Nichodemus Rudaheranwa

1. Nichodemus Rudaheranwa Economic Affairs Division The Commonwealth Secretariat n.rudaheranwa@commonwealth.int

2. Presentation outline • Export profile of LDCs • Markets for LDCs trade • Exploiting and management of natural resources • Trade preferences and potential for breaking into global manufacturing • Financing development • Possible actions

3. Export profile of LDCs • Trends of LDC trade flows • LDC export trade (main products) • LDC export trade (market destination) • Trade balances (country and product groups) • Market conditions facing LDCs (trade preference utilisation)

4. Trends in LDC exports in 2000s • Remarkable global economic boom between 2000-2008 with rapid increase in the value of export of goods and services; • Accelerated growth of merchandize exports since 2003 • Rise in oil and commodity prices • Most LDCs were beneficial of this global growth; • Marked increase in exports of services: • Dynamism of tourism, and • Higher prices of transport services; • Despite a decline of 28% in 2009, annual growth rate of merchandise exports was as high as 14% in 2000-2009 compared to 8% growth rate of world trade • Respective annual growth rates for commercial services were 12% for LDCs and 9% for world trade

5. LDCs exports of goods & commercial services, 2000-2009(Index, 2000=100)

6. LDC export concentration • Heavily dependant on few sectors: • Primary commodities in goods trade (top 3 products accounted for more than 95% of export receipts in 8 LDCs, i.e. Angola, Equatorial Guinea, Chad, Yemen, Sudan, Lesotho, Guinea Bissau and Mauritania ), • More than 70% of export earnings for about 32 LDCs; • Dominant extractive activities gained strength since 2000 with fuels and minerals representing more than 60 per cent of all LDC exports in 2009; • Tourism for services exporters (main source of export revenue especially for small islands – over 60% in Samoa, Comoros, Vanuatu and Maldives); and • Even where diversification in manufacturing took place, the range of exports is limited to a few labour-intensive industries, mostly clothing.

7. Composition of LDC merchandise exports by major products, 2009

8. Dependency on few products & services-Challenges • Vulnerability of LDCs to fluctuations in international trade (prices, demand/volumes) • Economic crisis in second half of 2008 had a negative impact on the rapid growth of LDCs exports of goods and services

9. LDC merchandise exports, Jan 2006-April 2010(Indices, Jan 2006=100)

10. LDC agricultural exports, Jan 2006-April 2010(Indices, Jan 2006=100)

11. LDC export of fuels and minerals, Jan 2006-April 2010(Indices, Jan 2006=100)

12. LDC export of manufactures, Jan 2006-April 2010(Indices, Jan 2006=100)

13. LDC participation in global trade • Factors impacting on trends and composition of LDCs exports since 2000: • Emergence of large developing countries offering new markets for LDCs exports (increased demand impacting on prices and quantities); • Rapid increase in international prices of commodities (particularly fuels and minerals); • Increased capacity for exploration and exploitation (more investment flows into extractive sectors);

14. Export prices of primary commodities for 1999-2009(Indices, 2000=100)

15. Markets for LDCs exports • Geographical landscape of exports has changed significantly since 2000 • Emerging economies (particularly China and India) gained significance as major destinations of LDC exports • LDCs’ exports also increased in industrial country markets notably EU, USA Canada and Japan (but also Thailand, etc.) • Product composition of LDC exports are equally balanced between developed and developing countries

16. Top 20 markets for LDC merchandise exports, 2000-2009 (US$ Billion)

17. Composition of imports from LDCs by region, 2009 or most recent

18. LDCS Trade balance since 2000 • LDCs as a group have experienced: • Trade deficit (import bill exceeding export revenue) up to 2005 • Trade surplus from 2006 until 2008 due to rapid growth of extractive commodities • Trade deficit of (US$22 billion) in 2008-2009 due to declines in oil and mineral prices arising from the global economic crisis (and up to US$ 49 billion when negative balance in trade in services) • Trade surplus by LDCs is mainly concentrated in oil exporting countries.

19. LDC Trade balance since 2000

20. (Billion (Indices, dollars) 2000=100) 180 800 Non-fuel imports 160 700 Fuel imports 140 Value index of non-fuel imports 600 Value index of fuel imports 120 500 100 400 80 300 60 200 40 100 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 LDC merchandise export trade, 2000-2009(Billion dollars and indices, 2000=100)

21. (Billion (Indices, dollars) 2000=100) 180 800 Non-fuel exporters 160 700 Fuel exporters 140 Value index of non-fuel exporters 600 Value index of fuels exporters 120 500 100 400 80 300 60 200 40 100 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 LDC merchandise import trade, 2000-2009(Billion dollars and indices, 2000=100)

22. Coverage ratios of imports by exports of the LDCs, 2000-2009(ratio of total exports to imports - %) • Trade balances are closely related to changes in terms of trade (average unit of prices of exports compared to imports); • Only few LDCs (fuel and mineral exporters) benefited from improved terms of trade; • Manufacture and agricultural exporting LDCs experienced deteriorating terms of trade (unit value of exports increased slowly but paid more for their imports of oil and minerals); • Coverage ratio of imports by exports increased up to 2008 for fuel exporters from 164% in 2000 to 216% in 2008 before declining back to 154% in 2009; • Mineral exporting LDCs improved their import coverage slightly but remained in deficit; • Coverage of imports by exports for manufactures and agricultural exporting LDCs between 2000 and 2009 deteriorated; and • Imbalance between exports and imports is more acute for agricultural exporting countries (covering only about 1/3 of their import bill)

