ECONOMIC AND FINANCIAL COMMITTEE (ECOFIN) Topic C: Sustainable Economic Development in Least Developed Countries in Sub-Saharan Africa

Transcription

1 ECONOMIC AND FINANCIAL COMMITTEE (ECOFIN) Topic C: Sustainable Economic Development in Least Developed Countries in Sub-Saharan Africa

2 NUMUN XII 2 Introduction For over forty years, the United Nations (UN) has categorized least developed countries (LDCs) as the poorest and weakest segment of the international community, requiring extensive foreign aid in order to compensate for their economic disadvantage and risk. In order to qualify as a LDC, a country must exhibit sustained low average income per capita, weak human resources, and high economic vulnerability. Out of the 49 Least Developed Countries outlined by the United Nations, 33 are located in sub-saharan Africa. This region has continuously experienced economic hardship despite international aid efforts, thus indicating the need for a radical and innovative approach to begin the process of economic recovery and growth. The United Nations has continuously urged the world s least developed countries to revise their economic policies in order to begin the transition away from LDC classification. Current practices of giving loans and financial aid that intend to support such economies raise many questions about their efficacy in securing long-term economic stability for the receiving country. Instead, the UN has created eight Millennium Development Goals (MDGs), which include eradicating extreme poverty and hunger, achieving universal primary education, and combating HIV/AIDS as well as other diseases. In order for these countries to meet the MDGs set forth in 2000, with the target year of 2020, LDCs must become more self-sufficient and involved in global trade and investment. With over 900 million people populating the sub-saharan Africa region, an increase in intra- African trade is likely to result in massive shifts in economic growth and trade, prompting similar shifts in the global economy as well. Reducing poverty is expected to lead to greater literacy rates

3 NUMUN XII 3 and potential for employment, as well as increased entrepreneurship. Perhaps more important, however, is the idea of fortifying the economies of LDCs against outside sources of economic downturn. These include economic crises as well as disease outbreaks, since LDCs are extremely vulnerable to such causes of recessions. Economic impacts may take time to fully realize their aftershock, globally; for example, the full effects of the recent Ebola outbreak are still not known. The costs of the disease will be borne not just by the African Union, but also by the leading economies of the world. By ensuring the economic stability and demonstrated ability for economic growth in the region most densely packed with LDCs, the global economy would see long-lasting benefits continuing well into the future. The goal of this committee is to determine the best course of action in order to achieve this task and put sub-saharan Africa on track to match the goals set by the United Nations.

4 NUMUN XII 4 Background Over the last few decades, economic development has been observed in many parts of the world. One of the more notable exceptions to this worldwide boom is Sub-Saharan Africa. The area is widely considered to comprise of some of the world s least economically developed countries, and has long been plagued by instability, proving vulnerable to a slew of risks from both external and internal factors. Sub-Saharan Africa has an extensive history of foreign conflict that has played a significant role in thwarting its chances of development. The Scramble for Africa is the popular name for the invasion, occupation, colonization and annexation of African territory by European powers during the period of New Imperialism. In 1870, only 10% of Africa was under European control. However, the Berlin Conference of 1884 regulated European colonization and trade in Africa and is seen as the starting point of the conquest of Africa - by 1914, 90% of the continent had been imperialized. The conference, and subsequent European control, encouraged a system of economic exploitation. Many African countries did not gain independence until the middle of the 20 th century;

5 NUMUN XII 5 the late elimination of European control occurred at a time when other parts of the world were already experiencing rapid economic growth. A majority of the Sub-Saharan African countries became independent by the late 1960s and began to develop their economies only after that. Sub-Saharan Africa is notorious for its internal instability. Over the past few decades, the region has witnessed a number of civil wars, which have left many countries in a crippled state of stunted growth, violence, and political instability. These countries are characterized by a lack of stable government, where anarchy is widespread and tribal leaders are often the only form of governance. For example, there has existed a state of clan warfare in Somalia since the overthrow of its president in Countries in this region have witnessed a continuous and a constant struggle between the general domestic population, local warlords and dictators, and foreign intermediaries. Even today, there are at least six dictators who have been sitting in office for 25 or more years. The uncertainty and instability in the region, especially in countries like Somalia and Nigeria, has provided a welcoming environment for terrorists. Islamist terrorist groups have sought refuge and trained its members all across the region. Some of the noteworthy terrorist organizations operating out of Sub- Saharan Africa include Al-Shabab and Boko Haram, both of which have been linked to either the military organization Al-Qaeda or the Islamic State (ISIS). Another topic worthy of consideration is foreign aid. Over the past few decades, several developed countries, along with the International Monetary Fund (IMF) and the World Bank (WB), have injected large sums of money in the form of aid to ignite development in Sub-Saharan Africa. To this day, approximately $50 billion dollars have been injected into this region on an annual basis.

