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November 24, 2010

Study: Poorest Countries Must Diversify to Break Out of Poverty Cycle

A new United Nations study argues the Least Developed Countries must diversify and modernize their economies to achieve development and break out of their poverty trap.   The UN Conference on Trade and Development's 2010 Least Developed Countries report says LDC's are stuck in old ways of doing things and this is preventing them from moving their economies forward.  

The report says the world's 49 poorest countries have done a fair job of weathering the global downturn.  But, it says they are still trapped in the so-called boom-bust cycles, which have long plagued their economies.  

The report says the Least Developed Countries must develop their abilities to produce an increasing range of higher value-added goods and services through expanding investment and innovation.  

Otherwise, it warns they will have difficulty achieving substantial and lasting poverty reduction.  UNCTAD Secretary-General, Supachai Panitchpakdi, says LDCs are too heavily dependent on exports of primary commodities and low-value-added manufactures.  

"LDC's have shown positive trends in the trade activities.  But, it is mainly driven by commodities and mainly oil and gas and all these primary commodities. They have not been able to benefit from any global trends to wean themselves away from increasing dependence on commodities,"  said Panitchpakdi.

Supachai says there has been very little diversification into manufacturing activities.  He says only the LDCs in Asia have been relatively successful in diversifying their economies.

New poverty figures estimate the number of people in extreme poverty has increased by three million per year during the boom years of 2002 and 2007.  In 2007, the figures show more than 420 million people were living in poverty, that is twice as many as in 1980.                                                            

UNCTAD economists note the focus of support for LDCs is mainly in the area of trade.  They say this must change and greater emphasis must be put on helping the poor countries expand other areas of economic interest.

The report argues the need for more and new forms of financial assistance to support the LDCs domestic activities.  It says technology and commodities, as well as climate change adaptation and mitigation also should be given priority.

The main author of the report, Zeljko Kozul-Wright, says globalization has not treated everyone well or equally.  She says the LDC's have been on the losers' side.

Kozul-Wright says the LDC's must break free of their dependence on trade in exports because business as usual will not deliver growth.

"We also believe that South-South linkages offer significant growth opportunities for all developing countries, including LDCs through free trade and investment flows.  And, indeed, one of the reasons for the resilience of LDCs to the shock owes something to the growth of these linkages in recent years, and it is particularly strong in Asia," she said.

The report says LDCs face a difficult medium-term outlook.  It says low investment levels and weak financial development continue to pose serious concerns.  

Therefore, it says the world's poorest countries will depend largely on the speed of economic recovery in the rest of the world and on increased support from international donors.