TWN Info Service on Finance and Development (Sept15/03)
22 September 2015
Third World Network

UNCTAD S-G proposes action lines for post-2015 era
Published in SUNS #8093 dated 16 September 2015

Geneva, 15 Sep (Kanaga Raja) -- The Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), Dr Mukhisa Kituyi, on Monday proposed four specific action lines where the organisation can and should contribute to the post-2015 era.

These action lines are set forth in his report to UNCTAD-XIV, scheduled to take place in Lima, Peru from 14-18 March 2016.

The report was unveiled by Dr Kituyi during the sixty-second session of UNCTAD's Trade and Development Board, which began on Monday.

The action lines highlighted by the S-G are: (a) Building productive capacity to transform economies; (b) More effective States and more efficient markets; (c) Tackling vulnerabilities, building resilience; and (d) Strengthening multilateralism, finding common solutions.

In a foreword to his report, titled "From Decisions to Actions", the head of UNCTAD said that the fourteenth session of UNCTAD will mark a critical moment not only for economic and social progress in the developing world, but also for the common future of all countries and communities.

"As the first United Nations ministerial conference of the post-2015 era, it will represent a starting point to translate the heightened ambitions and commitments of the international community into concrete plans of action," said Dr Kituyi.

He further said in his report that the fourteenth ministerial Conference in Lima should reaffirm UNCTAD's core mandates and the work programme that was started in Doha, which must continue if UNCTAD is to fulfil its overall objective of assisting developing countries and economies in transition to achieve inclusive and sustainable development.

According to the S-G's report, with the creation of UNCTAD 50 years ago, the United Nations embraced for the first time an inclusive and forward-thinking trade and development agenda initiated by the developing world, on behalf of the developing world, with a vision of prosperity for all.

UNCTAD provided the means through which the South, including through the formation of the Group of 77, could voice its collective ambition and mobilize the international community to deliver on the economic promise of political independence for the benefit of all the world's citizens.

"The last 25 years have been important in terms of achievements, but also in terms of lessons. They have taught us that we can expand the boundaries of what we think is possible. They have taught us that significant improvements can be made with the right policy mix and conducive national, regional and global environments. Change is possible and it is within our grasp to make it happen," the S-G said.

There are still far too many nations and people being left behind. Poverty and inequality, both between and within nations, remain a pervasive challenge.

Most of the dramatic reductions in poverty since 1990 occurred in a few large emerging countries. The world is still far too divided between large areas of poverty and deprivation, on the one hand, and pockets of prosperity, on the other.

Dr Kituyi said: "Islands of prosperity surrounded by poverty are incompatible with the world that we strive for. New vulnerabilities and risks have emerged, linked in particular to the rise of ‘casino capitalism' and an unhealthy dependence on debt. Financial shocks and crises have become more frequent, setting back development prospects by years and, in some extreme cases, by decades."

A key reason for this continues to be the challenges in many, if not most, developing countries in diversifying their economies and their failure to translate growth into sufficient poverty reduction and more and better jobs.

This challenge is the greatest for those countries with limited productive capacity and financial resources.

Narrowing the inequality and prosperity gaps is critical and will require more concerted efforts, he said.

In the absence of genuine economic recovery, and more stable financial conditions, bridging the "prosperity-poverty divide" among and within nations will be increasingly challenging.

Furthermore, continuing recent trends in global income distribution will certainly make eradicating poverty all that much harder. Post-crisis growth remains predominantly "wage-less" as well as "jobless".

Dr Kituyi said: "We need to finish the task we started at the dawn of the millennium. Much work remains. Yet there are also emerging challenges to prosperity, dignity and a better planet for all that jeopardize the progress we have made, and the world we want to build by 2030. This calls for new global action."

In the face of these remaining and emerging challenges, the sustainable development goals, to be adopted in New York in September 2015, form a new global consensus on ensuring dignity for all, prosperity for all and a sustainable planet for all by 2030.

The post-2015 sustainable development agenda raises the bar and demands unprecedented actions and efforts. No one must be left behind: islands of prosperity surrounded by poverty, injustice, climate change and environmental degradation are neither sustainable nor acceptable, said the report.

