ldc2021 en

U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T
The least developed countries

in the post-COVID world:
Learning from 50 years of experience
THE LEAST DEVELOPED COUNTRIES REPORT 2021

U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T
The least developed countries

in the post-COVID world:
THE LEAST DEVELOPED COUNTRIES REPORT 2021

The Least Developed Countries Report 2021
© 2021, United Nations

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United Nations publication issued by the United Nations Conference on Trade and Development.
UNCTAD/LDC/2021
ISBN: 978-92-1-113006-5
eISBN: 978-92-1-005605-2
ISSN: 0257-7550
eISSN: 2225-1723
Sales No. E.21.II.D.4
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Acknowledgements
The Least Developed Countries Report 2021 was prepared by UNCTAD. The report was written by Rolf Traeger
(team leader), Benjamin Mattondo Banda, Matfobhi Riba and Giovanni Valensisi, with the assistance of Yunpeng
Liu, Leonardo Jacopo Mori, Esther Mpagalile, Carlotta Schuster and Ali Yedan. The work was carried out under
the overall supervision of Paul Akiwumi, Director of the UNCTAD Division for Africa, Least Developed Countries
and Special Programmes, and Junior Roy Davis, Head of the Policy Analysis and Research Branch.
A virtual meeting was held on 2 June 2021 to conduct a peer review of the report, chapter by chapter and as a
whole. It brought together specialists in the fields of development policies and strategies, structural transformation,
labour market and policies, international trade, macroeconomic policy, financing for development, climate change,
science, technology and innovation, and human rights. The participants were: Bartholomew Armah (United
Nations Economic Commission for Africa), Samantha Attridge (Overseas Development Institute), Exley B.D.
Silumbu (Chancellor College, University of Malawi), Matthieu Boussichas (Foundation for Studies and Research
on International Development), Theo Chiviru (Open Government Partnership, Regional Lead, Africa and the
Middle East), Cheikh Tidiane Dieye (Centre africain pour le commerce, l'intégration et le développement), Daniela
Gabor (University of the West of England), Noelia Garcia Nebra (International Organization for Standardization),
Charles Gore (associate researcher, United Nations Research Institute for Social Development), Bernard
Hoekman (European University Institute), Jodie Keane (Overseas Development Institute), Massimiliano La Marca
(International Labour Organization), Humberto Laudares (independent consultant), Xiaojing Mao (Institute of West
Asian and African Studies, Chinese Academy of International Trade and Economic Cooperation), Rose Mwebaza
(Climate Technology Centre and Network, Economy Division, UN Environment), Chukwuka Onyekwena (Centre
for the Study of the Economies of Africa), Oliver Paddison (Economic and Social Commission for Asia and
the Pacific), Aurelio Parisotto (International Labour Organization), Annalisa Prizzon (Overseas Development
Institute), Mzukisi Qobo (Wits School of Governance), Diego Valadares Vasconcelos Neto (Office of the High
Commissioner for Human Rights), Thomas Weiss (City University of New York) and Shuai Yao (Institute of
International Development Cooperation, Chinese Academy of International Trade and Economic Cooperation),
as well as the members of the report team and the following UNCTAD colleagues: Evelyn Benitez, Lisa Borgatti,
Dimo Calovski, Mussie Delelegn Arega, Stefanie Garry, Tinotenda Mataire, Moritz Meier Ewert, Patrick Osakwe,
Johanna Silvander, Elena Stroganova, Fatima Sine Tepe, Vincent Valentine and Anida Yupari Aguado.
The following peer reviewers provided written comments on different chapters of the report: Lisa Borgatti (UNCTAD),
Dimo Calovski (UNCTAD), Jihen Chandoul (economist consultant to the Office of the High Commissioner for
Human Rights), Gabriele Köhler (associate researcher, United Nations Research Institute for Social Development)
and Diego Valadares Vasconcelos Neto (Office of the High Commissioner for Human Rights).
Annette Becker and Márcia Tavares (CDP Secretariat, United Nations Department of Economic and Social Affairs)
provided comments on the “What are the least developed countries” section.
Humberto Laudares prepared a background paper for the report. Mark Bloch edited the text.
Gilles Maury and Nadège Hadjemian designed the cover and the infographics. Juan Carlos Korol did the overall
layout, graphics and desktop publishing.
iii
Note
Material in this publication may be freely quoted or reprinted, but full acknowledgement is requested. A copy of
the publication containing the quotation or reprint should be sent to the UNCTAD secretariat at:
Palais des Nations, CH-1211 Geneva 10, Switzerland.
The overview of this report can also be found on the Internet as a separate document, in all six official languages
of the United Nations, at: www.unctad.org/ldcr
Main text
The term “dollars” ($) refers to United States dollars unless otherwise specified.
The term “billion” signifies 1,000 million.
Annual rates of growth and changes refer to compound rates.
Exports are valued “free on board” and imports, on a “cost, insurance, freight” basis, unless otherwise specified.
Use of a dash (–) between dates representing years, e.g. 1981–1990, signifies the full period involved, including
the initial and final years. A slash (/) between two years, e.g. 1991/92, signifies a fiscal or crop year.
Throughout the report, the term “least developed country” refers to a country included in the United Nations list
of least developed countries.
The terms “country” and “economy”, as appropriate, also refer to territories or areas.
Tables
Two dots (..) indicate that the data are not available or are not separately reported.
One dot (.) indicates that the data are not applicable.
A dash (–) indicates that the amount is nil or negligible.
Details and percentages do not necessarily add up to totals, because of rounding.
Figures
Some figures contain country names abbreviated using ISO (International Organization for Standardization)
alpha-3 codes, which can be consulted at: https://www.iso.org/obp/ui/#search.
iv
Contents
Note ................................................................................................................................................................ iv
Classifications.................................................................................................................................................. ix
What are the least developed countries? ..........................................................................................................x
Abbreviations and acronyms...........................................................................................................................xiii
Foreword ........................................................................................................................................................ xv
Overview ...........................................................................................................................................................I
CHAPTER 1 Setting the scene: 50 years of the LDC category .......................................1

A. The landmark in LDC history ...................................................................................... 3
B. The origin of the LDC category................................................................................... 4
C. Evolution of the LDC category .................................................................................. 11
D. The present critical juncture ..................................................................................... 13
E. Structure of the report .............................................................................................. 14
ANNEX .................................................................................................................... 15
CHAPTER 2 Achievements at 50: growth, transformation and sustainability?........ 19

A. Introduction ............................................................................................................. 21
B. A bird’s eye view on the long-term performance of LDCs ......................................... 21
C. Medium-term considerations and boom-and-bust cycles......................................... 29
D. Patterns of growth: structural dynamics, inclusivity and sustainability ....................... 32
E. Conclusions ............................................................................................................ 54
CHAPTER 3 Evaluating past and present strategies for furthering development ... 57
A. Introduction ............................................................................................................. 59
B. Multilateral strategies for furthering development in LDCs......................................... 59
C. National strategies for furthering development .......................................................... 67
D. National case studies ............................................................................................... 75
CHAPTER 4 Estimating the cost of achieving Sustainable Development Goals

in the LDCs during the post-pandemic decade ................................. 87
A. Introduction.............................................................................................................. 89
B. Methodology and data ............................................................................................. 92
C. LDCs' financial needs to achieve selected Sustainable Development Goals ............ 98
D. Expanding sources of financing to reach the targets .............................................. 105
ANNEX .................................................................................................................. 109
CHAPTER 5 From lessons learnt to future development trajectories ................... 117

A. Challenges for the next decade of development in LDCs........................................ 119
B. The global community’s interest in LDC development and support for it ................. 120
C. The new programme of action: objectives ............................................................. 122
D. National measures: new priority actions for consideration ...................................... 123
E. A new generation of international support measures .............................................. 128
References ...................................................................................................... 135
v
Figures
1.1 Share of total trade (per cent) by economic status .......................................................................................... 8

1.2 Share of major commodity groups in merchandise exports and share of services in total exports ................... 9
1.3 Manufactured goods exports by intensity of skills and technology, by country development
status, 1995–2019.......................................................................................................................................... 9
1.4 Import shares by major commodity groups and economic status.................................................................. 10
1.5 LDC timeline, 1971–1921 ............................................................................................................................. 12
1.6 COVID-19 vaccination rates at mid-2021 ...................................................................................................... 13
2.1 Real GDP and real GDP per capita in LDCs, since the creation of the category............................................. 22
2.2 LDC GDP and GDP per capita relative to the world total ............................................................................... 22
2.3 Real GDP and real GDP per capita growth, by decade and LDC geographical sub-group ............................ 23
2.4 Average annual percentage growth rate of real GDP per capita (1971–2019) ................................................ 24
2.5 LDC real GDP per capita as share of that of other country groups ................................................................ 25
2.6 Real GDP per capita across countries – Kernel density estimation for 1971, 1995, and 2019,
and histogram by development status in 2019 .............................................................................................. 26
2.7 Number of growth accelerations/decelerations by year and country group.................................................... 31
2.8 Occurrences of growth accelerations/decelerations by LDC ............................................................................32
2.9 Development accounting decomposition of growth in real GDP per worker for selected LDCs ...................... 34
2.10 Decomposition of annual labor productivity growth in selected LDCs ............................................................ 35
2.11 Sectoral decomposition of the within-sector and structural change components in selected LDCs ............... 36
2.12 Evolution of the manufacturing sector in the LDCs ........................................................................................ 37
2.13 Changes in LDC ranking according to Economic Complexity Index............................................................... 39
2.14 Historical trends in headcount ratios in LDCs, by international poverty line .................................................... 39
2.15 Growth incidence curve for selected LDCs with different types of inclusive/non-inclusive growth .................. 43
2.16 Gini index for market and disposable income in LDCs................................................................................... 44
2.17 Correlation between GNI per capita and selected social indicators encompassed under LDC criteria ........... 45
2.18 Performance of LDCs against 2021 Human Asset Index criterion.................................................................. 46
2.19 Schematic representation of total wealth and its relationship to GDP and prosperity ..................................... 47
2.20 Total wealth per capita in LDCs, by component ............................................................................................ 48
2.21 Absolute change in total wealth per capita between 1995 and 2014, by LDC and main component ............. 49
2.22 Absolute change in natural capital per capita between 1995 and 2014, by LDC and main component ......... 50
2.23 Adjusted net savings in LDCs as a group ...................................................................................................... 52
2.25 Adjusted net savings excluding particulate emission damage, across LDCs .................................................. 53
2.24 Boxplot of natural resource depletion across LDCs ....................................................................................... 53
3.1 Total budget allocation based on national development priorities in billion dollars covering the latest
plan period ................................................................................................................................................... 68
3.2 Budget share, per cent of total budget of national development plan ............................................................ 69
3.3 Government spending share of GDP for selected LDCs, 1990–2019 ............................................................ 71
3.4 GNI per capita .............................................................................................................................................. 79
3.5 Between and within sector productivity growth, 1995–2018 ........................................................................... 80
3.6 Sectoral decomposition of economic growth................................................................................................... 80
vi
4.1 Average annual GDP growth of the LDCs: 1970 to 2030 .............................................................................. 99
4.2 Average annual GDP growth rates required to end extreme poverty by 2030 .............................................. 100
4.3 Average investment required to double manufacturing share of GDP by 2030 ............................................ 101
4.4 Total investment needs for the three scenarios ............................................................................................ 102
4.5 External finance to the least developed countries, 2010–2019 .................................................................... 103
4.6 Share of external development financing, 2016–2019 ................................................................................. 103
4.7 Financing gaps and outcomes .................................................................................................................... 104
4.8 Average yearly incremental spending targets for the LDCs to universalize health, education,
social protection and provide ecosystem conservation services: 2019-2030 ............................................... 105
Tables
2.1 Incidence and speed of growth accelerations/decelerations by country groups ............................................ 30

2.2 Summary table of LDC growth patterns ........................................................................................................ 42
3.1 General government final consumption expenditure in selected LDCs........................................................... 70
3.2 Determinants of government expenditure in LDCs, 2000–2019..................................................................... 73
3.3 Government expenditure share on selected sectors by country, 1990–2019 ................................................. 73
3.4 Impact of government expenditure on agriculture and industry in selected LDCs, 2000–2020 ...................... 75
3.5 Graduation criteria and relevant economic sub-components, 2021 ............................................................... 79
3.6 Human Asset Index and its sub-components, 2021...................................................................................... 82
4.1 Summary of the main estimation results for the LDCs ................................................................................... 95
4.2 Main parameters used to calculate the financing gaps ................................................................................ 104
Annex Tables
1.1 The LDC definition and criteria over the years ............................................................................................... 15
1.2 LDC scores against the 2021 LDC criteria .................................................................................................... 16
1.3 LDC selected indicators in 2000 and 2020 ................................................................................................... 17
3.1 Comparison between the Substantial New Programme of Action 1980s and the Paris Programme
of Action 1990s ............................................................................................................................................ 83
3.2 Comparison between the Paris Programme of Action 1990s and the Brussels Programme
of Action 2001–2010 .................................................................................................................................... 84
3.3 Comparison between the Brussels Programme of Action 2001–2010 and the Istanbul Programme
of Action 2011–2020 .................................................................................................................................... 85
4.1 Comparison of the existing literature on the costing of the Sustainable Development Goals ........................ 109
4.2 GDP growth and investment: Ordinary Least Squares and Fixed-Effects estimates..................................... 112
4.3 GDP growth and investment: Panel Time-Series estimates ......................................................................... 113
4.4 GDP growth, Public and Private Investment: Ordinary Least Squares and Fixed-Effects estimates .............. 113
4.5 Average LDCs’ investment needs in billion of dollars and as per cent of GDP: 2021–2020.......................... 115
vii
Boxes
2.1 LDCs and the divergent recovery .................................................................................................................. 27

2.2 How are growth accelerations and decelerations defined? ............................................................................ 30
2.3 The socioeconomic costs of the COVID-19 pandemic in the LDCs ............................................................... 40
3.1 Forty years of LDC decadal programmes of action........................................................................................ 60
4.1 Structural transformation and the Sustainable Development Goals ............................................................... 93
4.2 Elasticities of GDP growth, poverty and structural transformation to fixed investment in LDCs ...................... 97
Box figures
2.1 Number of years to recover the pre-crisis (2019) level of GDP per capita ...................................................... 28
2.2 Increase in poverty due to the COVID-19 pandemic in the LDCs, by international poverty line ...................... 40
4.1 Productive capacities and structural transformation ...................................................................................... 93
4.2 Elasticities ..................................................................................................................................................... 97
viii
Classifications
LEAST DEVELOPED COUNTRIES
Unless otherwise specified, in this report, the least developed countries are classified according to a combination
of geographical and structural criteria. The small island least developed countries that are geographically in Africa
or Asia are thus grouped with Pacific islands to form the island least developed countries group, due to their
structural similarities. Haiti and Madagascar, which are regarded as large island States, are grouped together with
the African least developed countries.
The resulting groups are as follows:
African least developed countries and Haiti:

Angola, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Democratic Republic of the Congo,
Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Lesotho, Liberia, Madagascar, Malawi, Mali,
Mauritania, Mozambique, Niger, Rwanda, Senegal, Sierra Leone, Somalia, South Sudan, Sudan, Togo, Uganda,
United Republic of Tanzania, Zambia.
Asian least developed countries:

Afghanistan, Bangladesh, Bhutan, Cambodia, Lao People’s Democratic Republic, Myanmar, Nepal, Yemen.
Island least developed countries:

Comoros, Kiribati, Sao Tome and Principe, Solomon Islands, Timor-Leste, Tuvalu.
OTHER GROUPS OF COUNTRIES AND TERRITORIES

Developed countries:
Andorra, Australia, Austria, Belgium, Bermuda, Bulgaria, Canada, Croatia, Cyprus, Czechia, Denmark, Estonia,
Finland, France, Germany, Greece, Greenland, Hungary, Iceland, Ireland, Israel, Italy, Japan, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, San Marino, Slovakia,
Slovenia, Spain, Sweden, Switzerland, United Kingdom of Great Britain and Northern Ireland, United States of
America, Holy See, Faroe Islands, Gibraltar, Saint Pierre and Miquelon.
Other developing countries:

All developing countries (according to UNCTAD) that are not least developed countries:
Algeria, American Samoa, Anguilla, Antigua and Barbuda, Argentina, Aruba, Bahamas, Bahrain, Barbados,
Belize, Plurinational State of Bolivia, Bonaire, Sint Eustatius and Saba, Botswana, Bouvet Island, Brazil, British
Indian Ocean Territory, British Virgin Islands, Brunei Darussalam, Cabo Verde, Cameroon, Cayman Islands, Chile,
China, Hong Kong SAR, Macao SAR, Taiwan Province of China, Colombia, Congo, Cook Islands, Costa Rica,
Côte d'Ivoire, Cuba, Curaçao, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea,
Eswatini, Falkland Islands (Malvinas), Fiji, French Polynesia, French Southern Territories, Gabon, Ghana, Grenada,
Guam, Guatemala, Guyana, Honduras, India, Indonesia, Islamic Republic of Iran, Iraq, Jamaica, Jordan, Kenya,
Democratic People's Republic of Korea, Republic of Korea, Kuwait, Lebanon, Libya, Malaysia, Maldives, Marshall
Islands, Mauritius, Mexico, Federated States of Micronesia, Mongolia, Montserrat, Morocco, Namibia, Nauru,
Netherlands Antilles, New Caledonia, Nicaragua, Nigeria, Niue, Northern Mariana Islands, Oman, Pacific Islands,
Trust Territory, Pakistan, Palau, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Pitcairn, Qatar, Saint
Barthélemy, Saint Helena, Saint Kitts and Nevis, Saint Lucia, Saint Martin (French part), Saint Vincent and the
Grenadines, Samoa, Saudi Arabia, Seychelles, Singapore, Sint Maarten (Dutch part), South Africa, South Georgia
and South Sandwich Islands, Sri Lanka, State of Palestine, Suriname, Syrian Arab Republic, Thailand, Tokelau,
Tonga, Trinidad and Tobago, Tunisia, Turkey, Turks and Caicos Islands, United Arab Emirates, United States
Minor Outlying Islands, Uruguay, Bolivarian Republic of Venezuela, Viet Nam, Wallis and Futuna Islands, Western
Sahara, Zimbabwe.
ix
What are the least developed countries?

46 countries
As of 2021, forty-six countries are designated by the United Nations as least developed countries (LDCs). These
are: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, the Central African
Republic, Chad, the Comoros, the Democratic Republic of the Congo, Djibouti, Eritrea, Ethiopia, the Gambia,
Guinea, Guinea-Bissau, Haiti, Kiribati, the Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar,
Malawi, Mali, Mauritania, Mozambique, Myanmar, Nepal, the Niger, Rwanda, Sao Tome and Principe, Senegal,
Sierra Leone, Solomon Islands, Somalia, South Sudan, the Sudan, Timor-Leste, Togo, Tuvalu, Uganda, the
United Republic of Tanzania, Yemen and Zambia.
Every 3 years
The list of LDCs is reviewed every three years by the Committee for Development Policy (CDP), a
group of independent experts that report to the Economic and Social Council (ECOSOC) of the United
Nations. Following a triennial review of the list, the CDP may recommend, in its report to ECOSOC,
countries for addition to the list or graduation from LDC status.
Between 2017 and 2020 the CDP undertook a comprehensive review of the LDC criteria The resulting
revised criteria were first applied at the triennial review which took place in February 2021. The
criteria and the thresholds for inclusion into the LDC category and for graduation from the category
applied at the 2021 triennial review were as follows:
(a) An income criterion, based on a three-year average estimate of the gross national income (GNI) per
capita in United States dollars, using conversion factors based on the World Bank Atlas methodology. The
threshold for inclusion and graduation is based on the thresholds of the World Bank’s low-income category.
At the 2021 triennial review, the threshold for inclusion was $1,018 or below; the threshold for graduation
was $1,222 or above;
(b) A human assets index (HAI), consisting of two sub-indices: a health sub-index and an education
sub-index. The health sub-index has three indicators: (i) the under-five mortality rate; (ii) the maternal
mortality ratio; and (iii) the prevalence of stunting. The education sub-index has three indicators: (i) the
gross secondary school enrolment ratio; (ii) the adult literacy rate; and (iii) the gender parity index for gross
secondary school enrolment. All six indicators are converted into indices using established methodologies
with an equal weight. The 2021 triennial review set the thresholds for inclusion and graduation at 60 or
below and 66 or above, respectively.
(c) An economic and environmental vulnerability index, consisting of two sub-indices: an economic
vulnerability sub-index and an environmental vulnerability sub-index. The economic vulnerability sub-index
has four indicators: (i) share of agriculture, hunting, forestry and fishing in GDP; (ii) remoteness and
landlockedness; (iii) merchandise export concentration; and (iv) instability of exports of goods and services.
The environmental vulnerability sub-index has four indicators: (i) share of population in low elevated coastal
zones; (ii) share of the population living in drylands; (iii) instability of agricultural production; and (iv) victims
of disasters. All eight indicators are converted into indices using established methodologies with an equal
weight. The 2021 triennial review set the thresholds for inclusion and graduation at 36 or above and 32 or
below, respectively.
At each triennial review, all countries in developing regions are reviewed against the criteria. If a non-LDC meets
the established inclusion thresholds for all three criteria in a single review, it can become eligible for inclusion.
Inclusion requires the consent of the country concerned and becomes effective immediately after the General
Assembly takes note of the Committee’s recommendation. No recommendations were made for inclusion at
the CDP’s 2021 triennial review.
x
To graduate from the LDC category, a country must meet the established graduation thresholds of at least two
of the criteria for two consecutive triennial reviews. Countries that are highly vulnerable, or have very low human
assets, are eligible for graduation only if they meet the other two criteria by a sufficiently high margin. As an
exception, a country whose per capita income is sustainably above the “income-only” graduation threshold, set
at twice the graduation threshold ($2,444 at the 2021 triennial review), becomes eligible for graduation, even if it
fails to meet the other two criteria
LDC graduation
Five countries have graduated from least developed country status:
• Botswana in December 1994;

• Cabo Verde in December 2007;
• Maldives in January 2011;
• Samoa in January 2014;
• Equatorial Guinea in June 2017; and
• Vanuatu in December 2020.
The CDP has recommended graduation from the LDC category for several countries in the past. Among them,
Bhutan is scheduled for graduation in 2023, while Sao Tome and Principe and Solomon Islands are slated
for graduation in 2024. Angola was expected to graduate in 2021, but in the wake of a prolonged recession,
and the COVID-19 outbreak, the General Assembly decided on 11 February 2021 to grant Angola an additional
preparatory period of three years; hence the country is also scheduled for graduation from LDC status in 2024.
Kiribati and Tuvalu were recommended for graduation in 2018 and 2012 respectively but ECOSOC deferred
a decision on their graduation in 2018. In 2021 the CDP reiterated its recommendation of graduation but
proposed a preparatory period of five years for these two countries. In resolution 2021/11, ECOSOC, recalling
its decision to defer the consideration of the graduation of Kiribati and Tuvalu to no later than 2021, recognized
the unprecedented socioeconomic impacts of the COVID-19 global pandemic, and decided to defer the
consideration of their graduation until 2024.
The CDP’s 2021 Triennial review considered for graduation from LDC status three countries (Bangladesh,
Lao People’s Democratic Republic and Myanmar), which met the graduation criteria for the second time;
and Nepal and Timor-Leste, which had met the graduation criteria for the second time in 2018, but for
which the CDP had deferred its decision. The Committee recommended for graduation from the LDC category
Bangladesh, Lao People’s Democratic Republic and Nepal. Because of the COVID-19 pandemic, the Committee
recommended an extended preparatory period, as well as careful monitoring and analysis of the impacts of the
pandemic, and specific transition support. The Committee decided to defer its decision on the cases of Myanmar
and Timor-Leste to the CDP’s 2024 Triennial review. ECOSOC resolution 2021/11, issued on 8 June 2021,
endorsed the CDP’s recommendation for all five countries. The General Assembly will consider the matter during
its 76th session.
Lastly, in the CDP’s 2021 review of the list of LDCs, the following countries were found to have met the
graduation thresholds for the first time: Cambodia, Comoros, Djibouti, Senegal and Zambia. Djibouti met
the “income-only” criterion; Comoros, Senegal and Zambia met the graduation thresholds for two of the three
criteria, namely income and human assets; and Cambodia met all three graduation criteria (income, human
assets, and economic and environmental vulnerability). These countries will be reviewed again in 2024 and, if
they meet the criteria for a second time, could be recommended for graduation
xi
xii
Least Developed Countries (LDCs)
(46 countries)
Africa 33, Asia 9, Caribbean 1, Pacific 3
Haiti
Afghanistan Bhutan
Mali Sudan
Mauritania South Myanmar
Senegal Niger Nepal
Chad Sudan Yemen
Gambia Eritrea Lao People’s Democratic Republic
Bangladesh
Djibouti
Guinea-Bissau Ethiopia Cambodia
Sierra Leone Guinea Somalia
Burkina Faso Uganda
Liberia Togo Benin Rwanda
Central African Republic Burundi Kiribati
Sao Tome and Principe Republic
Comoros United Solomon
of Tanzania Islands
Democratic Republic of the Congo Madagascar Timor-Leste
Tuvalu
Angola
Zambia Malawi
Mozambique
Lesotho
Note: The boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the United Nations.
August 2021
Abbreviations and acronyms

AAAA Addis Ababa Action Agenda INDCs intended nationally determined
contributions
AfCFTA African Continental free Trade Area
IPoA Istanbul Programme of Action
AGR average annual growth rate
ISI import substitution industrialization
BPoA Brussels Programme of Action
ISM international support measure
CDP Committee for Development Policy
LDC least developed country
CSR corporate social responsibility

LMIC low- and middle-income country
ECI economic complexity index

NDCs nationally determined contributions
ECOWAS Economic Community of West ODA overseas development assistance

African States
ODCs other developing countries
DAC Development Assistance
Committee PCI Productive Capacity Index
DFI development finance institution PoA programme of action
DSSI Debt Service Suspension Initiative PPGR pro-poor growth rate
FDI foreign direct investment PPoA Paris Programme of Action
GDP gross domestic product PRSP Poverty Reduction Strategy Paper
GNI gross national income RCEP Regional Comprehensive Economic

Partnership
GNP gross national product
SAFTA South Asian Free Trade Area
GSP Generalized System of Preferences
TDB Trade and Development Board
GVC global value chain

TFP total factor productivity
HAI Human Assets Index

SAP structural adjustment programme
HIPC Heavily Indebted Poor Countries SDG Sustainable Development Goals
ICTs information and communications SIDS small island developing States

technologies
SNPA Substantial New Programme of
IFFs illicit financial flows Action
IMF International Monetary Fund STI science, technology and innovation
xiii
Foreword
Since the establishment of the least developed countries (LDC) category 50 years ago, LDCs have unfortunately
followed an erratic and often fragile development trajectory. These mixed results underscore the struggle of LDCs
to make decisive progress on structural economic transformation and sustainable development – a struggle with
complex origins now made worse by the COVID-19 crisis. The pandemic rolled back many years of the hard-won
progress LDCs had made in improving their peoples’ lives, and bridging their widening income gap with other
developing countries and the rest of the world.
Studying the scale and growing multitude of challenges facing the LDCs, our report provides a coherent policy
approach by identifying successful experiences that have contributed to the realization of past programmes
of action for LDCs. Looking forward, our report proposes an overhaul of development policies and strategies,
stressing the importance of prioritizing initiatives fostering inclusive growth and LDC’s productive and state
capacities.
After this pandemic, it is clear that no country or region can go at it alone. LDCs are no exception. Future
efforts by these countries to weather and overcome the global challenges exposed by COVID-19 hinge on the
quality, depth, and foresight of the response of the international community. Looking towards the Fifth United
Nations Conference on the Least Developed Countries (LDC5, to be held in early 2022), this report hopes to
play an important role in shaping global awareness of the need to develop and implement novel, better tailored
and ambitious international support measures for LDCs. And in line with the theme of the Fifteenth United
Nations Conference on Trade and Development (UNCTAD 15, to be held in October 2021), “From inequality
and vulnerability to prosperity for all”, this report strives to chart the direction for LDCs at the Conference and its
resulting mandates.
The task ahead is great, and it is urgent. The pandemic has permanently changed the world, and so our policies,
solutions and responses should be commensurate with the immense challenge still ahead of us. It will not be
easy, but the alternative – the continuation of an erratic, fragile and, in a word, unsustainable development
path – is increasingly intolerable to the 1.1 billion people around the world living in an LDC.
Rebeca Grynspan
Secretary-General of the United Nations
Conference on Trade and Development
xv
Overview
Setting the scene: 50 years of the LDC category

A landmark in LDC history
This year marks 50 years since the least developed countries (LDCs) category was established by a United Nations
General Assembly resolution, following research, analysis and advocacy work by the United Nations Conference
on Trade and Development (UNCTAD). This pivotal landmark comes as intergovernmental negotiations are taking
shape for a new programme of action for the LDCs for the decade 2022–2031, and whose implementation
period will broadly coincide with the final decade of the 2030 Agenda for Sustainable Development. These
negotiations bring together LDCs and their development partners to devise innovative ways to tackle the major
development challenges that bedevil LDC economies and societies. These include long-standing challenges,
e.g. impediments to structural transformation and sustainable development, more recent ones (especially those
created by the COVID-19 shock), as well as increasingly serious and risk-bearing future challenges, such as
those deriving from climate change.
The outlook for LDCs is grim: mired in the health, economic and social crises brought about by the COVID-19
pandemic, in 2020 they recorded their worst growth performance in about three decades. More broadly, these
crises have reversed the progress that had been painstakingly achieved on several dimensions of development,
notably on the fronts of poverty, hunger, education and health. Reversing these gains will have lingering adverse
consequences on the development of LDCs over the mid-term.
Although development progress has been made over the past 50 years, core challenges have persisted and
become more complex and urgent. However, progress on some fronts has been disappointing, including with
respect to: (i) the slow development of productive capacities and ensuing scant progress in growth-enhancing
structural economic transformation; (ii) the persistence of several symptoms of underdevelopment, such
as low levels of labour productivity, high poverty rates, low levels of human capital formation, and persistent
under-performance in human well-being; (iii) a lingering vulnerability to external shocks and limited resilience
due to restricted resources and policy space, and weak institutional development; (iv) a widening income and
development gap between most LDCs and other developing countries (ODCs); and (v) the small number of
countries to have graduated from the LDC category up to now – in the 26 years since 1994, only six countries
have graduated out of a total of 53 countries to have ever formed part of the LDC category.
It is therefore important to identify successful experiences, and to investigate what policies have contributed to
their achievement. It is also important to interrogate the development policies pursued by the LDCs to discover
where they have been lacking. The objective is to glean lessons from past experience in order to formulate
innovative proposals for the future.
The origin of the LDC category

For most LDCs, the 1950s and early 1960s marked the end of the colonial era. Left with economies that could
barely generate enough tax revenue and domestic savings to finance development, these countries relied on
external resources to fill their respective development financing gaps. It subsequently became abundantly clear
then that international trade offered the potential to provide resources to finance development. However, LDCs
lacked a dimension of domestic economic structure that could afford them a measure of flexibility and capacity
to compete at the global level.
The international development strategy of that time promoted international trade and economic cooperation, with
the goal of increasing the flow of external resources to developing countries to accelerate their development.
Export-promotion strategies were, however, not successful in turning comparative advantages in commodities
into competitive, large-scale industrial prospects. When the 1960s were designated as the first United Nations
Development Decade, the goal was to garner international support for “measures to accelerate self-sustaining
growth and social progress in all countries” in the hope of closing the per capita income gap between developed
and developing countries. The first United Nations Conference on Trade and Development in 1964 (UNCTAD I)
was also convened to address specific development challenges of developing countries, including trade.
The United Nations issued several landmark decisions on LDCs in the late 1960s and the early 1970s, mostly
relating to their development challenges. The period 1971 to 1982 marked the end of the post-war economic
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boom, and the onset of a period of global adjustments caused by major monetary and commodity market events.
When the United Nations established the LDC category in 1971, the defining theme was “underdevelopment”
which incorporated common elements such as vulnerability to external shocks and domestic factors, e.g. limited
resource endowments, institutions and policies, which further undermined the potential of LDCs to confront their
development challenges. Out of these intergovernmental processes and contestations, UNCTAD emerged as
a ‘flag-bearer’ on behalf of LDCs on development issues through its convening role on trade and development.
Whereas the main concerns in the 1960s were the worsening terms of trade of developing country exports,
a sharp fall in net capital flows from developed countries, rising indebtedness and the oil price crises of 1973
and 1979, triggered further socioeconomic challenges globally, including among developing countries. The effect
of the oil crises (1973, 1979) on developing countries lingered and combined with macroeconomic imbalances
gave rise to, among others, the debt crisis of the mid-1980s to the late 1990s. The 1980s are associated with
international financial institutions (IFIs) progressively introducing a suite of structural policies aimed mainly at
assisting LDCs to manage: (i) their external obligations through the stabilization of their macroeconomy; (ii) the
liberalization of their economies; (iii) their abandonment of Keynesian fiscal policies for monetarism; (iv) the
privatization of public enterprises; and (v) the re-orientation of their economies with market policies. Concerned
with a further deterioration of economic and social conditions in LDCs, the United Nations convened the
first United Nations Conference on the Least Developed Countries in 1981. Since then, four United Nations
Conferences on the Least Developed Countries have been held, with the next one scheduled to be held in Doha,
Qatar, in 2022.
The special role of trade

Trade has traditionally been a major focus of thinking and policymaking for LDCs, which has been based on the
following rationales: (i) the balance-of-payments-constrained growth model, which places trade performance as
a central structural impediment to growth and development; (ii) the link between commodity dependence and
poverty/underdevelopment; (iii) trade is the field where the most effective international support measures (ISMs)
to LDCs have been put into operation; (iv) in the context of globalization, the impacts of international trade on
development outcomes have intensified. However, the share of LDCs in world trade has remained exceedingly
modest over the years. Primary commodities dominate LDCs exports, while manufactured products dominate
exports of both developed countries and other developing countries (ODCs), with commodities still featuring
strongly in the exports of many of the latter countries.
From the early 1960s, merchandise exports became important for a few LDCs. Services have since also
become important exports for LDCs, particularly in recent years, averaging about 20 per cent of total exports.
Diversification of the main products exported by LDCs remains a challenge, with most countries still relying on
one or a handful of products, mainly commodities (whether fuels, minerals or agricultural products). Existing
structural weaknesses point to the need to develop the productive capacities of LDCs, including the interlinkages
within and across sectors, as well as to address other supply-side constraints, such as the: (i) quality of labour
(human capital); (ii) deficiencies in physical infrastructure; (iii) the level of technological capabilities; (iv) low levels
of private investment; and (v) low growth. These constraints are at the heart of a long-term development problem
and cannot be addressed with piecemeal interventions or sectoral approaches.
When the General Assembly endorsed the initial list of “least developed among developing countries” in 1971,
25 countries were identified in recognition of their structural challenges and vulnerabilities. The criteria for inclusion
into and graduation from the LDC category have evolved since then, reflecting the increased availability of quality
data to assess the progress made by LDCs. Over the years, the number and diversity of countries in the category
increased, peaking at 52 in 1991. Six countries have graduated from the category and since January 2021, the
remaining LDCs number 46. While economic and social development indicators have greatly improved, they
remain largely unsatisfactory and countries continue to struggle with a set of challenges similar to those that led
to the establishment of the category.
The present critical juncture

The COVID-19 crisis has dramatically highlighted the institutional, economic and social shortcomings of the
development path followed by most LDCs. Although the COVID-19 pandemic has affected all countries, the
III
impact on LDCs has been particularly severe because of their reduced resilience and diminished capacity to react
to the COVID-19 shock and its aftermath. Also, the pandemic emerged at a time when development progress
was already slow and unsatisfactory. Their low resilience is reflected in the extremely low COVID vaccination
rates that LDCs have achieved and, as of mid-2021, only 2 per cent of the population have been vaccinated, as
compared to 41 per cent in developed countries.
Many LDCs risk being left behind as the economies of ODCs and developed countries recover from the COVID-19
pandemic; they may spend the coming years recovering from it and may eventually achieve little real progress on
the Sustainable Development Goals during the 2020s. The present situation is therefore exceptional and requires
decisive action by both the international community and LDCs themselves to counter the risks of hysteresis and
a lost decade.
Achievements at 50: growth, transformation and sustainability?

Given the situation in which LDCs currently find themselves and the challenges they face in the coming decade,
it is critical to reflect on what could be learnt from their past growth trajectory in order to provide key insights
into how to best lay the foundations for an inclusive and sustainable recovery from the COVID-19 shock. The
focus of the present analysis on economic growth is not meant to frame a discussion on LDC development as
a purely growth-centric debate; rather, it is intended to recognize that a rebound of economic activity is critical
at this stage, and that growth will likely continue to be a key driver in the sustainable development prospects
of LDCs.
From a long-term perspective, the growth performance of LDCs over the past 50 years is mixed at best, and has
generally been sluggish and uneven. Real gross domestic product (GDP) for the LDC group has increased five-fold
since the creation of the category, climbing from roughly $200 billion in 1971 to $1,118 billion in 2019 (all figures
in constant 2015 prices). This is equivalent to an average growth rate of 3.7 per cent per year, only slightly higher
than the corresponding world average of 3.1 per cent. Meanwhile, due to rapid demographic growth, real GDP
per capita has expanded at a much slower pace (1.3 per cent per annum), rising from roughly $600 to $1,082
over the same period.
LDCs would have needed to achieve a stronger performance to turn back or halt their marginalization in the global
economy. Prior to the COVID-19 shock, the LDC group accounted for about one per cent of world GDP, roughly
the same share as in the early 1970s. Even more worrying, GDP per capita for the LDC group represented 15 per
cent of the world average in 1971, but by 2019 – prior to the COVID-19 crisis – this had declined to less than
10 per cent. This overall trend reveals two distinct phases: in 1971–1995, LDCs experienced sluggish and erratic
GDP growth, when not outright recessions. Conversely, from the mid-1990s LDCs experienced a marked and
fairly generalized resumption in economic growth following strengthened macroeconomic fundamentals, and an
improved international environment and less widespread conflicts. Considering period averages, the consequence
was that the total GDP of LDCs rose somewhat from 0.8 per cent of the world average in 1971–1995 to 1.1 per
cent in 1996–2019. However, strong demographic growth led to a relative decline of the per capita GDP of LDCs
from 9.2 to 8.8 per cent, as compared to the world average.
Over the past 50 years, only a handful of today’s LDCs (namely, 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 one per cent. A dozen other LDCs have “muddled through”, and broadly matched the
world average GDP per capita growth rate; however, about half of today’s 46 LDCs have actually fallen behind.
As a result, despite some resumption in economic dynamism since the mid-1990s, meaningful convergence
(understood as a consistent reduction of inequalities among countries) has been the exception rather than the
rule for LDCs. On the contrary, a sizeable proportion of those countries were lagging behind prior to the COVID-19
shock, giving rise to widening global inequalities that are likely to translate into unequal opportunities.
What is more, as signs of a two-speed post-COVID recovery continue to materialize, global inequality is likely to
worsen further. Early estimates for 2021 suggest that the global downturn may be less severe than previously
anticipated. However, the staggered contamination waves and vaccine roll-out, coupled with wide asymmetries
in the capacities of LDCs to respond to the crisis, as well as context-specific vulnerabilities and idiosyncratic
factors, are likely to leave many LDCs marred in economic troubles over the medium term. Not only have many
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OVERVIEW
of them sizeable debt vulnerabilities looming large on their fundamentals, but – more generally – four factors
threaten to undermine potential output in the medium term, namely:
(i) The postponement and cancellation of investment plans, which will inevitably dent medium-term growth
potential;
(ii) Widespread disruptions to schooling and learning, which may well take a toll on human capital accumulation
and exacerbate existing disparities, including in terms of gender inequalities;
(iii) The spread of bankruptcies, job destruction and related capability losses, which may leave long-term
scars on an already precarious entrepreneurship landscape; and
(iv) The ongoing reconfigurations of value chains, which may affect competitiveness in sectors of key
importance for many LDCs, especially tourism and garments.
To properly contextualize the situation currently faced by LDCs in the present uncertain phase, it is instructive
to consider the medium-term deviations of different countries from their long-term growth trends, as growth
accelerations and growth collapses. In general, these medium-term deviations have been rather common for
LDCs, ODCs and developed countries alike, with accelerations being significantly more frequent than collapses.
LDCs, however, stand out for having experienced more frequent instances of growth collapses than other
groups of countries: between 1971 and 2019, collapses represented 16 per cent of the total country-year
observations in the case of LDCs, as compared with 10 per cent for ODCs, and as little as 2 per cent for
developed countries. Moreover, compared to other country groups, LDCs tended on average to enjoy slower
growth during accelerations and suffer slightly more severe decelerations. Although these LDC specificities are
largely driven by their erratic growth record during the period between 1971 and 1994, they persisted even in
the subsequent “high-growth” period. This points to the heightened exposure of LDCs to boom-and-bust cycles
resulting from both endogenous and exogenous conditions, which adds further relevance to the call for stronger
international cooperation to foster an inclusive sustainable and resilient recovery in the LDCs.
Recovery is crucial in the context of the ambitious vision set out in the 2030 Agenda for Sustainable Development.
While economic growth continues to represent a key potential driver of sustainable development in LDCs, the
pattern of this growth plays a fundamental role in shaping distinct socioeconomic and environmental outcomes.
In this respect, UNCTAD has long argued that growth sustainability hinges on the development of productive
capacities and is subject to: (i) structural dynamics affecting capital accumulation; (ii) intersectoral reallocation of
production factors; (iii) the gradual acquisition of productive capabilities; and (iv) the densification of production
linkages. The Least Developed Countries Report 2021: LDCs in the post-COVID world: learning from 50 years of
experience confirms this diagnostic.
Evidence from a development accounting exercise undertaken for LDCs reveals that a median share of about
40 per cent of the growth in GDP per worker is due to capital deepening, with human capital accumulation
accounting for another 10 per cent of the growth. The substantial nature of these figures does not capture the
impact of natural capital and also that investment is heavily affected by institutional factors, with conflicts and
political instability often leaving long-term adverse legacies. Moreover, the importance of capital accumulation
in LDCs remains largely intact, even when considering recent technological waves and the ensuing scope for
leapfrogging, as well as the emergence of servicification and digitalization which underscore immaterial elements
of productive capacities. While these factors are set to play a growing role in the future, harnessing them requires
much-needed skills, adequate infrastructural provision – with access to energy being a key driver of productive
upgrading – but also of manufacturing capabilities and end-use capital, without which a meaningful engagement
in advanced production technologies remains a chimera.
The pace and direction of structural change, i.e. the process of intersectoral reallocation of inputs and the
corresponding changes in the composition of output, which typically accompany aggregate growth, has also
proved to be a fundamental determinant of productivity dynamics. If structural change generally progressed at a
sluggish pace over the past 50 years, some of the best performing LDCs experienced encouraging developments
during the 1995–2018 period. Not only did labour productivity growth average 6 per cent per year, but labour
reallocation from agriculture mainly to higher-productivity services (e.g. trade and business services) contributed
to productivity dynamics. Manufacturing also played a conducive role in this process, but its contribution to job
creation was somewhat more circumscribed and it has only played a role in selected LDCs.
Overall, two main conclusions can be drawn from this evidence to inform strategic efforts to “build forward
to transform”. Structural transformation and factor reallocation from low productivity to higher productivity
V
activities remain critical to total factor productivity (TFP) dynamics and hence to sustainable growth; this
is even more pronounced in LDCs where sectoral productivity gaps are particularly wide and where a
substantial pool of labour toils in semi-subsistence agriculture or is “underemployed”. This implies that an
emphasis on productive capacities acquisition, leading to the intertwined processes of capital accumulation,
structural change and productive capabilities acquisition, is as critical as ever for sustainable development.
In addition, the report shows that if some LDCs managed to kick-start a long-term process of structural
transformation during the period of relatively rapid GDP growth, this transformation has, at best, been incipient.
Notwithstanding the sharp recession triggered by the COVID-19 crisis, it is unclear whether these emerging
cases of nascent industrialization will continue unabated, or if the downturn will thwart them. Moreover,
structural transformation has remained relatively sluggish in about half of the LDCs, and countries have so far
shown themselves unable to foster the emergence of a dense network of middle- and large-sized enterprises,
connected through input-output linkages, both domestically and through their insertion in global and regional
value chains.
This mixed picture is reflected in the inclusivity of growth, as well as on the progress towards environmental
sustainability. With limited scope for redistributive policies, LDCs have to rely on growth and job creation as
key drivers of poverty reduction. Hence, while acknowledging the importance of initial inequality (especially in
terms of asset ownership) and other idiosyncratic factors, most of the countries having embarked on a process
of structural transformation managed to achieve more inclusive growth patterns, with the poor also benefitting
from economic dynamism. In the same vein, while rapid economic growth in the period between 1995 and 2018
generated greater total wealth, the heightened reliance on natural resources has often translated into unsustainable
outcomes, except in cases where it was accompanied by productivity improvements, value addition, and more
effective natural resource management.
Evaluating past and present strategies for furthering development

Many milestone events and processes have had profound impacts on the political economy of underdevelopment
and on the policy options available to LDCs. Internationally negotiated development strategies crystallize
contemporaneous economic thinking and the interpretation of the development challenges facing LDCs. Although
it is intrinsically difficult to distinguish PoAs directly from their underlying processes and the environment in which
they are being implemented, they do have an impact on national policies, domestic resource mobilization, and
bilateral and multilateral partnerships for development.
The PoAs represent a long-standing international community tradition of setting goals to incentivize joint action
on global development agenda. PoAs establish legitimacy and serve as a base for advocacy. However, they are
not legally binding, neither do they embody an outright expectation of substituting national development policies,
as they are the outcome of a multilateral approach to development involving negotiation and compromise. Rather,
they generalize factors within LDCs, both in the articulation of structural impediments to development and in the
emphasis of areas of international action.
The four PoAs to have been implemented since 1981 have all covered various dimensions of development and
identified outcomes that addressed the social, economic and environmental impediments to development in
LDCs, as well as the role of development planning. Progressively, they have explicitly pinpointed the approach(es)
through which expected outcomes could be achieved. All the PoAs recognized structural transformation of
LDC economies as the unique vehicle to achieve sustainable development. However, there have been notable
differences in focus and level of detail accorded to the priority areas relevant to advancing the process of
the structural transformation in LDCs, with productive capacities and diversification partially targeted in the
various PoAs.
Successive shifts in emphasis across the PoAs have served to amplify certain dimensions of development
over others, and have attempted to “fix” problems/issues that arose during the implementation of previous
PoAs. This represents a progression in the complexity and the number of policy measures, including related
trade-offs and sequencing challenges. All the PoAs are heavily dependent on the capacity and leadership role
of LDC governments, and each stress the primary responsibility of LDCs for their own development. However,
the capacity of LDC states has eroded during the implementation of the successive PoAs, as evidenced
by the adverse effects of structural adjustment programmes, and recent changes to official development
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assistance (ODA). Moreover, ODA commitments and measures have remained consistently unmet, hampering
goals on aid effectiveness and the building of LDC state capacity to deliver on the PoAs and other development
goals. Regrettably, none of the PoAs can be said to have fully achieved their objectives.
Forty years of international support measures in favour of LDCs

Apart from ODA and technical assistance, trade is the main area through which concrete LDC-specific ISMs
have been pursued and operationalized, including outside of the PoAs. While the special needs of LDCs are
widely recognized, major financial institutions, such as the World Bank and the International Monetary Fund
(IMF), do not recognize or apply the LDC category in their operational work, although they are parties in the
development cooperation partnership underpinning the PoAs. Relatively few small donor countries consistently
reach the upper-level target of 0.20 per cent 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 per cent of GNI. In addition,
the political context for the PoAs is as important as the targets themselves because donors inevitably respond
to development goals according to their specific geopolitical and economic interests, and are often not guided
by multilateral goals.
The timebound definition of development brings ambiguity and elusiveness in the different agendas held by
national governments, donors and the diverse and increasing number of actors in development cooperation;
this is further complicated by power imbalances that tend to negate the rhetoric within LDCs on the ownership
and leadership decisions on this issue. Since the Monterrey Consensus (2012), the meaning of development
is heavily weighted towards poverty alleviation and development perspectives which emphasize individual
well-being versus a holistic view of the national economy as a system that also addresses societal well-being.
This has disproportionately oriented sectoral allocation towards social sectors and humanitarian activities, leaving
economic infrastructure and productive sectors relatively underfunded. In addition to the fall in the degree of ODA
concessionality, a major concern is that under the new DAC reporting rules ODA ceases to be a reliable gauge
of additional sustainable development finance, and thus negates the United Nations’ ODA targets, which were
based on the 1969 DAC definition of ODA.
Trade preferences are an area where there is the greatest international momentum to provide special treatment
for LDCs, both in the context of market access and in the implementation of the rules and disciplines of the
World Trade Organization (WTO). Following the introduction of the Generalized System of Preferences (GSP)
in 1971 under the aegis of UNCTAD, developing countries were granted trade preferences by most industrialized
countries. The provision and utilization of trade preferences is a key goal of all the PoAs, and was further reaffirmed
by Sustainable Development Goal 17. In addition, since the early 2000s more generous provisions exclusively
for LDCs were introduced under the GSP. While some evaluations on the impact of trade preferences on LDCs
suggest otherwise, evaluations by UNCTAD and others have generally found them to have generated limited
results, especially in terms of fostering structural transformation.
National strategies for furthering development

Countries follow different development trajectories depending on initial conditions, national policy choices, and
exogenous factors. At the centre of development planning processes are: (i) governance structures that determine
national visions; (ii) platforms that determine strategies and policies; (iii) coalitions or a lack of cohesion with the
population; and (iv) trade-offs and the unintended consequences of policies. Recent LDC national development
plans covering various overlapping periods between 2014–2036 highlight the importance of LDCs having the
capacity to finance their own development. Priorities vary but critically, economic development, transformation
and diversification, are the common concerns.
The trends in and composition of government expenditures reflect the policy priorities decided by national
governments. These policy priorities are important for understanding the dynamic impact of domestic resource
mobilization on economic growth, capital stock, structural change, social development and poverty reduction.
Total government spending in LDCs was limited to 20 per cent of GDP in 1990–2020, due to a constant presence
of budgetary constraints. Expenditure was also boosted by a push to meet goals that were missed during the
implementation of the Millennium Development Goals (2000–2015), during fiscal readjustments as the 2008/2009
global economic crisis receded, and a growth spurt as commodity markets recovered. Between 2011 and 2019,
VII
government expenditure in LDCs was mainly geared towards sustaining economic growth and building resilience
to exogenous shocks.
How the impact of government spending on productive sectors of the economy influences budgeting processes
and periodic evaluations of the implementation of development plans remains unclear. The fundamental
considerations for policymakers in developing countries are the trade-offs and complementarities and synergies
across policy choices. For example, the development of the agriculture sector may have higher multiplier effects
on poverty reduction in many LDCs. Similarly, targeted public spending on infrastructure and other public services
could have significant effects on the efficiency and competitiveness of manufacturing and other industries. An
empirical analysis of actual government spending data on key agricultural and industrial sectors show the different
impacts of ODA and government expenditure on key sectors of the economy.
At the eve of the design of a new PoA for the decade 2022–2031, the search continues for practical and on
sustainable paths to achieve development in the LDCs. Although some progress has been achieved by these
countries since the inception of the decadal PoAs, transformational changes capable of redressing long-standing
inequalities and marginalization have consistently fallen short of the anticipated development impact, as envisaged
by the PoAs. The scorecard on the implementation of the four PoAs is thus heavily weighted towards an unfinished
agenda, both in terms of the efforts undertaken by LDC governments to advance structural transformation,
accumulate and deploy productive capacities, and with respect to the fulfilment of pledges by the international
community on extending international support to LDCs. The data on ODA disbursements and its sectoral impact
clearly demonstrate weaknesses. The latter should support the intricate link between the national development
planning framework and the fiscal policy instrument (national budget). More importantly, it will not be possible
to maximize the potential from LDC investments in productive sectors if government spending and ODA fail to
achieve maximum complementary and synergic alignment.
Despite this dispiriting picture of the impact of international and domestic policies to boost LDC development,
some successful cases indicate that the paths to development can be differentiated. As of the 1970s, Bangladesh
accelerated its development as it undertook trade liberalization and started developing an export-oriented
garment industry. It also invested in other economic sectors, such as the pharmaceutical industry, by creating a
conducive national innovation system. However, the structure of Bangladesh’s economy remains concentrated in
a few sectors and products, which are likely to be adversely affected when it graduates from the LDC category,
currently scheduled for 2026. Senegal, by contrast, has followed a different development strategy path, and has
achieved a diversified economic structure between agriculture, industry and services. It also has a correspondingly
more diversified export structure, which is less vulnerable to the consequences of graduation.
Investment needs for the least developed countries to achieve the

Sustainable Development Goals in the post-pandemic decade
Accelerating the implementation of the 2030 Agenda for Sustainable Development is a priority for the LDCs. The
COVID-19 pandemic has made the task even harder, as it has exposed some of these countries’ long-standing
vulnerabilities. Recovering from the prolonged and deep shock the world economy has experienced is an urgent
priority. In the context of the LDCs, the imperative now is to recover from the pandemic, rebuild stronger, and
concurrently accelerate the implementation of the Sustainable Development Goals. These Goals provide the
framework based on which the financing needs to cover the required investment and spending can be estimated.
The report provides a country-by-country costing of key structural Sustainable Development Goal targets which
factor in the current context created by the COVID-19 pandemic.
The cost estimates outline different scenarios to achieve selected Sustainable Development Goal targets by 2030.
The selected targets and the corresponding estimates are:
1. Investment requirements to achieve a 7 per cent annual GDP growth for the LDCs (Sustainable
Development Goal 8.1);
2. Growth and investment requirements to eradicate extreme poverty (Sustainable Development Goal 1.1);
3. Growth and investment requirements to promote inclusive and sustainable industrialization – a major form
of structural transformation – as reflected in the target of doubling the share of industry (manufacturing) in
GDP in the LDCs (Sustainable Development Goal 9.2);
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OVERVIEW
4. The spending requirement and financing gap of achieving universal health coverage (Sustainable
Development Goal 3.8);
5. The spending requirement and financing gap of ensuring that all girls and boys complete free, equitable
and quality primary and secondary education (Sustainable Development Goal 4.1);
6. The spending requirement and financing gap of implementing nationally appropriate social protection
systems and measures for all (Sustainable Development Goal 1.3);
7. The spending requirement and financing gap of ensuring the conservation, restoration and sustainable use
of terrestrial and inland freshwater ecosystems and their services (Sustainable Development Goal 15.1).
A building-block estimation strategy was adopted to avoid the risk of double-counting and other potential
shortcomings. The initial building blocks use GDP and investment (gross fixed capital formation) as key
variables – familiar indicators to policymakers and grounded in the economics literature. Countries should grow
at a sustainable rate to achieve structural transformation and end poverty. To boost growth, it is necessary for
countries to increase savings and investments from public and private, domestic, as well as international sources.
The annual GDP growth targets, especially the target of doubling the industry share of GDP by 2030, require
massive investments. Massive spending requirements are also intrinsically linked to other Sustainable Development
Goals, such as clean water and sanitation (Sustainable Development Goal 6), affordable and clean energy
(Sustainable Development Goal 7), sustainable cities and communities (Sustainable Development Goal 11), and
climate action (Sustainable Development Goal 13).
Results and implications of the estimated investment needs

