Head of UNDP Africa at Benin conference on LDCs

Jul 28, 2014

Ministerial Conference on New Partnerships for Productive Capacity Building in the Least Developed Countries, Cotonou, Republic of Benin

28-31 July 2014

Key note address
Policy framework and Institutions for productive capacity building

Mr Abdoulaye Mar Dieye,
Assistant Secretary General, Assistant UNDP Administrator and Director, UNDP Regional Bureau for Africa

I understand the term "productive capacity building" is a political construction. I wish to seek your indulgence to focus my address on what I call the “new frontiers of capacity development for the LDCs”. Capacity development has been defined in different ways. Some experts defined it in a narrow sense focusing on the technical aspect (skills and expertise) while others, like UNDP, see it from a broader perspective.  UNDP defines capacity development as the process through which individuals, organizations and societies obtain, strengthen and maintain the capabilities to set and achieve their own development objectives over time. It focuses on a collective effort to unleash, strengthen, create, adapt and maintain capacity over time.

The State of LDCs Report 2013 defines productive capacity as a process that continuously finds ways to better utilize a country’s resources and endowments to produce higher quantities of goods and services, with higher value added and more efficiency in resource use; produce a wider range of goods and services; and better compete globally.

I see productive capacity building as an integral part of national capacity development. The objective of focusing on productive capacity building is to ensure concerted policy actions are focused on this issue.  The narrow conception of capacity perhaps explains the limited success on graduation from the LDCs since 1971.  Today, only four countries have effectively graduated, namely, Botswana, Cape Verde, Maldives and Samoa.  Hopefully, Equatorial Guinea and Vanuatu may join in 2015 while Tuvalu and Angola may soon join the league of graduating countries.

Ladies and Gentlemen,

Over the past forty years, only four countries have graduated and IPoA sets a lofty target of ensuring about 50 percent of the LDCs have met the graduation criteria by 2020. The question we should ask is: Why is the process of graduation so sticky?  Because most of our LDCs continue to face pervasive poverty, serious structural impediments to growth, low levels of human development, and high exposure to shocks and disasters. This continues to trap them in vicious circle of poverty and low development outcomes. 

Even some of the countries that have met graduation criteria want to retain their LDC status. Why?  They do not want to lose their aid and trade privileges. In fact, meeting graduation criteria does not imply meeting the thresholds for fiscal space, global competitiveness and resilience to shocks. Capacity to design, plan, manage and monitor these issues must be built, nurtured and sustained. Consolidating and maximizing the gains of graduation require a gradual process of withdrawing aid and trade privileges.  The emerging consensus on the post 2015 development agenda tends to suggest that a speedy graduation processes is an imperative.  NOW, the development paradigm of the post 2015 era is shifting to zero tolerance to poverty by 2030.  The post 2015 agenda is therefore calling for graduation of all LDCs by 2030. How can we make this a reality? In my view, countries have the capacities to deal with the following three fundamental issues.

First, they need to accelerate the development process by deepening fiscal space;  strengthening  public-private partnerships;  promoting structural economic transformation through increased productivity, improved value chain-based products and services;  and  deepening science, technology and innovation;

Second, countries must prioritize people-centred development. This involves  making human beings the means and end of the growth process, particularly when the contribution of women and youth is optimally harnessed; ensuring benefits of growth are  invested in children, youth and women development; and promoting equitable access to quality education and health services.

Third, they must address vulnerabilities to shocks both at the individual, community, state, and institutions levels. This includes addressing the binding constraints for accelerated and sustainable development such as building capacities for anticipating and responding to economic, social, political and natural disaster shocks and reducing their impact on vulnerable populations, organizations and communities.  

Capacities to deal with these challenges cannot be realized under “Business as usual approach”.  Some new generation of capacities are needed to shift the frontier of development in LDCs.

One, collaborative capacity is needed. Sustainable development is becoming more complex, dynamic and unpredictable than it has ever been. This is making traditional approach to development management gives way to shared knowledge and capacities that is beyond the purview of one actor – the government. Today’s development complexity can only be addressed by collaborative-seeking solution. In UNDP, we see collaboration as strategy of turning challenges into development solutions. Greater interdependence of issues, stakeholders’ interests and unpredictability of results can all be managed by using collaborative approaches to turn these challenges into opportunities. We need to channel expectations of stakeholders into dynamic and constructive engagement and partnership, and harness diversity in the service of increased resilience.

Another is approach is adaptive capacity. In an increasingly complex, interconnected and volatile world, it becomes progressively more difficult to predict, plan for and adjust to disruptions - financial, economic, social, political, environmental or a convoluted combination of two or more of these issues. Capacity to anticipate, on a continuous basis, potential changes, disruptions and calamities; to develop appreciate policy responses and; to adapt to the actual change as it comes is critical to building a resilient system.

Your Excellences, Ladies and Gentlemen;

Now, why must LDCs focus on productive capacity? This is informed by three factors. First, LDCs cannot afford a business as usual approach to economic development policymaking – while others can afford to walk, they have to jump to be at par with non-LDCs. Second, growth must be high and sustainable through enhanced economic diversification, leveraging natural resource endowment, value addition, and mainstreaming science, technology and innovation into their development strategies to make substantial impact on people. And third, they need to strengthen their position within the global economy by building competitiveness and domestic markets.

