4.9.3 Political and social barriers Notes

Weak institutional framework and its impact on economic development: Nigeria

When: Ongoing

Where: Nigeria

What: Nigeria's weak institutional framework has hindered its economic growth and development, creating challenges in legal systems, taxation structures, banking systems, and property rights. These structural weaknesses have led to corruption, limited investment, and slow economic progress despite the country’s rich natural resources.

How institutional weaknesses affect Nigeria’s economic development:

1. Weak legal system:

1. Contract enforcement is unreliable, discouraging foreign and domestic investment.
2. Judicial delays mean that commercial disputes can take years to resolve, increasing business risks.
3. Limited legal services make it difficult for small businesses and individuals to protect their rights, leading to widespread fraud and property disputes.

Example: In 2018, a dispute over oil revenue between the Nigerian government and international oil companies led to delays in new investments, as businesses feared unpredictable legal rulings.

2. Ineffective taxation structure:

1. Over-reliance on indirect taxes, such as VAT and fuel levies, disproportionately affects low-income households.
2. Tax evasion is widespread due to complex bureaucratic processes and a lack of enforcement, reducing government revenue.
3. Elite influence on tax policy allows wealthy individuals and corporations to exploit loopholes, increasing income inequality.

Example: In 2021, it was estimated that over 80% of Nigerian businesses operated in the informal sector, avoiding taxation, which significantly reduced government revenue for infrastructure and public services.

3. Weak banking system:

1. Limited access to credit restricts business expansion, particularly for small and medium-sized enterprises (SMEs).
2. State-owned banks allocate loans based on political influence, not economic viability, leading to inefficient use of capital.
3. Excessive bureaucracy and high interest rates make formal banking inaccessible, pushing many into informal financial systems with high risks.

Example: A 2019 World Bank report found that only 40% of Nigerian adults had access to formal banking, limiting opportunities for entrepreneurship and investment.

4. Weak property rights:

1. Unclear land ownership laws discourage long-term investment in agriculture and real estate.
2. Absence of formal land titles prevents businesses from using property as collateral for loans, restricting access to capital.
3. Traditional and legal land rights conflict, leading to disputes and discouraging foreign investors.

Example: In 2020, thousands of Nigerian farmers faced forced evictions due to land disputes, preventing them from making long-term investments in agricultural productivity.

So?:

1. Nigeria’s weak institutional framework has slowed economic development, despite abundant natural resources and a large labor force.
2. Lack of legal protection, inefficient taxation, and financial barriers discourage investment, limit government revenue, and worsen inequality.
3. Without institutional reforms, Nigeria risks continued economic instability, corruption, and slow progress in reducing poverty and improving living standards.

Gender inequality and its impact on economic development: India

When: Ongoing

Where: India

What: gender inequality in education, employment, and property rights has significantly hindered India's economic growth and development. Women face barriers in workforce participation, wage equality, and leadership roles, limiting the country's overall economic potential.

How gender inequality affects India’s economic growth and development:

1. Limited access to education reduces opportunities and earnings potential:

1. Only 66% of Indian women are literate, compared to 82% of men, limiting their access to higher-paying jobs.
2. In rural areas, many girls are forced out of school due to early marriage, caregiving duties, or cultural norms, reducing their ability to secure stable employment.
3. As a result, female labor force participation is only 24%, much lower than the global average.

Example: A 2021 World Bank study found that increasing girls' secondary education completion rates could boost India’s GDP by over $770 billion by 2030.

2. Cultural and legal restrictions on property ownership prevent female entrepreneurs from accessing credit:

1. Only 13% of Indian landowners are women, despite legal reforms allowing female inheritance rights.
2. Without formal land titles, women struggle to access bank loans, limiting their ability to start or expand businesses.
3. This reduces economic activity and entrepreneurship, preventing women from contributing fully to India's economic growth.

Example: Studies show that if Indian women had the same access to credit as men, they could create 30 million more jobs by 2030.

3. Gender wage gaps reduce family incomes and limit consumer spending:

1. Indian women earn, on average, 34% less than men for the same work, reducing household income and overall purchasing power.
2. Lower wages mean lower savings and investments, reducing capital accumulation and long-term economic stability.
3. The gender pay gap lowers aggregate demand, slowing business expansion and economic growth.

Example: According to the McKinsey Global Institute, closing the gender wage gap could add $2.9 trillion to India’s GDP by 2025.

4. Lack of women in decision-making positions leads to policies that overlook female economic needs:

• Only 15% of Indian parliamentary seats are held by women, leading to policies that fail to prioritise maternity leave, childcare, and workplace protections.
• A lack of female representation in corporate leadership results in limited focus on gender-inclusive hiring, equal pay, and career advancement opportunities.
• Without women in leadership, issues affecting female workers remain underfunded and ignored in economic planning.

Example: In 2021, India ranked 140th out of 156 countries in the World Economic Forum’s Gender Gap Index, highlighting significant disparities in political and business leadership.

So?:

1. Gender inequality reduces India’s economic potential by restricting half of the population from fully participating in the workforce.
2. Increasing female labor force participation, closing wage gaps, and improving education access could significantly boost India's GDP and overall development.
3. Policy reforms ensuring equal pay, inheritance rights, and leadership opportunities are essential for economic growth and social progress.

