Evaluation and Development Strategies: Zimbabwe

IMF and World Bank

IMF: An International organization of 184 countries.

• +stabilies exchange rates, encourage economic growth, high employment, short term financial aid to balance the payments.
• +international judge.

Word Bank: UN’s special agancies.

• +reach the milemium development goals (reduce poverty)
• -concerned with long term growth by the construction of the countries through infrastructure.
• +Internationa Bank for Reconstruction and developmen, International Development Assosciation.

Zimbabwe:

In　2007, the Bank had approved 19 IBRD loans and 14 IDA credits for a total of approximately US$1.6 billion.

Stuctural Adjustment Programs: a section of the rescue package for developing countries and it is important for them to accept the following.

-drop subsidies and price controls
-Cut public expenditure
-Reduce the quantity of money in circulation
-Reduce people employed in the public sector
-Decrease domestic inflation
-Create home markets
-Privatise essential utilities such as gas, water and electricity

Zimbabwe:

“The Bank’s role here is now limited to technical assistance and analytical work focusing on macroeconomic policy, food security issues, social sector expenditures, social service delivery mechanisms and HIV/AIDS. “

http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/ZIMBABWEEXTN/0,,menuPK:375742~pagePK:141159~piPK:141110~theSitePK:375736,00.html

International organizations

Food and Agriculture Organization of the UN: created in 1945 to help the standard of living. They help against malnutrition, hunger, and poverty by promoting agricultural development and the pursuit for securable food.

+reduce the number of hunger from 50% to 20%

UNICEF: organization to help children to develop fully by reducing obstacles such as hunger, discrimination, povert, and diseases.

UNESCO: promote peach through education and scientific and improve on the countries cultural aspect to gain respect and justice.

WHO: UN’s agancy for health: goal = obtain the highest possible health care for everyone in the world.

Private sector banks: loan money at commerical rates to countries

-inbebtness and hardships to pay the loaners back

NGO’s: non-governmental organizations

• helps local issues
• encourage employment
• specialise in specific and rural-based works
• project monitoring
• some connection with the governenment

Mutlinational corporations: has control about 70% of the world trade. There are benefits of comparative advantage to help the developing countries and gain enployment.

• growth of international trade
• encourage globalization
• the incentive to gain maximum profit increase productivity
• increase power: EU and NAFTA

Conclusion:

In January 2009  the United Nations Children’s Fund (UNICEF) have announced a $5 million donation for Zimbabwe’s besieged health sector to help it battle an out-of-control cholera epidemic and the effects of collapsing health services. With this large amount of medical aid, it can provide people with proper food supply and began importing vaccination in order to fight against diseases like cholera but as well as others such as malaria thapoid fever to decrease the rapid number of deaths. With the country struggling through a bad years of failed harvests, bad governance and hyperinflation the only solution is to change the president and maintain healthy relationship with humanitarian organization to continue recieving enough aid to be able to push the economy and raise the standard of living by a little. These little changes with eventually help in the long run. The essence of development is for the country to recieve the oppurtunity to grow and start over and improve on productivity and effiency to change from a developing country to a developed country.

The video below will show the possibilities and new outcome with the positive relationship between President Obama and Prime Minister Tsvangirai of Zimbabwe

Zimbabwe: Growth and Development Strategies

• Harrod-Domar growth model
• Structural change/dual sector model
• Types of aid
• Export-led growth / outward-oriented strategies
• Import substitution / inward-oriented growth strategies / protectionism
• Commercial loans
• Fair trade organisations
• Micro-credit schemes
• Foreign direct investment
• Sustainable development

Harrod-Domar growth model: economy’s rate of growth depends on.

• the level of saving
• the productivity of investment
• quantity and quality of labour and capital

–developing countries have the quantity but not quality

+increase in physical capital creates economic growth

+higher income means higher levels of saving

Structural changes: Fisher and Clark’s three stages of growth

Primary productions: tax extraction of raw materials through agriculture, mining, fishing, and forestry. developing countries are dominant in primary goods.

Secondary: industrial production form manufacturing and construction. middle income workers.

Tertiary: services of education and tourism etc. developed countries.

+others: migrate to urban areas or expand the urban area = productivity is higher.

-cost of educating and equipping the people.

Zimbabwe:

Zimbabwe will need a massive injection of cash for primary production so farmers can re-purchase machinery and other assests for further growth. Before the hyperinflation the commerical farming businesses were 4500 and has decreased to only 300. To improve this, they must first educate the people with proper equipments.

