CHENNAI: With a doubling of aid from rich countries between 1999 and 2004, the world's 50 poorest countries achieved an average growth of 5.9 per cent of Gross Domestic Product (GDP) in 2004. But this growth was also associated with high demand for oil and other natural resources, according to an UNCTAD study.

The UN agency's "The Least Developed Countries Report 2006: Developing Productive Capacities," has warned that sustaining this progress will depend on channelling a higher proportion of aid into increased investment in productive sectors and into infrastructure improvements. The focus could be on upgrading roads, ports, and electricity supplies, as well as enhanced support to improve domestic financial systems, upgrade technological capabilities and support the development of local firms.

"Unless more aid is channelled into building up the productive bases of LDC economies, they will remain vulnerable to sudden downturns, and substantial long-term reductions in poverty will not occur," the report says. Enabling countries to come up with more products of value-addition should expand the employment base over the long term and reduce the need for emergency aid over time. "It is also the only way to diminish pressures for international migration from poor countries," UNCTAD reports.

A disturbing feature of the report relates to the link between aid and investments on the one hand to the availability of oil and minerals in the LDCs.

About 70 per cent of foreign direct investment in the LDCs in 2004 was directed to oil and mineral exporting economies.

Merchandise exports increased by 26 per cent in 2004, and over half of the increase was accounted for by four oil-exporting LDCs — Angola, Equatorial Guinea, Sudan and Yemen. A few other economies, notably Bangladesh, Cambodia and Senegal, fared much better in manufacturing exports.

But otherwise, the UNTAD report notes, "The LDCs remain marginalised in world trade, with their exports averaging 0.5 per cent of total world merchandise exports in 2000-03, and only 0.2 per cent of total world manufactures exports."

Rising external debt

The report has pointed to a continued rise in the overall external debt of LDCs, despite the enhanced debt relief measures. Their domestic savings rates remain low - with the rate of gross domestic saving to GDP in LDCs at just 11 per cent in 2004.

Most of them continue to be net importers of both food and oil. A combination of price rises in oil, as has happened over the past two years, and on food will considerably worsen most LDCs persistent trade deficits, and offset the positive impact of increased aid. The increase in aid was driven by increasing debt relief emergency assistance, which together constituted 30 per cent of total ODA commitment to LDCs between 2002-04.

That aid too was not distributed evenly. About 30 per cent of the increase between 1999 and 2004 went to Afghanistan and the Democratic Republic of Congo.

The UNCTAD report has cautioned that LDCs have a history of short periods of progress followed by sudden economic collapses.

"Reducing this vulnerability requires developing the productive base of these economies so that they produce a wider variety of products and a broader range of jobs and mobilising under-utilised domestic resources and capabilities."

Printer friendly page  
Send this article to Friends by E-Mail