Assignment Three Introduction
Assignment Three Introduction For the purposes of address the question ‘why poor countries remain poor’ I will look at two African nations, Chad and Zimbabwe. It is not my intention to suggest that these two countries are representative of all problems faced by poor countries which remain poor, rather that the issues that relate to them relate well to the issues discussed in the course ‘Generating the Wealth of Nations’. Chad Chad is a republic located in Saharan Africa. It has a current GDPpc of US$918 giving it a world ranking of 199th [1]. However as the graph below shows this has improved significantly within this century [1].
Chad: GDP per capita in US dollars [1]
Reasons for Chad’s continued poverty can be seen within its institutions but as Sachs [2] has argued, also extend to its geography and resource constraints. Geography Chad is a land locked country and its geography is largely desert and semi-arid land [3]. Approximately 2.8% of its land is arable. However more than 80% of its population are involved in agriculture on a subsistence level, either in farming or fishing from Lake Chad [5].
Source Wikipedia [4] Because it is land locked most of the country’s agricultural exports go to near neighbours. All of these nations are also economically underdeveloped and several such as Sudan and Libya have been in political turmoil recently. An important non subsistence crop is cotton. There is a major project at present to develop it as an export industry but this has been hampered by recent droughts. It is also possible that spending on the development of this project will destabilize the county’s budget in the near term [6]. Natural Resources Chad’s major natural resource is oil. Its production capacity is currently around 20,000 barrels a day but typically operates at 10-15,000 barrels. The oil companies which operate the fields are all foreign owned [5] but this industry is responsible for
the majority of Chad’s economic activity as can be seen in table below [1]. It is also the reason why GDPpc has increased from around US$200 at the start of the century to US$918 at present.
The oil is refined in Chad, but as noted above, the country is land locked and this required a pipe line to be constructed so the refined oil could be exported through Cameroon. This pipe line was financed with World Bank loans which contained conditions that national oil revenues be spent on poverty alleviation measures so the benefits of the resource would be widely inclusive. The government broke this commitment when it applied revenues to increase defense spending and the World Bank withdrew its support requiring the government to divert resources to repaying these loans early [5, 7]. Political and Economic Governance Chad is a Republic and has President as its Head of State. He has been in power since 1990 and the country is rated by the Economist Intelligence Economic Unit Democracy Index.as the 166th of 167 in terms of democracy [7] Chad rates low on economic freedom (164th) and it takes over the world average of 30 days to open a business. Property rights are not widely enforced and there are high levels of corruption [7]. The tax system is very weak and the government is heavily reliant on oil based revenues as well as tariffs on imports to fund its budgets [7]. Education Chad is rated as 184 on the UN Human Development Index and mean years of education is below two with the expected years of education being 7.4. There is one university in Chad.
In summary Chad’s economic position is improving. Its economy is showing an average annual growth of 7% of a low base [5]. However geographical constraints
such as being land locked and having on a small percentage of arable land limits economic development. Political transparency and the lack of good governance are also major problems and help to explain why this poor country still remains poor.
Zimbabwe. Zimbabwe is a republic located in southern Africa. It was the former British colony of Rhodesia which gained unrecognized independence in 1965 under a white only rule. After years of rebellion the country gained full independence in 1980 and became the nation of Zimbabwe under the Presidency of Robert Mugabe who still holds power [10]. Zimbabwe has a current GDPpc of US$757 as can be seen from the table below [1]. As can be seen from the graph GDPpc has recently improved after a number of years of economic mismanagement but it is still below the levels of 1980 at the time of independence.
Zimbabwe: GDP per capita in US dollars [1]
Zimbabwe’s current level of poverty is very much due to institutions however geography has played a part. Geography Zimbabwe is a land locked country. It has had a problematic relationship with its neighbours over time. During the period of white independent rule it was recognized only by the apartheid government in South Africa but after 1980 it lost this support but gained support of other African nations [10]. With the exception of South Africa and Botswana, Zimbabwe’s neighbours are equally poor nations.
