Building productive capacities critical for least developed countries

21 June 2021

COVID-19 has heightened the need to boost productive capacities for socioeconomic recovery in the world’s poorest nations.

© Zhu Difeng

Investing in productive capacities in least developed countries (LDCs) is essential to helping them achieve long-term and inclusive development.

Speakers at an UNCTAD event held on 26 May to advance discussions ahead of the organization’s 15th ministerial conference in October underlined the critical role of productive capacities in helping countries graduate from the LDC category.

UNCTAD defines productive capacities as “the productive resources, entrepreneurial capabilities and production linkages that together determine the capacity of a country to produce goods and services and enable it to grow and develop.”

They are the motors of economic growth and the essential factors that must be present for a country to compete effectively in global markets, and are essential for structural transformation, which ultimately leads to sustainable development.

UNCTAD Acting Secretary-General Isabelle Durant said the pace and quality of economic transformation in most LDCs have been limited by weak productive capacities despite achieving impressive growth in recent years.

“This is compounded by a failure to enhance productivity in key sectors, such as technology-intensive manufacturing or services,” she said.

COVID-19 recovery requires productive capacities

Ms. Durant said the COVID-19 shock has hit LDCs hard, rolling back their hard-earned progress in poverty reduction and other measures of socioeconomic development.

The pandemic has only heightened the relevance of productive capacities to LDCs’ socioeconomic recovery.

Productive capacities include technological and production capabilities, financial resources, infrastructure, institutions, efficient market systems, skills and the policy-implementing capacities that a country needs to produce the goods and services that it consumes domestically and exports competitively.

“We have found that the most desirable and equitable form of growth and development is one grounded on the expansion of productive capacities,” Ms. Durant said. “Because this creates opportunities.”

Only when countries expand their productive capacities, with targeted efforts across various dimensions, are they able to achieve their development goals, Ms. Durant said.

This includes diversifying their economies; adding value and producing a wide range of products and services; creating well-paying and decent jobs and reducing their dependence on the production and export of commodities.

It also entails promoting technological learning; improving labour productivity, tackling environment-related challenges; reducing vulnerability to external shocks, and ultimately, kick-starting the process of structural transformation.

Structural transformation is the ability of an economy to constantly generate new dynamic activities characterized by higher productivity and increasing returns to scale.

UNCTAD’s approach to productive capacities

UNCTAD’s approach to building productive capacities is comprehensive and multi-faceted, including through the utilization of its Productive Capacities Index (PCI). It also entails undertaking productive capacities gap assessments at the national level.

During the May event, panellists agreed on the need for LDCs to have such assessments to help them identify the policy areas where they’re lagging the most and where focus should be placed.

They also noted the need for targeted support by the international community to help LDCs realize their own national development targets and meet global sustainable development goals. This could take the form of a new generation of International Support Measures (ISMs).

Various speakers said although some LDCs have demonstrated comparative success in leveraging the existing ISMs granted to them, the current set of ISMs has not gone far enough.

New support measures needed

UNCTAD and other trade and development experts, including from the Committee for Development Policy have observed that more LDCs are reaching the graduation point without utilizing some existing ISMs.

These include preferential market access granted under duty-free-quota-free schemes and a special waiver offered by the World Trade Organization (WTO).

According to Paul Akiwumi, director of UNCTAD’s division for Africa and LDCs, this is not because the support measures are unnecessary or irrelevant to LDCs’ needs.

“It’s because not all LDCs have developed the necessary productive capacities to produce the types of goods and services that could benefit from these market access opportunities,” Mr. Akiwumi says.

He says new ISMs are urgently needed to help LDCs make better and more efficient use of the support granted to them by the international community, and to ensure the momentum generated by these measures can continue to strengthen their insertion in global markets.

Next programme of action

Besides UNCTAD15 in October, world leaders will meet at WTO’s 12th ministerial conference in November, followed by the 5th UN conference on LDCs (LDC5) in January 2022 in Doha.

Mr. Akiwumi says these are invaluable occasions to come together in support of the world’s poorest countries and people.

He says building, maintaining and utilizing productive capacities should be central to the next programme of action for LDCs to be agreed at the January conference.

“Bold policies and strategies should be crafted to meet the specific needs of these countries towards and beyond graduation,” Mr. Akiwumi says. “We must go beyond the status quo.”

All panellists at the May event reaffirmed the recognition of productive capacities as the suggested organizing framework for the next programme of action for LDCs.

They said the programme should be focused, forward-looking and incorporate emerging issues such as the role of new technologies and e-commerce in fostering development in LDCs.