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Foreword
The international community’s new programme of action for the world’s least developed countries (LDCs), which will run from 2022 to 2031, is set to commence in extremely challenging circumstances. The outbreak of COVID-19 sparked an unprecedented global crisis that has set back progress on many of the Sustainable Development Goals (SDGs). Two years later, as virus-related deaths exceed 5.5 million globally, and nearly one million across the Commonwealth, the pandemic continues to destabilise the global economy and severely affect the lives and livelihoods of millions of people in our family of nations and beyond.
This threatens to derail much of the progress made by LDCs in advancing economic and social development through the implementation of the Istanbul Programme of Action (IPoA). On top of its tragic human costs, the pandemic has constrained output and value-added production by LDCs, caused a huge decline in their trade and foreign direct investment flows, put pressure on already strained fiscal resources, and generated uncertainty around future inflows of official development assistance, along with a host of other adverse macroeconomic consequences.
As LDCs and their development partners seek to chart a way out of the COVID-19 crisis and look beyond the pandemic to build a more resilient and sustainable future, it is vital that we reflect on the successes and challenges encountered during the IPoA, which concluded in 2020 as the pandemic took hold.
This report reviews our Commonwealth LDC members’ achievements, experiences and challenges over the course of the IPoA. In doing so, it offers important lessons and insights to guide future policies and strategies aimed at accelerating LDC development. I believe it is a timely and important contribution that will help inform the national, regional and multilateral efforts to shape a new phase of action – one that will help to address the particular needs of Commonwealth LDCs and improve their trade and development prospects over the next decade.
As the report shows, despite the progress achieved during the IPoA, there remains much work to do to build the productive capacity of LDCs and address digital divides within and between LDCs, as well as between LDCs and more developed countries. The structural weaknesses constraining LDC trade must be addressed, and sufficient financial resources to support sustainable development for LDCs must be mobilised. Urgent action is also required to expand resources and support for climate adaptation and resilience, and natural disaster mitigation, in LDCs.
The pandemic highlighted and amplified many of the deep-seated vulnerabilities confronting LDCs. The economic and social damage caused by COVID-19 not only brings greater urgency to the need to tackle these challenges, but also makes them more difficult to overcome.
However, along with new challenges, a new context creates new opportunities. Emerging trends are reshaping the global landscape. The relentless acceleration and expansion of digitalisation, with rapid advances in areas such as automation, robotics and 3D printing, bring the need for LDCs to build digital capabilities into even sharper focus. The restructuring of global value chains – marked by a shift to near-shoring, re-shoring and regionalisation, along with shifts in investor sentiment – offer LDCs the opportunity to become more competitive in the global economy if they are able to adapt and innovate. These considerations will be critical in shaping priorities over the coming decade.
The start of a new programme of action presents an ideal opportunity to step up international co-operation to tackle the remaining social, economic and environmental challenges facing LDCs. While unquestionably contributing to much-needed progress, the framework of domestic and international policies and support measures set out in previous programmes of action have been insufficient to overcome many of the developmental challenges faced by LDCs. A range of structural challenges still need to be addressed to facilitate economic transformation and enable sustainable development.
LDC governments, together with the international community, must work together to overcome these impediments and develop new long-term strategies to ensure they rebound from the COVID-19 crisis and lay the foundations for more inclusive and sustainable growth. Our Commonwealth 10-point programme of action for LDCs proposed in this report provides a compelling agenda for joint action by LDCs and their development partners to help achieve the ambitious goals set in the 2030 Agenda for Sustainable Development and ensure a more prosperous future for the world’s poorest countries.
The Rt Hon Patricia Scotland QC
Secretary-General of the Commonwealth
Executive Summary
The Istanbul Programme of Action (IPoA), which ran from 2011 to 2020, set out a vision and strategy for sustainable development in least developed countries (LDCs) by seeking to overcome some of their persistent development challenges.
This report takes stock of the progress made and the challenges encountered by the Commonwealth’s 14 LDCs during implementation of the IPoA. At the dawn of a new programme of action in 2022, amid the COVID-19 pandemic and the resurgence of new variants of the virus, the report also looks ahead to opportunities to address the special needs of Commonwealth LDCs and improve their trade and development prospects over the next decade.
