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Addressing the diverse needs and challenges faced by countries in special situations

The Addis Agenda commits the international community to support countries in special situations. It emphasizes the need to address the needs and challenges faced by countries in special situations, in particular least developed countries, landlocked developing countries, Small Island developing States, and African countries, as well as the specific challenges facing middle-income countries. To that end, the AAAA called for prioritizing full and productive employment and decent work for all, sustainable patterns of production and consumption, structural transformation and sustainable industrialization, productive diversification and agriculture. The Addis Agenda also promised to reverse the trend of declining ODA to the LDCs and reaffirmed existing commitments of developed countries, including to provide 0.7 per cent of their gross national income (GNI) as ODA, and 0.15 - 0.20 per cent of their GNI to LDCs.

These commitments are monitored across the action areas of the Addis Agenda. Progress in and for countries in special situations is highlighted whenever merited (see for example Country allocation of international public finance). This section highlights several issues of particular relevance to the respective country groups.

Structural transformation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

An overarching challenge for vulnerable countries has been limited structural transformation. The lack of economic dynamism, especially in LDCs, LLDCs, SIDS and in many African countries is reflected in the low contribution of manufacturing to GDP and limited exports of those products with high Research and Development (R&D) intensity.

Among the vulnerable countries, changes in the sectoral composition of GDP, technological content and innovation in productivity have been slowest in LDCs, indicating obstacles to structural transformation. The share of manufacturing in LDCs and Sub-Saharan Africa remained stable, around 11 per cent, in recent years. SIDS and MICs had higher shares of manufacturing, at around 18 and 16 per cent respectively of total value added in 2015. For LLDCs, this share declined slightly from 9.9 in 2011 to 9.4 in 2015. The share of manufactured goods in total exports from LLDCs decreased from 21 per cent in 2000 to 13 per cent in 2014, while around 70 per cent of imports to these countries were manufactured products. LLDCs are still relying heavily on a limited number of mineral resources and low-value agricultural products for their exports.

Narrow resource bases, limited diversification of production and exports and incomplete integration into regional and global value chains also put these countries at a disadvantage. A major hindrance to building productive capacity has been low investment rates combined with institutional bottlenecks, limited human resource development and lack of infrastructure. As a result, they are highly dependent on the demand for as well as prices of a few commodities.

Foreign direct investment

The AAAA called to incentivize foreign direct investment to developing countries, particularly least developed countries, landlocked developing countries, Small island developing States and countries in conflict and post conflict situations. Foreign direct investment is an important source of finance and technology in developing countries.

However, FDI to countries in special situations is either marginal or concentrated in a few (often extractive) sectors. FDI flows to LDCs have increased in absolute terms to nearly $35 billion in 2015, but as a share of world FDI, they still constitute only 2 per cent (although this is twice as high as the average share for 2001-2010).

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Compared to other developing countries, which have been experiencing an increase in FDI since 2013 (and average about 33 per cent of world FDI in recent years), FDI inflows to LLDCs have been on a decline. LLDCs’ share of global FDI has averaged 0.1 per cent since 1990. FDI flows to LLDCs dropped dramatically by about 18 per cent, from $29.7 billion to $24.5 billion between 2014 and 2015. FDI was also concentrated in a small number of countries, as only three LLDCs accounted for more than 50 per cent of the total FDI to LLDCs in 2015.

SIDS’ share of global FDI has increased from a low of 0.8 per cent in 2008 to 2.4 per cent in 2014. There was a decline of nearly $2 billion in 2015, revealing a high degree of volatility associated with FDI flows.

In Africa, FDI flows declined from $58 billion in 2014 to $54 billion in 2015: a decline of about 7 per cent. As a result, Africa’s share in global FDI fell sharply from 4.6 per cent in 2014 to 3.1 per cent in 2015.

LDCs have made efforts to attract more FDI through improvements in the investment climate. Many LDCs have also established Investment Promotion Agencies. Many developed and some developing countries also have policies, programmes and measures in place to encourage outward FDI flows, including information services on the business environment and opportunities in host countries and financial support for pre-investment activities, fiscal measures and political risk insurance. In general, these measures aim to advance strategic interests of the home country and enhance the international competitiveness of its firms, but they also encourage FDI flows to developing countries to foster their development.

Several developed countries have specialised agencies to provide long-term financing for private sector development by providing loan and equity financing for FDI projects. For example, MIGA allocate relative small shares of their support to LDCs. MIGA in addition to guarantees, uses donor contributions and guarantees to provide an initial loss layer to insure investment projects in fragile and conflict contexts. However, the facility allocates a relative small share of its support to LDCs. A number of UN system organisations are providing support for FDI in LDCs mainly through the provision of information and data, advisory services and capacity building. Most of these programmes are not specifically designed for LDCs but cover several LDCs.

Energy

The AAAA called for public and private investment in energy infrastructure and clean energy technologies including carbon capture and storage technologies in order to “substantially increase the share of renewable energy and double the global rate of energy efficiency and conservation, with the aim of ensuring universal access to affordable, reliable modern and sustainable energy services for all by 2030”, while recognizing the special vulnerabilities and needs of small island developing States, least developed countries and landlocked developing countries.

Compared to other developing countries, LDCs, LLDCs and African countries have limited rates of access to modern energy, e.g. to electricity. This acute energy gap increases the obstacles faced by firms, households and governments in these vulnerable countries on the path to sustainable development, as energy is an enabling factor in productive capacity, education, technological upgrading, and many other areas.

