By Radwan Jakeem
NEW YORK (IDN) — The coronavirus disease (COVID-19) pandemic has brought to light not only the systemic interdependence of countries, but also the socioeconomic fragility of the global economy. From a trade and development perspective, this has been felt most acutely in the most vulnerable developing countries—the least developed countries (LDCs), says the United Nations Conference on Trade and Development (UNCTAD).
Even prior to the onslaught of the COVID-19 pandemic, LDCs faced complex development challenges, compounded with economic growth patterns that have failed to translate into accelerated poverty reduction and job creation.
The policy brief comes at a time when the international community prepares for the upcoming fifteenth session of the United Nations Conference on Trade and Development (UNCTAD XV) October 3-7 and the Fifth United Nations Conference on the Least Developed Countries (UNLDC V).
“Innovative strategies and approaches to enhance economic growth and address underlying vulnerabilities are urgently needed,” says the UNCTAD policy brief in a call to action for LDC Governments and the broader international community of development partners to take concerted action in the fostering of productive capacities for sustainable development.
The weaker a country’s productive capacities, the more vulnerable it is to external shocks, and the longer it will take to recover previous levels of growth, says UNCTAD. Understanding a country’s productive capacities is key to identifying sources of systemic vulnerability, remedying them and turning these challenges into opportunities for sustainable and inclusive growth.
A focus on productive capacities provides a better understanding of economic growth because their expansion, development, and utilization lie at the very heart of what drives growth and structural economic transformation. To support countries in assessing their productive capacities, and understanding their underlying dynamics, UNCTAD has launched a new tool—the Productive Capacities Index—to help countries identify gaps, improve their development policies and, ultimately, reduce poverty and build economic resilience.
As developing countries and the broader international community intensify preparations for UNLDC V, the building, maintenance and full use of existing productive capacities should form an essential part of trade and development strategies to support not only recovery from COVID-19 and other shocks, but also long-term, inclusive growth.
A country’s productive capacities are made up of interrelated core elements which together enable inclusive and sustained growth, and development. Each of these elements can be created or strengthened through a targeted set of policies and strategies. As development processes and the components of productive capacities are, by nature, interconnected and mutually reinforcing, the building, maintenance and use of productive capacities reflects a truly holistic approach to economic development.
UNCTAD defines productive capacities as the “productive resources, entrepreneurial capabilities and production linkages that together determine a country’s ability to produce goods and services that will help it grow and develop”.
As such, productive capacities encompass the diverse competencies, resources, skills, infrastructure, technological capabilities, institutions and knowledge systems that a country needs to produce and deliver progressively more sophisticated goods and services in an efficient and competitive manner.
Why focus on productive capacities?
Building and utilizing productive capacities is the key to achieving sustainable and inclusive economic growth in LDCs. It is by developing their productive capacities that LDCs will be able to mobilize domestic resources and finance their own economic growth. This has positive knock-on effects for development, including reducing their dependency on official development assistance and enhancing the ability to attract private investment and capital inflows.
Furthermore, by developing productive capacities, LDCs will be better positioned to enter and compete in new international markets in goods and services, especially in more sophisticated value added goods, which leverage technology and innovation to go beyond primary commodities. From a socioeconomic perspective, developing productive capacities is also the key to addressing poverty and inequality in LDCs.
Focusing on development of productive capacities helps countries avoid the trap of concentrating on only a few ingredients of production – such as machinery and equipment, physical infrastructure, human resource development or technological capabilities—as “magic bullets” for economic growth and poverty reduction.
Understanding productive capacities provides a broad view of what is needed to produce goods and services in an economy. Context specific vulnerabilities can be identified, and through this more complete understanding of economic activity, better development policy can be formulated.
Additionally, focusing on productive capacities can generate outcomes that have an impact on a wide range of development related challenges, mainly poverty reduction. Understanding the structure of a country’s productive capacities can enable the participation of unemployed and underemployed people in the labour market, including in economic activities of higher added value and with higher levels of productivity. It can also lower the price of wage goods, including food, and reduce price instability. Finally, as the productive base of an economy is strengthened, government revenue can increase and contribute to the delivery of improved public services and governance.
The Productive Capacities Index was developed in response to Economic and Social Council resolution 2017/29, which encouraged UNCTAD “to pursue its methodological work to measure progress in and identify obstacles to the development of productive capacities in developing countries”.
The methodological work and related research have resulted in the development of the Index as a practical tool to enable member States to monitor and benchmark their progress and achievements in building new and enhancing existing productive capacities over time, and their potential to achieve the Sustainable Development Goals. [IDN-InDepthNews – 16 June 2021]
Photo: A group of children. Credit: UNCTAD
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