I. B. MATSENKO

PhD in Economics Institute of Africa, Russian Academy of Sciences

Africa Keywords:, least developed countries, economic growth, foreign direct investment, official development assistance

Today, there are 49 least developed countries in the world. Most of them-70% (34 States) - are located in Sub-Saharan Africa( SSA), where they make up the bulk of the countries in this region*. They account for 53% of the continent's total population and only 17% of total GDP. 72% of the inhabitants of these African countries live in rural areas, over 50% live in extreme poverty, on an income of less than $1.25 per day. It has the lowest per capita income and the highest rate of population growth.

In 1971, the international community recognized as "least developed countries" (LDCs) the category of countries characterized not only by widespread poverty, but also by structural weakness of economic, institutional and human resources, often exacerbated by unfavorable geographical conditions. This group, which at that time numbered 25 countries (and has since grown in number), was described by the UN as "the poorest and weakest segment of the international community", whose economic and social development was a serious challenge for both these countries and their development partners.

To determine the status of a least developed country, the UN applies three main criteria: low GDP per capita; weak human development; and a high degree of economic vulnerability.

These criteria, based on relevant thresholds, are reviewed and refined every three years by the United Nations Economic and Social Council (ECOSOC), which affects the total number of LDCs in the world. It is significant that since this category of countries was identified, their number has been constantly growing: if in the early 1970s there were 25 LDCs, then two decades later-39, and twenty years later - 49**.

According to the latest methodology for calculating the criteria (March 2012), according to the first of them, the average per capita income for three years should be less than $992 per year for inclusion in the LDC category and more than $1,190 for leaving it. The second criterion is calculated on the basis of the Composite Human Development Index (HDI), which includes indicators of nutrition, health, school education and adult literacy. The third criterion is determined using the composite index of economic vulnerability (SEI) based on the following parameters: the share of the manufacturing sector and modern services in GDP; instability of agricultural production; instability of exports of goods and services; concentration of commodity exports; share of the population affected by natural disasters.

To be included in the list of LDCs, a country must reflect all three criteria, with a population of no more than 75 million. To be excluded from the list, a country must meet the threshold value for two of the three specified criteria for two consecutive three-year periods, i.e. six years. Over the past two decades, only three States, two of them African, have been able to graduate from the LDC category. The first was Botswana in 1994, followed by Cape Verde in 2007 and Maldives in 2011.

It is worth noting that in recent years, the ECOSOC Committee for Development Policy (CRC) has introduced a new amendment to the procedure for countries to leave the list of LDCs. If a country has experienced significant GDP per capita growth over an extended period of time, at least twice the threshold ($1.25 per day), then such a State can be considered as a candidate for graduation from the LDC category, regardless of the indicators according to the other two criteria***.

WHY ARE THERE SO MANY LDCs IN AFRICA

According to 2010 data, about 530 million people live in African LDCs. This represents more than half of the continent's total population and 64% of all NDCS1. At the same time, the population growth rate in Africa's LDCs is the highest in the world (2.7% in the 2000s), although there is a slight downward trend (in the previous two decades it was 2.8%).

Despite meeting the main criteria for classifying a country as an LDC, African LDCs are very heterogeneous. Here and sa-

* Angola, Benin, Burkina Faso, Burundi, Comoros, Djibouti, Democratic Republic of the Congo, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Somalia, Sierra Leone, Sudan, Zambia- Sierra Leone, Togo, Uganda, Central African Republic, Chad, Equatorial Guinea, Eritrea, Ethiopia, South Sudan. Only 14 SSA States do not fall into this category.