Source Wikipedia [12] 10.49% of Zimbabwe’s land is arable and it was once a major food exporter in the region [11]. As part of the reforms brought in after independence however industrial scaled farmlands owned by whites where divided into smaller land holdings for black supporters of the government. Economies of scale were lost in this process but more importantly the new black tenants had very little agricultural experience and in many cases had little interest in farming. This policy was a major contributor to the countries backward economic progress after independence, resulting in the country becoming a net food importer and losing important foreign exchange revenues [13]. Zimbabwe also indebted itself as a result of becoming involved in regional conflict. Between 1998 and 2002 its involvement in the war going on in the Democratic
Republic of the Congo drained hundreds of millions of dollars from the economy [13]. Natural Resources The country has many natural resources and mining activity is reflected in the services sector of the table below [1].
As with agriculture however, the government has again chosen to interfere with the market. Part of its current reform package is to force international miners to sell 51% of their assets to local black Zimbabweans or the government and to control production and prices [14]. This remains an ongoing issue in a key sector of the economy. Political and Economic Governance As can be seen in the above summaries on geography and natural resources, issues of economic governance are major factors which impact on economic performance. The country ranks 175th on the 2013 Economic Freedom Index [15]. It takes around 90 days to open a business and there is little respect for property rights and the rule of law as evidenced above. The executive branch of government openly rejects decisions made within the judicial system and corruption exists at all levels of government [15] The land reform project created severe economic problems for the country and this was further extended with atrocious monetary and fiscal policies which resulted in the country experiencing severe hyperinflation [16]. This was halted abruptly when Mugabe finally agreed to share power with the opposition and the local currency was abandoned and replaced with South African Rand and US dollars. Since this time the economy has continued to grow at around 7% from a very low
base [16]. It is noted however that the underlying elements of this growth are not strong and that this cannot be expected to continue much longer [17]. Two thirds of nominal GDP were from government expenditures funded by IMF grants and Chinese loans. Grants from Western nations accounted for 9% of GDP while the key performer of the economy, the mineral sector, benefited from high prices which are expected to fall as the Chinese economy cools off [17]. Education Zimbabwe ranks 172nd on the Human Development Index but mean years of schooling and expected years of schooling are relatively high at 7.2 and 10.1 respectively. Adult literacy is high at 90% but has been falling in recent years. In part this is due to an exodus of teachers who have left the country seeking greater economic stability [18].
In summary Zimbabwe remains poor primarily because of its institutions. Its political infrastructure and the competence and honesty of those in government compromise its economic performance. Ideologically driven reforms have proved to be counter effective in bringing economic security to the black population and even with new direction the general outlook is not good.
Conclusion Chad and Zimbabwe are two nations that remain poor. There geographical issues are similar as they are both land locked and for the most part are surrounded by neighbours who are also economically underdeveloped. Both nations are heavily reliant on natural resources as well as agriculture to improve their current economic positions. It is institutions, specifically political that keep these two nations poor. Both are badly governed with little respect for property rights and rule of law which act as a disincentive for foreign investment as does government corruption.
References 1. www.wolframalpha.com 2. Jeffrey D. Sachs. ‘Institutions Matter but Not for Everything’ Finance and
Development. June 2003. 3. Geography of Chad http://en.wikipedia.org/wiki/Geography_of_Chad 4. Map of Chad http://en.wikipedia.org/wiki/File:Chad_relief_map_1991,_CIA.jpg 5. 6. 7. 8. 9.
Chad Economy. Global Edge. Michigan State University. www.globaledge.msu.org Chad. African Economic Outlook. Chad-Cameroon Pipeline Project. World Bank. Chad. 2013 Index of Economic Freedom www.heritage.org Human Development Report 2013
10. Zimbabwe http://en.wikipedia.org/wiki/Zimbabwe 11. Geography of Zimbabwe http://en.wikipedia.org/wiki/Geography_of_zimbabwe 12. Map of Zimbabwe http://en.wikipedia.org/wiki/File:Zi-map.png 13. Zimbabwe Economic Profile. www.immundi.com 14. Godfrey Marawanyika, ‘Zimbabwe Mining Companies Reject State Control, Document’ www.bloomberg.com May 20, 2013 15. Zimbabwe. 2013 Index of Economic Freedom www.heritage.org 16. Zimbabwe. African Economic Outlook. 17. Craig J. Richardson ‘Zimbabwe Why Is One of the World’s Least Free Economies Growing So Fast?’ Policy Analysis March 2013. 18. Education in Zimbabwe http://en.wikipedia.org/wiki/Education_in_Zimbabwe
Chad: GDP per capita in US dollars [1]
Reasons for Chad’s continued poverty can be seen within its institutions but as Sachs [2] has argued, also extend to its geography and resource constraints. Geography Chad is a land locked country and its geography is largely desert and semi-arid land [3]. Approximately 2.8% of its land is arable. However more than 80% of its population are involved in agriculture on a subsistence level, either in farming or fishing from Lake Chad [5].