The underlying assumption underpinning these estimates is that LDCs will prioritize structural transformation in
the context of the Sustainable Development Goals. The scenario of doubling the share of manufacturing in GDP
has been chosen because the Sustainable Development Goal target 9.2 of doubling industry’s share of total GDP
may not accurately reflect the actual form of structural transformation that is occurring in LDCs. Industry includes
extractives sectors, such as oil and hard rock mining, which are sources of vulnerability, and typically their growth
does not reflect structural transformation. The investment growth scenarios are an aggregate measure and
include the necessary expenditures to achieve the selected targets. Hence, expenditure and allocative efficiency
should represent a source of concern for policymakers.
Sustaining an annual GDP growth rate of 7 per cent, ending extreme poverty or doubling the share of manufacturing
in GDP call for investment growth rates of 7, 9 and 20 per cent, respectively. All three scenarios show that the
needed investment push is ambitious, given the historical level of investment in the LDCs.
Apart from investment-driven estimates calculated using elasticities from the scenarios above, the report also
undertook a forecast of financing requirements to increase social spending since the majority of the social and
environmental services mentioned in targets 1.3, 3.8, 4.1 and 15.1 of the Sustainable Development Goals are
not classified as investments but rather as current spending. A three-step estimation method was adopted to
establish initial estimates of the total cost to reach universal coverage by 2030 by multiplying the unit costs
of providing these services. The second step subtracted the current expenditure from the total cost to obtain
the financing gap. Third, the intervention’s progress is linearly modelled for 2021–2030. The results show that
additional financing is required in the order of: (i) 4.3 per cent of GDP to achieve universal social protection;
(ii) 8.5 per cent of GDP for universal healthcare; (iii) 5.2 per cent of GDP for universal education; and (iv) 0.3 per
cent of GDP for ensuring the conservation, restoration and sustainable use of terrestrial and inland freshwater
ecosystems and their services. This translates into 18.3 per cent of GDP in additional spending, as compared
with current spending levels in these areas, which presently amount to 13.1 per cent of GDP. In other words,
LDCs would need to nearly treble spending on social services to 31.4 per cent of GDP, almost reaching the
OECD average of 32.4 per cent in 2021.
The results for both elasticities driven investment gaps and the unit cost forecast of financing costs are averages.
The investment elasticities calculated for manufacturing, economic growth and eradication of poverty picked
out a few outliers, particularly for poverty-growth elasticities. The difficulty in implementing pro-poor growth
policies historically explains some of the inverted positive poverty-growth elasticates for resource-rich countries,
e.g. Angola, or countries with a high proportion of its population living in extreme poverty, e.g. Guinea-Bissau,
Madagascar and Zambia.
IX
The enormous investment and spending needs of the LDCs are clear from these figures. Between 2021 and 2030
LDCs require investments of: (i) $462 billion annually to meet the growth target (Sustainable Development Goal 8.1);
(ii) $485 billion annually to eradicate extreme poverty (Sustainable Development Goal 1.1); and (iii) $1,051 billion
annually to double the manufacturing share of GDP (Sustainable Development Goal 9.2). This would translate
into a GDP growth requirement of 9 per cent per annum to eradicate extreme poverty or, alternatively, a much
higher 20 per cent annual growth rate to achieve structural transformation.
For the three scenarios, investments for the period 2021–2030 amount to about 27 per cent of GDP: 73 per
cent of this total is estimated to be private; 26 per cent public and 1 per cent from public-private partnerships
(PPPs). Country-specific investment needs vary widely, with some countries having extremely high investment
needs compared to others. For instance, Yemen (76 per cent) and Ethiopia (46 per cent) are two countries with
extremely high investment needs to sustain economic growth, while Mali (17 per cent) and Eritrea (4 per cent)
are on the lower extreme. These results not only depict the current status of investment, but also the critical
initial conditions needed to propel investment-driven growth, including prior economic performance. Eritrea’s low
requirement, for example, reflects its absorption capacity from a historical perspective, rather than what it actually
needs to reduce poverty.
LDCs will have to mobilize an additional 10.4 per cent of GDP to finance social and environmental services.
The level of expenditure will have to increase by 12.3 per cent from the current 2.9 per cent of GDP to reach
targets 1.3, 3.8, 4.1 and 15.1 of the Sustainable Development Goals. As of 2021, financing gaps will increase
progressively from 6.3 to 11.3 per cent of GDP by 2030 in health; from 4.2 to 6.6 per cent of GDP by 2030
in education; from 2 to 8.5 per cent of GDP by 2030 in social protection; likewise, financing gaps will rise
from 0.1 to 0.5 per cent of GDP by 2030 to ensure the conservation, restoration and sustainable use of
terrestrial and inland freshwater ecosystems and their services. These financing gaps are highly correlated
with under-five mortality rates, secondary school enrolment, social protection coverage, implying that higher
commitment to these sectors would have better outcomes. It is, however, essential to highlight that individual
countries will follow their own path to achieve their goals, and that the aggregate matches the reality on the
ground in many LDCs but not in others. Island LDCs, e.g. Kiribati and Tuvalu, as well as countries experiencing
large-scale conflicts, e.g. Yemen, are outliers and have larger needs, particularly in respect of social protection
and education.
LDCs require huge amounts of resources to recover from the recessions caused by the COVID-19 shock, but
especially to set themselves on the path to achieving the Sustainable Development Goals. Expenditures will
have to be raised by multiples of the current level of available resources and spending. For this to happen, LDCs
will need to: (i) strengthen their fiscal capacities; (ii) increase domestic resource mobilization; and (iii) improve
the effectiveness of public expenditures. It is also evident that tax revenue alone will not be sufficient to cover
all incremental investments and expenditures. The total average expenditure would have to increase by 59 per
cent of GDP to meet the investment scenarios of: (i) sustaining a growth rate of at least 7 per cent per annum;
(ii) doubling manufacturing’s share of GDP; (iii) eradicating poverty; and (iv) meeting social and environmental
goals. Hence, the mobilization of additional finance will be essential for LDCs to achieve the Sustainable
Development Goals by 2030. Taxes, contributions, charges, debt and bonds will remain important sources of
additional funding. However, LDCs will have to continue relying on external financing, particularly ODA, to meet
even the basic goals of sustainable development, including structural transformation. Hence, the international
community has an essential role to play in finding a means to mobilize international financing for the sustainable
development of LDCs which will not only meet their financing requirements, but which would also critically allow
them to pursue the structural transformation of their economies.
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. The persistent existence of the LDC grouping, the apparent divergence
within the grouping – such that a majority of LDCs are heading into the 2020s significantly below full strength – is
compounded by the ongoing fallout from the COVID-19 global crisis and attendant risks of hysteresis. There is a
fresh sense of urgency with respect to the LDC underdevelopment problem, and an opportunity now exists for
a renewed and heightened focus on how to engineer a lasting transformation of development realities in LDCs.
X
OVERVIEW
The global community’s interest in LDC development and support for it

A renewed and strengthened partnership for development cannot be separated from the urgent need to
reassert the importance of the development of LDCs and of international support for it, as global priorities. This
is a prerequisite towards reinventing the notion of fair differentiation in the special treatment of LDCs within the
group of developing countries. An authentic global partnership in support of LDCs goes well beyond the moral
commitment to “leave no one behind”. Ultimately, in an interdependent global economy, international support
for structural transformation in LDCs is an investment in systemic resilience, as any developmental successes
achieved by LDCs would reflect global systemic resilience.
Advancing the structural transformation of LDCs through the building of productive capacities remains the single
most viable route to inclusive and sustainable development. While it can be expected that the next PoA will be
geared towards the post-COVID recovery and other development agendas – including climate change – these
should not overshadow the long-term development goals of LDCs, which not only pre-dated the pandemic,
but have also become even more pressing since its outbreak. The implementation of short-term emergency
measures should be undertaken with longer-term objectives in mind and form the impetus to achieve them.
The new programme of action: objectives

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. It can best be pursued if
corresponding policies are guided by the following principles:
• Build resilience to present and future shocks through the strengthening, upgrading, diversification and
expansion of the domestic enterprise base in LDC economies.
• Achieve dynamic job-creating and inclusive growth underpinned by enhanced access to basic services,
with the aim of addressing critical cross-cutting issues of poverty and equity in all its dimensions.
• Ensure appropriate orientation and coordination of domestic policies and international support measures
directed at the economic, social and environmental dimensions.
• Operationalize internationally agreed principles of common but differentiated responsibility on climate
change.
Green growth and the call to “build forward and transform”. If green growth is to become a catalyst for
economy-wide structural transformation and poverty alleviation, it should support a virtuous transition towards
more and better jobs, as well as be geared towards domestic value addition, and a qualitatively superior process
of integrating regional and GVCs. LDCs and their development partners should consider the positive benefits
to be realized through shorter GVCs, a stronger expansion of green sectors in which LDCs have comparative
advantages, leapfrogging, etc.; LDCs and development partners should also assess any risks of further
marginalization brought about by “green” measures which may come to the detriment of LDCs.
The following principles should guide the implementation of actions on climate change and green growth:
• The common recognition that LDCs are among the most vulnerable countries to the most deleterious
or serious consequences of climate change, but the least well positioned to mitigate any damage.
Consequently, they need effective multilateral mechanisms to ensure their voice is considered and their
participation is ensured in decision-making on climate change-related issues. The global pursuit of green
growth strategies should consider the specificities and interests of LDCs.
• The “polluter pays” principle is pivotal to the success of international action on climate change and green
growth and underpins a fair and just transition for all countries, as expressed in the principle of common
but differentiated responsibilities. The low progress in structural transformation achieved by LDCs
translates as very minor contributions to climate change, yet major spending requirements for adaptation
as compared to their limited resources.
• The global pursuit of green growth requires disbursements of climate finance to match commitments, and
achieving a greater balance between addressing adaptation and mitigation concerns in LDCs.
• To be realized, the pursuit of green growth is reliant on public regulation and public inducements (incentives),
which are fundamentally elements of industrial policy.
XI
National measures: new priority actions for consideration

The responsibility of countries themselves for their development is enshrined in numerous international policy
documents. All successful development experiences have been characterized by the presence of a state whose
capacities have co-evolved with those of the productive sphere. This lies at the core of the operationalization
of a country’s right to development. It also involves striking the right balance between short- and long-term
transformational policy measures and managing trade-offs between the different dimensions of development
and related strategies. It also recognizes that successfully leveraging development opportunities is at the core
of maintaining consistent progress on several dimension of development, as well as for weathering periodic
shocks. State capacity assumes paramount importance, especially in the context of the growing complexity of
the current environment of economic relations and international diplomacy. There is an ever-growing number
of actors (whose interests can often be widely dissimilar) within the new international development cooperation
architecture.
Some specific priority areas to be considered to strengthen domestic state capacity and agency include broad
areas, such as:
• National capacity to undertake synchronic policy trade-offs involving choices between policy resource
allocations (such as budget resources/institutional capacities) between competing priorities, and diachronic
trade-offs involving time-based arbitrages, requiring the sequencing of initiatives and the balancing of
competing priorities.
• National capacity to mainstream industrial policy objectives, including the design and implementation of
strategic FDI policy to facilitate the expansion of the local entrepreneurial base, and foster green growth
across all sectors of the economy.
• Capacity on domestic resource mobilization, including tax policy design, enhanced efficiency of revenue
collection, public financial management and financial planning, and strengthened capacity to combat illicit
financial flows.
• Ramped up support to national development banks to boost the growth of the local entrepreneurial base
and their productive capabilities.
Expanding the local enterprise base. The existence of a strong, diverse and appropriately balanced national
entrepreneurial class constitutes a critical condition for sustainable development, including in the acquisition,
accumulation and upgrading of productive capacities, as well as in the achievement of the critical goal of
domestic resource mobilization. These are industrial policy objectives that have been insufficiently addressed by
past PoAs for the LDCs.
Developing the entrepreneurial base of LDC economies implies addressing the systemic impediments that stand
in the way of establishing and growing this base, e.g. access to finance and the low levels of human capital
endowment in LDCs. Strengthening domestic entrepreneurship also calls for the strengthening of the national
innovation system, which allows domestic companies to build technological capabilities and introduce products
and processes that are innovative in the national context.
This raises a wealth of opportunities for more targeted cooperation between the national and international
community on research, innovative design and implementation of a development policy on various dimensions of
entrepreneurship, including on youth and micro, small and medium-sized enterprises (MSMEs) to simultaneously
address inequalities and industrial policy objectives.
Strategic approach to human capital and labour policies. One critical cross-cutting issue to expand the
enterprise base and accelerate inclusive development is for LDCs to make the best use of all their existing human
resources. The transformative expansion of opportunities and raising the level and quality of the contributions
of hitherto vulnerable and marginalized groups (e.g. women, youth and ethnic minorities) are critical factors for
harnessing all available opportunities for growth and equity.
Human capital and labour policy underpin the expansion of the productive base and the creation of decent
jobs in any economy. Structural transformation and sustainable development is the result of dynamic interaction
between human capital, labour policies and productive capacities which permits a virtuous cycle of increases in
productivity, specialization and continuous upgrading. Thus, LDCs cannot hope to operationalize their right to
development and equity goals without adopting a more strategic view to investments in human capital.
XII
Many LDC economies are potentially poised to reap the demographic dividend. However, reaping the rewards of
this dividend is contingent on: (i) prior investments in the professional, intellectual and technological capabilities
of their burgeoning young populations; (ii) investments aligned to an explicit lifelong learning framework that
takes into account the interrelated nature of all education levels; and (iii) equipping labour market entrants with
capabilities to meet current and future market requirements.
A new generation of international support measures

The development trajectories of LDCs and the options they have to pursue different development paths are
strongly conditioned (but not pre-determined) by the international economic environment in which their economies
are inserted, particularly in the light of the global production networks dictated by the process of globalization. In
addition, the level of dependence that most LDCs have on international trade, international financing (including
ODA, despite its declining trend) places ISMs at the heart of the rationale for the existence of the LDC category,
and the logic of an international partnership to advance development in the LDCs.
A new generation of ISMs could consider alignment with the following principles:
• Coherence and synergy among ISMs in the fields of trade, finance, technology and capacity-building.
• Governance of ISMs by a specially designed overarching multilateral framework.
• Alignment with the overall objective of fostering the development of productive capacities to achieve
structural transformation, as advocated in the report and by other LDC development stakeholders.
• ISMs in the area of financing for development and technology should: (i) seek to increase the flows of
financial resources and technology; and (ii) widen the coverage and stabilising the availability of resources
allocated to financing structural economic transformation in LDCs, including in the acquisition of technology
and technological capabilities by their economic agents.
• Coherence with 21st century realities, including the lingering effects of the COVID-19 crisis, as well as
the principle of common but differentiated responsibility on climate change crisis, and the accelerated
digitalization of the world economy.
Trade. The possibility to expand special treatment in future agreements has been tabled at the WTO, but some
developed countries are pushing for the review of the very notion of special and differential treatment (SDT).
LDCs have an interest in preserving trade multilateralism, as this is one of the arenas in which the SDT formulated
by the international community for LDCs has established unity on the recognition of the LDC category and the
treatment of LDCs.
Possible goals and targets that could be considered for inclusion in the new PoA include:
• Adopting the various elements of the different proposals already tabled by the LDC Group at the WTO,
including the commitments on joint action to safeguard SDT as a permanent feature of future WTO
agreements.
• Actions that align the coverage and depth of tariff cuts, rules of origin and administrative procedures of
duty-free and quota-free (DFQF) schemes with the productive and institutional capacities of LDCs. This
would facilitate their full utilization by LDCs, and increase their ability to stimulate the growth of the local
enterprise base and international investments.
• ISMs aimed at facilitating the leverage of (new) opportunities from regional and subregional integration,
e.g. from the African Continental Free Trade Area (AfCFTA), South Asian Free Trade Area (SAFTA) and the
Regional Comprehensive Economic Partnership (RCEP).
External financing for development. LDCs stand to lose the most from declining trust in multilateralism, especially
in respect of external financing on which they are most dependent. Increased pressures on aid budgets in the
aftermath of the COVID-19 crisis add yet more uncertainties relating to the future of external official flows. The aid
spending target of 0.7 per cent of donors’ GNI shrank amid the economic fallout of the COVID-19 pandemic. Yet
scaling-up financing will be key in reducing the risk of LDCs slipping further behind.
Another thorny issue in the blended finance debate is to ensure that the domestic private sector and foreign
investors are treated on an equal footing, including investors from the country whose ODA is utilized in the
blending. Moreover, it remains critical to assess the specific financial risks and contingent liabilities that certain
blended finance projects may generate, for instance in the case of de-risking instruments. It is thus important to
XIII
establish on a case-by-case basis whether blended forms of finance represent the most appropriate use of public
development finance, considering the development rationale for the intervention, as well as related modalities,
partnerships and broader relations with the domestic business ecosystem. LDCs need to be empowered to
participate in the measurement of the effectiveness and alignment with LDC-determined national priorities, and
on the impact of key new aid modalities and instruments, e.g. blended finance.
International support measures for LDCs need to include targeted debt relief to increase their policy space.
Existing initiatives, such as the G20-led Debt Service Suspension Initiative (DSSI), do not adequately address the
debt vulnerabilities of many LDCs. Public debt in the form of private sector loans and bonds has also introduced
new vulnerabilities. The limited debt relief received from official sources risks being diverted into payments to
private creditors in the absence of a mechanism to ensure equal treatment among creditors, thereby generating
perverse incentives in the negotiations for debt rescheduling or write-offs. Development partners should give
particular attention to innovative schemes of debt management.
LDCs need to align the design and implementation of country-owned financing frameworks, as envisaged by
the Addis Ababa Action Agenda (AAAA) to the goal of structural transformation by further building its productive
capacities. Country-owned financing frameworks help countries to: (i) manage a complex financial landscape;
(ii) align financing with long-term priorities; (iii) increase the effectiveness of financing policies; and (iv) translate
priorities into strategic action in line with their country capacities and priorities.
The international community has a unique opportunity to allocate Special Drawing Rights (SDRs) of the IMF to
align the potential liquidity boost the capacity of LDCs to invest in productive capacities (rather than, for example,
in debt repayment). However, the current allocation system benefits countries with large quotas. It is therefore
crucial that LDCs are awarded a share of the new SDRs larger that their quotas currently in place, and that such
re-allocation does not come as an alternative to already unsatisfactory levels of ODA disbursements.
In the field of finance, more concrete measures are needed to increase the total amount of climate finance
available and achieve a greater balance between mitigation and adaptation. These measures would contribute to
the acute adaptation needs and risks of LDCs, and would be in line with the principle of common but differentiated
responsibilities.
Technology transfer. LDCs need a renewed partnership for the development and strengthening of their
technological capabilities. Such a strengthened international partnership for technology transfer to LDCs would
play a vital and complementary role to fostering sustainable development in contributing to the upgrading and
expansion of the productive capacities of LDCs. The introduction of innovative products or processes will require
foreign technologies, this in turn can be met by matching local needs with the international supply of technological
solutions. This is where the international side of the partnership can intervene. Donors can support technology
transfer centres involved in activities as: (i) identifying search and connecting agents (which connects demand for
and supply of technological knowledge); and (ii) public-sector seed capital and SME support financing. Some of
these centres already exist and have successfully managed to overcome major obstacles to technology transfer.
Developed countries can comply with their obligations under article 66.2 of TRIPS through the further expansion
and strengthening of the funding and operations of these centres.
LDCs will need to build climate-resilient infrastructure to respond to climate change. This will demand technological
capabilities that are different from those available at present, given the need for novel technical specifications and
characteristics of roads, energy plants, bridges, ports, buildings, etc. that enable them to be climate-resilient.
As LDCs argue forcefully for an increase in climate finance, it is important that they seize the opportunity of
greening their economies to build their technological capabilities. Regardless of the source of finance for these
new infrastructure projects, they associate domestic agents (companies and technical specialists, e.g. engineers,
technicians, etc.) to build and operate these works. This will allow LDCs to strengthen their knowledge base and
skills in future-oriented technologies (e.g. renewable energies, thermic isolation, and earthquake resistance, etc.).
XIV
50 years after the
establishment of the LDC
category, most LDCs
continue to face major
challenges to their
sustainable development
The COVID-19 crisis

and climate change
jeopardize the future
development of LDCs
GE
CHAN
E
AT
CLIM
The programme of action for

the LDCs for the new decade and
the flanking policy initiatives should
accelerate the development of LDCs
2022 2031
CHAPTER
1
Setting the scene: 50 years
of the LDC category
CHAPTER 1
Setting the scene: 50 years
of the LDC category
A. The landmark in LDC history 3
B. The origin of the LDC category 4

1. Revisiting the past – The development theory 5
a. 1950–1969: Independence and early development thinking 5
b. 1970–1995: Identity of the least developed countries 6
2. The crucial role of trade 7
C. Evolution of the LDC category 11
D. The present critical juncture 13
E. Structure of the report 14
ANNEX 15
CHAPTER 1: Setting the scene: 50 years of the LDC category
A. The landmark in LDC history

2021 is a landmark year in the history of the group of “The heaviest and most urgent task
least developed countries (LDCs). The LDC category of economic development is, however
was established exactly 50 years ago, when the United in the least developed countries,
Nations General Assembly endorsed the initial list of
“least developed among developing countries” in 1971,
those that lag far behind the [few]
following research, analysis and advocacy by UNCTAD. industrialized countries with regard both
In half a century of existence, the international
to technological levels and to standards
community has a long and rich experience to evaluate of living” (Weintraub, 1948)
the development outcomes achieved by these
countries, and to identify the obstacles that have
compromised their sustainable development. The challenges that continue to afflict facing LDC economies
review also serves to evaluate the effectiveness of the and societies. These include: (i) the long-standing
policies, programmes and measures implemented challenges of, among others, impediments to structural
by the countries themselves and by the international transformation and sustainable development; (ii) more
community to overcome these obstacles. The present recent ones, particularly setbacks deriving directly from
report aims to provide a contribution to this review the COVID-19 shock; and (iii) those which have been
and evaluation, in order to present an analytical basis garnering in importance and level of risk, stoking up to
for future policymaking. future challenges, especially climate change.
The 50th anniversary of the establishment of the LDC The said confluence provides an opportunity – but
group coincides with the year in which the international also the necessity – for the international community
community is negotiating a new programme of action to look back over the last half century, and reconsider
(PoA) for the LDCs for the decade 2022–2031. The PoA the long development experience of the LDCs, and
is designed to steer the development efforts of LDCs, take stock and review the development prospects of
during that period. The LDCs look forward to a new LDCs. Progress has been made on many dimensions
programme of action for the least developed countries of sustainable development over the years, but
that will bolster multilateralism and deal decisively core challenges persist and have become more
with the core issues affecting them. In preparation for complex and urgent. In a nutshell, the development
the new decade, LDC stakeholders are forging new performance of the LDCs has been disappointing,
partnerships, and discussing new instruments and from different points of view, as continuously shown
measures to give concrete shape to these partnerships. by The Least Developed Countries Report series.
The period of implementation of the new PoA will broadly
coincide with the final decade of operationalization of It suffices to cursorily mention:
the 2030 Agenda for Sustainable Development and the (i) The slow development of productive capacities and
achievement of its Sustainable Development Goals. – hence – the scant progress in growth-enhancing
structural economic transformation;
This anniversary year of the creation of the LDCs,
unfortunately, falls in the midst of a major global health (ii) The persistence of several symptoms of
crisis – the COVID-19 pandemic. – with has had underdevelopment, such as low levels of labour
huge economic and social ramifications for countries. productivity, high poverty rates, low levels of human
In 2020 LDCs had their worst growth performance capital formation, persistent under-performance
in almost three decades. More to the point, the in human well-being, etc.;
crises arising from the COVID-19 shock has reversed (iii) The lingering vulnerability to external shocks and
painstakingly achieved progress on several dimensions limited resilience, due to restricted resources
of development, particularly with respect to previously and policy space, as well as weak institutional
achieved breakthroughs on poverty, hunger, education, development;
and health (UNCTAD, 2020a). Backtracking on these (iv) The widening income and development gap
dimensions will continue to have adverse consequences between the LDCs and other developing countries
on the development of LDCs over the mid-term. (ODCs);
The confluence of the 50th anniversary, the preparation (v) The low number of countries that have graduated
of the new PoA and the present crises challenges from the LDC category to date: six (during the
facing LDCs obliges development partners to devise 26 years since 1994), out of a total of 53 countries
innovative ways to tackle the major development that have ever belonged to the LDC category.
3
places particular emphasis on the trade challenges

faced by the LDCs. The discussion on trade is
Familiar and new development followed by a summary of the evolution of the LDC
challenges make it harder to close the category over 50 years and highlights some critical
development gap between LDCs and elements of the present juncture, which provide the
direction of the present report.
other country groups
B. The origin of the LDC category

While there have been positive experiences of some This section reviews the structural challenges which
LDCs that have achieved decisive strides towards led to the establishment of the category. As the
sustainable development – especially in the economic world economy expanded and transformed, LDCs
and social dimensions – the majority of LDCs have have continued to struggle with familiar and new
lagged behind. These issues are of concern to the development challenges, making it harder to close
international community. It is therefore important to the development gap between them and other
understand the reasons behind the unsatisfactory country groups. The analysis will also show that the
progress achieved by some LDCs, and the role original thinking that led to the establishment of the
played by various partners and United Nations entities LDC category still remains valid.
supporting LDCs. In reviewing past performance, it is
possible to obtain a clearer picture of the successful UNCTAD was founded on the need for collective
policies that have led to this achievement. It is also international decisions on issues affecting
important to interrogate the development policies developing countries, and discontent with the pace
pursued by LDCs to discover where they have of development among “the least developed of the
been lacking. The objective of such an exercise is developing countries”. UNCTAD plays a critical role
to glean lessons from past experience to formulate in shaping the international response to development
innovative proposals for the future. This is especially challenges, both as a think tank and as an important
valuable in the present context of formulation of a stakeholder in the intergovernmental processes of the
new PoA, which should address the setback due United Nations. The Trade and Development Board, a
to the COVID-19 pandemic, and have a longer subsidiary body of UNCTAD, has frequently proposed
policies on LDC-specific issues for the consideration
forward-looking approach, by injecting radical shifts in
of the General Assembly (Economic and Social
their development trajectories in the coming decade.
Council and its subsidiary organs).
In this context, the report aims to contribute to a
It is critical that the vast cache of research generated
better understanding of the performance of LDC
by UNCTAD on developing countries and LDCs in
development over the past 50 years, including both
particular, receives the attention it deserves. Hence,
its challenges and positive outcomes; it also takes
a retrospective review should inform and spur the
stock of the development trajectory of the LDCs
international community to replicate the urgency
since the establishment of the category 50 years ago,
of the 1960s and 1970s, and decisively translate
and analyses the international and domestic policy
UNCTAD’s research outputs into meaningful
approaches taken to tackle the major development
follow-up actions in favour of LDCs. The evidence
challenges faced by these countries.
in various issues of The Least Developed Countries
Latter chapters of the report take a future-oriented Report points to a decline in ambition to decisively
approach, and estimate the financing required for tackle the core issues facing LDCs, and an
LDCs to reach critical Sustainable Development unbalanced focus in the sectoral aid allocation by
Goals targets. It then sets the policy principles and development partners.
measures that are most likely to lead the LDCs to
The subsequent section revisits the conceptualization
reach those goals and to sustainable development,
of the development problems of developing countries
and which need to be taken into account in the
beginning with the 1960s, and demonstrates how
formulation of the new plan of action and its
some of the problems have persisted throughout
implementation. The report thereby provides a
the 50 years of the existence of the LDC category.
contribution to major ongoing policy debates and
The focus is not only on the history of the category,
decision-making.
but the context and international development
The remainder to this introductory chapter analyses strategies that shaped the category in the 1960s to
the context and the rationale that led to the the late 1990s. The crucial role of international trade
establishment of the LDC category 50 years ago. It is then discussed.
4
1. Revisiting the past – The development

theory The scope for trade and industrial
a. 1950–1969: Independence and early development policies to influence economic
thinking development in LDCs remains
For most LDCs, the 1950s and early 1960s marked largely unexploited
the end of the colonial era, and after the transfer of
power, new elites began to take responsibility for the
policies to oversee and manage their development. It (Makhlouf et al., 2015), the economic diversification
quickly became apparent, however, that the transition of countries was hampered by a lack of capacities to
was undermined by the fact that many of these newly venture into new and unrelated sectors of production
independent countries inherited: (i) weak institutions; (Ali, 2017). Export-promotion strategies pursued by
(ii) inadequate infrastructure, human, financial and countries during the period were unable to transform
physical resources; (iii) scarcely recognizable private their comparative advantages in commodities into
sector; and (iv) structurally weak economies. competitive, large-scale industrial prospects.
LDCs also faced a fiercely competitive external Two main weaknesses of the development strategies
environment, and unfavourable terms of trade as of the post-independence era have spilled over in
commodity exports fared poorly and consistently, varying degrees to the present day. First, the scope
and exhibited low-income elasticity of demand, for trade and industrial policies to influence economic
as compared to manufactures (UNCTAD, 2013; development in developing countries remains largely
Parra-Lancourt, 2015). Left with economies that unexploited. Properly defined and aligned, trade
could barely generate sufficient tax revenue and and industrial policies shape industrial performance
domestic savings to finance development, LDCs in competitive market economies but have been
relied on external resources to fill the development ineffective in LDCs (UNCTAD, 2008). Second, export
financing gap. It became abundantly clear during promotion cannot be selectively applied to economic
the 1950–1960s that international trade conducted sectors without regard for global value chains (GVCs);
on the basis of mutually beneficial and non-restrictive the latter have progressively delinked developing
terms offered a potential to provide the resources to countries from the mainstream trade and investment
finance development. However, to take advantage channels in favour of a concentration of technology and
of “free trade”, some countries lacked the domestic market power of a few big players (Pietrobelli, 2008;
economic structure to afford them the flexibility and Flentø and Ponte, 2017). It was therefore inevitable
capacity to compete at a global level. Failure to define from this point in the 1960s that developing country
these initial conditions could undermine the impact exports predicated on comparative advantages in
of the solutions which could be proposed to these commodities would continue losing ground and face
countries as they are intricately linked to their future low returns, despite receiving preferential treatment
development paths (Mkandawire and Soludo, 2014). from bilateral and multilateral arrangements during
The post-independence period presents two the GATT era (i.e. before 1995).
contrasting pictures: on the one hand, it witnessed
When the 1960s were designated the first United
an economic boom in industrialized countries
Nations Development Decade, the goal was to garner
driven in part by a shift in industrial production in
international support for “measures to accelerate
advanced economies, technology-intensification,
self-sustaining growth and social progress in all
and diversification of material inputs; and, on the
countries” by narrowing the per capita income gap
other hand, developing countries experienced a
between developed and developing countries (United
deceleration and slow growth in demand for their
Nations, 1961). The declaration announcing the decade
exports due to their low industrial capacities and
also focused on trade policies intended to facilitate
unexploited domestic markets (Kavoussi, 1985).
trade, and enable developing countries to obtain
The international development strategy of the remunerative prices for their exports. Mobilization
time promoted international trade and economic of domestic and external resources was critical in
cooperation, with the goal of increasing the flow tackling the economic challenges countries’ faced,
of external resources to developing countries e.g. widespread poverty, hunger, disease, illiteracy,
to accelerate their development (Larionova and and underdeveloped infrastructure (Ajaegbo, 1986).
Safonkina, 2018; United Nations, 1968). Although trade The first United Nations Conference on Trade and
openness and diversification can be highly correlated Development in 1964 (UNCTAD I) was convened in
5
development challenges of developing countries.

The period 1971–1982 marked the end of the
The United Nations established the post-war economic boom, and the onset of a period
LDC category in 1971, focusing of global adjustment caused by major monetary
on vulnerability to external shocks and commodity market events. First, the Bretton
and domestic factors Woods system of fixed exchange rates collapsed
in 1968–1973 as the United States abandoned
the policy of dollar-gold convertibility in 1971.
Second, with major currencies floating against
Geneva to address specific development challenges of
each other, and inflation and unemployment rising
developing countries, including trade (United Nations,
in industrialized economies, price shocks struck
1962a). Among the Conference’s thematic agenda
in 1973 and 1979 (IMF, n/d). Third, as interest rates
were measures to increase trade of developing
picked up in response to stagflation in the United
countries in both primary and manufactured goods,
States, developing countries, which at this point
and for the gradual removal of the tariff and non-tariff
were resource-constrained, and already projected
barriers (NTBs) affecting developing countries (United
to have debt-service burdens larger than their
Nations, 1962b).1 It was a direct response to the call in
capital inflows (Larionova and Safonkina, 2018;
the General Assembly resolution designating the first
United Nations, 1972). When the United Nations
United Nations Development Decade, on ECOSOC established the LDC category in 1971, the defining
to examine principles of international economic theme was “underdevelopment”, with common
cooperation aiming at an improvement of economic elements including vulnerability to external shocks
relations between countries. and domestic factors, such as limited resource
The outcome of first session of UNCTAD – The Final endowments, institutions and policies further
Act, UNCTAD I (United Nations, 1964) – is a major undermining the potential of the countries to confront
milestone in the implementation of Chapter IX of the their development challenges.
United Nations Charter – International Economic In a speech at the first United Nations Conference
and Social Cooperation. The Final Act reflects the on the Least Developed Countries (Paris, France,
principles that guided United Nations member States 1–14 September 1981), Mr. Edgard Pisani, a delegate
in formulating international responses to developing to the Conference, described the situation of the LDCs
country problems related to commodities, trade in as that of countries experiencing a “decline rather
manufactures and semi-manufactures, and financing than a laboured progress” towards development
for international trade. The subsequent adoption by (Pisani, 1981). Selwyn (1973) emphatically critiqued
the General Assembly of UNCTAD, as its institution, the LDC identification process, and offered four
together with its permanent subsidiary body, the possible assumptions for the classification, including:
Trade and Development Board (TDB),2 was key in (i) welfare (distributive); (ii) economic and structure;
setting the pace on international principles governing (iii) stage of development; and (iv) common problems.
international trade relations. The TDB continues to He further noted that the polarization of LDCs was
contribute to international policies to promote orderly occurring at both the regional and global level, and
trade, development and economic integration of argued that special measures could have been
developing countries into the world economy. extended to other countries facing similar challenges.
b. 1970–1995: Identity of the least developed countries However, as the geographical composition of the
LDCs group has changed over the past 50 years,
Several landmark decisions by the United Nations
some of the development issues that have plagued
relating to LDCs were taken in the late 1960s and
LDCs, e.g. poverty, food insecurity and inequalities,
early 1970s; the bulk of whom focused on the major
have also shifted and are increasingly concentrated in
LDCs, especially those in Africa.
1
The Conference was convened “to provide, by means of
international co-operation, appropriate solutions to the Out of these intergovernmental processes and
problems of world trade in the interest of all peoples and
contestations, UNCTAD has emerged as a
particularly to the urgent trade and development problems
of the developing countries.” (United Nations, 1964). pre-eminent think tank on development issues
2
General Assembly Resolution 2085(XX) of 20 December affecting LDCs through its convening role on trade
1965 unanimously agreed that the Trade and Development and development. It counts the Generalized System
Board is the appropriate framework for an effective
of Preferences, LDC-specific aid targets, technology
contribution to the solution of major problems affecting
trade and development of developing countries (United transfer, commodity issues, investment and
Nations, 1965). rule-based trade, as some of its achievements over
6
the years (Burney, 1979; UNCTAD, 2016). Whereas

the main concerns in the 1960s were the worsening
terms of trade of developing country exports and the
sharp fall in the net flow of capital from developed LDCs accounted for just
countries, the oil price crisis of 1973 triggered further
socioeconomic challenges globally, including among
developing countries. The latter crisis was associated
with rising foreign debt among developing countries,
and continued to have adverse effects for many
years. Combined with macroeconomic imbalances
0.13%
and, other factors, it eventually led to the debt crisis
of the mid-1980s to the late 1990s. Some of these
challenges were discussed during UNCTAD II (New
Delhi, India, 31 January – 29 March 1968) which of global trade in the 2010s
called for: (i) the untying of development finance;
(ii) quantitative targets on grants (80 to 90 per cent
of official aid); (iii) caps on interest rates on loans and
flexible terms, including a minimum grace period
of 8 years; and (iv) the adoption of “suitable measures dependence, on one side, and poverty and
for alleviating the debt servicing burden of developing underdevelopment, on the other; (iii) trade is the
countries by consolidation of their external debts into field where the most effective international support
long-term obligations on low rates of interest” (United measures (ISMs) to LDCs have been put into
Nations, 1968). operation (UNCTAD, 2016a); and (iv) in the context
of globalization the impact of international trade on
In the 1980s international financial institutions
development outcomes has intensified.
(IFIs) began to progressively introduce structural
policies to assist countries to manage their external A country’s capacity to produce is intimately
obligations through: (i) the stabilization of their linked to tradeable sectors with productivity and
macroeconomy; (ii) liberalization of their economies, competitiveness (Pilinkienė, 2016), but that capacity
and abandonment of Keynesian fiscal policies has also been shown to be hampered by many
for monetarism; and (iii) privatization of public factors (Sarkar, 2007; Ali, 2017; UNCTAD, 2020a).
enterprises and re-orienting the economies with One of the arguments for special measures in favour
market policies (United Nations, 2017). Concerned of LDCs is that trade is also determined by the level
with a further deterioration of economic and social of economic development. The special measures
conditions in the LDCs, the United Nations convened introduced in favour of LDCs (resolution 24(II) of
the first United Nations Conference on the Least UNCTAD (United Nations, 1968) aimed to expand
Developed Countries in Paris in 1981 to revitalize their trade opportunities, and provide them with a
the development process of LDCs. Interestingly, springboard for economic and social development.
the conference did not shy away from criticizing The same resolution also requested UNCTAD’s
rigidities in national policies, and international Secretary General to propose a criteria to identify
measures focusing on transitory issues, including the “the least developed among developing
restoring economic and financial stability typical of countries”. The evolution of the LDC category
the structural adjustment era, instead of promoting from inception to the present, and refinements to
investment in key sectors (UNCTAD, 1992). the monitoring and identification processes are
discussed in section C.
2. The crucial role of trade The share of LDCs in world trade has remained
The international exchange of goods and services insignificant over many years. ODCs, led by China,
plays a major role in determining economic growth. have clawed back a stake in world trade. The
Trade has traditionally been a major focus of thinking historical trend from the 1960s reveals that the share
and policymaking in the context of LDCs, which of developing countries in world trade declined sharply
is motivated by a number of reasons, including: from 46.9 per cent in 1960 to 13.9 per cent in 1971.
(i) the balance-of-payments-constrained growth It is evident that without the phenomenal growth of
model, which places trade performance as a central China, the developing countries share of trade would
structural impediment to growth and development never have recovered beyond the 30 per cent mark
(UNCTAD, 2019a); (ii) the link between commodity last reached in 1981 and in 2012 (Figure 1.1).
7
Figure 1.1
Share of total trade (per cent) by economic status
90 0.14
80
0.12
70
0.10
60
Least developed countries

Other country groups
0.08
50
40
0.06
30
0.04
20
0.02
10
0 0.00
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
Least developed countries Developing countries excluding China
Developed countries Developing countries
Source: UNCTAD calculations based on data from World Bank, World Development Indicators Database [accessed May 2021].
Note: Total trade is defined as the sum of exports and imports.
During 1960–1970, more than half of the world primary commodity exports. This trend reflected
trade was between developed countries and rising, several factors in developing countries, including
with the underlying dynamic led by a phenomenal trade patterns – largely dominated by primary
growth in manufactures and the slow growth of commodities – although the share of manufactures
in exports had also increased. Primary commodities
dominated LDC exports, although the relative
importance of the commodity groups varied from
year to year, and among countries depending on
commodity market conditions, climatic conditions, as
well as other factors.
Manufactured products, by contrast, dominated the
exports of both developed countries and ODCs,
but commodities still featured strongly in many of
the latter countries. An important trend for LDCs
is the steady rise in their manufacturing exports
Manufactures accounted for from slightly over 20 per cent in 2011 to about
29%
37 per cent of total exports in 2019 (Figure 1.2). The
contrast in the share of labour and resource intensive
manufactures’ exports from LDCs, and high-skill and
of merchandise exports of technology intensives from ODCs and developed
LDCs in the 2010s countries mirrors the specialization in commodities,
with the LDCs largely specialized in low technology
and low skill processing of goods (Figure 1.3).
8
Figure 1.2 Figure 1.3

Share of major commodity groups in merchandise exports Manufactured goods exports by intensity of skills and
and share of services in total exports technology, by country development status, 1995–2019
LDCs LDCs
70 90
60 80
50 70
40 60
30 50
20
40
10
30
0
20
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
20
10
Other developing countries 0
70
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
20
60
Other developing countries
50 50
40 45
40
30
35
20 30
10 25
20
0
15
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
20
10
Developed economies 5
0
90
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
80 20
70 Developed economies
45
60
40
50 35
40 30
25
30
20
20
15
10 10
0 5
0
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
20
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
20
Primary commodities, precious stones and non-monetary

gold, excluding fuel High-skill and technology-intensive manufactures
Manufactured goods Labour-intensive and resource-intensive manufactures
Fuels Low-skill and technology-intensive manufactures
Share of services in total exports Medium-skill and technology-intensive manufactures
Source: UNCTAD secretariat calculations based on data from UNCTADStat Source: UNCTAD secretariat calculations based on data from UNCTADStat
[accessed May 2021]. [accessed May 2021].
9
Figure 1.4
Import shares by major commodity groups and economic
status
LDCs
70
60
50
40
commodity-
85%
30
20 dependent
10
of LDCs are
0
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
20
Other developing countries Although the share of primary commodities in total

80 world trade has continued to shrink, commodity
dependence has persisted in developing countries,
70
particularly among LDCs. In 2019, two-thirds
60 of developing countries and 85 per cent of
50 LDCs were classified as commodity-dependent
(UNCTAD, 2019b).3 The low and unstable growth
40
pattern among developing countries is largely a direct
30 result of their commodity specialization which, in
20 turn, conditioned their development path, and limited
their scope for innovation and the emergence of
10
productivity-led growth dynamics (UNCTAD, 2020a,
0 2016a, 2015).
5
For international trade to anchor economic

9
1
19
19
19
20
20
20
20
20
20
20
20
20
20
diversification in these countries, further support

Developed countries is needed to: (i) develop human capital; (ii) push
80 for strong intersectoral growth; (iii) ensure rising
70 per capita incomes; and (iv) develop better policies
and institutions (Osakwe et al., 2018). Developing
60
countries – and especially LDCs – will remain
50 marginalized if they fail to diversify their exports and
increase their share of manufacturing in exports.
40
Confirming the special role of industrialization in trade,
30 world import trends show that manufactured goods
20 dominate in all country groups, ranging from 59 per
cent of all imports among LDCs to 70 per cent of
10
imports of developed countries in 2019 (Figure 1.4).
0 By contrast, primary commodity imports (excluding
fuels) ranged from 16 per cent among developed
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
20
20
20
20
20
20
20
20
20
20
Primary commodities excluding fuels Fuels 3

Only seven LDCs, namely Bangladesh, Bhutan, Cambodia,
Ores, metals and non-monetary gold Food Haiti, Lesotho, Nepal and Tuvalu are classified as non-
Manufactured goods commodity dependent economies. A country is considered
to be export-commodity-dependent when more than
Source: UNCTAD secretariat calculations based on data from UNCTADStat 60 per cent of its total merchandise exports consist of
[accessed May 2021]. commodities. (UNCTAD, 2019b).
10
countries to 20 per cent among ODCs (26 per cent

for LDCs) in 2019.
Some of the development challenges
The supply-side constraints limiting the participation among LDCs have remained broadly
of LDCs in international trade have been analysed
in successive Least Developed Countries Reports; similar over the last 60 years
the 1999 edition of the report analysed LDCs’ trade
marginalization, their productive capacities, as
well as options to strengthen their competitiveness these decades, investment growth grew at a slow
(UNCTAD, 1999). pace in LDCs, especially since the debt crises of
that period. This coincided with various episodes
From the early 1960s, merchandise exports were
of commodity boom and boost, which rendered
important for LDCs as they accounted for more than
the task of attracting foreign direct investment
half of their exports. Services have also become
difficult.
important exports for LDCs, especially in recent
years, averaging about 20 per cent of total exports The criteria for inclusion into, and graduation from,
(Figure 1.2). Diversification of the main exports the LDC category have evolved over time (Annex
remains challenging, as the export basket of many table 1), reflecting the increased availability of
countries is made up of only one or a handful of quality data to assess the progress made by the
products, e.g. agricultural, fuels or mineral products. countries. The evolution of the criteria to define the
These structural weaknesses point to the need to: LDCs has had an impact on the composition of the
(i) develop the productive capacities including the group over the last 50 years, which is reflected in
interlinkages within and across sectors; (ii) address Figure 1.5.
the other supply-side constraints such as the
quality of labour (human capital); (iii) deficiencies When the General Assembly endorsed the
in physical infrastructure, the level of technological initial list of “least developed among developing
capabilities; (iv) low levels of private investment; countries” in 1971 (A/RES/2768(XXVI)), there
and (v) low growth. These constraints are at the were 25 countries4 identified in recognition of
heart of a long-term development conundrum and their structural challenges and vulnerabilities. In
cannot be addressed with piecemeal interventions that year, the median per capita GDP among the
or sectoral approaches. The literature is also countries was less than $100 at nominal values,
clear on the role of innovation and technology, as half of countries were predominantly agrarian
together with accompanying policies to build the economies, and only 7 per cent of their GDP was
national innovation system, they could potentially generated by manufacturing. Social development
pave the way to enhance productivity and growth. was basic, with very high under five- and maternal
In addition, the sequencing and optimization of mortality rates, a life expectancy at birth of 40, and
choice between physical capital accumulation gross secondary enrolment of only 3 per cent. Over
and investment in human capital should not arise the years, the number and diversity of countries in
for developing countries as both are at low levels;
the category increased, peaking at 52 in 1991. A
it is expected that the returns to physical capital
few countries have graduated from the category
investment may initially decline rapidly, given the
and, as of January 2021, the remaining LDCs
low levels of human development in the countries
are at 46 (Figure 1.5). While economic and social
concerned (Nguyen, 2009). A comprehensive
development indicators have greatly improved,
development agenda is, therefore, required to
they remain largely unsatisfactory, and countries
boost economic diversification, growth and global
continue to struggle with a set of challenges
competitiveness.
similar to those that led to the establishment of the
category.
C. Evolution of the LDC category
4
Afghanistan, Dahomey (now Benin), Bhutan, Botswana,
The context in which the first United Nations
Upper Volta (now Burkina Faso), Burundi, Chad, Ethiopia,
Development Decade was adopted may be Guinea, Haiti, Lao People’s Democratic Republic, Lesotho,
60 years ago, but some of the development Malawi, Maldives, Mali, Nepal, Niger, Rwanda, Western
challenges among LDCs have remained broadly Samoa (now Samoa), Sikkim (now part of India), Somalia,
Sudan, Uganda, United Republic of Tanzania and Yemen.
similar over this time. If anything, these challenges
Of all these countries, only two – Western Samoa and
had become more complex, costly and urgent, Sikkim – were not member States of the United Nations at
and persisted well into 1980s and 1990s. Over the time of the establishment of the LDC category in 1971.
11
Figure 1.5
LDC timeline, 1971–1921
Afghanistan
Angola
Bangladesh
Benin
Bhutan
Botswana 1994
Burkina Faso
Burundi
Cabo Verde 2007
Cambodia
Central African Republic
Chad
Comoros
Dem. Rep. of the Congo
Djibouti
Equatorial Guinea 2017
Eritrea
Ethiopia
Gambia
Guinea
Guinea-Bissau
Haiti
Kiribati
Lao People's Dem. Rep.
Lesotho
Liberia
Madagascar
Malawi
Maldives 2011
Mali
Mauritania
Mozambique
Myanmar
Nepal
Niger
Rwanda
Samoa 2014
Sao Tome and Principe
Senegal
Sierra Leone
Sikkim 1975
Solomon Islands
Somalia
South Sudan
Sudan
Timor-Leste
Togo
Tuvalu
Uganda
United Rep. of Tanzania
Vanuatu 2020
Yemen
Zambia
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021
Time out of the category before inclusion Time in category
Source: UNCTAD Secretariat calculations based on data from Committee for Development Policy and Department of Economic and Social Affairs (2018).
12
It is disappointing that only six of the 53 countries

that have ever been recognized as LDCs have
graduated in the 50 years since the least developed
countries (LDCs) category was established. Of the
Number of LDCs
initial 25 LDCs,5 only three countries – Botswana,
Maldives and Samoa – have graduated from the
category. The 25 countries that were later added
have remained in the category. Four countries are
scheduled to graduate in 2021–2024, including one
25 52 46
of the initial 21 LDCs that remain in the category.
D. The present critical juncture

The major shortcomings of the development
1971 1991 2021
experience of the LDCs over the past 50 years have Creation Maximum Present
been laid bare by the outbreak of the COVID-19 crisis. of category
The latter has once again dramatically highlighted
the institutional, economic and social shortcomings
of the development path followed by most LDCs.
Notwithstanding the fact that LDCs are not alone in These low vaccination rates indicate that the adverse
having been adversely impacted by the COVID-19 effects of the pandemic on LDC economies and
crisis, they stand out from other developed and societies are likely to persist much longer than in
developing countries because of their reduced other countries. As the economies of ODCs and
resilience, and diminished capacity to react to major
developed countries recover from the pandemic
exogenous shocks.
shock, many LDCs risk being left behind. This
The COVID-19 pandemic emerged at a time when would trigger a K-shaped or two-speed recovery,
progress was already slow and unsatisfactory. The in which some countries recover strongly from the
effect of a prolonged global recession could be pandemic-induced recession, while others struggle
disastrous for LDCs (UNCTAD, 2020a, 2020b). The to recover and are left behind. LDCs could suffer
pressure on government spending, public debt and from hysteresis, and face a risk of a lost decade of
balance of payments has increased, leaving them development and of remaining on the margins of
to face an uncertain external environment and weak the global economy. They may spend the coming
domestic recoveries. It should also be emphasized
years just trying to recover from the COVID-19 shock
that a heightened risk of a looming debt crisis among
and eventually achieve little real progress on the
the LDCs existed prior to the COVID-19 shock
Sustainable Development Goals during the 2020s.
(UNCTAD, 2019a, 2020a), but the COVID-19 shock
The present circumstances are therefore exceptional
has raised the possibility of this occurring.
and require decisive action by both the international
Beyond the upending of the gains on several
dimensions of sustainable development (economic,
social…), the low resilience of LDCs is reflected in Figure 1.6
the very low COVID-19 vaccination rate reached by COVID-19 vaccination rates at mid-2021
LDCs as of mid-2021. Then it was just 2 per cent, a (Per cent)
rate corresponding to just one tenth of vaccination
rates in ODCs. The latter, in turn, amounted to about
Developed countries
half the level of vaccination of developed countries
(Figure 1.6). This demonstrates once again the
yawning gaps in the capacity of different country
Other developing countries
groups to respond to exogenous shocks, as well as
the low financial and institutional capacity of LDCs to
react to them.
LDCs
5
From the initial group of 25 LDCs, Botswana, Maldives and
0 5 10 15 20 25 30 35 40 45
Samoa are the only countries that have graduated. A fourth
LDC, Sikkim was a protectorate in 1971 but became an Source: UNCTAD secretariat calculations, based on data from Out World in
Data website [accessed June 2021].
Indian State in 1975.
13
community and LDCs themselves to counter the risks transformation, as well as broader LDC achievements
of a lost decade and hysteresis. in the social dimensions of sustainable development.
The current framework of domestic and international Chapter 3 focuses on the policies that have
policies has not been sufficiently effective in meeting underpinned LDC performance over the past
the major development challenges facing the 50 years. It presents the successive multilateral
majority of the members of the LDC group. Looking initiatives undertaken by the international community
forward, the 2020s will be a crucial decade for the to accelerate development in these countries, as
development of LDCs. On a global scale, the decade well as the domestic policies LDCs are putting in
will be critical for international action on climate place to further their sustainable development. The
change (IPCC, 2021). This smouldering global threat' chapter concludes with an account of successful
is rapidly becoming more serious and urgent. In development experiences of two LDCs – Bangladesh
the case of LDCs, it has some analogies with the and Senegal – and the contrasting routes and
COVID-19 shock: LDCs bear close to nil responsibility policies they to respond to similar problems of
for this exogenous shock, and are unable to head underdevelopment, and the clear strides they have
off its worst or most acute consequences as they made towards sustainable development.
are the group of countries with the least capabilities
Chapter 4 presents a costing of the investments
(economic, technological, institutional) to tackle its
and spending required for LDCs to reach the most
consequences. In devising new forms of partnership
critical SDG. By focusing on different targets, it
with the LDCs, the international community will
provides a picture of the very substantial amounts of
need to meaningfully incorporate the environmental
financial resources which will need to be mobilized
dimension in the formulation of policies and
to meet some critical targets of the 2030 Agenda for
programmes.
Sustainable Development.
Chapter 5 presents a broad vision of the next decade
E. Structure of the report of development processes and development policies
Having set the scene of the main development for LDCs. It highlights the main challenges that these
challenges that led to the establishment of the LDC countries will face and shows the interest of the
category 50 years ago and the objectives of the international community in supporting the development
present report, the remaining chapters proceed as of LDCs. It pinpoints what should be the main objectives
follows. Chapter 2 analyses the growth performance of the new PoA for the LDCs, and presents the outlines
of LDCs over the past 50 years and examines, of novel policies to address the myriad challenges
among others, episodes of growth acceleration and facing LDCs. The chapter suggests priorities for
deceleration in LDCs, the convergence or divergence domestic policies, calls for a new generation of ISMs
of these countries in relation to higher income country in favour of LDCs, and discusses the principles guiding
groups, progress made in structural economic the formulation of these new ISMs.
14
ANNEX
Annex Table 1.1
The LDC definition and criteria over the years
Year LDC definition Criteria
1971 Countries with very low levels GDP per capita • Adult literacy rate • Share of manufacturing in GDP
of per capita gross domestic ($100 to $120) (<=20 per cent) (<=10 per cent)
product facing the most severe
obstacles to development
1991 Low-income countries Income: Augmented physical quality of life Economic diversification index (EDI):
suffering from lon-term • GDP per capita (APQL): • Export concentration ratio.
handicaps to growth, in • per capita calorie supply. • Share of manufacturing in GDP.
particular, low levels of human • life expectancy at birth. • Share of employment in industry.
resource development and/or • combined primary and secondary • Per capita electricity consumption.
severe structural weaknesses school enrolment ratio.
• adult literacy rate.
1999 Low-income countries Income: Augmented physical quality of life Economic vulnerability index (EVI):
suffering from low level of • GDP per capita (APQL): • Population size.
human resources and a • Average calorie intake per capita as a • Export concentration.
high degree of economic percentage of the requirement. • Share of manufacturing and modern services
vulnerability • Under-five mortality rate. in GDP.
• Combined primary and secondary • Instability of agricultural production.
enrolment ratio. • Instability of export of goods and services.
• Adult literacy rate.
2002 Low income countries Income: Human assets index (HAI): Economic vulnerability index (EVI):
suffering from low levels • GNI per capita • Average calorie intake per capita as a • Population size.
of human resources and a percentage of the requirement. • Export concentration.
high degree of economic • Under-five mortality rate. • Share of manufacturing and modern services
vulnerability • Gross secondary school enrolment in GDP.
ratio. • Instability of agricultural production.
• Adult literacy rate. • Instability of export of goods and services.
2005 Low-income countries Income: Human assets index (HAI): Economic vulnerability index (EVI):
suffering from low levels • GNI per capita • Percentage of population • Population size.
of human resources and a undernourished. • Remoteness.
high degree of economic • Under-five mortality rate. • Merchandise export concentration.
vulnerability • Gross secondary school enrolment • Share of agriculture, forestry and fisheries in GDP.
ratio. • Homelessness due to natural disasters.
• Adult literacy rate. • Instability of agricultural production.
• Instability of exports of goods and services.
suffering from the most severe • GNI per capita • Percentage of population • Population size.
structural impediments to undernourished. • Remoteness.
sustainable development • Under-five mortality rate. • Merchandise export concentration.
• Gross secondary school enrolment • Share of agriculture, forestry and fisheries in GDP.
ratio. • Share of population in low elevated coastal zones.
• Adult literacy rate. • Victims of natural disasters.
• Instability of agricultural production.
suffering from the most severe • GNI per capita • Percentage of population • Population size.
structural impediments to undernourished. • Remoteness.
sustainable development • Under-five mortality rate. • Merchandise export concentration.
• Maternal mortality rate. • Share of agriculture, forestry and fisheries in GDP.
• Gross secondary school enrolment • Share of population in low elevated coastal zones.
ratio. • Victims of natural disasters.
• Adult literacy rate. • Instability of agricultural production.
2021 Low-income countries Income: • Prevalence of stunting. Economic and environmental vulnerability index (EVI):
suffering from the most severe • GNI per capita • Under-five mortality rate. • Remoteness and landlockedness.
structural impediments to • Maternal mortality rate. • Merchandise export concentration.
sustainable development* • Gross secondary school enrolment • Share of agriculture, forestry and fisheries in GDP.
ratio. • Share of population in low elevated coastal zones.
• Adult literacy rate. • Share of population living in drylands.
• Gender parity index for gross • Victims of disasters.
secondary school enrolment. • Instability of agricultural production.
Source: United Nations, Economic and Social Council, Committee for Development Policy, United Nations, and Department of Economic and Social Affairs (2018).
15
Annex Table 1.2

LDC scores against the 2021 LDC criteria
Income only graduation Income graduation Economic vulnerability Human assets index graduation
Country threshold: GNI per capita threshold: GNI per capita index graduation threshold: threshold: 66 or above
($2460=100) ($1230=100) 32 or below (32=100) (66=100)
Afghanistan 24 47 140 62
Angola** 142 284 142 78
Bangladesh* 67 133 85 114
Benin 34 68 103 74
Bhutan**(*) 120 239 81 115
Burkina Faso 29 57 152 87
Burundi 12 23 120 82
Cambodia * 51 102 95 102
Central African Republic 17 34 85 40
Chad 29 59 168 22
Comoros 53 107 124 96
Dem. Rep. of the Congo 20 40 74 71
Djibouti** 125 250 161 93
Eritrea 62 124 156 84
Ethiopia 31 62 109 83
Gambia 27 54 175 91
Guinea 33 66 84 57
Guinea-Bissau 28 56 126 58
Haiti 32 64 104 87
Kiribati**(*) 119 238 207 126
Lao People’s Dem. Rep.* 92 184 83 109
Lesotho 54 108 138 95
Liberia 16 33 124 70
Madagascar 19 39 106 92
Malawi 14 28 150 89
Mali 33 66 153 68
Mauritania 65 130 141 82
Mozambique 20 39 128 80
Myanmar* 51 102 80 109
Nepal* 37 74 79 109
Niger 21 41 150 51
Rwanda 30 61 106 99
Sao Tome and Principe* 70 140 93 133
Senegal* 54 107 135 100
Sierra Leone 22 44 117 63
Solomon Islands* 70 140 143 109
Somalia 4 8 164 32
South Sudan 34 68 137 33
Sudan 72 144 128 91
Timor-Leste* 81 162 125 103
Togo 25 50 78 89
Tuvalu**(*) 263 527 178 132
Uganda 27 53 88 87
United Rep. of Tanzania 40 81 104 92
Yemen 33 66 104 79
Zambia* 56 111 128 80
LDC averages 51 102 123 85
Source: UNCTAD secretariat calculations based on data from CDP for the 2021 Triennial Review.
Notes: * Country meets at least two graduating criteria; ** Country meets the income only graduation criterion threshold. The graduation rule requires that a
country meeting two of the three criteria must do so in two consecutive triennial reviews.
16
Annex Table 1.3

