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    LDCs : Myths and Realities

     

     
     
    © International Trade Centre, International Trade Forum - Issue 3/2001

    In many respects, the overall picture of LDCs often changes for the better when we look at the situation more closely.

    The market analysis undertaken by ITC for the Business Sector Round Table (BSRT) found that several generalizations about least developed countries (LDCs) are myths, presumptions based on an out-of-date reality.

    Other assertions about these countries, we discovered, are true only as a statistical average, not for the regional or national case, and often not for individual businesses. In many respects, we found, the gloomy overall picture of LDCs changes for the better when looking at individual countries, sectors, industries, companies and regions, sometimes quite radically. It is often a question of perspective.

    Speaking generally...

    For example, the LDCs have a "marginal share… of world trade" (some 0.54% in 2000), as the Programme of Action for 2001-2010 adopted by the United Nations Conference in Brussels noted. And most of the LDCs saw their share of world trade decline significantly in 2000 unless they were oil producers.

    Looking closer...

    Nevertheless, international trade is important for LDCs, and much more than many people realize. LDC merchandise exports were worth US$ 36 billion in 2000. In all, merchandise trade (imports and exports) represents some 40% of gross domestic product (GDP). Import and export trade provide a significant proportion of the jobs available. So international trade matters for LDCs both in developmental and business terms.

    Speaking generally...

    LDC trade is in a long-term decline.

    Looking closer...

    LDC trade is now recovering from the slump that lasted into the first part of the 1990s. However, it has been fuelled largely by oil exports. African non-oil exporters have seen a continuous erosion in their share of world trade. And the deterioration of commodity export prices has been dramatic over the second half of the 1990s.

    The overall disappointing trade performance of LDCs in value terms - in volume terms they have increased exports - should not overshadow the tremendous effort put in by the business community in such countries to push forward against the current. These firms have been achievers in adversity. Without their efforts, the situation would be far worse.

    Speaking generally...

    LDCs depend for their trade performance on exports of unprocessed commodities.

    Looking closer...

    Our research shows that manufactures rather than commodities now account for more than half of non-fuel exports by LDCs. In Africa, for example, the 1999 export value of manufactures was higher than earnings from food exports or from non-food commodities. Significantly, this amount has not declined compared to 1995. For non-African LDCs, exports of manufactures are clearly the driving force behind their export expansion. Over the second half of the 1990s, they increased by more than half to over US$ 7 billion.

    Speaking generally...

    There is limited potential for intra-regional trade due to similarity in export structures. In other words, the developing countries are competitors rather than markets for each other.

    Looking closer...

    In Africa, intra-regional trade increased significantly during the 1990s. The intra-regional trade of Common Market for Eastern and Southern Africa (COMESA) has grown twice as fast as trade with countries outside. At the end of 1998, 102 agreements notified to the GATT/WTO were in force, more than half established since 1990. On the whole, the newer agreements tend to have deeper coverage, extending beyond the exchange of tariff concessions into areas of domestic policies and a number of agreements now also cover the services sector.

    Speaking generally...

    Trade in services is generally considered to be the realm of medium- and high-income countries.

    Looking closer...

    We found that numerous LDCs derive more than half of their foreign exchange earnings from the export of services. Tourism is important, but it is not the only source of revenue. The official statistics overall are distorted by transfers but it is known that business services bring in over US$ 1 billion to LDCs. In fact, the level of business service exports from LDCs is probably higher than official statistics record because of the difficulties of collecting accurate data. Since 1990, growth in the export of business services from developing economies has been 50% higher than that from developed market economies - 10.5% versus 6.9% average annual growth. Developing countries already account for approximately one-quarter of global exports of business services, and their share is expected to continue to grow.

    Speaking generally...

    LDCs' exports are imagined to be insufficient to finance imports.

    Looking closer...

    In reality, we see that, in 2000, exports were covering 80% of the value of imports. The figure has been going up since 1993. The problem has been for non-oil exporters. Nevertheless, they have continued to finance about half their imports by exports.

    Speaking generally...

    Non-tariff barriers are thought to primarily affect the more advanced exporting countries, those that sell processed and manufactured goods.

    Looking closer...

    As reported in Forum issue 2/2001, LDCs have been significantly more affected by 'environment-related trade barriers' (ETBs) than other developing nations. As the chart above indicates, over 90% of Kiribati's and The Gambia's exports - and nearly 80% of Cambodia's and Somalia's - were hit by ETBs in 1999.

    Speaking generally...

    The structural weakness of LDCs means their exporters remain at the bottom of the list for international competitiveness.

    Looking closer...

    The BSRT 'success stories' made it clear that LDCs have penetrated high-growth markets such as tourism and business services. Many far-sighted entrepreneurs have managed to build highly competitive countries and industries.

    Our analysis makes clear that almost all LDCs have their champions, whether sectors or individual businesses, and the close-up picture of their situation and the world economy suggests there is still plenty of scope for an enterprising company.

    The challenge is for governments to foster the enabling environment that makes the individual success stories more common. This is what the BSRT process sought to encourage with its more optimistic picture of LDC conditions than many people have appreciated.

    Market analyses of all these sectors and countries can be found at our web site (http://www.intracen.org under "Country Approach").

    Friedrich von Kirchbach is Chief, ITC Market Analysis Section. Contact: kirchbach@intracen.org



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