Recent global trade uncertainties and tariff changes disproportionately affect Landlocked Developing Countries (LLDCs). For every percentage increase in tariff rates, LLDC trade volumes drop by an additional 4% compared to non-LLDCs, leading to a larger fall in incomes in LLDCs. "A strategic push to diversify products and access new markets would allow LLDCs to navigate evolving trade dynamics. These include a mix of proactive and defensive strategies", says UNDP's new policy paper- 'An Economic Diversification Push for LLDCs: Achieving the Awaza Programme of Action', released at the start of the Third UN International Conference of Landlocked Developing Countries (LLDC3), happening this week in Turkmenistan,5-8 August.
LLDCs' dependency on neighboring transit countries, longer transit times, and exposure to commodity price fluctuations have already left them with GDP levels an estimated 20% below those of similar coastal economies. The U.S. tariff hikes further threaten to lock LLDCs into these disadvantageous patterns unless proactive measures are taken, argues the paper.
UNDP's policy paper calls for bold policy shifts while offering two main future scenarios:
- Business-as-usual scenario, which perpetuates current patterns and vulnerabilities. LLDCs contribute only 1.3% of global exports, and 82% of their exports are unprocessed primary commodities. LLDCs face trade costs that are, on average, 1.4 times higher than those of coastal developing countries. This heavy dependence on a narrow economic base increases their vulnerability to commodity price volatility and external economic shocks.
- A strategic economic diversification scenario, which broadens development choices and enhances resilience. With higher tariffs in the USA, there will be less incentives to export to the USA and more incentives to export more regionally and with other trading partners including the EU. China has emerged as a critical partner for LLDCs. As a major global importer, investor, and infrastructure builder, China's Belt and Road Initiative (BRI) continues to provide crucial transit and digital connectivity routes for landlocked countries seeking alternative pathways to international markets. Strengthened trade relations with China offer LLDCs opportunities to diversify export markets, attract investment in value-added sectors, and participate more robustly in regional supply chains.
"To overcome geographic and economic constraints, LLDCs must make deliberate policy choices. The recent increase in tariffs make clear the need for urgent diversification and enhanced regional cooperation, including fostering innovation and entrepreneurship. When governments adopt reforms that reduce reliance on traditional transit arrangements, LLDCs can systematically address their unique challenges, turning geographic adversity into opportunities for inclusive and sustainable growth", stated Ivana Zivkovic, UN Assistant Secretary-General and Director of UNDP's Regional Bureau for Europe and the Commonwealth of Independent States.
As way forward, the policy paper suggests "Global trade is rebalancing; traditional patterns are shifting as major players adjust their roles. Regardless of the final trade policy landscape, rebalancing presents a chance for LLDCs to secure a more favorable position if strategic policies are enacted."
UNDP's policy recommendations aligns with the Awaza Programme of Action (APoA), by focusing on regional integration, South-South cooperation, accelerated investment in digital and physical infrastructure and broad-based economic diversification, in the face of rising global tariffs.