6 NUMUN XII 6 However, the effectiveness of the aid has been widely criticized for falling into the wrong hands, encouraging corruption, and creating a pattern of dependence. In the international economic market, this image translates into the Sub-Saharan countries being more debt-ridden, inflation-prone, more vulnerable to the capriciousness of currency markets, and more unattractive to higher-quality investments. Even after the aggressive debt-relief campaigns that took place through the 1990s, African countries pay close to $20 billion in debt repayments per annum. This trend of foreign aid has failed to provide a sustainable framework to foster economic development. On the other hand, countries like Indonesia and India that have received foreign aid have significantly improved their economic standing because the aid was complemented by sound public and economic policies. A major trouble for the region also stems from the burgeoning population growth. A Population Reference Bureau report shows that women in sub-saharan Africa currently give birth to an average of 5.2 children during their lifetime. This number holds a lot of significance, especially when compared to the developed parts of the world (1.6 in Europe and 1.9 in North America). Additionally, the majority of the population does not contribute much to goods that are valued in the international market, but instead contribute to domestic sustainability. Approximately 65% of Africans rely on agriculture as their primary source of livelihood. Agriculture accounts for 30 to 40 percent of Africa s total gross domestic product (GDP), and almost 60 percent of its total export earnings. This prevents the Sub-Saharan countries from emerging as competitive players in the international markets, where agriculture is just one of my many other fields. The instability and a serious lack of opportunities in the region have resulted in mass outward migration of educated citizens from Sub-Saharan countries. The Blair Commission Report

7 NUMUN XII 7 on Africa in 2005 reported that 70,000 trained professionals, along with 40 percent of the continent s savings, leave Africa every year. These numbers have only increased since then. Its educated population is its main source of capital and hence, this movement not only causes brain drain but also hinders the region s chance at economic improvement. The economic development in the region was adversely affected by the global economic crisis of The recession that profoundly affected developed countries had spillover effects all over the world via reduction in global trade and a related collapse in primary commodity exports. The recent Ebola epidemic of 2014 has also negatively affected countries in the region. The effect has been more pronounced in Guinea, Liberia, and Sierra Leone, where thousands have died due to the disease. The World Bank recently estimated that these countries would see a 12 percent reduction in GDP growth, translating into a loss of at least $1.6 billion in forgone economic growth.

8 NUMUN XII 8 Current Situation Currently, 48 countries are listed by the United Nations as least developed countries (LDCs), a status that entitles a country to aid, preferential market access and special technical assistance, among other concessions. Today, the LDCs are mostly concentrated in sub-saharan Africa, and with a combined population of 880 million, comprise around 12 per cent of the total world population. However, they account for less than 2 per cent of world GDP and approximately 1 per cent of the world trade. Based on recommendations of the Committee for Development Policy, the list of LDCs is reviewed every three years by the Economic and Social Council of the United Nations. At the latest revision in 2012, the Committee used three criteria: per capita income, human assets, and economic vulnerability. A country will qualify to be added to the list if it meets the thresholds in all the three above-mentioned criteria and does not have a population greater than 75 million. Furthermore, the LDC status will be awarded only if the government of the relevant country agrees to accept the status. A country will qualify to graduate from the LDC status if it has met the graduation thresholds of at least two of the three criteria during the period covered by two consecutive triennial

9 NUMUN XII 9 reviews of the list. An exception will take place if the per capita gross national income of an LDC rises to a level that is at least double the graduation threshold. In that case, the country will be deemed eligible for graduation regardless of its performance under the other two criteria. So far, four countries have graduated from the LDC category since it was first defined - Botswana in December 1994, Cape Verde in December 2007, Maldives in January 2011 and Samoa in January At the beginning of this millennium, the LDCs enjoyed the strongest and longest growth rates since the 1970s, benefiting from sustained global growth, surging commodity prices and buoyant capital flows. From 2002 to 2008, LDCs displayed an impressive economic performance; their growth exceeded the 7 per cent target in the Istanbul Program of Action (IPoA) and considered necessary for attaining the Millennium Development Goals (MDGs). The growth was primarily associated with changes in the composition of production and exports. The LDC group members that were able to diversity their production into higher value-added manufacturing activities registered consistently higher growth rates compared to countries that depended exclusively on natural resources. However, LDCs faced a particularly challenging external environment in 2013 as the global economy recovered slowly and unevenly. This translated into weaker international demand for commodities followed by a decline in their prices, which adversely affected the economic growth and export performance of several LDCs. While their performance over the past few years is not comparable to their performance in the period, the LDCs continued to grow faster than most other developing countries (at an average of 5.7 per cent per year compared to 1.2 percent for developed countries and 4.6 percent for developing countries).