LDC selected indicators in 2000 and 2020
Gross
Economic
Human assets Under-five Maternal secondary Prevalence of Adult literacy
Country GNI per capita vulnerability
index mortality rate mortality rate school stunting rate
index
enrollment
2000 2020 2000 2020 2000 2020 2000 2020 2000 2020 2000 2020 2000 2020 2000 2020
Afghanistan 139 580 5 41 45 45 138 62 1 486 638 17 54 54 38 26 43
Angola 539 3 496 26 52 40 45 215 77 779 241 11 51 55 38 68 66
Bangladesh 374 1 640 44 75 32 27 97 30 455 173 45 73 59 31 44 74
Benin 395 839 22 49 41 33 146 93 546 397 21 59 38 32 32 42
Bhutan 532 2 941 38 76 34 26 87 30 408 183 23 90 49 34 43 67
Burkina Faso 283 707 19 57 48 49 186 76 521 320 9 41 41 25 15 41
Burundi 149 285 18 54 34 38 167 58 1 011 548 9 48 63 54 55 68
Cambodia 294 1 254 30 68 44 31 118 28 490 160 18 45 54 32 67 81
Central African Republic 304 417 11 27 30 27 174 116 1 372 829 11 17 43 41 48 37
Chad 240 720 3 15 51 54 192 119 1 459 1 140 10 23 43 40 21 22
Comoros 932 1 310 45 64 39 40 103 67 473 273 32 56 43 31 66 59
Dem. Rep. of the Congo 191 490 27 47 31 24 168 88 762 473 30 46 48 43 70 77
Djibouti 763 3 074 40 61 47 51 105 59 507 248 14 51 30 33 52 50
Eritrea 355 1 528 28 56 57 50 95 42 1 186 480 28 47 46 53 49 77
Ethiopia 142 765 13 55 45 35 154 55 1 114 401 12 35 60 37 31 52
Gambia 1 129 662 30 60 54 56 124 58 909 597 28 50 30 19 33 51
Guinea 704 814 9 38 23 27 181 101 1 123 576 14 39 32 30 23 32
Guinea-Bissau 461 692 14 38 31 40 185 81 1 221 667 16 34 34 28 39 46
Haiti 394 786 48 58 28 33 111 65 448 480 18 18 32 22 53 62
Kiribati 967 2 926 66 83 52 66 76 53 137 92 47 87 27 15 64 80
Lao People’s Dem. Rep. 370 2 265 37 72 37 27 115 47 561 185 29 67 49 33 66 85
Lesotho 855 1 328 48 62 45 44 112 81 687 544 28 62 48 35 85 77
Liberia 159 401 20 46 56 40 212 71 944 661 32 38 45 30 39 48
Madagascar 288 479 40 61 31 34 119 54 613 335 20 37 57 42 66 75
Malawi 259 343 27 59 45 48 190 50 780 349 33 40 62 39 64 62
Mali 329 810 13 45 52 49 199 98 806 562 13 41 41 27 19 35
Mauritania 888 1 600 29 54 48 45 114 76 854 766 16 37 44 23 47 54
Mozambique 219 485 16 53 42 41 191 73 790 289 6 35 49 42 40 61
Myanmar 180 1 257 55 72 32 26 94 46 340 250 32 64 51 29 89 76
Nepal 230 911 34 72 34 25 91 32 571 186 38 74 61 36 44 68
Niger 248 509 10 34 48 48 244 84 875 509 6 24 51 48 20 31
Rwanda 254 747 28 65 42 34 226 35 1 071 248 11 41 47 38 63 73
Sao Tome and Principe 687 1 717 62 88 51 30 94 31 181 130 35 89 35 17 81 93
Senegal 729 1 317 29 66 44 43 139 44 611 315 14 44 27 19 36 52
Sierra Leone 231 537 17 41 33 37 244 105 2 330 1 120 22 42 37 30 32 43
Solomon Islands 1 011 1 721 57 72 53 46 32 20 248 104 24 48 33 32 73 77
Somalia 161 104 11 21 52 52 172 122 1 216 829 8 6 29 25 5 5
South Sudan 595 831 8 22 28 44 201 99 1 726 1 150 7 11 35 31 19 35
Sudan 249 1 766 42 60 46 41 111 60 694 295 32 47 38 38 57 61
Timor-Leste 743 1 998 33 68 30 40 120 46 715 142 35 84 56 52 34 68
Togo 392 618 30 59 32 25 126 70 523 396 27 62 33 24 52 64
Tuvalu 2 593 6 478 80 87 52 57 44 24 175 104 55 67 10 10 95 95
Uganda 358 654 29 57 35 28 159 46 575 375 11 25 45 29 64 77
United Rep. of Tanzania 295 992 30 61 32 33 144 53 857 524 8 29 49 32 66 78
Yemen 446 809 30 52 43 33 103 55 301 164 44 52 56 46 44 54
Zambia 387 1 367 26 53 43 41 173 58 543 213 20 20 56 35 68 87
LDCs 488 1 260 30 56 41 39 143 64 782 427 22 47 44 33 49 60
Source: UNCTAD secretariat calculations based on data from CDP for the 2021 Triennial Review.
17
Long-term performance in income
per capita for today’s 46 LDC
23
Since 1971, 23 LDCs lagged behind
relative to the world’s average 16
income per capita, 7 LDCs
experienced catching up,
and the rest muddled through 7
Falling behind Muddling through Catching up
Beyond the health

emergency, several
factors undermine LDC Debt vulnerabilities
recovery prospects Reduction of investments
Reconfigurations of value chains
Bankruptcies and job destruction
Disruptions to schooling
0 5% 10 % 15 % 20 %
Though the risk has declined

over the last 20 years, LDCs LDCs 16 %
remain disproportionately
OTHER
vulnerable to boom-and- DEVELOPING
COUNTRIES
11 %
bust cycles
DEVELOPED
COUNTIRES 3%
Incidence of growth collapses since

the creation of LDC category
CHAPTER
2
Achievements at 50: growth,
transformation and
sustainability?
CHAPTER 2
Achievements at 50: growth,
transformation and sustainability?
A. Introduction 21
B. A bird’s eye view on the long-term performance of LDCs 21

1. LDC growth, global inequalities and income convergence 25
C. Medium-term considerations and boom-and-bust cycles 29
D. Patterns of growth: structural dynamics, inclusivity and

sustainability 32
1. Productive capacity development and structural
transformation 33
2. Growth and inclusiveness 39
3. Environmental sustainability 46
E. Conclusions 54
CHAPTER 2: Achievements at 50: growth, transformation and sustainability?
A. Introduction
The 50th anniversary of the establishment of the LDC The long-term growth performance
category is occuring at a time when the international of LDCs has been mixed at best,
community is grappling with the dire consequences of and characterized by an overall
the global recession triggered by COVID-19 outbreak.
Productivity slowdown in developed countries,
sluggish and uneven record
rising inequalities and environmental degradation,
emerging international tensions and trade wars
were already apparent, even before the onset of the transformation; (b) inclusivity; and (c) environmental
deepest recession since World War II. At this juncture, sustainability. Finally, Section 5 concludes and draws
however, the prospects of an uneven recovery and some final considerations to inform ongoing debates
fears of another “lost decade” make it even more on the development of the next PoA for LDCs.
urgent to revitalize the multilateral system and bolster
international cooperation. This is particularly critical B. A bird’s eye view on the
for the LDCs, whose recovery and sustainable
development prospects are largely contingent on long-term performance of LDCs
maintaining long-term investment plans and access This section takes a historical perspective and
to consistent sources of sustainable development outlines the long-term trends in LDC growth
finance, so that they can benefit from a sustained performance since the creation of the category
global rebound in economic activity. in 1971. The analysis that follows sets the context
Against this background, this chapter addresses the for the rest of the chapter, and highlights key stylized
following question: What can be learnt from the past facts on the growth record of LDCs. While the bulk of
growth experience of LDCs which could inform the the discussion focuses on the period preceding the
deliberations on the next 10-year Programme of Action COVID-19 pandemic, a deliberate effort is made to
(PoA) for LDCs? To do so, it will reassess the growth examine emerging preliminary data on the impact of
trajectory of LDCs over the past five decades to provide the pandemic, and to link this to the broader ongoing
key insights into how to best lay the foundations quest for a more inclusive and sustainable recovery.
for an inclusive and sustainable recovery from the
From a long-term perspective, the growth performance
COVID-19 shock and “the great reset” it has called
of LDCs over the past 50 years has, at best, been
for. Although most of the discussion in the chapter
mixed, and characterized by an overall sluggish and
is inevitably backward-looking, efforts are made to
uneven record. Real GDP for the LDC group increased
link the discussion to the COVID-19 shock and, data
five-fold since the category was created, climbing from
permitting, incorporate a preliminary analysis of the
roughly $200 billion in 1971 to $1,118 billion in 2019,
current juncture. The focus on economic growth is not
at constant 2015 prices (Figure 2.1).1 This is equivalent
intended to frame the discussion on the sustainable
to an average growth rate of 3.7 per cent per year, only
development of LDCs as a purely growth-centric
slightly higher than the corresponding world average
debate. Rather, it is intended to affirm that a rebound
of 3.1 per cent. Meanwhile, real GDP per capita
of economic activity is critical at this stage, and that
expanded at a much slower pace (1.3 per cent per
economic growth continues to be regarded as a key
annum) due to rapid demographic growth, rising from
driver of the sustainable development prospects of
about $600 to $1,082 over the same period.
LDCs, to the extent that explicit growth targets were
enshrined in all the PoAs for LDCs, and more recently As repeatedly flagged in other issues of this report,
in Sustainable Development Goal 8.1. the overall performance of LDCs has fallen short of
what would have been necessary to redress their
The chapter is structured as follows. Section 2 outlines
marginalization in the global economy (UNCTAD, 2010,
the key long-term LDC growth trends and elaborates
2016a, 2020a). Prior to the COVID-19 shock, the LDC
on the implications of these trends with respect to the
debate on global inequalities and income convergence. 1
To preserve comparability over time, the term “LDC group”
Section 3 investigates the medium-term deviation refers to the current set of 46 LDCs, irrespective of when
from long-term trends, highlighting the proneness of they were officially recognized by the United Nations as
LDCs to experience boom-and-bust cycles. Section 4 members of the LDC category. The same convention
applies to the LDC regional group. A more detailed
examines the developments underpinning economic
discussion of when individual countries officially integrated
growth in LDCs, specifically analyzing the extent the LDC category (or graduated from it) can be found in
to which growth is accompanied by: (a) structural UNCTAD (2016a) and United Nations (2018).
21
2021
Figure 2.1
Real GDP and real GDP per capita in LDCs, since the creation of the category
(Constant 2015 prices)
1 200 1 200
1 000 1 000
800 800
Billion dollars
Dollars
600 600
400 400
200 200
0 0
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
Real GDP (left axis) GDP per capita (right axis)
Source: UNCTAD Secretariat calculation based on data from UNCTADstat database [accessed April 2021].
group accounted for about one per cent of the world this stage to account in a methodologically rigorous
GDP, roughly the same share as in the early 1970s way for the impact of the COVID-19 crisis on this
(Figure 2.2). Even more worrying, GDP per capita long-term picture. Nonetheless, existing forecasts and
for the LDC group represented 15 per cent of the preliminary data suggest that the sharp downturn has
world average in 1971, but by 2019 – the year affected LDCs and other developing countries (ODCs)
before the onset of the COVID-19 crisis – this had disproportionately, and that the most vulnerable
declined to less than 10 per cent. It is too early at segments of the population have often borne the brunt
of the crisis (UNCTAD, 2020a, 2020c, 2020d). LDCs
are at the forefront of this global recession – one which
Figure 2.2 is likely to cause lingering damage to their economies,
LDC GDP and GDP per capita relative to the world total and strain their already weak productive sectors.
15.0
Leaving aside the current conjuncture for the time
12.5 being, and going back to longer-term considerations,
it is interesting to note that both Figure 2.1 and
10.0 Figure 2.2 reveal the existence of two distinct
Percentage
7.5 phases. Between 1971 and 1995, in the midst of a

succession of oil shocks, debt crisis and structural
5.0 adjustment programmes and relatively widespread
conflicts, LDCs experienced sluggish and erratic GDP
2.5
growth, when not outright recessions. This resulted in
0.0 a gradual contraction of the average real GDP per
capita of LDCs, both in absolute terms (Figure 2.1)
19 1
19 4
20 3
20 6
77
19 0
19 3
20 7
20 0
86
19 9
19 2
19 5
20 8
20 1
20 4
19
7
7
8
8
0
1
1
1
8
9
9
9
0
0
19
19
19
and, more severely so, relative to the world average

LDC relative to world total
(Figure 2.2). Conversely, since the mid-1990s, LDCs
LDC relative to world total
Source: UNCTAD Secretariat calculation based on data from UNCTADstat
witnessed a marked and generalized resumption in
database [accessed April 2021]. economic growth as macroeconomic fundamentals
Note: Based on GDP and GDP per capita series in constant 2015 strengthened, the international environment improved
dollars.
and conflicts became less widespread.
22
LDCs as a group have displayed considerable Figure 2.3

heterogeneity, both in levels of income per capita
Real GDP and real GDP per capita growth, by decade and
and in their underlying dynamics. Throughout the
LDC geographical sub-group
period, Island LDCs have continued to record relatively
higher levels of real GDP per capita than other LDC Panel A: Real GDP growth
subgroups, even though they grew at a much slower 7.5
pace (reaching $1,475 per person in the 2017–2019
period, at constant 2015 prices). Conversely, in the
early 1970s Asian LDCs started off at a comparatively 5.0
low level of income per capita, but have more than
Percentage
tripled it in 50 years, climbing to $1,274 in 2017–2019 (at
constant 2015 prices). African LDCs and Haiti suffered
2.5
an overall contraction in the first half of the period, and
although the subsequent expansion outweighed the
initial decline, they remain the subgroup of LDCs with
the lowest average GDP per person ($947). 0.0
LDCs: Africa and Haiti LDCs: Asia LDCs: Islands*
The comparison of GDP and GDP per capita growth
by decade and geographical subgroups clarifies the
underlying dynamics further (Figure 2.3). In the 1970s Panel B: Real GDP per capita growth
and 1980s, both African LDCs plus Haiti and Asian 5.0
LDCs recorded rather sluggish expansion in real
GDP; however, faster demographic growth in African
Percentage
LDCs plus Haiti largely explains the diverging trends 2.5

in per capita income. Subsequently, in the 1990s,
African LDCs and Haiti grew at roughly half the rate of
their Asian counterparts, with a widening divergence 0.0
in their GDP per capita. Since the new millennium,
the pace of economic growth accelerated markedly
in African LDCs and Haiti, with their GDP growth now
-2.5
matching the dynamics of Asian LDCs, but faster
LDCs: Africa and Haiti LDCs: Asia LDCs: Islands*
population growth in the former LDC subgroup still led
to an about 1.3 percentage point slower expansion 1971–1980 1981–1990 1991–2000
2001–2010 2010–2019
in per capita terms. As for Island LDCs, their growth
performance has been somewhat volatile, especially Source: UNCTAD Secretariat calculation based on data from UNCTADstat
database [accessed April 2021].
when measured in per capita terms, thus reflecting Note: * GDP data for Timor-Leste is only available from 2003; to avoid
a broad set of structural factors underpinning a the undue effect of its inclusion, its GDP is imputed through linear
heightened economic and environmental vulnerability.2 extrapolation until the beginning of the decade.
Figure 2.4 focuses closely at the individual country

level, and provides a snapshot of the growth trajectory 2. LDCs that are “muddling through”, i.e. countries
of LDCs since the creation of the category. To give an whose GDP per capita growth rate has fallen
idea of how their performance compares with the rest within the band defined by the world’s average
of the world, LDCs have been grouped into the three ± 1 per cent; and
following categories:
3. LDCs that are “catching up”, or whose long-term
1. LDCs that are “falling behind”. These are countries growth rate of per capita income has exceeded
whose long-term GDP per capita growth rate is the world’s weighted average by more than one
lower by more than one percentage point than the percentage point.
world’s weighted average;
Although arbitrary, this taxonomy provides a
2
UNCTAD has repeatedly pointed out that Small Island reasonable reflection of the trajectory of LDCs. It
Developing States (SIDS) tend to be characterized by also underscores three important considerations.
comparatively high income per capita by international First, from a long-term perspective LDCs have
standards, but also heightened economic and
made disappointing progress to improve per capita
environmental vulnerability – a situation sometimes referred
to as the “Island paradox” (UNCTAD, 2016a, 2020a; income levels, as reflected in the fact that as many
MacFeely et al., 2021). as 23 LDCs are classified as “falling behind”, and
23
2021
Figure 2.4
Average annual percentage growth rate of real GDP per capita (1971–2019)
10
-2
-4
-6
-8
Liberia
Somalia
Kiribati
Afghanistan
Yemen***
Madagascar
Haiti
Niger
Sierra Leone
Togo
Burundi
Djibouti
Gambia
Comoros
Angola
Zambia
Guinea-Bissau
Malawi
Senegal
Mauritania
Solomon Islands
Chad
Guinea
Benin
Ethiopia *
Timor-Leste**
WORLD
Rwanda
Sudan*
Uganda
Burkina Faso
Tuvalu
Nepal
Mozambique
Bangladesh
Lesotho
Cambodia
Myanmar
Mali
Bhutan
FALLING BEHIND MUDDLING THROUGH CATCHING UP
1971–1994 1995–2019 1971–2019

Notes: Average annual percentage growth rates are obtained by fitting an exponential curve as such, the growth rate for the overall 1971–2019 period may
differ even substantially from the averages of the two sub-periods, when the underlying series displays marked inflection points around the cutoff
date of 1995. * real GDP per capita series for Ethiopia and Sudan are adjusted to also reflect Eritrea and South Sudan respectively, so as to ensure a
consistent “aggregate” throughout the period; ** data for Timor-Leste is only available from 2003 onward; *** GDP per capita series for Yemen start
in 1990.
another 14 are “muddling through”.3 Moreover, (e.g. Afghanistan, Somalia and Yemen), as well as
as only a handful of LDCs have outperformed the heavily commodity-dependent countries (e.g. Angola,
world’s average growth in per capita GDP, these Democratic Republic of Congo and Zambia).
results are broadly consistent with the findings of Conversely, long-term growth in relatively more
UNCTAD’s Productive Capacity Index (PCI), which diversified economies, notably various Asian LDCs,
pointed to a shrinking of the high-performers’ cluster consistently exceeded the world average, giving rise
(UNCTAD, 2020a). Put differently, despite some to an incipient catching up process, albeit from a very
generalized improvements, particularly over the past low base. Similarly, most countries recommended
two decades, from a long-term perspective only for LDC graduation by the 2021 Triennial Review
a small subset of LDCs have been able to sustain belong to the top category (or the upper part of
the type of long-term progress required to support a the intermediate category), Angola being the main
meaningful catching up. exception.4
Second, LDCs classified as “falling behind” include, Third, the overwhelming majority of LDCs
as expected, mainly conflict-ridden countries performed much better in the second half of the
3
To ensure a reasonable level of comparability over time, the 4
The specific challenges of Angola, and more broadly of the
series for Ethiopia and Sudan are adjusted to also include income-only graduation cases are discussed in detail in
Eritrea and South Sudan, respectively. UNCTAD (2016a).
24
period (1995–2019) than in the first half. Indeed, long-term perspective, few signs exist of meaningful
if one were to apply the above taxonomy only to convergence in LDCs. At the time the LDC group was
the 1995–2019 period, as many as 18 countries established, its per capita GDP was 4.5 per cent that
would fall within the “catching up” category, and only of developed nations; however, by 2019 this share
11 would be in the “falling behind” group. In addition had declined to 2.3 per cent (Figure 2.5). The relative
to the seven countries designated in Figure 2.4 as deterioration is even starker in relation to ODCs
“catching up”, other top performers would include where per capita GDP of LDCs fell from 58 to 17 per
Afghanistan, Chad, Djibouti, Ethiopia, Liberia, cent. Focusing only on the high growth subperiod
Mozambique, Nepal, Rwanda, United Republic of of 1995–2019 does not radically improve the picture:
Tanzania, Uganda and Zambia. Interestingly, the in that 24-year window, the GDP per capita of LDCs
difference in per capita GDP growth between the two rose from 1.1 per cent of that of developed nations to
periods is particularly visible in the case of various just 2.3 per cent, and remained virtually stagnant in
African LDCs. These include not only fuels and relation to that of ODCs.
mineral exporters, which arguably benefitted more
from the “commodity super-cycle” of the mid-2000s Looking at individual country experiences, the
(e.g. Angola, Chad, Democratic Republic of Congo, worldwide distributional dynamics of income per
Liberia, Mozambique or Zambia), but also some capita is provided in the two panels of Figure 6.
agricultural exporters and relatively more diversified The left-hand panel depicts the kernel density of
economies (e.g. Djibouti, Ethiopia, Rwanda, United the logarithm of real GDP per capita in constant
Republic of Tanzania and Uganda). purchasing power parity (PPP) 2017 dollars at three
points in time 24 years apart, namely: (i) in 1971
(when the LDC category was established); (ii) 1995
1. LDC growth, global inequalities and
(broadly identified as the turning point in the LDCs’
income convergence growth trajectory); and (iii) 2019 (the latest available
The appraisal of the growth record of LDCs needs year). The right-hand panel illustrates the histogram
to be contextualized in the broader debate on of the same real GDP per capita series in 2019, and
global inequalities and income convergence. From a distinguishes countries by development status.
Figure 2.5
LDC real GDP per capita as share of that of other country groups5
(Percentage)
7.5 75
58
LDC GDP per capita relative to other
LDC GDP per capita relative to
5.0 50
developed countries
developing countries
4.5
2.5 25
2.3
17
0.0 0
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
11
13
15
17
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
Developed countries (LHS) Other developing countries (RHS)

Notes: Based on GDP and GDP per capita series in constant 2015 dollars.
5
Economies formerly classified as “transition economies” have been excluded from the computation throughout the period to avoid
spurious effects due to their crisis in the wake of the collapse of the former Soviet Union.
25
2021
Figure 2.6 The right-ward shift of the density over time (especially
between 1995 and 2019) in the left-hand panel is
Real GDP per capita across countries – Kernel density
clear evidence of a generalized improvement in per
estimation for 1971, 1995, and 2019, and histogram by
capita GDP levels. Equally interesting, however, is to
development status in 20196
further explore the evolving shapes of the densities:
0.4
over time, the 1971 unimodal right-skewed density
(red line) turned into a more symmetric one with hints
of bimodality (green line corresponding to 1995),
0.3 and then morphs into a left-skewed density with
a visible bulge at lower levels of income (blue line
corresponding to 2019). Considering the persistence
of per capita GDP ranking over time,7 the dynamics
0.2 depicted in the graph imply that a sizeable group
Density
of countries at the bottom of the income per capita

ladder have tended to fall behind the rest, despite
clear indications of progress in terms of rising per
0.1
capita GDP. As shown in the second panel, these
countries are almost invariably LDCs, with only a
few countries reaching intermediate income levels
0.0 in 2019.
7 9 11
Log real GDP Considering that Figure 2.6 accounts for PPP
17.5 adjustments, the above distributional dynamics
may be consistent with the presence of a poverty
trap, as posited by classical development
15.0
economists (Rosenstein-Rodan, 1943;
Nurkse, 1966; UNCTAD, 2002, 2016a). It remains
12.5
an open empirical question whether this reflects
“conditional convergence”, whereby economies with
10.0
equal structural characteristics (saving propensity,
institutional quality, openness and the like) converge
Count
7.5 to the same steady state, or so-called “club

convergence”, in which cross-country differences
5.0 in per capita income are permanent, and (at least
partially) determined by initial conditions.8 Regardless
2.5 of the answer, this evidence points to a key facet
of rising global inequalities across countries, along
0.0 with the alleged notion of a middle-income trap; it
6 8 10 12 also highlights the challenges faced by developing
Log real GDP
countries in pursuing a meaningful process of
Developed countries 1971
convergence (UNCTAD, 2016a, 2016b).
LDCs 1995
Other developing countries 2019 The mechanisms that have been posited to rationalize
Source: UNCTAD Secretariat calculation based on data from Penn World these dynamics are unclear, but the main point here
Table 10.0 database.
Note: For the sake of simplicity the M49 classification is adopted in the
above graphs, unlike in the rest of the report.
7
Kernel densities say little about where individual countries
(or groups thereof) move over time; however, the persistence
of GDP per capita ranking over time is underscored by the
6
Kernel density functions provide a non-parametric way to fact that the Spearman rank correlation between 1971 and
estimate the probability density function of a given variable, 2019 is as high as 0.81. In light of this, it is clear that the
in this case real GDP per capita for all world’s countries overwhelming majority of countries at the bottom of the
for which data is available. The graph is obtained using GDP per capita in 2019 were also there at the beginning of
Gaussian kernels, scaled such that the bandwidth used the period considered.
is equivalent to the standard deviation of the smoothing 8
The mainstream and club convergence views can be
kernel. The densities are obtained from the series of real epitomized respectively by the work of Barro and Sala
GDP per capita on the expenditure side; utilizing the real I Martin (2004) and Mankiw and co-authors (Mankiw et
GDP per capita on the output side would give qualitatively al., 1992), on the one hand, and Quah (1996, 1997) on the
similar results. other.
26
is that the widening of between-countries inequalities be insufficient to fully outweigh the -3.8 per cent fall
has wide-ranging policy implications. Recent studies in 2020 (UNCTAD, 2021a).
have shown that the country of residence, and in
In the medium term, the prospects for a majority of LDCs
particular its average per capita GDP and level of
remain gloomy and risk factors are all on the downside
inequality, is a key determinant of individual income,
(Box 2.1). Not only are the sizeable debt vulnerabilities
giving rise to “location premiums and penalties”
of weighing heavily on LDCs’ fundamentals, but – more
(Milanovic, 2015, 2019; UNCTAD, 2017a). Hence,
generally – four factors threaten to undermine potential
unless all LDCs can embark on a path of meaningful
output on the medium term:
convergence, worsening levels of between-countries
inequality will likely translate into inequality of I. The postponement and cancellation of investment
opportunity. plans due to heightened uncertainty and declining
demand (both of which dampen “animal spirits”), or
It is also worth noting that due to lags in the production to governments redirecting funds to urgent social
of reliable national accounting data, the preceding expenditures, will inevitably dent medium-term
discussion is entirely based on series that do not growth potential (UNCTAD, 2020a, 2021a;
cover the year 2020; hence, they cannot capture any IMF, 2020; World Bank, 2021b);
of the effects of the sharp global recession caused
II. The widespread disruptions to schooling and
by the COVID-19 pandemic. Nonetheless, a shock
learning, coupled with additional pressure on
of similar proportions is set to significantly affect the
education budgets and with the likelihood that
growth performance of LDCs, as well as the outlook
that many school drop-outs will not return to
for global inequalities. In this context, UNCTAD
education even once the crisis has passed, might
has warned not only against the risks of dramatic
well take a toll on human capital accumulation
socioeconomic impacts in the developed world,
and exacerbate existing disparities, including
but also against the threat of “another lost decade”
with respect to gender inequalities (UNESCO and
for many developing countries and LDCs alike
World Bank, 2021);
(UNCTAD, 2020c, 2020d, 2020a). Early estimates
for 2021 suggest that the global downturn may be III. Firms’ bankruptcies, job destruction and related
less severe than previously anticipated, with global capability losses risk leaving long-term scars
output rebounding by 4.7 per cent in 2021 following on an already precarious entrepreneurship
a fall of -3.9 per cent in 2020. This is explained by landscape. Moreover, SMEs are having more
an early rebound in the East Asia and the Pacific difficulty gaining access to credit, and are
region, as well as by the expansionary effects of thus being disproportionately affected by the
the unprecedented stimulus packages adopted downturn (UNCTAD, 2018a, 2020a; Djankov and
by developed countries, principally by the United Panizza, 2020); and
States (UNCTAD, 2021a). It is also likely that the IV. It remains unclear whether ongoing
different time profiles of contamination waves and reconfigurations of value chains and international
vaccine roll-outs, coupled with wide asymmetries in competitiveness are a temporary phenomenon or
the capacity of countries to respond to the global if these changes, along with different consumers’
recession, will trigger a k-shaped or two-speed habits, may adversely affect sectors of key
recovery (UNCTAD, 2021a; IMF, 2021; World importance for many LDCs –tourism and garment
Bank, 2021b). For example, UNCTAD estimates being a case in point (UNCTAD, 2020e; McKinsey
that Africa’s rebound in 2021 (+ 3.1 per cent) will & Company and BOF, 2021).
Box 2.1 LDCs and the divergent recovery
In 2020, the global recession triggered by the COVID-19 pandemic led to LDCs registering their worst socioeconomic
performance since the early 1980s (UNCTAD, 2020a). Caught by a multi-layered shock to both aggregate demand
and supply, and forced to impose social distancing measures in urban centres with its attendant dampening effect on
activity levels, LDCs were faced by lower public revenues and a greater need for higher levels of public expenditure
and social programmes. Moreover, the structural current account imbalances of LDCs were exacerbated by: (i) a
decline in exports, resulting from reduced global demand and disruptions along key value chains and transport
corridors; (ii) a virtual paralysis in tourism flows (which play a vital role for SIDS); and (iii) the drying up of foreign
direct investment (FDI) and remittance flows (UNCTAD, 2020a, 2020f; Djankov and Panizza, 2020). Against this
background, the relative resilience of ODA, which increased by 1.8 per cent compared to 2019 (OECD, 2021), has
done little to address a shortage of foreign exchange among LDCs, worsened by heightened debt vulnerabilities
and, in some cases, by devaluation pressures.
27
2021
Box 2.1 (continued)
International cooperation initiatives, e.g. from the Debt Service Suspension Initiative (DSSI) to the G20 Common
Framework for Debt Treatments beyond the DSSI, or even the resilience of ODA, are positive developments, but they
fall short of what would be needed to ensure an inclusive broad-based recovery (UNCTAD, 2020a, 2020c, 2021a).*
Meanwhile, the health situation in much of the developing world remains severe, with lingering risks of subsequent
waves of COVID-19 infection, and delayed roll-outs of vaccination campaigns similar to those that have taken place
in developed nations. This, in turn, weighs down on the prospects for an economic recovery.
While the most recent estimates suggest that the outlook for 2021 is better than previously forecasted, the recovery
is likely to be uneven and reach developed (and some developing) countries much earlier than most LDCs. This
reflects first and foremost: (i) the enormous asymmetries in the resources available to respond to the economic
downturn; (ii) the technologies available to cope with social distancing and global value chain (GVC) disruptions; and
(iii) broader socioeconomic resilience. As shown by Box Figure 2.1, even if IMF forecasts are taken at face value,
most LDCs are likely to take several years to recover the (meagre) level of per capita GDP they recorded before the
COVID-19 outbreak. The median recovery across LDCs is expected to take about three years. Equally worrying,
relatively poorer countries (i.e. those with lower GDP per capita at 2017 PPP, hence closer to the bottom of the
quadrant) are expected to take longer to recover their pre-crisis level, with a dozen LDCs expected to take five or
more years to recover.
Box Figure 2.1

Number of years to recover the pre-crisis (2019) level of GDP per capita
4.15
BTN
3.95
LAO AGO
MRT
3.75
Log real GDP per capita in 2019
BGD
(expressed in constant 2017 PPP)
MMR DJI
KHM STP
TUV SDN
NPL
3.55 SEN TLS
ZMB
BEN TZA LSO COM HTI
ETH UGA AFG
GIN GMB MLI KIR SLB
3.35 RWA BFA
TGO GNB
SLE
ERI YEM
MDG TCD
3.15 LBR
NER MOZ
MWI COD
2.95 SSD SOM
CAF
BDI
2.75
Up to 1 2 3 4 5 More than 5
Years to recover the level of GDP per capita in 2019

Source: UNCTAD Secretariat calculation based on data from World Economic Outlook [accessed April 2021].
Notes: For the sake of readability countries are identified using standard ISO 3166-1 alpha-3 codes.
The heightened uncertainty surrounding how the world economy will evolve means that these projections need to be
treated with caution, but they speak volumes to the risks of widening global inequalities in the wake of the COVID-19
pandemic. These projections also serve as a warning about the dangers of another lost decade for LDCs – one
which could potentially derail the achievements of the 2030 Agenda for Sustainable Development.
* For a limited period and upon request from the beneficiary country, official bilateral creditors have granted, through the DSSI, the suspension of debt
service payments to 73 eligible low- and lower middle-income countries. The G20 initiative took effect in May 2020 and has been extended through to
December 2021. The Common Framework for Debt Treatments beyond the DSSI is an agreement between G20 and Paris Club countries to coordinate and
cooperate on debt treatments for the countries eligible for the DSSI.
28
At this stage, the prospects of a two-speed recovery

should be a serious source of concern with respect
to global inequalities. Such a scenario could lead
Compared to other country groups, LDCs
to LDCs suffering years of setbacks; it could also stand out for having experienced deeper
exacerbate both between-countries inequality and and more frequent growth collapses
inequality within LDCs as a number of vulnerable
categories (youth, women, informal and low-skilled
workers, etc.) are being disproportionately affected by complement the statistics, the total number of growth
the downturn. This would jeopardize the achievement accelerations/decelerations identified in each year is
of the Sustainable Development Goals, and – more
depicted in Figure 2.7, again distinguishing across
fundamentally – would likely result in heightened
country groups. Three main considerations can be
social and political instability, which could ultimately
drawn from this evidence.
weaken global systemic resilience.
First, worldwide growth accelerations have
been three times as frequent as decelerations in
C. Medium-term considerations and the 1971–2019 period. After some fluctuations in
boom-and-bust cycles the 1970s and 1980s, the number of accelerations
increased from the mid-1990s until the eruption of the
Beyond these long-term growth trends, it is instructive global financial and economic crisis in 2008/9 but has
to assess any medium-term deviations from trends, i.e. remained below average since then.10 The number of
growth accelerations and decelerations. The frequent growth decelerations, conversely, was relatively high
occurrence of growth accelerations and collapses has during the two earlier decades; it declined thereafter
already been documented in the literature (Hausmann in the mid-1990s (notwithstanding a spike coinciding
et al., 2005; Arbache and Page, 2007, 2008). Several with the East Asian crisis of 1997), but picked up again
studies have associated volatile macroeconomic in the wake of the global financial crisis of 2008/9 to
performance and boom-and-bust cycles to structural decline once more in 2015–2016.
features common to many LDCs, e.g. a heightened
dependence on primary commodity, weak institutions, Second, LDCs stand out for having experienced
and fragmented societies (Easterly and Levine, 1997; growth collapses far more frequently than other
Rodrik, 1999; UNCTAD, 2010, 2013, 2016a). This countries: collapses represent 16 per cent of the
line of reasoning assumes renewed relevance against total country-year observations in the case of LDCs,
the backdrop of the COVID-19 shock and the compared to 10 per cent for ODCs, and as little
subsequent “great reset”. as 2 per cent for developed countries. Moreover,
although this finding was largely driven by the erratic
The present section empirically investigates the growth record of the 1971–1994 period, even in the
occurrence of growth acceleration and deceleration (or subsequent period growth collapses remained more
collapses) since 1971, extending the previous analysis prevalent in LDCs than in other country groups,
in two directions: (i) it utilizes a different dataset (Penn particularly developed nations.
World Table 10.0) that more appropriately accounts
for changes in PPP across countries and over time Third, compared to other country groups, on
(Feenstra et al., 2015); and (ii) it expands the period of average, LDCs have tended to enjoy slower growth
analysis by a decade, thus covering also the aftermath accelerations and suffer slightly more severe
of the global financial and economic crisis in 2008/9. decelerations. Average growth during accelerations
In terms of methodology, growth in real per capita barely reached 4 per cent per year in the case of LDCs,
GDP is first computed from the expenditure-side real compared to 6 per cent for ODCs, and 5 per cent
GDP at chained PPPs series (in 2017 dollars).9 The for developed nations. Although these discrepancies
section follows the definition of growth accelerations tended to narrow in the 1995–2019 subperiod, they
(and decelerations) proposed by Arbache and Page nonetheless remained significant. With respect to
(2007, 2008) and outlined in Box 2.2. decelerations, the striking asymmetry appears to
be between developed and developing countries
Table 2.1 reports the incidence and average growth
(whether or not LDCs), with the former suffering less
rate recorded in each type of event by country
frequent and less severe growth collapses.
group for the whole 1971–2019 period, and for the
two subperiods identified earlier in the report. To 10
Note that due to the use of 4-year moving
averages in the criteria for identification of growth
9
The main results discussed here are robust with respect to accelerations/decelerations, the first effects of the global
the use of output-side real per capita GDP series. financial and economic crisis appear as early as 2006.
29
2021
Box 2.2 How are growth accelerations and decelerations defined?

While several approaches have been proposed in the literature to identify growth accelerations and decelerations,
this section relies on the methodology proposed by Arbache and Page (2007, 2008). Accordingly, four conditions
define an acceleration:
1. The forward four-year moving average growth minus the backward four-year moving average growth is greater
than 0 for a given year;
2. The forward four-year moving average growth exceeds the country’s average growth in the long term;
3. The forward four-year moving average GDP per capita exceeds the backward four-year moving average (ensuring
that a recovery from a temporary shock is not considered an acceleration); and
4. A growth acceleration episode requires at least three years in a row satisfying conditions 1-to-3.
Symmetrically, for a deceleration to be identified, the following four conditions need to be met:
1. The forward four-year moving average growth minus the backward four-year moving average growth is lower
than 0 for a given year;
2. The forward four-year moving average growth is below the country’s average long-term growth;
3. The forward four-year moving average GDP per capita is below the backward four-year moving average; and
4. A growth deceleration episode requires at least three years in a row satisfying conditions 1–3.
The occurrence of growth acceleration/collapse in long spells of accelerated growth, but recorded an
individual LDCs in the 1971–2019 period is reported overall higher long-term growth trend.
in Figure 2.8. If all individual LDCs for which data
Growth decelerations are also widespread across
is available had at least one instance of growth
LDCs, with only three Asian countries (Bhutan, Lao
acceleration (which by construction lasted at least
People’s Democratic Republic and Nepal) not posting
three years), the most successful LDCs spent a
considerable number of years in this condition (the any collapse in growth. At the other end of the spectrum,
maximum being 19 years in the case of Cambodia). several LDCs among those shown in Figure 2.4 to
As expected, many of these LDCs are those found be “falling behind” stand out for the disproportionate
to be “catching up” in Figure 2.4, namely Bhutan, frequency of growth collapses, as in the case of the
Cambodia, Lesotho and Mali. It is worth noting, Central African Republic, Chad or Haiti. More generally,
however, that the occurrence of accelerations many (mainly commodity-dependent) LDCs have
explains only one facet of the catching up process: displayed both frequent accelerations and collapses,
other LDCs that were deemed to be “catching up”, consistent with the view that their dependence on
e.g. Bangladesh or Myanmar, did not benefit from primary products has made them prone to boom-and-
Table 2.1
Incidence and speed of growth accelerations/decelerations by country groups
1971–2019 1971–1994 1995–2019
Acceleration Deceleration Acceleration Deceleration Acceleration Deceleration
Incidence of events (number of years in acceleration/deceleration divided by total number of observations)

World total 27% 9% 23% 13% 30% 6%
LDCs 25% 16% 15% 23% 34% 9%
Other developing countries 27% 11% 24% 13% 29% 7%
Developed countries 29% 3% 28% 3% 29% 2%
Average growth during each event (percentages)
World total 5,42 -4,11 4,01 -4,28 5,66 -3,95
LDCs 4,22 -4,60 1,52 -4,22 4,84 -3,79
Other developing countries 6,05 -4,19 4,90 -4,59 6,06 -4,28
Developed countries 5,10 -2,49 4,08 -2,39 5,56 -2,58
Source: UNCTAD Secretariat calculation based on data from Penn World Table 10.0 database.
Note: Since GDP series for as many as 43 countries start in 1970 (so that growth accelerations/decelerations are only identifiable after 1973), this cutoff
year is applied across all countries for the sake of consistency; among LDCs, data for Yemen begin in 1989. For the sake of simplicity the M49 country
classification is adopted above unlike in the rest of the report. To preserve comparability over time, the classification of country groups reflects the
current composition (for instance, today’s 46 LDCs) throughout the period.
30
Figure 2.7
Number of growth accelerations/decelerations by year and country group
Panel A: Growth acelerations Panel B: Growth decelerations
1974 1974
1975 1975
1976 1976
1977 1977
1978 1978
1979 1979
1980 1980
1981 1981
1982 1982
1983 1983
1984 1984
1985 1985
1986 1986
1987 1987
1988 1988
1989 1989
1990 1990
1991 1991
1992 1992
1993 1993
1994 1994
1995 1995
1996 1996
1997 1997
1998 1998
1999 1999
2000 2000
2001 2001
2002 2002
2003 2003
2004 2004
2005 2005
2006 2006
2007 2007
2008 2008
2009 2009
2010 2010
2011 2011
2012 2012
2013 2013
2014 2014
2015 2015
2016 2016
0 25 50 75 100 125 0 5 10 15 20 25 30 35
LDCs Other developing countries Developed countries
Source: UNCTAD Secretariat calculation based on data from Penn World Table 10.0 database.
Note: See Table 2.1.
bust cycles. This erratic growth record characterizes the capacity to avoid costly growth collapses. This
LDCs, such as Angola, Democratic Republic of reading of the evidence appears to be reinforced
Congo, Liberia, Malawi and Zambia. by the experience of four LDC graduates for which
Overall, the above analysis points to specific traits data are available (Botswana, Cabo Verde, Equatorial
of LDC vulnerabilities, and particularly to their Guinea and Maldives). Of the four, only two suffered
heightened exposure to boom-and-bust cycles growth decelerations over the past 50 years:
due to endogenous and exogenous conditions. If Equatorial Guinea (twice, in periods 1977–1979
laying the foundations for sustainable growth and and 1990–1992) and Cabo Verde (in 1973–1975, at a
having the capacity to leverage growth accelerations time when the country was on the verge of gaining its
is a pathway to catching up – equally important is independence from Portugal).
31
2021
Figure 2.8 D. Patterns of growth: structural

Occurrences of growth accelerations/decelerations by LDC
(Numbers of years in a given state, in the 1971–2019 period)
dynamics, inclusivity and
Angola sustainability
Bangladesh The past five decades have seen an intense debate
Benin
on the role of economic growth in the development
Bhutan
process and how it shapes related distributional,
Burkina Faso
Burundi social and environmental outcomes. If achieving
Cambodia economic growth has always been among the
Central African Rep. top priorities for LDCs, until the late 1970s there
Chad was a broad recognition that this would hinge on
Comoros addressing the structural nature of their development
Dem. Rep. of the Congo challenges, and the uneven terms of their integration
Djibouti in the global economy, as reflected in the First and
Ethiopia
Second UN Development Decades (1960–1970
Gambia
and 1971–1980, respectively) and in the Substantial
Guinea
Guinea-Bissau New Programme of Action (SNPA) for the LDCs
Haiti (1981).11 With the subsequent emergence of the
Lao People's Dem. Rep. Washington Consensus, the policy focus shifted
Lesotho towards “getting prices right” as it was assumed
Liberia that growth and trickle-down would do the rest. The
Madagascar adoption of the Paris Programme of Action (PPoA) for
Malawi the LDCs in 1990, and more explicitly the adoption of
Mali
the Millennium Development Goals in 2000, gradually
Mauritania
brought renewed attention to social aspects of
Mozambique
Myanmar development, and the gradual re-emergence of a
Nepal more nuanced view that acknowledges the complex
Niger interrelations between the economic, social and
Rwanda environmental sphere. While this became more explicit
Sao Tome and Principe with the adoption of the Sustainable Development
Senegal Goals in 2015, the COVID-19 pandemic has added
Sierra Leone more impetus to this rethinking. The cascading
Sudan
of a global health emergency onto the economic,
Togo
environmental and social spheres has laid bare
Uganda some systemic risks and deep-seated patterns of
Yemen interdependence that can no longer be overlooked.
Zambia It has also put a spotlight on the fact that resilience
0 2 4 6 8 10 12 14 16 18 20 is intimately related to the structural features of
Acceleration Deceleration an economy, including the terms of its integration
Source: UNCTAD Secretariat calculation based on data from Penn World in the global economy, as well as its complex
Table 10.0 database. interrelationships with broader social and ecological
Note: Penn World Table 10.0 data for the United Republic of Tanzania
only cover its mainland. systems. The crisis has therefore prompted a growing
recognition that economic growth is not just an end
in itself, but rather a means to improve well-being,
The importance of resilience and of laying the lessen inequalities, build endogenous resilience,
foundations for sustainable growth is particularly apt and contribute to a sustainable stewardship of the
in the current juncture as the international community environment.
scrambles to minimize the long-lasting impacts of the From the perspective of an LDC, growing attention
COVID-19 shock. If anything can be learnt from the needs to be paid to the importance of distinct
experience of the past 50 years, it is that stronger patterns of growth in driving different socioeconomic
international cooperation is needed to prevent a global outcomes, particularly if economic growth continues
recession from derailing the medium-term growth
trajectory of LDCs, while renewing resilience-building 11
Note that the SNPA already contained quantitative growth
efforts. targets for LDCs, as discussed in chapter 3.
32
to be regarded as key to sustainable development

(Nissanke and Thorbecke, 2007; Fosu, 2009). In
RESILIENCE
this context, UNCTAD has underscored how, in CRISIS
the long-term, growth follows from the process of CRISIS
CRISIS
CRISIS
the development of productive capacities, and is
hence inevitably shaped by structural dynamics
affecting not only capital accumulation, but also the
intersectoral reallocation of production factors, and PRODUCTIVE
CAPACITIES
the gradual acquisition of productive capabilities
and production linkages (UNCTAD, 2006, 2010,
2016b, 2020c, 2020g). UNCTAD has also highlighted The resilience of LDCs ultimately
how inclusivity and poverty reduction can only be stems from the development of their
achieved sustainably as part of a long-term process
productive capacities, which shape
of structural transformation; this would entail a
diversification of the economy away from primary
their integration in the global economy,
commodity production towards one in which more and within social and ecological systems
productive employment is generated, domestic
resource mobilization is strengthened, and where the
economy improves its energy- and resource-intensity
(UNCTAD, 2010, 2012a, 2016b, 2017b, 2018a). for by relatively low-productivity activities and/or
Moreover, this process typically goes hand in hand low-complexity product (UNCTAD, Forthcoming).
with the diversification of export markets; as such, it Moreover, if recent technological innovations can offer
may be possible to establish a mutually supportive some scope for leapfrogging and productivity gains,
relationship between achieving LDC economic e.g. decentralized electricity generation, this will
diversification and better harnessing South-South still require massive investments in end-use capital,
trade and regional integration. machinery and complementary skills. Similarly, the
With this premise in mind, the rest of this section emergence of megatrends, such as servicification,
analyses: (i) the different patterns of growth across digitalization and broader technological waves, may
LDCs; (ii) outlines the key underpinnings of the well put a premium on some immaterial elements
progress achieved by individual countries; and of productive capacities; however, in the context
(iii) identifies commonalities that could inform on-going of an LDC it remains hard to conceive how it could
deliberations. dispense with the need to acquire much-needed
tangible capital investments. This is notably the case
with respect to infrastructural provision – with access
1. Productive capacity development and
to energy being a key driver of productive upgrading
structural transformation (UNCTAD, 2017b) – but also of basic manufacturing
An abundant body of literature describes the sluggish capabilities, without which a meaningful engagement
development of the productive capacities of LDCs, in advanced production technologies remains a
and the limited extent to which their economic growth chimera (UNCTAD, 2018b, 2020a; UNIDO, 2019).
has been accompanied by structural transformation Without repeating the analysis carried out in
(UNCTAD, 2006, 2014a, 2020a). Analysis of recent issues of this report, this section offers
UNCTAD’s Productive Capacities Index (PCI), among three complementary insights, and looks at;
others, has documented the wide gap that continue (i) development accounting; (ii) structural change;
to separate LDCs from both developed countries and (iii) the performance of LDCs in terms of the
and ODCs (UNCTAD, 2020a, 2020h). Although Economic Complexity Index (ECI). Development
most LDCs recorded some progress over the past accounting essentially represents a methodology,
decade, only a small number of them have been stemming from the neoclassical growth theory,
able to significantly close such gaps. In addition, which traces changes in GDP per capita to their
even amongst the best performing LDCs, many of proximate determinants, namely the accumulation of
which have been slated for graduation from the LDC production factors and total factor productivity (TFP)
category at the recent 2021 Triennial Review by the (Caselli, 2005; Feenstra et al., 2015). Although not
Committee for Development Policy (CDP), the process free from criticism, development accounting can be
of sophistication of the economy is barely incipient, a useful tool to shed more light on the role of capital
with the bulk of production and exports accounted deepening and human capital accumulation in the
33
2021
Figure 2.9
Development accounting decomposition of growth in real GDP per worker for selected LDCs
1971–1994 1995–2019
Angola
Benin
Burkina Faso
Burundi
Central African Rep.
Lesotho
Mauritania
Mozambique
Niger
Rwanda
Senegal
Sierra Leone
Sudan
Togo
Zambia
-5.0 -2.5 0.0 2.5 5.0 7.5 -5.0 -2.5 0.0 2.5 5.0 7.5
Average annual growth rate Average annual growth rate
(percentage) (percentage)
Capital deepening Human capital TFP component Real GDP per worker
Source: UNCTAD Secretariat calculation based on data from Penn World Tables 10.0 database.
Note: Penn World Table 10.0 data for the United Republic of Tanzania only cover its mainland.
context of an LDC.12 The result of this exercise, for People’s Democratic Republic and Lesotho. Human
the 17 LDCs for which the required data are available, capital accumulation also played a positive – albeit
is presented in Figure 2.9.13 circumscribed – role in the overwhelming majority of
In relation to the first subperiod, the analysis shows LDCs; while TFP residuals mirror the main episodes
that capital deepening played a critical role for the of contraction in GDP per worker, arguably also
LDCs with rising real GDP per worker, and was accounting for intra-cyclical factors. In the 1995–2019
in fact the main driver of growth in the case of the subperiod, capital deepening remained important
fastest economies, namely: Burkina Faso, Lao in fast-growing countries, such as Burkina Faso,
Lao People’s Democratic Republic, Mozambique
12
The three main lines of criticism on the development
and United Republic of Tanzania. This time the TFP
accounting framework focus on: (i) its saving-driven nature, residual also appears to have played an important
whereby no role is foreseen for aggregate demand in role, notably in other fast-developing countries, e.g.
determining investment decisions; (ii) the fact that it wipes
out possible interactions between distinct sources of growth
Lesotho or Rwanda and/or natural-resource-rich one,
(say capital deepening and TFP); and (iii) the adequacy of e.g. Angola or Zambia.
the notion of aggregate production function to contexts
where productivity levels differ across sectors (Taylor, 2004; Overall, capital deepening accounted for a median
Abramovitz, 1989; Banerjee and Duflo, 2005). share of close to 40 per cent of the growth in
13
In a nutshell, the derivation of development accounting
GDP per worker, with human capital accumulation
decomposition in Figure 2.9 is obtained from an aggregate
constant return to scale production function accounting for another 10 per cent. This evidence is
Y=At (Lt Ht)α Kt1-α broadly in line with the literature, and underscores the
in which Yt, Lt, Ht and Kt represent respectively income, importance of capital accumulation, especially if we
labour human and physical capital at time t, whereas At is consider that:
the TFP. Through total differentiation one obtains
. . . . 1. Physical capital only covers produced capital,
y= A + α H + (1-α) k
hence the impact of natural resources and
whereby the dot indicates the growth rate of the
corresponding variable, and letters y and k indicate subsoil assets is inevitably captured by the TFP
respectively income and capital in per-worker terms. component (Feenstra et al., 2015); and
34
2. Capital accumulation is heavily affected by Figure 2.10

institutional factors, conflicts and political
Decomposition of annual labor productivity growth in
instability – a critical issue for a number of
selected LDCs
LDCs – often leaving long-term adverse legacies
(1995–2018)
(Nkurunziza, 2019).14
Burkina Faso
A key determinant of productivity dynamics is the
pace and direction of structural change, i.e. the Bangladesh
process of intersectoral reallocation of inputs and Ethiopia
the corresponding changes in the composition of
output, which typically accompany economic growth. Cambodia
Generally speaking, structural change has progressed Lao People's Dem. Rep.
at a sluggish pace in LDCs, mainly through the
Lesotho
contraction of agricultural share of value added (from
about 35 per cent in 1971 to 21 per cent in 2019), Myanmar
and a corresponding expansion of the weight of Mozambique
services (from 43 to 49 per cent) and industry (from 23
Malawi
to 30 per cent). The increase in the weight of industry
was, however, mainly accounted for by mining and Nepal
constructions, while the manufacturing share grew Rwanda
from only 11.6 to 13.6 per cent. Simultaneously, while
Senegal
agriculture still employs the majority of the labour force
(55 per cent in 2019), it nonetheless experienced a United Rep. of Tanzania
steady decline; the employment share of services’ Uganda
rose from 21 to 32 per cent in 1995–2019, and
industry’s share of employment rose from only from 8 Zambia
to 12 per cent over the same period. -2 0 2 4 6 8 10