** South Sudan was the last country to receive LDC status (December 2012).

*** These include Equatorial Guinea and Angola as candidates for graduation from the LDC in the coming years.

the largest countries on the continent (DRC, Sudan, Chad, Niger, Angola, Mali, etc.), and the smallest (Gambia, Equatorial Guinea, Guinea-Bissau, etc.), densely populated (Ethiopia, DRC, Tanzania, Uganda, etc.) and sparsely populated (Sao Tome and Principe), insular and landlocked areas. It should be noted that among the LDCs in Africa, countries rich in fuel and mineral resources: These are oil exporters Angola, Chad, Equatorial Guinea and South Sudan, as well as producers of various mineral raw materials-DRC, Guinea, Mali, Mauritania, Mozambique, Sierra Leone and Zambia.

Most of the African LDCs do not currently possess proven mineral reserves of any kind, and they do not have, with rare exceptions, a developed extractive or manufacturing industry. Moreover, the share of the latter in the GDP structure of this group of countries has steadily declined over the past 30 years (from 12% in 1980 to 6.6% in 2009), reaching the lowest level in the world. The basis of the economy is agriculture (28% of GDP), just like half a century ago, backward and unproductive, which does not provide the local population with sufficient food. A significant number of African LDCs have become food importers.

Almost 80% of these countries ' exports still come from commodities, the main of which is oil, which makes them vulnerable to external shocks due to the volatility of global market prices. There is still a strong inequality in the distribution of income, poverty and poverty of the majority of the population. In addition, the economy of these countries remains exposed to negative factors: various internal conflicts (ethnic, political, etc.), as well as natural disasters.

In other words, Africa's LDCs do not have the right capacity to develop their national economies and provide an adequate standard of living for their populations, and as stated at the last UN Conference on the Least Developed Countries (Istanbul, 2011), the gap between them and the rest of the world continues to widen.²

ECONOMIC GROWTH CURVE

Between 2000 and 2008, the world's LDCs collectively recorded economic growth of about 7% per year on average, with the highest rates (7.8%) recorded in 33 African LDCs, compared with 6.8% in ¹¹ Asian LDCSS3. However, even during the recovery years, some countries (for example, Guinea, Comoros, Liberia, Guinea-Bissau, Central African Republic, Togo and others) continued to grow significantly lower, and in Eritrea they were even negative, but these countries were rather the exception.⁴

What was the reason for such unprecedented (and for most analysts unexpected) growth in the most backward and poor African countries after decades of stagnation? This was supported by a number of factors, including increased production associated with rising prices for agricultural commodities, increased investment in infrastructure development, improved macroeconomic management and political situation, along with increased inflows of foreign direct investment( FDI), remittances and donor support in the form of official development assistance (ODA) and external debt cancellation. debt.

The subsequent global financial and economic crisis (2008-2009) caused a sharp decline in economic growth in all the world's LDCs, to 4.9% in 2009. At the same time, the decline in African LDCs was more significant than in Asian ones (growth rates fell to 4.2% and 5.9%, respectively), ⁵ due to the less diversified structure of their economies and exports, which relies mainly on commodities (see Table 1).

Given the high dependence of African LDCs on both commodity exports and imports, commodity price volatility has an adverse impact on the economies of these countries. As practice shows, commodity prices have been subject to significant fluctuations over the past years. In 2007-2008, for example, they doubled, followed in 2009 by a sharp decline caused by the onset of a global economic recession and increased general price volatility. Because of the structure of their economies and their limited capacity to adapt to global shocks, it is the LDCs that are most affected by price volatility.

For example, a sharp drop in energy prices (primarily oil) in 2009 instantly pushed the oil-exporting African LDCs back: in some of them (Equatorial Guinea, Chad, and the Sudan), economic growth rates declined to negative values, and the value of exports across the entire group of African LDCs decreased by 34%. Subsequently, export volumes recovered, including:

Table 1

Economic growth rates by major groups of countries (%)

* Rating.

Источник: The Least Developed Countries Report 2012. UNCTAD. N.Y., 2012, p. 3.

Table 2

Average annual GDP growth per capita in major groups of countries (%)

* Rating.

