September 21, 2015

Calvin Atewamba and Praise Nutakor

Photo:Future Agenda, Creative Commons BY-NC-SA (cropped).

Member countries of the United Nations are now preparing to build on the successes of the Millennium Development Goals (MDGs). But while much has been achieved under the MDGs, it may be difficult to sustain the progress made thus far unless the fundamental economic issues are addressed.

The focus of the MDGs was on human development goal. Some contend that the omission of economic development from the MDG agenda is to blame for the failure of many Least Developed Countries (LDCs) to achieve most of those goals. It is this argument, among others, that led to the development of broader, more integrated development objectives that cut across environmental, economic, and social issues: the Sustainable Development Goals (SDGs).

A solid economic foundation will be critical for achieving the post-2015 agenda. Pathways will include the structural transformation of economies (which will involve decoupling natural resource use and environmental impacts from economic growth) and support for employment (especially where accompanied by rising labour productivity and decent work). These fundamental economic objectives are addressed in SDG #8: “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all“.

A key target of the goal #8 is to achieve and sustain at least a 7% GDP growth per year in LDCs. Doing so will be a massive challenge because annual GDP growth among LDCs was estimated to be just over 2% in 2013, according to a World Bank report.

Fulfilling this target by 2030 will require a revolution in the economic performance of LDCs – not least because two-thirds of the LDC population live in rural areas and depend mainly on agriculture and exploitation of other natural resources (such as minerals) for their livelihoods. Increasing LDCs’ economic performance thus will require improved technological change, investment, and innovation as well as increased labour productivity (especially in the agriculture and other natural resource sectors).

In LDCs, however, these sectors tend to have substantial surplus labour and very low productivity, and so generate low income potential. Moreover, the potential of these sectors for innovation and economies of scale is generally limited.

Improving labour productivity in these sectors in LDCs will generate surplus labour in rural areas that cannot be absorbed by cities; hence the need for diversification of rural economies. This would involve development of such non-farm sectors as tourism, mining, and timber processing, and a capacity to generate demand that would grow in parallel with supply (so that incomes are not hit by falling prices as a result of higher productivity).

Various studies have emphasised the unique contribution of the manufacturing sector to productivity. For instance, a study carried out by the United Nations Industrial Development Organisation (2013) on 50 developing countries showed a strong correlation between per capita growth of the economy and the average change in share of manufacturing sector value added to GDP. This suggests that improvement of aggregate productivity in LDCs could be achieved by shifting productive resources from agriculture and other natural resource sectors to the manufacturing sector.

Development of the manufacturing sector was flagged in the Global Sustainable Development Report (2015) as a key strategy for transforming economies via production and productivity. It also is critical for the development of technological and organisational capabilities, as well as for the promotion of sustained innovation and the creation of decent jobs. In this regard, the shift from agriculture and other natural resource sectors to manufacturing, and between activities within these sectors, has important implications for long-term growth and employment potential in LDCs. For many, particularly in Sub-Saharan Africa, the entry point to the industrial world is through natural resources-based industries.

Mindful of the potential consequences of development, we must pay greater attention to environmental degradation. This means promoting long-term global growth via sustainable use of natural resources. The achievement of SDG #8 and other goals (especially #6, #13, #14, and #15) essentially calls for green growth. To this end, there is a clear need for more policy-relevant research by organisations like UNU-INRA, with a view to raising productivity through more efficient use of resources, recycling, and waste management for inclusive growth.

Another target of SDG #8 is to achieve full and productive employment and decent work for all, including young people and persons with disabilities, by 2030. Taking into consideration the segmented labour structure in many developing countries —  a modern sector with relatively high productivity, and a sluggish traditional sector with low productivity — and the trade-off between productivity and job creation, it will be important to encourage an integrated approach to transformative policy development. The approach should be coherent across a set of macroeconomic, trade, investment, sectoral, labour market, and financial policies in order to respond adequately to the myriad challenges of structural transformation in many developing countries.

In implementing the SDGs, it will be important to ensure that policies support the efficient use of natural resources, structural transformation in the labour market, and development of the manufacturing sector. This may be the only way to promote truly inclusive and sustainable economic growth, especially in LDCs.