Percentage
In relation to average labour productivity across
Within sector component
the whole economy, its evolution is determined
Structural change component
by the interplay between a within-sector Overall productivity growth
component – stemming from capital deepening,
Source: UNCTAD Secretariat calculation based on data from Vries et al.
technological change, or reduction of misallocation (2021).
across plants – and a structural change component
resulting from labour reallocation across sectors
(McMillan and Rodrik, 2011; McMillan et al., 2014, change” (McMillan and Rodrik, 2011). This additional
2017; UNCTAD, 2020g).15 Typically, when labour boost fails to materialize if labour leaves agriculture
flows to relatively higher productivity activities, such as but is instead forced to resort to underemployment, or
manufacturing and advanced services, this reallocation low-productivity small businesses (UNCTAD, 2018a).
gives rise to a so-called “growth enhancing structural
The decomposition of labour productivity growth
in selected LDCs for which data are available is
14
Later analysis on structural change suggests that the TFP
dynamism for Angola, Mozambique, and to some extent
presented in Figure 2.10; this applies the methodology
Zambia, is arguably linked to the boom in extractive developed by McMillan and Rodrik (2011), as
industries (natural resources and subsoil assets being well as recently released data from the Economic
excluded from the computation of physical capital); in Transformation Database (de Vries et al., 2021).16 In
the case of Rwanda rapid TFP growth was largely due to
sectoral labour reallocation.
the period considered (1995–2018), which overlaps
15
Analytically, the decomposition carried out can be with the high growth subperiod identified earlier, labour
expressed as: productivity growth averaged 6 per cent per year
∆Yt = ∑θ
i=n
i,t-k ∆yi,t + ∑y
i=n
i,t ∆θi,t across LDCs, with the structural change component
accounting for more than half of this increase. This
where Yt and yi,t refer to economy-wide and sectoral labour
productivity levels, respectively, and θi,t is the share of
employment in sector i. The ∆ operator denotes the change 16
The estimates use the most granular sectoral breakdown
in productivity or employment shares between t - k and t. available for the following 12 sectors, namely: agriculture;
The first term in the expression corresponds to the within mining; manufacturing; utilities; construction; trade services;
sector component, while the second one to the structural transport services; business services; financial services; real
change component. estate; government services; and other services.
35
2021
confirms the encouraging findings of related literature equilibrium (in the case of countries being dependent
that document, since the 2000s, the emergence of a on food imports). Conversely, the contribution of the
more growth-enhancing pattern of structural change, manufacturing sector to within-sector productivity
especially in the African region (McMillan et al., 2014; growth was visible only in some LDCs (Bangladesh,
de Vries et al., 2021). Myanmar, Mozambique, Uganda and Zambia),
The within-sector and structural change components even though the manufacturing employment share
are further decomposed across sectors in Figure 2.11 increased in all LDCs, with the exception of Uganda.
(in Panels A and B, respectively) to give a more Second, because of productivity differentials across
precise idea of the underlying pattern of structural sectors, labour reallocation from agriculture to other
change. Despite cross-country heterogeneity, some sectors is the critical driver of the structural change
commonalities are visible. First, agriculture was the component (Panel B). In this respect, if manufacturing
main driver of within-sector productivity growth in plays a positive and visible role in nearly all LDCs,
the large majority of LDCs (Panel A), reflecting its the contribution of the services sectors (especially
large employment share, but also that agricultural trade and business services) is larger because of
value-added expanded in the context of declining their greater scope to generate employment. Third,
agricultural employment (which explains the negative the capital-intensive nature of the mining sector, with
contribution of the sector in Panel B). The rise in its circumscribed pool of highly productive workers,
agricultural productivity is of fundamental importance emerges quite starkly from the two panels, especially
in supporting structural change, not only because if considering that the period under analysis saw a
of poverty and food insecurity concerns, but also rapid scale up of mining production and related
because the availability of “wage goods” reverberates exports of primary commodities. Although mining
on the viability of other industries (essentially through contributed visibly to within-sector productivity
wage inflation), as well as on the balance of payment growth in most natural-resource rich countries, its
Figure 2.11
Sectoral decomposition of the within-sector and structural change components in selected LDCs
(1995–2018)
Panel A: within-sector component Panel B: Structural change component
Burkina Faso
Bangladesh
Ethiopia
Cambodia
Lesotho
Myanmar
Mozambique
Malawi
Nepal
Rwanda
Senegal
Uganda
Zambia
-8 -6 -4 -2 0 2 4 6 8 10 12 -8 -6 -4 -2 0 2 4 6 8 10 12
Percentage Percentage
Other services Real estate Business services Trade services Utilities Mining
Government services Financial services Transport services Construction Manufacturing Agriculture
Source: UNCTAD Secretariat calculation based on data from Vries et al. (2021).
36
contribution through structural change was much The focus on manufacturing, moreover, appears
smaller, as mining employment shares did not vary consistent with a recent study highlighting how the
substantially over time. conditional convergence hypothesis fails to hold in
the post-1989 globalization period, and contending
Traditionally, the special focus on manufacturing
that the most effective way to generate faster growth
in this context is due to its scope for job creation
in per capita income is by raising the employment
and, above all, for productivity spillovers to the rest
share of manufacturing relative to agriculture and
of the economy – spillovers which could give rise to
services (Nell, 2020).
increasing returns to scale (UNCTAD, 2016b). More
recently, some doubts have arisen on the extent In the long-term, the industrialization performance
to which industrialization can still be a driving force of LDCs has been lukewarm, with a few exceptions,
behind sectoral labour reallocation in today’s world; mainly but not exclusively in the Asian region.
moreover, with the advent of digitalization and Between 1971 and 1995, the share of the
servicification some features traditionally ascribed to manufacturing sector in total value added declined
manufacturing, e.g. spillovers, scale economies and in 21 of the 40 LDCs for whom data are available. This
innovation, are increasingly shared by some services’ might be expected given the performance of these
segments (Rodrik, 2016; Hallward-Driemeier and economies over this period; however, more interesting
Nayyar, 2017; Nayyar et al., 2018; UNCTAD, 2020a). still is to look at the evolution of the manufacturing
While acknowledging these important nuances, which sector during the high-growth period between 1995
are in line with the analysis just presented, here it is and 2019. Figure 2.12 provides a snapshot of this
worth focus closely on the industrialization ambitions evolution, looking on the horizontal axis at the change
of LDCs, particularly those explicitly enshrined in in manufacturing share of value added, and on the
the IPoA and the 2030 Agenda for Sustainable vertical axis at the average annual growth rate in real
Development, which both include related goals. manufacturing value added. The data reveal that nearly
Figure 2.12
Evolution of the manufacturing sector in the LDCs
20
LBR
MMR
Average annual growth rate of manufacturing Value Added
15
KHM
ETH MLI
(percentage; 1995–2019)
10
LAO BGD
AGO
TZA BTN
RWA DJI TCD
MOZ TGO
MWI
ZMB UGA
5 SLB GIN
NER LSO
BFA STP SLE
SEN SOM
NPL MDG
GMB COM
MRT BDI GNB
BEN HTI YEM CAF
AFG KIR TUV COD
0
-15 -10 -5 0 5 10 15 20
ERI
-5
Change in manufacturing share of Value Added
(percentage; 1995–2019)
Notes: For the sake of readability countries are identified by standard ISO 3166-1 alpha-3 codes.
37
2021
countries can make. Accordingly, the complexity of an

economy represents a metric of the sophistication of
LDC progress towards sustainable its capabilities, based on the diversity and complexity
industrialization has been lukewarm, of its export basket (i.e. how many other countries
and the COVID-19 shock threatens to can produce the same products, and what their
thwart even the few cases of incipient respective economic complexity is). This information is
summarized in the Economic Complexity Index (ECI),
structural transformation which in strict mathematical terms is defined through
an eigenvector of the matrix connecting countries to
the products they export. In turn, the ECI represents
all LDCs recorded an expansion in manufacturing value a good predictor of future growth, suggesting that
added, but in the majority of cases (23 out of 43), this it does indeed capture structural features of the
was outpaced by growth in other sectors, resulting underlying patterns of capabilities acquisition, despite
in a decline in the overall weight of manufacturing in stemming only from international trade relations. An
total value added. Among the countries that avoided intrinsic limitation of the ECI, however, is that it does
such a “relative de-industrialization” are mainly rapidly not capture services exports, and hence overlooks an
growing LDCs, such as Bangladesh, Cambodia, Lao
increasingly prominent part of the economy.
People’s Democratic Republic and Myanmar, but also
some African LDCs, e.g. Ethiopia, Guinea and Mali. Looking at the ranking in terms of ECI provides a
useful metric to assess how each country’s capabilities
Recent studies have also highlighted how the trend
compares with those of its competitors. Figure 2.13
towards premature de-industrialization began to
visualizes how this ranking evolved and compares 1995
reverse in the early 2000s, including in various African
(the first available data) and 2018 (the latest). The
countries (McMillan et al., 2014; Kruse et al., 2021).
limited degree of sophistication of LDC economy
These encouraging signs are surely important and
stands out clearly. In 2018, eight of the bottom-ranked
may be overlooked from a long-term perspective.
20 countries were LDCs, and the highest ranking
In the light of the sharp recession triggered by the
LDCs (the United Republic of Tanzania) was only 68th
COVID-19 shock, it remains to be seen if the incipient
out of 133 countries for which data are available.
process of industrialization will continue unabated, or
Equally important, roughly half of the LDCs (those
if the shock will thwart these efforts.
above the 45-degree line in Figure 2.13) lost some
A related element of analysis corroborating the view positions over time, suggesting that their acquisition
that economic growth in LDCs in the 1995–2019 of capabilities has lagged that of their competitors. As
period was only weakly associated with structural expected, most of the best performing LDCs in terms
transformation and economic sophistication stems of income per capita (Figure 2.4) also improved their
from the literature on economic complexity (Hidalgo ECI ranking.17 In spite of this, rankings tend to be rather
et al., 2009; Hausmann and Hidalgo, 2011). This persistent over time, with a correlation of 0.84 between
approach uses the following four structural features the ranking in 1995 and 2018, resulting in relatively
to characterize the network linking countries to their small changes (with an LDC average of five positions).
exported products:
Overall, two main conclusions can be drawn to inform
1. The negative relationship between the
strategic efforts to “build back better”. Structural
diversification of a country, and the average
transformation and the reallocation of factors from
ubiquity of its exports (i.e. the number of other
low productivity to higher productivity activities remain
countries able to produce them);
critical to TFP dynamics, and hence to sustainable
2. The non-normal distributions of product ubiquity; growth. This is all the more valid in LDCs where sectoral
3. Country diversification; and productivity gaps are particularly wide, and where a
4. Product co-export (Hidalgo et al., 2009; substantial pool of labour toils in semi-subsistence
Hausmann and Hidalgo, 2011). agriculture or is “underemployed”. This implies that an
The structural characteristics of the network allow 17
The main exception to this pattern is Bangladesh, which
inferring each country’s economic complexity, based recorded steady and sustained growth over the period
on the diversity and sophistication of the productive considered, despite a poorly diversified export structure,
capabilities embedded in its exports. Countries able to largely hinging on ready-made garment. Between
1995 and 2018, the country lost 19 positions under the
sustain a diverse range of productive know-how, with
ECI. Bangladesh’s export diversification challenges are
sophisticated specific capabilities can produce a wide discussed in greater detail in the country’s Vulnerability
array of goods, including complex products few other Profile (UNCTAD, forthcoming).
38
Figure 2.13
Changes in LDC ranking according to Economic Complexity Index
(1995–2018)
140
Angola
Democratic Republic of the Congo
130
Guinea
Mozambique Yemen
120 Liberia
Malawi
Mauritania
Madagascar
110 Myanmar
Bangladesh
Togo
100 Ethiopia
Rank in 2018
Senegal Lao People's Democratic Republic

Zambia
90 Cambodia
Burkina Faso
Mali Uganda
80
45º line
70
United Republic of Tanzania
60
60 70 80 90 100 110 120 130 140
Rank in 1995
Source: UNCTAD Secretariat calculation based on data from Atlas of Economic Complexity database [accessed May 2021].
emphasis on productive capacities acquisition, through levels in the LDCs, (UNCTAD, 2020a; World
the intertwined processes of capital accumulation, Bank, 2020). Between 1990 and 2019 poverty levels
structural change and productive capabilities in LDCs have shrunk by 27, 23 and 10 percentage
acquisition, plays a key role in laying the ground for points, respectively, depending on which international
sustainable development. In addition, the above poverty line is utilized: the $1.90 per day; $3.20 per
analysis shows that if, during the period of relatively day; or the $5.50 per day (Figure 2.14). Even prior
rapid GDP growth, some LDCs managed to kick-start to the COVID-19 shock, historical trends show that
a long-term process of structural transformation, this is the pace of poverty reduction slowed in the wake of
at best barely incipient. Moreover, it is unclear whether
these emerging cases of nascent industrialization
will continue unabated in the midst of the sharp Figure 2.14
recession triggered by the COVID-19 outbreak, or if Historical trends in headcount ratios in LDCs, by
the downturn will thwart them. Moreover, structural international poverty line
transformation has remained largely sluggish in about 100
half of the LDCs. Such a mixed picture is largely linked
80
to the challenges of nurturing the emergence of a
Percentage
dense network of mid- and large-sized enterprises, 60

connected through dense input-output linkages, both 40
domestically and in global and regional value chains
20
(UNCTAD, 2018a; Nkurunziza, 2019).
0
2. Growth and inclusiveness
18
92
94
96
98
00
02
04
06
08
10
12
14
16
90
20
19
19
19
19
20
20
20
20
20
20
20
20
20
19
Notwithstanding considerable variation across 1.90 PPP$/day 3.20 PPP$/day 5.50 PPP$/day
countries, there is little question that economic Source: UNCTAD Secretariat calculation based on data from PovcalNet
database [accessed April 2021].
growth has been a key driver in reducing poverty
39
2021
the global financial and economic crisis of 2008/9, assess the full impact of the COVID-19 pandemic,
at least in relation to the $1.90 and $5.50 daily preliminary assessments suggest that the cost of
poverty lines. Although it is too early to rigorously the crisis is severe across all poverty lines (Box 2.3).
Box 2.3 The socioeconomic costs of the COVID-19 pandemic in the LDCs
Although household survey data to rigorously assess the impact of COVID-19 pandemic are not yet available,
preliminary estimations and early evidence based on rapid phone interviews clearly anticipate a dramatic rise of
worldwide poverty levels (Sumner et al., 2020; Valensisi, 2020; Alkire et al., 2021). As months have gone by, and the
health and economic situation has continued to deteriorate, estimates of the pandemic’s impact on global poverty
have been revised upward, and currently stand at 119–124 million additional people living with less than $1.90 per
day (Lakner et al., 2021). South Asia and Africa are found to be particularly badly hit, accounting for the bulk of the
people pushed into poverty due to the fallout from the COVID-19 pandemic (Valensisi, 2020; World Bank, 2020).
This box updates previous estimates for LDCs contained in UNCTAD (2020a), applying the so-called line-up
methodology to the April 2021 vintage of IMF’s growth forecasts, contained in the World Economic Outlook database.
This methodology – discussed in detail in Valensisi (2020) – allows for a comparison of poverty estimates consistent
with IMF’s downgrading of growth forecasts between October 2019 (i.e. the latest round of pre-COVID-19 forecasts
used as a counterfactual) and those of April 2021.
While this so-called line-up exercise is fraught with
uncertainties, a number of reasons suggest that the Box Figure 2.2
figures obtained are – if anything – a conservative Increase in poverty due to the COVID-19 pandemic in the
estimate. First, simulations are only run until the end
LDCs, by international poverty line
of 2021, and therefore neglects any protracted effect
of the crisis beyond that date (Box 2.1). Second, 45 4.5
the methodology employed implicitly assumes that 40 4.0
the shock does not affect the distribution of income;
35 3.5
however, it is reasonable to believe that poorer
Million people
segments of the population will be the hardest hit. For
Percentage
30 3.0
example, with 70 per cent of the LDC labour force
25 2.5
self-employed, strict social distancing is likely to exert
a disproportionate effect on informal workers and 20 2.0
micro- small- and medium-sized enterprises (MSME), 15 1.5
which already had meagre resources to weather
confinements without disruptions (UNCTAD, 2020a; 10 1.0
Djankov and Panizza, 2020). Third, this methodology 5 0.5
does not account for the fact that deprivation across
multiple dimensions tend to compound each other,
0 0.0
and that adverse coping mechanisms may give rise 1.90 PPP$/day 3.20 PPP$/day 5.50 PPP$/day
to long-term effects on households’ living standards, Number of poor people (million)
for instance when the school drop-out, or the sale Headcount ratio (percentage)
of assets to weather a temporary crisis, end up Source: UNCTAD Secretariat calculation based on data from PovcalNet
lowering future income prospects, potentially turning a and World Economic Outlook [accessed April 2021].
temporary shock (so-called “transient poverty”) into a
longer-term phenomenon (“chronic poverty”).
With the preceding caveats, the updated estimates for LDCs confirm a further deterioration compared to 2020
results – estimates point to a rise of 35 million additional people living in extreme poverty (that is below $1.90 per day)
in the LDCs as a result of the COVID-19 pandemic. This is equivalent to an increase of 3.3 percentage points in
the corresponding headcount ratio, compared to the counterfactual. The increase in poverty due to the COVID-19
pandemic is even larger – 42 million people or +4 percentage point in the headcount ratio – when assessed against
the $3.20 per day poverty line. When assessed against the (more reasonable) poverty line of $5.50 per day, the
COVID-19 outbreak is found to increase the poverty headcount by 2.6 percentage points (28 million people), but
largely because the overwhelming majority of LDC population (over 80 per cent) was already living below the poverty
line prior to the pandemic.
These aggregate figures hide, admittedly, a large heterogeneity across individual LDCs, reflecting both the differential
incidence of poverty prior to the COVID-19 outbreak, and the distinct patterns of crisis/recovery. In this respect,
LDCs such as Afghanistan, Democratic Republic of Congo, Mozambique, Sudan and United Republic of Tanzania,
account for a substantial share of the “new poor”. It remains clear that the setbacks triggered by the COVID-19
pandemic will pose major challenges to the achievement of 2030 Agenda for Sustainable Development, and that
sustainable poverty reduction efforts will require specific attention in the new PoA for LDCs.
40
Moreover, the longer the downturn engulfs LDCs, the

more dramatic are the humanitarian costs likely to be;
this will especially be the case if the crisis – so far
Economic growth is a key driver of
largely limited to urban areas –extends to rural areas sustainable development, but the sectoral
and disrupts food and agricultural value chains.18 and spatial pattern of growth, as well
These aggregate figures hide, admittedly, a large as related policies, have an important
heterogeneity across individual LDCs, reflecting both the bearing on inclusivity and sustainability
differential incidence of poverty prior to the COVID-19
outbreak, and the distinct patterns of crisis/recovery.
In this respect, LDCs such as Afghanistan, Democratic fueling instability and undermining the social contract
Republic of Congo, Mozambique, Sudan and United
(UNCTAD, 2002, 2016a; Collier, 2008).
Republic of Tanzania, account for a substantial share
of the “new poor”. It remains clear that the setbacks A broad body of literature has underscored how,
triggered by the COVID-19 pandemic will pose major even if income growth is the major driving force
challenges to the achievement of 2030 Agenda behind changes in poverty rates, differences in the
for Sustainable Development, and that sustainable distributional, geographical and structural patterns
poverty reduction efforts will require specific attention of economic expansion play a key role in explaining
in the new PoA for LDCs. the trajectory of individual countries (Nissanke and
What remains clear is that LDCs continue to be Thorbecke, 2007; Fosu, 2009). In particular, growth
characterized by deep and widespread levels of in the agricultural sector and employment-generating
poverty, to the point of representing the main locus expansion in manufacturing, or in relatively more
of extreme poverty worldwide (UNCTAD, 2020a). productive services, are typically found to pay the
In 2021, it is estimated that on average close highest dividends in reducing poverty (Warr, 2002;
to 35 per cent of LDC population is living below the Christiaensen et al., 2011).
international extreme poverty line of $1.90 per day. Table 2.2 highlights the heterogeneity across
Similarly, the incidence of poverty using the $3.20 per
individual LDCs and provides a summary of their
day is 60 per cent, while the headcount ratio under
record in terms of inclusive growth in the post-2000
the highest international poverty line of $5.50 per day
period, following the established methodology of
is estimated at 84 per cent.
pro-poor growth (Ravallion and Chen, 2003).20 To
Against this background, it is clear that inclusive do so, the table relies on household-level data on
growth plays a central role from a developmental consumption or income in two given years, and
point of view. The depth and pervasiveness of poverty compares the average annual growth rate (AGR)
generates widespread and often reinforcing patterns for the whole population to the so-called pro-poor
of deprivation; this, in turn, can dampen economic growth rate (PPGR), i.e. the mean yearly growth
dynamism by, among others: (i) undercutting human rate in consumption/income for the segment of
capital accumulation; (ii) lowering cognitive skills; population found to be below the poverty line.21,22
(iii) lessening labour productivity; and (iv) potentially
leading to undue pressure on natural resources 20
As a first approximation, pro-poor growth is here regarded
(UNCTAD, 2002, 2016a; Mullainathan and Shafir, 2014; as a proxy for inclusiveness, even though pro-poor growth
UNDP and OPHI, 2020).19 The limited purchasing focuses on the poorer segments of the population and
not on the whole distributional spectrum. Note also that
power of such a wide segment of the population
by construction the analysis cannot take within-household
constrains domestic markets, potentially giving rise inequality into account as the data are collected at a
to poverty traps (UNCTAD, 2002, 2016a). Moreover, household level and transformed in per capita values, with
widespread poverty and elevated inequality can every member being assigned an equal share of household
income or consumption.
have perverse effects on the institutional framework, 21
The analysis is carried out for the longest available time
span in the post-2000 period; as household surveys are
18
The impact of COVID-19 pandemic is compounded by carried out sporadically and in different years, the period
other idiosyncratic shocks such as droughts, conflicts and covered varies from one country to the other.
locust, which already triggered alarming worsening of the 22
There are typically ample discrepancies between the
food security outlook in LDCs, e.g. Madagascar, Yemen, or growth of household final consumption expenditure derived
Ethiopia. from the national accounting systems, and that of mean
19
Beyond money-metric notions of poverty, the analyses consumption in household surveys. These inconsistencies
based on multidimensional poverty emphasize the fact that stem mainly from the fact that wealthier households are
multiple overlapping facets of deprivation tend to interlinked less likely to participate in surveys and are more prone to
and reinforce each other (UNDP and OPHI, 2020). under-reporting (Korinek et al., 2006).
41
2021
Based on a comparison between AGR and PPGR, Table 2.2 should be interpreted in conjunction
one can the define the following cases: with Figure 2.15; the latter reports the growth
• Growth is inclusive in both an absolute and relative incidence curve for selected LDCs, along with
sense if PPGR > AGR > 0; the corresponding AGR and PPGR, as well as the
initial and final headcount ratios. It highlights that
• Growth is inclusive only in an absolute sense if
as many as 17 LDCs (out of 39 for which data are
AGR > PPGR > 0;
available) displayed a pattern of inclusive growth, in
• Growth is not inclusive if AGR > 0 > PPGR; and both relative and absolute terms. This is the case for
• Growth does not materialize at aggregate level most of the fastest-growing LDCs, including Lesotho
nor for the poor, if AGR, PPGR < 0. and Bangladesh (whose growth incidence curves
Table 2.2
Summary table of LDC growth patterns
(Variable years depending on post-2000 data availability)
Headcount Headcount
Initial Final Average Pro-poor
Growth pattern Country rate rate
year year growth rate growth rate
(initial year) (final year)
Lesotho 2003 2017 5,2 7,0 61,9 27,8
Liberia 2007 2016 4,8 5,2 71,4 44,4
Nepal 2003 2010 4,6 8,1 49,9 15,0
Niger 2005 2014 4,5 6,8 75,3 45,4
Bhutan 2003 2017 4,3 4,4 17,8 1,5
Gambia 2003 2015 3,7 6,7 46,1 10,3
Solomon 2005 2012 3,3 7,4 48,6 24,7
Inclusive in both Sierra Leone 2003 2018 3,1 3,8 73,0 43,0
absolute and Guinea 2002 2012 3,0 5,1 63,0 36,1
relative sense Uganda 2000 2017 2,7 2,7 66,8 41,5
Rwanda 2000 2017 2,3 2,9 78,0 56,5
Bangladesh 2000 2016 1,7 1,8 34,2 14,3
Mauritania 2000 2014 1,7 3,1 19,6 6,0
Burkina Faso 2003 2014 1,4 3,5 57,4 43,8
Myanmar 2015 2017 1,3 14,3 4,8 1,4
Mali 2001 2010 0,7 2,6 58,8 50,3
Growth in average Timor-Leste 2001 2014 0,6 2,2 38,5 22,0
per capita income Dem. Rep. of the Congo 2005 2012 10,6 10,6 94,3 77,2
Chad 2003 2011 6,1 4,6 62,7 38,1
Tanzania 2000 2018 4,8 4,5 86,2 49,4
Mozambique 2003 2014 4,5 2,9 79,9 63,7
Lao People's Dem. Rep. 2002 2018 3,6 2,4 32,1 10,0
Inclusive in
Ethiopia 2000 2016 2,8 2,1 63,4 32,6
absolute
Haiti 2001 2012 2,5 1,6 63,2 53,6
sense only
Burundi 2006 2014 1,6 0,4 78,6 72,8
Senegal 2001 2011 1,3 1,0 49,1 38,5
Malawi 2004 2016 1,1 0,4 73,9 70,8
Djibouti 2002 2017 0,9 0,1 20,2 17,0
Togo 2006 2015 0,8 0,1 56,6 51,1
Central African Rep. 2003 2008 4,2 -2,4 64,5 65,9
Sao Tome and Principe 2001 2017 2,4 -1,6 31,4 35,6
Non inclusive
Zambia 2003 2015 0,8 -3,9 52,1 58,8
(poor worse off)
Benin 2003 2015 0,4 -2,9 49,0 49,6
Guinea-Bissau 2002 2010 0,0 -4,6 56,6 68,4
But growth for
Sudan 2009 2014 -0,5 2,7 15,7 12,2
the poor
But relatively Angola 2000 2018 -1,9 -1,3 36,4 51,8
Decline in average
smaller decline Madagascar 2001 2012 -2,1 -0,9 68,4 77,4
per capita income
among the poor Comoros 2004 2014 -3,0 -2,2 15,0 19,1
Sharper decline
Yemen 2005 2014 -1,6 -2,7 9,4 18,3
among the poor
Source: UNCTAD Secretariat calculation based on data from PovcalNet database [accessed April 2021].
Note: The headcount rates are obtained adopting the extreme poverty line of $1.90 per day.
42
are displayed in Figure 2.15), but also for other rapid growth, but somewhat skewed towards the
LDCs with a less impressive growth record. Clearly, non-poor, include the United Republic of Tanzania
in these cases economic expansion benefitted and Lao People’s Democratic Republic.
poorer segments of the population more than the Five LDCs displayed a non-inclusive pattern
average, with the corresponding distributional of growth in which the expansion of average
changes reinforcing the pace of poverty reduction. In consumption/income corresponded to an actual
another 12 LDCs, growth did benefit the poor in an deterioration of the well-being of the poor, with a
absolute sense (i.e. they experienced an increase in predictable increase in poverty incidence. This was
their consumption/income), but they accrued a less the case, for instance, in Sao Tome and Principe,
rapid improvement than the rest of the population. where – as can be seen from the corresponding
Examples of countries that exhibited this pattern of growth incidence curve in Figure 2.15 – the benefits
Figure 2.15
Growth incidence curve for selected LDCs with different types of inclusive/non-inclusive growth
Lesotho Bangladesh
(2003–2017) (2000–2016)
10 2.0
Average annual growth

9 1.9
(percentage)
(percentage)
8 1.8
7 1.7
6 1.6
5 1.5
4 1.4
0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100
Income decile Income decile
United Republic of Tanzania Lao People’s Democratic Republic

(2000–2018) (2002–2018)
6 5.0
4.5
5.5
(percentage)
(percentage)
4.0
5 3.5
3.0
4.5
2.5
4 2.0
0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100
Sao Tome and Principe Madagascar

(2001–2017) (2001–2012)
8 0.0
6 -0.5
(percentage)
(percentage)
4 -1.0
2 -1.5
0 -2.0
-2 -2.5
-4 -3.0
0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100
Growth incidence curve Average annual growth rate for the whole population Initial poverty headcount (percentage)
Final poverty headcount (percentage) Pro-poor growth rate
Source: UNCTAD Secretariat calculation based on data from PovcalNet database [accessed April 2021].
43
2021
of growth accrued mainly to the top 40 per cent pushes poverty incidence trends upwards. As a
of the income distribution. Finally, five other LDCs paradigmatic example of this situation, Figure 2.15
displayed a contraction in household consumption/ reports the growth incidence curve for Madagascar,
income over the period considered. Of these, only which suggests that the poor experienced on
in the case of Sudan has the average deterioration average a -1 per cent contraction in their per capita
been accompanied by an expansion of the per capita consumption/income, as compared to an overall
consumption/income of the poor; in all other cases, mean deterioration of 2 per cent. At the end of the
the poor are also negatively affected and predictably spectrum, in Yemen the poor were more adversely
affected than the rest of the population, suffering
a 1-percentage point deeper contraction than the
Figure 2.16 average (-2.7 for PPGR compared to -1.6 AGR).
Gini index for market and disposable income in LDCs Overall, the evidence presented confirms that
(Latest available year) sustained growth has been a key driver of poverty
Afganistan (2017) reduction in the LDCs, particularly when accompanied
Angola (2018) by a degree of structural transformation and
Bangladesh (2016) economic diversification, as occurred in the best
Benin (2015) performing LDCs. Yet, initial inequality (especially in
Bhutan (2017) terms of asset ownership), sectoral and geographical
Burkina Faso (2014) growth patterns, and other idiosyncratic factors
Burundi (2013) appear to have a big influence on the shape of the
Cambodia (2012) growth incidence curve. So, for example, LDCs
Chad (2011)
characterized by heightened dependence on hard
Comoros (2014)
commodities display inclusive growth in both a
Congo-Kinshasa (2012)
relative and absolute sense (e.g. Guinea, Liberia, or
Djibouti (2017)
Timor Leste), but other countries have proved unable
Ethiopia (2015)
Gambia (2015)
to capitalize on the commodity boom to improve the
Guinea (2012) well-being of the poor (e.g. Angola and Zambia).
Guinea-Bissau (2010) To complement the above analysis and address the
Haiti (2012) role of inequality more explicitly, the whole distributional
Lesotho (2017)
spectrum needs to be examined, not just the extremely
Liberia (2016)
poor. However, the scope for rigorous analysis is limited
Madagascar (2012)
by patchy related data. A snapshot of inequality levels
Malawi (2016)
across LDCs is nonetheless insightful and provided in
Mauritania (2018)
Mozambique (2015)
Figure 2.16. The latter reports the standardized Gini
Myanmar (2017) coefficient for market income and disposable income
Nepal (2010) in the latest available year.23 The usefulness of this
Niger (2014) picture is reinforced by the fact that inequality appears
Rwanda (2016) to move relatively sluggishly over time, hence initial
Sao Tome and Principe (2017) conditions entail a strong path dependency.
Senegal (2011)
Focusing on market income inequalities, southern
Sierra Leone (2018)
African LDCs appear to be among the most unequal,
Solomon Islands (2013)
Sudan (2014)
with Angola, Lesotho and Zambia all recording a Gini
Timor-Leste (2014) coefficient above 50, much like the Comoros and
Togo (2015) Haiti. Conversely, Asian LDCs and some Island LDCs
Tuvalu (2010) (e.g. Kiribati or Timor-Leste) display a significantly
Uganda (2016) lower Gini index of 40 or less.24 The ranking is only
United Rep. of Tanzania (2017) slightly changed when considering disposable income
Yemen (2014) inequality, suggesting that the capacity/willingness on
Zambia (2015) the part of LDCs to carry out redistributive policies
0 10 20 30 40 50 60
Market Income
23
Unlike market income, disposable income also takes taxes
Disposable Income and transfers into consideration.
24
Some African LDCs, such as Ethiopia, Liberia and Niger,
Source: UNCTAD Secretariat calculation based on data from Solt (2020).
also have relatively low Gini indices.
44
Figure 2.17
Correlation between GNI per capita and selected social indicators encompassed under LDC criteria
2.5 2.6
2.4
Log of under five mortality rate*
2.5
2.3
Lof maternal mortality

2.2 2.4
y = -0.5432x + 4.4203
2.1 R² = 0.966
2.0 2.3
y = -0.4661x + 3.4027
1.9 R² = 0.938
2.2
1.8
1.7 2.1
1.5 2.0 2.5 3.0 3.5 3.4 3.5 3.6 3.7 3.8 3.9
Log of GNI per capita * Log of GNI per capita
1.55 1.9
Log of gross secondary schoool enrolment
1.50 1.8
Log of prevalence of stunting
y = 0.2837x + 0.7695
1.45 1.7 R² = 0.9439
y = -0.2959x + 2.4868
1.40 R² = 0.9314 1.6
1.35 1.5
1.30 1.4
3.4 3.5 3.6 3.7 3.8 3.9 3.4 3.5 3.6 3.7 3.8 3.9
Log of per capita GNI Log of per capita GNI
Source: UNCTAD secretariat calculations based on data from CDP for the 2021 triennial review.
is relatively limited (Ravallion, 2009). The difference dynamism continue to be the key inclusiveness
between the market income Gini coefficient, and determinants in LDCs. Considering the challenges
the one referring to disposable income is about 2.5 LDCs face in stepping up their domestic resource
percentage points in the median LDC; Lesotho is the mobilization efforts, it is likely that this will remain the
only country where the Gini coefficient decreases by case for the foreseeable future (UNCTAD, 2019a;
more than eight percentage points (compared to less UNECA, 2019). The effect of any growth pattern is
than four for all other LDCs).25 mediated by initial levels of inequality (notably asset
inequality), so that predictably more unequal LDCs
This suggests that, lacking a stronger capacity to
mobilize public revenues and a more effective system tend to be less likely to display inclusive growth, at
of social safety nets, the structural drivers of economic least in a relative sense.
More generally, economic growth has been a
25
The United Republic of Tanzania represents an exception, key – albeit surely not the only – driver of socioeconomic
in that in 2017 its Gini coefficient for market income was
progress and shared prosperity in the LDCs, as can
slightly lower than that of disposable income. This is
broadly in line with the finding of another study referring be confirmed by assessing their performance against
to the 2011/12 Household Budget Survey, according to selected LDC criteria. This task is not straightforward
which, notwithstanding some redistributive effects of fiscal given the various revisions to the latter; however, the
policies, the headcount ratio (vis-à-vis the national poverty
close correlation between per capita income and
line) is higher for consumable income than for market
income, primarily due to the impact of high consumption positive social development outcomes is confirmed in
taxes on basic goods (Younger et al., 2016). Figure 2.17; the latter suggests that strong economic
45
2021
Figure 2.18
Performance of LDCs against 2021 Human Asset Index criterion
(Unweighted average)
70 900
800
60
Human assets index, Gross secondary school enrolment,
700
Martenal mortality and Under five mortality rates

50
Prevalence of stunting, and Adult literacy
600
40
500
400
30
300
20
200
10
100
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Under-five mortality rate Gross secondary school enrolment rate

Maternal mortality rate Prevalence of stunting
Human assets index Adult literacy rate
Source: UNCTAD secretariat based on data from CDP for the 2021 triennial review.
growth in the 2000s was accompanied by significant 3. Environmental sustainability

social progress, as captured by various indicators
encompassed under LDC criteria. The complex relationship between growth, structural
transformation and environmental sustainability
Data reported in Figure 2.18 clearly show a significant has been the subject of a considerable body of
improvement along all dimensions of the Human literature, as well as of a widening range of concrete
Assets Index (HAI). The average HAI score for the efforts to reconcile the evaluation of wealth/income
LDCs almost doubled from 31 in 2000 to 55 in 2020, with a more rigorous assessment of ecosystem
pulled by a rise in gross secondary school enrolment services (UNEP, 2018; Landes, 1998). The notion
(from 23 per cent in 2000 to 47 per cent in 2020),
of sustainability has been typically linked to that of
and significant reductions in maternal and under-five
intergenerational fairness, an approach dating back to
mortality rates. Despite this positive development,
the so-called Bruntland report (World Commission on
the average maternal mortality rate of 427 and
Environment and Development, 1987), and enshrined
under-five mortality rate of 64 in 2020 were among
in the Rio Declaration on Environment and Development
the highest in the world. Improvements to basic
(Agenda 21) and the 2030 Agenda for Sustainable
health systems, expanding access, infrastructure,
Development (United Nations, 1992, 2015).
and the provision of sexual and reproductive health
services, particularly to the youth, should thus remain In the presence of exhaustible but essential natural
a priority. resources, the key challenge for policymakers is
46
Figure 2.19
Schematic representation of total wealth and its relationship to GDP and prosperity
Long Term Prosperity and Well-Being
National Income / GDP
Total Wealth
Net
Produced Natural Human
Foreign
Capital Capital Capital
Assets
Machinery
Urban Agricultural Protected Male/Female and Total Assets-Total
Equipment Energy/Minerals Forest
Land Land Areas Employed/Self-employed Liabilities
Structures
Source: UNCTAD secretariat adapted from Wealth Accounting and the Valuation of Ecosystem Services WAVES.
not simply to achieve short-lived economic gains, overshadows market fundamentals, thereby blurring
but rather ensure sustainable benefits for future the usefulness of price signals. Ecologists have,
generations. Neoclassical growth theorists have similarly, highlighted how certain ecosystem services
shown that the utilization of such natural resources do not lend themselves to market evaluation.
can achieve intergenerational fairness (i.e. generate
Unlike the “strong sustainability principle”, which is
a constant stream of consumption per capita across
linked to notions of carrying capacity and planetary
generations for an infinite period of time), provided
boundaries (Ehrlich and Pringle, 2008; Rockström
that the elasticity of substitution between man-made et al., 2009), the “weak sustainability” principle
capital and natural capital is not lower than one underpins the usefulness of wealth accounting. Under
(Solow, 1974). If society is to achieve these outcomes, this approach, distinct forms of capital (man-made,
all the rents obtained from the utilization of exhaustible human and natural, as well as net foreign assets), are
resources should be invested in man-made capital jointly evaluated to characterize the evolution of total
(Hartwick, 1977; Solow, 1974). wealth.26 A schematic representation of this approach
Broadly speaking, this reasoning lies at the core is reproduced in Figure 2.19. Notwithstanding its
of the so-called “weak sustainability” principle, limitations, this approach can be a useful step to
according to which sustainability is maintained complement earlier discussions.
when exhaustible resources are extracted and
transformed into man-made capital, as long as the
26
Total wealth components are generally evaluated on the
basis of the discounted flow of income each of them can
sum of natural and man-made capital does not generate over its lifetime (Lange et al., 2018). Accordingly,
shrink. This approach has been criticized because of human capital is measured as the present value of lifetime
its theoretical foundations and practical applications earnings of the labour force (using household surveys),
while natural capital is measured as the discounted sum
and measurement (Cabeza Gutés, 1996). Several
of the value of the rents generated over the lifetime of the
ecologists have advocated instead for a “strong asset. However, produced capital is evaluated at market
sustainability” principle, arguing that natural and man- price, while net foreign assets are obtained as a difference
made capital should be considered complements, between external assets and liabilities, hence also on the
basis of price signals. Admittedly, this conceptual approach
rather than substitutes, since many of the key to wealth accounting has its own limitations – most
functions and services provided by natural capital importantly, it is subject to measurement errors (especially
cannot be replaced (Ayres, 2007; Cabeza Gutés, where informality is prevalent), and does not incorporate
uncertainty on prices (hence future rents) and on the
1996; UNEP, 2018). Others have also highlighted
impacts of climate change – but it has the advantage of
the practical difficulty in determining natural providing a set of consistent measures for cross-country
resource rents, since commodity price volatility often analyses.
47
2021
Figure 2.20 wealth per capita in LDCs and the rest of the world
remained very wide: throughout the period total per
Total wealth per capita in LDCs, by component
capita wealth in LDCs hovered at about 8 per cent of
(1995–2014)
the world average. This not only reflects huge gaps
16 175
in the availability of capital, especially with respect
Thousands of constant 2014 dollars

14 to human and man-made capital, but also in relation
150
12 to the effectiveness with which given assets are
125
10 put to fruition or good use (think of the difference in
100 discounted lifetime income for two workers with the
8
same educational achievement but living in different
6 75 countries). Third, the graph visibly underscores the
4 importance of the human capital component, which
50
2 grew at a annual compound growth rate of 3 per
0
0
25 cent throughout the period, expanding its share of
the total to over 43 per cent (up from 35 per cent
-2 -25
1995 2000 2005 2010 2014 at the beginning of the period). This is particularly
Human capital Net foreign assets Produced capital significant since human capital is derived here as
Natural capital World average wealth per capita (right axis) the present value of lifetime earnings of the labour
Source: UNCTAD Secretariat calculation based on data from Lange et al. force, and hence it not only reflects improvements
(2018).
in educational achievements or health, but also – to
some extent – in their economic counterpart.27 Fourth,
the graph underscores the prominence of natural
To shed more light on the sustainability of the
resources in the composition of the total wealth of
development trajectory of LDCs, the remainder
LDCs where, in 2014, natural capital accounted
of this section discusses the evolution of their
for 41 per cent of the total, compared to a world
total wealth and adjusted net savings. Figure 2.20
average of 9 per cent.28 For most LDCs this first
illustrates the evolution and composition of total
and foremost reflects the contribution of agricultural
wealth per capita over the period 1995–2014 (the
land, although comparatively lower yields reduce its
longest for which data is available), and averaging
economic evaluation. The contribution of protected
it across all LDCs; it also reports, for the sake of areas, which attract considerable tourism to LDCs,
comparison, the world average wealth per capita and subsoil assets is also noteworthy, with the
over the same period. In the interpretation of the latter increasing their per capita value fourfold
graph, it should be borne in mind that the various between 1995 and 2014.
wealth components are typically computed as the
discounted sum of the value of rents generated over Figure 2.21 reveals considerable heterogeneity in
the lifetime of the corresponding asset; whereas in the trajectories of individual countries (Figure 2.21).
the case of produced capital and net foreign assets, Only a handful of the 31 LDCs for which data is
they are evaluated at market price. Accordingly, available achieved some improvement in the real
differences over time (or across countries) reflect the value of total wealth per capita over the period
variability in the stock of capital and the differences considered. Large variations emerge, however, on
in the “productivity” with which the various forms of the overall change and its composition. If, in general,
capital are transformed into future income streams rapidly growing LDCs did increase their total wealth
more substantially than other LDCs, as occurred
(Lange et al., 2018).
in Bangladesh, Cambodia, Ethiopia, Lao People's
With this premise in mind, Figure 2.20 suggests four Democratic Republic, or Rwanda, the specific pattern
main considerations. First, during the 1995–2014 of growth had a significant bearing on the evolution
period – which, as seen before, spans a period of
rather buoyant GDP growth – LDCs managed to 27
Improved social outcomes in LDCs, particularly those
increase their total wealth per capita at an annual occurring in the past two decades, have been documented
in more detail in other issues of this report (UNCTAD, 2010,
compound rate of 1.7 per cent (from a total of $10,482 2020a).
in 1995 to $14,565 in 2014). This gradual expansion is 28
The prominence of natural resources for LDC economies
slightly higher than the world average (+ 1.4 per cent corroborates similar findings obtained from the analysis
of LDC productive capacities and UNCTAD’s PCI
per year), and reflects an initial decline, followed by
(UNCTAD, 2020a, 2020h). Indeed, the only subdimension
a steady expansion in the new millennium. Second, along which LDCs were outperforming ODCs was in natural
despite these improvements, the gap between total resources.
48
Figure 2.21
Absolute change in total wealth per capita between 1995 and 2014, by LDC and main component
-10 -5 0 5 10 15 20 25 30
Rwanda
Mauritania
Cambodia
Sierra Leone
Djibouti
Bangladesh
Zambia
Ethiopia
Togo
Chad
Mali
Yemen
Malawi
Nepal
Uganda
Guinea
Haiti
Burkina Faso
Mozambique
Liberia
Senegal
Niger
Gambia
Solomon Islands
Comoros
Madagascar
Burundi
-2 -1 0 1 2 3 4 5 6 7
Average annual percentage
Human capital per capita Natural capital per capita Net foreign assets per capita
Produced capital per capita GDP per capita growth (bottom axis)
Source: UNCTAD Secretariat calculation based on data from Lange et al. (2018).
of total wealth. Countries, such as Mozambique, across all LDCs, but particularly so among the best
Liberia, or the United Republic of Tanzania, which performers. Conversely, the contributions of natural
also achieved rapid per capita GDP growth in and man-made (physical) capital are more varied and
the 1995–2014 period, recorded lukewarm results in likely driven by idiosyncratic factors.
relation to total wealth per capita. Worryingly, six LDCs
(including relatively large and natural resource-rich Focusing more specifically on the dynamics
countries, such as Madagascar, the United Republic of natural capital, signs of pressure on natural
of Tanzania, or the Democratic Republic of Congo) resources emerge in a slightly larger number of LDCs
posted an overall decline in total wealth per capita, (Figure 2.22). Among the components of natural
raising serious sustainability concerns. Beyond capital, the generalized importance of agricultural
aggregate changes, the chart shows that human land stands out unambiguously: in 2014, on average,
capital plays a key role in total wealth dynamics it accounted for over 60 per cent of the natural capital
49
2021
Figure 2.22
Absolute change in natural capital per capita between 1995 and 2014, by LDC and main component
Mauritania
Sierra Leone
Cambodia
Solomon Islands
Guinea
Mali
Malawi
Niger
Togo
Mozambique
Yemen
Ethiopia
Chad
Rwanda
Djibouti
Bangladesh
Burkina Faso
Nepal
Haiti
Gambia
Zambia
Senegal
Comoros
Uganda
Liberia
Madagascar
Burundi
-5.0 -2.5 0.0 2.5 5.0 7.5 10.0 12.5 15.0
Agricultural land Forests Protected areas Subsoil assets

Source: UNCTAD Secretariat calculation based on data from Lange et al. (2018).
of the LDC group (i.e. 25 per cent of total wealth), perspective the value of forests in LDCs increased at
and was typically the main driver of natural capital about 1 per cent per year in per capita terms, despite
dynamics, being distributed more uniformly across forest areas having actually declined by over 60 million
countries than other natural resources. Besides, the hectares over the same period. These apparently
rise in the value of natural capital per person in terms counterintuitive trends are essentially a reflection
of agricultural land occurred at a time of increasing of the approach adopted in the wealth accounting
pressure on land resources, as demographic growth framework, which evaluate natural assets based on
in LDCs outstripped the expansion of agricultural the flow of income they generate. The above picture
(or arable) land.29 Similarly, from a wealth accounting also highlights the differences between the weak
and the strong sustainability approach – the latter
29
According to FAOSTAT data, agricultural land in LDCs focuses mainly on the availability of given forms of
increased at an average rate of 0.3 per cent per year over
natural capital and its ecological functions, whereas
the 1995–2014 period, while arable land increased at a rate
of 1.5 per cent per year; at the same time, LDC population the former concentrates more on the economic side
grew at an annual rate of 2.5 on average. of the picture.
50
Subsoil assets represented 17 per cent of LDCs’ overall

natural capital (i.e. 7 per cent of total wealth) in 2014,
and constituted the fastest-growing component
Lacking domestic value addition and
over the period considered, which encompasses the productivity improvements, growing
commodity boom of the mid-2000s. As expected, LDC reliance on natural resources
fuels and mineral exporters (e.g. Yemen, Chad, has often failed to translate into
Mauritania, Sierra Leone or Zambia), recorded sizeable
increases in the value of subsoil assets per capita, sustainable outcomes
having capitalized on the “commodity super-cycle”,
whether in terms of higher prices and productivity
increases (hence the higher value of the resources), in the computation of total wealth, human capital is
or of additional investment and new discoveries (by determined as the present value of earnings for the
increasing the overall stock of economically viable labour force, unlike in adjusted net savings, where
mineral reserves). Finally, if the extension of protected the corresponding provisions reflects investments
areas generally expanded over the period considered, through the public budget in education. Again, policy
their contribution to natural capital per person was changes, for example with respect to reforms to the
highly heterogeneous across LDCs, with significant business environment, may affect the return and
increases in Cambodia, Central African Republic, Lao hence the value of various assets (including human
People's Democratic Republic, or Niger, but shrinking capital) in the wealth accounting framework, but
values in the Democratic Republic of Congo, United have no corresponding effects in the determination of
Republic of Tanzania and Zambia. adjusted net savings. Finally, several factors affecting
national wealth are typically omitted from adjusted
More recent data are needed to update the analysis
net savings, as in the case for: (i) land use changes;
to the past few years and shed more light on the
(ii) new discoveries of subsoil assets; (iii) technological
impact of the COVID-19 pandemic. Overall, however,
changes affecting the productivity of an asset; or
the evidence from wealth accounting raises questions
(iv) the volume of economically feasible resources to
on the sustainability of the LDC trajectory. Despite
exploit (Lange et al., 2018).
the fact that data are only available for a period of
relatively favourable international environment and A bird’s eye view of adjusted net savings for the
rapid economic growth, the total wealth per capita LDC group is provided in Figure 2.23. The latter
in a number of LDCs has shrunk or increased very reports the different components as a share of Gross
sluggishly. In the African region, where population National Income (GNI), averaging across decades
growth is relatively higher, productivity levels have and up to 2019 (hence without accounting for any
improved only sluggishly, and challenges remain impacts arising from the COVID-19 shock).30 Gradual
in terms of generating sufficient employment for improvements in the macroeconomic fundamentals for
the cohorts of new entrants into the labour market a number of LDCs have clearly boosted gross national
(UNCTAD, 2014a, 2020a); in addition, pressure on savings, which doubled their weight relative to GNI.
natural capital has been on the rise in several countries. This remarkable expansion, however, has gone hand
in hand with a progressive increase of natural resource
This reading of the evidence is confirmed and
depletion, notably in relation to energy and forests.
complemented by the analysis of long-term trends in
another related proxy for environmental sustainability, Meanwhile, education expenditure has only marginally
namely adjusted net savings. The latter magnitude is increased as a share of GNI, rising from an average
derived from the national accounting system, being of 2.4 per cent of GNI in the 1980s to 2.7 per cent in
defined as gross national savings minus depreciation the 2010s. As a result, the improved macroeconomic
of produced capital, depletion of subsoil assets and outlook has only partially translated into an expansion
timber resources, the cost of air pollution damage to of total adjusted net savings for the LDCs as a group.
human health, plus a credit for education expenditures. Aggregate data conceal, however, wide heterogeneity
As such, consistently negative values for adjusted across individual LDCs, as underscored by the boxplot
net saving essentially indicate that a given country of natural resource depletion relative to GNI shown
is consuming more than it is saving, thereby eroding
long-term sustainability. It is worth noting that there 30
Available data for adjusted net savings are rather patchy,
are several methodological differences in the way both for the LDC group – for which aggregate estimates are
consistently available only since 1980 – and, even more so,
in which investments in human capital and natural
for individual countries. For this reason, the following charts
resource rents are measured in the computation of present only aggregate data and are limited to periods
total wealth and adjusted net savings. For example, where country coverage was at least 50 per cent.
51
2021
Figure 2.23
Adjusted net savings in LDCs as a group
Average 1980s
30
25
Percentage of GNI
20
15
10
0
Gross Consumption of Education Energy Mineral Net forest Carbon dioxide Particulate Adjusted net
savings fixed capital expenditure depletion depletion depletion damage emission damage savings
Average 1990s
30
25
Percentage of GNI
20
15
10
0
Average 2000s
30
25
Percentage of GNI
20
15
10
0
Average 2010s
30
25
Percentage of GNI
20
15
10
0
Increase Decrease Total

Source: UNCTAD Secretariat calculation based on data from World Development Indicators database [accessed February 2021].
52
in Figure 2.24. The data reveal a generalized increase Figure 2.24

in the figurative costs for natural resource depletion
Boxplot of natural resource depletion across LDCs
relative to GNI, as well as an increasing variability
(Percentage of GNI)
across individual countries. In the 2016–2018 period,
45
natural resource depletion exceeded 10 per cent
40
of GNI in 13, out of the 42 LDCs for which data is
available; at the other end of the spectrum, the same 35
variable accounted for less than 1 per cent of GNI 30

in 12 other LDCs. Interestingly, the acceleration in 25
natural resource depletion appears to pre-date the 20
“commodity super-cycle” of the mid-2000s, and 15
has not subsided in the wake of the global financial 10
and economic crisis of 2008/9. This is consistent 5
with the idea that reliance on natural resources 0
continues to be a structural feature of many LDCs, 1986–1988 1996–1998 2006–2008 2016–2018
much like commodity-dependence (UNCTAD, 2010, Source: UNCTAD Secretariat calculation based on data from World
Development Indicators database [accessed February 2021].
2016a, 2019d). Note: Boxplots visually display the distribution of LDC data over their
quartiles, highlighting the mean (cross), median (horizontal line),
The evolution of adjusted net savings across individual first/third quartile (box), upper/lower extreme (whiskers), and
LDCs reflects the above considerations and reinforces outliers.
earlier sustainability concerns. Despite the overall
improvements reported in total adjusted net savings
for the LDC group (Figure 2.23), there appear to be of the 37 for which data is available) posted negative
signs of a growing heterogeneity across individual adjusted net savings for the period 2016–2018,
countries. This is evidenced by the widening of the including many commodity-dependent (mainly
interquartile range in Figure 2.25, with the median African) LDCs. This highlights the fact that, lacking
value hovering between 3 and 5 per cent of GNI for structural transformation, it remains hard to envisage
the past 30 years. Moreover, as many as 15 LDCs (out LDCs’ decoupling – at least in a relative sense – their
Figure 2.25
Adjusted net savings excluding particulate emission damage, across LDCs
(1990–2018; percentage of GNI)
20
15
10
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
-5
-10
-15
Interquartile range Median
Source: UNCTAD Secretariat calculation based on data from World Development Indicators database [accessed February 2021].
53
2021
economic performance from natural resources, with levels of investment, including public investments in
all the attendant risks this holds for the sustainability infrastructure and human capital, remains as crucial
of their future trajectory. as ever, not just to sustain aggregate demand but
also to lay the foundations for future growth. It is
therefore critical to mainstream productive capacity
E. Conclusions development into the response policies and recovery
Overall, this analysis has documented some plans of LDCs. Second, productivity improvements
encouraging improvements in the performance of are fundamental for long-term prosperity, not
LDCs since the mid-1990s. Over this period, they only within sectors (through capital deepening
have experienced renewed economic dynamism, less and innovation), but also – and perhaps more
frequent growth deceleration, and, in some cases, fundamentally – through the reallocation of inputs
an incipient process of structural transformation. towards more productive and innovative activities.
Notwithstanding this silver lining, most LDCs Third and related to this, the importance of domestic
continued to fall behind in terms of income per value addition as a key avenue to redress primary
capita, with weak progress in labour productivity and commodity dependence, improve natural resource
remaining vulnerable to premature de-industrialization. efficiency and boost intersectoral linkages, cannot
These trends, themselves stemming from the weak be overemphasized, as it could pave the way for
development of LDC productive capacities, were commodity-based industrialization. This hinges
also associated with limited inclusiveness and rising on marrying a forward-looking approach to the
pressure on natural resources, all of which undermines sustainability imperative with bold industrial policies
the sustainability of their trajectory. and an effective science, technology and innovation
(STI) ecosystem. Fourth, although LDC proneness to
While it is too early to rigorously account for the impact
boom-and-bust cycles declined in the new millennium,
of the COVID-19 shock, it is already clear that it could
it remains high by international standards and the fact
well derail the progress of even the best performing
that LDCs entered the COVID-19-induced recession
LDCs, thus exacerbating global inequalities,
with far less means at their disposal than in 2008/9 at
and potentially derailing the achievements of the
the height of the global financial crisis does not bode
2030 Agenda for Sustainable Development. It is thus
well for the recovery to come. It is therefore critical
imperative for the LDCs and for the international
that the international community boosts the financial
community to renew their endeavours to avert such a
resources available for LDCs to respond to the
dangerous outcome.
downturn, at the same time as helping to strengthen
Four take-away messages from the past 50 their institutional capacities to ensure: (i) ownership
years of LDC experience should inform on-going of their respective recovery strategies; (ii) guarantee
efforts to lay the foundations for an inclusive and effective public spending; and (iii) enhance policy
sustainable recovery. First, maintaining adequate coherence.
54
Greater complexity in Progamme of Action policy agenda
exerts greater demand on and for state capacity
Greater complexity
Greater demand on
in Programme of EXERTS and for state capacity
Action policy agenda
Out of 23 LDCs studied: LDC LDC LDC LDC LDC LDC LDC LDC
52% is the average national budget

LDC LDC LDC LDC LDC LDC LDC LDC
allocation spent on (i) Economic
development,transformation and
LDC LDC LDC LDC LDC LDC LDC
diversification; and (ii) infrastructure
9 LDCs
6 LDCs
allocate more than
allocate more than
60% 30% to
economic development,
to both development
transformation and
priorities
diversification
Consistency in government spending
is undermined by
low tax revenue
and low allocations of ODA
to budget support
CHAPTER
3
Evaluating past and present
strategies for furthering
development
CHAPTER 3
Evaluating past and present strategies
for furthering development
A. Introduction 59
B. Multilateral strategies for furthering development in LDCs 59

1. Continuity and change across programmes of action for
the LDCs 59
a. PPoA versus SNPA 61
b. BPoA versus PPoA 63
c. IPoA versus BPoA 64
2. Forty years of international support measures for LDCs 65
C. National strategies for furthering development 67

1. Overview of national priorities 67
2. Public spending and economic growth 69
D. National case studies 75

1. Bangladesh 76
a. Structural transformation 76
b. Development policies 76
c. Smooth transition in the path to graduation with momentum 78
2. Senegal 79
a. Structural transformation 79
b. Development policies 80
CHAPTER 3: Evaluating past and present strategies for furthering development
A. Introduction
This chapter describes the strategies that have PoAs do not replace
underpinned the development outcomes analysed national development
in chapter 2, and encompasses programmes of plans
action (PoA) negotiated at the international level and
approaches embodied by national development
plans and policies. Since the 1980s, milestone
international-level monitoring and evaluation (M&E)
events, processes and development challenges,
challenging.
such as the end of the Cold War, globalization,
the economic surgency of the global South,
financialization, migration and climate change have B. Multilateral strategies
had profound impacts on the political economy of
underdevelopment and alter the policy options
for furthering development
available to LDCs and their development paths and in LDCs
trajectories. Each of the PoAs was thus a product
Every ten years, the United Nations convenes a
of its time, and influenced by prevailing dominant
conference devoted exclusively to LDCs. Programmes
strands of economic thinking and interpretations of
of action (PoA) have been decided for each of the
development concepts in the period immediately
four decades during 1980 and 2021 (Box 3.1).
preceding and during their respective decades of
implementation. An exhaustive consideration of As the outcome of a multilateral approach
these shifts in economic thinking and their political to development involving negotiation and
economy impacts is beyond the scope of this report. compromise, PoAs are not legally binding. They
However, it suffices to note that it is intrinsically inevitably encompass a political agenda and
difficult to distinguish the impact of the PoAs from reflect the unequal power plays and interactions
the shortcomings of the strands of thinking that existing between different constituencies and
influenced their crafting or the global climate in which ideological leanings within the multilateral system
they are implemented because the degree of their (Browne, 1997; Koehler, 2015; Weiss, 1983, 2016).
implementation was jointly aided or disrupted by It is important to bear in mind that PoAs do not
these factors. replace national development plans as this would
overlook the heterogeneity of the LDCs and
In practice, the extent of impact that PoAs can have
infringe on their sovereignty and agency. PoAs thus
on national policies and domestic resource allocation
inherently generalize LDC internal factors, both
is difficult to discern or attribute, as domestic policies
in: (i) the articulation of structural impediments to
typically embody a multitude of other national,
development; (ii) in the evaluation of implementation;
bilateral, multilateral, and in more recent decades, and (iii) placing greater emphasis on areas of
global developmental values and processes. The international action more oriented to outcomes.
PoAs have often been implemented in the context
of other international frameworks of action on
1. Continuity and change across programmes
specific dimensions of development (e.g. Millennium
Development Goals, Sustainable Development of action for the LDCs
Goals, and years/decades of international action on Within the framework of the overall and specific goals
designated developmental problems). In addition, set by each of the POAs (Annex Tables 3.1–3.3), it is
although the PoAs define a specific policy agenda, useful to examine continuity and consistency across
few objectives are associated with specific or the four PoAs. Each of them identify outcomes that
measurable targets and targeted priority actions address the social, economic and environmental
can often serve multiple objectives. In line with impediments to development in the LDCs, as well
this critical need for nuanced policy approaches to as the role and value of development planning.1
development, LDC governments are expected to While all seek comprehensive coverage of the
take ownership and establish national frameworks various dimensions of development, it is possible to
for the achievement of the PoAs in accordance discern, especially with respect to national measures,
with country-specific conditions and aspirations. a progressive trend to more explicitly pinpoint the
This leaves the difficult task of infusing specificity, approaches through which outcomes could be
prioritization, leveraging synergies and resolving
trade-offs to national governments, which renders 1
The BPoA and IPoA placed less emphasis on this point.
59
Box 3.1 Forty years of LDC decadal programmes of action

