UNITED NATIONS (IPS) – The world’s poorest countries are rethinking economic policies that – even during periods of breakneck growth – have failed to provide quality employment capable of matching a demographic boom.
The disparity between growth and jobs is no starker than in the 49 Least Developed Countries (LDCs), which, according to a recent U.N. Conference on Trade and Development (UNCTAD) report, will need to create 16 million positions every year if they are to keep up with new entrants into their rapidly expanding workforces.
Commodity prices, which the IMF expects to steadily drop in coming years, have dictated hiring – and firing. For decades, despite criticism from the U.N. and elsewhere, LDC governments were urged by multilateral lenders to cut public spending, curb inflation and end trade tariffs that protected domestic industries.
But today’s ubiquitous “jobless growth” has countries looking in the opposite direction.
“These countries have gone through radical policy reforms,” said Mussie Delelegn, officer-in-charge at UNCTAD’s New York Office. “In the 1980s many of them implemented structural adjustment programs. The assumption that growth would automatically translate into employment and poverty reduction has not been seen.”
Though the percentage of people living in extreme poverty (less than 1.25 dollars per day) has declined in LDCs, their numbers have increased due to population growth.
While the economies of LDCs expanded yearly by over 7.5 percent in the decade before the 2008 financial crisis, employment growth per annum stood at just 2.9 percent between 2000-2012, barely ahead of the population growth rate of 2.3 percent.
Unemployment numbers, which have remained steady at roughly 5.5 percent, can’t be used in the ways they are in developed countries. The vast majority of employment is tenuous and offers little in the way of security – in 2010 over 80 percent of jobs in LDCs were considered “vulnerable.”
In 2011, the Istanbul Programme of Action concluded that to eradicate poverty and achieve inclusive growth, LDCs would have to grow by at least seven percent annually between 2011-2020. But the U.N. estimates most LDCs will miss that target by one to two percent in the next several years.
If high growth couldn’t buoy the job market during boom years, a period of slower increases will require specifically catered policies to spur employment.
Monetary policy “should be less fixated on attaining an inflation rate in the low single digits than on targeting full employment of productive resources,” wrote Dr. Muhkisa Kituyi, secretary-general of UNCTAD, in an introduction to the report.
Countries are considered Least Developed when per capita income is less than 992 dollars and they are found to suffer from human resource weakness and economic vulnerability.
“Given the relatively weak private sector in many LDCs, it is more likely and realistic that in the short to medium term, the investment push required to kick-start the growth process will originate in the public sector.”
To pay for increased outlays, governments should raise taxes on high-income companies and individuals, introduce value added taxes (VAT) on luxury consumption and “refrain from tariff cuts until alternative sources of revenue are put in place.”
Under these guidelines, the game of attracting investment would no longer be a race to the bottom.
The Big and Small
Employment in LDCs tends to be concentrated at two extremes: either in informal small and micro enterprises or in huge capital-intensive export industries.
At one end are businesses consisting of no more than a family or even one young person. At the other, commodity prices, which the International Monetary Fund expects to steadily drop in coming years, have dictated hiring – and firing.
Missing are the medium-sized enterprises that provide stable jobs in much of the developed world.
Experts agree that building that sector will rely in large part on domesticating value-added industries for primary exports – processing iron instead of simply shipping off ore, for example.
A 2011 law in India – a developing country but not an LDC – aimed to accomplish this by setting a 30-percent export tax on iron ore. By incentivising domestic refining, the price of steel in the country fell, benefiting other local industries.
In Chile, despite its reputation as a free-market paradise, the government has maintained a strong hand in copper production, ensuring jobs in processing and preserving sovereign ownership.
But in LDCs, value added in the manufacturing sector remained flat at 10 percent between 2001 and 2011.
“Countries were unaware of the value of their exports and value added,” Delelegn told IPS. “Information asymmetries indicate the playing field is not equal – the companies have the information.”
But as LDCs gain knowledge and confidence at the bargaining table they are pushing for better terms.
Botswana is one of only three countries to have graduated – in 1994 – from LDC status. Early on, it decided to pass laws that created floors for local employment and domestic enterprise in the diamond industry.
“Botswana increased the employment intensity of the diamond sector, which assisted them to capture more of the value gained locally – they were cutting, polishing, processing,” said Yao Graham, coordinator of the Third World Network, which helps facilitate Africa Mining Vision, a Pan-African mining framework that several countries have already adopted.