Source Wikipedia [4] Because it is land locked most of the country’s agricultural exports go to near neighbours. All of these nations are also economically underdeveloped and several such as Sudan and Libya have been in political turmoil recently. An important non subsistence crop is cotton. There is a major project at present to develop it as an export industry but this has been hampered by recent droughts. It is also possible that spending on the development of this project will destabilize the county’s budget in the near term [6]. Natural Resources Chad’s major natural resource is oil. Its production capacity is currently around 20,000 barrels a day but typically operates at 10-15,000 barrels. The oil companies which operate the fields are all foreign owned [5] but this industry is responsible for
the majority of Chad’s economic activity as can be seen in table below [1]. It is also the reason why GDPpc has increased from around US$200 at the start of the century to US$918 at present.
The oil is refined in Chad, but as noted above, the country is land locked and this required a pipe line to be constructed so the refined oil could be exported through Cameroon. This pipe line was financed with World Bank loans which contained conditions that national oil revenues be spent on poverty alleviation measures so the benefits of the resource would be widely inclusive. The government broke this commitment when it applied revenues to increase defense spending and the World Bank withdrew its support requiring the government to divert resources to repaying these loans early [5, 7]. Political and Economic Governance Chad is a Republic and has President as its Head of State. He has been in power since 1990 and the country is rated by the Economist Intelligence Economic Unit Democracy Index.as the 166th of 167 in terms of democracy [7] Chad rates low on economic freedom (164th) and it takes over the world average of 30 days to open a business. Property rights are not widely enforced and there are high levels of corruption [7]. The tax system is very weak and the government is heavily reliant on oil based revenues as well as tariffs on imports to fund its budgets [7]. Education Chad is rated as 184 on the UN Human Development Index and mean years of education is below two with the expected years of education being 7.4. There is one university in Chad.
In summary Chad’s economic position is improving. Its economy is showing an average annual growth of 7% of a low base [5]. However geographical constraints
such as being land locked and having on a small percentage of arable land limits economic development. Political transparency and the lack of good governance are also major problems and help to explain why this poor country still remains poor.
Zimbabwe. Zimbabwe is a republic located in southern Africa. It was the former British colony of Rhodesia which gained unrecognized independence in 1965 under a white only rule. After years of rebellion the country gained full independence in 1980 and became the nation of Zimbabwe under the Presidency of Robert Mugabe who still holds power [10]. Zimbabwe has a current GDPpc of US$757 as can be seen from the table below [1]. As can be seen from the graph GDPpc has recently improved after a number of years of economic mismanagement but it is still below the levels of 1980 at the time of independence.
Zimbabwe: GDP per capita in US dollars [1]
Zimbabwe’s current level of poverty is very much due to institutions however geography has played a part. Geography Zimbabwe is a land locked country. It has had a problematic relationship with its neighbours over time. During the period of white independent rule it was recognized only by the apartheid government in South Africa but after 1980 it lost this support but gained support of other African nations [10]. With the exception of South Africa and Botswana, Zimbabwe’s neighbours are equally poor nations.
Source Wikipedia [12] 10.49% of Zimbabwe’s land is arable and it was once a major food exporter in the region [11]. As part of the reforms brought in after independence however industrial scaled farmlands owned by whites where divided into smaller land holdings for black supporters of the government. Economies of scale were lost in this process but more importantly the new black tenants had very little agricultural experience and in many cases had little interest in farming. This policy was a major contributor to the countries backward economic progress after independence, resulting in the country becoming a net food importer and losing important foreign exchange revenues [13]. Zimbabwe also indebted itself as a result of becoming involved in regional conflict. Between 1998 and 2002 its involvement in the war going on in the Democratic
Republic of the Congo drained hundreds of millions of dollars from the economy [13]. Natural Resources The country has many natural resources and mining activity is reflected in the services sector of the table below [1].