The Substantial New Programme of Action for the 1980s
By the time of the inaugural decadal programme of action – the Substantial New Programme of Action (SNPA)
for the Least Developed Countries for the 1980s – was proposed by UNCTAD at the fifth Session of the United
Nations Conference on Trade and Development in 1979, the international community had already been unified by
collective actions in support of all developing countries under the international development strategies for the First
and Second United Nations Development decades (United Nations, 1961, 1970). This period encompassed two
phases: (i) the Immediate Action Programme (1979–1981) was intended to meet LDCs’ most pressing short-term
social needs and aimed to pave the way for the second, much larger and longer-term development effort foreseen by
the decadal programme. This second phase emphasized transformational investments which were: (i) proportional
to the magnitude of the challenge facing the LDCs; and (ii) were large enough to have a durable impact (United
Nations, 1982). The SNPA was finalized and adopted by the first United Nations Conference on the Least Developed
Countries held in Paris in 1981.
Paris Declaration and Programme of Action for the Least Developed Countries for the 1990s
The Paris Declaration and Programme of Action (PPoA) for the Least Developed Countries for the 1990s was
the outcome of the second United Nations Conference on the Least Developed Countries held in Paris in 1990
(UNCTAD, 1992). With interdependence in the world economy and the marginalization of LDCs even more
accentuated at the end of the implementation period of the SNPA, the PPoA was premised on forging a strengthened
partnership to ensure greater commitment by all parties in the implementation of a more coherent action-oriented
programme to reverse in the 1990s the trend of continued economic deterioration in the LDCs.
Programme of Action for the Least Developed Countries for the Decade 2001–2010
The Programme of Action for the Least Developed Countries for the Decade 2001–2010 (commonly referred to
as the Brussels Programme of Action – BPoA) was agreed by the third United Nations Conference on the Least
Developed Countries held in Brussels in 2001. The 1990s were marked by a ramped up focus on issues of poverty
and social development (United Nations, 2017). The BPoA thus reflected, the urgency the global community
attached to redressing the neglect of the poor and growing inequalities within and across countries in the context of
structural adjustment lending and the economic strife evident during the 1990s.
Programme of Action for the Least Developed Countries for the Decade 2011–2020
The Programme of Action for the Least Developed Countries for the Decade 2011–2020 (commonly referred to
as the Istanbul Programme of Action – IPoA) was adopted by the fourth United Nations Conference on the Least
Developed Countries held in Istanbul in 2011 (United Nations, 2011). The IPoA lent more focus to a strategic and
ambitious commitment from LDCs and their development partners to bring about structural transformation, and the
graduation of countries from the LDCs category as an explicit goal.
Source: United Nations, 1980b, 1980c, 1982, 2011, 2017; UNCTAD, 1992.
achieved, rather than focusing on justifying desirable Policy guidance on the PoAs is, for the most part,
outcomes, with the SNPA being the least, and the specified only in aspirational terms, e.g. “articulating
IPoA the most operational of the PoAs. A review of or considering” certain policies and measures, or
the structure of the respective PoAs to be found in “attracting, facilitating, promoting, fostering or taking
Annex Tables 3.1–3.3 shows successive PoAs giving concrete measures” on certain desirable outcomes,
greater attention to matching objectives to priority or “complying with” existing multilateral frameworks.
areas of action. By default, areas of action that offer the greatest
All the PoAs are underpinned by a common scope for joint and complementary action between
acceptance of the structural transformation of LDC LDC governments and the international community,
economies as the unique vehicle to achieve sustained such as foreign trade, official development assistance
and self-reliant development; however, notable (ODA) and technical assistance, represent “low
differences exist with respect to the focus and level of hanging fruit” in that they represent the “how” of
detail accorded to the priority areas key to advancing proposed policy measures and targets incorporated.
the process of the structural transformation in LDCs; While an increasingly favoured feature of the global
therefore, successive PoAs could be seen as having development agenda is the inclusion of built-in
increasingly targeted productive capacity/capacities measures to capture progress, the existence of
and diversification even though this has not many areas of development policy which are not
been recognized as an explicit and central goal. conventionally quantifiable or measurable, or for
60
which data are lacking, is a binding limitation. The

measurements and indicators included in PoAs are
also intended to incentivize improvements in data
State capacity has been susceptible
collection,2 and application in development planning to erosion throughout the PoAs’
and cooperation. implementation
Successive shifts in emphasis across the PoAs have
served to amplify certain dimensions of development
over others, and attempt to “fix” problems/issues efforts” that are needed, the SNPA highlights the
that occurred during the implementation of previous importance to the substantial and transformational
PoAs. This represents a progression in the complexity transfers of resources from advanced economies
and the number of policy measures (including related to the LDCs as a prerequisite for overcoming their
trade-offs and sequencing challenges), with the structural impediments to development.
corollary being greater demands on (and for) state Much of the national policy guidance proposed by
capacity. All the PoAs are heavily dependent on the the SNPA is directly or indirectly linked to expanded
capacity and leadership role of LDC governments, international support. The expectation that such a
who have primary responsibility for their own transformational increase in financial transfers would
development. However, LDCs’ state capacity has materialize is explained by the then prevailing context
been susceptible to erosion throughout the PoAs’ of decolonization, and the solidarity and atonement
implementation, as evidenced by the adverse that imbued international development strategies.
effects of the austerity measures taken in the This included the contemporaneous international
context of the structural adjustment programmes discourse on a new international economic order, and
(SAPs) of the 1980s and 1990s – the latter almost United Nations General Assembly discourses linked
completely overshadowing longer-term concerns to human rights3 and the collective responsibility of
with sustainable development and structural the international community for global development
transformation ambitions embodied in the SNPA (United Nations, 1970, 1980b). Thus, within the
and the Industrial Development Decade for Africa. framework of the internationally agreed ODA target
Moreover, ODA commitments and measures intended to developing countries of 0.7 per cent4 of the gross
to improve aid allocations and mechanisms have national product (GNP) of developed countries, the
consistently remained unmet and hampered goals on SNPA initiated the LDC-specific target of 0.15 per
aid effectiveness and the building of state capacity to cent to double the level of ODA to LDCs by 1985.
deliver on the PoAs and other development goals.
It is thus notable that all the PoAs have functioned The SNPA sought to transform the economies
imperfectly, with neither party able to say they have of LDCs and set them on the road towards
fully met their objectives. self-sustained development. It also aimed to
enable them to provide internationally accepted
a. PPoA versus SNPA minimum standards of nutrition, health, transport
Annex Table 3.1 presents the priority areas of the and communications, housing and education, and
SNPA and the PPoA. A dominant feature of the SNPA job opportunities, to all their citizens, and particularly
is that it refutes the notion that underdevelopment to the rural and urban poor (United Nations, 1982).
was solely an endogenous problem (i.e. that it was The SNPA can be viewed as seeking to address
due to a lack of qualified professionals, capital, problems of underdevelopment arising with high
technology or know-how) internal to the LDCs. The population growth rates,5 and the inability of LDC
protectionist responses of developed countries economies to meet basic human needs, including
to the oil shocks of the 1970s intensified external
3
These discourses preceded the declaration on the Right to
and domestic disequilibria in most developing
Development in 1986. https://www.ohchr.org/EN/Issues/
countries, requiring considerable efforts on their Development/Pages/Backgroundrtd.aspx
part to adapt their economies (UNCTAD, 2012b; 4
This target is quoted in the international strategies for the
United Nations, 1980a, 2017). As part of the required second and third United Nations Development Decades.
With the revised System of National Accounts in 1993,
“concerted international action in support of national gross national product was replaced by an equivalent
concept of gross national income (GNI). The OECD shows
2
Despite the rhetoric around big data, less than 0.5 per cent DAC members’ performance against the 0.7 per cent
of ODA goes into supporting or building the capacity of target in terms of ODA/GNI ratios.
national statistical offices, with most low- and middle-income 5
Both the SNPA and PPoA encourage LDCs to adopt
countries (LMIC) unable to fund even half of their national population control measures but these remain unspecified
statistical plans (World Bank, 2021a). and are not subject to specific targets.
61
sector development, and the industrial base beyond

the manufacturing sector. Food aid was included in
The 1980s are considered a 'lost decade' the PPoA following widespread incidents of famine
for developing countries, and especially in the developing world in the 1980s (FAO, 2006;
for the LDCs Singer, 1988).
The PPoA maintains most of the priority areas of
action articulated by the SNPA, but the latter’s
human and institutional development. This emphasis enthusiasm for the tradition of state-driven
can be understood in the context of the dominant industrialization and central planning had begun to
view in the 1950 to 1970s that uncontrolled wane by the second oil shock in 1979. In the 1980s,
population growth was at the root of poverty and consistent with the Washington Consensus, and
underdevelopment in poor countries (Bongaarts often at the expense of everything that had previously
et al., 2020; Sinding, 2009). In addition, the SNPA been understood as development, attention firmly
emphasizes the importance of building LDC state shifted to debt settlement, stabilization, adjustment,
institutional capacity as a fundamental requirement structural change, liberalization, etc. (Singer, 1989).
to achieve development, including with respect to: The PPoA still sought to maintain an appropriate
(i) the crucial role played by state enterprises; (ii) the balance between the roles of the government and the
exploitation of national resources; (iii) expansion of market in industrial development − much in keeping
the manufacturing base for the purposes of with UNCTAD’s more prudent attitude on the merits
boosting economic growth and trade expansion; of the free market, but the fundamental shift to the
and (iv) safeguarding the environment. The SNPA greater reliance on market forces is quite evident in
also references the objectives and targets of the the articulation of its objectives (Annex Table 3.1).
International Development Strategy for the Third The macro-economic policy framework (as an
United Nations Development Decade, the Nairobi overall enabling environment), is at the core of
Programme of Action for Development and Utilization the PPoA. It advocates the role of the private
of New and Renewable Sources of Energy, the Global sector, and the requirement to modernize LDC
Strategy for Health for All by the Year 2000 and the economies as the basis for overcoming the
first Industrial Development Decade for Africa.6 structural bottlenecks of underdevelopment. The
The four specific measurable and timebound PPoA accords greater emphasis to policies needed
targets set by the SNPA for the decade covered: to develop and accumulate productive capacities
(i) GDP growth (7.2 per cent average annual rate); (although not explicitly articulated as such), including
(ii) agricultural production (4 per cent minimum average human, institutional, economic infrastructure, and
annual growth); (iii) manufacturing output (9 per cent technological and entrepreneurial capacities. In
minimum overall annual growth); and (iv) ODA. addition, the PPoA realigns and broadens the
policy focus in sectors and policy areas, including:
The 1980s are generally considered as a 'lost decade' (i) agriculture; (ii) human capital; and (iii) rural
for developing countries, and especially for the LDCs development and manufacturing. To emphasize
(Singer, 1989; United Nations, 2017).7 The PPoA’s the goals of industrialization, the PPoA advocates
primary objective was to arrest the deterioration diversification across markets/products, and
in their socioeconomic situation, to reactivate and expanding productive capacities and technology
accelerate growth and development and set them transfers as prerequisites for growing the industrial
on the path of sustained growth and development. base. For the first time, guidance on economic
New issues on the development agenda included diversification is linked to expanding local private
the external indebtedness of the LDCs (including enterprise for sustainability and balanced growth.8
from ODA, multilateral and commercial debt), private The perspective on the productive base is
6
Prior to the Paris Conference, the United Nations General 8
During the 1980s, private sector development began to
Assembly had endorsed the SNPA to be undertaken as play an increasing role in development policy, driven by
an essential priority within the International Development structural adjustment policies focused on privatization
Strategy for the Third United Nations Development Decade and market liberalization. The generic and popular use
(1981–1990). The SNPA was also implemented within the of the term “private sector development” in development
framework of the Programme of Action on Agrarian Reform cooperation seldom drew a distinction between foreign
and Rural Development (United Nations, 1980b, 1980c). direct investment (FDI) and local entrepreneurship, but
7
While there was broad consensus that the decade was ‘lost’ policies aimed at promoting one or the other cannot
for Latin America, Africa and (generally) for oil exporters, the always be assumed to unequivocally benefit both
situation was relatively less serious for Asia. (UNCTAD, 2019a, 2018a).
62
broadened to include the services sector, as well as

the manufacturing and agricultural sectors already
featured in the SNPA, and addresses the goal of
Ramped up focus on issues of poverty
diversification in both domestic and external trade. and social development by the end
The PPoA dispenses with the tradition of specifying a of the 1990s
target for manufacturing production.
The PPoA improves on various other priority actions
captured in the SNPA. For example, it broadens the b. BPoA versus PPoA
concern for building institutional capacities to explicitly Annex Table 3.2 presents the priority areas of action
encompass various other sectors besides the public of the BPoA compared to the PPoA. Again, there is
administration emphasized by the SNPA. It also a reshuffling in terms of the prominence accorded
posits a more positive role for population growth in to different dimensions of development policy. The
accelerating rural development and the modernization widespread expectation in the early 1990s that the
of the agricultural sector through, among others, globalization of production systems and finance,
raising domestic demand. The PPoA elevates would help diminish income disparities between
South-South cooperation in supporting development countries within the global economy (UNCTAD, 2002)
efforts in LDCs, and calls for its strengthening, was tempered by a ramped up focus on issues of
including in terms of trade preferences and trade poverty and social development towards the end
facilitation, during the 1990s (UNCTAD, 2011c). of the decade (United Nations, 2017). Widespread
However, in most policy areas guidance is articulated agreement was seen on the need to focus attention on
in generic and aspirational terms. For example, on human development, the coverage and quality of basic
diversification, LDCs are simply encouraged to adopt public services, and the right policies for aid, including
policies and measures which could stimulate new reversing the decline in ODA, improving aid coordination
export sources. and its effectiveness – all factors that were also viewed
Another notable new feature in the PPoA is the as having contributed in undermining LDC progress on
attention paid to articulating the responsibilities development. Growing inequalities within and across
of different actors in advancing development. For countries received increased policy attention.9 This
example, the PPoA states that “the contribution would renewed spirit of multilateralism was embodied in the
be most effective if made within the framework of internationally agreed Millennium Development Goals
goals, policies and priorities outlined in national plans in the year 2000. In this respect, the BPoA replicates
and programmes and the positive role” that could be 12 targets of the Millennium Development Goals,
played by “indigenous NGOs” (non-governmental with eradicating poverty featuring prominently in the
organizations). This can be viewed in the context of the overall objective of the PoA. Thus, the entry of the
rise of a pro-NGO norm in the 1980s and 1990s among notion of a people-centred enabling policy framework
donor states and intergovernmental organizations alongside the Washington-Consensus-consistent
(Reimann, 2006; Kamat, 2004; Marberg et al., 2016; focus10 introduced by the PPoA, is the most
UNCTAD, 2019a) that accompanied the rise of the notable change in nuance established by the BPoA.
concept of “good governance” (the corollary being Accordingly, building human capital and institutional
the lack of it in developing countries), and the capacities assumes an elevated profile; as agents
perceived indispensable role of international NGOs as and beneficiaries of development, women, men
vectors of democracy, inclusion and transparency. In and children are named as the LDCs’ “greatest
addition to diverting development finance away from assets”. Emphasis is placed of social services,
host governments, this clashed with the international education, computer literacy, health and nutrition, and
community’s insistence that LDCs bore primary measures to address inequalities within these various
responsibility for their development and the principles dimensions.
of national ownership and leadership. This serves
not only to recognize new actors in development 9
Including in the context of structural adjustment lending,
whereby the September 1999 Annual Meetings of the
cooperation since the 1980s, but also to emphasize
World Bank Group and the IMF endorsed the proposal
issues of aid effectiveness and LDC leadership and that country-owned poverty reduction strategies (PRSPs)
agency in mobilization of domestic resources. The should provide the basis of all World Bank and IMF
PPoA calls for a significant and substantial increase concessional lending, and guide the use of resources freed
by debt relief under the enhanced heavily indebted poor
in the aggregate level of external financial resources,
countries (HIPC) Initiative.
and retains this undertaking as the only quantitative 10
Solely focussed on stabilization, fiscal adjustment and
target for the 1990s decadal programme. liberalization.
63
the SNPA and the UN Development Decades; (ii) five

pertain to economic infrastructure related mainly to
The BPoA entrenched export trade facilitation; and (iii) three relate to the PPoA
orientation as the dominant model for ODA goal.
development in LDC The BPoA stands out for introducing a new PoA
layout that charts, in a reader-friendly format, the
commitments (and principles) underpinning the
The BPoA assumes a sharper focus on productive PoA partnership, and lists the joint actions required
capacities11 and the issue of promoting the of the LDCs and development partners separately
expansion of domestic markets centred on income under each of the priority areas of action. The BPoA
and employment generation. In 2006, UNCTAD effectively clarifies and raises the bar on the LDC PoA
developed the concept of productive capacities accountability framework, albeit on a non-binding
and highlighted their pivotal role in overcoming the basis; and thus, explicitly attempts to leverage
structural impediments to development in LDCs the prevailing renewed spirit of multilateralism
(UNCTAD, 2006). The explicit goal to enhance and addresses the persistent malfunctions of
the productive capacities of LDCs advances the the development partnership on which the PoAs
agenda initiated by the PPoA, including by linking it are predicated. The BPoA seeks to influence the
to South-South cooperation, as well as subregional allocation of ODA across all the priority areas of action
and regional cooperation. The BPoA accords the by associating the role of the international community
local entrepreneurship base specific attention, and under each of the priority areas of action. One of the
restores the SNPA’s focus on manufacturing and ways it does this is by enshrining acceptance that
natural resources (mining) because of the former’s LDCs and industrialized countries have common
potential to enhance technological capacities and but differentiated responsibility for actions on climate
the contribution made by the extractives sector as change, as well as the need for an integrated
a significant source of foreign exchange earnings in approach to development.
many LDCs. The BPoA reconfirms the importance c. IPoA versus BPoA
of domestic resource mobilization and emphasizes
the accountability and mutual responsibility of the Annex Table 3.3 presents the priority areas of action of
international community in the light of the aid crisis of the IPoA compared to the BPoA. The overarching goal
the 1990s (Wood et al., 2008). of the IPoA was to overcome LDC structural challenges
in eradicating poverty, achieving internationally agreed
The BPoA’s focus on trade facilitation and development goals, and enabling graduation from
infrastructure issues reflects the influence of the the LDC category. The IPoA set an ambitious target
Uruguay Round and globalization, and entrenches of enabling half the number of LDCs to meet the
export orientation, dominant since the PPoA, as the criteria for graduation by 2020. This was the first time
dominant model for development in LDCs. that a PoA formulated an explicit recommendation
The BPoA stands out among LDC PoAs as on graduation from the LDC category. Despite not
it incorporates a total of 30 measurable and achieving this latter target, 2011–2020 is the most
time-bound goals and targets. The urgency the successful decade of LDC PoA implementation.
global community attached to redressing neglect of The IPoA expands the number of PoA governing
the poor and the overall drive to focus interventions principles from five to eight – the three additional
at the micro/individual levels that defined the basic ones being: (i) equity, voice and representation;
needs agenda on poverty alleviation and inclusion, (ii) peace and security; and (iii) development and
is reflected in the incorporation of no less than 20, human rights. It modifies the BPoA principles on
out of 30, measurable targets (United Nations, 2001). market considerations and country ownership to
Of the remaining measurable targets: (i) two pertain emphasize the balanced role of the state and market
to economic growth (GDP growth rate of at least considerations, as well as country ownership and
7 per cent per annum and ratio of investment to GDP leadership on matters of development policy. Of
of 25 per cent per annum), which is reminiscent of note and for the first time, the IPoA emphasizes the
voice and representation of LDCs in the international
11
It was only in 2006 that UNCTAD advanced the concept economic system. Moreover, the principle of a
of productive capacities and highlighted their pivotal role in
balanced role of the state entailed a qualitative shift to
overcoming the structural impediments to development in
LDCs (UNCTAD, 2006). Some elements of what became emphasize the active role of the (developmental) state
known as productive capacities were targeted by the BPoA. in the process of development.
64
These changes essentially reflected the

outcomes of the Monterrey Consensus,12 World
Summit on Sustainable Development of 2002, DONORS HAVE NOT EXPANDED
the 2005 World Summit,13 and the High-level ODA at the pace required to achieve
United Nations Conference on South-South
Cooperation, 2009 (United Nations, 2009).14
agreed PoA targets
The IPoA maintains quantitative targets on ODA and
seeks to double the share of LDCs in global trade – a
target later reiterated by the Sustainable Development ODA
Goals in 2015. Fundamentally, the IPoA reiterated and Required
furthered the aims of the BPoA by adopting an even
more operational approach to: (i) eradicating poverty;
(ii) building productive capacities; (iii) advancing
actions on broadening the economic base in LDCs;
Actual
and (iv) mobilizing financial resources for development.
ODA
The IPoA also sought to address problems that had
emerged during the BPoA implementation, such as
the weak participation of local actors in the economy
(concerns centred on issues of equity and inclusion,
been pursued and operationalized, including outside
including: (i) issues of private sector development:
of the PoAs. While the special needs of LDCs are
(ii) technology transfer and women’s entrepreneurship;
widely recognized, major financial institutions, such as
(iii) increased vulnerability of LDC economies to
the World Bank and the International Monetary Fund
external shocks (trade, environmental disasters and
(IMF), do not recognize or apply the LDC category
climate change impacts); (iv) related smooth transition
in their operational work. Nonetheless, multilateral
issues for graduating countries; (v) aid-related debt
institutions are parties in the PoA development
risks; (vi) the long-standing problem of aid quality
cooperation partnership, and jointly associated on
and effectiveness; and (vii) the growing complexity
donor commitments on financing for development,
of peace and security issues. The IPoA elevated
including ODA, technical assistance and debt relief.
the recognition of the role and contribution of
South-South cooperation in the development of LDCs While most aid donors wish to appear as generous
in line with the emergence since the 1990s of strong as possible (OECD, 2019), the track record on greater
and sustainable growth poles in the global South and differentiation in the special treatment of LDCs is
increased South-South trade (OECD, 2010; UNCTAD, inconsistent. It can be said that the PoAs have had
2011a, 2011b; UNDP, 2013; United Nations, 2008). influence on the international discourse on development
in LDCs serving as a useful tool for advocacy since
donors need to secure their public’s buy-in for aid
2. Forty years of international support
policy. Policy statements notwithstanding, many donor
measures for LDCs countries have not expanded ODA to LDCs at the pace
Each of the PoAs called for commitments on required to achieve agreed targets; concerns about this
international support measures (ISMs). In addition were raised as early as the first LDC Conference in 1981
to ODA and technical assistance, trade is the main when the topic of the limited progress achieved in the
area through which concrete LDC-specific ISMs have implementation of the Immediate Action Programme
was broached (United Nations, 1982). There are several
12
This is the first UN-sponsored summit-level meeting dimensions to the less-than-satisfactory record on the
to address key financial and related issues on global fulfilment of ODA goals and targets, not least the lagged
development and widely considered to be a turning point constraints imposed on the capacity and inclination of
in the international community’s approach to development
cooperation and financing for development issues. donors to meet ODA targets during times of domestic
13
The Summit reaffirmed common fundamental values, economic strife. These factors likely contribute to
including freedom, equality, solidarity, tolerance, respect explaining why donor commitments on ODA in the
for all human rights, respect for nature and shared
PoAs weakly translate to actual aid transfers and why
responsibility. It recognized development as a central goal of
multilateralism and addressed issues of interdependence, aid allocations are unequally distributed across the
global partnership, and good governance. various dimensions of development.
14
Member States stressed that South-South cooperation
is a complement to, North-South cooperation and not a Donor ambition is also measured by the nature
substitute. of their commitments. Critics point out that ODA
65
balance of responsibility for aid effectiveness towards

aid recipients.
The political context for the PoAs
is as important as the One troublesome issue is the multitude and contested
meanings on the concept of development. Such
targets themselves ambiguity and elusiveness serves to justify a variety
of different agendas held by national governments,
donors, and the diverse and increasing number of
commitments do not amount to a promise to attain actors in development cooperation; this is further
the targets; furthermore, the graduated nature of complicated by power imbalances that tend to
the PPoA-established commitments skews donors’ negate the rhetoric on LDC ownership and leadership
incentive because the few relatively small countries on decisions on this question (Manning, 2009;
that consistently reach the upper-level target UNCTAD, 2019a). Since the Monterrey Consensus,
(0.20 per cent of GNI) are required to do more. Bigger the meaning of the concept of development is heavily
and richer donor countries that do not attain even the weighted towards poverty alleviation and development
lowest target (0.15 per cent of GNI) are subject to less perspectives emphasizing individual well-being versus
pressure to commit to a volume of ODA in proportion a holistic view of the national economy functioning
to their GNI (Diallo et al., 2020; Scott, 2019).15 as a system that simultaneously addresses societal
The political context for the PoAs is as important as well-being. The interplay of stagnant ODA flows and a
the targets themselves because donors inevitably sectoral allocation disproportionately geared towards
respond to development goals in ways that are social sectors and humanitarian activities leaves
specific to their local situations. Accordingly, it is economic infrastructure and productive sectors
also important to recognize that the messages that relatively underfunded (UNCTAD, 2019a).
may be most effective in garnering donor support The recent DAC rule changes on ODA reporting has
for pro-development policies and sustained aid generated controversy. A major concern is that under
programmes may be different from those that the new reporting rules, other than the fall in the
incentivize sustainable progress on the ground degree of ODA concessionality, is that ODA ceases to
(Manning, 2009). Studies have distinguished a variety be a reliable gauge of donor effort, and thus negates
of donor motivations for giving, e.g. solidarity, recipient United Nations ODA targets, which themselves were
need, donor self-interest, recipient characteristics, based on the 1969 DAC definition of ODA (Rogerson
donor ideology, historical path dependencies, and Ritchie, 2020; Scott, 2019; UNCTAD, 2019a).16
geopolitical competition, trade interests, enlightened The DAC contends that ODA plays an indispensable
self-interest, and domestic security concerns (Alesina role in catalysing the private development finance
and Dollar, 2000; Alonso, 2018; Brück and Xu, 2012; needed to close the funding gap for the Sustainable
Carbonnier, 2010; Fuchs et al., 2014; Gulrajani and Development Goals; accordingly, since 2019, DAC
Swiss, 2017; Maizels and Nissanke, 1984; Tierney donors increasingly channel ODA through their
et al., 2011; UNCTAD, 2019a; Woods, 2008; bilateral development finance institutions (DFIs) to
Wood et al., 2008). Also noteworthy is that the facilitate blending finance. However, the evidence on
Monterrey Consensus, which underpins 21st century increased and additional private flows remains far from
development financing, and which advanced the view convincing (UNCTAD, 2019a). The establishment in
that sound governance is necessary for aid to be January 2020 of the first privately-owned development
used effectively. This endorsement effectively justified finance institution by J.P. Morgan not only belies
selectivity in aid allocation by donors and tilted the the DAC logic, but raises questions on the trend to
financialize development. Available evidence suggests
15
In recognition of the few donors that exceeded the SNPA that the private DFI engages more in “rearranging
LDC-specific target on ODA, the PPoA further modified the
existing investments”, rather than unlocking new and
measurable and time-bound targets for ODA as follows:
additional private capital to address development
• Donor countries providing more than 0.20 per cent of
their GNP as ODA to LDCs to continue to do so and issues (Saldinger, 2021). In this process of turning
increase their efforts; development into a financial asset, Sustainable
• Other donor countries which met the 0. 15 per cent target Development Goals concepts and development
to undertake to reach 0.20 per cent by the year 2000;
• All other donor countries to reaffirm their commitment 16
Starting with 2018 data, the new grant equivalent
to the 0.15 per cent target, and to undertake either to measure of ODA became the standard for reporting.
achieve the target within five years (by 1995), or to make https://www.oecd.org/dac/financing-sustainable-
their best efforts to accelerate their endeavours to reach development/development-finance-standards/What-is-
the target. ODA.pdf
66
impact are reduced to symbolic branding tools to

achieve commercial profit and side-lining the principles
of LDC ownership and leadership (Alonso, 2018;
Trade preferences have the greatest
Dissanayake, 2021; Saldinger, 2020; UNCTAD, 2019a). international momentum to provide
Trade is the main area through which concrete
special treatment for LDCs
LDC-specific ISMs have been pursued and
operationalized. This is perhaps unsurprising given
that export orientation is entrenched as the dominant strategies agreed by LDCs and the international
development model. Trade preferences have the community and enshrined in the successive
greatest international momentum to provide special programmes of action, and second, the international
treatment for LDCs, both in the context of market policy initiatives adopted by LDC development
access and in the implementation of WTO rules and partners to assist LDC development, as translated by
disciplines.17 The Generalized System of Preferences the ISMs that have been put into action. The present
(GSP) was instituted in 1971 under the aegis of section examines the domestic development policies
UNCTAD and saw all developing countries granted and strategies adopted by LDCs, and completes
trade preferences by most industrialized countries the analysis of the policies steering the development
(UNCTAD, 2018c, 2018d, 2019c). The provision and outcomes analysed in Chapter 2. While international
utilization of trade preferences is a key goal of all the developments are a determinant of development
PoAs, further reaffirmed in Sustainable Development outcomes (especially for aid-dependent countries
Goal 17. Since the early 2000s, more generous and those most integrated into the global economy),
provisions have exclusively been introduced for LDCs domestic dynamics are just as important. This section
under the GSP. While some evaluations on the impact of concentrates on the types of development objectives
trade preferences on LDCs suggest otherwise (Klasen et and sectors prioritized by governments, and which
al., 2021), evaluations by UNCTAD and scholars concur are mostly financed from domestic resources. The
that they have generated limited results (Gay, 2020; analysis is based on a scrutiny of spending plans in
Tanaka, 2021; UNCTAD, 2010, 2003), especially the latest generation of national development plans,
with respect to fostering structural transformation. A and on the patterns of public spending going back to
related concern is the risk that preferences entrench the 1990s.
production patterns that are not sustainable in
the light of progressive liberalization. Facilitating 1. Overview of national priorities
development-inducing export growth in LDCs requires
Countries follow different development paths and
a holistic approach, rather than merely focusing on
trajectories as a result of initial conditions, national
tariffs. LDCs are typically characterized by narrow
export bases – market access alone does not provide policy choices, and exogenous factors (Mkandawire
sufficient impetus to change the composition of their and Soludo, 2014; Olukoshi, 2008). The implication of
exports. Their narrow export base can also prevent unique country challenges requires that countries strike
them from fully exploiting available market access a balance among different priorities, while pursuing
opportunities, including in effectively meeting the rules their own development agenda. At the centre of
of origin requirements of such unilateral schemes development planning processes are the governance
(WTO, 2019, 2021). The merchandise export structure structures and institutions that define national visions
of LDCs differs substantially in that some countries and develop strategies and policies to realize them.
can better take advantage of available preferences These governance institutions have the concomitant
than others: Bangladesh is an example of an LDC that responsibility to develop policies that foster cohesion
has exercised its state capacity to substantially benefit across the populace and balance the trade-offs
from ISMs. and unintended consequences of policies. These
contrasting forces have once again become a major
feature of national policymaking process in developing
C. National strategies for furthering countries since 2015 (Chimhowu et al., 2019).
development Therefore, an analysis of LDCs’ national development
plans was made, covering various overlapping
The preceding sections of this chapter have examined, periods beginning in 2014/2015–2020/2021 and
first, the evolution of the priorities for development ending in 2020/2021–2030/2036.
17
https://unctad.org/topic/trade-agreements/generalized- Several of these plans contain an implementation
system-of-preferences cost estimate, while others only include an indication
67
Figure 3.1 to LDCs in 2018–2019 accounting for 10 per cent of

the $57 billion of aid to all LDCs.
Total budget allocation based on national development
priorities in billion dollars covering the latest plan The selection and costing of flagship projects for
period** implementing national plans vary according to country
Cambodia* 0.02
priorities, and from actual budget spending data. An
Bhutan 1.6 analysis of the national development plans providing
Comoros 2.1 details and costing of spending for the implementation
Gambia 2.4 of the plans reveals that national governments
Sao Tome and Principe 2.4 place a high level of priority on the development of
Central African Republic 3.2 productive capacities, economic diversification and
Liberia 3.5 structural transformation. A sectoral breakdown
Sierra Leone 5.5 of the national budgets of 23 LDCs for which data
Malawi 6.6
is available, reveals that they foresee an average
Niger 8.0
52 per cent of their budget allocations dedicated
Togo 8.6
Chad 10.3 to the two sectors of: Economic development,
Burundi 10.4 transformation, diversification; and infrastructure.
Guinea 13.3 In the case of Burundi, Ethiopia, Liberia, Nepal,
Madagascar 14.6 Madagascar and United Republic of Tanzania, their
Lao People's Dem. Rep. 24.0 share of allocations in these sectors is especially
Senegal 26.1 high, with the two categories accounting for more
Mali 27.2 than 60 per cent of planned spending (Figure 3.2).
Burkina Faso 28.6
Burundi, for example, allocated 77 per cent of the
Dem. Rep. of the Congo 40.9
cost of implementing its national plan to those broad
Rwanda 42.2
United Rep. of Tanzania 46.4
themes. Although, infrastructure development, which
Ethiopia 53.5 is central to economic transformation, received
Angola 70.1 only 2.5 per cent of the budget, despite currently
Nepal 79.0 having only 1,646 km of paved roads out of a total
Uganda 116.7 of 5,211 km in the classified national road network
Bangladesh 140.8 (Government of Burundi, 2018). Several countries
Afghanistan 147.3 have allocated an above-average (at least 30 per
0 20 40 60 80 100 120 140 160 cent) of their budgets to economic development,
Source: UNCTAD secretariat calculations based on data from various
transformation and diversification, including Guinea,
national development plans.
Notes: * The figure represents only 25 per cent of the infrastructure Madagascar, Malawi, Mali, Nepal, Niger, Sao Tome
investment estimates. ** Plan periods vary, beginning in and Principe, Senegal and United Republic of
2014/2015–2020/2021 and ending in 2020/2021–2030/2036. Tanzania.
At the same time infrastructure appears as a high
of the spending allocation according to broad areas of priority for Chad, Comoros, Democratic Republic of
priority. The budgets are largely tied to an economy’s the Congo, Ethiopia, Gambia, Liberia, Sierra Leone,
size and not necessarily indicative of the country’s and United Republic of Tanzania, where it accounts
level of ambition. For example, Angola, Bangladesh, for over 30 per cent of planned spending. Ethiopia
and Comoros (both at 49 per cent) and Sierra Leone
Ethiopia, Nepal, Uganda and United Republic of
(46 per cent) present contrasting prominence of
Tanzania have relatively large budgets, consistent
infrastructure expenditures in their respective national
with their size. By contrast, the development plans
budgets, relative to their economy and land masses.
of Rwanda and Burkina Faso exhibit considerable
Ethiopia’s goal of attaining middle-income country
ambition, compared to other LDCs at similar income
status by 2025 is robustly supported by the country’s
levels (Figure 3.1). Afghanistan is a particular case. implementation of mega-infrastructure projects, such
There, the economy size is not a limiting factor, which as: (i) in energy, the Grand Ethiopian Renaissance
demonstrates the country’s expectations to mobilize Dam project; (ii) in transport (multi-modal transport
sizeable external resources to boost the prospects linkages – rail, road, and upgrades to airports);
for peace and recovery after years of conflict, clearing (iii) housing, urban infrastructure projects; and
backlogs in public service delivery, and strengthening (iv) industrial parks (Girma et al., 2019). Apart from
institutions (Islamic Republic of Afghanistan, 2021). In infrastructure, Ethiopia is also prioritizing economic
fact, Afghanistan received the highest share of ODA diversification and human capital development.
68
Figure 3.2
Budget share, per cent of total budget of national development plan
Burundi
Nepal
Madagascar
Senegal
Niger
Guinea
Malawi
Mali
Cambodia*
Bangladesh
Liberia
Bhutan
Ethiopia
Uganda
Gambia
Chad
Angola
Comoros
Sierra Leone
0 20 40 60 80 100 120
Territorial development, regional and international cooperation Environmental protection

Good governance, national unity and peace strengthening Plan implementation
Economic development, transformation and diversification Infrastructure
Human capital development
Source: UNCTAD secretariat calculations based on data from various national development plans.
Among the countries with data (Figure 3.2), Malawi, for example general government services (operations),
Cambodia and Guinea devote most of their national may have a larger impact on economic growth than
development budget to human development, which expenditure on health and education, hence the
ranges from 38 to 45 per cent of planned spending. need for governments to seek optimal fiscal policies
By contrast, Bangladesh, Liberia, Mali, United (Ghosh and Gregoriou, 2007).
Republic of Tanzania, and to some extent Gambia, Environmental protection emerges as an important
have spread their resources evenly across economic outlay in relation to total budgets for some LDCs,
development, transformation, diversification, especially for Chad (15 per cent), Liberia (12 per cent),
infrastructure, and human development. and Senegal (29 per cent). As coastal countries,
Government expenditures typically involve trade-offs Liberia and Senegal share unique environmental
between tax implications and macroeconomic challenges related to marine resource protection and
impacts, including those deriving from its effects other coastal problems caused by climate change
on inflation, private investment and savings (Jönsson, 2019; Sherif, 2019). Chad’s location in the
(Shenggen, 2008; UNCTAD, 2019a). Not all Sahel is challenging for several reasons, including
public expenditures are effective in stimulating access to water, and the threat of desertification
(Hussaini et al., 2019).
economic growth, reducing poverty, or addressing
other development challenges. Advocates of the
endogenous growth model highlight the important 2. Public spending and economic growth
link between social spending and human capital The analysis of the total costing and issues prioritized
development. Education and health are considered by national development plans is complemented
key channels for augmenting “capital”, and improving by a discussion of the trends in, and composition
labour productivity (Piabuo and Tieguhong, 2017). of, actual government expenditures, as these
However, spending on other functions of government, reflect the policy priorities of national governments.
69
Table 3.1 Budget allocations to productive and non-productive

sectors determine both social welfare and economic
General government final consumption expenditure in
development but have different impacts (Barro, 1990;
selected LDCs
Shenggen, 2008; Ghosh and Gregoriou, 2007).
(In billions of US dollars, period average)18
The level, composition and targeting of government
Country 1990–1999 2000–2010 2011–2019 spending are important fiscal policy instruments, as
Angola 7.25 21.13 they not only reflect government priorities but also
Bangladesh 1.87 3.82 9.81
signal government commitment to the development
Benin 0.31 0.65 1.29
agenda to private sector investors and partners
Bhutan 0.05 0.18 0.36
(UNCTAD, 2019a).
Burkina Faso 0.57 0.93 2.02
Burundi 0.16 0.22 0.65 Government spending power and patterns vary
Cambodia 0.12 0.37 0.93 significantly among developing countries, including
Central African Rep. 0.17 0.13 0.26 LDCs, and largely depends on: (i) a state’s capacity in
Chad 0.13 0.37 0.71 mobilizing domestic resources, including tax revenue;
Comoros 0.04 0.07 0.11 (ii) the availability of international support (mainly
Dem. Repu. of the Congo 0.21 0.86 2.71 ODA); and (iii) access to domestic and international
Djibouti 0.36 borrowing. State capacities are also needed to
Eritrea 0.20 0.37 0.08
translate national priorities into appropriate fiscal and
Ethiopia 5.64
monetary policy instruments to support development
Guinea 0.27 0.37 1.43
(Nnadozie et al., 2017).
Guinea-Bissau 0.02 0.07 0.11
Haiti 0.59 1.10 Despite the challenge of data availability, spending
Kiribati 0.01 0.02 0.12 trends are important to understand the dynamic
Lao People's Dem. Rep. 0.33 1.54 impact of government expenditure on economic
Lesotho 0.26 0.97 growth, capital stock, structural change, social
Liberia 0.14 0.50 development and poverty reduction. They also, to a
Madagascar 0.52 1.11 1.84 certain extent, highlight the role of domestic resource
Malawi 0.30 0.50 0.87
mobilization in economic development.
Mali 0.38 0.98 2.27
Mauritania 0.33 0.54 0.84 This section explores some of the macroeconomic
Mozambique 0.53 1.43 3.62 debates based on real budget data from selected LDCs
Myanmar 0.49 11.48 with expenditure data on agriculture, manufacturing
Nepal 0.37 0.85 2.20 and industry. These sectors are explicitly targeted as
Niger 0.54 0.84 1.67 they are specifically named as key sectors in several
Rwanda 0.22 0.50 1.13 national development plans, for example, Ethiopia’s
Senegal 0.99 1.48 2.71 Growth and Transformation Plan II, Rwanda’s
Sierra Leone 0.08 0.18 0.39 National Strategy for Transformation and Myanmar’s
Solomon Islands 0.04 0.07
Sustainable Development Plan (2018–2030)
Somalia 0.25
(Government of Ethiopia, 2018; Government of
South Sudan 0.58 1.74
Rwanda, 2017; Government of Myanmar, 2018).
Sudan 0.66 3.98 3.86
Tanzania 0.82 2.20 4.39 For LDCs as a group, public final consumption
Timor-Leste 0.58 0.92 expenditures increased from about $11 billion
Togo 0.19 0.30 0.73 in 1990–1999 to close to $100 billion in 2011–2019
Uganda 0.55 1.34 2.62 (Table 3.1), reflecting improved spending capacity as
Zambia 0.17 3.26 LDC economies grew, and radical shifts in demand
LDC average* 10.66 35.13 98.49 for public investments and services as national
Source: UNCTAD Secretariat calculations based on World Bank, World populations ballooned. Angola, Bangladesh and
Development Indicators database [accessed May, 2021].
Myanmar more than trebled their public expenditures
18Notes: * Average of countries indicated in the table.
in 2000–2019 compared to 2000–2010. Many other
LDCs doubled expenditures during the same period.
18
General government final consumption expenditure Government expenditures were mainly boosted by
includes all government current expenditures for purchases the push to meet targets or goals missed during the
of goods and services (including employee compensation).
implementation of Millennium Development Goals, as
It also includes most expenditures on national defence and
security, but excludes government military expenditures well as during fiscal readjustments as the 2008/2009
that are part of government capital formation. global economic crisis receded, and commodity
70
markets recovered. The adoption of the IPoA in 2011

also played a role in improving external resource flows
to LDCs, although the most prevalent channel of
development financing was through project support
Government spending in LDCs
(UNCTAD, 2019a).
Government spending in LDCs for which data are
20%
available averaged just above 20 per cent of GDP in
every decade during the period 1990–2020. As large
GDP
developing economies grow, they tend to experience
a decline in the government spending to GDP ratio.
This may be challenged by Wagner’s law which states
that government expenditure grows faster than the
economy. However, regardless of the stability or
increased public goods demand level, when public
service delivery is constrained on the supply side by Average in 1990-2020
infrastructure and other gaps, a growing economy
does not immediately translate into larger government
(Dluhosch and Zimmermann, 2006). This has been
the case for Angola over the three decades for which
tax revenue and size of economy are important
data are available (Figure 3.3). Smaller economies
determinants of a country’s capacity to spend. A
are more likely to have difficulty in ensuring fiscal
declining or constant trend of the past budget deficits
consistency from one planning cycle to another, due
may reflect improvements in revenue collections,
to instability in revenue collections which in turn leads
which is important because of the long-term nature
to oscillating government expenditure as a share
of national development plans, and the limited tax
of GDP.
collection in some of the countries. The capacity
Typically, in a small cash-strapped open economy, to spend is therefore key in reducing primary
budget deficits from previous years, current government deficits, which may have a crippling
Figure 3.3
Government spending share of GDP for selected LDCs, 1990–2019
70
60
50
40
30
20
10
0
ng la
h
nin
n
so
Ca ndi
ia
a- a
u
m. i
p.
My li
Rw r
Se a
So rra L l
on ne
So s
lia
n*
go
da
ia
t
pa
a
ma
ge
Ma
d
’s iriba
e
eri
d
es
Bu huta
sa
od
mb
Sie eg
go
Re
da
ma
Fa
an
uin
To
an
lom eo
an
Ne
Be
ru
Ni
Bis
lad
Lib
an
An
mb
Su
Isl
Ug
Za
Bu
na
K
B
rki
De
ine
Ba
Gu
ple
eo
oP
La
1990–1999 2000–2010 2011–2020

Source: UNCTAD secretariat calculations based on data from IMF, Government Finance Statistics (GFS) database [accessed May 2021].
Note: * The spending share for Sudan in 1990–1999 was 810 per cent of GDP.
71
instrumental variables estimation method used in

this chapter is robust.20
The link between social development
and government expenditure The most important determinant of government
expenditures is the level of tax revenue (Table 3.2).
may not be positive This highlights the importance of domestic resource
mobilization as a crucial determinant of the capacity
of LDC governments to execute investments and
effect on economic growth. The relevant question is spending to implement the priorities singled out in
therefore what determines government’s capacity to their national development plans. The second most
spend. important determinant of government spending is past
Some studies consider only tax revenue and levels of spending, which highlights the importance of
size of the economy as relevant indicators of consistency in government’s fiscal policy efforts. ODA
the current capacity to spend (Shenggen, 2008; contributes positively to a government’s capacity
Ghosh and Gregoriou, 2007). However, contrary to spend, but its coefficient is low and statistically
to Shenggen (2008), developing countries with insignificant, reflecting the weak link between
low per capita income spend proportionately international support and government expenditure.
more relative to GDP than countries with higher The reasons for this are: (i) budget support constitutes
income levels. It can therefore be assumed that the a negligible share of ODA received, the bulk of
relationship between spending capacity and per which is channelled as project financing; and (ii) total
capita income level becomes negative for sufficiently ODA figures are generally much lower than LDC
large developing countries. Consistent with this governments’ own resources (UNCTAD, 2019).
assumption, Awaworyi et al. (2015) meta-analysed The relationship between government spending and
empirical studies of the effects of government size the level of economic development is important as it
on economic growth, and found evidence of a establishes, first, the fundamental role of an economy’s
negative effect in the developed countries sample, size in determining an LDC’s capacity to finance its
but the relationship was statistically insignificant own development. However, the low and significant
in the LDC sample. The relationship between coefficient shows how insufficient that capacity is in
socioeconomic development (proxied by the under- the context of narrow tax bases and lingering low
five mortality rate) is slightly complex. It is commonly taxation rates. Second, the general assumption that
accepted that developing countries have high government expenditure increases with economic
under-five mortality rates, but countries that have growth is critical for growing economies, but – as
relatively more spending capacity have been able to explained above – the major drawback among LDCs
reduce child mortality by channelling resources to is the low rate by which government expenditure
the health sector. Therefore, both per capita income increases per unit increase in income level.
and under-five mortality are expected to be inversely
related to the spending power of sufficiently large A low social development (proxied by under-five
economies. This implies that as the economy grows, mortality rates) also triggers more spending as can
the share of public spending in GDP is expected to be expected. The link between the level of social
decline for larger economies, and that low social development and government expenditure may not
development should trigger more government always be positive, as it depends on the proxy used
spending. It is also expected that ODA adds to for social development and model assumptions. The
spending capacity of recipient countries. The model positive role of government expenditure in reducing
can be estimated empirically using either pooled child mortality is an endogenous relationship that has
cross-section time series regression or panel data been established empirically using various estimation
methods.19 The dynamic panel specification and the techniques, including micro-survival data and panel
data methods with economic growth as part of model
19
Assuming the following specification:
Eit = β0 + β1 Eit-1 + ∑k(j=2) βj Xjit + μit,
20
The model was estimated using a more flexible dynamic
panel data estimator introduced by Ahn and Schmidt (1995).
where Eit is expenditure at time for country i at time t, It is not only dynamic but also allows low order moving
Xj, j=2, …, k are other factors determining expenditure, average correlations between the idiosyncratic error term
β’s are parameters to be estimated, and μit is the error and regressors. The model has two features that improve
term. Dynamic panel estimation methods that consider its performance in small samples – namely, the use of
endogeneity and country effects can be used to generate excluded exogenous variables as instruments, and robust
the result, assuming autoregressive disturbances and standard errors – both of which address misspecification
country-fixed effects. problems.
72
(Wang, 2003; Hall et al., 2021; Nyamuranga and Table 3.2

Shin, 2019).
Determinants of government expenditure in LDCs,
It may not be immediately clear what determines 2000–2019
spending in specific sectors in each country without Dependent: expenditure Elasticities: log
reference to national development plans. However, (per cent of GDP) Coefficient (govt. exp.)/log Mean
x variable (x variable)
depending on resource constraints and the focus
Lagged expenditure
of national policies, countries constantly prioritize (per cent of GDP)
0.308* 0.290 28
between different productive sectors and between Tax revenue (per cent of GDP) 0.531* 0.235 13
them and social sectors. To illustrate this, Angola, GNI per capita 0.003* 0.116 1 070
Bhutan, Burundi, Nepal and Zambia are compared ODA (per cent of GDP) 0.014 0.005 9
over two periods, 1990–1999, and 2010–2019. The Under-five mortality rate 3.4 mm 0.158 90
comparison is limited to these countries because _constant 5.745*
they have consistent data over the study period. As Source: UNCTAD secretariat calculations based on data from IMF,
noted earlier, the dominant pattern among countries Government Finance Statistics (GFS) database and World Bank,
World Development Indicators database [accessed May 2021].
is for the expenditure share of GDP to fluctuate Note: * Significant at 1 per cent level.
from year to year, except for Angola (Table 3.3). In
Angola, remarkably, with the exception of defence
expenditure, the share of government spending (per across during the two decades. By contrast,
cent of total government expenditure) increased for Burundi – whose current national development plan
all sectors. As can be seen in 2010–2019 expenditure emphasized the role of economic transformation
levels compared to 1990–1999, spending on and diversification – did not match this ambition with
social protection, general public services, and spending on economic affairs sectors in 2010–2019.
economic affairs sectors – particularly transport and As shown in Table 3.3, spending fell in all economic
communication – fuels and energy have all been subsectors, and in other sectors during 2010–2019,
increased. reflecting an ongoing adjustment in its resource
basket. However, the GDP share of expenditure
Similarly, economic sectors attracted the largest
increased during 2010–2019, and coincident with a
shares of Bhutan’s spending in both 1990–1999
period in which the country experienced significant
and 2010–2019. Compared to other LDCs,
growth in its economy since 2003.
Bhutan’s share of spending was significantly higher
in agriculture, and transport and communication. Of The last two cases in Table 3.3 show contrasting
the remaining sectors, it is notable that the education trends. In Nepal, expenditure on the economy
sector received a significantly higher share of spending declined as investments, mainly in the energy sector,
in 2010–2019, with the rest staying largely unchanged dropped as projects came to completion. The share of
Table 3.3
Government expenditure share on selected sectors by country, 1990–2019
Economic affairs Other sectors
(per cent of total expenditure) (per cent of total expenditure)
Total
Country Year expenditure Economic Agriculture, Mining,
Fuel General
(per cent GDP) affairs fishing, manufacturing, Transport and Social
and Health Education Defense public
forestry, and communication protection
total energy services
and hunting construction
Angola 31 7 1.3 0.1 3.1 2.1 4 7 46 29 1.47
1990–1999
Bhutan 36 46 16.3 1.3 15.0 12.0 8 11 23

Burundi 23 17 5.2 2.9 4.7 1.7 4 17 22 33 1.59
Nepal 16 42 8.3 3.4 13.1 9.1 4 13 6 24 1.95
Zambia 26 12 3.0 0.7 4.3 0.2 8 11 7 52 1.57
Angola 29 17 1.1 1.0 7.5 5.1 5 9 13 33 14.9

