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Global South Needs New Path of Development

Ravi Kanth Devarakonda

GENEVA, Nov 17 2011 (IPS) - The convergence of leading countries from the global South – China, India, Brazil and South Africa, among others – to assist the poorest countries in sub-Saharan Africa and elsewhere constitutes a new “dynamic” in the emerging global economic partnerships, says the United Nations Conference on Trade and Development.

In a report released on Thursday on the poorest countries – often referred to as the least-developed countries (LDCs) – UNCTAD calls for “a new path of development” to break from the “structural maladjustment” policies that led to “boom and bust cycles and growth collapses.”

There are currently 48 poorest countries with low per capita income of less than a dollar a day. About two-thirds of LDCs are located in Africa, and all indicators suggest that they are the worst affected by the International Monetary Fund (IMF) and World Bank’s market-oriented policies.

“The neo-liberal policies (fostered by the IMF and World Bank) devastated these countries,” says Dr. Supachai Panitchpakdi, UNCTAD’s secretary general. “These policies turned most sub-Saharan African countries from net food producing countries into net food importing countries.”

Team leader for the report, Zeljka Kozul-Wright, said that the LDCs are the victims of “structural maladjustment” policies followed over the last 40 years, which resulted in “boom-bust cycles and growth collapses.”

“LDCs suffered unstoppable marginalisation, and what we are saying is that if the current trends persist, the LDCs would become major loci for extreme poverty in the global economy sooner rather than later,” cautions Charles Gore, UNCTAD’s chief for the African division, LDCs and special programmes.

“The only way to reverse this trend is to create a new type of catalytic developmental state in the poorest countries with an adequate policy framework that would strive for structural transformation,” Gore told IPS.

“South-South cooperation opens up more opportunities and policy space needed to build such a catalytic developmental state,” he argued, suggesting that the economic and technical assistance offered by China, Brazil, and India comes without any conditionalities.

He dismissed suggestions that LDCs are merely exporting oil and other vital raw materials to China. Though the report cautions about “commodity-dependence”, it also says that there are positive examples where manufactured exports from LDCs to other developing countries increased by 18 percent per annum during the last decade.

Faced with worsening international trading conditions and haemorrhaging economic crisis in the centres of leading industrialised countries, LDCs face major challenges. The only plausible path to stay afloat in these difficult times and sustain their economic growth in the short and medium term is by enhancing their partnership with the Southern champions of economic development, the report says.

The report says that overall, the LDCs’ real GDP increased by 5.7 percent last year, “which is a slight improvement – one percentage point – in comparison with the result in 2009, but is far below the 7.1 percent average annual growth rate attained during the boom period between 2001 and 2008.”

Latest estimates suggest that LDCs are expected to grow by about 4.9 percent this year. The breakdown of the growth projection suggests that while Asian and island LDCs are expected to grow by 5.2 percent and 5.4 percent, the African LDCs and Haiti are likely to grow by 4.9 percent.

In terms of real GDP per capita income growth, African LDCs are expected to grow by 2.1 percent, which is barely sufficient given the high population growth. The Asian LDCs performed better than their African counterparts, the report says.

The report forecasts an average growth of around 5.8 percent for the LDCs during the medium term. “Clearly, it is an Asian LDC story,” says Gore, suggesting that the poorest countries in Africa are not there yet to realise their potential.

“The reason for the better performance of Asian LDCs has much to do with the flying geese model involving the catching-up process of industrialisation of latecomer economies from the international division of labour in East Asia based on dynamic comparative advantage,” he told IPS.

The performance of Asian LDCs – Bangladesh, Cambodia, and even Nepal – is impressive because of textile and other exports of manufactured goods. The African LDCs exports of manufacturing products comprise processing raw material, which have some initial value-addition.

Against this backdrop, the African LDCs must adopt the model followed in East Asia where the state played a dominant role in creating new, productive capacities and structural transformation. The state must be able to provide industrial subsidies, and credit for the development of industry and pursue robust policies in the social sector – health and education, Panitchpakdi told IPS.

South-South cooperation can become a “game changer” in the emerging economic partnerships of countries outside the industrialised North.

“The benefits of South-South cooperation support the building of developmental state capacities and the objectives of developmental states in LDCs, while the developmental state in LDCs in turn generates and augments the development impact of South-South cooperation,” Panitchpakdi says.

At a time when there is a complete drought in the much-promised official development assistance by rich countries, a mere one percent contribution by the leading developing countries from their 3.5 trillion dollars in foreign exchange reserves held by developing country sovereign funds can result in a significant development finance for the poorest countries.

This is where “developmental regionalism” can play an important role “that accepts globalisation as a historical trend, but rejects the market-led approach to it,” Panitchpakdi says.