Источник: The Least Developed Countries Report 2012. UNCTAD. N.Y., 2012, p. 3.

However, due to higher commodity prices, growth instability and strong dependence on global commodity and food prices have persisted. In particular, the significant increase in fuel and food prices in 2010-2011 once again had a negative impact on many LDCs in the region. Together with the drought in the Horn of Africa (Somalia, Kenya, Ethiopia, etc.), this led not only to a deterioration in the food security situation, but also to famine, which affected 9 million people in 2011.

During the last quarter of the 20th century, SSA-based LDCs experienced a regression in the level and dynamics of per capita income. The acceleration of economic growth in the 2000s helped to overcome these negative trends and increase the growth rate of GDP per capita. However, after reaching a high level of 5.1% in the period 2000-2008, the growth rate of per capita income during the crisis years decreased by more than three times (to 1.5%) and, according to forecasts, will not rise above 2.5% in the coming ^years6 (see Table 2). Thus, in the medium term, a return to the high growth rates achieved during the pre-crisis economic boom is unlikely in most African LDCs. Although some of them are already showing significant growth rates (Sierra Leone, Niger, Ivory Coast, Liberia, Ethiopia, Burkina Faso and Rwanda).

One of the challenges faced by LDCs in achieving sustained economic growth and sustainable development is the lack of financial resources. Low levels of per capita income and domestic savings, along with a weak tax base, limit the amount of domestic resources. Hence, there is a heavy reliance on external financial resources, including FDI, ODA, external debt cancellation, and remittances.

FDI INFLOWS

As already noted, one of the features of the high growth rates of all LDCs in the 2000s was the increased flow of external financial resources to these countries.⁷ For example, FDI in LDCs is reported to have grown much faster during this period than GDP and trade in this group as a whole, which was largely supported by rising commodity prices, privatization, an improved investment climate, etc. However, as a result of the global recession, there has been a downward trend, although not very significant, in FDI flows to the LDC group, where Africa accounts for 79% of all FDI flows. The decline in net FDI inflows to LDCs as a whole in 2008-2010 was largely attributed, according to experts, to the withdrawal of large investments in Angola alone, related to the cycle of investment in its oil industry. ⁸

According to the recent UNCTAD World Investment Report 2013, for the first time in history, the share of developing countries in global FDI flows has exceeded that of developed countries. It is also noteworthy that FDI inflows decreased in 2012 for all major groups of countries and regions, which has never been observed before. The only exceptions were Africa and the LDCs. At the same time, while the volume of FDI to Africa as a whole increased by 5% in 2012 compared to the previous year, amounting to $50 billion, FDI inflows to LDCs increased by 20%, reaching a record level of $26 billion (see Table 3.4). This growth was mainly driven by investments in the extractive industries of six countries in this group, five of which are African (DRC, Liberia, Mauritania, Mozambique and Uganda)^.9

Overall, the concentration of FDI inflows to selected African LDCs rich in natural resources remains high. These countries are DRC, Mozambique, Sudan, Equatorial Guinea (FDI volume over $2.0 billion); Liberia, Mauritania, Tanzania, Uganda and Zambia (over $1.0 billion); and Guinea, Madagascar, Niger, Sierra Leone and Ethiopia (from $ 0.5 to $1.0 billion).¹⁰. At the same time, there has been an increase in FDI in the manufacturing and service sectors serving the consumer market in recent years. Thus, in the period 2008-2012, the share of these industries in the total amount of new investment projects increased from 7% to 23% ¹¹.

A distinctive feature of FDI in African LDCs is their high rate of return - about 13% (as in countries with economies in transition). This is almost twice the global rate (7%) and higher than that of all developing countries (8%). UNCTAD experts recognized that investing in LDCs is very reasonable, since the rate of return on FDI in them is much higher than in developed or even other developing countries.¹²

It is also important that there has been a trend of faster growth in recent years

Table 3

Foreign direct investment (FDI) inflows by region, $ billion

* No double counting.