2010–2019
Bhutan 34 32 12.8 0.5 14.1 2.0 9 20 24

Burundi 37 7 2.5 0.7 1.7 1.6 7 17 7 18 0.8
Nepal 23 29 9.0 0.9 10.8 2.8 6 16 7 24 3.9
Zambia 24 34 9.7 0.3 0.2 0.1 7 13 7 31 0.4
Source: UNCTAD secretariat calculations based on data from IMF, Government Finance Statistics (GFS) database [accessed May 2021].
73
The fundamental consideration for policymakers

in developing countries are the trade-offs and
The impact of ODA complementarities and synergies across policy
expenditure is negative choices. For example, the development of the
on agriculture agriculture sector may have higher multiplier effects
for poverty reduction in many LDCs. Similarly, targeted
public spending in infrastructure and other public
spending on agriculture remained largely unchanged, services can have significant effects on efficiency
with education and social protection increasing and competitiveness of manufacturing and other
slightly. In Zambia, spending on the economy industries (ECA and UNEP, 2016). In the case of the
increased as agriculture spending was ramped up LDCs for which data exist, government expenditure
in the sixth and seventh national development plans. on both agriculture and industry has positive and
At the same time, spending on social protection and significant impacts on growth in these respective
general public services declined, but spending on sectors. However, the available data suggests
education rose slightly. that the impact of ODA expenditure is negative on
agriculture (Table 3.4). This is likely related to the kinds
In all five cases, it is important to note that most of activities that are supported by ODA in agriculture,
countries prioritized economic sectors. With which in many LDCs shows a concentration in specific
respect to other sectors, countries boosted resources areas, e.g. policy and administration, that do not have
to education and general government services. This an immediate and direct impact on productivity (see
lends credence to the earlier assertion that LDCs also (UNCTAD, 2019a, 2020a).
prioritize economic transformation and diversification,
The share of labour employed in agriculture has
confirming once again the pattern gleaned from the
a negative and significant relationship with the
analysis of national development plans of a much
value-added share of agriculture. This implies that
larger sample of LDCs in the previous subsection.
labour is either inefficiently utilized in agriculture, or
Government’s awareness of the central role of
that under certain labour market conditions, excess
productive capacities in their development has led
labour employed in the sector should be reallocated
them to dedicate significant policy attention and
to other productive sectors. Excess employment in
resources to this issue.
agriculture contributes to low growth, and declining
How the impact of government spending on average product of labour in the sector. By contrast,
productive sectors of the economy influences the labour employment share of industry has a
budgeting processes and periodic evaluations positive but insignificant relationship with industry
of development plan implementations remains value added. The main difference in developing
unclear. The literature on the determinants of various countries between agricultural labour and labour
components of spending shows mixed results across employed in industry is the set of skill endowments,
regions. For example, Shenggen (2008) found that as with the labour in industry having slightly more skills
total expenditures increase, the share of agriculture attributes. However, on a global scale, the labour in
spending declines. The study also established a industry is not statistically significant because of low
negative but statistically insignificant correlation productivity. The results are consistent with previous
between agricultural GDP in Africa and expenditure findings that agriculture’s contribution to GDP has
on agriculture. By contrast, a reduction in agricultural been declining much faster than the transformation
GDP in Asia seemed to trigger more spending in the of labour employment. Agriculture still employs the
agriculture sector – a result attributed to protectionism. majority of the labour force in many LDCs, while
In Africa, most components of government spending labour productivity has, overall, grown at a very low
increase with government revenue and size of an rate (UNCTAD, 2020a).
economy. However, some components tend to
Government expenditure in the agriculture and
suffer, as budget constraints oblige governments
industry sectors have positive and significant impacts
to prioritize. For example, Shenggen (2008) found
on agriculture productivity, respectively, reflecting
that in Africa, expenditure on social protection had
complementarity between industry and agriculture.
a negative relationship with an economy’s size.
The potential mechanisms include growth in an
However, countries may need to increase spending
industry with a demand feedback on agriculture,
on social services to effectively reduce poverty.
either as raw materials or through increased final
The designation of agriculture, industry or services consumption as income per worker improves in
as priorities has implications for fiscal policy. both sectors. However, relative to other sectors, the
74
Table 3.4
Impact of government expenditure on agriculture and industry in selected LDCs, 2000–2020
Agriculture value added Industry value added
Dependent/explanatory variables Dependent/explanatory variables
share of GDP share of GDP
Labour employment share of agriculture -0.14* Labour employment share of industry 0.24
Land (share of arable land) 0.03 Private investment 0.59*
Gross fixed capital formation in agriculture Growth in household final consumption share
4.73* 0.06
(per cent of GDP) in GDP
Share of government expenditure on
0.90* Share of government expenditure on agriculture -2.04*
agriculture
Share of government expenditure on Share of government expenditure on
11.33* 1.62*
manufacturing and industry manufacturing and industry
Share of sector specific ODA to agriculture -0.53* Share of sector specific ODA to industry 1.76***
Constant term -4.13 Constant term 13.14*
Source: UNCTAD secretariat calculations based on data from IMF Government Financial Statistics database, and World Bank, World Development Indicators
database [accessed May 2021].
Note: * significant at 1 per cent level; ** significant at 5 per cent level; and *** significant at 10 per cent level.
negative and significant coefficient on government on industrial value added on economic growth is
expenditure on agriculture in the industry value-added important for most countries, the effectiveness
equation may reflect excessive agricultural bias of industrial growth on economic development
in government spending. This is not necessarily a would depend on growth in domestic markets
problem given the sector’s role in poverty eradication and interlinkages among sectors of the economy.
and food security, but it does point to the need for The results presented here put into perspective the
a balanced budgeting approach which incorporates importance of national priorities and their link to
complementarities and trade-offs. government spending patterns. Results highlight
Sector-specific ODA to agriculture has a negative and a lack of depth and power for ODA to influence
significant relationship with value added in agriculture a positive fiscal response in LDCs. The lack of
because of the unproductive nature of the resources synergy between ODA and government expenditure
spent on agriculture. This implies that ODA support is discussed at length in UNCTAD (2019). ODA
to agriculture is counterproductive as it contributes should support the intricate link between the national
to the inefficiency of the sector. A closer interrogation development planning framework and the fiscal
of the composition of ODA to agriculture suggests policy instrument (national budget). More importantly,
that the support falls under various other sub-themes if government spending and ODA fail to achieve
indirectly linked to productivity. By contrast, the maximum complementary and synergic alignment, it
positive and significant impact of ODA on industry will not be possible to maximize the potential from
suggests that some scope exists for ODA to support LDC investments in productive sectors.
productive capacities in the LDCs. A closer inspection
of the data also suggests that ODA support to D. National case studies
industry is substantial in volume, but support through
this channel is concentrated in very few LDCs. Having analysed national policymaking trends in a
preceding review of national development plans, fiscal
The share of gross fixed capital formation in agriculture planning and government expenditure, the present
is low in many LDCs, but its positive and significant subsection narrows down the analysis by focusing on
impact on agriculture value added suggests that two LDCs that have adopted contrasting development
agriculture productivity can be enhanced by strategies, but which each has shown success (though
increasing investment in agriculture. Similarly, private to different extent) in overcoming some of the major
investment has a positive and significant influence on structural barriers to LDC development: Bangladesh
industry value added, suggesting an important link and Senegal. Both countries are currently engaged in
between capital investment and economic growth the process of graduation out of the LDC category,
through the industrialization channel. Growth in which largely reflects the success that they have
final demand also positively influences industrial value achieved in their development policies. Bangladesh
added but the coefficient is low and insignificant, was recommended for graduation in 2021 and is
suggesting low domestic absorption of intermediate expected to no longer be an LDC in 2026. Senegal
and final industrial output. Hence, while the impact is at an earlier phase of the graduation process, as
75
fluctuations. However, specialization in garment and

clothing has been accompanied by some neglect
Bangladesh's investment-to-GDP of the business constraints in other industries,
ratio was 31 per cent as highlighted by the country’s export product
in 2019. concentration index score of 0.422 since the 2000s.
The development of global value chains (GVCs) in
Bangladesh has been somewhat limited, especially
when compared to the progress made by Cambodia
it pre-qualified for graduation in the 2021 review of
and Lao People’s Democratic Republic, as well as
the LDCs.
other Asian countries, such as China and Vietnam.
Bangladesh stands out for having relatively high
1. Bangladesh backward participation and low forward participation
a. Structural transformation in its GVC, driven by a textile and clothing industry
accounting for 83 per cent of domestic value
In Bangladesh, structural transformation and
added in exports. Conversely, sectors expected to
economic growth have taken the form of the
drive structural transformation, such as agro-food
expansion of the manufacturing and services sectors.
and low-technology manufacturing, have made
This has diversified the economy and brought forward
minor contributions. The country is beginning to
economic growth, which accounted for over 1.5 per
show some incipient examples of diversification in
cent of annual growth in the 2010–2018 period.
technology-intensive products and service sectors
Along with incipient industrialization – largely driven by
but progress in product and export diversification
ready-made garments – agricultural development and
is slow with the emergence of input-output linkages
growing value addition from services also contributed
across sectors a persistent weakness underlying the
to accelerating economic growth and spur structural
country’s economic structure.
change.21
From 2006, the country’s investment-to-GDP ratio
In the space of 30 years, the share of employment
surpassed 25 per cent of GDP, reaching 31 per cent
in agriculture decreased by 30 percentage points,
in 2019. Domestically, investment in infrastructural
leading to a transfer of workers to labour-intensive
provision and rural development has improved, in spite
sectors with higher average labour productivity than
of low tax-to-GDP ratio of 10 per cent, 50 per cent of
agriculture. This pattern of labour reallocation partly
which is from custom duties and indirect taxes.
reduced sectoral differences in productivity, and
made Bangladesh a case of “growth enhancing b. Development policies
structural change” (McMillan and Rodrik, 2011b).
Economic growth, driven by export and remittances
Despite this, a significant share of labour left
expansion, has accelerated since 2002. This
low-productivity agriculture to flow to other services
growth began with the trade liberalization policies
sectors, such as trade and hospitality, whose
of 1990, which led to an export boom driven
productivity is higher than agriculture yet lower than
by LDC-specific preferential market access in
average. With persistent sectoral productivity gaps,
ready-made garments. Bangladesh’s growth over
scope still exists for harnessing productivity growth
the period 1983–2016 occurred in the midst of
both within sectors and through further structural
worsening inequality; a period in which the Gini index
change towards higher productivity activities. This
rose from 25.6 to 32.4, before plateauing again as
consideration is particularly important if read in
rural development and employment creation made
conjunction with the finding that Bangladesh has
growth more inclusive. Despite these increases the
been slow in developing dense input-output linkages
Gini index remains relatively low by international
and economic clusters to enable its economy to
standards. Bangladesh has reduced income poverty
eventually move up global production chains and
rates and incidence. Between 2000 and 2016 the
benefit thereof (Mercer-Blackman et al., 2017).
incidence of poverty halved 24.6 percentage points.
International trade growth, particularly in the 90 per cent of the reductions occurred in rural areas
ready-made garment industry, has supported (World Bank, 2019).
structural change and economic growth in
Bangladesh. Targeted policy and ISMs have enabled 22
This index (also named Herfindahl-Hirschmann
the country to grow its garment industry, diversify Index – product HHI) is measured between 0 and 1. For
each country, it captures the degree of concentration of
its market access and reduce export revenue goods exported. A low score signifies that a large share of
merchandise exports is accounted for by a small number of
21
This subsection is largely based on (UNCTAD, forthcoming). products.
76
The share of agriculture, forestry and fisheries in

GDP decreased to 14 per cent in 2018, reflecting
a rise in manufacturing and services. However,
Bangladesh has the highest
the country’s supply-side bottlenecks and adult literacy rate among LDCs
logistical inefficiencies render its transport costs in South Asia
higher than other regional LDCs, which inhibits
accelerated trade growth. In fact, the lack of
export diversification – 80 per cent of Bangladesh’s access to education have reduced significantly
exports are in ready-made garments – highlights since the 1990s. Girl’s participation and educational
the concentration and dependence on a narrow attainments have improved faster than that of boys,
range of products. Although this is concerning in resulting in the gross secondary school enrolment
the long-term, the stability of textile and clothing has exceeding the value of 1 since the early 2000s.24
served to stabilize terms of trade and purchasing Government initiatives, non-formal education
power. delivered by NGOs, formal sector employment
Identifying the country’s position as a “follower” of requiring secondary education for women, are among
technology, the government established a “Digital the reason for closing the gender gap. Nonetheless,
Bangladesh” initiative to enhance technology adoption girls’ outcome in education is lower than boys, and
across sectors. This initiative followed an earlier low completion rates and grades highlight the negative
diagnosis of the pressing need for technological and difference in investments in education quality for girls.
skill upgrading, and advancing innovation ecosystems Bangladesh has pursued efforts to improve
to transfer, domesticate and adopt technology. food security by enhancing rural connectivity
Economic growth in Bangladesh has been in a sustainable and “climate-proof” manner
underscored by continuous social policy efforts. (IFAD, 2019), as evidenced for instance by the
Women’s education and empowerment were the Coastal Climate-Resilient Infrastructure Project
most crucial factors contributing to the progress in the (CCRIP), which targets beneficiaries in coastal
reduction of child mortality in Bangladesh. According rural districts. The country reduced the number of
severely food-insecure people from 20.7 million
to the NGO Save the Children (2019), this was largely
in 2014–16 to 17.2 million in 2017–19 (FAO et
the result of the government’s effort in setting up
al., 2020). From 1990s to 2019, the prevalence of
community clinics and digitalization of the primary
stunting by 40 per cent and the country also achieved
health care (PHC) system, both key to children`s
progress in reducing chronic malnutrition.
health outcomes.23 Child mortality ratios confirm
that Bangladesh reduced its under-five mortality rate Bangladesh has the highest adult literacy rate among
to 31 deaths per 1,000 live births in 2019 – a similar LDCs in South Asia, although it performs poorly in
level as Afghanistan, Bhutan and Nepal. Health universal literacy. Literacy rates rose from 48.6 per
policy reforms, including service delivery, coverage of cent in 2017 to 74.7 per cent in 2019. Bangladesh’s
effective interventions and socioeconomic conditions, commitment to education and human capital
explain the country’s improvement and its reduction development to tap the demographic dividend is
in urban-rural and regional disparities in child mortality reflected in efforts by NGOs and other national efforts,
rates (Khan and Awan, 2017). Effective family planning such as universal enrolment in primary education and
programmes, improved delivery attendance, and gender parity in school access.
access to maternal care services reduced total fertility Environmental vulnerability ranks highly in the case
rates; the combination of these three factors led to of Bangladesh, not least because of the size of its
the decline in the maternal mortality ratio. Pioneering territory and the numbers of its population living in low
girls’ education and women’s empowerment and elevated areas, leaving them vulnerable to disasters,
free primary education policies combined to increase and unstable agricultural production. Bangladesh “is
enrolment rates and reduced adult literacy rates and one of the most climate vulnerable countries in the
supported maternal and child health improvements. world” (MOEF, 2009: xv). Over 70 million people in
The gender parity index for the gross school Bangladesh could be affected by climate change,
enrolment ratio shows that gender disparities in according to the National Adaptation Programme
of Action (NAPA) estimates. The Government of
23
This initiative helped Bangladesh win the award “Digital
Health for Digital Development” from the United Nations 24
The gender parity index for gross enrollment ratio in
in 2011 in recognition of its use of information and secondary education is the ratio of girls to boys enrolled at
communication technology (ICT) for health and nutrition. secondary level in public and private schools.
77
its graduation dynamics through: (i) the use of

context-specific assessments; (ii) informed long-term
Bangladesh has experienced national development strategies; and (iii) industrial
widening resource gap averaging policy.
6 per cent over the past 15 years In this context, successful LDC graduation requires
several challenges to be addressed. The country
needs to aggressively pursue GVC diversification, as
Bangladesh has adopted measures to mitigate increased tariffs from LDC preferential treatment loss
climate risk, including approving 678 projects under and domestic infrastructural constraints pose a threat
the Climate Trust Fund between 2010 and 2021. to continued export revenue and investment flows.
Notwithstanding this, the country remains at risk A concerted push towards patterns of specialization
compared to other South Asian LDCs. Bangladesh’s with higher levels of complexity, and where
yearly average of seven natural disasters has claimed knowledge and technological spillovers are higher,
the lives of 110 million people, according to the needs to be at the centre of such a diversification
EM-DAT (2000–2019) estimates. Lower income effort. The COVID-19 shock has triggered a process
households dependent on natural ecosystems are of GVC restructuring, bringing renewed emphasis to
often the most vulnerable. supplier diversification, dependability and regional
c. Smooth transition in the path to graduation with embeddedness. Bangladesh will need to harness
momentum technological advancements to adjust its existing
GVC linkages to sustain its export capacities. Overall,
Bangladesh is set for LDC graduation but vulnerabilities strategic industrial, trade and structural policies
to development persist. The country will need to are needed for longer-term impact. In addition,
maintain the efforts that have allowed it to meet the
Bangladesh can further harness technological
graduation criteria. As advanced by UNCTAD’s The
ventures by strengthening connectivity and logistics
Least Developed Countries Report, Bangladesh could
through system-wide reform.
benefit from adopting a strategy to graduate with
momentum. This strategy highlights the importance Bangladesh can expect a lower degree of
of viewing graduation as “the first milestone in a concessionality in accessing development finance,
marathon of development rather than the winning with resulting reductions in available policy space.
post in a race to escape LDC status, and of focusing The country will need to ramp up domestic resource
primarily on longer-term development processes mobilization efforts as external development
rather than on the technicalities of the graduation finance decreases. The country has experienced a
criteria” (UNCTAD, 2016a: 162). The framework widening resource gap averaging 6 per cent over the
of graduation with momentum explicitly links the past 15 years – a gap largely covered by remittances
development of productive capacities with building of $18.3 billion in 2019. LDC graduation is expected
continuity in the development trajectory beyond to reduce capital accumulation generated by external
graduation by bridging the pre- and post-graduation finance.
development processes (UNCTAD, 2021b: 18). Environmental policy is key in a country affected by
Bangladesh is faced with the prospect of lower frequent natural disasters induced by climate change,
special and differential treatment in trade. Crucially, as well as for Bangladesh’s smooth transition to
graduation from the LDC category entails the developing country status. Since climate change
phasing out of ISMs that Bangladesh has effectively can disproportionately hurt the livelihoods of the
leveraged for its development. It can therefore expect poor, climate change adaptation should become
a loss of ISM-linked preferential market access, the a policy priority to mitigate inequalities, and avoid
impact of which could range between -7 and -14 per further marginalization of the poor. Bangladesh’s high
cent of baseline exports (UNCTAD, forthcoming). adaptation investment needs call for correspondingly
In the context of the country’s integration into increased national attention to the formulation of
buyer-driven value chains in the textile sector, appropriate environmental policies. Priorities to reflect
which has circumscribed upgrading opportunities on include: (i) mobilizing climate finance; (ii) capitalizing
(UNCTAD 2018), similar prospects underscore an on climate-resilient infrastructure; (iii) adopting green
important source of vulnerability. Thus, alongside technology; and (iv) developing social protection for
maximizing LDC-specific ISMs through stakeholder vulnerable groups affected by climate change. Issues
negotiations before graduation, Bangladesh around poverty and improving literacy will remain
needs to build its productive capacities to manage policy priorities for the foreseeable future.
78
The following policy options are relevant for Figure 3.4

Bangladesh to ensure smooth graduation and
GNI per capita
structural transformation. Some of these options
(Dollars)
may require accelerated action to mitigate on-going
2 500
threats due to the COVID-19 pandemic:
2 000
• Strengthening domestic resource mobilization
by improving tax administration systems and 1 500
business environments to boost public revenues 1 000
and private sector investments.
500
• Bolstering investments in climate-resilient and
digital infrastructures to improve physical and soft 0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
infrastructures, that could hinder efficiency in the
transport and logistics sectors. African LDCs All other LDCs
• Sustaining investments in human capital by ECOWAS Senegal
improving access to education and the job market Source: UNCTAD Secretariat based on data from UN DESA LDC time
series data [accessed July 2021].
• Supporting technological upgrading and
improvements to the science, technology and
innovation (STI) ecosystem. African LDCs. Its per capita income growth trajectory
• Continue fostering rural development through was strongly influenced by the commodity price
intersectoral linkages, infrastructure provision and decline in 2011, and has remained broadly stagnant
innovative business practices. since then (Figure 3.4).
• Adopting a proactive industrial policy framework
Senegal has a somewhat more diversified economic
to enhance productive capacities and stakeholder
structure than its peers. The country has a much
collaboration, and thus reduce market failures and
lower share of the primary sector (agriculture, fishery
strengthen economic linkages.
and forestry) in its GDP compared to its regional
peers and other LDCs (Table 3.5). The country
2. Senegal also has a lower export concentration and export
Senegal reached pre-qualification for graduation instability than its peers. However, given Senegal’s
in the 2021 review of the LDC category by the climatic and agro-ecological conditions, agricultural
Committee for Development Policy (CDP), following production is less stable, which explains why the
a development trajectory quite different from that of country attains a modest Economic Vulnerability
Bangladesh and other Asian LDCs on the path to Index (EVI) score.
graduation. The industrialization of Senegal has been
less decisive, but its economic structure is broadly Senegal’s merchandise exports are dominated
more diversified. by commodities, which account for about 70 per
cent of its exports. In 2019, commodity exports
a. Structural transformation were composed of food items (33 per cent), fuels
Senegal’s level of income per capita is higher than (18 per cent), and ores and metals (8 per cent). At the
that of its peers in the Economic Community of West same time, manufactures accounted for almost one
African States (ECOWAS) region, as well as other quarter of merchandise exports.
Table 3.5
Graduation criteria and relevant economic sub-components, 2021
Share of agricultural,
GNI EVI HAI Export Agricultural
fishery, forestry Export instability
per capita index value Index value concentration instability
products in GDP
Senegal 1,370 42.98 66.37 16.51 0.23 1.85 14.98
ECOWAS 1,223 37.77 53.31 32.61 0.50 10.89 6.16
African LDCs 959 40.31 51.84 28.17 0.47 14.16 6.52
Other LDCs 2,109 36.09 71.56 21.43 0.42 14.07 4.81
Source: UNCTAD Secretariat based on data from UN DESA LDC times series data.
79
Figure 3.5 The within-sector labour reallocation contributes

negatively to overall productivity growth. This
Between and within sector productivity growth, 1995–2018
happens if employment share in the sector increases
6
faster than the output share.
The sectoral decomposition of the two growth
4 elements (Figure 3.6) shows each sectors’
contribution to the overall productivity increase. In the
Percentage
2 case of Senegal, the agricultural sector was the main

contributor to within-sector productivity growth, with
a small addition by the utility sector (Panel A). This
0 shows that the agricultural sector has a large and
declining employment share, and is increasing value
added per worker. Decreasing employment is then
-2
Structural change component reflected by the negative contribution of the sector
With in sector component in Panel B.
Overall productivity growth
Source: UNCTAD Secretariat calculation based on data from Vries et The contribution of the manufacturing sector to
al. (2021). within-sector productivity growth, by contrast, is
negative (Panel A), as employment in the sector
grew (positive contribution in Panel B), and average
Overall productivity growth in Senegal stands at 4 per output per worker fell. The services sector plays a
cent per year, and is driven by the structural change larger relative role than the manufacturing sector, as
component of output decomposition (Figure 3.5). it has the potential to absorb more employment. This
applies to all services categories, but especially to
government, business and trade services in Senegal.
Figure 3.6 Labour reallocation from the agricultural sector
Sectoral decomposition of economic growth to other sectors is a critical driver of the structural
Panel A: Panel B: change component (Panel B). The real estate sector
Within-sector Structural change is the only other sector that emerges as an important
component component driver for structural change.
12
As is the case with Asian LDCs, industrialization – led by
10 the manufacturing sector – is not the main contributor
to structural change in Senegal. Digitalization has
8 enabled the services sectors to play a more important
role in generating economic growth.
6
b. Development policies
4
Senegal has followed sound macroeconomic
Percentage
2 policies and accomplished peace – both of which

are the fundamental drivers of long-term growth.
0 As a member of the CFA franc zone (franc de la
Communauté financière d’Afrique), it has benefitted
-2 from low inflation and stable exchange rates as the
CFA franc is hard pegged to the euro but faces a
-4
potential drawback if low inflation in the Eurozone is
-6
imported to a country with much higher growth rates,
which would benefit from a faster expansion of its
-8 money base.
Other services Trade services
Government services Construction At a time when many African countries struggle with
Real estate Utilities rising debt levels, Senegal’s risk of debt distress is
Financial services Manufacturing
Business services Mining moderate, with public debt to GDP ratio at 67 per
Transport services Agriculture cent, and external public debt at 54 per cent of
Source: UNCTAD Secretariat calculation based on data from Vries et GDP in 2020 (IMF Debt Sustainability Analysis,
al. (2021).
April 2020). Further debt forecasts until 2030
80
indicate a lower public debt of 4 per cent and

lower external public debt of 23 per cent (IMF
Debt Sustainability Analysis, April 2020). This
Senegal’s industrial and agricultural
would, mean greater reliance on domestic savings policies show continuity and refinement
and lower dependence on international financial over time
markets and the dollar, which in turn leads to a
better insulation against external shocks and
foreign geopolitical interests. rising domestic and external deficits (Boye, 1992).
Senegal has a persistently negative current account. The new policy reforms had adverse recessionary
Even though its export volume has almost doubled pressures on Senegal’s economy, and weakened
since 2015, and has experienced merchandise industrialization efforts.
exports growth of 15 per cent. In 2019, it exported Trade liberalization agreements under the WTO have
merchandise worth $4,175 million and imported restricted the country’s available industrial policy tools,
$8,143 million worth of merchandise, leading to a e.g. export subsidies, performance requirements, and
merchandise trade deficit of $3,969 million (UNCTAD local content clauses (Bora et al., 2000). In parallel,
Stat). Senegal had, by contrast, a large positive membership in the CFA franc zone has restricted the
financial account surplus in 2019, with $983 million use of monetary policy tools.
foreign direct investment (FDI) inflows and $114 million
FDI outflows (UNCTAD Stat). Given this reduced policy toolbox, efforts to support
structural transformation have become more refined
Senegal’s structural policies have changed and targeted since the 2000s. Senegal’s industrial
considerably since independence. In the 1960s, and agricultural policy priorities show continuity and
the government intervened extensively in agriculture refinement over time, which combined with stable
as part of an attempt to rely on traditional import macroeconomic and social policies has driven
substitution industrialization (ISI). The state aimed Senegal’s relative economic success. Next to the
to increase the value added of local resources on-going institutional reforms, a central feature of
by emphasizing diversification of agricultural
Senegal’s industrial policy are industrial zones – the aim
production and providing inputs to local producers,
is to spread industrial facilities previously concentrated
including many smallholders. In the 1970s, public
in the Dakar region across the country – and orientate
investment shifted to industrial manufacturing as
the productive base towards promising sectors and
the government tried to avert rising unemployment
promoting highly productive competitive industries
and the social unrest of 1968–1969. Numerous
(Newman, 2016).
attempts to imported development included
government-supported natural resource processing Since 2006, a new accelerated growth strategy
industries, such as fishing and groundnut production (AGS) has been implemented and has identified five
and setting up of industrial free trade zones outside economic areas that constitute drivers for economic
the capital, Dakar. However, the success of these growth and diversification; (i) agro-industries and
policies was undermined by ‘clientelism' (Daffe and food processing; (ii) fisheries; (iii) tourism, crafts and
Diop, 2004). cultural industries; (iv) cotton, textiles and clothing;
and (v) information and communication technologies
The 1980s ushered in a World Bank-inspired “New
(ICT) (African Economic Outlook, 2006).
Industrial Policy” that was framed as part of the
structural adjustment programme (SAP) consisting A new national development strategy was adopted
of full trade openness, export orientation, and labour in 2014, the Plan Sénégal Emergent (PSE), which
market liberalization, deregulation and privatization. promotes a holistic approach to development based
Yet, trade-opening measures prompted significant on social, economic and environmental pillars.
job losses, as local enterprises succumbed to the By 2035, it aims to transform the country into an
competition from cheap imports. Foreign investment emerging economy, defined by social solidarity and
and related foreign interests dominated domestic rule of law (UNIDO, 2019). The focus areas are in line
investment in strategic sectors, such as phosphates. with the ASG, but further refine policies to include:
By the mid-1980s, FDI started to fall with the (i) industrial development; (ii) the establishment
deteriorating economic situation. Between 1980 of agro-poles; (iii) the operationalization of a new
and 1990, agricultural production declined, GDP generation of integrated industrial parks; (iv) the
growth slowed down, public finances deteriorated development of a regional mining hub; and (v) special
with rising debt, and foreign borrowing surged to meet economic zones and investment package reform.
81
Senegal’s economic success is backed by solid social prevalence of stunting than its regional peers in the
policies. It is close to achieving universal health care region. Its outcomes for schooling are in line with
(UHC) coverage and subsidizing health insurance ECOWAS averages, and more girls than boys are
for low-income groups (World Bank, 2016). This enrolled in secondary school, which is on average is
is reflected in much better outcomes for under-five not the case for ECOWAS countries, or other African
mortality and maternal mortality rates, and lower LDCs (Table 3.6).
Table 3.6
Human Asset Index and its sub-components, 2021
Under-five Maternal Prevalence of stunting Secondary school Adult Gender parity in
HAI mortality rate mortality rate children under five enrolment rate literacy rate secondary school
(per 1,000) (per 100,000) (per cent) (per cent) (per cent) enrolment, ratio
Senegal 66.37 45.31 315.00 17.80 46.24 51.90 1.13
ECOWAS 53.31 78.54 550.36 26.23 50.61 50.91 0.87
African LDCs 51.84 72.27 515.16 32.81 41.62 56.84 0.88
Other LDCs 71.56 39.48 209.53 28.59 65.10 73.66 1.03
Source: UNCTAD Secretariat based on data from UN DESA LDC times series data [accessed July 2021].
82
Annex Table 3.1
83
Comparison between the Substantial New Programme of Action 1980s and the Paris Programme of Action 1990s
Substantial New Programme of Action 1980s Paris Programme of Action 1990s
Objectives/issues Priority areas for action Objectives/issues Priority areas for action
Food strategies The macro-economic policy
Food security framework
Food and Domestic resources
Food production Financing growth and development
agriculture External resources
Forestry, fisheries and livestock ODA debt
Rural development Other official bilateral debts
External indebtedness of the LDCs
Human resources Debt and the multilateral institutions and development funds
Commercial debt
Education and culture Diversification
Human resources Training and administration Access to markets
and social External trade
development Health and nutrition Commodities
National measures Population policies Compensatory financing
Strengthening economic and
Human settlement technical co-operation between LDCs
Natural resources and energy and other developing countries
Manufacturing industry Improving institutional capabilities
Physical and institutional infrastructure The role of public enterprises
The involvement of The role of the LDC private-enterprise sector
Environment Mobilizing and developing human the actors Full participation of women in the development
Transformational investments capacities in the least developed process
Land-locked and island least developed countries countries The role of non-governmental organizations
Foreign trade Population
The strengthening
Education and training
Disaster assistance for least developed countries of human capital
Health and sanitation
Financial resources requirements and policies Rural development, Agriculture
Increased allocations to least developed countries modernization Development of fisheries resources
Transfer of financial in multilateral programmes of agricultural Rural development
resources New mechanisms for increased financial transfers production and food Food security
Development, particularly expansion security
to the least developed countries Food aid
and modernization of the economic
Aid modalities base Developing the industrial sector
Development of Developing the services sectors
Immediate action component of the Substantial New programme of industrial, service,
International support measures scientific and Strengthening the scientific and technological
Action
technological base base
Technical assistance Energy
Commercial policy measures Transport and communication
Infrastructure
Human settlements
Other international Transport and communications Environment and disaster mitigation, Environment and development in the least developed countries
economic policy Food and agriculture preparedness and prevention Disaster mitigation, preparedness and prevention
measures Transfer and development of technology Coping with the special problems
Multicountry scheme of certain groups of least developed
National level countries
Arrangements for implementation, National level
Regional and global levels Arrangements for implementation,
follow-up and monitoring Regional and global levels
Land-locked and island least developed countries follow-up and monitoring
Global level
84
Annex Table 3.2
Comparison between the Paris Programme of Action 1990s and the Brussels Programme of Action 2001–2010
Paris Programme of Action 1990s Brussels Programme of Action 2001–2010
The macro-economic policy Fostering a people-centred policy
framework framework
Domestic resources
Financing growth and development Good governance at national and
External resources
ODA debt international levels
Other official bilateral debts Social infrastructure and social service delivery
External indebtedness of the LDCs
Debt and the multilateral institutions and development funds Population
Commercial debt Building human and institutional
Diversification Education and training
capacities
Access to markets Health, nutrition and sanitation

External trade
Commodities
Compensatory financing Social integration
Strengthening economic and Physical infrastructure
technical co-operation between LDCs
and other developing countries Technology
Improving institutional capabilities Enterprise development
The role of public enterprises
Building productive capacities to Energy
The involvement of The role of the LDC private-enterprise sector
the actors Full participation of women in the development make globalization work for LDCs Agriculture and agro-industries
Mobilizing and developing human
capacities in the least developed process Manufacturing and mining
countries The role of non-governmental organizations
Population Rural development and food security
The strengthening Education and training Sustainable tourism
of human capital
Health and sanitation Market access
Rural development, Agriculture Special and differential treatment
modernization Development of fisheries resources
of agricultural Rural development Trade, commodities Accession to WTO
production and food Food security and regional trading Standard-setting and quality control
Development, particularly expansion security
Food aid Enhancing the role of trade in arrangements
and modernization of the economic Regional trading arrangements
base Developing the industrial sector development
Development of Developing the services sectors
industrial, service, Integrated Framework (IF) and other trade-related
Strengthening the scientific and technological technical cooperation
scientific and
base
technological base Services
Energy
Transport and communication Reducing the impact of external economic shocks
Infrastructure
Human settlements
Reducing vulnerability and protecting Protecting the environment
Environment and disaster mitigation, Environment and development in the least developed countries
preparedness and prevention Disaster mitigation, preparedness and prevention the environment Alleviating vulnerability to natural shocks
Coping with the special problems Domestic resource mobilization
of certain groups of least developed Land-locked and island least developed countries
countries Aid and its effectiveness
National level Mobilizing financial resources
Arrangements for implementation, External debt
Regional and global levels
follow-up and monitoring FDI and other private external flows
Global level
Annex Table 3.3
85
Comparison between the Brussels Programme of Action 2001–2010 and the Istanbul Programme of Action 2011–2020
Substantial New Programme of Action 1980s Paris Programme of Action 1990s
Fostering a people-centred policy Infrastructure
framework
Good governance at national and Energy
Productive capacity
international levels Science, technology and innovation
Social infrastructure and social service delivery
Private sector development
Population
Building human and institutional Agriculture, food security and rural
Education and training
capacities development
Health, nutrition and sanitation
Social integration Trade
Physical infrastructure Commodities
Technology Education and training
Enterprise development
Population and primary health
Building productive capacities to Energy
make globalization work for LDCs Agriculture and agro-industries Youth development
Manufacturing and mining Human and social development Shelter
Rural development and food security
Water and sanitation
Sustainable tourism
Market access Gender equality and empowerment of women
Special and differential treatment Social protection
Trade, commodities Accession to WTO Economic shocks
and regional trading Standard-setting and quality control Multiple crises and other emerging
Enhancing the role of trade in arrangements Climate change and environmental sustainability
Regional trading arrangements challenges
development
Integrated Framework (IF) and other trade-related Disaster risk reduction
technical cooperation Domestic resource mobilization
Services
Official development assistance
Reducing the impact of external economic shocks Mobilizing financial resources for
External debt
Reducing vulnerability and protecting Protecting the environment development and capacity-building
the environment Alleviating vulnerability to natural shocks Foreign direct investment
Domestic resource mobilization Remittances
Aid and its effectiveness
Mobilizing financial resources Good governance at all levels
External debt
FDI and other private external flows The complementary role of South-
South cooperation
Main orientations Role of the United Nations system
Arrangements for implementation, National, regional National level Graduation and smooth transition
follow-up and monitoring and global Subregional and regional levels Implementation, follow-up and
arrangements Global level monitoring
Annual investment requirement for LDCs
in billion $
1200
1000 1051
The annual average investment
800
requirements for LDCs to reach
600
the SDGs are daunting, especially
400
462 485 for targets related to structural
200 transformation
0
7% growth target Extreme poverty Industrialization
(SDG 8.1) eradication (SDG 1.1) (SDG 9.2)
The goal of universalizing Average financing gaps in LDCs

major social and
ecosystem services in LDCs
7.9% Heath
entails huge financing gaps
12.1% Education
21% Social protection
0.6% Biodiversity conservation
Climate % of GDP
Mineral finance
rents
Domestic Sustainable
resource debt
mobilization
FDI
ODA
Expanding the sources of financing

available to LDCs is as critical as ever in
the wake of COVID-19
CHAPTER
4
Estimating the cost of achieving
Sustainable Development
Goals in the LDCs during
the post-pandemic decade
CHAPTER 4
Estimating the cost of achieving
Sustainable Development Goals
in the LDCs during the
post-pandemic decade
A. Introduction 89
1. Rationale 89
2. Previous costing exercises 90
B. Methodology and data 92

1. Estimation approaches 95
a. Estimates using elasticities 95
b. Estimates using unit costs 97
2. Data 98
C. LDCs' financial needs to achieve selected Sustainable

Development Goals 98
1. Investments need to grow at high rates to eradicate
extreme poverty and promote structural transformation 99
a. Estimation results 99
b. Sources of financing 102
2. Expenditure needs to universalize major social and
ecosystem services by 2030 103
D. Expanding sources of financing to reach the targets 105
ANNEX 109
1. Literature on costing Sustainable Development goals 109
2. Data 110
3. Selecting the estimation methodology 112
4. Econometric models 114
a. Panel time series: common factor model 114
b. Fixed-effects model 114
CHAPTER 4: Estimating the cost of achieving Sustainable Development Goals in the LDCs during the post-pandemic decade
A. Introduction
1. Rationale
Recovery
The least developed countries find themselves
at a crossroad. As the category completes its Long-term
50 years of existence, these countries – which are development
inherently characterized by heightened structural
vulnerabilities – remain battered by the lingering effects
of the COVID-19 crisis. At the same time, they need Social
to project themselves into the future, recover from the services
current slump, but also trace their future development
path in the new decade. The importance of the latter
task is two-fold: (i) 2022–2031 will be the period of
implementation of the new programme of action (PoA) LDCs face multiple policy priorities
to be decided by the Fifth United Nations Conference with attendant trade-offs in the
on the Least Developed Countries (LDC5); (ii) the years allocation of scarce resources
up to 2030 fall within a Decade of Action to deliver the
Sustainable Development Goals (SDGs) called for by
world leaders at a summit held in September 2019.1
the methodology underpinning the Sustainable
When planning for the future, the 2030 Agenda for
Development Goals. This feature has the advantage
Sustainable Development provides the overarching
of tying policymakers, donors and stakeholders to
medium- and long-term Goals and targets for both
well-determined objectives, guiding both resource
international and domestic policymakers. LDCs need
mobilization and operation strategy (Sachs, 2015). One
to set their future development trajectory on a more
advantage of the goal-based method is "backcasting".
solid and sustainable footing and adopt measures to
As the Goals set are time-bound, one can start from the
address the long-standing structural impediments
assigned targets and work out backward an operational
and shortcomings of the development strategies and
plan to achieve them. This planning approach lends
policies LDCs have followed. To this end, LDCs and
itself to being costed, which enable us to assess
the international community need to take into account
the lessons learned both over the past half century, various modes of financing and related financing gaps.
and since the outbreak of the COVID-19 pandemic. This chapter contributes to the debate by undertaking
Faced by the magnitude of issues to resolve, a novel LDC-specific costing exercise of the most
LDC policymakers and broader stakeholders critical Sustainable Development Goals targets,
are increasingly preoccupied by the challenge of which LDCs need to reach to achieve structural
financing the effort required to reach the Sustainable transformation and attain sustainable development.
Development Goals. At this stage, however, it is crucial The development of productive capacities is seen
to have an estimate of these financing requirements, as the means to reach those Goals and targets,
in order to devise strategies and policies to mobilize and should be used as the framework guiding the
the necessary resources, either from domestic or formulation and execution of the programme of action
international sources. Costing the key targets of the (PoA) for the LDCs in the decade 2022–2031.
Sustainable Development Goals is even more urgent The costing exercise presented in this chapter aims
in the present context, as multiple policy priorities, to make a vital contribution to the international
be they short, medium- or long-term priorities, community's efforts to construct a more promising
imply greater trade-offs in the allocation of scarce developmental horizon for the LDCs during the
resources. On this basis, it is also vital to creatively post-pandemic decade.
forge financing options to construct a more promising
developmental horizon for the LDCs up to 2030. Other costing exercises related to the Sustainable
Development Goals have already been carried
The forecast of financial costs for time-bound and
out, and are outlined in the next section. Revisiting
target-based development goals is at the core of
them is more urgent in the present context, for two
main reasons: First, it is critical to revise the costing
1
https://www.un.org/development/desa/dspd/2020/09/
decade-of-action/ and https://www.un.org/ in light of the protracted impact of the COVID-19
sustainabledevelopment/decade-of-action/ crisis. Second, and perhaps more importantly, it is
89
Goals are more easily targetable and typically require

public funds, e.g.: (i) universal health coverage
Costing is critical for prioritizing and (SDG 3.8); (ii) universal access to pre-primary school
allocating resources to key Sustainable and secondary education (SDG 4.1); (iii) universal
Development Goal targets access to water and sanitation (SDG 6); and (iv)
universal access to affordable, reliable, sustainable and
modern energy services (SDG 7).
fundamental to revisit the costing from the perspective While inevitably imprecise and despite these provisos
of the structural transformation and industrialization and shortcomings, costing exercises are useful
of LDCs, which has not been the central concern of exercises as they can boost the level of ambition of
previous costing estimations. both national and international policymakers; at the
The present chapter complements and goes beyond same time, costing exercises help in collaborative effort
previous efforts by: to mobilize the necessary resources to implement
promising strategies and projects to achieve
(i) focusing exclusively on LDCs, while the other
internationally agreed development goals in the LDCs.
estimates have been made for other country
groups;
2. Previous costing exercises
(ii) highlighting the financing needs related to
structural transformation, whereas previous The development agenda prior to the onset of the
exercises have tended to concentrate mainly on COVID-19 crisis inspired earlier costing exercises by
social development and infrastructure; various institutions and authors. Since the launch of
the Sustainable Development Goals, a few exercises
(iii) building alternative scenarios, rather than arriving
have been published estimating the financial needs
at a single headline figure. These scenarios are
to reach some of the Sustainable Development
useful for domestic and international policymakers
Goals in middle- and low-income countries2 (Gaspar
in view of the priorities they decide to focus on, as
et al., 2019; J. Sachs et al., 2018) and worldwide
well to mobilize the resources needed to achieve
(McArthur and Kharas, 2019; UNCTAD, 2014b).
different scenarios;
Other studies have focused on ending extreme
(iv) combining a different and innovative methodology poverty by 2030 (Manuel et al., 2020), or in reaching
with some elements of previous costing work. selected Goals and targets in specific sectors, such
For the sake of clarity, the previous exercises are as infrastructure (Rozenberg and Fay, 2019); health
surveyed hereafter, and a comparative table between (Stenberg K, Hanssen O, Edejer TT-T, Bertram M,
these efforts and the contribution of this report is Brindley C, Meshreky A, Rosen James E, et al., 2017);
presented in the annex (Annex Table 4.1). food security (FAO et al., 2015); or social protection
(Elizondo-Barboza, 2020). However, none of these
Costing the Sustainable Development Goals is, in
studies has focused exclusively on LDCs.
practice, a challenging endeavour due to: (i) intrinsic
methodological limitations; and (ii) sizeable data UNCTAD's World Investment Report 2014
gaps, which are especially wide in the case of LDCs. (UNCTAD, 2014b) carried out the first global costing
Costing exercises can be misleading for a variety of exercise of the Sustainable Development Goals,
methodological reasons, including the sensitivity of prior to their official launch in 2015. It found that total
findings to underlying assumptions, and attendant investment needs ranged between $3,340–$4,520
failures to discount costs or consider operational and billion, while the investment gap – the difference
maintenance costs in a consistent manner. Moreover, between the investment needs to reach Goals and
the multifaceted, and yet interrelated, nature of the targets and the current level of expenditures – reached
Sustainable Development Goals raises the probability 55–68 per cent of the total.
of double counting, and overlooking the dynamic An initial estimation based on key economic sectors
interactions and synergies in the pursuit of different conducted by Schmidt-Traub (2015) shows that
Goals and targets. low- and lower-middle-income countries would need
Moreover, the complexity of the Sustainable to spend $1.4 trillion per year to achieve the Sustainable
Development Goals is much greater than the
Millennium Development Goals. Some goals are
2
Low, lower-middle, upper-middle, and high-income
countries are World Bank country classifications based
complex to measure (e.g. SDG 8.5 – decent work for
on GNI per capita in current US dollars (using the Atlas
all, or SDG 10 – reduced inequalities within and among method). Unless otherwise specified, the analysis in this
countries). By contrast, other Sustainable Development chapter follows the UN country classification.
90
Development Goals, corresponding to 4 per cent

of the GDP of these countries. Schmidt-Traub and
Sachs (2015) present a more extensive projection
The investment gap to reach Sustainable
of incremental investment needs for the Sustainable Development Goal targets is widest
Development Goals in developing countries that among LDCs
amounted to $1.6–$2.8 trillion, with public funds
accounting for about 47 per cent of the total.
In a more detailed analysis, Sachs et al. (2018) estimate Development Goals by 2030. The authors find that
the costs of the 59 low- and lower-middle-income adding up the spending in each country on the
countries to achieve selected Goals and targets Sustainable Development Goals would amount
relating to, among others, agriculture, biodiversity, in 2015 to $21.3 trillion, rising to $32.3 trillion annually
education, health, and water and sanitation. in 2030. Thus, the projected annual gap is $12 trillion.
The authors take the unit costs from the existing A group of International Monetary Fund (IMF)
literature and multiply them by the population economists used an input-outcome approach to
projections, assuming that the targets are met by calculate the additional annual spending required
2030. They also add operational expenditures in by countries to afford investments to reach Goals
public administration, courts, policing and defense and targets in education, health, roads, electricity,
as essential services to reach the Sustainable and water and sanitation (Gaspar et al., 2019). The
Development Goals. According to their estimation, authors conclude that delivering on the 2030 Agenda
low- and lower-middle-income countries will, on for Sustainable Development will require increasing
average, need $1,011 billion per year3 from 2019 spending until 2030 by $0.5 trillion for low-income
to 2030 to achieve the Sustainable Development countries, wherein the average additional expenditure
Goals. The bulk of these investments – 86.4 per cent represents 15 per cent of GDP.
– are related to public services in health, education,
Tiedemann et al. (2021), also from the IMF, prepared
infrastructure, biodiversity, agriculture, social
a cost estimate for 25 small developing states5
protection, justice, humanitarian and data sectors,
with climate vulnerabilities to meet the Sustainable
and 13.5 per cent to operational public expenditures.
Development Goals. The innovations of this
Health and education account for 48 per cent of the
paper were: (i) to bring country-specific unit costs
expenditures, and 21 per cent for infrastructure.
for the climate-resilient investments in physical
The projected financing gap is about $400 billion infrastructures, such as roads, energy, and water and
from 2019 to 2030. The calculated amount is 0.4 per sanitation; and (ii) to construct a multidimensional
cent of the annual global GDP, and about 0.7 per database through text mining to circumvent the
cent of the yearly GDP of advanced economies. limitation of data availability. The authors found that
Breaking down estimated value by country-groups, spending on physical infrastructure needs to increase
on average, this represents 24 per cent of the annual by 3.7 per cent of 2030 GDP per year to reach the
GDP of low-income countries, and 12 per cent of Sustainable Development Goals by 2030. In addition,
that of lower-middle-income countries. However, the health and education expenditure must expand
authors make it clear that a high priority with respect from 3 per cent of GDP in 2019 to 8 per cent of GDP
to the financing of the Sustainable Development in 2030. Lower-middle-income countries, including
Goals is to prepare a more precise, detailed, and six LDCs, have the highest cost estimates, amounting
country-led4 costing and evaluate the revenue-raising to 8.6 per cent of 2030 GDP.
potential of countries. Taking a different but complementary approach,
McArthur and Kharas (2019) developed a more Manuel et al. (2020) estimate the financial needs to
granular analysis of the public financing needs of end extreme poverty by 2030 by costing education,
developing and developed countries with respect to health, nutrition, and social protection transfers.
the Sustainable Development Goals. Based on sector The total cost for low and middle-income countries
expenditures, they proposed a bottom-up estimate
of present public spending, and then projected
5
The LDCs covered in the paper are: Bhutan, Comoros,
Djibouti, Kiribati, Sao Tome and Principe. Solomon Islands,
the potential financial gap to reach the Sustainable Timor-Leste and Tuvalu. In addition, non-LDC countries
covered are: Antigua and Barbuda, Bahamas, Belize, Cabo
3
Values in 2019 constant prices. Verde, Dominica, Fiji, Grenada, Guyana, Kiribati, Maldives,
4
This can be achieved by conducting SDG Fiscal Needs Mauritius, Micronesia, Saint Kitts and Nevis, Saint Lucia,
Assessment, based on the guiding framework of the United Saint Vincent and Grenadine, Samoa, Seychelles, and
Nations Integrated National Financing Framework. Vanuatu.
91
efficient way to obtain more credible costing.

The Inter-agency Task Force on Financing for
Public investment is critical in Development, for instance, encourages countries
boosting private investment in the to develop their own Integrated National Financing
COVID-19 context Frameworks, with support from the United Nations
Joint Sustainable Development Goals Fund. To
date, 28 LDCs have engaged in this initiative.6 One
is $2.4 trillion, wherein low-income countries represent potential outcome of this initiative are country-based
a total of $137 billion and $188 per person per year. estimations of financing gaps. Bangladesh, for
instance, published the "SDGs Needs Assessment
The World Investment Report 2021 (UNCTAD, 2021c) and Financing Strategy: Bangladesh Perspective"
also argues in favour of a push for sustainable (Bangladesh Planning Commission, 2017). Using a
investments in the post-COVID 19 pandemic recovery variety of methods7 to estimate the financing gap,
period. The report indicates that while developed the government projected the annual average cost
countries have spent $13.8 trillion on stimulus of achieving the Sustainable Development Goals
programmes in the context of the COVID-19 pandemic,
of $66.3 billion at 2015 constant prices.
developing countries have spent just $1.9 trillion.
About 10 per cent of these total amounts consist of Acknowledging the potential challenges of
new investments – mainly in infrastructure – in which cross-country projections, and taking stock of the
public investment has leveraged private investments surveyed literature, the following sections present
through equity participation, expansion of the methods used to estimate the financing needs of
guarantees, financing or tax incentives, and regulatory LDCs to achieve the Sustainable Development Goals.
improvement. Leveraging additional private sector
finance is critical to boosting investments. The
report estimates that $1 of public investments in
B. Methodology and data
infrastructure projects can mobilize $10 of capital This section presents the first detailed and
investments through public-private financing differentiated Sustainable Development Goals costing
solutions. However, the report argues that these exercise conducted exclusively for the LDCs, which
multipliers are lower in developing countries. Following focuses on a selection of critical Goals and targets for
this logic, a $2–$3.5 trillion investment push from the structural transformation. This is a deliberate choice,
public sector could result in $10 trillion in investments as past editions of The Least Developed Countries
throughout this decade. The report highlights that Report have argued that the only sustainable and
LDCs are not well captured in the scenarios above. realistic route through which LDCs can achieve
Concerns about mobilizing sustainable development sustainable development is by developing and
finance are especially important in the context of upgrading their productive capacities, thereby
reduced levels of investment in productive capacities embarking on the process of structurally transforming
in LDCs. From 2019 to 2020, for instance, the report their economies (Box 4.1).
shows that greenfield investment announcements fell Structural transformation generates employment
by 44 per cent, negatively affecting investments that
opportunities of increasing quality, and is associated
potentially contribute to structural change.
with rising labour productivity and income. This is the
Despite the importance of these projections in guiding key to the eradication of extreme poverty (SDG 1.1).
policymakers, these studies are not easily comparable While income transfers are an important part of social
because they use different methodologies, target policies, especially in low-income countries, they are
countries, economic sectors, discounting methods unlikely to be the decisive instrument to redress poverty
and baselines. More fundamentally, Vorisek and in a sustainable, long-term manner. Given the incidence
Yu (2020) warn that cross-country costing exercises and depth of poverty in LDCs, coupled with their
of the Sustainable Development Goals can be modest capacity to mobilize public revenues, financial,
misleading, due to: (i) double counting; (ii) sensitivity
to underlying assumptions; (iii) downplaying of policy 6
For details, see the Integrated National Financing
and institutional dimensions; (iv) differences between Framework Knowledge Platform jointly developed by the
United Nations and the European Union: https://inff.org/
short and long-term dynamics; and (v) difficulty in 7
For instance, multiplicative factor analysis based on
discounting costs. unit costs, incremental capital-output ratio to estimate
investment needs, analysis of the currently funded budget
Country-specific estimations, relying on official and discount of overlaps among the different Sustainable
and detailed sources of information, is the most Development Goals.
92
administrative, and logistical challenges would be The sustainability of poverty eradication hinges on
formidable. In the absence of structural transformation, raising primary incomes (from employment and
such transfers would need to be continued indefinitely, self-employment) and productivity levels to reduce
and on a very large scale, to prevent a return of the need for social transfers to a feasible level. This
extreme poverty (UNCTAD, 2014a). Poverty reduction implies increasing employment, wages and incomes
in a context of low level of development of productive resulting from structural transformation. Moreover, the
capacities is extremely vulnerable to economic magnitude of potential transfers is itself contingent, at
downturns and shocks. This has been dramatically least partly, on the capacity of each country to mobilize
highlighted by the sharp rise in extreme poverty public revenues, which in turn stems from the level of
output, as well as institutional characteristics.
in 2020 brought about by the COVID-19 crisis, which
has forced an estimated 35 million additional people to A similar reasoning applies to many other Sustainable
live in extreme poverty in LDCs. Development Goals: it is only by achieving superior
Box 4.1 Structural transformation and the Sustainable Development Goals

Structural transformation results from the development of productive capacities through the different development
dynamics/processes indicated in Box Figure 4.1 and discussed in greater detail in other issues of this report
(UNCTAD, 2020a). Structural transformation occurs when a country's productive resources (natural resources,
land, capital, labour and know-how) are transferred from low-productivity economic activities to high-productivity
economic activities – the latter being associated with the economy's capacity to generate new dynamic activities
with higher productivity and higher returns to scale (see chapter 2).
Box Figure 4.1

Productive capacities and structural transformation
Productive capacities
Productive Entrepreneurial Production

Elements
resources capabilities linkages
• Flows among firms / farms:

• Physical capital
• Knowledge / Technology
• Core competencies
• Financial capital • incl. entrepreneurship • Resources
• Human capital • Business linkages among

• Technological capabilities firms / farms
• Natural resources • incl. forward / backward
linkages
Development processes / Capital / Resource Technological learning Densification /

Dynamics accumulation and Innovation Complexification
Structural transformation
End result
Source: UNCTAD, 2020a: 28.
93
defined as people living on an income below

the $1.90 a day (measured in 2011 PPP dollars). As
Fostering productive capacities is a shown in chapter 2, LDCs in recent years have generally
critical pre-requisite for achieving reduced extreme poverty incidence, yet the pace of
structural transformation poverty reduction achieved so far is not compatible with
the target of eradicating poverty by 2030 (SDG 1.1).
The third Sustainable Development Goals target
levels of productivity that economies can generate is more closely related to structural transformation,
the resources (fiscal or otherwise) required to invest regarded as the main path towards sustainable
heavily in social policies (and develop human capital development (and hence towards achieving other
in countries), environmental protection and greening Goals and targets), as explained in Box 4.1. The
of their economies (UNCTAD, 2014a). Hence, the complexity of the process of structural transformation
previously referred to difficulties of costing the renders this component of the exercise even more
Sustainable Development Goals. It is therefore critical challenging than other cost estimations. As a proxy for
for countries to create a virtuous circle among the structural transformation, this costing exercise singles
economic, social and environmental dimensions of out the SDG 9.2 target of doubling the share of industry
sustainable development. in GDP in LDCs. However, it has slightly adapted the
Another important feature of the present costing exercise target, and estimates the costs of doubling the share
is that it captures the short-term effect of the COVID-19 of manufacturing – rather than industry – in GDP. The
pandemic on economic activity. It does so by using rationale for this choice is that industry technically
growth estimated for 2020 to compute the baseline comprises manufacturing, as well as mining, utilities
from which to project the expenditures that LDCs need and construction. Of these, only manufacturing,
to carry out to reach selected targets of the Sustainable however, displays specific features which makes it:
Development Goals from 2021 to 2030. While many of (i) a potent driver of structural transformation; (ii) rapid
the effects of the COVID-19 pandemic on LDCs cannot technological change; (iii) productivity spillover effects
yet be fully comprehended or quantified – partially on other sectors of economic activity (both upstream
because of lack of immediate access to vaccines – the and downstream); (iv) increasing returns to scale,
short-term outcomes have been economically and (traditionally); and (v) high job-creation potential, etc.
socially consequential (UNCTAD, 2020a). (Imbs and Wacziarg, 2003; UNCTAD, 2020a).
The methodology adopted focuses on selected Mining (including both fuels and minerals) is
Sustainable Development Goals closely linked to technically part of industry. This is an activity in which
measurable enablers of structural transformation, many LDCs have comparative advantage. However,
whose required progress can therefore be rigorously natural resources can be a curse or a blessing (van
assessed. To derive from the required trajectory of der Ploeg, 2011). In the case of LDCs, they have
target indicators and corresponding financing needs, typically failed to work as a driver of broader structural
two alternative estimation approaches are used, transformation. On the contrary, in the early 2000s
depending on the intrinsic nature of the target, namely: this comparative advantage was associated with the
(i) one that estimates the growth and investment re-primarization of the economy of several commodity
requirements, based on macroeconomic elasticities; dependent LDCs (UNCTAD, 2018a).
and (ii) another that estimates spending requirements
(and the financing gap), based on unit costs. Finally, structural transformation being a macro and
multi-dimensional process is also connected to human
Before moving to the estimation of financing needs, it capital accumulation and multiple environmental
is worth discussing selected targets of the Sustainable variables (Herrendorf et al., 2014; Herrendorf and
Development Goals: the first target is the LDC-specific Schoellman, 2018; Jänicke et al., 2000). This is
target of achieving an annual rate of economic growth why the Sustainable Development Goals were
of 7 per cent (SDG 8.1). This choice stems from the conceived as an integrated set of goals to achieve
fact, documented also in earlier chapters of this the economic, social and environmental dimensions
report, that economic growth is a key driver for the of sustainable development. To partly account for
attainment of other Sustainable Development Goals, these issues, Goals and targets universalizing access
and tackling structural impediments to the sustainable
to health, education and social protection services
development of LDCs.
(SDGs 3.8 and 4.1), and ensuring the conservation,
The second Sustainable Development Goals target restoration and sustainable use of terrestrial and
considered is eradicating extreme poverty, presently inland freshwater ecosystems and their services
94
Table 4.1
Summary of the main estimation results for the LDCs
Total invesment needs Social and environmental SDG targets: total expenditure needs
(annual average 2021–2030) (annual average 2021–2030)
7% annual End extreme Double
Health Education Social Protection Biodiversity
growth poverty manufacture Total
(SDG 3.8) (SDG 4.1) (SDG 1.3) (SDG 15.1)
(SDG 8.1) (SDG 1.1) (SDG 9.2)
GDP growth required
GDP growth required