Pre-COVID progress under the IPoA
Achieving sustained, equitable and inclusive economic growth has proved challenging for Commonwealth LDCs over much of the past decade. Collectively, their gross domestic product (GDP) grew annually by 4.6 per cent, on average, between 2011 and 2019; this is well below the IPoA growth target of at least 7 per cent per annum. Many Commonwealth LDCs experienced volatile economic growth during this period. GDP per capita increased in half of them but declined in others,[1] moving those countries further adrift of the graduation threshold.
Commonwealth LDCs made limited progress in building productive capacity, advancing structural transformation, growing trade and mobilising financial resources.
Building productive capacity
Productive capacity varied significantly across Commonwealth LDCs during the IPoA. The United Nations Conference on Trade and Development (UNCTAD) Productive Capacities Index (PCI), an aggregate measure, suggests productive capacity was highest in Commonwealth LDCs in the Pacific along with Bangladesh and Lesotho, and lowest among the other African LDCs, as of 2019. Most Commonwealth LDCs were in the bottom quadrant globally on the PCI in that year.
Many Commonwealth LDCs improved aspects of the environment and ecosystem supporting productive activity during the IPoA. All 14 countries expanded access to electricity and grew their renewable energy generation capacity. International internet bandwidth per internet user increased in all Commonwealth LDCs apart from Kiribati and Tanzania, and uptake of fixed broadband and mobile cellular subscriptions expanded in most of these countries.
However, major challenges persisted in other areas. Large deficits in economic infrastructure continued to act as a brake on private sector development. Only limited progress was made in addressing digital divides. All 14 Commonwealth LDCs fell well short of achieving the IPoA target of universal access to the internet as of 2019, despite improvements since 2011. In seven of these countries, less than 20 per cent of the population was able to access the internet in 2019. Poor network connectivity linked to inadequate digital infrastructure and high costs of mobile data continues to limit internet access in many Commonwealth LDCs.
Advancing structural transformation
Structural transformation was earmarked as a major priority on the IPoA agenda. In almost all Commonwealth LDCs – apart from Uganda – there were clear shifts in the relative share of employment away from agriculture and into industry and services during the IPoA, pointing to some progress in moving from low- to higher-productivity activities.
While there was also evidence of a shift in the weight of value added in GDP away from agriculture, in several cases this was accompanied by a relative increase in the value added share of services and stagnant or declining shares for industry and/or manufacturing, especially in Bangladesh, Lesotho, Malawi and Tanzania. The share of manufacturing value added in GDP declined between 2011 and 2019 in seven Commonwealth LDCs. These patterns point to some degree of premature de-industrialisation. Growing manufacturing capacity and accelerating industrial development remains challenging for most Commonwealth LDCs.
Growing trade
The decade 2011-2020 proved challenging for overall LDC trade, including for the 14 Commonwealth members. Their inherent structural vulnerabilities, together with pre-pandemic economic headwinds and COVID-related supply and demand disruptions, hampered efforts to meet the IPoA’s trade-related targets.
The combined value of goods and services exported by Commonwealth LDCs increased by 41 per cent, from US$57 billion to about $80 billion, between 2011 and 2019. More than half of this growth can be attributed to exports from Bangladesh. Exports from the Commonwealth’s African LDCs increased marginally from $29 billion to $34 billion, while those from Pacific members grew by a mere $120 million.
The IPoA sought to double the share of LDCs in global exports to 2 per cent by 2020. Although the export share of all 47 LDCs stagnated at around 1 per cent, the share for Commonwealth LDCs was 1.27 times greater in 2019 compared with the start of the IPoA. By the end of 2019, the trade share of Bangladesh was 1.5 times higher. However, for African and Pacific members it remained largely unchanged. Only two Commonwealth LDCs, Rwanda and Tuvalu, substantially increased their share of global exports and came close to achieving the IPoA target. The generally modest export growth registered in most Commonwealth LDCs meant their collective share in world trade increased only slightly, from 0.25 per cent in 2011 to 0.32 per cent in 2019.
Even so, Commonwealth LDCs generally performed better on growing trade compared with non-Commonwealth LDCs. This was driven by higher GDP growth (averaging 5.5 per cent versus 4.2 per cent across the entire LDC group), which translated into larger volumes of trade flows, and heavy reliance on intra-Commonwealth trade, underpinned by a significant and growing “Commonwealth advantage” owing to lower trade costs. As a result, Commonwealth LDCs increased their share of intra-Commonwealth trade to 2.83 per cent between 2011 and 2019 while the export share for all 47 LDCs in world trade stagnated.