Source: World Investment Report 2013. UNCTAD. N.Y., 2013, p. 213, 216.

Table 4

Foreign direct investment (FDI) inflows by world region, %

* No double counting.

Source: World Investment Report 2013. UNCTAD. N.Y., 2013, p. 38.

FDI flows to Africa from other developing countries through South-South cooperation. In terms of accumulated FDI in Africa's LDCs, China, India, South Africa and Malaysia were the largest developing country investors. According to recent UNCTAD data, new investment in LDCs from developed countries has now almost halved, while almost 60% of new investment in these countries comes from other developing countries, primarily India.¹³

ODA

For LDCs as a group, which are constantly severely short of financial resources for development, official development assistance (ODA)continues to be the main external source of income. ¹⁴ However, after a steady increase during the 2000s, including the years of the global financial and economic crisis, the global amount of funds allocated to development assistance remains the main external source of income. Overall aid delivery has started to decline. This decline has particularly affected LDCs, which have accounted for about 1/3 of total donor aid inflows in recent years. Thus, from 2010 to 2011, the net amount of ODA allocated to LDCs decreased in real terms to $27.7 billion. (by 8.9%), and in 2012 this decline already amounted to 13% and, accordingly, a decrease in the volume of ODA to $26 billion ¹⁵.

This reduction is usually attributed to the consequences of the global financial and economic crisis, as well as the ongoing crisis phenomena in the euro area, as a result of which severe financial restrictions were imposed in many donor countries, resulting in a reduction in aid budgets.

It should be noted that the tendency of some donor countries to fail to meet their full ODA commitments to countries in need began to manifest itself even before the crisis. Thus, the Group of Eight countries ' commitments made in 2005 at the Gleneagles Summit (Scotland) to increase their number by 2010 were not fulfilled. $25 billion in ODA to Africa. The UN target of 0.15 - 0.20% of the gross national income (GNI) of developed countries, which was confirmed in the Istanbul Programme of Action adopted at the Fourth UN Conference on the Least Developed Countries (2011), was also not met.

Despite a twofold increase in the combined share of ODA to the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) for LDCs in the 2000s (from 0.05% in 1999 to 0.10% in 2011), it remains well below the target. Only 10 countries have reached or exceeded this level: These are Luxembourg (0.37%); Belgium, Denmark, Ireland, Norway, Sweden and Veli-

Table 5

Gap between dedicated ODA and DAC/OECD donor commitments

Compiled by the author of: Global Partnership for Development: Challenges We Face. The UN. New York, 2013, p. 20; Global Partnership for Development: Time to Deliver on Promises. UN. New York, 2011, p. 15.

co-Britain (0.20%); Finland, the Netherlands and Portugal (0.15%)¹⁶ (see Table 5).

The largest recipients of ODA among African LDCs remain Ethiopia, Tanzania, Côte d'Ivoire, DRC, Sudan, Mozambique, Uganda and Zambia. At the same time, there is a tendency to shift from providing aid (in the form of gratuitous subsidies) mainly to the poorest countries in the region to allocating it to middle-income countries on the basis of concessional loans. A recent example is the exceptional support provided by ODA to North African countries in the aftermath of the 2011 Arab Spring. ¹⁷

Financial assistance to LDCs from the South has increased markedly over the past few years. Although such aid is still relatively small (relative to traditional ODA provided by developed countries), its focus on infrastructure and productive sectors, rather than just social financing, is a very important factor in helping to strengthen the productive capacities of LDCs. This is especially true in African LDCs, where China, India and Arab countries are actively involved in financing infrastructure projects.

WRITE-OFF OF EXTERNAL DEBT

International debt relief initiatives - the Heavily Indebted Poor Countries ' Debt Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDG), which were launched in 1996 and 2005, respectively-have had a positive impact on the development of many LDCs. Although not all LDCs were eligible to participate in these initiatives, of the 32 countries that have reached the completion stage of the HIPC-IBSM process, 25 are LDCs (including 23 African ones)¹⁸.