Billion dollars
Billion dollars
Billion dollars
Billion dollars
Billion dollars
Billion dollars
Billion dollars
Billion dolars
% GDP
% GDP
% GDP
% GDP
Mean 10.1 10.6 9% 22.4 20% 1.9 11.8% 2.7 16.9% 4.5 22.3% 0.11 0.7%
Median 3.5 3.5 5.7 1.1 9.8% 1.6 14.1% 0.2 4.6% 0.06 0.6%
Minimum 0.02 0.0 0.0 0.0 2.1% 0.0 3.0% 0.0 0.0% 0.00 0.1%
Maximum 119.9 85.8 240.7 14.0 81.4% 20.0 116.2% 59.7 238.8% 0.80 4.7%
Total 462.4 485.4 1 051.4 88.6 126.5 193.7 5.06 413.5
Financing gap 46.4 7.3% 95.0 14.2% 184.2 21.1% 4.50 0.6% 330.1
Financing gap (median) 5.2% 10.2% 3.1% 0.5%
Source: UNCTAD Secretariat calculations based on data from United Nations Statistics Division, Penn World Tables, World Development Indicators (World Bank),
Atlas of Social Protection Indicators of Resilience and Equity (World Bank), and United Nations Population Division of the Department of Economic and
Social Affairs [accessed June 2021].
(SDG 15.1), are also costed by using the unit cost Regardless of the costing frameworks, one of
methodology, contrary to the methodology used for the main shortcoming of the present approach of
costing the first previously mentioned three targets. obtaining target-specific investment requirements
is that they cannot necessarily be added up due to
To summarize, different targets of the Sustainable
potential double-counting and the distinct adopted
Development Goals were selected for the costing
frameworks. However, projected scenarios are
exercise, giving rise to the following corresponding
relevant references for policymakers and donors to
estimates:
consider in formulating policies aimed at structural
(i) Achieving a 7 per cent annual GDP growth for the transformation and sustainable development in LDCs.
LDCs (SDG 8.1) – investment requirements; Table 4.1 presents a summary of the main estimation
(ii) Eradicating extreme poverty (SDG 1.1) – growth results.
and investment requirements;
The subsections below present the estimation
(iii) Promoting inclusive and sustainable approaches adopted in the projections and costing,
industrialization – a major form of structural and outline the data.
transformation – translated by the target of
doubling the share of industry (manufacturing)
in GDP in the LDCs (SDG 9.2) – growth and
1. Estimation approaches
investment requirements; The following subsections provide additional
(iv) Achieving universal health coverage (SDG 3.8) – information on the estimation approaches that have
spending requirement and financing gap; been used.
(v) Ensuring that all girls and boys complete free, a. Estimates using elasticities
equitable and quality primary and secondary
The Sustainable Development Goals targets
education (SDG 4.1) – spending requirement and
considered are typically time-bound and are expected
financing gap;
to be met by 2030. In light of this, it is possible to
(vi) Implementing nationally appropriate social estimate related investment needs through elasticities
protection systems and measures for all (SDG which capture how sensitive an economic variable
1.3) – spending requirement and financing gap; is to another. As documented in earlier chapters
(vii) Ensuring the conservation, restoration and of the report, LDCs are a heterogeneous group
sustainable use of terrestrial and inland freshwater of countries with distinct, and at time divergent,
ecosystems and their services (SDG 15.1) – development trajectories. Their highly differentiated
spending requirement and financing gap. state capacities, institutions, economic infrastructure,
95
human capital, and employment12 on GDP. Since

the 7-per-cent growth rate for the 2021–2030 period
LDCs require $462.4 billion annually is a given parameter, and the investment-growth
in additional investment to achieve elasticities were calculated by country, it is possible
the 7 per cent GDP growth target to gauge the level of investment required in individual
LDCs until 2030. Clearly, the growth-investment
elasticities are expected to be positive, since higher
and human capital levels influence how they react investment leads to stronger growth.
to the current crisis, as well as how capable (or not) The exercise then took a step further, by differentiating
they are at bringing about a sustainable recovery and the investment need by funding sources. To this end
build resilience. To capture this, the default approach the IMF dataset on public, private, and public-private
used in this costing exercise was to calculate relevant partnership (PPP) investments was used.
elasticities by country, using panel data techniques
ii. Eradicating extreme poverty (SDG 1.1): poverty-growth
for the period 1970–2020 and forecastingthe relevant
elasticities
series8 until 2030.
SDG 1 includes the target of eradicating extreme poverty
The standard methodology employed to estimate by 2030. In this respect, the poverty-growth elasticity
such elasticities is panel time series (Pesaran, 2006).9 for LDCs is calculated taking into account income
With sufficient and consistent information as in this distribution within the countries (Ravallion, 2016).
case, it estimates individual elasticities10 for each
country in a macro panel. Three sets of elasticities are National survey data for poverty and inequality
are sparse. The lack of sufficient observations
calculated below.
prevents the application of the panel time- series
i. Economic growth (SDG 8.1): growth-investment estimations. Therefore, in this case the elasticities
elasticities were estimated by clustering the LDCs according to
the geographic-structural classification long adopted
SDG 8.1 targets growth at 7 per cent per year for
by The Least Developed Countries Report series
the LDCs. The investment rate (i.e. the fixed capital
(African LDCs and Haiti, Asian LDCs and Island LDCs)
formation/GDP ratio) is critical to sustain growth
using a fixed-effects methodology.13 The objective of
over the long term (Bond et al., 2010), as it partly
analyzing the LDCs according to geographic-structural
incorporates expenditures necessary to achieve
characteristics, rather than having one overall average
several targets contained in other Goals (e.g. clean
number, is to capture the underlying differences among
water and sanitation (SDG 6); affordable and clean
those sets of countries. The elasticities are expected to
energy (SDG 7); industry, innovation and infrastructure
be negative because growth tends to reduce poverty.14
(SDG 9); sustainable cities and communities (SDG 11);
and climate action (SDG 13). Naturally, the investment Once growth rates are estimated, results can
rate is an aggregate measure and, as explained in be plugged into the first model using previously
Chapter 2, the sectoral allocation of investment and computed investment-growth elasticities to project
the effectiveness of expenditure are also important the investment needs of the LDCs to eradicate
determinants of development outcomes. extreme poverty by 2030.
iii. Structural transformation (SDG 9.2):
Growth-investment elasticities measuring the impact
manufacturing-growth elasticities
of a 1-per centage-point increase in the investment
rate on overall GDP growth were obtained by For the exercise related to doubling of the
regressing investment,11 structural transformation, manufacturing share of GDP (SDG 9.2), elasticities
are obtained by regressing the manufacturing share
8
A detailed description of the data is in the Annex. of economy-wide value added, as well as other
9
See Annex for more detailed information. Several tests were covariates, such as population and employment,
carried out to select the appropriate model to be used.
10
For a log-log equation, the coefficients calculated are
on log GDP. For the countries with missing or
elasticities.
11
The variable used is gross fixed capital formation. The 12
See the description of variables in the Annex.
same procedure was conducted using capital stock as 13
More information on this is available in the Annex.
the investment variable. However, this stock variable is 14
The benefit of fixed-effects estimation is to reduce the
more complex and more difficult for policymakers to rely omitted variables bias by capturing the country variation
on or employ as a target or benchmark. In any case, the within variation over time. This is the key difference between
estimation results conducted using both variables are the standard pooled ordinary least squares (OLS) and fixed
coherent with each other. effects.
96
Box 4.2 Elasticities of GDP growth, poverty and structural transformation to fixed investment in LDCs
Elasticities are expected to be positive in growth-investment (SDG 8.1) and manufacturing-growth (SDG 9.2),
but expected to be negative for poverty-growth elasticities (SDG 1.1), i.e. stronger economic growth will lead to
more rapid poverty reduction. Figure 4.2 shows the estimated elasticities in a boxplot format, providing a visual
representation of the distribution of the data among different LDCs.*
Box Figure 4.2 the median results correspond to the expectations, but there are a few outliers, especially in
poverty-growth elasticities. The explanation of these unexpected results, and of the few LDCs that exhibit
positive elasticities, is that: (i) the poverty-reducing effect of economic growth is not automatic or universal; (ii) the
implementation of pro-poor policies has traditionally been difficult, due to lack of finance, weak state capacity and
political economy problems; and (iii) in some countries
economic growth has been positive but lower than
demographic growth, hence with declining income per Box Figure 4.2
capita, poverty incidence has also been on the rise. Elasticities
Two sets of countries exhibit positive poverty-growth
2
elasticities, namely: (i) oil-based economies
(e.g. Angola); and (ii) economies with a very high
percentage of the population, i.e. with more than 50 per
1
cent of its population living in extreme poverty (as is the
case of Guinea Bissau, Madagascar and Zambia). In
the case of Angola and Madagascar, a fundamental
0
problem of their growth pattern is that their population
growth rate exceeded their GDP growth rate, leading
to stagnant per capita GDP growth and rising poverty
-1
rates, despite the fact that the overall economy
recorded a small but positive expansion in GDP.
More broadly, oil-dependent countries typically tend -2
to have a high degree of income concentration,
due to the capital intensity of their oil industry, and
an ensuing weak employment impact and limited -3
embeddedness in the domestic economy. As for the
high-poverty countries, economic growth does not
always effectively translate into poverty reduction and, -4
sometimes, even increases poverty – which is the case Source: UNCTAD Secretariat calculations based on data from United
when captured by positive poverty-growth elasticities. Nations Statistics Division, Penn World Tables, and World
This unexpected result can happen if economic growth Development Indicators (World Bank) [accessed June 2021].
is not accompanied by: (i) more effective tax collection;
(ii) expenditures that lead to higher levels of human
capital; (iii) effective cash transfer programmes; (iv) healthier populations; (v) reduction of corruption; (vi) rising labour
productivity; and (vii) sophistication of the economy. In these cases, the engines of growth are only poorly connected
to effective distributive policies that seek to reduce poverty and expand opportunities.
* A boxplot is a standardized method to show the distribution of data based on five data points: “the minimum”, first quartile (Q1), median, third quartile (Q3),
and “the maximum”. The dots outside the box are outliers.
non-significant elasticities, the LDC average was b. Estimates using unit costs
applied. In this way, it is possible to: (i) estimate the
15
The majority of social and environmental services
annual GDP growth required to double the weight of (targeted by SDGs 1.3, 3.8, 4.1 and 15.1) are not
the manufacturing sector by 2030; and (ii) plug GDP classified as investments but as current spending. While
growth into the growth-investment model described this distinction is a technical detail in public accounting,
above, to obtain the necessary rate of investment to it matters in this exercise because it suggests that the
reach the target considered. forecasts using elasticities (subsection 2.2.1.) exclude
most of the resources required to reach universal health
15
LDCs estimations tend to reflect the values found in coverage (UHC), education, social protection services,
countries reporting results. It possibly adds an upward bias as well as ensuring the conservation, restoration and
because income might be correlated to level of reporting/
data availability. However, since the main interest is gauging sustainable use of terrestrial and inland freshwater
elasticities, the mentioned procedure seems appropriate. ecosystems and their services.
97
elasticities produced fixed investment levels and the

GDP growth rates required to achieve some of the
Ending extreme poverty or doubling Sustainable Development Goals. On the other hand,
the share of manufacturing in GDP will the forecasting based on unit costs has spending
require LDCs to achieve astronomical requirements as the primary outcomes.
GDP growth rates As indicated by the aggregate findings in Table 4.1,
average annual growth rates of 7, 9 and 20 per
cent, respectively, will be needed until the end of
In the case of these social and environmental targets, the decade to achieve the minimum economic
forecasting with elasticities is not possible due to a growth (SDG 8.1) required, ending extreme poverty
general lack of data for LDCs, including more detailed (SDG 1.1), or doubling the share of manufacturing in
government expenditures or outcomes. Therefore, GDP (SDG 9.2). Clearly, compared to historical values,
the estimation technique adopted to gauge pending these scenarios imply very ambitious growth targets.
needs and financing gaps is as follows: first, it Even the lowest of these three GDP growth rates – the
calculates the total cost to reach the universality of annual 7 per cent foreseen by SDG 8.1 – is clearly
services by 2030 by multiplying unit costs from the above the highest annual growth rate achieved by the
academic literature (McCarthy et al., 2012; Stenberg LDCs since the establishment of the category: 5.2 per
K, Hanssen O, Edejer TT-T, Bertram M, Brindley C, cent in the 2000s (Figure 4.1).
Meshreky A, Rosen James E, et al., 2017; Waldron Table 4.1 highlights that the median annual value to
et al., 2013). Second, these data are subtracted from universalize health coverage (SDG 3.8), education
current expenditure data, resulting in financing gaps (SDG 4.1), social protection (SDG 1.3), and ensuring
similar to those developed in other costing estimates the conservation, restoration and sustainable use
(McArthur and Kharas, 2019; J. Sachs et al., 2018).16 of terrestrial and inland freshwater ecosystems and
Third, the progress of interventions is modelled their services (SDG 15.1) by 2030 is 29.1 per cent17
linearly from 2021 to 2030, and those parameters are of GDP. This implies more than doubling the current
used to estimate annual expenditures for the period. annual expenditure on those areas, which amounts
to 13.1 per cent of GDP. In other words, LDCs
2. Data would need to reach the same level of spending on
The analysis draws on a variety of datasets. Most these areas as the OECD average of 32.4 per cent
of them exhibit long series, starting in the 1970s, (OECD, 2021). This confirms again the enormous
and contain most of the LDCs, varying from 36 challenges involved in reaching these selected targets
to 46 countries (maximum). given their limited resources available to LDCs, or for
their similarly limited capacity to mobilize resources.
The primary datasets utilized are the United Nations
Statistics Division, United Nations Department of Adding the fixed investment requirements under one
Economic and Social Affairs (UN-DESA), the Penn of the three scenarios, and the forecast total social
World Tables (PWT), the IMF’s Investment and Capital and environmental spending needs obtained from
Stock Dataset and World Economic Outlook 2021, estimates, the total average annual spending of LDCs
the World Bank's World Development Indicators, and would range from $876 billion to $1,465 billion. To
its Atlas of Social Protection Indicators of Resilience give an idea of the magnitude of this challenge, these
and Equity (ASPIRE). The Annex provides a detailed values correspond to 80134 per cent of the GDP of
description of the variables utilized from each dataset. LDCs in 2019. i.e., before the COVID-19 crisis hit
them. It should be noted that adding up these two
sets of data presents the risk of double counting, but
C. LDCs' financial needs to less so than the fixed investment estimates, which
achieve selected Sustainable cannot be added. The major risks of double counting
are two-fold. First, fixed investment boosts growth,
Development Goals which is likely to boost public revenue mobilization,
and hence the capacity to pay for social protection.
The methodologies used in the costing exercise has
Second, the sectors of education and health require
generated two sets of results. On the one hand, the
both current spending and fixed investment, but the
16
Gaspar et al. (2019) offered an alternative solution using
latter expenditures are usually minor in these sectors
an input-outcome approach, where the Sustainable
Development Goals index captures the outcome in the 17
The median value was used to avoid the outliers that are
respective area. absorbed in the average values.
98
Figure 4.1
Average annual GDP growth of the LDCs: 1970 to 2030
8
-2
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
20
22
24
26
28
30
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Average growth per year Average growth per decade Average annual GDP growth targeted by the SDGs
Source: UNCTAD Secretariat calculations based on data from United Nations Statistics Division [accessed June, 2021].
compared with the previous one. The country-specific The annual average fixed investment requirements
results of the estimation exercise are shown in Annex from 2021 to 2030 for LDCs to reach the
Table 4.5. above-mentioned growth rates are as follows:
(i) $462 billion for economic growth (SDG 8.1);
Once the aggregated results have been presented,
(ii) $485 billion for poverty eradication (SDG 1.1); and
the subsections below present estimated investment
(iii) a much higher sum ($1,051 billion) for structural
and expenditure needs.
transformation (SDG 9.2).
1. Investments need to grow at high rates to These results highlight the fact that the structural
eradicate extreme poverty and promote transformation target is much more ambitious than
the others, i.e., strong economic growth and even
structural transformation poverty eradication – themselves already challenging
a. Estimation results issues. During the 2010–2019 period, only seven
LDCs met or exceeded that growth target, while
The main differences in the three initial scenarios
the vast majority of these countries (39 of them)
are that different GDP growth rate are required to
falling short of it, including countries that displayed
reach targets of the Sustainable Development Goals.
prolonged collapses in GDP levels. Moreover, these
For SDG 8.1, the growth rate is part of the target
growth results were achieved prior to the outbreak
itself, i.e., 7 per cent growth. To end extreme poverty
of the COVID-19 pandemic. The latest crisis not
(SDG 1.1), the growth rate needs to be on average
only brought about the worst growth performance
9 per cent throughout the decade. By contrast,
of LDCs in 30 years (UNCTAD, 2020a), but also
the requirements for structural transformation are
risks introducing hysteresis in the form of sub-par
significantly higher as LDCs would need to achieve
economic and social performance in many LDCs over
a whopping 20 per cent average annual growth rate
the medium term.
to reach the target of doubling the manufacturing
sector share of GDP (SDG 9.2). This highlights how Concerning the poverty target, LDCs achieving the
challenging the task of achieving long-term structural highest economic growth rate and/or that have
economic transformation, even in comparison with advanced most towards structural transformation
the other two already challenging targets. have been the most successful in strongly reducing
99
poverty (for example, Bangladesh, Cambodia, of the Congo, which have very high poverty rates
Ethiopia, Liberia and United Republic of Tanzania). and would need to grow at more than 20 per cent
Conversely, LDCs that have the highest rates of annually in 2021–2030 to eradicate poverty by 2030.
extreme poverty are those that need to make By contrast, the growth needs of several Asian and
the strongest effort to eradicate this scourge. Islands LDCs are much lower, given their success
These contrasting performances are reflected in in reducing extreme poverty since the beginning
equally contrasting investment needs to eradicate of the century (Figure 4.2). It is important to recall
extreme poverty; this, in turn, translates into a very that these growth rates concern only the poverty
wide range of economic growth rates required to eradication rate, and do not take into consideration
eradicate poverty. Among the most challenging broader targets, such as structural transformation or
cases are Madagascar and Democratic Republic environmental goals.
Figure 4.2
Average annual GDP growth rates required to end extreme poverty by 2030
(Per cent)
Madagascar
Burundi
Malawi
Sierra Leone
Mozambique
Zambia
Timor-Leste
Togo
Mali
Angola
Benin
Niger
South Sudan
Liberia
Burkina Faso
Senegal
Uganda
Chad
Guinea
Ethiopia
Lesotho
Haiti
Djibouti
Rwanda
Sudan
Solomon Islands
Gambia
Comoros
Mauritania
Kiribati
Yemen
Nepal
Bangladesh
Tuvalu
Bhutan
Myanmar
0 5 7 10 15 20 25
Source: UNCTAD Secretariat calculations based on data from United Nations Statistics Division, World Development Indicators (World Bank), Atlas of Social
Protection Indicators of Resilience and Equity (World Bank), and United Nations Population Division of the Department of Economic and Social Affairs
[accessed June, 2021].
100
Figure 4.3
Average investment required to double manufacturing share of GDP by 2030
(Per cent of GDP)
Bangladesh
Nepal
Ethiopia
Angola
Sudan
Myanmar
Mozambique
Yemen
Burkina Faso
Zambia
Niger
Uganda
Senegal
Benin
Cambodia
Haiti
Mauritania
Madagascar
Chad
Afghanistan
Mali
South Sudan
Rwanda
Bhutan
Liberia
Malawi
Togo
Gambia
Guinea
Lesotho
Burundi
Djibouti
Somalia
Sierra Leone
Timor-Leste
Comoros
Eritrea
Solomon Islands
Kiribati
Guinea-Bissau
Tuvalu
Benin
0 50 100 150 200 250 300
Source: UNCTAD Secretariat calculations based on data from United Nations Statistics Division, World Development Indicators (World Bank), Atlas of Social
Protection Indicators of Resilience and Equity (World Bank), and United Nations Population Division of the Department of Economic and Social Affairs
[accessed June, 2021].
The most ambitious of the selected targets, i.e., the Achieving structural transformation would
one related to structural transformation (SDG 9.2), simultaneously enable LDCs to address most other
has an average fixed investment requirement over the of the other Goals: not only would the growth target
new decade that amounts to more the three times be exceeded by a wide margin, but it would also
the total fixed investment of these countries in 2019, bring a lasting and sustainable solution for poverty.
which amounted to $313 billion. This once again This confirms the argument put forward by The Least
highlights the magnitude of the challenge of mobilizing Developed Countries Report series that achieving
resources to achieve structural transformation. structural transformation is one of the preconditions
101
Figure 4.4
Total investment needs for the three scenarios
2 500
2 000
1 500
Billion dollars
1 000
500
0
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total investment needs to double manufacture as % of GDP (SDG 9.2)
Total investment needs for the LDCs grow 7% annually (SDG 8.1)
Total investment needs to end extreme poverty (SDG 1.1)
Source: UNCTAD Secretariat calculations based on data from United Nations Statistics Division, Penn World Tables, and World Development Indicators
(World Bank) [accessed June, 2021].
for reaching the Sustainable Development Goals. b. Sources of financing

However, the difficulty in attaining these targets
Past patterns of financing of gross fixed capital
in a relatively short time is highlighted by the fact
formation provide an indication of where the funds
that the associated average rate of economic
should be mobilized to finance the realization of the
growth – a 20 per cent annual growth rate spanning
Sustainable Development Goals by 2030. The bulk of
over a decade – has not been achieved over the
the funding is expected to come from private sources
medium term even by the fastest growth experiences
(78 per cent), according to the projections based on
of developing countries in recent years.
the latest IMF's Investment and Capital Stock dataset.
Cross-country analysis suggests that those As a reference, during the period 2017–2020, the
countries in which manufacturing provides a strong average weight of private investment was 75 per cent.
contribution to GDP are those for which the target In other words, the average private investment for
of doubling the manufacturing share of value added the 38 LDCs for which data are available, would need
by 2030 would entail the greatest challenges. By to more than double (in real terms), and jump from
contrast, countries where the manufacturing share is $457 billion in 2017 to $1,050 billion in 2030. About
lowest would require less of an investment effort to one-fourth of total investments should be financed by
double this proportion (Figure 4.3). These results may the public sector (26 per cent). The average value for
seem paradoxical but are not. They simply indicate public investment starts at $152 billion dollars in 2017,
that – in general terms, initial conditions matter as the and would need to reach $357 billion in 2030. Finally,
target is defined as a doubling of the existing share. public-private partnerships (PPPs) would represent
It should be noted, however, that in countries where just 1 per cent of total investment requirements, – the
the contribution of manufacturing to GDP is very low, value of their investment would start at $5.2 billion
even reaching the relevant target of the Sustainable in 2017 and need to rise to $12.4 billion by 2030.
Development Goal would still leave them at relatively
Another important dimension of the sources of
low levels of industrialization.
financing which policymakers need to consider
The results of the estimations show that, under is the geographical origin of the funds to finance
the three scenarios, fixed investment should grow investments. In 2019 the total fixed investment of all
by 78–305 per cent, as compared to the previous LDCs amounted to $313 billion and financed from
decade (2011–2020). Figure 4.4 highlights these both domestic sources and external financing. Total
findings. external financing of LDCs amounted to $155 billion,
102
Figure 4.5
External finance to the least developed countries, 2010–2019
60
50
40
30
20
10
-10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
FDI, net inflows Personal remittances, received Net ODA received
Net flows on external debt, total Portfolio investment, net
Source: UNCTAD Secretariat calculation based on data from World Development Indicators database [accessed July 2021].
including about $50 billion of ODA and personal Figure 4.6

remittances each, $32 billion of net flows of external
Share of external development financing, 2016–2019
debt and $18 billion of foreign direct investment (FDI)
50
(Figure 4.5).18
The composition of external financing of LDCs 40
is in sharp contrast with that of other developing
30
Percentage
countries (ODCs). For the latter, private commercial

flows (FDI, external debt and portfolio investment) 20
accounted for three-fourths of external development
financing in the period immediately preceding the 10
COVID-19 pandemic (2016–2019). The LDCs, by
0
contrast, rely much more on official flows (ODA and
other official flows whose concessionality does not -10
meet aid definition), and to a lesser extent, personal FDI, Personal Net ODA Net flows Portfolio
net inflows remittances, received on external investment,
remittances, which jointly account for 69 per cent of received debt, total net
their external development financing (Figure 4.6). An LDCs Other developing countries
additional challenge faced by LDCs in financing the Source: UNCTAD Secretariat calculation based on data from World
investment to reach their development targets is that Development Indicators database [accessed July 2021].
personal remittances are more likely to be channeled
towards current household consumption instead of
investment (UNCTAD, 2012c). 2. Expenditure needs to universalize major
18
Total external financing mobilized by a country does not
social and ecosystem services by 2030
automatically translate into fixed investment. Moreover, LDCs currently spend 2.9 per cent of GDP, on
these two sets of figures come from different sources:
external financing is part of balance of payment statistics,
average, on social and ecosystem services, as
while gross fixed capital formation is part of national measured by the four targets of the Sustainable
accounts. Part of the net foreign resources mobilized by a Development Goals (SDGs 1.3, 3.8, 4.1 and 15.1)
country does serve to finance fixed investment. However,
by 2030, LDCs would need to mobilize additional
available statistics do not enable a precise determination
of the share of gross fixed capital formation that is financed resources, amounting to 10.4 per cent of the GDP
from domestic or external sources. per year, on average, until end of the decade.
103
Table 4.2
Main parameters used to calculate the financing gaps
Average expenditure Annual rate of grow to
Average financing
SDGs Unit cost to universalize the Current expenditure universalize services
gap*
service by 2030 by 2030
$ per capita % GDP % GDP % GDP %
Health (3) 85.7 12 6.1 7.9 6.2
Education (4) 122.4 16.9 3.9 12.1 5.7
Biodiversity conservation (15) 4.9 0.7 0.1 0.6 20.2
Population living population live with

Annual rate of grow to
in extreme poverty less than $1.9 per day Expenditure in social Average financing
SDGs universalize services
receive social is not covered by social protection gap
by 2030
protection programs
% % % GDP % GDP %
Social Protection (1) 10.3 29.2 1.6 21 17
Global average 55.8 14.7 2.9 10.4 12.3
Source: Stenberg et al., 2017; McCarthy et al., 2012; Waldron et al., 2013; McArthur and Kharas, 2019; J. Sachs et al., 2018; World Bank, 2021.
* Only countries with a financing gap compared to the benchmark were considered.
Figure 4.7
Financing gaps and outcomes
30 30
25 25
Education financing gap
Education financing gap
20 20
15 15
10 10
5 5
0 0
-5 -5
-10 -10
20 40 60 80 100 120 0 20 40 60 80 100
Literacy rate, youth total School enrollment, secondary
(% of people ages 15–24) (% gross)
30 90
Poverty headcount ratio at $1.90 a day
25 80
20 70
15
Health Financing Gap
60
(% population)
10
50
(% of GDP)
5
40
0
30
-5
-10 20
-15 10
-20 0
0 20 40 60 80 100 120 140 0 20 40 60 80 100 120
Mortality rate, under 5 Population in extreme poverty not receiving
(per 1,000 live births) Social Protection (%)
Source: UNCTAD Secretariat calculations based on data from World Bank (2021a).
Notes: The data relating to education financing and health financing gaps are based on our own calculation (year 2019); all the other variables are taken from
the World Bank's WDI and refer to 2019.
104
Reaching these four targets at issue requires tripling Figure 4.8

social and ecosystem spending as a share of GDP. In
Average yearly incremental spending targets for the LDCs
other words, the level of expenditures would need to
to universalize health, education, social protection and
increase by 12.3 per cent per year relative to the level
provide ecosystem conservation services: 2019-2030
observed in 2019.
15
It is important to highlight that the estimates for
ensuring the conservation, restoration and sustainable 11.3
use of terrestrial and inland freshwater ecosystems 10.5
9.8
10 9.1
and their respective services are a lower bound, and 8.6 8.5
% of GDP
7.5 8.0
probably underestimate the financial needs to reach 6.3 6.7 7.1 6.8 6.6
5.6 5.9 5.8
the target contained in SDG 15.1. The costing of 5.0 5.3 5.5
5 3.9 4.1 4.2 4.4 4.6 4.8 6.2
financial needs relating to environmental conservation 3.6 3.9 4.5 5.5
3.0
and climate change is very challenging,19 which has 2.3 2.6
1.6 1.7 2.0
led to the use of the Sachs et al. (2018) methodology 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.3 0.3 0.4 0.4 0.5
0
for LDCs, based on the unit costs of environmental
19
20
21
22
23
24
25
26
27
28
29
30
protection (McCarthy et al., 2012).20
20
20
20
20
20
20
20
20
20
20
20
20
For the selected social and ecosystem targets, both Health (SDG 3.8) Social protection (SDG 1.3)
Education (SDG 4.1) Biodiversity (SDG 15.1)
total expenditure and financing gap are estimated.
The methodology for calculating the financing gap Source: UNCTAD Secretariat calculations based on data from United
is straightforward, and requires the prior projection Nations Statistics Division, World Development Indicators (World
Bank), Atlas of Social Protection Indicators of Resilience and
of the average expenditure needs (Table 4.2, column Equity (World Bank), and United Nations Population Division of the
three), corresponding to the unit costs in column two. Department of Economic and Social Affairs.
Subtracting from the total expenditure needed to
universalize a given service, the corresponding level
of current expenditure obtains the average financing D. Expanding sources of financing
gap (column five). Finally, the last column is the linear
growth rate of expenditure that countries need to to reach the targets
follow to universalize the selected services by 2030. The main priority of countries worldwide in the
The estimated financing gaps plotted against context of a global pandemic is to focus attention and
variables, such as the under-five mortality rate, literacy resources on the health sector. This implies that other
rate, school enrolment or social protection coverage, areas might have been neglected, including in terms
show that more actual spending is associated with of budgetary allocation. Therefore, the economic
better outcomes (Figure 4.7). recovery of countries that will be possible once
vaccinations are rolled out needs to be anchored in
Countries can also track progress in decreasing the Sustainable Development Goals’ priorities, and with
financing gap over time. Figure 4.8 shows the average the mid- to long-term horizon in mind.
annual incremental financial targets that LDCs need
to attain from 2021 to 2030 to universalize services A clear message emerges from the estimates shown
and achieve selected Sustainable Development and analyzed in the present chapter. The message
Goals. This is a tool to guide countries' resource is that, in spite of the uncertainties necessarily
mobilization, both domestically and internationally. surrounding them, substantially higher amounts
are needed for the LDCs to reach the Sustainable
The total average expenditure per year would Development Goals than what is available to them
need to rise by about 55 per cent of GDP, once at present. This points to the acute need for the
combining the current and the forecasted social and international community to earnestly mobilize itself
environmental expenditures (current spending and to assist these countries to achieve the necessary
financing gap) with one of the three scenarios based sharp scaling up of sustainable development finance.
on investment data. The mobilization of additional funding sources for the
Sustainable Development Goals is essential (De Neve
19
Sachs et al. (2018) explain in detail the main shortcomings of
and Sachs, 2020).
the data and the difficulties in costing environmental-related
SDG targets. Substantial transfers of resources to LDCs capable
20
McCarthy et al. (2012) estimate the financial costs for
of kickstarting the productive capacity development
the two targets of protected areas and prevention of
extinctions. The authors use data from birds to develop process constitute the critical mainstay of the PoAs
models that can extrapolate to the costs for biodiversity. for the LDCs. They are a major component of the
105
FDI trends in the LDCs suggest that the COVID-19

pandemic is impeding progress towards achieving
To mobilize sufficient the Sustainable Development Goals and widening
productive capacities investment gap in structurally
development finance LDCs need to: weak LDC economies. These developments pose
a risk to LDCs' attainment of the Sustainable
Development Goals and worsen LDCs' structural
weaknesses (UNCTAD, 2021). The number and
value of greenfield project announcements in LDCs
dropped sharply (-51 per cent compared with 2019,
improve the representing a 13-year low) in 2020. The number of
strengthen their increase
fiscal capacities domestic resource effectiveness LDC host economies that did not attract any project
of public
mobilization increased from 13 to 17. FDI tends to trail other
expenditures
macroeconomic indicators after a shock, resulting
in the prospect of FDI in LDCs remaining subdued
in the immediate future. Inflows are expected to
remain sluggish over the next few years, and there
partnership between the international community is a heightened need for ODA to be stepped up
and the LDCs, and underpin the international support to minimize the number of “lost” years in terms of
measures that are integral to the design of the PoAs progress toward the Sustainable Development
for the LDCs. Such a transfer of resources is similarly Goals.
recognized by the 2030 Agenda for Sustainable
Development in the “means of implementation”: an The future of FDI in LDCs will depend on how
interdependent mix of financial resources, technology attractive these economies are in the wake of the
development and transfer, capacity‐building, ongoing reconfiguration of international production
inclusive and equitable globalization and trade, through reshoring and regionalization. It is increasingly
regional integration, buttressed by the creation of clear that without prior and continuing public sector
an enabling national environment for the successful investments guided by strategic industrial policy in
implementation and realization of the Sustainable productive capacities in LDCs, the attractiveness of
Development Goals. LDCs to private investment will continue to be low,
and FDI flows will likewise be erratic. LDCs need
LDCs will need to continue to strengthen their fiscal access to adequate and stable flows of financing to
capacity, and improve the effectiveness of public achieve sustainable development.
expenditure to manage the increasing expenditure
demands being made on them (Gaspar et al., 2019). Blended financing is frequently presented as the
The quoted study assumes that a 5-per-cent annual major response to the financing for development
growth in domestic fiscal revenues is a realistic rate to needs of developing countries. This topic is subject
consider. Even in such an event, domestic tax revenues to major caveats, especially in the case of LDCs
would not be sufficient to cover all the estimated costs. (UNCTAD, 2019a). This modality of financing for
Official development assistance (ODA), for instance, development is further discussed in chapter 5.
funds 25 per cent of the health spending in LDCs, and Additional financial instruments that have been
the demand for related services cannot but increase in discussed as potential revenue sources to fund the
the current context. Outlays will also be needed with Sustainable Development Goals are:
respect to other key basic services, such as education
(i) taxes, contributions, and other obligatory charges,
or conservation, as well as investments in productive
such as the "Big Techs" taxes;
infrastructure. Against this background, reaching the
Sustainable Development Goals will inevitably require (ii) debt-based borrowing mechanisms, such as
a massive scaling up of sustainable development social impact bonds; and
finance in the LDCs. (iii) voluntary and solidarity contributions, such as the
national lotteries.
An important motivation for this costing exercise is
to underline the continued and increased relevance Beyond public revenue sources, and if appropriately
of grant-based ODA as a major source of external harnessed and geared towards an authentic
development finance in the face of stronger risk partnership for LDC sustainable development, private
aversion among international sponsors in the context philanthropy and other private investments, especially
of the COVID-19 crisis. those concerned with environmental, social and
106
governance (ESG) issues could also play an important those (already high) of reaching other Sustainable
role in achieving the Sustainable Development Goals. Development Goals highlights once again the
The analysis in this chapter also shows that challenges of achieving structural transformation.
LDCs will need to substantially and consistently Moreover, a truly sustainable structural transformation
accelerate their economic growth until 2030. This requires that parallel processes take place in tandem
is especially true of the financing requirements to (e.g. human capital building, strengthening domestic
achieve structural economic transformation. The entrepreneurial sector, strengthening state capacity),
fact that the requirements here are much higher than as argued in Chapter 5 of this report.
107
ANNEX
1. Literature on costing Sustainable Development goals
Annex Table 4.1
Comparison of the existing literature on the costing of the Sustainable Development Goals
Unctad SDSN Brookings ODI IMF
LDR 2021 Sachs et al. (2018) McArthur and Kharas (2019) Manuel et al. (2020) Gaspar et al., 2019
• Own methodology of
forecasting based on
• Backcasting
elasticities • Input-Outcome
Methodology • Backcasting • Backcasting • Focus on ending
• Backcasting for social Approach
extreme poverty
and environmental
areas
• Health
• Education • Conservation • Education
• Manufacture
• Infrastructure • Agriculture • Health • Health
• Poverty
• Biodiversity • Justice • Nutrition • Education
• health
Sectors • Agriculture • Education • Social protection • Power
• Education
• Social protection • Infrastructure transfers • Roads
• Social protection
• Justice • Health • Water, sanitation and • Water and sanitation
• Biodiversity hygiene
• Humanitarian • Social Spending
• Data
• estimate public
spending for 190 155 countries. Focus on
• 135 low-income
• 59 low- and lower- countries, and low-income developing
46 Least Developed countries (LICs)
Coverage middle-income minimum SDG public countries (49 countries)
Countries and middle-income
countries spending needs and emerging market
countries (MICs)
for 134 developing economies (72 countries)
countries
• SDG index
• Inputs (e.g., number of
• Elasticities estimated • Unit costs from • Unit costs calculted by health care workers)
• Unit costs from the the literature, and ODI
Data • Unit costs from the • Unit cost (e.g., health
literature sector-specific public
literature expendifures data • Renenue capacity care workers wage)
• Other factors (e.g.,
demographics, GDP)
• Total financial need of

The total average $1,011 billion per year The total cost for Low
expenditure varies from on average from 2019 • Total spending in 2015 and Middle-Income Additional spending
$875.9 – 1,464.9 billion to 2030 to achieve the would be $21.3 trillion, countries is $2.4 trillion, of $528 billion for
per year for the LDCs, SDGs. rising to $32.3 trillion while exclusively for low-income developing
Main results once combining the annually in 2030.
• The projected financing Low-Income Countries countries and $2.1 trillion
forecasted total social
gap is of the order of • The projected annual represents $137 billion for emerging market
and environmental
$400 billion from 2019 gap is $12 trillion. and $188 per person economies in 2030
spending with estimated
to 2030, or $230 per per year.
investments.
capita, on average.
109
2. Data
To calculate the investments needs to grow 7 per cent per year from 2021 to 2030, the primary dataset utilized are:
• UN statistics, prepared by the National Accounts Section of the United Nations Statistics Division.
> Variables: investments (gross fixed capital formation), GDP at 2015 constant dollar values and structural
transformation (as proxied by the Manufacturing share of GDP). The variables are used in natural log
format.
> Observations: 46 LDCs.
> Period: 1970–2019
• Penn World Table 10.0 (PWT), compiled by the University of Groningen
> Variables: capital stock at constant prices 2017, GDP (output-side real GDP at chained purchasing
power parities – 2017), employment (number of persons engaged), human capital (index), depreciation
(average depreciation rate of capital stock). The variables are used in natural log format.
> Period: 1970–2019
• Investment and Capital Stock Dataset, consolidated by the International Monetary Fund (IMF)21
> Variables: public, private, and public-private partnerships (PPPs) investments (gross fixed capital
formation). The variables are used in natural log format.
> Period: 1970–2017
• World Economic Outlook of the IMF, and projections from the Asian Development Bank and African
Development Bank. To capture the effects of the COVID-19 pandemic in 2020, IMF projections (IMF, 2021b)
are considered as the actual 2020 growth.22
> Variables: GDP growth
> Period: 2020
Second, the growth estimation to end extreme poverty by 2030 utilized as data source the World Bank's World
Development Indicators (World Bank, 2021a), mainly because of the poverty headcount and inequality data,
including the GDP calculated in purchasing power parity (PPP) terms.
> Variables: Poverty headcount ratio at $1.90 a day is the percentage of the population living on less
than $1.90 a day at 2011 international prices, Gini coefficient, and GDP calculated in purchasing power
parity (PPP)4 terms at constant 2017 prices. The variables are used in natural log format.
> Period: 1980–2018
Third, the forecast of growth and investments needed to double the manufacturing share of the GDP by 2030
relied on two different datasets.
> Variables: GDP and Manufacture Value Added. The variables are used in natural log format.
> Period: 1970–2019
21
www.data.imf.org, accessed in May 2021.
22
When the IMF does not provide estimation for a given country, we used the estimation from regional development banks, such as
the Asian Development Bank (www.adb.org), and the African Development Bank (www.afdb.org).
110
• Penn World Table 10.0 (PWT), compiled by the University of Groningen

> Variables: employment (number of persons engaged) and population were used as covariates. The
human capital index was not included because it would reduce observations to 30 LDCs. The variables
are used in natural log format.
> Period: 1970–2019
Finally, the costing projections of universal social and environmental services until 2030 include different sources.
> Variables: GDP, and population
> Period: 2015–2019
• UN Population Division of the Department of Economic and Social Affairs
> Variables: Total population, medium
> Period: 2019–2030
• Expenditure data and unit costs23:
> Health
† Variables: Domestic general government health expenditure as % of GDP (World Bank, 2021a), and
unit costs (Stenberg et al., 2017b)
> Education:
† Variable: Government expenditure on education as % of GDP (World Bank, 2021a), and unit costs
(The International Commission on Financing Global Education Opportunity, 2016)
> Conservation, restoration and sustainable use of terrestrial and inland freshwater ecosystems and their
services
† Variable: Biodiversity conservation spending (Waldron et al., 2013) updated following McArthur and
Kharas (2019) suggested procedure, and unit costs (McCarthy et al., 2012)
• World Bank's Atlas of Social Protection Indicators of Resilience and Equity (ASPIRE) prepared by the
World Bank
> Variables: Coverage of all social protection and labor (per cent), coverage of all social assistance (per cent),
and population in extreme poverty not receiving social protection (per cent)
> Period: 2001–2018
23
McArthur and Kharas (2019) and Sachs et al. (2018) are the main references that use the data desbrided in this section.
111
3. Selecting the estimation methodology

Several of the empirical tests performed included ordinary least squares (OLS), fixed effects and panel time series
methods, such as mean group, cross-sectionally demeaned mean group, and common correlated effects mean
group estimators (see Annex B). In all those estimations, logged GDP was regressed with logged investment
(gross fixed capital formation),24 structural transformation, human capital, and employment.25 As known, the
log-log equations result in coefficients that can be interpreted as elasticities. This is an additional reason to adopt
this methodology as a default option.
The panel time series models are reported with and without controls (reference). It is critical to choose one
estimation to adopt as elasticity. Given the unit root, cointegration, cross-sectional dependence tests, the
preferred model is the common correlated effects mean group with country trends (Pesaran, 2006).
More practically, the estimations rely on data extracted from the United Nations Statistics Division dataset
and PWT (see more details in the following subsection). The growth-investment elasticities were calculated by
country, and they are expected to be positive. Based on those elasticities and the GDP growth target of 7
per cent a year agreed on the Sustainable Development Goals, the level of investments required in the LDCs
until 2030 were calculated. In addition, by analyzing the IMF dataset on public, private and PPP investments, it
was possible to disaggregate the projections by funding sources.
Unfortunately, it is not technically viable to reproduce the same breakdown by the origin of funding, i.e. domestic or
foreign. FDI and remittances, for instance, are financing mechanisms that can add fixed assets to the economy's
gross capital formation. In this case, the investment rate necessarily incorporates them into it (Bjuggren et al., 2010;
Nawaz, 2020). However, both types of financing can also be used for consumption or pay for current expenditures.
In this case, they will not be reported as gross fixed capital formation. The difficulty in developing such estimation
is the inexistence of more detailed panel data detailing all the outlays of investment and covering LDCs.
Annex Table 4.2

GDP growth and investment: Ordinary Least Squares and Fixed-Effects estimates
(1) (2) (3) (4) (5) (6)
OLS OLS OLS FE FE FE
Dependent variable: GDP
0.798*** 0.543*** 0.541*** 0.574*** 0.382*** 0.340***
Investment
-0.00922 -0.0123 -0.0124 -0.00694 -0.0106 -0.00997
0.361*** 1.914***
Structural Transformation
-0.0876 -0.116
-0.0137 -0.0199 -0.027 -0.0342
Human Capital
-0.036 -0.0358 -0.0645 -0.0588
0.671*** 0.665*** 0.0897 0.487***
Population
-0.0756 -0.0771 -0.0989 -0.0933
-0.180*** -0.176*** 0.0501 -0.117
Employment
-0.066 -0.0672 -0.0891 -0.0819
5.893*** 10.19*** 10.22*** 10.46*** 14.15*** 14.20***
Constant
-0.193 -0.225 -0.224 -0.141 -0.279 -0.255
Observations 1 900 1 424 1 424 1 900 1 424 1 424

Year dummy No Yes Yes No Yes Yes
R-squared 0.802 0.908 0.909 0.786 0.875 0.896
Number of LDCs 38 31 31 38 31 31
Notes: Robust standard errors in parentheses.
*** p<0.01, ** p<0.05, * p<0.1.
Columns (1) to (3) exhibit the pooled OLS results, while (4) to (6) show fixed effects results.
24
The same procedure was conducted using capital stock as investment, however this stock-variable is much more complex and
more difficult for policymakers to use as a benchmark or target. Nevertheless, both estimations are consistent with each other.
25
See variables’ description in the Annex.
112
Annex Table 4.3

GDP growth and investment: Panel Time-Series estimates
(1) (2) (3) (4) (5) (6) -7 -8
MG MG CDMG CDMG CMG CMG CMG CMG

0.259*** 0.138*** 0.524*** 0.146*** 0.231*** 0.146*** 0.189*** 0.109***
lGFKF
-0.0359 -0.0247 -0.0424 -0.0298 -0.0307 -0.0298 -0.0287 -0.0177
Controls No Yes No Yes No Yes No Yes

Country trends Yes Yes No No No No Yes Yes
CD-test 0 0.017 0 0.039 0.092 0.039 0.923 0.102
Cointegration
Observations 1 900 1 424 1 900 1 424 1 900 1 424 1 900 1 424
Number of LDCs 38 31 38 31 38 31 38 31
Notes: Standard errors in parentheses.
*** p<0.01, ** p<0.05, * p<0.1
MG: mean group, CDMG: cross-sectionally demeaned MG; CMG: Pesaran (2006) common correlated effects MG.
Controls included are structural transformation, human capital, population and employment.
CD-test calculates the cross-sectional dependence for a panel. The test captures the mean correlation between panel units. The null hypothesis is
cross-sectional independence.
Cointegration tests (Augmented Dickey-Fuller, Modified Phillips-Perron, and Westerlund) suggest that GDP and investment are cointegrated. For the
equations including all the covariates, the tests also indicate they are cointegrated.
Annex Table 4.4

GDP growth, Public and Private Investment: Ordinary Least Squares and Fixed-Effects estimates
(1) (2) (3) (4) (5) (6)
OLS OLS OLS FE FE FE

0.274*** 0.207*** 0.231*** 0.356*** 0.265*** 0.259***
Public Investment
-0.0179 -0.0142 -0.0148 -0.0161 -0.0185 -0.017
0.544*** 0.358*** 0.362*** 0.332*** 0.361*** 0.301***
Private Investment
-0.0179 -0.0122 -0.0121 -0.0152 -0.0186 -0.0171
0.265** 2.021***
Structural Transformation
-0.125 -0.12
0.168*** 0.180*** -0.587*** -0.455***
Human Capital
-0.0455 -0.0458 -0.0727 -0.0661
0.912*** 0.873*** -0.0655 0.305***
Population
-0.0553 -0.0545 -0.107 -0.0999
-0.406*** -0.373*** 0.786*** 0.559***
Employment
-0.053 -0.0526 -0.0951 -0.0869
0.671*** -0.207* -0.202* 0.965*** 1.440*** 0.718***
Constant
-0.0294 -0.124 -0.118 -0.0176 -0.173 -0.161
Observations 1 853 1 410 1 362 1 853 1 410 1 362

Year dummy No Yes Yes No Yes Yes
R-squared 0.804 0.887 0.89 0.781 0.857 0.884
Number of LDCs 39 32 31 39 32 31
Notes: Robust standard errors in parentheses.
*** p<0.01, ** p<0.05, * p<0.1
Columns (1¨) to (3) exhibit the pooled OLS results, while (4) to (6) show fixed effects results.
113
4. Econometric models
The literature suggests that macro panels, such as those used here, need different estimations than micro panels
(Baltagi, 2008; Burdisso and Sangiácomo, 2016; Eberhardt, 2012). The main reason is that macro panels need
to account for non-stationary issues commonly observed in time-series analysis. Besides, the presence of unit
roots in time-series models should be a concern to avoid spurious correlation.
The methodology has additional advantages. It provides efficient estimation even in the occurrence of local
spillovers, global or local business cycles, and structural breaks. Those features are very convenient for this type
of estimation because it reduces potential risks of utilizing long time series to gauge elasticities. Second, it allows
for heterogeneity across countries in all regression coefficients (Lee et al., 1998), which does not occur for pooled
OLS or fixed-effects estimations. Moreover, the panel times series method allows for the influence of historical,
geographical, and institutional influences on growth rates without requiring direct measurement of these factors.
It happens because the fixed-effects model keeps the unobservable variables constant over time, suppressing
omitted variables' bias.
a. Panel time series: common factor model
For i = 1, ... , N, t = 1, ... ,T, let
yit = β'i xit + uit uit = αi + ϒ'i ƒt + ɛit
xmit = πmi + δ'mi gmt + ρ1mi ƒ1mt + ... + ρnmi ƒnmt + ʋmit
where,
yit is the observed output (GDP) in natural log
xit is observed factor inputs (investment or capital stock) in the natural log. This is the coefficient that
captures the elasticity we are looking for.
ƒt and gt are unobserved common factors
βi captures country-specific factor parameters
yi, δi and ρi capture country-specific factor loadings
αi and πmi is the country-specific fixed effects
ɛit and ʋit are i.i.d. erros
b. Fixed-effects model
Povertyit = α + βGDPit + δt + λi + µit
where,
Povertyit is the dependent variable that captures extreme poverty (percentage of the population
living on with less than $1.90 a day in natural log) in a country i in year t
GDPit is the explanatory variable (GDP in natural log) and β is the poverty-growth elasticity we are
looking for
δt captures time effects related to common trends in GDP, λi is the set of country dummies and µit
is the error term
114
Annex Table 4.5

Average LDCs’ investment needs in billion of dollars and as per cent of GDP: 2021–2020
Average investment values 2021–2030
End extreme Double Social
7% annual growth Health Education Biodiversity
poverty manufacture protection
(SDG 8.1) (SDG 3.8) (SDG 4.1) (SDG 15.1)
(SDG 1.1) (SDG 9.2) (SDG 1.3)
growth expected
growth expected
Billion dollars
Billion dollars
Billion dollars
Billion dollars
Billion dollars
Billion dollars
Billion dollars
Average GDP
Average GDP
as % of GDP
Investment
% GDP
% GDP
% GDP
% GDP
Afghanistan 3.7 13 4.1 13 6.2 16 3.3 18 4.7 26 0.2 1
Angola 31.4 20 44.8 1 49.5 15 2.7 3 3.9 5 0.2 0
Bangladesh 119.9 31 85.8 13 240.7 19 14.0 5 20.0 7 4.8 2 0.8 0
Benin 5.7 27 8.2 0 15.0 24 0.1 7 1.4 10 8.0 57 0.1 0
Bhutan 1.8 47 1.2 12 4.6 24 0.1 3 0.1 4 0.0 0 0.0 0
Burkina Faso 5.9 27 7.7 19 22.9 31 4.6 11 2.5 16 21.1 140 0.1 1
Burundi 0.7 16 1.5 1.6 20 1.0 33 1.4 47 0.1 2 0.1 2
Cambodia 7.4 22 8.3 17 13.4 17 1.4 5 2.0 7 0.2 1 0.1 0
Central African Republic 0.6 22 1.1 10 1.1 16 0.4 18 0.6 26 0.1 3 0.0 1
Chad 2.8 16 3.3 2 7.0 23 1.4 12 2.0 17 0.0 0 0.1 1
Comoros 0.2 14 0.2 20 0.5 21 0.1 6 0.1 9 4.7 50 0.0 0
Dem. Rep. of the Congo 4.7 34 10.1 5 10.7 21 7.4 16 10.6 22 0.0 0 0.4 1
Djibouti 1.2 25 1.0 1.4 10 1.0 3 0.1 4 0.0 0 0.0 0
Eritrea 0.1 4 0.2 8 0.3 23 9.6 15 0.4 22 0.0 1
Ethiopia 62.7 48 67.0 3 106.3 16 0.3 10 13.7 15 0.1 4 0.5 1
Gambia 0.7 27 0.5 10 3.0 33 0.1 11 0.3 16 0.0 0 0.0 1
Guinea 3.0 16 3.4 2.2 2 0.2 9 1.6 13 43.4 50 0.1 1
Guinea-Bissau 0.1 5 0.1 7 0.2 23 0.0 12 0.2 18 0.0 0 0.0 1
Haiti 4.1 34 4.0 1 8.6 20 1.1 12 1.4 17 0.0 0 0.1 1
Kiribati 0.1 42 0.1 1 0.3 23 1.0 5 0.0 7 1.7 20 0.0 0
Lao People's Dem. Rep. 8.4 31 5.9 7 62.6 42 0.6 3 0.9 5 0.0 12 0.0 0
Lesotho 1.1 31 1.1 12 2.1 18 0.2 7 0.3 11 0.2 6 0.0 0
Liberia 1.1 29 1.5 21 4.0 29 0.4 16 0.6 23 1.7 9 0.0 1
Madagascar 4.2 22 9.4 18 7.2 16 2.3 16 3.3 23 0.2 9 0.1 1
Malawi 1.4 13 2.8 13 3.1 20 1.6 20 2.3 28 0.2 3 0.1 1
Mali 4.3 17 6.3 2 5.7 11 1.7 10 2.4 14 9.7 73 0.1 1
Mauritania 3.3 33 2.4 17 8.3 23 0.4 5 0.6 7 1.4 8 0.0 0
Mozambique 12.1 45 21.3 0 35.6 26 2.6 17 3.7 24 19.8 25 0.1 1
Myanmar 32.7 29 22.3 1 36.3 9 2.5 6 6.6 9 0.0 0 0.3 0
Nepal 13.7 36 9.8 12 121.2 46 2.0 8 3.5 11 0.5 4 0.1 0
Niger 5.5 30 7.3 4 19.5 29 0.2 15 2.9 22 0.2 2 0.1 1
Rwanda 4.3 25 3.6 10 5.3 10 0.1 10 1.6 15 1.2 5 0.1 1
Sao Tome and Principe 0.1 20 0.1 11 0.1 13 1.1 4 0.0 6 0.0 0 0.0 0
Senegal 9.4 28 12.1 18 15.7 16 0.0 6 2.0 8 7.2 8 0.1 0
Sierra Leone 0.7 10 1.4 3 1.0 12 1.4 16 1.0 23 0.1 4 0.0 1
Solomon Islands 0.2 10 0.2 0.3 13 0.7 4 0.1 6 0.0 0 0.0 0
Somalia 0.5 20 0.5 12 1.2 22 1.3 81 1.9 116 0.0 0 0.1 5
South Sudan 1.9 20 2.6 3 5.4 25 0.9 19 1.4 27 3.8 239 0.1 1
Sudan 11.0 9 8.9 13 49.0 33 3.7 11 5.2 15 1.0 9 0.2 1
United Rep. of Tanzania 41.9 45 59.5 15 94.5 21 0.7 8 7.1 12 0.0 3 0.3 0
Timor-Leste 0.7 26 1.1 14 0.7 8 0.0 5 0.2 8 1.0 14 0.0 0
Togo 1.8 18 2.7 0 3.1 16 3.8 10 1.0 14 0.6 31 0.0 1
Tuvalu 0.0 29 0.0 11 0.1 33 5.0 2 0.0 3 0.0 0 0.0 0
Uganda 11.4 25 14.5 1 17.6 14 1.7 12 5.4 17 59.7 97 0.2 1
Yemen 22.0 76 16.0 16 35.6 15 2.5 10 3.6 14 0.0 0 0.1 1
Zambia 11.9 36 19.7 21.1 17 1.5 7 2.2 9 1.3 6 0.1 0
Source: UNCTAD Secretariat calculations based on data from United Nations Statistics Division, Penn World Tables, World Development Indicators (World Bank),
Atlas of Social Protection Indicators of Resilience and Equity (World Bank), and United Nations Population Division of the Department of Economic and
Social Affairs [accessed June, 2021].
115
LDCs have realized an erratic growth
trajectory and missed most
development targets set during
forty years of programmes of action
The development model has

largely overlooked the domestic
supply side and prioritised
external demand side concerns
To build forward and transform,

LDCs need to adopt an industrial policy mindset
INDUSTRIAL POLICY
RANGE OF INTERDEPENDENT
POLICY IMPERATIVES
GREEN GROWTH DECENT JOBS DIGITAL TRANSFORMATION STRUCTURAL TRANSFORMATION

CHAPTER
5
From lessons learnt to future
development trajectories
CHAPTER 5
From lessons learnt to future
development trajectories
A. Challenges for the next decade of development in LDCs 119
1. Introduction 119
2. Priorities for LDCs and for the international community 119
B. The global community’s interest in LDC development and

support for it 120
C. The new programme of action: objectives 122

1. Structural transformation through the development
of productive capacities 122
2. Green growth and the call to build forward and transform 122
D. National measures: new priority actions for consideration 123

1. Strengthening state capacity and agency 123
a. Principles 124
b. Priority areas of action 125
2. Expanding the local enterprise base 126
3. Strategic approach to human capital and labour policies 127
E. A new generation of international support measures 128