It noted that the sustainable development goals will require resource mobilization, from all different sources, on an unprecedented scale. Developing countries alone will need to invest on the order of US$3.3-US$4.5 trillion per year in basic infrastructure, food security, climate change mitigation and adaptation, health and education.

Current levels of investment leave a gap of US$2.5 trillion annually in real terms.

"The challenge of achieving sustainable development goals will be exacerbated by uncertainty in the external environment as the global economy continues to struggle in the wake of the global financial crisis."

Mobilizing all available policy instruments for the sustainable development goals will be critical. The political declaration to be adopted in New York, the 17 sustainable development goals and their related 169 targets, as well as the Addis Ababa Action Agenda, agreed at the third International Conference on Financing for Development in July 2015, will together lay a comprehensive global framework for ensuring adequate means of implementation.

The S-G said that "UNCTAD must complement the efforts of the international community in our collective quest for a world of shared prosperity, not only for ourselves, but for future generations. To this end, the fourteenth quadrennial ministerial conference to be held in Lima, in March 2016, must set out a robust set of actions for UNCTAD to shoulder its responsibility."

ACTION LINES FOR POST-2015 ERA

On the first action line of building productive capacity to transform economies, the report said that to achieve the sustainable development goals, it is essential to build productive capacity and provide economic transformation. Eradicating poverty by 2030 requires a massive acceleration in the development of productive capacities, especially in LDCs (least developed countries).

"We need to increase productivity within and across sectors. We need to diversify economies by shifting resources from less productive and environmentally unsustainable sectors to more productive and sustainable ones. We must also do this in such a way as to create enough higher-quality jobs and economic opportunities to allow everyone to generate incomes above the poverty line," said Dr Kituyi.

This will mean putting structural transformation, environmental sustainability and decent work at the core of actions taken to apply any of the available economic tools.

Investment, trade, technology and entrepreneurship, and the nexus between them, can be important means to help build critically needed productive capacities.

For the post-2015 agenda, these tools - accompanied by complementary measures and as part of a broader industrial development strategy - must be utilized more and better, and be more fairly and equitably at the disposal of all countries.

"We cannot build productive capacity and transform economies without investment. Resource mobilization to bridge an annual investment gap of at least US$2.5 trillion is a daunting challenge, but it is achievable. It will require public and private resources, as well as domestic and external resources."

Domestic resource mobilization for investment is, and will continue to be, key, said Dr Kituyi, adding that notwithstanding, there is ample scope - and urgent need - to broaden tax bases, strengthen collection capacity, reduce tax evasion and avoidance, and stem capital flight and illicit financial flows.

For example, had the resources that left African countries as capital flight from 2000 to 2010 been invested instead, poverty in the region could be 2.5 percentage points lower.

The report also noted that it has become increasingly rare that goods or services are produced entirely in an integrated production process, in one location and by one entity. Rather, the production of goods, and even services, involve an increasingly complex process with intermediate inputs and supporting activities sourced globally from wherever it is most efficient to do so.

These complex international production arrangements, together with improvements in transport infrastructure, logistics and cross-border trade facilities, as well as improvements in business environment, trade and related investments, have enabled some developing countries to deepen their trade through integration into regional and global value chains.

"The benefits of regional and global value chains, though, are not automatic. Furthermore, accessing regional and global value chains and, more importantly, climbing the value addition chain is neither an automatic nor an easy process."

To link into regional and global value chains successfully, cutting overall trade and investment costs, including through improved soft and hard infrastructure, is necessary. Implementation of trade facilitation measures is central in this regard, said the report.

A country's existing productive capacity also determines what it can export and what FDI it is likely to attract, and thereby what potential benefits it can derive from regional and global value chains.

Those developing countries with limited productive capacities can remain trapped in, and competing for, the lowest value added activities at the bottom of regional and global value chains, particularly production of primary commodities, with hampered the potential to move up the value chain or to upgrade through technology transfer and learning.

Many LDCs, landlocked developing countries and small island developing States belong to this group. Many middle-income countries, though, also face challenges in progressing upward in regional and global value chains.

Breaking out of those traps requires active policies to boost productive capacities, widening the product base and making it more competitive. These policies are crucial to harness the full potential of regional and global value chains for inclusive and sustainable development.