Types of aid: Humanitarian, Bilateral, and Multilateral

Humanitarian- (not a loan, aid for specific problems) individual country to country or a major organization

Bilateral- (loan, long term re-payment) one country to another

Multilateral- a large international agency chooses a country to support

+reduce dependency on private investment

+help reduce foreign exchange outflows = stabilizes domestic governments necessary infrastructure

Zimbabwe:

Zimbabwean President Robert Mugabe has asked for $5bn in international aid to revive his nation’s disrupted economy. However, Western governments have previously indicated that they would like Muagbe to step down and will only help the countries recovery is the democratic government is in place.

Export promotion:benefits

• comparative advantage: efficiency in resources
• increase investment: domestic productivity
• economies of scale: increase in sale of exports = domestic level of production
• equality of income distribution: increase in demand for labour will help increase wages
• increase competition: increase productivity and efficiency during a long period of time

Protectionism

• improve domestic markets and workers
• can benefit over a short period but can hurt in the long period
• its been recorded that countries who apply protectionism have a lower growth

Commercial loans: mostly from developing countries

 -problem: developing countries were extensively borrowing while commodity prices were decreasing and interest rates were increasing.

Fair trade organization:

-organization to protect the framers in the developing countries from multi-national cooperation.

-guarantee a surplus so the firms can re-invest to the market.

Micro credit schemes:

• -lends small amounts of money to the poor
• -helped mostly by NGO’s ($1)
• directly helps the needed people

Foreign direct Investment:Multinational Corporations

+Merits

• help the poverty cycle
• raise productivity in the country
  
• increase investment would raise economic growth
• inject money to local economy
• provide training and education

-Demerits

• MNC’s emply many expatriate managers
• invest in capital-intensive production methods
• benefit form lower taxes

Sustainable development:

In 1992, the UNCED began a program for environmental responsible development. The project includes policies that receive help form international communities.

targets: improve environment, friendly farming, reduce over-population growth

Conclusion:

With the current situation of President Robert Mugabe pro-independence campaigner’s it makes it harder for large organization such as the humanitarian organization such as the NGO to give any aid. This is become aid agancies and critics partly blame the countries food shortages on the land reform programme. Furthermore what caused the most disruption between relations with other countries is when Mugabe accused Britain and its allies of sabotaging to economy in revenge for the redistribution progamme. The critical issue is how the government sees the economy and the relation with other countries and NGO to have a better relationship. Moreover Zimbabwe must appreciate the Humanitarian organization and only seek as a aid for the needy people and not just for government spending. The vital aspect is to change the president with the upcoming election and this will open doors as multinational (international community) will help out, with the exception of the change of the land reform which is hard to improve. Furthermore, even if the new president will appeal to more countries and revieve respect from EU’s and NGO such as unicef, amnisty international and red cross it will take a lot of work to change the economy 180.

 

Barriers to Growth: ZIMBABWE

A high quality institutional framework is an essential pre-requisite for development.
Poverty and Inequality are major factors holding back the development and growth of poorer countries.

Topics:

* Poverty cycle
* Institutional and political factors
* International trade barriers
* International financial barriers – indebtedness
* Social and cultural factors

Poverty cycle

People receive little education and no health care and inequalities apparent within their economy will breed resentment.

Human Poverty Index (HPI) = measuring deprivation in life expectancy, education and standard of living.

Poverty is a difficult task to reduce as many developing countries suffer through what is known as a poverty cycle. In, order to develop we must invest which requires funding and saving. It is all part of a poverty spiral which leads one to another of cumulative causation.

Zimbabwe: Zimbabwe has currently one of the lowest life expectancies on Earth-44 for men and 43 for women; down from 60 in 1990. This rapid drop has been mainly due to HIV/ AIDS pandemic. Thus, infant morality has risen from 5.9% in the late 1990s to 12.3% by 2004. The health care system is nearly collapsing data shows that by the end of November 2008, three out of Zimbabwe’s four major hospitals had shut down, along with the Zimbabwe Medical School. Furthermore, the hyperinflation has made it impossible for even the operating hospitals as they suffer through a shortage of basic drugs and medicines. Zimbabwe has a HPI of 105, extremely high.


Institutional and political factors
(Different barriers developing countries face)

Ineffective taxation structure: In most developing countries governments face problems collecting tax. With problem of collecting inaccurate data it is hard to collect tax revenue, which leads in developing institutions.

Lack of poverty rights: Lacks a well-developed system of property rights. This can prevent economic development as it becomes harder to trade with one another.

Political instability: With political instability is becomes difficult for economic activity and growth as there will be unwillingness to engage to capital investment.

Corruption: act as a barrier for overseas firms investing in an economy.

Unequal distribution of income: Workers with the lowest income levels will often have the highest marginal propensity to consume as they only earn enough to purchase necessities. The problem here is that the richer will continue to get richer and the countries money will move overseas.