Growth in trade for Commonwealth LDCs varied by sector during the IPoA. Before the onset of the pandemic, cumulative growth in the value of their services exports was almost three times greater than that of their merchandise exports, rising from US$9 billion in 2011 to around $17 billion in 2019. Their merchandise exports increased from $48 billion to $57 billion over the same period, with much of this growth stemming from Bangladesh.
Mobilising financial resources
A key priority for the IPoA was to enhance the capacity of LDCs to mobilise financial resources for development. Eight Commonwealth LDCs managed to expand their tax revenue collections relative to GDP in the latter half of the IPoA. Yet the ability to generate domestic revenue remains limited in many Commonwealth LDCs, given their narrow fiscal bases and weak tax administration capacity.
In the absence of means to mobilise sufficient financial resources domestically, many LDCs accumulated substantial levels of external debt. Only Bangladesh and Solomon Islands reduced their ratio of external debt stocks to gross national income (GNI) by 2019; in all other Commonwealth LDCs this ratio increased. With rising levels of external debt, some Commonwealth LDCs faced rapidly expanding debt service burdens (especially Tanzania and Zambia). The cost of servicing external debt increased in all but one (Solomon Islands) of the Commonwealth LDCs. Rising external debt stocks and debt servicing costs during the IPoA years, coupled with dwindling reserves, mean several Commonwealth LDCs remain at risk of debt distress.
Most Commonwealth LDCs continued to attract foreign direct investment (FDI), and growth in announced greenfield investment was especially strong in Bangladesh, The Gambia and Malawi. Nevertheless, in most Commonwealth LDCs, net FDI inflows, when measured as a percentage of GDP, generally followed a downward trajectory.
These countries continue to rely heavily on official development assistance (ODA). However, ODA received as a percentage of GNI declined in more than half of the Commonwealth LDCs, and net ODA received per capita was lower in 2019 compared with 2011 in Kiribati, Lesotho, Mozambique, Rwanda, Solomon Islands, Tanzania, Tuvalu and Zambia.
Migrant remittances expanded in most Commonwealth LDCs (especially Malawi and Vanuatu) between 2011 and 2019, and personal remittances continued to dominate the economic landscape in some of these countries. There is scope to channel a greater share of these inflows towards productive investments.
COVID-19 impacts and implications for development prospects in Commonwealth LDCs
COVID-19 has caused an unprecedented global economic crisis, with severe impacts on international trade and investment. The economic effects of the pandemic have been disastrous in most LDCs, even though its direct health effects have been relatively muted.[2] The pandemic has reduced output and value added, caused a huge decline in trade and FDI flows, and had other adverse macroeconomic consequences.
Impacts on output and value added
The GDP of the Commonwealth LDC group grew faster in 2020 compared with non-Commonwealth LDCs and other developing countries. Growth rates were either at or above the IPoA target in Bangladesh, The Gambia, Tanzania, Tuvalu and Uganda in 2020. Only Kiribati, Lesotho, Mozambique and Solomon Islands recorded lower GDP growth in 2020 compared with pre-pandemic averages (2017-2019).
Despite the promising overall growth performance, the pandemic has severely affected some sectors of critical importance to LDCs. The non-food manufacturing, tourism and travel, transport, wholesale and retail trade, and textiles and garment sectors have been among the most affected.
Trade impacts
LDCs were already set to miss the IPoA trade targets before the emergence of COVID-19, but the pandemic amplified their existing challenges and vulnerabilities. In 2020, the combined value of Commonwealth LDCs’ global exports dropped by US$10 billion, reverting to levels last observed in 2016. Zambia aside, exports from all Commonwealth LDCs were lower than in 2019. In aggregate, Commonwealth LDCs’ global services exports declined by 27 per cent in 2020, reversing a long-term growth trend. Their merchandise exports were more resilient but still declined by 10 per cent.
Regionally, the contagion had a relatively larger impact on the four Pacific members, whose exports in 2020 were 40 per cent below 2011 levels. A higher share of services in total exports made them extremely susceptible to COVID-19 shocks, which had a disproportionate impact on contact-intensive services such as hospitality, travel and tourism. The exports of Commonwealth African LDCs dropped by 14 per cent, with a sharp rebound in commodities prices and exports attenuating some of the worst impacts in the second half of 2020.
When the pandemic-induced collapse in trade is factored in, Commonwealth LDCs’ trade increased only marginally from the levels witnessed in 2011.
