in the area of climate change -- where LDCs contribute only one percent of total greenhouse emissions, but suffer most heavily from the consequences -- an adequate financing of the already existing mechanisms is necessary.

"Cutting across all these measures is the need for LDCs to work more with fellow countries from the South," Panitchpakdi reiterated, like many times before.

"They should benefit more from South-South cooperation and triangular cooperation with the North. The new global governance cannot be dominated by powerful countries, like in the Group of 20. LDCs must participate in global governance."
 

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This is why I don't orgasm when I see much of the continent growing 6-7%. For one given many nations state of development such growth isn't enough to seriously dent poverty and secondly its mostly on the backs of commodities. Which one doesn't employ many people and secondly generates revenue for those companies and creates a culture of misusage, mismanagement and outright corruption within governments.

Most people work in agriculture or in urban areas the black market, until we see agriculture a booming sector that creates surplus wealth and a healthy industry which not only employs people into the formal economy, it gives far more tax revenue for governments to use. What did most countries do with the commodity boom? Very little, a wasted opportunity if you ask me.
 

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They're expecting that in just 5 years, including 2 years of economic disaster, that countries would diversify their economies?
This is a serious pet peeve of mine. The timeline that's given for African countries to do any type of improvement is ridiculously small. Absurd.
If by 2020 we haven't started seeing real diversification, then yes, they've been squandering opportunities, but in just a few years, it's practically IMPOSSIBLE to have that type of serious change on any measurable scale.
 

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They're expecting that in just 5 years, including 2 years of economic disaster, that countries would diversify their economies?
This is a serious pet peeve of mine. The timeline that's given for African countries to do any type of improvement is ridiculously small. Absurd.
If by 2020 we haven't started seeing real diversification, then yes, they've been squandering opportunities, but in just a few years, it's practically IMPOSSIBLE to have that type of serious change on any measurable scale.
It's the fact that through the commodity boom other sectors are in even worse shape. Essentially Africa is more dependent on commodities than they were in 2002.
 

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^^ Where in the article do they give any evidence of that?

I've read it a couple of times and I don't see it.

Second, most African countries weathered the crisis (that also negatively affected commodities) much better than what anyone expected, which actually gives evidence to the contrary: that their economies are not as commodity-dependent as we'd assumed.
The ones that saw their economies grind to a halt are either those heavily integrated in world financial networks (like SA) or those with serious oil dependence (like Angola). The vast majority fit in neither and were ok.
 

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^^ Where in the article do they give any evidence of that?

I've read it a couple of times and I don't see it.

Second, most African countries weathered the crisis (that also negatively affected commodities) much better than what anyone expected, which actually gives evidence to the contrary: that their economies are not as commodity-dependent as we'd assumed.
The ones that saw their economies grind to a halt are either those heavily integrated in world financial networks (like SA) or those with serious oil dependence (like Angola). The vast majority fit in neither and were ok.
Agriculture not benefiting, more reliant on food imports. Popa pretty much highlighted the cases, in Zambia had a case of the "dutch disease" and it's textile industry was pretty much destroyed.

No you answered your own question, the reason why most African countries weathered the storm was because they weren't integrated to the global financial system. South Africa is probably the least commodity dependent country on the continent yet it suffered probably the heaviest fall.You can't argue that countries like Mozambique and Zambia are not commodity dependent, yet still grew over 6% in 2009.
 

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I've never been a fan of export led growth, it's prone to volatility and often concentrates wealth.

Africa: A Disappointing Experience

The model results of export-led growth in Asia fuelled high expectations for the strategy in Africa.

African policymakers hoped that the continent, which is home to some of the world’s poorest nations, would benefit from access to a larger and wealthier pool of potential consumers.

They also expected that increased trade with developed countries would provide their nations with the foreign currencies, such as U.S. dollars or British pounds, which are needed to conduct intra-African transactions and trade.
However, Africa’s experience with the strategy has been disappointing.

Trade with developed countries has been highly concentrated in a select handful of goods, while intra-African trade has been limited by a lack of complementarily, as many African nations export the same commodities.

Problems of poverty, food security, and youth unemployment persist.
Greater diversification and regionalism, as well as improved infrastructure, would enhance the benefits to African trade.

Despite their limitations, there still exists room for the expansion and deepening of existing regional development communities. Such efforts need not be limited to commodity trade; they can include greater sharing of resources, such as highways and ports.

The alleviation of supply-side constraints, such as weak infrastructure, would enable the continent to take advantage of trade preferences in developed countries, which currently go underutilized.
http://www.carnegieendowment.org/events/?fa=eventDetail&id=1370

Click on the link and the article goes into much greater detail.
 
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