As with agriculture however, the government has again chosen to interfere with the market. Part of its current reform package is to force international miners to sell 51% of their assets to local black Zimbabweans or the government and to control production and prices [14]. This remains an ongoing issue in a key sector of the economy. Political and Economic Governance As can be seen in the above summaries on geography and natural resources, issues of economic governance are major factors which impact on economic performance. The country ranks 175th on the 2013 Economic Freedom Index [15]. It takes around 90 days to open a business and there is little respect for property rights and the rule of law as evidenced above. The executive branch of government openly rejects decisions made within the judicial system and corruption exists at all levels of government [15] The land reform project created severe economic problems for the country and this was further extended with atrocious monetary and fiscal policies which resulted in the country experiencing severe hyperinflation [16]. This was halted abruptly when Mugabe finally agreed to share power with the opposition and the local currency was abandoned and replaced with South African Rand and US dollars. Since this time the economy has continued to grow at around 7% from a very low
base [16]. It is noted however that the underlying elements of this growth are not strong and that this cannot be expected to continue much longer [17]. Two thirds of nominal GDP were from government expenditures funded by IMF grants and Chinese loans. Grants from Western nations accounted for 9% of GDP while the key performer of the economy, the mineral sector, benefited from high prices which are expected to fall as the Chinese economy cools off [17]. Education Zimbabwe ranks 172nd on the Human Development Index but mean years of schooling and expected years of schooling are relatively high at 7.2 and 10.1 respectively. Adult literacy is high at 90% but has been falling in recent years. In part this is due to an exodus of teachers who have left the country seeking greater economic stability [18].
In summary Zimbabwe remains poor primarily because of its institutions. Its political infrastructure and the competence and honesty of those in government compromise its economic performance. Ideologically driven reforms have proved to be counter effective in bringing economic security to the black population and even with new direction the general outlook is not good.
Conclusion Chad and Zimbabwe are two nations that remain poor. There geographical issues are similar as they are both land locked and for the most part are surrounded by neighbours who are also economically underdeveloped. Both nations are heavily reliant on natural resources as well as agriculture to improve their current economic positions. It is institutions, specifically political that keep these two nations poor. Both are badly governed with little respect for property rights and rule of law which act as a disincentive for foreign investment as does government corruption.
References 1. www.wolframalpha.com 2. Jeffrey D. Sachs. ‘Institutions Matter but Not for Everything’ Finance and
Development. June 2003. 3. Geography of Chad http://en.wikipedia.org/wiki/Geography_of_Chad 4. Map of Chad http://en.wikipedia.org/wiki/File:Chad_relief_map_1991,_CIA.jpg 5. 6. 7. 8. 9.
Chad Economy. Global Edge. Michigan State University. www.globaledge.msu.org Chad. African Economic Outlook. Chad-Cameroon Pipeline Project. World Bank. Chad. 2013 Index of Economic Freedom www.heritage.org Human Development Report 2013
10. Zimbabwe http://en.wikipedia.org/wiki/Zimbabwe 11. Geography of Zimbabwe http://en.wikipedia.org/wiki/Geography_of_zimbabwe 12. Map of Zimbabwe http://en.wikipedia.org/wiki/File:Zi-map.png 13. Zimbabwe Economic Profile. www.immundi.com 14. Godfrey Marawanyika, ‘Zimbabwe Mining Companies Reject State Control, Document’ www.bloomberg.com May 20, 2013 15. Zimbabwe. 2013 Index of Economic Freedom www.heritage.org 16. Zimbabwe. African Economic Outlook. 17. Craig J. Richardson ‘Zimbabwe Why Is One of the World’s Least Free Economies Growing So Fast?’ Policy Analysis March 2013. 18. Education in Zimbabwe http://en.wikipedia.org/wiki/Education_in_Zimbabwe
