World's Poorest Lagging In Technology Despite FDI Boom – UN

“The world's poorest countries are falling further behind developing and developed peers in terms of technology, a problem that foreign investment flows are failing to redress, a United Nations report said on Thursday. [In its The Least Developed Countries Report 2007 report, ] the United Nations Conference on Trade and Development (UNCTAD) said the world's least developed countries (LDC) had seen a marked economic improvement but this remains fragile as it is largely driven by investment into the commodity sector.  ….

The UN defines LDCs as those with per capita incomes below $750 a year, low levels of literacy and nutrition, plus a higher level of vulnerability to natural disasters and economic shocks. Technological progress is seen as key to improving productivity and ensuring sustained economic growth. The report said foreign direct investment flows into LDCs had increased substantially since the early 1990s, with 2000-2005 levels three times the level of the past 10 years and surpassing wealthier developing nations. But it added: ‘There is little evidence of a significant contribution by FDI to technological capability accumulation in LDCs.’ …” [Reuters/Factiva]  

The Guardian reports that the study added “… that foreign aid has been largely ineffective because it has failed to recognize the importance of knowledge and innovation in driving development. ‘The problem of brain drain highlights the bigger issue of knowledge,’ said Charles Gore, one of the report's authors. ‘We need to adopt new policies which should be orientated to reducing the technology gap and diversifying the economy. … It is no use just investing in human capital without policies which develop employment opportunities to encourage workers to stay.’  

The report showed that in 2004, 1 million educated people emigrated from LDCs out of a total skilled pool of 6.6 million - a loss of 15 percent. Haiti, Samoa, Gambia and Somalia are among the LDCs that have lost more than half of their university-educated professionals in recent years. The health sector, in particular, has suffered. In Bangladesh, 65 percent of all newly graduated doctors seek jobs abroad. …” [The Guardian (UK)/Factiva]  

FT notes that “… Unlike predominantly government-to-government technology transfer schemes of the past, Gore emphasized the new approach was ‘bottom-up’. ‘We're looking at it in terms of building up the technological capabilities of firms and farms,’ he said. For example, agricultural techniques to boost crop yields were vital in poor countries where increasing numbers of farm workers migrated to cities, according to the report.

‘LDCs cannot expect to be at the frontiers of technology. But extremely important innovation also occurs with the commercial introduction of products and processes that are new to a country or to an enterprise,’ the agency said. Such innovation occurred ‘when an entrepreneur in Mauritania started to export camel cheese to the European Union in the 1990s. It occurred when smallholder farmers in Malawi experimented with adopting high-yield maize varieties. These were entrepreneurial acts that involved risk but had potentially high pay-offs,’ the report said. …” [The Financial Times (UK)]

AFP writes that UNCTAD Director General Supachai Panitchpakdi told journalists “… the 50 LDCs also needed to build the right environment for technological development, which would encourage investment in education and infrastructure and allow them ‘to break loose from their poverty trap.’ Only some of the Asian LDCs - Bangladesh, Cambodia and Laos - were showing signs of taking that path, he added. …

Foreign aid and investment flows are not building sufficient technical know-how, infrastructure or innovative business that would enable the poorest countries to develop independently and create jobs in the longer term, it said. Between 2003 and 2005, about $1.3 billion in official development aid was devoted to governance or social issues in the poorest countries, while just 12 million was spent on agricultural technology that could strengthen crops and food production, according to UNCTAD. …” [Agence France Presse/Factiva]  

IMF To Revise Economic Forecasts In 'Global Boom'

  “The International Monetary Fund is going to revise its economic growth forecasts amid a ‘global boom,’ the IMF chief economist, Simon Johnson, said Friday, suggesting a hike.  

‘We were criticized for being optimistic at the time of our spring forecast,’ Johnson said at a news briefing, referring to an IMF forecast of world growth at 4.9 percent this year and in 2008. ‘Let me just say we are quite pleased that we were optimistic,’ he told reporters, without giving any precise figures. The IMF will release an update of its World Economic Outlook on Wednesday. …” [AFX Asia (Hong Kong)/Factiva]

AFP reports that “… ‘The global picture, broadly speaking, is the US continuing to show weakness, as we expected, but the rest of the world economy has done very well,’ he said citing Germany and the fast-growing emerging economies of China and India. ‘This is a global boom,’ he said. The US, the world's biggest economy, is poised for a lift after limping along at a 0.7 percent growth pace in the first quarter. ‘We think it's going to turn around, though, quite quickly as the dollar already depreciated - that's going to help exports, but also because we think that business investment is going to pick up,’ he said, adding, ‘consumption looks very solid.’  

