4.9.2 Economic Barriers Notes

Economic inequality and its impact on economic growth and development: South Africa

When: post-apartheid era (1994 to date )

Where: South Africa

What: South Africa has one of the highest levels of income inequality globally, with a Gini coefficient of 0.63 (2022), making it one of the most unequal countries in the world.

Why?

1. Historical Economic Disparities: apartheid-era policies (1948-1994) restricted economic opportunities for non-white South Africans, leading to generational income inequality.
2. Wealth concentration: a small elite group, mainly within financial and corporate sectors, controls most economic resources and land ownership.
3. Limited access to opportunities: Low-income households struggle with poor education systems, high unemployment rates (over 30% in 2023), and limited access to capital for entrepreneurship.

How economic inequalities affect South Africa’s economic growth and development:

1. Low-Income families face barriers to education & business opportunities:

1. Many South Africans, especially in rural areas, attend underfunded public schools, leading to low human capital development.
2. High university fees make higher education inaccessible to many, reducing social mobility.
3. Poor households lack financial resources to start businesses, perpetuating poverty cycles.

2. Unequal access to healthcare & public services:

1. Private healthcare is world-class but expensive, while public healthcare struggles with funding and service delivery, leading to health disparities.
2. Poor health outcomes reduce productivity and economic mobility.

So?:

1. Barrier to growth: high inequality reduces consumer spending from low-income groups, limiting domestic demand and slowing economic expansion.
2. Barrier to development: unequal access to education, healthcare, and jobs prevents long-term social mobility, trapping generations in poverty.
3. Policy challenges: government interventions, such as Black Economic Empowerment (BEE) policies and social grants, have helped but have not fundamentally reduced economic disparity.

Lack of infrastructure and technology and its impact on economic growth and development: Nigeria

When: ongoing (2000s to date)

Where: Nigeria

What: Nigeria, Africa’s largest economy, struggles with inadequate infrastructure and limited technological access, which hinders economic growth and global competitiveness.

Why?:

1. Poor transportation infrastructure:
   1. Nigeria has over 195,000 km of roads, but only about 30% are paved, leading to high transportation costs for businesses
   2. Congested ports and inefficient customs procedures delay shipments, making Nigerian exports less competitive
2. Limited internet and digital access:
   1. While Nigeria has a growing tech sector, only 51% of Nigerians had internet access in 2022, restricting participation in e-commerce, online banking, and remote work
   2. Many rural areas lack reliable electricity, making digital connectivity unreliable or nonexistent
3. Outdated machinery and production methods:
   1. Many Nigerian industries, particularly in agriculture and manufacturing, still rely on outdated technology, reducing productivity and quality
   2. Limited access to modern irrigation systems and mechanised farming tools keeps agricultural output low, despite Nigeria having vast arable land

How lack of infrastructure and technology affects South Africa’s economic growth and development:

1. Businesses face higher production and transportation costs, reducing profitability and limiting foreign investment.
2. The lack of digital infrastructure restricts online business opportunities, keeping many entrepreneurs locked out of the global economy.
3. Manufacturers struggle to compete with imported goods due to low efficiency and high costs.

So?:

1. Barrier to growth: poor infrastructure increases the cost of doing business, reducing Nigeria’s global competitiveness.
2. Barrier to development: without widespread digital access, many Nigerians cannot participate in the modern economy, limiting job creation and income opportunities.
3. Policy challenges: government initiatives, such as Nigeria’s Infrastructure Master Plan, aim to improve roads, energy, and internet access, but progress has been slow due to funding challenges and corruption.

Low levels of human capital and its impact on economic growth and development: Haiti

When: ongoing (2000s to date)

Where: Haiti

What: Haiti struggles with low levels of human capital, as inadequate education and healthcare systems limit workforce productivity and economic development.

Why?:

1. Inadequate schools and teacher shortages:
   1. Haiti’s literacy rate stands at around 61%, significantly lower than the regional average for Latin America and the Caribbean.
   2. Many schools lack trained teachers, proper facilities, and sufficient learning materials, leading to low educational attainment and a poorly skilled workforce.
2. Poor healthcare and its impact on productivity:
   1. Haiti has one of the weakest healthcare systems in the Western Hemisphere, with a shortage of medical professionals and underfunded hospitals.
   2. Frequent disease outbreaks, malnutrition, and poor sanitation reduce worker productivity and increase absenteeism in businesses.
3. Mismatch between skills and job requirements:
   • The majority of Haiti’s workforce lacks the technical and vocational skills needed for modern industries, contributing to high unemployment rates.
   • Economic opportunities are mostly limited to low-paying informal jobs, preventing long-term income growth for workers.

