The least developed countries report 2021: The least developed countries in the post-COVID world: Learning from 50 years of experience

Setting the scene: 50 years of the LDC category

• The number of LDCs doubled from 25 at the establishment of the category in 1971 to a peak of 52 in 1991. Six countries have graduated from the category (Botswana, Cabo Verde, Equatorial Guinea, Maldives, Samoa and Vanuatu), and since January 2021, the remaining LDCs number 46.
• The COVID-19 pandemic brought about the worst growth performance in 30 years and has reversed progress achieved on several development dimensions, especially poverty, education, nutrition and health.
• LDCs’ low COVID-19 vaccination rate of only 2% of the population, compared to 41% in developed countries, erodes the already low resilience of the countries.
• LDCs accounted for just 0.13% of global total trade in the 2010s. Development challenges among LDCs have remained broadly similar over the last 50 years, and their marginalization in international trade has persisted.
• 85% of LDCs remain commodity dependent, in spite of their share of manufactured exports improving from slightly over 20% in 2011 to 37% of total exports in 2019.

Achievements at 50: Growth, transformation and sustainability?

• Economic and social development indicators have greatly improved over the years although weaknesses remain.
• Real GDP for LDCs has increased fivefold, climbing from roughly $200 billion in 1971 to $1,118 billion in 2019 (all figures in constant 2015 prices).
• Real GDP per capita has expanded at a much slower pace than real GDP (1.3% per annum), rising from roughly $600 to $1,082 over the same period, due to rapid demographic growth.
• Prior to the COVID-19 shock, LDCs accounted for about 1% of world GDP, roughly the same share as in the early 1970s.
• GDP per capita for the LDC group represented less than 10% of the world average in 2019 – prior to the COVID-19 crisis. This was even lower than in 1971, when their GDP per capita amounted to 15%.
• Only seven LDCs (Bangladesh, Bhutan, Cambodia, Lao People’s Democratic Republic, Lesotho, Mali, and Myanmar) have consistently outpaced the world average GDP per capita growth by more than 1% and therefore have converged towards the standards of living of higher-income countries.
• Half of today’s 46 LDCs have fallen behind the world average since 1971, while a dozen other LDCs have “muddled through”, and broadly matched the world average GDP per capita growth rate.
• Growth accelerations were common over the 50 years, but LDCs stand out for having experienced more frequent instances of growth collapses than other groups of countries: between 1971 and 2019, collapses represented 16% of the total country-year observations in the case of LDCs, as compared with 10% for other developing countries, and just 2% for developed countries.
• During 1995–2018, nearly all LDCs recorded some expansion in manufacturing value added, but in most cases (23 out of 43) this was outpaced by the growth in other sectors, so that the overall weight of manufacturing in total value added declined, giving rise to “relative de-industrialization”.
• Labour productivity grew on average by 6% per year between 1995 and 2018, in the 15 LDCs for which detailed sectoral data is available. The reallocation of labour away from agriculture towards higher-productivity sectors accounted for roughly half of this improvement, while the rest can be traced to within-sector productivity growth (through the expansion of capital per worker and learning-by-doing).

Evaluating past and present strategies for furthering development

• Since 1981, four programme of action (PoAs) have been implemented covering various dimensions of development and outcomes that addressed the social, economic, and environmental impediments to development in LDCs.
• The PoAs progressively differed in focus and level of detail accorded to the priority areas relevant to advancing the process of the structural transformation in LDCs, although productive capacities and diversification partially targeted in the various PoAs.
• The success of PoAs depends on the capacity and leadership role of LDC governments. However, LDC state capacity has eroded over the last 40 years, largely due to the effects of structural adjustment programmes, and recent changes to official development assistance (ODA).
• None of the PoAs can be said to have fully achieved their objectives.
• Relatively few small donor countries consistently reach the upper-level target of 0.20% of gross national income (GNI) disbursed as ODA to LDCs, while bigger and richer donor countries are not meeting even the lowest target of 0.15% of GNI.

Estimating the cost of achieving Sustainable Development Goals in the LDCs during the post-pandemic decade

• Total government spending in LDCs was limited to at most 20% of GDP in 1990–2020, a low level due to a constant presence of budgetary constraints.
• Investment needs to reach key priorities to achieve the SDGs in 2021-2030, namely: i) 7% annual GDP growth in the LDCs (Target 8.1); ii) eradicate extreme poverty (Target 1.1); and iii) double the share of manufacturing in GDP (Target 9.2):
  • LDCs will have to invest $462 billion annually to meet the target of achieving a 7% annual GDP growth (SDG) Target 8.1);
  • LDCs will have to invest $485 billion annually to eradicate extreme poverty (SDG Target 1.1)
  • LDCs will need to invest $1,051 billion annually to double the share of manufacturing in GDP (SDG Target 9.2).
• These investment rates translate into a need for LDC economies to growth by at least 9% per annum to eradicate extreme poverty or, alternatively, a much higher 20% to double the manufacturing share in GDP.
• The objectives above investments for the period 2021–2030 amount to about 27% of GDP, with 73% of this total expected to be private; 26% public and 1% from public-private partnerships (PPPs).
• Furthermore, LDCs will have to mobilize an additional 10.4% of GDP to finance social and environmental services.
• The level of LDC’s public expenditure will have to increase by 12.3% from the current 2.9% of GDP to reach major social and environmental targets of the Sustainable Development Goals.
• The financing gaps will increase progressively from 6.3% to 11.3% of GDP by 2030 in health; from 4.2% to 6.6% of GDP by 2030 in education; from 2% to 8.5% of GDP by 2030 in social protection.
• Tax revenues alone will not be sufficient to cover all incremental investments and expenditures required to reach SDG targets. The total average expenditure would have to increase by 59% of GDP to meet the three key investment scenarios above.

From lessons learnt to future development trajectories

• The current framework of domestic and international policies has not helped the majority of LDCs overcome the major development challenges they face.
• Structural transformation remains at the core of the quest by LDCs to achieve economic dynamism and resilience. The focus on building productive capacities and their corresponding capabilities is rooted in the need to steer a path to development that assures economic, social, and environmental sustainability.
• A new generation of international support measures are required to enable LDCs pursue different development paths, and to allow them to emerge strongly from the lingering effects of the COVID-19 crisis.
• The Fifth United Nations Conference on the Least Developed Countries to be held in Doha, Qatar, in 2022, will be an important occasion to address the lingering development challenges of LDCs.