Achieving the SDGs in Landlocked Developing Countries through Connectivity and Trade Facilitation

Ministers and senior government officials from landlocked developing countries (LLDCs) and development partners, gathered in Astana, Kazakhstan on 16 and 17 May 2018 to identify ways in which trade, economic transformation and the development of transport infrastructure can benefit LLDCs.

Hosted by the Government of Kazakhstan, the two-day Ministerial Meeting of Landlocked Developing Countries on Trade and Transport brought together more than 80 participants, including senior representatives from the UN, international and regional organizations, financial institutions and the private sector.

“I hope that over these next two days recommendations and opportunities can be identified to enhance trade transport and economic opportunities which can help to transform the lives of communities living in LLDCs,” said Ms. Fekita ‘Utoikamanu, High-Representative and Under-Secretary-General for Least Developed Countries, LLDCs and Small Island Developing States (SIDS).

“We understand that sustainable transport is a key factor for the progress and future of the developing countries. The recommendations of this meeting will allow us to broaden the forms of the cooperation in the field of transport, infrastructure and overcome the barriers of remoteness and costs”, acknowledged Mr. Kassymbek, Minister of Investments and Development of the Republic of Kazakhstan, highlighting the success that his country has achieved in creating the transit LAND corridors through its favourable geographical position.

The event highlighted the importance of implementing the 2030 Agenda for Sustainable Development and marks the start of a preparatory process for the comprehensive high-level midterm review of the VPoA to be held in 2019. The midterm review will provide an opportunity to review the progress that has been made in the implementation of the VPoA, a programme recognized as an integral part of the 2030 Agenda.

The meeting concluded on 17 May by adopting the Astana Ministerial Declaration to pave the way forward on Trade and Transport.

Background

Landlocked developing countries are often long distances from seaports. They have poorly developed transit and transport systems and rely on neighbouring countries for transit access, which translates to high trade costs for landlocked developing countries. These high trade costs impact landlocked developing countries’ trade competitiveness.

LLDCs continue to be marginalized in international trade, accounting for less than 1 per cent of global merchandize exports. Landlocked developing countries also rely heavily on primary commodities, which have little or no value added to them and they face lack of diversification of their exports and imports, and increased vulnerability to volatile prices of commodities and external shocks.

To address those challenges, the Government of Kazakhstan in August 2003, hosted the First International Ministerial Conference of Landlocked and Transit Developing Countries and Development Partners during which the Almaty Programme of Action (APoA) was adopted to address special needs and challenges faced by the landlocked developing countries in achieving their development goals.

In November 2014, a new programme was adopted, the Vienna Programme of Action (VPoA) for Landlocked Developing Countries for the Decade 2014-2024. This programme of action identifies fundamental transit policy issues, infrastructure development, international trade and trade facilitation, regional integration, structural economic transformation and means of implementation as its key priority areas.

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Promoting International Trade in the LLDCs and enhancing the implementation of the WTO Trade Facilitation Agreement

Background note

International trade drives inclusive growth and poverty reduction. The 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda (AAAA) underscore the importance of international trade as an engine for inclusive economic growth and poverty reduction, and an important means to achieve the Sustainable Development Goals (SDGs). By connecting developing-country producers and consumers to global markets trade provides a critical channel for the flow of finance, technology and services needed to further improve productive capacity in agriculture, industry and services. However, the progress of integration in the global trade has been uneven.

LLDCs remain marginalized largely due to long distances from the nearest seaports which translate into unsustainably high transit transport costs and delays. The participation of LLDCs in international trade depends on transiting through other countries. Additional border crossings and long distances from major markets, coupled with cumbersome transit procedures and inadequate infrastructure increases the total expenses for transport and other transaction costs. The high trade costs affect the competitiveness of the LLDCs in international trade as well as their ability to produce at low costs and they reduce the rate of return on capital required by investors to finance projects in the LLDCs.

To address the trade related challenges of the LLDCs, the Vienna Programme of Action (VPoA), which is an integral part of the 2030 Agenda, identifies international trade and trade facilitation as one of its priority areas. The VPoA recognizes the importance of addressing high trade costs incurred by the LLDCs, and the need to integrate the LLDCs into the global value chains. The VPoA sets several objectives aimed at integrating the LLDCs into the global trade and improving the trade performance of the LLDCs. These objectives include: to significantly increase the participation of LLDCs in global trade, with a focus on substantially increasing exports; to significantly increase the value added and manufactured component, as appropriate, of the exports of landlocked developing countries, with the objective of substantially diversifying their markets and products.

LLDCs’ Participation in International Trade

The thirty-two (32) LLDCs account for less than 1% of global merchandise trade. The LLDCs’ participation in international trade, measured as the share of their merchandise exports in global exports reached a peak of 1.22 per cent (2013), before suffering a decline to 1.19 per cent in 2014 and 0.86 per cent in 2016. The decline in the LLDCs’ share of their merchandise exports is attributed mainly to declining commodity prices. In 2017 the estimated share of the LLDCs merchandise trade slightly increased to 0.91 per cent. In all, transit countries share of merchandise trade was around 23% in 2016 and when China is excluded, the share of these countries stood at 9.5% in 2016.

A closer look at the disaggregated data at country level shows that only four LLDCs accounted for about 49% of the group merchandise exports. The majority of the LLDCs accounted for no more than 2%. The LLDCs’ share of merchandise exports is not only meagre compared to the developing countries but their export remains highly concentrated in a few products, in particular, primary commodities with very little value added. The volume and product composition of a country’s commodity trade determines its vulnerability to commodity price volatility. The LLDCs are therefore greatly affected by the volatility in the global demand and prices. Price movements of internationally traded goods, as well as changes in the volume and product composition of trade, affect the gains an individual country can reap from international trade. The high export concentration of the LLDCs’ exports also demonstrates that the LLDCs are not integrated into the regional and global value chains. Integration into the value chains is very important as it serves as a conduit for industrial transformation and economic diversification.

While the LLDCs are marginal players in trade at global level, international trade is of critical importance to their economies. In 2016, the exports and imports of goods and services constituted approximately 62 per cent of the countries’ GDP compare to the world average of about 56 per cent. In a number of the LLDCs, the trade-to-GDP ratio is higher than 100 per cent.

Regional integration and cooperation is important for the development of landlocked developing countries through improved connectivity, enhanced competitiveness and trading capacity, market expansion and upgrading of value chains. The deeper integration of regional markets can reduce trade and operating costs as it reduces the distance to markets. According to the OHRLLS’ Global Report on Improving transit cooperation, trade and trade facilitation in the LLDCs (2017), the LLDCs overall participation in the intra-regional trade, was less than 5% in 2015 having declined from 7.3% in 1995. It remains important that the LLDCs are integrated into the regional markets and regional value chains to address the high trade costs they face as well as to diversify their markets. Addressing the infrastructure challenges including the missing links in the transport infrastructure connecting the LLDCs needs to be addressed to facilitate the integration of the LLDCs in regional trade.