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While the percentage of the population having access to electricity in LDCs has increased slowly from 32 per cent in 2010 to 38 per cent in 2014, they still face significant access challenges. LLDCs have access rates below 50 per cent. SIDS have higher rates, which increased from 70 per cent in 2000 to 74 per cent in 2014. Access rates for African countries increased from 38 per cent in 2000 to 47 per cent in 2014. 

ODA commitments to the energy sector in LDCs and LLDCs have increased as a share of total ODA from around 5 per cent in 2002 to nearly 10 per cent in 2014. ODA disbursements to the energy sector in SIDS increased steadily from 2011 to 2013, and almost doubled by 2014.

There has been good progress with efforts to create stronger public-private partnerships, such as the Sustainable Energy for All initiative (SE4All) of the Secretary-General, which promotes partnerships among Governments, business and civil society. However, financing sustainable energy in LDCs, LLDCs and SIDS remains a challenge. Development finance institutions will have to play a larger role in investing in these projects, mitigating risks and ensuring guarantees. Accordingly, additional sources of financing and tailored programmes and initiatives appropriate for vulnerable countries are needed to accelerate energy transition.

Two years after launching Power Africa, the initiative has mobilized commitments by public and private Power Africa partners to invest nearly US$ 32 billion for power generation across sub-Saharan Africa. ECA, the African Union Commission (AUC) and the NEPAD Planning and Coordinating Agency have been implementing the Biofuels Programme for Household and Transport Energy Use, which strengthens the capacity of African countries to promote the use of renewable energy to achieve sustainable development and poverty reduction.

Transport and infrastructure

Infrastructure development is crucial for the vulnerable countries, in particular landlocked developing countries, where critical infrastructure deficiencies, long distances to ports and poor trade facilitation result in high transport and overall trade costs. Maritime and air transport is also vital for small island developing States’ development and survival. The vulnerable countries require secure, reliable, sustainable, resilient and efficient transport systems in order to effectively participate in global trade.

Climate finance

The Addis Agenda reaffirmed the importance of fully meeting existing commitments on climate change, and called for increasing funding from all sources - public and private, bilateral and multilateral, as well as alternative sources of finance - for investments in many areas including for low-carbon and climate resilient development. It recognized the commitment by developed countries to jointly mobilize $100 billion annually by the year 2020. The AAAA also welcomed the largest dedicated climate fund – the Green Climate Fund (GCF) – as well as the decision of its board to aim for a 50:50 balance between mitigation and adaptation over time on a grant equivalent basis and to aim for a floor of 50 per cent of the adaptation allocation for particularly vulnerable countries, including least developed countries, small island developing states and African countries.

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Adverse effects of structural challenges faced by countries in special situations are compounded by a variety of systemic shocks, including, climate change effects. The exposure to the effects of climate change and other natural disasters disproportionately affect SIDS, LLDCs and LDCs and further limit their development efforts, and the long-term effects of climate change may threaten the very existence of some SIDS. Yet, funding towards climate change activities are limited (see also section on Climate finance). 

Vulnerable countries often suffer the greatest burden of climate change, although they have contributed the least to the phenomenon. While there has been an increase in funding pledged for financing climate adaptation and mitigation for these countries, many of them are unable to cope with the complexity required to access such funds.

To improve access to climate change funding, support for capacity building provided to countries in special situations – especially LDCs, LLDCs, SIDS and African countries - needs to be stepped up to facilitate the preparation and submission of bankable proposals and project approval and disbursement processes should be streamlined and simplified.

The Green Climate Fund (GCF) portfolio consists (as of October 2016) of 27 projects of which 26 per cent focus on mitigation, 22 per cent cross-cutting and 52 per cent on adaptation. Out of the 27 projects 12 are implemented in Africa, with a total project investment of USD 2.1 billion (including co-financing).

Due to capacity constraints, LDCs may face significant difficulties in preparing the required complex and technical proposals to access the GCF. They may not have the baseline data and statistics for decent project designs which require thorough social and environmental safeguards, valid consultation processes, accountability mechanisms and transparency, feasibility studies and financial and economic analysis, along with evidence on potential impact on sustainable development. The pilot phase for new additional modalities to Enhance Direct Access will provide an initial allocation of US$200 million for around 10 pilots, including at least four to be implemented in Small Island developing States, LDCs and African States.

The GCF also has a special $16 million “readiness program” to support developing countries’ institutions through the accreditation process. As of 31 July 2016, 128 countries had expressed an interest in support from this programme and 50 have had their requests approved (70 per cent of these are SIDS, LDCs and African States). This funding, which comes from donations by developed countries, will has begun being disbursed to 12 countries in 2016. The funding limit for an individual country has been set at $1,000,000. Though this will presumably help countries to be “program ready”, simplifying the accreditation process would perhaps be a bigger help for LDCs.

Trade

The AAAA envisioned a significant increase in exports from developing countries, especially LDCs, and to support the involvement of Small Island developing States in trade and economic agreements. It also called on developed members of the WTO to implement duty-free and quota-free market access in a timely manner on all products from LDCs, and to develop simple and transparent rules of origin applicable to imports LDCs, and focus Aid for Trade on LDCs through the Enhanced Integrated Framework (see also the chapter on International trade for sustainable development).

Science and technology

Addis committed to ‘enhance international cooperation, including ODA, in these areas, in particular to least developed countries, landlocked developing countries, Small Island developing States, and countries in Africa. We also encourage other forms of international cooperation, including South-South cooperation, to complement these efforts.’ (See also chapter on Science, technology, innovation and capacity building).

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