Rwanda will still be categorised as a least developed country by 2025 according to new projections by the United Nations Conference on Trade and Development (Unctad).
This assertion is at variance with Rwanda’s Vision 2020 which set a per capita income target of $1,240 by 2020, which government officials say is still achievable.
In a report titled, The Least Developed Countries Report 2016, Unctad states that by 2025, Least Developed Countries (LDCs) will only be found in Africa.
“Almost all of the Asian and Island LDCs are projected to graduate by 2024, implying that 32 countries comprising the LDC group in 2025 would only include one Small Island Developing State (SID) and two other countries outside Africa. The majority of the LDCs will remain in Africa,” said the report.
But even with this grim picture, Rwanda and a few other countries including Uganda and Ethiopia are reported to have made considerable progress in export diversification which is a step in the right direction.
Rwanda’s finance minister was recently quoted by local media saying the targets under Vision 2020 could still be delivered on schedule because of past investment in enabling infrastructure which was expected to stimulate growth.
Challenges affecting LDCs
The report describes three major challenges affecting LDCs and hampering their progress towards graduation, the biggest of which is poverty.
“Many LDCs suffer from a poverty trap, with low income and limited economic growth, giving rise to high levels of poverty, which in turn acts as a brake to economic growth,” states the report.
Half of the total population living in these countries is said to be living in extreme poverty.
The commodity trap is described as the second challenge, where LDCs are said to be dependent on commodity production and trade for employment, income, savings and foreign exchange.
“Commodity dependence increases vulnerability to external shocks such as diverse terms of trade movements as well as climate change impacts,” the report says.
Weak productive bases and limited export diversification in LDCs is also listed as a challenge facing the countries and forcing them to have high import content and chronic current account deficits.
According to the acting director of the Uneca, Eastern Africa sub-regional office, Andrew Mold, intra-regional trade is a stepping stone for East African countries to graduate from LDCs to middle income countries.
“Integration and intra-regional trade is the way forward for EAC countries and other African countries as well. These countries cannot quite compete with giant economies, but intra-regional trade is where the EAC countries best achieve their diversification excellence and reduce their dependence on single export commodities,” said Mr Mold.
Preferential trade terms
In addition to intra-regional trade, the report recommends rural transformation with emphasis on investments in agriculture as an area of action for LDCs.
“LDCs cannot overlook the key role of rural development. Redressing chronic under-investment in agriculture remains an important priority for most if not all LDCs,” reads the report.
Uctad also calls for more international support measures to LDCs, noting that though support is still streaming into these countries, it is still below the 0.15 to 0.20 per cent of donors’ gross national product threshold.
Economists however say that many countries categorised as Least Developed, could be “enjoying” this status mostly because of the privileges that come with it, such as preferential trade terms.
“Graduation will mean losing privileges like access to key export markets on preferential terms, a reality that many LDCs could be afraid of facing,” said Andrew Mold.
Kenya came face to face with this “harsh” reality after being confirmed as a low middle income country last year by the World Bank.
In a report spelling out the price of being a middle income economy, the United Nations Development Programme (UNDP) said, “A larger economy means that Kenya needs less support and will not be eligible to access key export markets on preferential terms.”