Impacts on FDI inflows to Commonwealth LDCs
In most Commonwealth LDCs, COVID-19 badly affected FDI, and overall inflows declined in 2020 relative to pre-pandemic averages (2017-2019) in all but four of them. Eleven Commonwealth LDCs experienced a decline in the value of announced greenfield FDI in 2020, with especially large declines in Bangladesh, Malawi, Mozambique, Tanzania, Uganda and Zambia. If sustained, the decline in investment may undermine these countries' efforts to enhance productive capacity, transfer skills and technology, and create new jobs.
Other macroeconomic impacts
COVID-19 has generated uncertainty around future ODA flows as a result of the economic challenges facing donor countries. When measured as a percentage of GNI, only four Commonwealth LDCs – The Gambia, Kiribati, Lesotho and Uganda – received more ODA in 2020 compared with pre-pandemic averages, and there were large declines in ODA to Sierra Leone, Tuvalu and Vanuatu.
COVID-19 has also affected remittances by reducing demand for migrant workers and through the extensive travel restrictions imposed in both sending and receiving countries. Despite these concerns, remittance flows to most Commonwealth LDCs were less affected compared with the general trend for the LDC group. Migrant remittance inflows increased in value in eight Commonwealth LDCs in 2020 compared with pre-pandemic averages, and personal remittances also followed an upward trajectory in more than half of them. However, inflows of migrant remittances were down in Kiribati, Rwanda and Tanzania, and declined by nearly 20 per cent in Lesotho and Uganda.
Some Commonwealth LDCs incurred significant additional spending and/or forgone revenues in 2020. Amid dwindling flows of other financial resources, external debt increased relative to GNI in all but two of them (Lesotho and Tanzania) compared with pre-pandemic averages. This was compounded by a drastic increase in the cost of non-concessional borrowing.
Unemployment rates edged up in 12 Commonwealth LDCs in 2020. Several countries also suffered significant losses in working hours as a result of pandemic-induced disruptions in the labour market. Bangladesh and Uganda were the most affected, with average losses exceeding 12 per cent.
Graduation progress and prospects for Commonwealth LDCs
Solomon Islands (2024) and Bangladesh (2026) are scheduled to graduate from LDC status during the next programme of action. In addition, the status of Kiribati and Tuvalu will be reviewed in 2024, after they were initially recommended for graduation in 2021. Zambia met the criteria for graduation for the first time in 2021 but may struggle to meet the graduation thresholds at the next triennial review in 2024 if the COVID-19 pandemic is prolonged. The same applies to the remaining Commonwealth LDCs that have not yet met the graduation criteria.
On top of the ongoing challenges that COVID-19 has generated, trade-related factors, financing constraints and environmental vulnerabilities will continue to influence the graduation prospects of Commonwealth LDCs, as well as transitions for those that graduate, over the next decade.
Increasing protectionism and rising trade tensions, restrictive customs procedures, supply constraints, inadequate trade‐related infrastructure and limited progress in implementing digital and sustainable trade facilitation measures hinder LDCs’ efforts to expand and diversify trade. Many Commonwealth LDCs also face obstacles to utilising preferential rules of origin and capitalising on advantages afforded by the World Trade Organization (WTO) Services Waiver and the Agreement on Trade-Related Aspects of Intellectual Property Rights.
In the case of graduated LDCs, the loss of preferences in key markets following the transition period threatens to exacerbate these difficulties. Despite calls from LDC Ministers to avoid the adverse impact of discontinuing special and differential treatment (S&DT) for graduating countries, formal WTO procedures, related support measures and S&DT provisions have not yet been agreed.
Financing constraints pose additional challenges. With limited domestic financial resources, Commonwealth LDCs will continue to rely heavily on external debt and foreign aid to support their development objectives before and after graduation. Yet the economic impacts of COVID-19 mean prospects for international financing, including ODA, remain uncertain. These challenges are compounded for countries that will lose access to LDC-specific funding schemes such as the Least Developed Countries Fund (LDCF) after graduation.
Vulnerability to natural disasters and the effects of climate change further undermines growth and development in Commonwealth LDCs. Without financial and technical assistance to enhance their disaster risk management and build resilience to future shocks, such vulnerabilities will continue to present challenges for LDCs in the queue for graduation and those that have already graduated.
The dawn of a new programme of action presents an opportunity to step up international co-operation to address these challenges and support sustainable graduation for Commonwealth LDCs.
Natural disasters risk management and resilience in LDCs
During the IPoA decade, Commonwealth LDCs were struck by over 200 natural disasters, mostly storms and floods. Collectively, these disasters affected 76 million people, resulting in 11,087 deaths and economic losses of over US$4 billion. The occurrence of these natural disasters had negative impacts on many of the other IPoA priorities.