As a result of these initiatives, the external debt burden of African LDCs was reduced by almost 80% during the 2000s, compared with 12% for Asian LDCs and 50% for the entire group of countries. Thus, according to the UN, the external debt-to-GDP ratio declined in 33 African LDCs from 109% to 32% between 2001 and 2010. At the same time, in 10 countries in the region, this figure was still above the critical level of 40% in 2010, and in three of them (Comoros, Guinea-Bissau and Sao Tome and Principe) it reached almost 100% and above ¹⁹. According to analysts, in a number of countries, especially in small States, the recent financial crisis has reversed the downward trend in debt burden indicators that was evident in the previous decade.

Total debt service payments declined in the 2000s. In African LDCs, export earnings increased from 14.9% to 3.4%, the lowest level in this group of countries (5.2% for Asian LDCs, 4.4% for all LDCs) ²⁰.

However, while progress has been made in implementing debt relief initiatives, one of them (the HIPC Initiative) It is almost complete, and a number of LDC countries, including some HIPCs, are still experiencing serious debt problems or are highly likely to experience such problems.

According to the latest IMF data, there were 20 such countries in 2012, including 7 HIPCs. Four African countries were classified as experiencing serious debt problems (Comoros, Cote d'Ivoire, Sudan and Zimbabwe), while 16 were classified as high-risk countries. In Africa, these are Burkina Faso, Burundi, DRC, Djibouti, Gambia, Guinea, Sao Tome and Principe and Chad. Overall, IMF experts estimate that one-fourth of HIPCs and one-third of LDCs are currently classified as highly indebted States.²¹

Thus, despite all international efforts, the debt problem remains acute in many least developed countries. Debt servicing accounts for a significant portion of their meager budget resources, which is an obstacle to economic growth, increased social investment, poverty reduction and the achievement of the Millennium Development Goals (MDG)²².

In this situation, UN experts suggest extending the validity of initiatives, defining more flexible conditions for debt cancellation, and creating a new international debt resolution mechanism for timely action on each individual debt.

MONEY TRANSFERS

Migrant remittances are an important source of external financial resources in LDCs.²³ According to experts from UNCTAD, their importance for the economic development of this group of countries is very significant. Thus, migrant remittances are reported to account for 4.4% of GDP and ¹⁵% of exports of all LDCs, which is three times higher than in other developing countries24.

Over the past decade, remittances to LDCs have grown from $6.8 billion in 2001 to almost $²⁷ billion in 2011, rising by an average of 15% per year25. Despite a slight slowdown in the growth of remittances in many LDCs following the recent global crisis, they have generally maintained an upward trend.

Unfortunately, it is not possible to provide accurate data on transfers of funds to African LDCs in general, but the fragmented data available indicate that such flows are very unevenly distributed among them, even more so than FDI and export earnings. It should also be borne in mind that international statistics on migrant remittances often underestimate their actual volume, since they do not take into account unregistered receipts through official and unofficial channels.

According to the latest World Bank estimates (2010), the top ten LDC recipients of remittances in real terms included such African States as Sudan, Senegal, Uganda, Lesotho, Ethiopia, Mali and Togo, and as a share of GDP - Lesotho, Togo, Cape Verde, Guinea-Bissau, Senegal, Gambia, Liberia, and Sudan. Sudan, for example, is one of the three largest LDC recipients of remittances in the world (along with Bangladesh and Nepal), accounting for 66% of the total volume of remittances for this group of countries, while in Lesotho such transfers account for 25% of the country's GDP.²⁶

Another interesting fact is that the cost of money transfers to Africa is the highest in the world (12% of the transfer amount), which is a third higher than the global average (9%). It is estimated that if this cost were consistent with the global level, the volume of transfers sent to the SSA in 2010 would increase by $6 billion. ²⁷

At a time when ODA and FDI flows are declining due to the global crisis, remittances are a lifeline for tens of millions of African families, according to African Union (AU) staff. Moreover, in a number of LDCs, they are the main source of external financing, exceeding ODA and FDI flows.