Why are institutions important in building and nurturing and sustaining productive capacity?

My concept of institution is not about organizations.  I see institutions as the “rules of the game” which shape human behaviour in economic, social and political life. On the other hand, organizations such as public, private and CSOs are the “players” of the game. This includes policies, processes and practices that positively contribute to the ‘rule of the game’.  When institutions and organizations are strengthened, they provide opportunities to optimize performance.

Institutions are the soft infrastructure for developing productive capacity. The success of productive capacity-building framework hinges on the ability of the LDCs to establish and nurture appropriate institutions.  Efficient institutions are indispensable for driving growth, preventing and overcoming socially destabilizing distributional inefficiencies. They are important  to: (i) ensure the stability and continuity of policies; (ii) minimize policy instability over political cycles by establishing mechanisms to promote a reasonable degree of independence for major economic policies;  (iii) promote distributional efficiency and inclusiveness; and (iv) facilitate the consolidation of a  developmental state.  

The quality of institutions is critical to reducing the cost of production and trade, and distribution of these services, thereby enhancing economy-wide competitiveness, especially in the private sector.  In LDCs productive capacity is mostly concentrated on the extractive and agriculture sectors mostly lower value-chains.  Strengthening productive capacity in high-value chain processes in LDCs will have to combine the extractives with the manufacturing and service sectors. These should be given a high degree of attention in building productive capacity.

Efficient and sustained institutions promote entrepreneurship and innovation. Part of the rule of the game that facilitates productive capacity is upholding the rule of law, and accountability and transparency in public sector management. An efficient institution enables thriving of private sector enterprise and innovation. Efficient institutions such as the regulations that minimize investment risk, reduce the administrative costs of doing business, and protect property and creditor rights, also promote trade, investment and private sector development.

The quality of institutions is key to securing stable sources of capital over the long term. They are important for mobilizing domestic and external financing for productive capacity building and development. Efficient and stable institutions are critical for attracting foreign capital.

Ladies and Gentlemen,

What types of policies and institutions can catalyze productive capacity in LDCs?

First, productive capacity cannot be unleashed where economic governance is weak. The institution of probity and accountability is the building block of any meaning productive capacity. Private Citizens will not want to pay tax where corruption is high and weak adherence to rule of law could deter private enterprise and foreign investments. Where this is the order of the day, individuals, firms and societies’ capacity to produce efficiently and competitively is compromised.

Second, national policies and practices which prioritize science, technology and innovation often accelerate productive capacity.  Most technology and innovation are public goods in nature, private investment in science, technology; research and development are therefore inadequate to leapfrog high-end value chains and entrepreneurial development. Heavy public investment in science, technology and innovation is pivotal to creating an environment to incentivize private engagement.  Most LDCs need to foster the linkages and interactions between scientific education institutions, scientific research centres, extension services, and private enterprise.  

Third, productive capacities are maximized when national policies, processes and practices continuously promote domestic value addition. The era of seeing production of primary commodities, including agricultural commodities and natural resources – as the main preserve of LDCs is no more fashionable. The lack or limited nature of this institution explains why most LDCs specialize in exports of very low value added commodities. Value must be added to these primary commodities to maximally benefit form incomes, employment and technology acquisition associated from high-value added activities, which have been eluding LDCs for a long time.

Fourth, without a set of policies and practices that prioritize predictable, inclusive and sustained market access to LDCs products, especially those with limited domestic markets, productive capacity may remain elusive.  The lack of access to export markets is not only a constraint to productive capacity improvement, but also an important institution. Developing appropriate frameworks, policies and partnerships for market access is critical to accelerating productive capacity. This requires implementing duty and quota-free treatment for LDCs exports, improving rules of origin, operationalizing services waiver and actions on cotton as well as helping them to acquire modern technology tailored to productive capacity building. The call for Technology Bank for the LDCs is quite apposite here.  Development partners must also eliminate ambivalent practices such as export subsidies that weaken the capacity of LDC firms to compete.

Fifth, heavy investment on soft and hard infrastructure that serves as binding constraints to growth is key. An important tool to achieve this is to increase public resource mobilization, adopt a sustainable fiscal policy that promotes public investment, and ensures clear and formal rules of allocation of revenue towards investment expenditure as opposed to recurrent expenditure. It also includes human capital development policy and strategy that seeks to achieve a balance between the supply and demand sides of skills development.

Distinguished Ladies and Gentlemen, the enormous challenges facing LDCs cannot be addressed only by focusing on productive capacity. Rather, it requires a holistic approach to national capacity development. These challenges cannot be addressed with business as usual approach. LDCs need to develop adaptive and collaborative capacities that could accelerate development process; make people the means and end of development; and promote resilient institutions, communities and societies.  To ensure 50 per cent of LDCs meet graduation criteria by 2020, policy and institutional frameworks must be designed to promote sound economic governance, technology and innovations, domestic value chain, soft and hard infrastructure and strategic global partnership to accelerate market access are critical.   

I wish you a fruitful deliberation.

Thank you.

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