On the inflation front, he said, a rising demand for food, observed since the IMF and World Bank's annual meetings in April, ‘puts pressure on food prices at the same time that you have an ethanol shock coming in the United States.’ Food prices in the US have shot higher as farmers plant more corn to make ethanol, a lucrative, alternative energy fuel, reducing the acreage for crops for human consumption. ‘What happened since April was not expected,’ he said. ‘Nobody expected the size of this impact this year.’ …” [Agence France Presse/Factiva]  

AFX International writes that “… As for the Euro, the 185-nation IMF is 'comfortable' with its current strength near record highs, he said. Today the single European currency climbed to $1.3831, a hair shy of its all-time peak of 1.3833. 'What really matters is the effective exchange rate,' the economist said. 'Since January-February it has appreciated just two percent - it's very, very small.'  The effective exchange rate takes into account the value of a currency compared with a basket of currencies, and includes weightings for the volume of trade with the countries concerned, he said. Johnson dismissed concerns that the Euro is overvalued against the dollar. …” [AFX International (France)/Factiva]

Dow Jones adds that “… In addition to its World Economic Outlook, the IMF also plans to update its outlook for developments in financial markets. In April, the IMF said financial markets are experiencing ample liquidity and low interest rate spreads. The Fund also expressed concern over losses in the US subprime mortgage market and uncertainty over how widely problems in that segment might spread to the wider financial system.  

We think it's still compartmentalized,’ Johnson said. There have been some widening of interest rate spreads for riskier corporate debt, he noted. But the main source of worry is a lack of knowledge of which firms are exposed to the subprime market, he said. ‘Hedge funds are a big black box; we just don't know what exposure they have,’ Johnson said.” [Dow Jones/Factiva]  

Bolivia Lands Deal To Exploit Iron Ore Deposit

  “Bolivia has secured the largest pledge of foreign investment in its history, after the country signed a $2.1 billion deal with Jindal Steel and Power, an Indian steel company, to exploit a huge iron ore deposit.

The agreement marks the first big investment by an Indian company in South America, a region whose mineral, oil and gas deposits have attracted interest from Chinese and Russian companies in recent years. It is hoped that the deal, signed on Wednesday night, could lead to other Indian investment in the region. …” [The Financial Times (UK)]

EFE reports that “… Mining Minister Luis Alberto Echazu said that this was the ‘largest mining contract in the history of the republic’ and it confirms the government's policy of finding partners, not patrons, to exploit the country's natural resources.  

Meanwhile, Jindal vice president Vikrant Gujral said that his firm had been developing the El Mutun project since 2004, and he thanked Bolivian President Evo Morales for having shown his willingness to work to achieve an agreement with the firm. Gujral said that the negotiations seemed ‘endless’ due to the numerous difficulties and problems they presented, but they had been ‘managed in a very honorable way.’” [EFE News Service/Factiva]

Reuters writes that “… The deal gives Jindal rights to exploit half the 60 square kilometers site for 40 years. El Mutun, which lies near the Brazilian border, is estimated to contain iron ore reserves of more than 40 billion tons. Jindal said the company was not going to bring the iron ore to India as this would not be economically viable. India has iron ore reserves of about 23 billion tons and is the world's third-largest exporter. Jindal said the company would develop an integrated steel plant with an annual capacity of 1.7 million tons in Bolivia, which would start up by 2010.” [Reuters/Factiva]  

AFP notes that “… The project is expected to create as many as 21,000 jobs both directly and indirectly related to the mine. The government earlier reported the project would benefit the state with some $200 million in yearly tax revenues and premiums.” [Agence France Presse/Factiva]  

Interest Rate Rise Forecast As Chinese GDP Soars

  “Prospects of further action to tighten the Chinese economy increased Thursday as official figures showed growth surged to 11.9 percent during the second quarter, while consumer inflation skirted a three-year high at 4.4 percent last month. The surprisingly strong rise in gross domestic product and the CPI, coming in spite of government tightening measures during the past year, prompted forecasts of another interest rate rise and the possible scrapping of a tax on bank deposit income.