How low levels of human capital affect Haiti’s economic growth and development:

1. A poorly educated workforce limits innovation and productivity, reducing Haiti’s ability to compete in global markets.
2. Low healthcare standards result in high absenteeism and premature deaths, slowing overall economic activity.
3. The lack of skilled workers discourages foreign investment, as businesses struggle to find qualified employees.

So?:

1. Barrier to growth: Haiti’s low levels of education and healthcare weaken its labor force, reducing productivity and slowing economic expansion.
2. Barrier to development: poor human capital limits income opportunities, keeping large portions of the population in poverty and preventing improvements in living standards.
3. Policy challenges: efforts to improve education and healthcare face funding shortages and political instability, making long-term reforms difficult to implement.

Dependence on primary sector production and its impact on economic growth and development: Venezuela

When: ongoing (2000s to date ).

Where: Venezuela.

What: Venezuela’s heavy reliance on oil exports has made its economy highly vulnerable to global oil price fluctuations, limiting long-term economic stability and development.

Why?:

1. Price volatility leaves the economy vulnerable:
   1. Oil accounts for over 90% of Venezuela’s total exports, making the country highly dependent on global oil prices.
   2. When oil prices crashed in 2014, Venezuela’s national income plummeted, triggering an economic crisis and hyperinflation.
2. Limited value-added profits and industrial growth:
   1. Venezuela primarily exports crude oil rather than refining it into higher-value petroleum products.
   2. Since raw material markets operate in perfect competition, firms earn minimal profits, reducing the incentive for investment in advanced technology or new industries.
3. Resource extraction crowds out other sectors:
   1. The government and investors focus on oil production, leading to underdevelopment in manufacturing and services.
   2. Dependence on oil discourages economic diversification, leaving the country without alternative industries to support growth.

How dependence on primary sector production affects Venezuela’s economic growth and development:

1. Boom-and-bust cycles tied to oil prices create economic instability, making long-term planning difficult.
2. Lack of investment in other sectors reduces innovation, productivity, and job creation.
3. Revenue fluctuations limit government spending on infrastructure, education, and healthcare, slowing human development.

So?:

1. Barrier to growth: reliance on oil revenues exposes Venezuela to severe economic downturns when global prices fall.
2. Barrier to development: underinvestment in education, infrastructure, and industry diversification has left much of the population in poverty despite the country’s natural wealth.
3. Policy challenges: efforts to diversify the economy face political instability, corruption, and poor governance, making long-term reforms difficult to sustain.

Limited access to international markets and its impact on economic growth and development: Ethiopia

When: ongoing (2000s to date ).

Where: Ethiopia.

What: Ethiopia faces significant challenges in accessing international markets due to high trade barriers, complex export standards, and limited global trade integration, restricting its economic growth and development.

Why?:

1. High tariffs and trade restrictions reduce competitiveness:
   1. Ethiopian exports, particularly agricultural goods like coffee and livestock, face high tariffs in major markets, making them more expensive for foreign buyers.
   2. Reduced international demand lowers firms' revenues, discouraging investment in production and export industries.
2. Complex international standards create barriers to entry:
   1. Meeting strict quality and safety standards for global markets, such as European food safety regulations, is too costly for many Ethiopian businesses.
   2. With lower aggregate demand for exports, output falls, and economic growth is constrained.
3. Reduced agricultural exports lower rural incomes:
   1. Ethiopia’s economy heavily relies on small-scale farming, but limited global market access reduces farmers' income opportunities.
   2. Lower rural incomes push workers to migrate to cities in search of jobs, increasing urban unemployment and poverty.

How limited access to international markets affects Ethiopia’s economic growth and development:

1. Lack of export opportunities prevents Ethiopia from fully integrating into the global economy, keeping it reliant on domestic markets with limited demand.
2. Fewer foreign investments result in slower industrialization and a weaker private sector.
3. Lower export revenues reduce government income, limiting funds available for infrastructure and public services.

So?:

1. Barrier to growth: high tariffs and trade restrictions limit export potential, reducing business revenues and slowing Ethiopia’s economic expansion.
2. Barrier to development: limited international trade opportunities trap many Ethiopians in low-income agricultural jobs, restricting improvements in living standards.
3. Policy challenges: while Ethiopia has made efforts to expand trade partnerships, logistical challenges, regulatory barriers, and global protectionist policies continue to hinder full international market integration.

Informal economy and its impact on economic growth and development: India

When: ongoing (2000s to date).

Where: India.

What: India has one of the world’s largest informal economies, with an estimated 80% of the workforce employed in unregulated and untaxed sectors, limiting economic growth and development.

