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Arab LDCs: Development Challenges and Opportunities

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ESCWA Publication: E/ESCWA/CL6.GCP/2020/1

Introduction

Least developed countries (LDCs) are highly representative of the most vulnerable and marginalized countries in the world. LDCs are characterized by structural vulnerabilities that impede growth, such as low per capita income, low levels of social and human development and, often, geographically disadvantageous positions. LDCs’ contribution to global trade and economic activity has been quite limited.

Four member States of the United Nations Economic and Social Commission for Western Asia (ESCWA) are classified as LDCs: Mauritania, Somalia, the Sudan and Yemen. The latter three are also plagued by conflict and face chronic challenges in meeting the Istanbul Programme of Action (IPoA) graduation criteria from the LDC category. Attempts by these governments to build sound systems of governance that would make their economies more resilient have been hampered by conflict and external shocks such as the global financial, food and oil price crises, weak human, technological and institutional capacities, limited technology transfer, a lack of domestic resources, inequality, and more recently the socioeconomic effects of the COVID-19 pandemic. These factors together induce a vicious cycle of low productivity and investment and ultimately low levels of human development.

During 2020, Arab LDCs have faced significant socioeconomic challenges exacerbated by the spread of COVID-19. Prior to the spread of the virus, the economies of Arab LDCs were expected to grow at a rate of 0.8 and 1.6 per cent in 2020 and 2021, respectively. However, the outlook has been revised and seems unfavourable. Economic growth was expected to contract by 3 per cent on average in 2020 (-5.5 per cent in the pessimistic scenario) and to stabilize in 2021. In 2019, the economy witnessed a contraction of 0.6 per cent on average, marking the second consecutive year of negative growth, largely attributed to an economic deceleration in the Sudan, which represents the largest economy in this group of countries. The Sudanese economy contracted in 2019 by an estimated 2.5 per cent. Political uncertainty has hampered growth in the services sector and investments in real estate and business sectors, while agriculture suffered from shortages of inputs, notably fuel. GDP was projected to decline further by 3.3 per cent in 2020 (-6.2 per cent) due to the decrease in domestic demand and weak private sector investments.

Despite key developmental efforts, the outlook for Mauritania, Somalia, the Sudan and Yemen remains relatively subdued due to multiple challenges. These include the recent global recession due to COVID-19, in addition to the continued adjustment to low oil and raw material prices and regional conflicts. While these countries share some common features, they also have their own specificities in terms of development opportunities and challenges. COVID-19 has exacerbated existing structural weaknesses in health care, social protection and other critical services in Arab LDCs. However, the pandemic is not the only crisis these countries are facing; environmental challenges, such as the Sudanese floods, have added further strain on crisis management systems and resources. Yemen was already a fragile State full of systemic vulnerabilities prior to the current ongoing conflict by contrast with other LDCs. Furthermore, Mauritania, Somalia and the Sudan all underwent recent transitions of power in the last two or three years.

The economic slowdown caused by COVID-19 is expected to negatively impact jobs, incomes, businesses and the flow of remittances in the Arab region, resulting in a shrinking middle-income class and an estimated 8.3 million people falling into poverty in the region. The consequences of this crisis are particularly severe on vulnerable groups and those working in the informal sector who have no access to social protection or unemployment insurance. A recent ESCWA report on the impact of COVID-19 in the Arab region highlighted that “the economic downturn is expected to intensify existing food insecurity in the region, specifically for the poor,” leading to an estimated “additional 1.9 million people becoming undernourished.” 88 per cent of Arab LDCs’ urban population and only around 50 per cent of their rural population have access to electricity. Without access to electricity, many basic life-saving interventions in health facilities, especially those linked to combatting the spread of COVID-19, cannot be performed safely or at all. Special support is needed for Arab LDCs to resolve the energy gap in health facilities. This will require decision makers from the energy and health sectors to work closer together to ensure that health facility energy needs are adequately prioritized.

What is more, the case of Yemen, and its prospects for LDC graduation in 2021, will need to be reassessed when the conflict is over and the damage caused by it can be better assessed. The case of Yemen is a clear example of how armed conflict affects development trajectories, even ones that are relative and fragile, and can reverse gains in development acquired over decades. Despite the international donors’ efforts rendered to Yemen in political-economic humanitarian and development efforts, Yemen was not able to achieve a lot in preventing the protracted conflict and the subsequent humanitarian crisis, this is proven by the Humanitarian Response Plans (HRPs) of Yemen even before 2014. Counteracting the adverse impact of conflict and an increasing number of crises and guaranteeing the successful implementation of the 2030 Agenda in the LDCs that are member States of ESCWA require a renewed focus on conflict prevention. This must address the root causes of conflict, which in many cases corresponds to the same structural vulnerabilities impeding sustainable development.