The report underlined that much remains to be done in order to more effectively draw benefits from integrating into regional and global value chains, as well as to better access and climb regional and global value chains.

Tariffs in product segments of interest to developing countries tend to be higher and escalate with increased product sophistication, throwing sand in the wheels of increased value addition in poorer countries. Agricultural exports face particularly large hurdles and distortions, as do fisheries.

In addition, while LDCs have been granted significant preferential access, even complete duty-free, quota-free treatment in some key import markets, they continue to face challenges in utilizing this access in a number of markets due to complicated and restrictive rules of origin.

Similarly, non-tariff measures are playing a greater role in global trade, affecting many developing countries, particularly LDCs.

According to the report, technological upgrading is critical for enhancing productivity and the development of productive capacities.

Average productivity in LDCs is about 10 per cent of that in the European Union and 7 per cent of that in North America. Even in other developing countries, it is 45 per cent of the European Union average and 32 per cent of the North American average.

Technological gaps are an important part of the reason for this, and closing them will be essential to reduce the prosperity-poverty gap between nations. Developing countries should actively foster ICT adoption, especially among microenterprises and small firms, to increase their productivity and to help them overcome barriers to their growth.

Similarly, said the report, ICTs can be leveraged for enhanced trade and investment. For instance, the shift towards online commerce is also enabling more countries to participate in global value chains.

One example is India, where exports of information technology and information technology-enabled services have surged from US$24 billion in 2005 to more than US$84 billion in 2013.

"As ever more economic activities move online, adequate policy responses in developing countries are essential to seize the potential benefits and mitigate risks, and to ensure that technological change narrows existing divides rather than widens them. Affordable broadband access can facilitate services exports; and cloud computing, big data and three-dimensional printing could all have a profound impact on economic transformation."

The report also said that enterprise development and fostering entrepreneurship capability are core elements of productive capacity-building and, as such, they can promote structural transformation, encourage inclusive growth, create jobs and expand opportunities for all, including women and youth.

On the second action line of more effective States and more efficient markets, the report stressed that to achieve the sustainable development goals, many countries and particularly developing countries will need to take wide- ranging economic, environmental and social actions and ensure that markets work more efficiently for their people.

"The State remains the only institution that can manage large-scale societal changes, such as those envisaged in the sustainable development goals."

This is particularly so in developing countries whose markets are still weak; a "developmental State" is needed to direct resources from low to higher productivity sectors. It is crucial to ensure that the State remains efficient and effective through targeted industrial policy and incentive measures for strategic sectors.

"Effective and development-focused States are also needed to create the right incentives and regulations for markets to responsibly deliver growth and development in the interest of the population at large. Markets, of course, can play a useful role in many respects. Leaving both national and international markets to their own devices and without proper regulatory mechanisms, though, would be a fallacy."

Dr Kituyi noted that citizens in most developing countries are confronted by persistent market failures, compounded by inadequate State provision of services and the prevalence of the informal sector.

Therefore, reforming or adapting markets at all levels must be a priority in order to ensure that markets work more effectively and sustainably.

The State can and must correct market failures and, beyond that, play an enabling role (through incentives, policies and institutional support) for market actors to increasingly commit to long-term productive investments for development, social and environmental objectives, in line with public interests.

"Markets and regulations can, in such circumstances, be two sides of the same coin, such as in the provision of infrastructure network services. Ensuring a level playing field, through pro-competitive regulations, is especially important."

In this context, the report highlighted the enhancement of competition and consumer protection; scaling up infrastructure services encompassing financial services, transport and logistics, telecommunications, water and energy; fostering an appropriate business environment; and investing in skills and leadership development.

On the third action line of tackling vulnerabilities, building resilience, the report said that being vulnerable implies being less capable to deal with sudden changes, crises and shocks.

"One of the great injustices in our world is that those that are poor are more often the most vulnerable - both in terms of people and nations. As such, they tend to carry the brunt of the cost of economic, social and environmental crises."

Vulnerabilities, especially of the poor, must therefore be a global concern and a shared obligation to address. In order to enhance sustainable development prospects that genuinely benefit all, countries, regions and the international community need to tackle the specific challenges of weak economies, address financial instability, combat climate change and empower the more vulnerable groups within societies.