Why?:

1. Workers without formal contracts lack job security and social benefits:
   1. Many Indian workers rely on temporary, unregistered jobs in agriculture, construction, and street vending.
   2. Without formal contracts, workers lack access to pensions, health insurance, and job protection, making them vulnerable to economic instability.
2. Businesses avoiding taxes deprive governments of funding:
   1. Informal businesses do not register or pay taxes, leading to lower government revenues.
   2. This reduces funding for infrastructure, education, and healthcare, slowing long-term development.
3. Informal businesses struggle to access credit:
   1. Many small, unregistered businesses cannot obtain bank loans because they lack formal financial records.
   2. Without credit, they cannot expand, modernise, or invest in productivity improvements, limiting job creation.

How the informal economy affects India’s economic growth and development:

1. A large informal sector weakens economic growth by keeping a significant portion of the economy outside formal regulation and taxation.
2. Lack of financial security for workers reduces overall consumer spending, limiting demand-driven economic expansion.
3. Low tax revenues prevent the government from investing in infrastructure and social programs, reducing long-term development potential.

So?:

1. Barrier to growth: a large informal economy limits productivity, reduces business expansion, and weakens government finances, slowing economic progress.
2. Barrier to development: informal employment traps millions in low-income, unstable jobs, preventing long-term improvements in living standards.
3. Policy challenges: efforts like India’s Goods and Services Tax (GST) reform and financial inclusion programs aim to formalise businesses, but widespread bureaucratic hurdles, corruption, and resistance from informal workers make transition difficult.

Capital flight and its impact on economic growth and development: 1997 Asian Financial Crisis

When: 1997 to 1998.

Where: Several Asian economies, including Thailand, Indonesia, South Korea, and Malaysia.

What: A severe financial crisis hit many Asian countries, causing massive capital flight, leading to currency devaluation, economic contraction, and financial instability.

Why?:

1. Wealthy individuals and businesses withdrew investments, reducing domestic capital:
   1. As financial uncertainty grew, investors rapidly pulled their money out of Asian economies, fearing devaluation and financial collapse.
   2. This caused a sharp drop in stock markets and property values, leading to economic instability.
2. Decreased investment slowed production and technological progress:
   1. As foreign and domestic investment collapsed, businesses could no longer fund operations or expansion.
   2. Many firms shut down or cut production, worsening unemployment and economic decline.
3. Capital flight increased poverty and income inequality:
   1. As businesses closed, millions lost jobs, pushing many into poverty.
   2. The cost of living surged due to currency devaluations, reducing purchasing power for lower-income households.
4. Brain drain followed as skilled workers left for better opportunities abroad:
   1. Many highly skilled professionals, particularly in finance, technology, and engineering, migrated to more stable economies.
   2. This further weakened innovation and recovery efforts, slowing long-term economic development.

How capital flight affected Asian economies' growth and development:

1. Rapid currency devaluation made imports more expensive, further damaging economies.
2. IMF bailouts were required, imposing strict economic reforms that limited public spending and increased austerity.
3. Years of economic progress were undone in a matter of days, setting back industrial and financial development.

So?:

1. Barrier to growth: capital flight led to severe financial instability, economic contraction, and a collapse of investment.
2. Barrier to development: the crisis pushed millions into poverty, increased unemployment, and led to long-term economic scarring in affected nations.
3. Policy challenges: governments introduced capital controls, financial reforms, and regulatory measures to prevent future financial crises, but investor confidence took years to fully recover.

Indebtedness and its impact on economic growth and development: African debt crisis

When: 1990s debt relief, followed by rising debt levels in the 2010s till present.

Where: Multiple African nations, including Ghana, Zambia, and Mozambique.

What: Many African countries received debt relief in the 1990s, allowing them to increase investments in healthcare, education, and infrastructure. However, by 2018, debt levels had risen again, leading to renewed financial strain and reduced government spending on development.

Why?:

1. Debt repayments consume government budgets, reducing funding for essential services:
   1. After receiving debt relief in the 1990s, many African governments expanded healthcare and education programs.
   2. By 2018, rising debt meant governments had to cut social spending to meet debt repayment obligations, slowing development progress.
2. Currency depreciation makes foreign debt more expensive:
   1. During economic crises, currencies in African nations depreciated, making dollar-denominated debt harder to repay.
   2. This worsened financial instability, forcing governments to borrow even more to meet their debt obligations.
3. Developing countries must borrow at high interest rates, increasing the repayment burden:
   1. Many African countries lack strong credit ratings, leading them to borrow at high interest rates compared to developed economies.
   2. Rising interest payments reduce available funds for development projects, trapping nations in a cycle of debt.