1. Principles to guide the new generation of ISMs 128
2. Trade 129
3. External financing for development 129
4. Technology transfer 133
CHAPTER 5: From lessons learnt to future development trajectories
A. Challenges for the next decade of

development in LDCs A majority of LDCs is heading into
the new decade significantly below
1. Introduction full strength
The past 50 years of experience of the LDC
development trajectory have highlighted the
struggle of these countries to achieve sustainable fail to stimulate the development of productive
development, as evidenced by their erratic growth capacities;
trajectory over this period, but also by their (iv) not placing structural impediments to sustainable
widening income gap vis-à-vis other developing development (such as low level of productive
countries (ODCs). These reflect the failure of most capacities and insufficient investment leading
of these countries to decisively advance in their to structural transformation) at the centre of
structural economic transformation, as shown by development planning and policymaking;
Chapter 2 of this report. As a group, LDCs have (v) largely insufficient level of resources (financial,
realized significant improvements in GDP growth institutional) made available to reach the desired
over the past 50 years of the existence of the development goals;
category; however, consistent progress across
(vi) weak alignment between the priorities of
the multiple dimensions of development has been
development partners and those of national
elusive. The combination of these outcomes
authorities, which fails to create synergies
explains the disappointing results in the graduation
between the interventions and policies of these
record from the LDC category, including the failure
actors.
to meet the graduation target included in the
Istanbul Programme of Action (IPoA). These results clearly indicate that ambition levels
among the international community and domestic
The policy efforts put in place by the international
authorities needs to be raised. Looking forward,
community and national authorities during the
the estimates presented in this report – in spite of
past half century have progressively become more
the uncertainties surrounding precise figures and
focused and specific, as shown by Chapter 3.
the caveats expressed in Chapter 4 – clearly show
The sustainability and resilience of development
that LDCs face enormous investment and spending
outcomes in LDCs remains markedly fragile, with
requirements to reach the Sustainable Development
most of the development goals and targets set
Goals. Critically, these requirements by far exceed
during 40 years of LDC programmes of action not
the amount and modalities of financing presently
fully achieved. This long period of policy efforts
available to these countries.
and the progression in policymaking have been
insufficient to reverse the disappointing outcomes
alluded to above. This has been mainly due to a 2. Priorities for LDCs and for the
combination of: international community
(i) the mis-oriented growth and development model, Coupled with the persistent existence of the LDC
which – especially since the 1980s – has been grouping, there is an apparent divergence within
largely focused on exports and foreign demand, the grouping, with a majority of LDCs heading into
while overlooking the domestic side of the the new decade significantly below full strength
economy; (UNCTAD, 2020g). This is compounded by the
(ii) weak domestic demand, due to low average ongoing fallout from the COVID-19 global crisis and
incomes and high levels of poverty, which brings attendant risks of hysteresis.1 There is a fresh sense
in its wake weak domestic demand-side stimulus of urgency to the LDC underdevelopment problem;
to domestic supply, and which thereby fails to this represents an opportunity for a renewed and
create a dynamic supply-demand virtuous circle; heightened focus on how to engineer a lasting
(iii) weak domestic input-output linkages (partly transformation of development realities in LDCs.
deriving from the two shortcomings above), which Countries need to progress concurrently on several
fail to create dense linkages among companies
1
The theory of hysteresis suggests that if an economy
(whether domestic or international, public or
experiences a recession for a long time, the average long
private), sectors, industries, different areas of the run growth rate will be lower. https://voxeu.org/article/
countries (e.g. rural and urban) and, therefore, hysteresis-and-fiscal-policy-during-global-crisis
119
from fundamental weaknesses in respect of assuring

sustainability through economic resilience and inclusivity
LDCs need to progress concurrently on because it eschews some productive transformation
objectives. This growth model can deliver growth, as
several dimensions of development
evidenced by the fact that the LDCs as a group realized
the greatest improvements in their growth trajectories
from the mid-1990s; however, globalization’s main
Decent Structural
jobs transforma-
tion
failing as a model is that it accords insufficient attention
to the requirement for a strong domestic enterprise
Digital Green PROGRESS base with requisite productive capacities.
transforma- growth
tion
Insufficient attention to the concrete measures and
targets needed to build productive capacities in LDCs,
as well as woeful progress on the implementation of
the few such measures included in past PoAs, have
hamstrung the development of resilient productive
sectors in LDCs, and undermined multilateral efforts
and commitments to overcome LDCs’ structural
impediments to development. Consequently, and
despite 40 years of international action, the economic
dimensions of development, otherwise imbalances
bases and requisite human capital expansion in
between the different dimensions could jeopardize
LDCs remain insufficient for them to meaningfully
progress in other dimensions.
participate in the global economy today, as well as
The development trajectories of LDCs show that their preparedness to do so in the foreseeable future.
they are exceptionally vulnerable to boom-and-bust
The same shortcomings of the development trajectory
cycles. In this respect, the COVID-19 shock has
of LDCs during the first 50 years of the existence of the
aggravated pre-existing development challenges.
group have been an impediment to the full realization
Avoiding hysteresis is a priority at present and the risk
of human rights, including the right to development.
of another lost decade in development is real. The
Such rights inform UNCTAD’s overall actions overall
remaining to-do list on achieving viable development
in favour of LDCs (UNCTAD, 2016c: 14(a)), and
is both long and long-term in nature.
should underpin future development efforts, including
As the global economy becomes ever more actions by the international community in support of
interdependent and global challenges multiply, there the LDCs (United Nations, 2020).
are correspondingly many more moving parts to
The preceding analysis points to the need for an
be taken into consideration in the global quest of
overhaul of the development policies and strategies
“prosperity for all” and “leaving no one behind”.
pursued both by LDCs and the international community
The impacts from the slowly rising threat of global
in the next decade. The following sections provide a
climate change and the COVID-19 shock epitomize
contribution to the formulation of the new PoA, and
this complexity and interdependence, requiring
the implementation of development policies. These
coordinated, complementary, fair and mutually
sections draw attention to desirable priority areas for
beneficial responses. The international community’s
action and to the principles that underpin commitments
failure to address the underlying causes of global
to take into consideration, both for the formulation of
imbalances imposes high adjustment costs on LDCs,
the programme of action for the decade 2022–2031,
with episodic global economic downturns continuing
and its subsequent implementation during that period.
to present a difficult environment for the achievement
of lasting development progress in these countries.
Consequently, the challenge related to functional policy B. The global community’s interest
in LDCs and at the systemic global level remains.
in LDC development and support
The heterogenous nature of the conditions in individual
LDCs advocates for a careful and strategic focus on
for it
the core underpinnings of their development challenges A renewed and strengthened partnership for
and the prioritization of transformational impact. It is development cannot be disassociated from the urgent
now abundantly clear that the export-driven model need to reassert, as global priorities, the importance
that has underpinned past LDC plans of action suffers of LDC development and of international support for
120
it. This is a prerequisite towards giving a new lease

of life to the notion of fair differentiation in the special
treatment of LDCs within the group of developing
Post-COVID-19 recovery should
countries. An authentic global partnership in support not overshadow LDCs' long-term
of LDCs goes well beyond the moral commitment development goals
to “leave no one behind”. International support for
structural transformation in LDCs is not an act of charity
in favour of the weakest members of the international post-COVID-19 recovery and other development
community.2 Ultimately, in an interdependent global agendas, including climate change, this should not
economy, it is an investment in systemic resilience, overshadow the long-term development goals of the
because developmental successes among LDCs LDCs, which pre-dated the COVID-19 pandemic, but
solidifies global systemic resilience.
have become even more pressing since its outbreak.
The marginalization of developing countries in the Rather, the implementation of short-term emergency
global race to vaccinate against the COVID-19 measures should be undertaken with the longer-term
virus is emblematic of the scourge of self-defeating objectives in mind and lead in that direction.
short-sightedness by richer countries in their
So far and in the face of the new realities,
responses to the COVID-19 pandemic, with LDCs
strategies on global development coalesce around
most left behind. Official development aid (ODA) to
growth driven by the interaction between: (i) rapid
LDCs rose by 1.8 per cent in 2020 – a rise spurred by
technological innovation; (ii) sustainable infrastructure
spending on COVID-19-related programmes,3 which
investment; and (iii) increased resource productivity.
cannot be considered as an indication of a rising trend
All are elements of productive capacities and
of development finance flows to LDCs. Development
capabilities which are severely lacking in LDCs,
partners are therefore encouraged to take up the mantle
and which imply substantial and practical needs for
of advocacy for continued and increased allocations of
technology and significant resources transfers. LDC
ODA, especially with respect to their domestic public.
reliance on natural resources, including the minerals,
If the domestic public of donor countries were better
energy and agriculture sectors, call for a substantial
aware of the self-interested nature of ODA, it can only
transformation of these sectors, not only in terms
strengthen political and parliamentary support for
of green and environmental proofing but also in
increasing ODA, especially to LDCs.
terms of the transfer of resources to other sectors.
LDCs facing a lengthy timeline to graduation are It is difficult to envision how LDCs that are heavily
among the most marginalized countries in the global dependent on primary commodities for the bulk of
economy and, because of this, are the natural their export earnings and fiscal revenues can realize
focus of international efforts. However, the fragility rapid diversification from primary production without
of the progress towards structural transformation adopting an industrial policy mindset.
of graduating countries also makes it crucial for the
Industrial policy has become even more relevant
international community to continue to pay attention
than before in the context of technology transfer.
to them during their period of transition to developing
This need became evident with the emergence of
country status.
the digital economy, and more so in the wake of the
Advancing the structural transformation of LDCs COVID-19 pandemic. In this respect, policymakers
through building productive capacities remains the need to refocus on the role of industrial policy and its
single most viable route to inclusive and sustainable interaction and interdependence with a range of other
development. While it can be expected that sectoral policies, including the gendered dimensions
reflections on the next PoA will be geared towards of the digital divide, and the changing nature of
production and sectoral interdependencies.
2
The wrong impression that ODA is motivated by charity in
favour of poorer countries has long permeated common Most LDCs have substantial proportions of their
perceptions of ODA. In the 1980s ODA directed to food populations lacking in basic standards of living
aid, emergency and distress relief was called “charity”
and access to public services, and are burdened
(Hynes and Scott, 2013). The lingering perception of ODA
as charity was reinforced in the 2000s by the emergence of by enormous deficits in decent jobs. This has
private philanthropy in the aid architecture (OECD, 2018), implications not only for their successful transition but
which was a component of the increased number of actors also for financing it, as well as assuring its inclusivity
in the aid architecture (UNCTAD, 2019).
and maintaining the needed macroeconomic stability
3
https://www.oecd.org/newsroom/covid-19-spending-
helped-to-lift-foreign-aid-to-an-all-time-high-in-2020-but- to incentivize private sector expansion (the main route
more-effort-needed.htm to accelerating quality job creation). Social well-being
121
• Operationalize internationally agreed principles

of common but differentiated responsibility on
Green growth efforts should not come climate change. Ensure that adequate climate
at the expense of developmental finance, technical assistance and technology
opportunities for LDCs transfer are mobilized to foster mitigation efforts
in LDCs, and that the global transition towards a
low-carbon economy reinforces their sustainable
should be promoted, including through investing in development prospects.
health, education and social safety nets and support • Ensure that LDC interests are duly reflected
networks. Export growth and access to external in on-going discussions on the reform of the
development finance should likewise be maintained. global international financial architecture, and in
For LDCs to benefit from green growth, it needs particular with respect to: (i) the revision of debt
to be adapted to their current structural features, sustainability framework to enhance its alignment
and aligned to their fundamental development with the SDGs; (ii) the establishment of an effective
needs. The priority for LDCs is “to build forward debt workout system; (iii) the provision of technical
and to transform” – in tune with the motto of the assistance and capacity development to improve
2030 Agenda for Sustainable Development, and set debt management and related transparency in
a more solid basis for sustainable development over LDCs; and (iv) the provision of debt relief, where
the mid- to long-term. This is much more ambitious appropriate.
and transformative than “building back better”.
2. Green growth and the call to build
C. The new programme of action: forward and transform
objectives Good economic policy lies at the heart of any
strategy for green growth (OECD, 2011). Addressing
the question of climate change should not be
1. Structural transformation through the conditional upon a contraction of overall economic
development of productive capacities activity. Accordingly, domestic policies and strategies
Structural transformation remains at the core of the implemented by development partners should take
LDCs’ quest for economic dynamism and resilience. into consideration the economic circumstances
The focus on building productive capacities and their and needs of LDCs. It is important to realize that
corresponding capabilities is rooted in the need to steer LDCs are at the forefront of climate change impact
a path to development that assures economic, social and disproportionately affected by extreme weather
and environmental sustainability (UNCTAD, 2021). It events, with daunting costs of inaction. At the same
can best be pursued if corresponding policies are time, it is equally critical that efforts towards green
guided by the following principles: growth do not come at the expense of developmental
opportunities for LDCs. If it is to be a catalyst for
• Build resilience to present and future shocks through
economy-wide structural transformation and poverty
the strengthening, upgrading, diversification and
eradication green growth; however defined, it should
expansion of the domestic enterprise base in LDC
support a virtuous transition towards more and better
economies across all productive sectors, including
jobs, be geared towards domestic value addition and
manufacturing, services and agriculture.
a qualitatively superior process of integration into
• Achieve dynamic job-creating and inclusive regional and global value chains (GVCs) by the LDCs.
growth underpinned by enhanced access to
basic services, with the aim of addressing critical LDCs and their development partners should take
cross-cutting issues of poverty and equity across into consideration the positive potential that they
all its dimensions. can possibly bring, such as shorter GVCs, stronger
expansion of green sectors in which LDCs have
• Ensure appropriate orientation and coordination
comparative advantages, and scope for leapfrogging,
of domestic policies and international support
etc.; they should take into account the risks of further
measures (ISMs) directed at the economic,
marginalization brought about by the introduction of
social and environmental dimensions to align
“green” measures.
support to the overarching objective of structural
transformation through the development of LDCs have embraced the green transition through their
productive capacities, including through the Intended Nationally Determined Contributions (INDCs),
implementation of a new generation of ISMs. or their Nationally Determined Contributions (NDCs)
122
commitments, but progress is lacking on addressing

the fundamental question of their polarization. Given
PUBLIC REGULATION
the potential for national responses to climate change
PUBLIC INCENTIVES
in richer countries to generate negative international
spillovers, it will be crucial for the multilateral system
to guard against and prevent harm to LDCs, including
from the rise of protectionist measures.
The following principles are desirable to guide the
implementation of actions on climate change and
green growth:
• The common recognition that LDCs, being among

the most vulnerable countries to the consequences
of climate change but the least well positioned to
shield themselves from its impact, need effective
multilateral mechanisms to ensure that their The pursuit of green growth is reliant
voices are heard, and that they can participate on PUBLIC REGULATION and
in decisions taken on matters of climate change.
With developed countries currently taking the
PUBLIC INCENTIVES
lead on the development of strategies for green
growth, intensified efforts to move discussions
to multilateral fora are needed to ensure that are invited to take into account the consequences
agreements and policies with global reach and arising from their environmental policies on LDCs
consequences are inclusive and just to all members (e.g. carbon border adjustment measures), and
of the international community, especially the most assist them in evaluating the impact these policies
economically vulnerable countries, i.e. the LDCs. will likely have on LDC economies.
• The “polluter pays” principle is pivotal to the
success of international action on climate change D. National measures: new priority
and green growth, and underpins a fair and just
transition for all countries. Concrete progress actions for consideration
by the international community to urgently
identify workable and equitable solutions for 1. Strengthening state capacity and agency
compensating losers from global actions on The responsibility of countries for their own
climate change will contribute to the realization of development is enshrined in numerous international
this fundamental principle. policy documents, including past programmes of action
• There is a large gap between advocacy, for the least developed countries, the 2030 Agenda
commitments and actual investments to support for Sustainable Development and the Addis Ababa
developing countries in their transition to Action Agenda (AAAA). All successful development
low-carbon, climate-resilient economies. The global experiences have occurred in the presence of a state
pursuit of green growth requires commitments whose capacities have co-evolved with those of the
on climate finance to match disbursements, and productive sphere. It is necessary to strike the right
achieving a greater balance between addressing balance between short- and long-term transformational
the concerns for adaptation and mitigation in LDCs. policy measures, and managing trade-offs between
• The pursuit of green growth is reliant on public the different dimensions of development and related
regulation and public inducements (i.e. incentives), strategies. They also need to recognize and successfully
which are fundamentally elements of industrial leverage development opportunities, which form the
policy. basis for maintaining consistent progress on several
dimensions of development at the same time and
• The global pursuit of green growth strategies
weathering periodic shocks.
should consider the specificities and interests
of LDCs. These countries have the right and State capability is a condition for the full enjoyment
responsibility to consider the cost-benefit analysis of human rights, including the right to development,
of climate and green growth actions and identify by any country. It is therefore a distinct component
their national priorities according to their specific of national development, and it cannot be separated
national circumstances. Development partners from LDC ownership and leadership concepts, and
123
The COVID-19 pandemic has revealed the limits of

STATE CAPACITY is part of the meaning the private sector not acting in collaboration with the
state – especially in LDCs – and the critical role of the
and usefulness of policy space state, even as it has exposed its weaknesses in LDCs.
It has also underscored the co-dependence between
STATE markets and a well-functioning public sector, as well as
the critical intersection and interdependence between
CAPACITY health policy and the industrial policy objectives of
safeguarding the vigour and continued operation of
economies for global social well-being, as recalled
Al i g
ent
Natio
th FDI in spurring development
once again by the lingering extremely unequal access

lo pm
Green grow
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n al d e
ent
to COVID-19 vaccines. This underlines the fact that
deve
of i
the role of the state evolves but cannot retrench.

velop
nte
g for
Moreover, leveraging the potential benefits of FDI

rna
ment
ncin
tion
often requires actions by the developmental state to

Fina
al a
plans
strengthen the capacities of local private sectors as

gen
an additional factor in LDCs.

das
State capacity is part of the meaning and usefulness

of policy space and underpins: (i) the alignment of
international agendas embodied by LDC preferences;
the ultimate responsibility they have for their own (ii) effective action on financing for development, the
development (a core principle in all PoAs). As argued potential role of FDI in spurring development; and
by UNCTAD, LDCs need strong developmental (iii) green growth with national development plans
states to overcome their structural impediments and priorities. In this context, action to improve
(UNCTAD, 2010, 2018a, 2019a). However, state LDCs’ state capability and capacity to identify and
capacity in LDCs has not recovered from the effectively manage inherent trade-offs in development
debilitating austerity measures related to the structural strategies can no longer be soft-pedalled by
adjustments instituted since the mid-1980s. future PoAs. It is one area where the potential of
State capacity assumes paramount importance measurement in incentivizing cross-cutting change
especially in the context of the growing complexity could deliver transformative results. Failure to act
of the current environment of economic relations and on this issue renders the notion of self-reliance both
international diplomacy. An ever-growing number of hollow and unrealistic. Actions at the international
actors (whose interests can often be widely dissimilar) level to secure and safeguard policy space for LDCs
can now be found within the new international are undermined if these countries are unable to use
development cooperation architecture. A distinctive it effectively.
feature of 21st century development cooperation is Strengthening state capabilities is an area that
that a wide variety of policy communities want their has tremendous scope for capacity-building by a
voices to be heard but there is no unified theory, or variety of development partners, including UNCTAD.
definition of development, or how to achieve it. While The transformative developmental potential of
the diversity of players in international development South-South and triangular cooperation and peer
cooperation broadens opportunities for LDCs in terms learning among LDCs has long recognized by the
of potential risk diversification and lower concentration international community (United Nations, 2019). This
in markets and partners, it also imposes demands for report therefore recommends that every priority action
greater state capacity, including in areas of effective determined by the new PoA include at least one
negotiations with different trade partners and sources relevant goal and/or measurable target to enhance
of external finance, trade and technology. Not least, the state capacity for implementation. It is desirable that
choice and sequencing decisions among the various such measures are cross-referenced to a matching
Goals and targets of the Sustainable Development goal and/or measurable target on international
Goals is complex. Inevitably, simultaneously pursuing support, to ensure the appropriate allocation of
these different (and sometimes competing) global resources to this pivotal area of action.
and national goals and applying diverse policy
a. Principles
approaches to development involves trade-offs and,
therefore, the capacity to analyse and weigh them, In addition to broadening the policy space available to
and come to well-grounded decisions. LDCs, useful principles underpinning the strengthening
124
national state capacity by the international community

that could be considered in the new PoA are, first, to
adopt a more holistic view of capacity development
Equip LDCs with national capacity
and technical assistance to LDCs. This important to undertake synchronic policy
because current existing initiatives tend to suffer from trade-offs
two major shortcomings: (i) they are overly sectoral
and unintegrated (e.g. focusing on trade policy,
financial policy, macroeconomic management, while LDCs have a national development bank (OECD
often losing sight of broader development processes); and UNCDF, 2020).
and (ii) they tend to suffer from the biases of the
> Local firms tend to have less access to
delivering agencies and are still often influenced by
financing and less accumulated historical
the basic tenets of the Washington Consensus
wealth and assets, but a larger base of
(fiscal and monetary prudence, trade liberalization,
investors (including in the context of blended
implementation of international treaty obligations, etc.).
finance, FDI and DFI operations) entering
Besides this more holistic view, the second principle
high-risk LDC contexts. The focus will be on
to strengthen national state capacity is to develop
those companies with a capable management
instruments that enable gauging state capacities.
team, a strong track record, transparent
They would facilitate the monitoring and evaluation
business models, and an ability to measure
of development strategies and plans, including the
results−conditions which are virtually absent in
new PoA.
local SMEs (UNCTAD, 2019a, 2020a).
b. Priority areas of action > Given the profile of most local SMEs, there
Some specific priority areas that could be considered may be good reasons for commercial banks to
for strengthening domestic state capacity and agency reduce their credit exposure or avoid financing
include broad areas, include: small businesses in the wake of the COVID-19
crisis, and it may take several years for the
• Equipping LDCs with national capacity to
sector to grow again. Of concern, greater job
undertake synchronic policy trade-offs involving
losses may arise in the interim in the context
choices between policy resource allocations
of already high unemployment. With domestic
(such as budget resources/institutional capacities)
financial sectors limited in their ability to scale
between competing priorities, and diachronic
trade-offs that involve arbitrages along time, and up support and limited fiscal space, and in
which require the sequencing of initiatives and so far as the COVID-19 crisis leads to the
balancing of competing priorities. widespread decimation of local SME sectors
in LDCs, the knock-on effects could lead to
• Equipping LDCs with national capacity to
economic and social collapse.
mainstream industrial policy objectives, including
the design and implementation of strategic FDI • Equipping LDCs with levels of statistical
policy to facilitate the expansion of the local capabilities to accurately measure the impact of
entrepreneurial base, and foster green growth development spending allocations, and improve
across all sectors of the economy. the design and ownership of development
programmes, including in the areas of:
• Equipping LDCs with ramped up capacity on
domestic resource mobilization, including: > capacity to monitor the overall process of
development and develop related indicators
> tax policy design, enhanced efficiency and
appropriate to country specificities and
effectiveness of revenue collection;
dimensions of development not usually
> public financial management and financial considered by conventional statistics
planning; and development indicators. This entails
> strengthened capacity to combat illicit developing a national statistical capacity that
financial flows (IFFs), including simplified goes well beyond the sphere of Sustainable
and fast-tracked access to international Development Goals’ indicators;
cooperation. > capacities to generate relevant information
• Equipping the national development banks of necessary to effectively support strategic
LDCs with greater levels of capacity to support the engagement in external economic relations and
growth of the local entrepreneurial base and their international diplomacy, especially in the fields
productive capabilities. Just under two-thirds of of trade, finance, investment and technology.
125
and still struggle to leverage production technologies

associated with the second industrial revolution;
Meso- and micro-levels policy they are also lagging behind developed countries
responses to address the challenges where firms are already leveraging fourth industrial
of the digital era are needed revolution production technologies (UNCTAD, 2020a).
The marginalization of LDCs in the world economy
is set to worsen as digital technologies underpin
ever greater swathes of global economic and social
2. Expanding the local enterprise base
transactions, with the digital economy becomes
The existence of a strong, diverse and appropriately increasingly inseparable from the functioning of most
balanced national entrepreneurial class as a critical economies. UNCTAD research confirms that LDCs
condition for sustainable development, including are falling behind in the global digital transformation
in the acquisition, accumulation and upgrading of evidenced by the apparent trend of a widening digital
productive capacities, and the achievement of the divide between and within countries. It is also clear
critical goal of domestic resource mobilization has that traditional support programmes for small- and
been emphasized by UNCTAD (2018a, 2019a, 2020). medium-sized enterprises (SMEs) are unlikely to be
These are industrial policy objectives that have been effective in addressing technological capabilities gaps
insufficiently addressed by past PoAs for the LDCs. (UNCTAD, 2020a).
Such insufficiencies amount to bad risk management,
in so far as they hinder investments in technology and Strengthening domestic entrepreneurship also
forfeit options for productivity gains across various requires strengthening the national innovation system,
economic sectors. Moreover, economic growth is lost as it allows domestic companies to build technological
to population growth because the youth in LDCs have capabilities and introduce products, processes that
limited opportunities beyond swelling the informal are innovative in the national context. This includes
economy. It further ignores the core problem inherent their absorptive capacity, and also entails addressing
in the glaring inability of the international community some of the structural impediments to the growth
to assure sustainability and consistency in external and expansion of local companies, e.g. their access
development finance. All these factors expose to finance, which is a constraint especially for
the systemic failure to effectively operationalize an micro-, small and medium-sized enterprises (MSMEs).
integrated approach to development and, now more In the context of the central aims of fostering
than ever, assume critical importance. competitive productive activities and structural
Developing the entrepreneurial base of LDC economies economic transformation in LDCs, economic theory
implies addressing systemic impediments to their and emerging evidence from UNCTAD research
establishment and growth, such as access to finance (UNCTAD, 2020a) suggests that policy responses
and the low levels of human capital endowment of need to descend from the macro to the meso- and
countries. One critical cross-cutting issue for expanding micro-levels to address the challenges of the digital
the enterprise base and accelerating inclusive era. This is particularly needed as technological
development is for LDCs to make the best use of all capabilities are vested in economic actors at
their existing human resources. The transformative the level of the firm, or in other productive units,
expansion of opportunities and raising the level and e.g. farms. While the critical role of Information and
quality of the contributions of hitherto vulnerable and communications technologies (ICTs) as an obligatory
marginalized groups (such as women, youth and ethnic gateway to the digital economy is undisputed, access
minorities) in any economy is critical for harnessing to ICTs and other economic infrastructure needs to
all available opportunities for growth and equity. This be complemented by investments in technological
is a much-favoured policy area for development capabilities to fulfil the promise of enhanced
cooperation is often seen to offer quick wins in terms productivity.
of self-employment through the expansion of access Many gaps in knowledge remain on how to boost
to (micro-) finance. However, the COVID-19 pandemic quality local entrepreneurship, especially among
has once again exposed the fallacy of development
marginalized segments of society. It is also an
paths pursued through an over-reliance on these
area in which national and cultural contexts and
quick fixes, which are often associated with low-value
nuances perhaps matter the most, and for which
high-volume entrepreneurship or employment.
generalizations and generic programmes can
Most local firms in LDCs operate at levels of productive carry a greater risk of unintended consequences.
capacities severely lacking in technological capabilities, For instance, it is increasingly recognized that
126
development policy needs to ensure that the

inclusion of gender equity concerns does not further
marginalize or entrench gender inequalities (Henry
Adopt a more strategic
et al., 2016; Redien-Collot and O’Shea, 2015). This view to investments in
raises a wealth of opportunities for more targeted human capital
cooperation between the national and international
community on research, application and innovative
design of development policy on different areas of
interaction between human capital, labour policies
entrepreneurship, including on youth and SMEs
and productive capacities that enables a virtuous cycle
generally, to simultaneously address inequalities and
of productivity increases, rising specialization and
industrial policy objectives. It is an area of policy action
continuous upgrading that is at the heart of structural
that urgently needs the application of a productive
transformation and sustainable development. Thus,
capacities and capabilities lens to broaden the scope
LDCs cannot hope to progress towards the realization
of entrepreneurship policy. It is also another area
of human rights, including the right to development,
where South-South Cooperation and peer learning
as well as attain goals on equity without adopting a
can potentially support structural transformation and
more strategic view to investments in human capital.
inclusive development.4
LDCs already face the struggle of recovering from the
The call to reinstate industrial policy objectives made negative impacts of COVID-19 lockdowns on school
in this report echoes that of other publications in enrolment and completion, which may have knock-on
recent years (Crespi et al., 2014; OECD, 2016; generational effects on inclusivity and employability.
UNCTAD, 2018g, 2016b, 2014). As the COVID-19 A longstanding lack of strategic investments in local
pandemic plays out, the swift deployment of industrial talent carries important risks for peace and stability,
policy measures – even by countries that traditionally in addition its potential to suffocate dynamic growth
preach a more laissez-faire approach – has decisively (UNCTAD, 2018a, 2019a: 19, 2020a). The COVID-19
re-introduced industrial policy to the political economy crisis has raised awareness on the vulnerability of
and development policy debate. large chunks of the working poor in LDCs. More
Industrial policy objectives thus underpin the active labour market policy, including social policies,
fundamental thesis of the policy recommendations of are likely to add to the ranks of pandemic-taught
this report, which is two-fold: (i) for the programme lessons.
of action for the decade 2022-2031 to prioritize the Skills acquired through education and employment
accumulation, continuous upgrading and dynamic determine the utilization of all other productive
utilization of productive capacities as the overarching capacities, including hard and soft assets
framework of support for the least developed countries; (e.g. infrastructure, institutions and policies). Societies
and consequently: (ii) for policymakers in LDCs and need to bear the cost of maintaining and educating
the international community to implement novel policy the youth before they join the labour market, as
initiatives and programmes aimed at accelerating human resources need to be transformed into human
the development of productive capacities, and the capital. Many LDC economies are potentially poised
structural transformation of LDC economies. LDC’s to reap the demographic dividend. However, such a
integration into the international trading system, dividend is contingent on: (i) prior investments in the
enhancing macroeconomic governance and market professional, intellectual and technological capabilities
efficiency may remain valid instruments for the LDCs, of their burgeoning young populations; (ii) investments
but cannot be pursued at the expense, or neglect of aligned to an explicit lifelong learning framework
LDCs’ productive capacities, and the central goal of that respects the fundamentally interrelated nature
structural transformation. of all levels of education (e.g. the quality of primary
education has a bearing on achievable outcomes
3. Strategic approach to human capital and at that level and for all the following higher levels,
labour policies including eventually the labour market); and (iii) if it is
fit-for-purpose in terms labour market entrants’ ability
Human capital and labour policy underpin the
to meet current and future market requirements. The
expansion of the productive base and the creation
failure to fulfil these conditions renders the economy
of decent jobs in any economy. It is the dynamic
unable to make the best productive use of its human
resources to enhance its overall performance. This
4
This includes leveraging the UNCTAD Regional Centres of
Excellence and similar initiatives by other multilateral bodies is one of the major weaknesses of the export-driven
and agencies. model of development that was more oriented to the
127
international economic environment in which their

economies are inserted, particularly in the context
ISMs are at the heart of the global production networks dictated by the
of the international partnership to advance process of globalization. In addition, the level of
development in the LDCs dependence that most LDCs have on international
trade, international financing (including ODA, despite
its declining trend) places ISMs at the heart of the
advancing rationale for the existence of the LDC category, and
development the logic of an international partnership to advance
LDCs development in the LDCs. ISMs encompass

international support in terms of financial resources,
capacity building and technical assistance. Such
measures were traditionally associated with the agency
of northern donors. The international partnership has
evolved to recognize the important contributions of
ISMs South-South cooperation – a cooperation which plays

a complementary role to the rest of the international
architecture, and raises no conflict of interests with
North-South cooperation (United Nations, 2019).
Historically, the expansion of ISMs has at different
outcome of integrating LDCs into the global trading times been driven by the implementation of individual
system and ambiguously shifted the emphasis to initiatives adopted variously at the unilateral, bilateral
market access concerns. and multilateral levels. They have often been external
to the PoAs for LDCs. The consequence of this
At the core of policies to bridge the technology
uncoordinated and fragmented approach to the
gap between LDCs and ODCs and LDCs and
development, design and implementation of ISMs is
developed countries are targeted public investments
that existing LDC-specific ISMs do not necessarily
in education and skills development at the level of
represent a coherent and mutually supportive system
production. Ultimately, prior adequate investments in
of support for the development of LDCs. Worse,
human capital determine the returns on investments
some are ineffective either because they are worded
in technology by firms, including how existing
in ways that do not compel compliance or impose
production systems are utilized and the potential to
accountability (e.g. art. 66.2 of the TRIPS Agreement
realize the structural changes needed to improve the
of the World trade Organization – WTO), or impose
production systems. Advances in fourth industrial
burdens on LDCs in terms of cost, access and
revolution technologies will require current and
operationalization.
future employees or economic actors to rapidly
develop new competencies to keep abreast of
1. Principles to guide the new generation
technological innovations. Labour employability gaps
in many LDCs impose a drag on both traditional and of ISMs
emerging sectors, and discourage the appearance of A new generation of ISMs could consider alignment
new economic activities. This is a critical issue that with the following principles:
requires urgent attention to align with the conditions • The need to establish coherence and synergy
necessary to realize the dividends from investments in among ISMs in the fields of trade, finance,
human capital and a youthful and growing population. technology and capacity-building and their
A need also exists to simultaneously expand access governance by a specially designed overarching
to education and drastically improve the quality and multilateral framework.
diversity of human capital in LDCs.
• The new generation of ISMs should be aligned with
the overall objective of fostering the development
E. A new generation of international of productive capacities aimed at structural
transformation, as advocated in this report and by
support measures other LDC development stakeholders.
The available options for LDCs to pursue different • The aim to strengthen the effectiveness of
development paths and trajectories are strongly existing and new ISMs in facilitating the LDCs
conditioned (but not pre-determined) by the in overcoming their structural impediments to
128
development, especially in the fields of financing

for development and technology. ISMs in these
domains should promote increasing the flows
Systemic global imbalances are at
of financial resources and technology, widening the root of the LDCs' development
the coverage and stabilizing the availability underperformance
of resources allocated to financing structural
economic transformation in LDCs, including
the acquisition of technology and technological Possible goals and targets that could be considered
capabilities by economic agents in LDCs. for inclusion in the new PoA include:
• The need to adapt ISMs to 21st century realities,
• Taking up the various elements of the different
including the lingering effects of the COVID-19
proposals already tabled by the LDC Group at
crisis, the principle of common but differentiated
the WTO, including: (i) commitments on joint
responsibility in relation to the climate change
action to safeguard special and differential
crisis, and the accelerated digitalization of the
treatment as a permanent feature of future WTO
world economy.
agreements; (ii) commitments on joint action to
• The need to adopt a coherent system of ISM achieve tangible results towards completing the
monitoring and evaluation, which strengthens unfinished business in respect of the negotiations
the mutual accountability of LDCs and their on the duty-free and quota-free (DFQF) regime,
development partners; this includes adopting especially rules of origin.
mechanisms for greater transparency in the
• Actions that align the coverage and depth of tariff
operation of these ISMs.
cuts, rules of origin and administrative procedures
of DFQF schemes with the productive and
2. Trade institutional capacities of LDCs. This is to ensure
The possibility to expand special treatment in future their full utilization and increase their ability to
agreements has been tabled at the WTO, but some stimulate the growth of the local enterprise base
developed countries are pushing for the review and international investments.
of the notion of special and differential treatment • Secure the commitment of development partners
(Pauwelyn, 2012; Trebilcock, 2015). It remains in the to sustain and strengthen their support in
interest of LDCs to preserve trade multilateralism, facilitating the accession of LDCs to the WTO.
as this is one of the areas in which special and
• ISMs aimed at facilitating the leverage of (new)
differential treatment for LDCs by the international
opportunities from regional and sub-regional
community has established unity on the recognition
of the LDC category and the treatment of LDCs. integration, e.g., from the Regional Comprehensive
This is unlike the case of other (non-multilateral) Economic Partnership (RCEP), South Asian Free
ISMs, whereby ISM instruments are adopted on a Trade Area (SAFTA) and the African Continental
case-by-case basis, e.g., the G20-led Debt Servicing Free Trade Area (AfCFTA).
Suspension Initiative (DSSI). Such a case-by-case
approach offers low predictability for LDCs, whose 3. External financing for development
weak institutional capacities countries puts them at Chapter 4 of this report has shown the scale of
a severe disadvantage in negotiations of this nature. investments required by LDCs in their pursuit of
Trade multilateralism has increasingly been marked Sustainable Development Goals. It has also made
by the expansion of issue-by-issue negotiations clear that domestic resource mobilization will not
under the aegis of the WTO, whereby small groups suffice in meeting the financing needs of LDCs, hence
of advanced states push to set norms on difficult
the importance of external financing for development.
issues, first through negotiations among themselves
Chapter 4 mentioned some of the options available.
and then striving to plutilateralize or multilateralize
Hereafter, the discussion is broadened in of the light
them (Pauwelyn, 2012). Such procedures deny
of the proposed new generation of ISMs for LDCs.
LDC agency and negate the recognition enshrined
in the PoAs that negative international spillovers LDCs stand to lose the most from declining trust in
undermine the ability of LDCs to pursue and achieve multilateralism, especially in respect of the external
development. It likewise prevents the identification of financing on which they are most dependent. The
decisive multilateral mechanism to address systemic ongoing emergence of the new architecture for
global imbalances, which are at the root of the LDCs' development cooperation provides a wider array of
development underperformance. actors and financing instruments but this has yet to
129
partnerships and broader relations with the domestic

business ecosystem.
Assess financial risks and
contingent liabilities of blended It is imperative to avert the risk that the emergence
of new forms of financing weaken the linkages
finance projects between external development finance and national
development priorities. These developments
seriously challenge the institutional capacities of
translate into meaningful increases in development LDCs, already crippled by: (i) low levels of domestic
finance. Also of concern is the fact that new forms resource mobilization; (ii) a sluggish trend in ODA
of financing add complexity, but render transparency flows; (iii) worsening levels of concessionality; and (iv)
management and coordination a lot more difficult deteriorating debt sustainability (UNCTAD, 2019a).
for LDCs. This raises questions in relation to LDCs’ While the OECD DAC Blended Finance Principles
agency in: (i) optimizing the level and destination Guidance represents a step in the right direction, it is
of mobilized financing; (ii) assessing its genuine clear that strengthening LDC institutional capacities
additionality; (iii) monitoring its effectiveness; and (iv) related to newly created financial instruments, be it in
alignment with national policies. the area of blended finance, of sustainable bonds, or
Increased pressures on aid budgets in the aftermath other instruments linked to the environmental, social
of the COVID-19 crisis add more uncertainties around and governance (ESG) investing, remains of the
the future of external official flows. The amounts utmost importance.
associated with the aid spending target of 0.7 per In this context, excessive trust and reliance on blending
cent of donors’ gross national income (GNI) shrank and blended finance using ODA as the main response
amid the economic fallout of the pandemic. Yet to the challenges of mobilizing development finance
scaling-up financing will be critical in reducing the risk in LDCs is to be avoided. As argued by UNCTAD
of LDCs slipping further behind. Donor responses to (2019a), policymakers need a better understanding
LDC needs to mitigate the impact of the COVID-19 of the development impact of blended finance and
crisis have tended to rely on bringing forward funding its true costs to ensure value for money, and the
previously programmed for delivery over a longer effective allocation of aid. A critical consideration is
period. In addition, as donors have been striving the extent to which sources of development finance
to adopt adequate countercyclical responses to touted as alternatives to ODA contribute to the
the crisis, increased demands for development structural economic transformation of LDCs and
assistance strain their financial resources. Some creating more fiscal space. With the emergence of
donors have reduced their aid budgets since 2020, new forms of private sector engagement, blended
and announcements made on planned increases finance is being pursued with enthusiasm by donors,
by other donors are unlikely to be sufficient to offset but despite these high hopes, this report cautions
these cuts in ODA. These cuts have affected individual that the scalability of blended finance as a tool in
countries directly or through allocations to projects LDCs is severely limited in attracting private capital
and programmes at the bilateral and multilateral because of their structural features, which donor
levels, including in key sectors of the Sustainable private sector engagement and blended finance are
Development Goals (Devex, 2021a; Devex, 2021b; unlikely to compensate for. UNCTAD also cautions
The Guardian, 2021). that to adequately address LDC needs, private sector
engagement and the application of blended finance
Another thorny issue in the blended finance debate
must heed the lessons from the structural adjustment
is ensuring the equal treatment of domestic private
era of the 1980s and 1990s. Being overly focussed on
sector and foreign investors, including those
fostering FDI, the latter failed to ensure the emergence
originating from the country whose ODA is utilized in
of a strong and resilient local entrepreneurial base as
the blending. Moreover, it remains critical to assess
the core factor in sustainable development in LDCs
the specific financial risks and contingent liabilities
through the acquisition of productive capacities
that certain blended finance projects may generate,
(UNCTAD, 2018a).
for instance in the case of de-risking instruments.
It is thus important to assess on a case-by-case The Least Developed Countries Report 2019
basis whether blended forms of finance represent (UNCTAD, 2019a) shows that LDCs accounted
the most appropriate use of public development for 6 per cent of the capital mobilized in the
finance, considering the development rationale period 2012–2017, equivalent to only 5.8 per cent of
for the intervention, as well as related modalities, the volume of ODA disbursed to LDCs. Moreover, the
130
distribution of that capital across LDCs was uneven

and concentrated in a few countries; an additional
problem was that development finance institutions
International financial flows to LDCs
(DFIs) and multilateral development banks (MDBs) are likely to be volatile in the
were not yet mobilizing large pools of institutional coming decade
capital.5 The top three recipients accounted for
nearly 30 per cent of all additional private finance, while
the top ten countries, accounted for about 70 per national priorities on building productive capacities
cent. UNCTAD analysis incorporating the year 2018
and structural transformation.
shows only a marginal change, with the LDCs’
share (excluding regional allocations) accounting In the coming decade international financial flows to
for 6.3 per cent of the total capital mobilized from LDCs are likely to be quite volatile. Most LDCs will
private sources, and 6.9 per cent of private capital be prone to boom-and-bust cycles, and exposed
distributed to individual countries. Mobilized private to climate change and social pressures triggered by
capital remains insignificant, and accounts for about the COVID-19 crisis. For resilience-building, it will be
5.8 per cent of the total volume of ODA disbursed imperative to try to prevent growth deceleration and
(Abalkina, 2021). The sectoral distribution of huge shocks, and build capacity to react to them
mobilized private capital also shows a concentration more effectively.
in revenue-generating sectors in LDCs, especially
FDI inflows are forecast to remain sluggish in 2022,
energy, banking, financial services, industry, mining
even as LDCs struggle to cope with the COVID-19
and construction. These are sectors that would in
shock (UNCTAD, 2021c). Aggregate FDI flows to
any case be likely to attract commercial finance,
LDCs as a group remained stable in 2020, and the
which puts into question the implicit additionality of
share of LDCs in global flows rose from 1.5 to 2.4 per
blending. UNCTAD’s findings and concerns are largely
cent – the highest percentage increase since 2003.
echoed by other sources (OECD and UNCDF, 2020;
However, at the country level, FDI declined in the
Meeks et al., 2020; Attridge and Gouett, 2021).
majority of LDCs, mirroring bilateral official flows
While OECD and UNCDF (2020) highlights the
in its tendency to be unevenly distributed across
potential for LDCs of blended finance as a tool in the
these countries. The decline in FDI in LDCs affected
long-term, it remains an agenda for action rather than
investment announcements in sectors relevant for the
a solution in the short- to medium-term. (Attridge
Sustainable Development Goals, which is of concern
and Gouett, 2021) show that countries in the lowest
for plans to help these countries graduate from LDC
decile of per capita income received less than 2 cents
status.
of every dollar invested by DFIs and MDBs. They
further highlight the limited countercyclicality of DFI What is clear is that LDCs have differing levels of
and MDB investment in lower-income countries, and fiscal space to mount the necessary countercyclical
the concentration of blended concessional capital in measures to mitigate the impacts of the COVID-19
the form of senior loans, which is unlikely to meet the crisis. Compared to more developed and other
risk-mitigation needs of private investors, especially developing countries, LDCs have relied on small
in these countries. These collective findings serve to fiscal packages and are severely constrained in
underline the continued need of LDCs for traditional sustaining such expenditures. ISMs need to include
official development finance. targeted debt relief as a measure to increase LDCs’
Moreover, the mechanisms to align these policy space. Existing initiatives, such as the G20-led
investments with national development plans and Debt Servicing Suspension Initiative (DSSI)6, are
priorities, and hold the private sector accountable not sufficient to address the debt vulnerabilities
to ODA recipients, remain unclear. The ability of of many LDCs. Public debt in the form of private
LDC governments to design autonomous policies sector loans and bonds has also introduced new
could be constricted by demands to allocate scarce vulnerabilities. The limited debt relief received from
resources (and thus relinquish fiscal space) into official sources risks being diverted into payments
creating attractive conditions for private finance. to private creditors in the absence of a mechanism
In so far as the practice of blending relies on LDC to ensure equal treatment across creditors, thereby
government-backed guarantees, a case can be generating perverse incentives in the negotiations for
made for LDCs to impose conditionalities linked to debt rescheduling or write-off. Development partners
should accord particular attention to schemes, such
5
This is a concern given that FDI declined in the majority of
LDCs in 2020 and their current sluggish growth in GDP. 6
https://www.imf.org/en/About/FAQ/sovereign-debt#DSSI
131
and impact of important new aid modalities and

instruments, e.g. blended finance.
A renewed commitment
> The design of LDC-specific modalities in this
by donors to obligations respect may need to be considered;
on ODA > The provision of targeted funds for LDC
capacity development to best leverage
development interventions through blended
as The Financing for Development in the Era of instruments also deserves some consideration.
COVID-19 and Beyond Initiative, co-led by Canada,
• Aligning the design and implementation of
Jamaica and the United Nations, which contains
country-owned financing frameworks envisaged
many policy options targeted or highly relevant by the AAAA. These financing frameworks aim
to LDCs. to help countries: (i) manage a complex financial
As already mentioned in section B, development landscape; (ii) align financing with long-term
realities in LDCs advocate for an increase in priorities; (iii) increase the effectiveness of
grant-based ODA. In addition, it is desirable that financing policies; and (iv) translate priorities
ISMs aimed at mobilizing financing for development into strategic action in line with their country
ensure allocations of external financing are aligned to capacities and priorities) to the goal of structural
the core objective of achieving sustainable structural transformation through building productive
transformation by enhancing the productive capacities. Opportunities exist for LDCs to learn
capacities and capabilities of LDCs, as well as that from their peers that are early movers in this
of economic actors (private sector), at the level of respect; consideration could likewise be given to
the state. incorporating tailored goals to that effect.
Areas for priority action on the mobilization of external • The identification of a minimum set of
ISMs/elements tailored to the needs of graduating
financing that could be considered by the new PoA
LDCs. These would especially address the
and its implementation include:
productive capacities needed to address
• A renewed commitment by donors to international
immediate supply-side bottlenecks that might
obligations on ODA through a:
hamper their smooth transition to non-LDC
> Call to donor countries to fulfil longstanding developing country status.
and regularly reaffirmed obligations concerning • The international community has a unique
aid quantity and quality; opportunity through the IMF’s initiative to allocate
> The reiteration of the ODA targets endorsed Special Drawing Rights (SDRs) to align the
by the 2030 Agenda for Sustainable potential liquidity boost to LDCs’ capacity to
Development for donors to achieve the target investment in productive capacities (rather than,
of 0.15–0.2 per cent of gross national income for example, debt repayment), but this facility
to LDCs and to increase both the quantity benefits countries with large foreign exchange
(0.15/0.2 per cent of GNI), and quality of aid reserves. Therefore, it will be crucial that LDCs are
to LDCs to ensure that ODA supports the awarded a share of SDRs that is not tied to the
sustainable development of LDCs and is put system of quotas currently in place and that the
to the best possible use; re-allocation of donor countries does not come as
> Scaling up financing for development in LDCs an alternative to their already unsatisfactory levels
should not increase debt burdens further. of ODA disbursement.
The redefinition of ODA in grant-equivalent • Concrete measures to both increase climate
basis may, in this respect, reinforce donors’ finance and achieve greater balance between
incentives to provide highly concessional mitigations and adaptation, which would be in
loans; nonetheless, the need to use of grants favour of the acute adaptation needs and risks of
as the primary modality of support for LDCs LDCs, and in line with the principle of common
is reinforced by the fact that many LDCs are but differentiated responsibility.
already struggling with deteriorated debt • Contingency financing facility – whereby debt
sustainability outlooks. repayment is linked to contingent factors that
• LDCs need to be empowered to participate influence a country’s ability to service debt,
in the measurement of the effectiveness and such as natural disaster, GDP or commodity
alignment with LDC-determined national priorities growth – needs to be further discussed and
132
developed as a financing for development

modality that is counter-cyclical. Building on
past and present experience of this modality, the
Transfer of technology needs
international community can consider disaster risk to be pursued through a number
insurance by means of a system that is financed of channels
by insurance premiums in a scheme that pools all
countries, rather than just the most vulnerable.
• Concrete measures aimed at operationalizing but technologically backward countries have not
mutually beneficial cooperation on Illicit financial been able to make similar strides (UNCTAD, 2021d).
flows (IFFs). This can include: (i) an ISM
established at the multilateral level to facilitate the In this context, LDCs require a renewed partnership
recovery of IFFs by LDCs with ease and speed, for the development and strengthening of their
and on the basis of mutual collaboration among technological capabilities. A strengthened international
developed and developing countries (e.g. by partnership for technology transfer to LDCs would
means of simplified procedures for LDCs); and play a vital and complementary role to fostering
(ii) capacity-building support for LDCs to combat sustainable development in these countries, as it
and recover such flows. would contribute to the upgrading and expansion of
their productive capacities. Such a partnership would
• Development partners should take adequate
comprise coordinated initiatives by both national
considerations of LDCs’ interest and institutional
governments and development partners. In the former
challenges in the forthcoming discussions on
case, domestic policies for science, technology
global corporate taxes, and ensure that LDCs
and innovation (STI) should be integrated with the
accrue a fair share of related revenue.
previously mentioned policies for entrepreneurship
• A transparent mechanism to ensure that private development. They should assist local enterprises
creditors will also participate in debt suspensions in identifying market opportunities which can be
and relief efforts on a comparable treatment basis, responded to by the introduction of solutions,
thereby ensuring that no creditor has a perverse products, processes, etc., which are innovative at
incentive to "hold-out" from debt restructuring or,
the local level. Many of these necessitate foreign
when appropriate, write-off a debt. Similarly, an
technologies, which could be met by matching local
independent mechanism for reviewing or writing
needs and the international supply of technological
down private sector debt is needed.
solutions; however, this process is typically beset by
information asymmetries, coordination failures and a
4. Technology transfer dearth of finance (which is always required for enacting
International norms on the access to technology and innovative business ideas in local markets). This is
innovation remain geared towards protection rather where the international side of the partnership can
than diffusion (UNCTAD, 2010). Several international intervene. Donors can support technology transfer
agreements contain clauses envisaging technology centres to assist with: (i) services of a search and
transfer to developing countries and/or LDCs. connecting agent (which connects demand for and
Foremost among them, article 66.2 of the TRIPS supply of technological knowledge); (ii) SME support
Agreement establishes an obligation for developed financing; and (iii) overcoming major obstacles to
countries to provide incentives to their enterprises to technology transfer. Some of these already exist and
transfer technology to LDCs. This was the result of operate successfully. Expanding and strengthening
a bargain between LDCs and developed countries the funding and operations of such centres is a way
during the Uruguay Round. 25 years after the entry in which developed countries can comply with their
into force of the Agreement, the purported objectives obligations under art. 66.2 of the TRIPS Agreement.
of this bargain have largely not been met, resulting
Additionally, transfer of technology to LDC agents
in this disposition remaining mostly ineffective
needs to be pursued through a number of channels,
(Moon, 2011; Fox, 2019). The technological
including through:
gap separating LDCs from developed countries,
but also from ODCs, continues to be very wide • More specific and concrete discussions
(UNCTAD, 2020a). It is likely to have widened further between LDCs and developed countries on the
since the outbreak of the COVID-19 pandemic, as implementation of the latter’s obligations under
technologically advanced countries have sharply art. 66.2 of the TRIPS Agreement;
accelerated their adoption of frontier technologies, • Greater emphasis on technology transfer in
and embarked on their transition to a digital economy, the design and implementation of investment
133
changing technical specifications and characteristics

of roads, energy plants, bridges, ports, buildings,
LDCs should exploit opportunities for etc., to make them climate-resilient will require
transfers of technology and capabilities different technological capabilities than those
offered by subregional markets currently available. As LDC argue forcefully for an
increase in climate finance (as seen in the previous
subsection), it is important that they use this
promotion regimes for LDCs, referred to in greening of their economies as an opportunity to
target 17.5 of the Sustainable Development build their technological capabilities. Regardless of
Goals; the source of finance for these new infrastructure
projects, it is crucial that they associate domestic
• An explicit link of the use of ODA-backed private
sector instruments to identifiable and verifiable agents (companies and professionals e.g. engineers,
technology transfer, such as joint ventures, technicians, specialists) to the building and running
creation of R&D facilities in LDCs, and partnership of these works. This will allow LDCs to strengthen
with local research institutions; their knowledge base and skills in future-oriented
technologies (e.g. renewable energies, thermic
• Encouraging the adoption of concrete voluntary
isolation, earthquake resistance, etc.).
measures of technology transfer in the context
of sustainability standards, corporate social LDCs should likewise exploit complementary trade
responsibility (CSR), and responsible business structures offered by their subregional markets to
conduct; exploit opportunities for transfers of technology
• The diffusion of open-source software and digital and technological capabilities, and make best use
products; of their more advanced neighbours, as recognized
by the Buenos Aires outcome document of the
• Creating a unified framework for the voluntary
second High-level United Nations Conference on
sharing of green technologies specifications and
South-South Cooperation8 and the World Intellectual
related intellectual property information (building
Property Organisation’s agenda on South-South and
on the models applied in the health sector through
triangular cooperation.9 This will entail intensifying their
the World Health Organisation’s Technology
Access Pool7). investments in targeted interlinkages at various levels,
e.g. at firm/industry, institutional and infrastructure
Climate change will require the building of levels.
climate-resilient infrastructure in the LDCs. The
8
https://undocs.org/pdf?symbol=en/A/RES/75/234
7
https://www.who.int/initiatives/covid-19-technology- 9
h t t p s : / / w w w. w i p o . i n t / e d o c s / p u b d o c s / e n / w i p o _
access-pool southsouth_flyer.pdf
134
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The COVID-19 pandemic has exposed and amplified the vulnerability of least developed
countries to external shocks. Once again, those with the least are suffering the most. At a time
fraught with fragilities, UNCTAD’s Least Developed Countries Report shines a light on how
governments and the international community can pool efforts to build productive capacities
as a pathway to sustainable development for all.
António Guterres, Secretary-General of the United Nations
Since advocating for the creation of the category of the least developed countries (LDCs) five
decades ago, UNCTAD has been at the forefront of LDC development policy. Today, UNCTAD
leads the analysis and search for practical national solutions for LDCs, rallying the international
community to provide strengthened and appropriate support at the global level. This report
proposes a pivotal agenda for the 2022-2031 decade for LDCs, a crucial time period that is
flanked on one end by the COVID-19 pandemic and on the other by the culmination of the 2030
Agenda. Centred on building productive capacities for their programme of action, this report
embodies UNCTAD’s unique expertise and continued commitment to help LDCs transition to
a more inclusive, prosperous and sustainable future for both their citizens and the global
community.
Rebeca Grynspan, Secretary-General of UNCTAD
This is a game-changing report: it is unusual for a mainstream organization such as UNCTAD

to examine the results of economic policies on the ground, challenge the ineffectiveness of
the dominant economic discourse, and recommend radically new course of action. The least
developed countries deserved such a hard look. After half a century of underperformance
due to erroneous strategies, their plight is being felt around the world as a threat to global
peace. This report sheds a vivid light on past mistakes and articulates a pragmatic agenda for
building productive capacity in LDC, boosting global aggregate demand, and achieving shared
prosperity.
Professor Célestin Monga, Harvard John F. Kennedy School of Government
Over the last 50 years most least developed countries (LDCs) have struggled to overcome
the development challenges that led to the establishment of the category in 1971. Even their
strong economic growth since the mid-1990s has generally been insufficient to redress
their long-term income divergence with the rest of the world. The COVID-19 crisis and the
emerging two-speed global recovery threaten to reverse many hard-won development
gains, which is further aggravated by the creeping adverse effects of climate change.
Mainstreaming productive capacities development in these countries is a necessary
condition for boosting their capacity to respond to and recover from crises. While LDCs
prioritize economic transformation and diversification in their policies, they have critically
lacked the means necessary to progress towards the objectives of the 2030 Agenda for
Sustainable Development. The average annual investment requirements to end extreme
poverty (SDG 1.1) in LDCs is estimated at $485 billion, whereas doubling the share of
manufacturing in GDP (SDG 9.2) is estimated at $1,051 billion. The latter amounts to more
than triple the current investment by LDCs, and therefore vastly exceeds LDCs’ available
resources.
The international community has therefore an essential role to play in supporting LDCs
in their efforts to mobilize adequate resources for their sustainable development needs,
including in financing and technology. A new generation of international support measures
that are more closely aligned to the expressed needs of LDCs and 21st century realities
will have to be rolled out to support their domestic efforts. Bolstering multilateralism and
dealing decisively with external sources of instability affecting LDCs is necessary to create
a conducive climate for the achievement of the next programme of action for the least
developed countries for the decade 2022-2031.
ISBN 978-92-1-113006-5
Printed at United Nations, Geneva United Nations publication

2112119 (E)–September 2021–3,655 Sales No. E.21.II.D.4
UNCTAD/LDC/2021

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U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T

The least developed countries

THE LEAST DEVELOPED COUNTRIES REPORT 2021

The least developed countries

THE LEAST DEVELOPED COUNTRIES REPORT 2021

© 2021, United Nations

CHAPTER 1 Setting the scene: 50 years of the LDC category .......................................1

CHAPTER 2 Achievements at 50: growth, transformation and sustainability?........ 19

CHAPTER 4 Estimating the cost of achieving Sustainable Development Goals

CHAPTER 5 From lessons learnt to future development trajectories ................... 117

References ...................................................................................................... 135

1.1 Share of total trade (per cent) by economic status .......................................................................................... 8

2.1 Incidence and speed of growth accelerations/decelerations by country groups ............................................ 30

2.1 LDCs and the divergent recovery .................................................................................................................. 27

The resulting groups are as follows:

African least developed countries and Haiti:

Asian least developed countries:

Island least developed countries:

OTHER GROUPS OF COUNTRIES AND TERRITORIES

Other developing countries:

What are the least developed countries?

• Botswana in December 1994;

Abbreviations and acronyms

CSR corporate social responsibility

ECI economic complexity index

ECOWAS Economic Community of West ODA overseas development assistance

DFI development finance institution PoA programme of action

DSSI Debt Service Suspension Initiative PPGR pro-poor growth rate

FDI foreign direct investment PPoA Paris Programme of Action

GDP gross domestic product PRSP Poverty Reduction Strategy Paper

GNI gross national income RCEP Regional Comprehensive Economic

GVC global value chain

HAI Human Assets Index

HIPC Heavily Indebted Poor Countries SDG Sustainable Development Goals

ICTs information and communications SIDS small island developing States

IMF International Monetary Fund STI science, technology and innovation

Setting the scene: 50 years of the LDC category

The origin of the LDC category

The special role of trade

The present critical juncture

Achievements at 50: growth, transformation and sustainability?

Evaluating past and present strategies for furthering development

Forty years of international support measures in favour of LDCs

National strategies for furthering development

Investment needs for the least developed countries to achieve the

Results and implications of the estimated investment needs

From lessons learnt to future development trajectories

The global community’s interest in LDC development and support for it

The new programme of action: objectives

National measures: new priority actions for consideration

A new generation of international support measures

The COVID-19 crisis

The programme of action for

B. The origin of the LDC category 4

C. Evolution of the LDC category 11

D. The present critical juncture 13

E. Structure of the report 14

A. The landmark in LDC history

places particular emphasis on the trade challenges