Formal and informal markets: In formal markets money get exchanged, while in a informal market the money does not get exchanged and economy activity goes unrecorded.

Lack of infrastructure: In developing countries infrastructure is very low, thus it hard for economies to achieve development and growth.

Zimbabwe: Government spending is 56.4 % of GDP. It used to be partly financed by printing money, which led to the conomy to suffer through hyperinflation. Export partners: South Africa 32.1%, Democratic Republic of the Congo 9.7%, Botswana 8.7%, China 5.6%, Zambia 4.8%, Japan 4.5%, Italy 4.4%, US 4.3% (2008). Morever at this rate of a devestating economy the economy has increase in unemployment from 80% in 2005 to 95% in 2009, thus this indicates to why 68% of the population is under the poverty line. With an increase in deficit they are in lack of necessary infracture such as machines and education to increase productivity and increase the ecnonomy of scale.

International trade barriers

The problem with developing countries is the overdependence on primary goods. For developing countries trade has a difficult task to achieve, thus there has been a long term downward trade on primary good’s prices, causing them to export more. Balance the amount of exports and imports.

Low income elasticity of demand for primary products: The world’s income has risen but the demand for primary goods has not changed in terms of proportion.

Violently fluctuating prices of primary goods: The demand and supply of primary goods have the tendency to be price elastic, thus it causes price fluctuation. Supply, has this tendency to cause price elasticity due to droughts, pests, diseases, floods, weather changes etc.

Consequences of a narrow range of exports:

• Overproduction, pressuring the economy to accept the prices set force
• Failure to encourage all producers to join the market
• Storage of some commodities is floor prices cause overproduction. This require funds to buy up surpluses, reducing the amount of investment

Protectionism: developing countries have a comparative advantage over developed countries, and therefore the developed country apply protectionism to avoid cheap imports from coming in.

Zimbabwe: In 2009, Zimbabwe had a Current account deficit of $-597.4 million (2009) and increase from 584.6 (2008) , due to the fact that they export primary goods but import a lot of commodities such as machinery, transport equipments, chemicals, and fuel.  Thus, this leads for their currency in the economy is being overvalued, causing; with falling commodity prices are damaging further their current account. Moreover because Zimbabwe is against US, EU, and Britain using subsidies for farmers in their countries does lead to a benefit as it hardly helps the economy.

International finantial barriers- indebtness

Developing countries usually face debt as they need to borrow for independence use and foreign aid. Thus, they usually fix their currency to the US causing it to be overvalued as well. Barrowing money means that the countries but use a lot of portion of GDP in order to return their debt. This acts as a limitation as they must reduce the amount they can use for building their country further.

Social and cultural factors

Social and cultural factors acting as barriers to growth and development might include:

• Religion- dominant religion
• Culture- recognizable culture
• Tradition- modern or traditional
• Gender Issues- role of woman, fully involved

Zimbabwe: Zimbabwe has many different cultures which may include beliefs and ceremonies, one of them being Shona the largest ethnic group there.

• syncretic (part Christian, part indigenous beliefs) 50%,
• Christian 25%,
• indigenous beliefs 24%,
• Muslim and other 1%

Conclusion:

Similarly to the conclusion on the bottom Zimbabwe is currently and will continue to suffer as long as President Mugabe does not change his government polices and focus on changing its health care system and improve the poverty cycle. As the video shares, with millions of people, the only way to recieve the necessity of basic food they must exchange gold for bread, rice, soap, etc. Stores no longer accept Zimbabwe dollars and at this rate only the young with barely able to live and the old who do not have the strength will on dying. This country is in the state of flux as hunger becomes the main issue and the citizens education and health becomes the next. Moreover, people are losing their homes as they are not able to pay the rent, electricity, and water. With not enough aid from the EU and US, the suffering will keep on getting worse and worse.

 

Sources of Growth: ZIMBABWE

The four elements of economic growth

The sources of growth in a developing economy are no different from those in the advanced industrialized countries. There are four basic requirements: Natural resources, Human resources, Physical capital and technological factors, and Institutional factors.

Economic growth is cause by improvement in the quantity and quality of the factors of production (land, labor, capital, and enterprise) the country has available and use them in the most efficient way.    

Natural resources – land, minerals, fuels, climate. Increasing the quantity of land available for agriculture will increase economic growth however it is hard since there are limited resources. Agriculture is essential in most developing economies because it is their main source of income as farmers.