Corruption and its impact on economic development: Nigeria

When: Ongoing

Where: Nigeria

What: Nigeria has long struggled with corruption in government, business, and public services, which has diverted resources, discouraged investment, and slowed economic growth. despite being one of africa’s largest economies, weak institutions and corruption have led to inefficiencies in public spending and economic stagnation.

How corruption affects Nigeria’s economic growth and development:

1. Bribery acts as an extra tax, making businesses less competitive:

1. In Nigeria, businesses often have to pay bribes to secure contracts, licenses, or permits, increasing operational costs.
2. New businesses and foreign investors hesitate to enter the market, as bribery and corruption create unpredictable and unfair business conditions.
3. This discourages competition, limiting innovation and reducing overall market efficiency.

Example: in 2021, Nigeria ranked 154th out of 180 countries in transparency international’s corruption perception index, showing how corruption remains a significant barrier to business growth.

2. Infrastructure projects get approved based on kickbacks rather than economic need:

1. Many public infrastructure projects are awarded to companies based on political connections rather than quality or necessity.
2. As a result, projects in poor or rural communities are often neglected, while unnecessary or low-quality projects are prioritised.
3. Funds are frequently misallocated, leading to poorly built roads, bridges, and public utilities.

Example: in 2018, Nigeria’s $16 billion power sector investment failed to improve electricity supply due to corruption and mismanagement, leaving millions without stable electricity.

3. Government funds meant for schools and hospitals disappear into private accounts:

1. public sector corruption results in misallocation of resources, leading to underfunded schools, hospitals, and other essential services.
2. funds intended for education and healthcare often fail to reach their intended purpose, widening social inequality.
3. as a result, millions of people lack access to basic services, further hindering human capital development.

Example: in 2020, a Nigerian government audit found that billions of Nigerian Naira allocated for covid-19 relief had been stolen or misused, leaving healthcare facilities underfunded during the pandemic.

4. Businesses spend more time building political connections than improving efficiency:

1. Many companies focus on securing political favours rather than improving productivity, innovation, or competitiveness.
2. Large businesses with political ties gain unfair advantages, while smaller firms struggle to compete.
3. This discourages merit-based growth and slows down economic progress.

Example: multinational companies often face bureaucratic delays unless they engage in bribery, leading to capital flight as businesses prefer to operate in less corrupt environments.

So?:

1. Corruption has slowed Nigeria’s economic growth and development, discouraged foreign investment, and weakened essential public services.
2. Without effective governance and transparency, public trust in institutions declines, limiting economic progress.
3. Tackling corruption through stronger enforcement, institutional reforms, and transparent governance is critical for Nigeria to achieve sustainable economic development.

Unequal political power and its impact on economic development: South Africa

When: Ongoing

Where: South Africa

What: political power in South Africa has historically been concentrated among wealthy elites, leading to policies that favour the privileged minority while marginalising lower-income and rural communities. This has reinforced economic inequality, unequal access to resources, and slowed development.

How unequal political power affects South Africa’s economic growth and development:

1. Wealthy groups shape tax policies to protect their assets while burdening the poor:

1. The economic elite have influenced tax policies to minimize their tax burdens, while indirect taxes like VAT disproportionately affect lower-income groups.
2. This has limited government revenue for social programs, worsening inequality and reducing opportunities for economic mobility.

Example: despite being one of the most unequal countries in the world, South Africa's corporate tax burden has decreased, while the poor continue to bear high VAT and fuel taxes, increasing economic disparities.

2. Rural and poor urban communities lack influence over development priorities:

1. Government spending has been disproportionately allocated to wealthy urban areas, leaving rural and low-income communities with inadequate infrastructure and public services.
2. Many townships and rural regions lack clean water, reliable electricity, and paved roads, hindering economic opportunities.

Example: in 2023, rolling blackouts and power shortages disproportionately affected poor communities, while wealthier areas and businesses had better access to private generators and alternative energy sources.

3. Business success depends more on political connections than economic merit:

1. Entrepreneurs and small businesses often struggle to secure funding, contracts, or permits without political influence.
2. This discourages competition and innovation, allowing politically connected businesses to dominate industries.

Example: corruption scandals, such as state capture under former President Jacob Zuma, revealed how politically connected businesses received lucrative government contracts, while more efficient competitors were sidelined.

4. Public services are concentrated in areas where influential people live:

1. Roads, electricity, and healthcare facilities are better developed in elite neighbourhoods, while low-income areas remain underfunded.
2. This reinforces economic disparities, limiting access to essential services for marginalised communities.

Example: healthcare facilities in wealthier areas are well-equipped, while many rural hospitals suffer from understaffing, poor infrastructure, and medicine shortages, limiting healthcare access for the poor.

So?:

1. Unequal political power in South Africa has deepened economic inequality, limiting opportunities for lower-income and rural populations.
2. The concentration of wealth and influence among elites has led to unfair tax policies, restricted economic mobility, and selective development investments.
3. Addressing these inequalities requires stronger governance, greater political representation for marginalized groups, and policies that ensure more equitable distribution of public resources.