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Globalisation, technology and innovation drive development for small states

17 September 2012
Challenges and opportunities of building resilience of small states discussed at Commonwealth conference

Globalisation and technological advancements offer unique opportunities for developing states to make substantial strides in their quest for economic growth and sustainable development. This is important for small states which face multiple and magnifying shocks and challenges from events external to their own economies, said Commonwealth Secretary-General Kamalesh Sharma.

“Small states continue to experience severe development challenges beyond their control – challenges associated with access to finance for development, to international trade markets, equitable participation in the global trading system, declining aid, attracting investment, particularly in infrastructure, and increasing difficulty in maintaining the existing advances towards the Millennium Development Goals,” said the Secretary-General.

“These challenges are compounded by persistent debt and, for many states, especially small island countries, high vulnerability due to their susceptibility to natural disasters.”

Addressing delegates at the opening of the Second Global Biennial Conference on Small States held at the Commonwealth Secretariat in London, UK, on 17 September 2012, the Secretary-General noted that small states were hardest hit by the global economic and financial crisis.

“Small states have witnessed the erosion of their trade preference; a rapid rise in the debt burden; increased susceptibility to climate change; and rising concerns on security and crime,” said the Secretary-General.

“All these have enormous human costs and significant impacts on development. The detrimental effect of the global economic downturn on young people in small states has been particularly damaging and gives great cause for concern. Small states are seeking to put in place innovative policy responses that will assist in diversification of their economies.”

Mr Sharma emphasised that small states are a key focus of the Commonwealth Secretariat’s technical assistance, with 60 per cent of its funds devoted to helping small states through advocacy, policy advice, and support for national and regional capacity-building.

Dr Jeffrey D Lewis, Director of Economic Policy and Debt at the World Bank, commended small states for their big ideas and creative solutions in devising regional integration and co-operation in the Caribbean and the Pacific on health, education, security, banking and justice. He cited the case of the Office of Trade Negotiation in the Caribbean for negotiating collectively in the international trading environment.

Dr Lewis, who also addressed the conference, reminded that small states are diverse, with island nations in the Pacific facing a different set of challenges from those in the Caribbean or landlocked small states such as Bhutan or Lesotho. He said economic resilience, which is a focus of the conference titled Sharing Practical Ways to Build Resilience, has taken on a new dimension given global economic and financial changes, and so too is the issue of green growth and the blue economy.

“We need a sound policy framework for building resilience under the four classic pillars of macroeconomic stability, microeconomic market efficiency, sound governance and social development,” stressed Dr Lewis.

“What should be the balance between ensuring flexibility in the internal capital, labour and product markets vis-à-vis flexibility in the external market? Should we attempt to increase internal mobility in these markets first? Or not? Building resilience is a transformative process; it has to be nurtured.”

He pointed out that migration and remittances play a crucial role in small states as one out of seven persons born in a small state lives abroad and remittances are often higher than official aid and private aid flows. Dr Lewis stated that it will be important to devote resources to improving data and analysis of the drivers and development impacts of migration and remittances.

He also noted that the services sector have overtaken agriculture as the mainstay of the economy of small states, although in some instances, the government has become the employer of last resort. In some cases, Dr Lewis said this has resulted in adverse fiscal implications, fostering indebtedness and posing an obstacle to growth.

If adequately supported, the increase in services can have a knock-on effect on boosting private sector growth, particularly in the tourism sector, which will bode well for growth and job creation, he added.