The least developed countries report 2020:productive capacities for the new decade

The COVID-19 crisis in LDCs

Economic aspects

• The GDP per capita of least developed countries (LDCs) is projected to contract by 2.6% in 2020 from already low levels, as these countries are forecast to experience their worst economic performance in 30 years. At least 43 out of the 47 LDCs will likely experience a fall in their average income.
• Extreme poverty in LDCs is projected to expand by 32 million in 2020, to reach 377 million people. The poverty rate will rise from 32.5% to 35.7% in 2020, due to the COVID-19-induced economic crisis.
• Although LDCs account for just 14% of the world’s population, they comprise more than 50% of the world’s extremely poor (i.e. those living on less than $1.9 a day). But the economy of these countries accounts for just 1.3% of the world total.
• The current account deficit of LDCs is forecast to widen from $41 billion (or 3.8% of their collective GDP) in 2019 to $61 billion (or 5.6% of their GDP) in 2020, the highest value ever.
• LDCs are the world’s most vulnerable group of countries, as they are 27% more vulnerable than other (non-LDC) developing countries.

Health aspects

• Despite their weak medical systems, LDCs were much less affected by the COVID-19 pandemic compared with other countries. In late November 2020, LDCs had suffered 17 COVID-19 deaths per million inhabitants, well below the 138 deaths per million inhabitants reported in other developing countries, and corresponding to just 3% of the 536 deaths per million people recorded in developed countries.
• LDCs have three medical doctors per 10,000 inhabitants, while other (non-LDC) developing countries have 14, and developed countries have 31.

Development of productive capacities and structural transformation in LDCs

• LDCs as a group have been diverging over the long term from other (non-LDC) developing countries. In 1990, the gross national income (GNI) per capita of other developing countries was three times higher than that of LDCs. Nowadays, it’s almost six times higher.
• While in the early 1990s the labour productivity of LDCs corresponded to 25% of that of other developing countries, at present it amounts to just 18%.
• Transformation to more modern and better performing economic structures has mostly been restricted to a handful of LDCs, especially Bangladesh, Cambodia, Ethiopia, Lao People’s Democratic Republic, Myanmar, Nepal and Rwanda.
• The importance of manufacturing has been increasing in Asian LDCs. The sector accounted for 19% of GDP and 12% of employment in 2017, up from 12% and 8% in 2001, respectively.
• In African LDCs and Haiti, manufacturing is less important. It accounts for 9% of GDP and just 5% of employment. These shares have remained stagnant since the beginning of the century.
• Between 2001 and 2017 LDC labour productivity grew by 3.2% annually, but in other developing countries it improved faster, by 4.3% annually.
• Being the country group with the strongest demographic growth, LDCs need to create 13.2 million new jobs every year.
• UNCTAD’s Productive Capacities Index (PCI) shows that the majority of LDCs have low productive capacities: their average PCI level was 40% below that of other developing countries between 2011 and 2018.
• The number of LDCs with a higher Productive Capacities Index (PCI) rating fell from 11 countries in 2001 to six countries in 2018. By contrast, the number of LDCs with lower PCI scores rose from 18 in 2001 to 26 in 2018.
• Out of the eight sub-components of the PCI, the only one where LDCs score higher than other developing countries is natural resources. LDCs scored an average of 46 between 2011 and 2018, 15% higher than the 40 scored by other developing countries.

The digital economy in LDCs

• LDCs have been closing the gap between them and other (non-LDC) developing countries in terms of mobile phone diffusion. LDCs have 73 mobile phone subscriptions per 100 inhabitants, while other developing countries have 105.
• The spread of mobile phones in LDCs doesn’t mean that the digital divide is closing. Less than 20 out of 100 people in LDCs use the internet, compared with 55 in other developing countries and 85 in developed countries.
• Apart from the international digital divide, LDCs face a domestic digital divide among genders, and it’s widening. The proportion of LDC men using the internet is more than double that of women.
• The main challenge for LDCs to enter the Fourth Industrial Revolution (4IR) and the digital economy is that most of them have not yet fully integrated the previous three industrial revolutions into their productive base.
• Most farmers in LDCs lack access to energy and internet broadband, which are necessary for them to take advantage of digital technologies.
• The adoption of digital technologies by LDC firms would bring great benefits, but most firms lack the required technological capabilities and skills, and are reluctant to take the risks of innovating.
• For African LDCs, the advent of the African Continental Free Trade Area might offer some impetus to counter technological inertia, and generate opportunities for the uptake of digital technologies, digital transformation, new business models and attract investors.

The COVID-19 crisis and graduation from LDC status

• The world economic crisis brought by the COVID-19 pandemic may affect the previously planned graduation of LDCs, i.e. the exit of some countries from the group of LDCs.
• For the LDCs whose cases will be examined in the triennial review of 2021 for possible graduation (Bangladesh, Lao People’s Democratic Republic, Myanmar, Nepal and Timor-Leste), the Committee for Development Policy will take into account not only the LDC criteria (which will be based on data until 2019), but also other indicators, analyses and views of the country concerned (which reflect the impacts of the crisis).
• The committee will adopt the same approach in its consideration of other countries that may pre-qualify for graduation in 2021 and may be recommended for graduation in 2024.