The National Bureau of Statistics data will aggravate concerns that some sectors of the Chinese economy risk over-heating. Li Xiaochao, statistics bureau spokesman, painted a sanguine economic picture, attributing the GDP growth rate to strong domestic demand, a benign international environment and good government policies. …” [The Financial Times (UK)]

WSJ notes that “…  Li, … highlighted Thursday three main economic problems: a widening trade surplus that has strained China's relations with the US and Europe; soaring food prices that are pinching consumers; and heavy energy use and pollution. …” [The Wall Street Journal/Factiva]  

NYT writes that “… The government's economic statistics continued to startle analysts, who are frequently required to revise their growth estimates in a country where all major cities seem to be in the midst of building booms. For the first half of the year, China said its economy grew at a pace of 11.5 percent, far outpacing analysts' and government projections after two years of double-digit growth. The government had forecast that the economy would grow about 8 percent this year and had promised moves that would help ease the country's widening trade surplus. But economic growth is stronger than ever, and the trade surplus surpassed $112 billion in the first half of 2007, up about 85 percent from the period a year earlier. …

Another concern was underlined Thursday when Beijing announced that inflation had reached its highest level in years. Consumer prices jumped at a 4.4 percent rate in June, almost entirely from rising food prices. The prices of eggs and pork have increased more than 20 percent in the last year, largely because of tighter grain supplies and the outbreak of a swine ailment called blue-ear pig disease, the government said. …” [The New York Times/Factiva]

Meanwhile, Reuters reports that “The International Monetary Fund's new economist, Simon Johnson, said on Thursday China-bashing was used ‘excessively and inappropriately’ by politicians as an excuse to protect domestic markets. Johnson said China, now the world's fourth-largest economy, should be given more credit for its contribution to global growth and poverty reduction. … He said China had made voluntary economic commitments in IMF-led multilateral consultations earlier this year, along with the United States, Euro-area, Japan and Saudi Arabia. The talks focused on ways to rebalance the global economy, which would address the large deficits in the US and massive surpluses in Asia and elsewhere. …” [Reuters/Factiva]  

World Bank's Zoellick backs WTO proposals to spur trade talks

“World Bank president Robert Zoellick backed Friday fresh proposals to drive the deadlocked round of World Trade Organization negotiations to a conclusion this year.   ‘A major final push will be needed to close the gaps but, with the right spirit, there is now a deal on the table to be seized,’ said Zoellick, who led US trade negotiations between 2001 and 2005 [Agence France Presse].

Reuters adds, that “although the Doha round talks have been "long and arduous," a pair of draft texts released this week by diplomats in charge of the agricultural and industrial goods negotiations provide hope of a deal, Zoellick said.  

‘The papers reveal just how much significant progress has already been achieved, and that the remaining gaps can be specified to achieve results, even though the topics are contentious,’ Zoellick said.  

Zoellick steered clear of offering that specific advice, but said: ‘It is particularly important for poor farmers and workers in the developing countries to have greater opportunities to sell their products in the global marketplace and benefit from lower prices.’”[Reuters]  

Also in this Edition: Briefly Noted...

Briefly Noted… The United States is building a partnership with Africa to pull the continent out of poverty, US Secretary of State Condoleezza Rice said on Thursday as she lent her support to moves to boost US-African trade. Rice, speaking by video link to a forum in Ghana, said Washington's decision to extend until 2015 an initiative for more open commerce with Africa signaled "America's enduring and bipartisan support for Africa's trade and development efforts."   [Reuters/Factiva]

At a brief ceremony held at the offices of the World Bank in the presence of senior officials, Greek Ambassador to the US, Alexandros Mallias presented to the Bank's Vice-President for the Middle East and Northern Africa a contribution by Greece of $1 million for the study and environmental utilization of water supply from the Red to the Dead Sea. [AthensNews Agency/Factiva]

An international forum on fighting money laundering and pertinent challenges facing Arab banks opened in this Egyptian Red Sea resort on Thursday. Bank officials from ten Arab countries and banking experts from international monetary institutions are attending the two-day meeting. [MENA and BBC Monitoring Middle East/Factiva]

Bangladesh could emerge from the group of least developed countries by 2015 if it can develop more widespread technological expertise, a leading think tank said on Thursday, quoting a UN report. "If Bangladesh focuses on investment particularly in technology and human resource development, and thus can elevate its per capita income, then it will be grouped as a developing nation," said Debapriya Bhattacharya, Executive Director of the Centre for Policy Dialogue (CPD). [Reuters/Factiva]

The International Monetary Fund's chief economist on Thursday blamed US protectionist farm tariffs for pushing up corn prices for US ethanol production, which has caused large rises in world food prices. Speaking to reporters, Simon Johnson, the IMF's new research director and chief economist, said the increase in food prices was also triggered by demand in rapidly growing emerging markets, but ethanol was the main cause. [Reuters/Factiva]