Transforming growth for least developed countries

A focus on four key priorities could help Least Developed Country governments lift their citizens out of poverty by generating inclusive growth.

Camilla Toulmin's picture
Blog by
10 March 2014

A dilapidated road is repaired in the West Khasi Hills district of Meghalaya, India (Photo: Rikynti Marwein via Creative Commons http://creativecommons.org/licenses/by/2.0/)

Public-private partnerships have featured a lot recently in development circles, which is littered with fads and fancies. Yes, the private sector, both large and small, has much to contribute. But there is no substitute for a government playing its rightful role in doing those things the private sector will never deliver, such as providing education for all, building roads to rural areas or investing in institutions for ensuring social justice.

Forty-nine members of the Least Developed Countries (LDCs) have an ambitious goal to meet within the next ten years. They must generate enough growth in incomes and economic activity to cut by half the number of LDCs by 2020. The goal, agreed in 2011, is called the Istanbul Programme of Action.

The LDCs have the lowest Human Development Index ratings and low levels of socio-economic development. But they also have tremendous natural assets, including forests, minerals, agricultural land, and renewable energy sources which, if managed well, could be the basis for long-term, sustainable growth.

What will it take to help them meet this goal and realise the greatest economic gains? How should they make the best use of their huge untapped resources in people, resources and ingenuity?

These were questions we aimed to answer during a meeting with the LDCs on the post-2015 development framework. IIED co-hosted the meeting with the UN's Office of the High Representative for the LDCs, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS), which co-ordinates UN support and advocates on behalf of the Least Developed Countries.

The issue of "productive capacity" surfaced again and again at the meeting. The term refers to the resources and entrepreneurial skills of the people living within a country, which can generate the jobs, incomes, investment and exports that will lift countries from their low-income status.

Four key priorities that can bring about transformational change in the LDCs were identified during the meeting: infrastructure, investment, incentives and institutions.

Infrastructure. Transport and energy systems connect people and create the means for growth in market opportunities

Building and maintaining a road network should be a top priority for national and local governments. It's the ultimate public-private partnership, since whenever roads are built or upgraded, they generate a big increase in associated economic activity. But the private sector also needs to make a fair contribution to this infrastructure, through road taxes and tolls.

In many countries, energy supply becomes far more uncertain and costly the further from the capital you go, as described in the case of Mali by Youba Sokona at Wilton Park, who described the high cost and power shortages as soon as you leave Bamako. As a result, anyone who wants to set up a thriving business needs to head to the capital city. Getting energy to rural districts at a reasonable cost can help drive economic activity in the hinterland. That’s why it's especially vital to get small-scale renewable energy to the millions of people who are likely to be off-grid for many years to come.

Investment. Broad based growth needs to draw on multiple sources of investment, to finance Small and Medium Enterprises in cities and rural areas

Investment sources to Least Developed Countries include domestic revenues, diaspora remittances, large-scale foreign direct investments, and capital flows from development banks.

Many governments have set up investment promotion agencies (IPAs), in the hope of attracting large inflows from private sources, but ensuring the quality of investment is key for creating jobs and generating long-term returns. IPAs need to set out what "quality" means for them, and to strike a better balance in negotiating investment deals between the government's objectives and what private investors seek.

Worldwide remittances from citizens living abroad to their families back home are sizeable, and reach families directly. In fact, one study looking at African money flows found that the amounts sent home to families were found to exceed Official Development Assistance. National and local governments can set up co-investment strategies to bring diaspora remittances into building productive capacity by, for example, matching dollar for dollar the contributions made.

But governments shouldn't just focus on the diaspora, as delegates at the meeting made clear. Governments should mobilise domestic funds by making tax reform and effectiveness a top priority, ensuring businesses pay the revenue due to the state.

Incentives. Reward people building the country's economy

Farmers play an important role in building a country's economy by providing food to local towns and cities. Farmers must feel confident that if they buy inputs, such as new seeds or fertilisers, and make their farm more productive that this extra work will be rewarded. If they get paid promptly for delivering their crops, have secure land tenure and can access inputs in a timely fashion, it makes a big difference.

This may seem obvious, but this is a fundamental problem in some countries, where powerful people control the import licenses for rice and other foodstuffs. They benefit from controlling domestic food markets, often at the expense of local farmers.  Governments need the political courage to meet the needs and push the interests of millions of smallholder farmers looking for rewarding markets, rather than satisfying the wants of the powerful few. Unless this unequal power is addressed and opportunities are provided to a broader swathe of the population, growth won't happen.

Institutions. Build up the institutions, or "rules of the game"

It's one of those long-term investments which repays many times over in more predictable returns: peace and stability.

It's often easier for governments to focus on visible investments they can see and touch, like roads, dams and marketplaces. Yet, the software which lies behind successful returns to the hardware of development also needs attention. And it's for this reason that many people have been pushing for justice or governance to feature amongst the set of Sustainable Development Goals, since these issues encapsulate what needs to be delivered by effective institutions at national and local levels.

Governments must provide a good quality education for all. If they do, their citizens will become a well-educated labour force that provides the long-term flexibility that economies need in the world of today and tomorrow.  

If governments are to function properly, they need tax and revenue systems that provide for delivery of public goods. International assistance can help a lot by building more effective tax collection, while pressure by the G20 will be key to getting big corporations to pay tax where its due.

But power relations make it hard for governments to get a fair share of the revenue they're due. For example, only five per cent of the revenue from fishing in Kiribati, an island nation in the central tropical Pacific Ocean, is returned to the country. The rest is being taken by big foreign fishing fleets according to the Kiribati delegation who spoke at the meeting. And in the absence of civil society oversight, there will be more cases like the infamous deal for Guinea’s iron-ore mine, in which an asset worth $5b was sold for $165m.

Over the next ten years, guaranteed support from development agencies to the LDCs could aid construction of more effective states, better able to listen and respond to their citizens' aspirations. But it's up to the LDC governments to put those resources to their best use and create economic opportunities for their people. They could make real progress by focusing on infrastructure, investment, incentives and institutions.

Camilla Toulmin is Director of the International Institute for Environment and Development.

This blog was first posted on the Independent Research Forum website.

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