How indebtedness affects Africa’s economic growth and development:

1. Less investment in infrastructure and social programs limits long-term economic expansion.
2. Debt dependency weakens financial stability, as governments must continue borrowing to sustain essential services.
3. Limited fiscal space means governments struggle to respond to new economic crises, worsening poverty and inequality.

So?:

1. Barrier to growth: high debt levels divert government resources away from productive investments, slowing economic expansion.
2. Barrier to development: rising debt limits healthcare, education, and infrastructure spending, worsening living standards.
3. Policy challenges: while debt relief programs have helped, many countries continue to rely on borrowing, making long-term financial stability difficult to achieve.

Geography and its impact on economic growth and development: Ethiopia

When: ongoing (1993 to date).

Where: Ethiopia.

What: Ethiopia, one of Africa’s fastest-growing economies, has faced significant economic challenges due to its landlocked geography, limiting its access to international markets and increasing trade costs.

Why?:

1. Landlocked countries depend on neighbours for trade routes, increasing transportation costs:
   1. Since Eritrea gained independence in 1993, Ethiopia lost direct access to the Red Sea, making it entirely dependent on Djibouti’s ports for exports and imports.
   2. Relying on Djibouti for trade increases costs and creates logistical inefficiencies.
2. High transport costs reduce competitiveness, discourage investment, and increase production costs:
   1. Ethiopia pays high transit fees to Djibouti for port access, raising the cost of imports and exports.
   2. High transport costs reduce Ethiopia’s attractiveness to foreign investors, as businesses must factor in additional expenses.
3. High transport costs limit the full potential of the economy, hindering economic growth and development:
   1. Many Ethiopian industries, especially agriculture and manufacturing, struggle to export goods at competitive prices, limiting economic expansion.
   2. The added costs slow infrastructure development and reduce funds available for public services.
4. Political disputes over trade routes can block exports, limiting international trade potential:
   1. Ethiopia’s relationship with Eritrea has been unstable, affecting its access to alternative trade routes.
   2. Ongoing regional conflicts in East Africa threaten trade security, increasing uncertainty for businesses.

How Ethiopia’s geography affects its economic growth and development:

1. Trade costs remain high, making exports less competitive on the global market.
2. Limited foreign investment due to high logistical costs slows industrial growth.
3. Dependence on transit countries reduces economic sovereignty, increasing Ethiopia’s vulnerability to regional instability.

So?:

1. Barrier to growth: high transportation costs reduce trade competitiveness, making it harder for Ethiopia to expand its economy.
2. Barrier to development: reliance on third-party countries for trade routes increases economic vulnerability and limits funds available for social progress.
3. Policy challenges: Ethiopia has invested in railway projects to improve trade efficiency, but geopolitical tensions and infrastructure constraints continue to hinder long-term solutions.

Tropical climates, endemic diseases, and their impact on economic growth and development: Japan’s 2011 tsunami

When: March 11, 2011.

Where: Japan.

What: A 9.0 magnitude earthquake triggered a massive tsunami, causing widespread destruction, the explosion of Fukushima's nuclear plant, economic disruption, and long-term recovery challenges.

Why?:

1. Frequent natural disasters destroy infrastructure, requiring constant rebuilding and draining national resources:
2. The tsunami caused over $235 billion in economic damage, making it the costliest natural disaster in history.
3. Infrastructure, including roads, ports, and energy facilities, was severely damaged, forcing the government to divert large amounts of public funds to rebuilding efforts.

1. Tropical diseases and public health crises weaken the workforce:
   1. While Japan did not suffer from tropical diseases, the disaster led to long-term health risks, including radiation exposure from the Fukushima nuclear plant meltdown.
   2. Increased healthcare costs and displacement affected worker productivity, slowing Japan’s economic recovery.
2. Unstable weather patterns make agriculture unpredictable, threatening food security and rural livelihoods:
   1. The tsunami contaminated farmland with saltwater and radiation, rendering large areas unusable for agriculture.
   2. Japan, a major seafood consumer, saw its fishing industry devastated, with coastal communities losing their primary source of income.

How Japan’s 2011 tsunami affected economic growth and development:

1. Reconstruction efforts diverted resources away from long-term development projects, slowing Japan’s economic expansion.
2. Disruptions to manufacturing and exports impacted global supply chains, particularly in the automobile and electronics industries.
3. Increased national debt due to government spending on disaster relief and rebuilding efforts placed long-term financial strain on the economy.

So?:

1. Barrier to growth: frequent natural disasters destroy critical infrastructure, reduce productivity, and divert investment from long-term development.
2. Barrier to development: disasters worsen poverty, damage essential industries like agriculture, and create long-term health crises, limiting improvements in living standards.
3. Policy challenges: while Japan has strong disaster preparedness measures, the unpredictability and severity of climate-related events continue to pose risks to economic stability.