23. Coverage ratios of imports by exports of the LDCs, 2000-2009(ratio of groups' total exports to imports - %)

24. Challenge of natural resource exploitation • As noted, LDCs are heavily dependant on natural resource exports – Problem and opportunity • Opportunity because: • Increasing demand and rising prices will potentially increase revenues from natural resource exports, • Increased tax revenue from extraction of natural resources, • High prices are likely to induce more investments in natural resource exploration and exploitation; • Problem because: • Natural resource extraction does not directly employ many people and therefore has only limited transmission to incomes and wellbeing of the population, • Such revenues are volatile, making macroeconomic management difficult and increasing need for social protection, • High potential for the Dutch disease effect; • Problems and opportunities call for distinctive domestic policies by LDC governments

25. Possible measures: Opportunities for more discoveries • Discovery of natural resources is an expensive, technically demanding and risky process; • Need for investing and generating geological information on natural resources benefiting from new technologies; • Costs of generating information are fast declining due to increasing availability of aerial surveying techniques; • LDCs might consider financing such survey through multilateral aid (i.e. an issue LDCs need to give serious consideration) • Enabling for prospecting across many LDCs with high likelihood of finding valuable resources with least cost relative to country-by-country approach. • Increase return on the use of foreign aid

26. Possible measures: Concessions and taxation • Avoid bilateral secret negotiations/deals which companies might use to play-off LDC governments; • Increase competition between rival resource extraction companies/consortia to empower LDC governments; • Auctioning of biddings for extraction on natural resources would strengthen the bargaining power of LDC governments; • Strengthen the tax regimes to maximise rent capture; • Design a credible tax system by ensuring that it provides for contingencies such as the changes in world prices, etc. • Strengthen the capacity of tax authorities to enable them to do thorough scrutiny of what extracting companies are reporting (development assistance could be instrumental in such cases) • Companies granted concessions should be responsible for full costs on any environmental damage which would give incentive for the company to keep such damage to realistic minimum.

27. Possible measures: corruption, env. damage & savings • Revenues from resource extraction should accrue centrally to government rather than to the locality of the resource extraction essentially for more equitable national distribution; • Governments need to develop mechanisms of transparency to build confidence in populations that revenues are being well used; • Extracting companies often gain immensely by bribing individuals and there is need for mechanisms both at national and international level to encourage companies to participating only into prospecting but credible contracts, e.g. bringing resource extraction contracts under clear remits of the WTO for example could be useful in enforcing credible contracts; • Revenues from natural resources involve depletion of natural assets but could be offset by the accumulation of other assets through savings. Sensible range of saving out natural resource revenues for an LDC would range between 30% to 70% • Savings from natural resources could be used to develop and upgrade infrastructure such as transport and energy thereby off-setting high trannsaction costs on non-resource export sectors (which would also address the problem of Dutch disease

28. Market access conditions for LDCs • LDC exports benefit from non-reciprocal preferences in industry-country markets (e.g. EBA, GSP, EU’s Lome and Cotonou Agreements, AGOA, etc.) • Increasingly, developing countries are granting preferences to LDCs; • Grating market access has reduced tariff rates and restrictive quotas and in some case with DFQF market access; • Constraints relate to restrictive rules of origin (ROO) severely reducing the effectiveness of the preference as an instrument of economic development; • Benefits of trade preference: • Transfer of rent to recipient countries • Triggering export supply response and creating employment in recipient countries assuming a high potential on unrealised opportunities particularly in manufacturing.

29. Some measures favourable to LDC exports

30. Measures to enhance the effectiveness of trade preferences • Development of infrastructure and efficient administration of services such as customs and regulations that are supportive of production and reliable delivery including in Economic Processing zones (Development assistance essential) • Increased policy space for LDC government to support their industrial development through subsidies for example to reduce costs of production. • Favourable rules of origin very essential to enable LDCs benefit from trade preference market access opportunities.

31. Financing for development • Rationale for has been to address poverty but most of the aid goes to countries that are not LDCs; • Fiscal pressures in donor countries following economic crisis threaten to undermine resource flows to LDCs; • Tension between the need for aid and ability to use it; • Aid has focused on poverty reduction. i.e. MDGs which are outcomes rather than a strategy of achieving those outcomes; • Growth of the economy is essential for achieving MDGs like primary education, etc. • Aid can potentially help in financing the costs of growth, e.g. economic infrastructure • Funding for infrastructure has been declining over the last two decades while funding for social objectives has increased • LDC government need to insist on refocusing aid on growth agenda

32. Recommendations for action • LDCs need to adopt a collective approach to the exploitation and management of natural resources to minimise associated costs and maximise revenues • Agitate for aid to finance the generation of the public geological information to enable LDC government secure the best deals with prospective companies • Consider using the WTO to provide commitment mechanisms for LDCs government wishing to reduce various risks of resource extraction contracts • Streamline trade preferences to increase the benefits to LDCs by making the rules of origin and other conditions more favourable to LDC export trade; and • LDCs should demand a shift in aid priorities from social agenda to supporting the development of economic infrastructure supportive of economic growth. LDC government should make collective demand for such shift rather than case-by-case appeals.

33. Conclusions • Recent economic crisis has impacted on developed and developing countries • Aid from traditional sources to LDCs in likely to decline in relative terms and new types/sources of international finance need to be developed • Better managements of natural resources is critical for LDCs • Supportive international policies need to consider special needs of LDCs

34. Thank you End