4.9.2 Economic Barriers

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.