10 NUMUN XII 10 While a large number of LDCs may have attained similar growth rates, their economic performance differed based on the specialization of their export. In 2013, exporters of food and agricultural products, and minerals (e.g. Guinea and Zambia) saw improvements in economic performance. In contrast, exporters of fuel products, services and manufactured goods experienced a slowdown. This slowdown was caused by a notable decline in fuel revenues in Angola, Chad and Equatorial Guinea, where the fuel sector was adversely affected by the lower fuel production and lower international prices for crude oil. However, despite registering strong economic growth, most of the LDCs have failed to meet the Millennium Development Goals (MDGs), a phenomenon dubbed by the United Nations Conference on Trade and Development (UNCTAD) s 2014 Report as the LDC paradox. This paradox arises from the fact that despite growing vigorously as a result of strong export prices and rising aid flows, LDCs have failed to achieve structural changes. The Lao People s Democratic Republic was the only LDC on track to achieve all eight of the MDG targets analyzed in the Report, and only four of the least developed countries in Sub-Saharan Africa (Ethiopia, Malawi, Rwanda and Uganda) were found to be on track to meet a majority of these targets. The 2014 UCTAD Report highlights three key policy priorities for the post-2015 development agenda for LDCs. The first priority will be to mobilize resources for investment in order to maximize their development impact. The second priority will be to ensure that these resources are directed towards economic activities that will transform their economies and establishing macroeconomic policies that promote investment and demand growth rather than inhibiting them. Lastly, the third policy will be to diversify the rural economies.

11 NUMUN XII 11 The report also recognized that in addition to the appropriate domestic policies, concerted efforts by the international community are also required to help LDCs in their development efforts. Such efforts include creating more development-friendly international financial and trading systems and developing a common global response to climate change.

12 NUMUN XII 12 Questions to Consider These questions simply serve as a guide to aid you in your research. Please do not let them pose any sort of restrictions on what you can address. 1. Is your country located in Sub-Saharan Africa? If yes, what relations do you share with other countries in the region? 2. Is your country involved in trade with Sub-Saharan Africa? How? 3. Has your country been affected by terrorist groups such as Boko Haram and Al-Shabab? What has it done to counter the attacks? 4. Does your country provide aid to countries in Sub-Saharan Africa? How effective has that aid been? 5. Can your country help least developed countries (LDCs) in Sub-Saharan Africa achieve sustainable economic development? How? 6. Does your country own assets (land etc.) in Sub-Saharan Africa in the form of foreign investment? 7. Has your country been affected by the Ebola outbreak? 8. How many immigrants does your country comprise from the Sub-Saharan Africa region?

13 NUMUN XII 13 Recommended Sources Here is a list of sources to further your research. Here is a list of sources to further your research. The United Nations: Least Developed Countries: h%20for%20web.pdf Millennium Development Goals: IMF Regional Economic Outlook: The World Bank - World Development Indicators Data: The World Bank Global Economic Prospects: Sub-Saharan Africa Economic Development:

14 NUMUN XII 14 Bibliography Agriculture s Critical Role in Africa s Development. International Food Policy Research Institute. N.p., 9 May Web. 11 Feb Arieff, Alexis, Martin A. Weiss, and Vivian C. Jones. The Global Economic Crisis: Impact on Sub- Saharan Africa and Global Policy Responses. Congressional Research Service. 6 Apr Web. 13 Feb Calderisi, Robert. Why Foreign Aid and Africa Don t Mix. CNN. Cable News Network, 18 Aug Web. 13 Feb Coutrix, Stephanie. Crippling Economic Impact of Ebola on West Africa. United Nations Multimedia. N.p., 20 Jan Web. 13 Feb Delechat, Corinne, Gustavo Ramirez, Smita Wagh and John Wakeman-Linn. How Global Financial Markets Affect Sub-Saharan Africa. IMF Staff Papers. Palgrave Macmillan Journals, Web. 8 Feb Economic Vicious Circle Trapping the World s Poorest Countries Must Be Reversed If New Development Goals Are to Be Met, Says UNCTAD Report. United Nations Conference on Trade and Development. N.p., 27 Nov Web. 12 Feb Lazuta, Jennifer. Africa to Record Largest Population Growth Over Next 40 Years. Voice of America. N.p., 12 Sept Web. 13 Feb Least Developed Countries Report New York: United Nations Publication, United Nations Conference on Trade and Development. United Nations, 27 Nov Web. 13 Feb Least Developed Countries (LDCs). United Nations Conference on Trade and Development. N.p., n.d. Web. 13 Feb Moyo, Dambisa. Why Foreign Aid Is Hurting Africa. Wall Street Journal. N.p., 21 Mar Web. 11 Feb Somalia Profile. BBC News. N.p., 21 Oct Web. 11 Feb World Economic Situation and Prospects N.p.: United Nations Publication, n.d.united Nations Web. 13 Feb