Indeed, according to the UNCTAD Least Developed Countries Report 2012, registered remittances exceeded ODA and FDI flows in nine LDCs between 2008 and 2010 (including four African ones: Lesotho, Senegal, the Sudan and Togo) and exceeded FDI inflows in eight other LDCs, including seven African countries-Benin, Burundi, Comoros, Ethiopia, Gambia, Guinea-Bissau and Uganda ²⁸.

In general, while remittances cannot be considered a substitute for FDI, ODA, debt relief or other sources of development finance, they certainly play an important role as a source of external financial resources for many LDCs. In this regard, it is crucial to develop and implement appropriate strategies to use migrant remittances for the economic and social development of the poorest countries, and above all to strengthen their productive and human capacities.

(The ending follows)

¹ The Least Developed Countries Report 2011. UNCTAD. N.Y. and Geneva, 2011, p. 130.

² http://www.un.org/ru/conf/ldc/back-ground.shtml

³ Growth, Employment and Decent Work in the Least Developed Countries. ILO. Geneva, 2011, p. 4.

⁴ The Least Developed Countries Report 2012.., 2012, p. 15.

⁵ Ibid., p. 3.

⁶ Ibidem.

^{Roshchin T. E.} 7 Zarubezhnye investitsii v ekonomicheskoe razvitie v Afrika [Foreign investments in economic development in Africa]. 2012, No. 1, pp. 22-26.

⁸ The Least Developed Countries Report 2012.., p. IV.

⁹ World Investment Report 2013. UNCTAD. New York and Geneva, 2013, pp. 10,13.

¹⁰ World Investment Report 2013. UNCTAD. N.Y. and Geneva, 2013, p. 73.

¹¹ World Investment Report 2013, p. 10.

¹² Africa Renewal. August 2011. p. 24.

¹³ Ibid., p. 13.

^{Kovalchuk AL.} 14 How the world helps Africa overcome the crisis and increase the pace of economic development / / Asia and Africa Today, 2013, N 5, pp. 9-17.

¹⁵ The Millennium Development Goals Report 2012. UN, N.Y., 2012, p. 59; The Millennium Development Goals Report 2013. UN.N.Y., 2013, p. 53.

¹⁶ Assessing Progress in Africa towards the Millennium Development Goals. ECA. Addis Ababa, 2013, p. 91.

^{Roshchin G. E.} 17 Afrika i mezhdunarodnaya pomoshch [Africa and International Aid]. 2012, No. 7, pp. 20-23.

^{Fituni L. L.} 18 Differentiation of developing countries: Monetary and financial aspects (issues of theory) / / Asia and Africa Today. 2013, No. 5, pp. 18-26.

¹⁹ Implementation of the Programme of Action for the Least Developed Countries aa Decade 2011-2020 Report of the Secretary-General. UNGA, New York, 2012. pp. 62-63.

²⁰ Ibid., pp. 56-57.

²¹ Global Partnership for Development: from words to deeds. The UN. New York, 2012, pp. 56, 66.

²² For more information about the MDGs, see the author's articles: Asia and Africa Today. 2012, N 8, 9, 10.

^{Abramova I. O.} 23 Money transfers of migrants: the role in the socio-economic development of Africa / / ME and MO. 2009, N 7, pp. 82-90.

²⁴ The Least Developed Countries Report 2012.., p. 46.

²⁵ Ibid., p. 45.

²⁶ Migration and money transfers: facts and figures. WB. Washington, 2011.

²⁷ The Least Developed Countries Report 2012.., p. 68, 71.

²⁸ Ibid., p. 53.

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