Many LDCs are vulnerable to recurrent natural disasters, which exacerbate existing challenges, disrupt long-term investments and divert resources away from development to reconstruction. Disaster-induced economic losses can wipe out the small development gains achieved in recent years. In 2015, Tropical Cyclone Pam caused such devastation in the Pacific that Vanuatu’s graduation was delayed to December 2020.
The multilateral trading system can support disaster-hit LDCs through existing flexibility in WTO Agreements, speedy customs and regulatory clearance for relief goods and supplies, and Aid for Trade to build robust trade-related infrastructure and enhance productive capacity, among others.
Commonwealth LDCs require financial and technical assistance to enhance their disaster risk management and build resilience to future shocks. Development partners should ensure the LDCF is adequately resourced and replenished because it fills a critical niche in financing the climate adaptation efforts of these countries. It is also important to reduce the administrative burden and make climate financing more accessible.
LDCs and graduating and graduated countries need support to mobilise public and private investment, especially in green production, which can help mitigate the effects of climate change and reduce environmental degradation. South-South co-operation should also be encouraged to share knowledge and experience in mitigation, and especially adaptation, with LDCs.
The transition to net zero and the development of green technologies is raising demand for rare earth metals and commodities mined in some LDCs. Development partners and the private sector should support these countries to identify and implement solutions for improved mining practices, a just transition towards a low-carbon economy and structural economic transformation.
Overall, becoming more disaster-resilient requires a holistic approach that combines trade policies, social protection policies, resilience-building measures and disaster risk management in LDCs.
Towards a Commonwealth 10-point programme of action for LDCs
This report proposes a 10-point action plan to address the special needs of Commonwealth LDCs and improve their trade and development prospects. The various action-oriented priorities summarised below are intended to help guide discussions towards an ambitious new programme of action for LDCs spanning the decade 2022-2031.
- Strengthen support for Commonwealth LDCs to achieve inclusive and sustainable economic recovery from COVID-19
- Accelerate the development of productive capabilities in Commonwealth LDCs to drive structural transformation
- Enhance trade linkages with the developing world
- Deepen regional integration and improve regional connectivity to expand trade in Commonwealth LDCs
- Close digital divides within Commonwealth LDCs and between them and other countries.
- Leverage digital technologies to boost trade, productive development and competitiveness in Commonwealth LDCs
- Prioritise provisions for a smooth transition process for graduating LDCs through multilateral commitments
- Enhance debt sustainability and de-risk, incentivise and improve access to finance for Commonwealth LDCs
- Grow the capacity of Commonwealth LDCs to attract productive investment, including FDI and green investment
- Expand resources and support for climate adaptation and resilience and natural disaster risk reduction in Commonwealth LDCs
[1] GDP per capita increased when comparing 2011-2013 and 2017-2019 averages in Bangladesh, Malawi, Rwanda, Solomon Islands, Tanzania, Tuvalu and Vanuatu, but declined in The Gambia, Kiribati, Lesotho, Mozambique, Sierra Leone, Uganda and Zambia.
[2] Based on data published on 9 December 2021, cumulative COVID-19 cases per 100,000 people averaged 395 across Commonwealth LDCs, compared with 491 in non-Commonwealth LDCs and 5,103 in other developing countries. At that point in time, cumulative deaths as a result of COVID-19 averaged nine per 100,000 people in Commonwealth and non-Commonwealth LDCs, compared with 87 in other developing countries.
Acknowledgements
This report on A new programme of action for Commonwealth LDCs: Progress, challenges and priorities was prepared by Brendan Vickers (Head of Section), Salamat Ali, Neil Balchin, Collin Zhuawu and Kimonique Powell of the Commonwealth Secretariat’s International Trade Policy Section.
The team are grateful for the support of Paulo Kautoke, Senior Director of Trade, Oceans and Natural Resources at the Commonwealth Secretariat.
The team also thanks Kim Kampel and Tanvi Sinha at the Commonwealth Small States Office in Geneva for their insightful input into the conceptualisation and structure of the report and valuable comments and suggestions throughout the project.
The production of this digital publication was managed by Clare Saxon Ghauri. Alison Arnold and Hugh Gulland provided support for the digital cover design.
The copyediting was undertaken by Roo Griffiths. Shaneez Hassan provided excellent administrative support to the project.
