Caught in a trap

World's poorest nations can't have the much needed investment for growth

Published on:

15 Jul 2004, 12:00 am

50 per cent of the people in the least developed countries (LDCs) live on less than US $1 a day. In 2000, this group totalled 334 million. By 2015, they could be 471 million

Such poverty levels limit their ability to generate domestic resources. In 28 LDCs, the ratio of gross capital formation to gross domestic product (GDP) rose from 20.2 per cent in 1998 to 23 per cent in 2002 and the domestic savings rate from 4.4 per cent to 4.8 per cent. The rest of the 18.2 per cent of GDP in 2002 came from external sources

Potent prescription
But will the UNCTADs development strategy work?

The UN Conference on Trade and Development (UNCTAD) proposes a development-oriented approach would ensure that international trade works for poverty reduction. It offers a three-pronged strategy that must be mutually supportive of each other:
Include trade as a central component in the formulation and implementation of least developed nations development strategies
Improve global trade regime to reduce constraints they face
Increase international financial and technical assistance to develop their production and trade capacities

External indebtedness is rising. In 2002, the external debt stock of 43 countries rose by US $8 billion over 2001 levels and debt servicing reached a record level of US $5.1 billion

Grants, too, are now used to provide basic services. The proportion of bilateral aid for developing productive sectors , economic infrastructure and agriculture fell by around 50 per cent over two decades from 1980 levels

Even their last resort, export revenues, is being eroded. 67 per cent of the merchandise exports in 31 nations comprises primary commodities. From 1980 to 2003, prices of food items fell by 73.3 per cent, agri-raw materials by 60.7 per cent and minerals by 59.5 per cent

Had prices of these commodities remained at 1980 levels , the LDCs would have earned an additional US $1.2 billion. Of this, US $312 million would have accrued to the coffee exporters, US $386 million to cotton exporters and US $751 million to mineral exporters

Not enough Domestic savings do not match investment needs
Country	Gross capital formation (GCF)		Gross domestic savings (GDS)		Resource gap*
Country	1998	2002	1998	2002	1998	2002
Bangladesh	21.6	24.0	16.7	19.4	4.9	4.6
Chad	17.4	54.6	4.1	3.8	13.3	50.8
Eritrea	36.9	46.7	-31.1	-24.2	68.0	70.9
Lesotho	47.1	36.1	-27.0	-5.8	74.1	41.9
Nepal	24.8	24.1	13.8	13.3	11.0	10.8
Sao Tome and Principe	35.8	44.0	-7.0	-1.4	42.8	45.4
Yemen	32.1	18.6	11.5	21.8	20.6	-3.2
LDCs**	20.2	23.0	3.3	4.8	16.9	18.2
All figures are a percentage of gross domestic product (GDP) Measured by GCF less GDS; *Simple average based on the 28 LDCs for which data were available for the 19982002 period

Note: Data for all countries are not available. The number of countries for which data was available has been specified above in each case.

Source: Anon 2004, The Least Developed Countries Report 2004, United Nations Conference on Trade and Development, New York and Geneva

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