ADDIS ABABA (HAN) November 28, 2015 – Public Diplomacy and Regional Stability Initiatives News. The Ethiopian official for United Nations Conference on Trade and Development (UNCTAD) suggested that Ethiopia needs to be careful as it becomes a middle-income economy.
Launching the UNCTAD 2015 edition of the report on Least Developed Countries (LDCs) titled “Transforming Rural Economies” on Wednesday, Taffere Tesfachew (PhD), director of Division for Africa, LDCs and Special Programs at UNCTAD, suggested that Ethiopia needs to be careful when joining the middle income status in order to avoid the “middle-income trap”.
The middle-income trap is a theoretical analysis of a state of economic development when a country reaches a certain income due to some particular advantages, but will later get stuck at that level of income. Hence, countries in the middle-income trap will have lost their competitive edge in exporting manufactured goods since wages are on a rising trend in those countries.
In addition to that, these countries are assumed to be failing when it comes to keeping up with more advanced economies in the high value added markets. Taffere said that graduating from the LDCs camp to the middle class group has been a very difficult journey where in the past four decades, only a few countries have been successful.
But these countries, according to Taffere, must forgo some basic advantages extended to the LDCs. Duty and quota free trade access in the international markets, special aid, and special environmental support and the like are what new middle-income countries will no longer receive, Taffere argued.
He went on to say that countries of the lower middle-income status are having tough times these days. However, Ethiopia is on the verge of joining this club. According to Taffere, the country is close to meeting at least two of the three criteria, which include per capita income, human assets and economic vulnerability.
An individual country is required to have a threshold of USD 1,242 per capita to graduate from LDCs to a middle-income economy. USD 1,035 is a possible scenario to be added back to the LDCs status. The human asset criterion includes the percentage of an undernourished population, child mortality ratio, gross secondary school enrollment ratio, and adult literacy ratio.
In the case of economic vulnerability, instability of agricultural production, instability of export of goods and services, and the likes are considered either for graduation from or inclusion into the LDCs status. Hence, based on the three criteria, Ethiopia is likely to join the middle income status.
Currently, there are 48 LDCs in the world, 34 of which are found in Africa. Back in 1978, there were only six LDCs from Africa. Taffere recalled that ten years ago, both advanced and developing nations have pledged to help graduate half of the 48 LDCs out of the category by the end 2020. For Taffere, this seems an ambitious goal, taking note of the track record of the past four decades where only a few have made progressed into a middle-income status.
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