Ladies and gentlemen,
Let me first say how delighted I am by this opportunity to address you today, in what is certainly a most appropriate venue. The Fourth United Nations Conference on LDCs. I am particularly grateful to UNCTAD and the Common Fund for Commodities (CFC), the organizers of the Special Event, and commend their efforts in advancing the cause of LDCs development.
I take this special event as a sign of the large reserve of goodwill and resolve that exist, within the international community, towards addressing the issue of commodity dependence and its consequences on economic growth and development in LDCs. Such focus on commodity dependence is also consistent with global efforts to unlock the developmental potential of the vast natural resources of LDCs, including through improving transparency in the extractive industry and ensuring that the revenues collected from this industry are equitably distributed.
The increased attention to the subject matter is also in line with LDCs’ views and efforts, which place economic diversification, and crisis mitigation and resilience building at the top of their defining challenges for the decade to come.
The special event could not have taken place at a better time after the recent economic and financial crisis and the current rise in fuel and food prices. All these shocks reminded us how a heavy reliance on few commodities is a factor of vulnerability, particularly in LDCs.
The production and exports bases in many LDCs continue to be heavily concentrated in a very limited number of primary commodities with little value addition. A perfect illustration of this is provided by the trends in the share of LDCs in world total exports.
The contribution of LDCs to global trade seems to have risen in recent years. LDC exports of goods accounted for 1.1 per cent of the world total exports in 2008 compared to 0.56 per cent in 2003. Yet this increase owes much to the export performance of the five LDC oil-exporting countries, namely to Angola, Myanmar, the Sudan and Yemen, and, to a lesser extent, to one of the garment-exporting countries, such as Bangladesh. When the oil-exporting countries are put aside, the share of LDCs in world exports of goods turns to be much lower and virtually unchanged, hovering around 0.33 per cent. This is to say that LDCs’ exports have also remained heavily dependent on natural resources and low-skilled manufactured goods.
The high volatility of the prices of these, which is amplified by the multiple global crises, has therefore detrimental effects on government and export earnings, and ultimately hampers the ability of LDCs to import. This holds all the more true for the LDCs that are net importers of food and/or fuel, particularly when the prices of these commodities rise dramatically as it was the case recently. Unstable prices of commodities also limit the ability of LDCs to invest and to generate significant, economic growth and jobs and to secure meaningful social gains.
Further, the heavy reliance on primary commodities and low-skilled manufactured goods provides very few opportunities to develop local capabilities and create dynamic linkages among various sectors of LDC economies, which would set the stage for fundamental structural transformation.
Having touched on the nexus between commodity dependence and development in LDCs, allow me, now, to share my perspectives on the theme to be discussed during this special event.
I am of the view that there are three areas where LDCs and the global community can affectively act so as to reduce the impact of exogenous shocks, particularly commodity price shocks, on LDCs’ development trajectories.
The first area pertains to the size of shocks that affect LDCs. The recent economic and financial crisis and, to some extent, the increased volatility in commodity prices have been caused by the build-up of risks in the financial sectors of many developed countries. Such a build-up of risks was the consequence of across-the-board speculative behaviours, which took advantage of the then prevailing loose regulatory and oversight frameworks.
Although some measures have been taken to ensure strengthened financial stability and regulation, derivative commodity markets continue not to be subject to any oversight whatsoever. It is worth recalling that these markets are where contracts are traded directly between two parties without going through the facilities constructed for the purpose of trading.
The loose oversight over the derivative commodity markets contributes in part to sharpening the pattern of commodity price volatility, as it encourages excess positions. This is reflected by volumes traded in these markets, which far exceed those of their physical counterparts. Because of this, market fundamentals--demand-supply fundamentals of physical commodities--- are no longer the only drivers of prices.
Derivative commodity markets increasingly contributed to price swings and therefore need to be regulated if such swings and the size of commodity price shocks are to be reduced. In this respect, I welcome the commitment of France’s G20 presidency to bring this issue to the agenda of the G-20.
The second area pertains to the capacity to mitigate the adverse effects of the multiple crises on economic growth and development in LDCs. Again, I commend the on-going efforts of the international financial institutions (IFIs) and regional development banks to put in place facilities that can provide low-income countries, LDCs being some of those, with the financial support needed to cushion the impact of these shocks. However, to ensure that these facilities deliver the maximum impact, IFIs and regional banks should extend targeted, timely and adequate support to LDCs.
The recent experiences in LDCs also suggest that domestic efforts can contribute to dampen the impact of exogenous shocks. Pursing counter-cyclical fiscal policies coupled with efforts to build or strengthen social protection regimes can help sustain domestic demand in the face of sluggish economic growth and protect the poor and the hardest-hit segments of the population. As suggested by some existing success stories, the pursuit of counter-cyclical policies can be facilitated by the establishment of stabilisation funds. These funds serve as buffer mechanisms whereby some part of windfall revenues are transferred from the budget to the stabilisation funds during times of increasing commodity prices and the other way round when prices are declining, ensuring therefore the stability of public spending. Another area where LDCs can learn from other developing countries is in the area of social protection regimes.
These domestic efforts could not deliver their maximum impact unless accompanied by an improved institutional capacity of LDCs to negotiate, enforce and monitor fairer contracts with global corporations and a better management of their natural resource endowments in order to extract maximum value and revenue for LDCs.
As economic growth and development in many LDCs are closely linked to with developments in commodity markets, a long-term solution to such dependence will be to diversify the production and export bases of this group of countries. This is the third area that needs deserved consideration.
Economic diversification, however, cannot take place without the enhancement of productive capacities in LDCs, which these countries put high in their list of pressing needs and challenges. The productive capacities refer to the ability of a country to produce efficiently and competitively high-value added goods and services. Productive capacity-building efforts take the form of improved physical infrastructure, including power generation, transport and ICT, and other enabling conditions for development as well as adequate financial, technological and human capital.
The support of the international community to build and strengthen productive capacities in LDCs is, in the long-run, the most effective way to free these countries from their commodity dependence and build resilience to shocks.
The issue of commodity dependence has been debated for quite some time dating back to the post independence era of many LDCs. The subject is challenging, but one, if fully addressed, could alter the future course of LDCs and enable them to escape their least developed status.
That, Excellencies, Ladies and Gentlemen, is certainly an outcome worth working on.
This is our challenge, and LDCs expects that we will rise to it.
I am looking forward to the outcome of your in-depth discussions, which I am confident will help move forward both the thinking and actions as they relate to addressing commodity dependence.
I thank you for your kind attention.