Arab LDCs (Mauritania, the Sudan, Somalia and Yemen) have been making some progress in implementing the IPoA priority areas. However, productive capacity remains very low among them. Added value from manufacturing and agriculture has not significantly increased during the current Programme of Action, and although progress is being made on human development indicators, it is slow. Yet, both human-made and emerging crises remain prevalent among Arab LDCs and risk derailing previous progress. Despite all these formidable structural challenges and emerging crises, these four countries have been exerting sustained efforts to achieve sustainable economic growth, build human assets, combat poverty and reduce chronic unemployment, through several government measures, including diversifying their national economies. The report also suggests mechanisms to build resilience and address the multifaceted chronic issues the four Arab LDCs (Mauritania, the Sudan, Somalia and Yemen) face, and most of all help them embark on the path of inclusive sustainable development. Increased financial assistance and improved socioeconomic support are needed.

In 2011, in a high-level meeting hosted by Turkey, LDCs and the international community came together around a common vision; a mutually agreed compact towards sustainable development by 2020. The Istanbul Plan of Action (IPoA), acknowledging the structural vulnerabilities of LDCs, focuses mainly on strengthening productive capacities, supported by specific measures to effectively engage in trade, build human capacities, attract investment and participate in global production networks and value chains. Structural transformation through increased productive capacity can contribute to the achievement of inclusive and equitable economic growth at a level of at least 7 per cent annually. The overall target was for half of the countries to graduate from LDC status by 2020.

The IPoA is developed across eight key areas: productive capacity, agriculture, food security and rural development, trade, commodities, human and social development, multiple crises and other emerging challenges, mobilizing financial resources for development, and capacity building and good governance at all levels. Each of these areas is supported by commitments made by the international community and LDCs.

ESCWA, in its mission to support the members of the region and the efforts of the United Nations system to support the LDCs, launched a regional process that gathers the views of LDCs and ESCWA’s donor members as well as specialized regional agencies and bodies. This process includes the preparation of a report that covers monitoring of the efforts made by Arab countries to support Arab LDCs. The report is intended to identify best practices in member States to enhance global partnership and fulfill obligations towards LDCs and countries affected by conflict. The objective of this ESCWA-led process is ultimately to identify, during an ESCWA-convened subregional event, common positions between the countries of the Arab region to support the design and implementation of the future plan of action for the LDCs.

To this effect, the present report provides an analytical overview of the progress and challenges faced by Arab LDCs, with a focus on the special vulnerabilities these countries are experiencing due to conflict and political instability. This report also builds on the lessons learnt from the IPoA decade to provide key findings and recommendations for the next decade which will be launched in Doha, Qatar in January 2022. The aim is to build back better, avoid pitfalls of the past decade and take advantage of the momentum presented by the implementation decade of the 2030 Agenda.

In five thematic chapters built around the eight priorities of the IPoA, this report provides comprehensive information on and analysis of progress in implementing the Program of Action for the Least Developed Countries for the Decade 2011–2020 (Istanbul Program of Action) over the past 10 years. In addition, the report covers the support, in terms of humanitarian and development assistance, provided by Arab countries, and the regional and international community, to Arab LDCs. This report has been prepared as a collective effort by ESCWA experts and covers all eight priority areas for action and the overarching goal of enabling graduation from the LDC category.

This report will be the key document for an ESCWA-led regional review as well as the preparatory process for the Doha meeting in 2022, in order to assess the structural challenges and emerging issues faced by Arab LDCs in attaining the Sustainable Development Goals (SDGs). The ESCWA regional meeting will provide a platform for peer exchange and learning, and for all stakeholders to gain insight and agree on concrete, targeted and effective cooperative actions and recommendations that will assist the Arab LDCs to overcome structural challenges, effectively compete in global and regional markets and accelerate sustainable development progress over the next decade. The meeting will also provide space for discussion of the current support provided to the Arab LDCs by Arab States and the international and regional community and generate ideas for its improvement.

Last but not least, it should be noted that ESCWA’s work with Mauritania, Somalia, the Sudan and Yemen covers different pillars of the IPoA. Each country has benefited from different kinds of assistance and has partaken in intergovernmental processes. These include supporting institution building, poverty measurement, analysis of women’s status, implementation of e-government strategies and competition policy, among others. ESCWA would like to take the opportunity within this assessment report and review process to call upon the international community to make renewed efforts to honour their commitments and increase the proportion of country programmable aid allocated to countries most in need. Country programmable aid will also encourage investment to address root causes of conflict through supporting domestic productive capacities and income generation activities – especially for the youngest segments of the population – and will create the foundations for transition out of fragility. The possibilities to include conflict prevention in the flows of aid mobilized through South-South cooperation and domestic resources should also be encouraged.