"Of course, prevention is the best cure. Still, we also need mechanisms to ensure that when crises erupt, countries are able to manage them effectively," said the UNCTAD S-G.

The current global economic situation, with the continued repercussions from the financial crisis, compounds the challenges of financial and economic volatility. This volatility, short-termism and boom and bust cycles not only threaten to delay recovery, but can also make countries slide back in their economic development, especially if there are new crises.

According to the report, a key driver of economic vulnerability in recent years has been unregulated global financialization and the large and predominantly short-term capital movements that this has given rise to.

It emphasised the need to better manage financialization and its macroeconomic effects, as well as strengthen the link between fiscal and monetary policies and development goals. Strong regulation at the domestic and global levels needs to be at the core of efforts to harness the benefits of international finance.

It is increasingly recognized, including by international financial institutions, that a judicious combination of capital controls and exchange rate management, including by influencing the amount and composition of capital inflows, could help maintain access to productive external finance while also encouraging domestic investment.

"Proactive fiscal and industrial policies are also essential for generating the structures and circumstances that support domestic productivity growth and the expansion of aggregate demand."

The report also highlighted the need to address climate change and biodiversity loss, diversification in the most vulnerable and weak economies, transforming rural economies to end poverty, and empowering women.

On the fourth action line of strengthening multilateralism, finding common solutions, the report noted that in 2015, multilateralism is at a crossroads.

"The need for global collective action to tackle cross-border challenges is at an all-time high. Yet collective solutions are in short supply."

"Multilateralism is pivotal for delivering these collective solutions. Only multilateralism can avert global environmental catastrophe. Only multilateral cooperation can countermand recent economic mismanagement, which caused the Great Recession, and set the world economy on the path to genuine recovery. Only multilateral cooperation can reduce to zero the social deprivations that keep millions locked in extreme poverty or held back by inequality."

The sustainable development goals, and the universal ambitions that they embody, offer the international community the opportunity to turn the page and put multilateralism and robust global economic cooperation back on track.

The report called for supporting global economic governance and reform of the international financial system.

"More inclusive and better coordinated international economic cooperation can strengthen the global economy, result in better reforms to international financial institutions, improve financial regulation and help implement key economic reforms. Global economic governance should complement State capabilities."

Reforms to the international financial system should be undertaken with a view to greater collective engagement of countries at different levels of development, it said.

"Continued vigilance and innovative multilateral solutions are needed to ensure debt sustainability and to work towards a multilateral sovereign debt restructuring mechanism that protects the rights of borrowers and lenders and promotes orderly workouts in case of crisis."

For aid-dependent countries, particularly LDCs, ODA (official development assistance) remains crucial, said the report. Development Assistance Committee donors need to meet their longstanding commitment of 0.7 per cent of donors' gross national income, in addition to continuing to improve the quality and effectiveness of aid.

"It is essential that the principle of additionality with respect to ODA is respected and that some of the new and innovative sources of financing under discussion do not end up diluting that commitment."

The report further called for making the multilateral trading system more effective in the coming decades; on enhancing policy coherence for investment with sustainability; and promoting a global enabling environment for technology.

Despite recurrent setbacks, the multilateral trading system remains a crucially needed global public good, it said.

However, in the seven years since the global crisis, trade growth has not rebounded to its pre-crisis levels, and trade policy has come under increasing scrutiny.

Its impact on development is also being brought into question. In the light of twenty-first century development challenges, reinvigorating the multilateral trading system as a global public good with renewed momentum and relevance is thus essential for the sustainable development goals.

At the global level, the WTO through the implementation of WTO agreements and conclusion of the Doha Development Agenda, with its development dimension intact, can help to engender more sustainable trade, said the report.

The Ninth Ministerial Conference of the WTO in 2013 was a timely gain with the agreement of the "Bali package", including the Agreement on Trade Facilitation and decisions on agriculture, cotton and development and LDC issues. All of these are important from a development perspective.

Nevertheless, this must only be a first step to reinvigorate WTO and its longstanding negotiations on the Doha Development Agenda.

"Conclusive steps forward on other key issues of the Doha Development Agenda, with priority given to development issues, can and should be made at the upcoming WTO Ministerial Conference to be held in Nairobi in December 2015," the report said. +