Zimbabwe’s natural resources:

Mineral exports (coal, gold, platinum, copper, nickel, tin, and clay) and agriculture (corn, cotton, tobacco, wheat, coffee, sugarcane, peanuts; sheep, goats, pigs) are Zimbabwe’s main foreign currency earners. It holds the world’s largest platinum reserves and it is the biggest trading partner of South Africa on the continent. Zimbabwe maintained positive economic growth throughout the 1980s (5.0% GDP growth per year) and 1990s (4.3% GDP growth per year) a positive economic growth but the economy showed a rapid decline from 2000 and has not improved since as they are suffering a hyper inflation. Moreover the CIA states that the countries exports dropped from $1.396 billion in 2008 to 1.09 billion in 2009, this indicates that Zimbabwe’s economy has a decrease in revenue as there are less foreign consumers to hold the market.

Human resources – the supply of labor and the quality of labor. Increasing the supply of labor can increase the number of workers entering the labor force. Moreover, this can increase the economic growth in relation to an increase in the production and consumption. The vital aspect in increasing the quality of labor is education. More skilled laborer’s can produce better quality products that can help improve people’s lives.

Zimbabwe’s human resources:

The labor market is regulated and it suffering though high level or corruption. The adult literacy rate was approximately 90% which is amongst the highest in Africa. However, due to the economic changes in 2000, education in Zimbabwe became under threat and teachers will go on strikes because of low pay and students were unable to concentrate during class because of hunger. Moreover because the government is so corrupted even the CIA only holds data from 2000 and 2003, this shows a lack of aid and is hard for economist to find a clear direction for the economy other than President Mugabe’s self government policies.  

Population- The number of people in a country does not simply improve the production but has different influences such as the supply of food and environment. When looking at each country’s population is import to understand that the younger workers are the main work force for each country.

Zimbabwe’s population:

A total population is 12 million people with the life expectancy for men (37 years old) and women (34 years old), the lowest in the world. (2006) 68% of the people are under the poverty line. (2004) This is a problem as the population growth rate is only 1.53% (low) and the number of citizens living with HIV/AIDS is 1.3 million the 7th highest in the world. Without any proper health care system, at this rate of health and economy the number is only expected to increase as there are major diseases such as malaria, rabies, bacterial and typhoid A fever. They are much in need of financial and medical aid.

Physical capital and technological factors – machines, factories, roads; their quantity and quality. There are two types; Directly productive (plants and equipments, such as factories) and indirectly productive capital (structure that helps capital e.g roads, and rails). The opportunity cost of capital investment is the current consumption foregone. However in the long run, it will improve their economic growth. Furthermore, technology is an another important aspect of development and so countries must keep up with the technology change around the world.

Zimbabwe’s transportation:

Zimbabwe has railways, highways, pipelines, airports, and ports. However with international trade difficulties the fuel to stimulate these machines as Zimbabwe highly relies on export of oil and natural gas and produce zero amount. Thus, this can seen as one of the main reason for Zimbabwe’s external debt increasing from $5.669 billion (2008) to $5.821 billion (2009). Institutional factors

• Banking system: a good banking system the businesses to flourish and grow.
•  Educational system: growth requires a high quality and well educated workforce.
•  Health care: a healthy workforce and population with help the economic growth.
•  Infrastructure: economic activity needs roads, ports that help the network.
•  Political stability: without stability, there will be any certainty and businesses.  

Conclusion:

The government of Zimbabwe has face a wide variety of economic problems. The land reform that was characterized by chaos and violence has badly damaged the commerical farming sector’s. Moreover, with the Reserve Bank of Zimbabwe repeatly printing money to fund the budget deficit, it has caused hyperinflation and draining the money out of the country. Recently the power-sharing government have formed an organization that has led to some economic improvements such has eliminating the use of the Zimbabwe dollar and remove price controls. Furthermore with the GDP improving from a -14.4% in 2008 to 3.7% in 2009 is it finally back as a positive number and can expected to see greater growth. However with the population struggling through severe lack in medical treatment even if it might seen as a increase it can be only a short-term and larger drop in the long the run. They must organize the health system where the number of people with HIV/AIDS can decrease and led to more labors in the market. The main goal for this country is to changed the corrupted government polices of president Mugabe and apply a fiscal stimulus to generate the country so the productivity can increase enough in order the pay the debts at a faster rate.  

China increases and US decreases

As China overtakes Germany as the world’s largest exporter it affects China’s biggest importer the US. Statistics show that the exports rose 17.7 % in December despite the global economic downturn it has led a fall in demand for products. It is vital to understand that this surge in China’s productivity is a turning point of the economy.  However the US believe is unfair that China has been able to make its good cheaper by keeping the yuan weak, but Prime Minister Wen Jiabao has said China “will not yield” to foreign demands that it revalue the currency. Conversely to China’s success the US are in a bitter situation as unemployment rises. US employers have cut 85,000 jobs in December with the unemployment rate at 10%. In 2009 alone, the economy lost 4.2 million jobs. Suffering under a massive deficit of more than 1 trillion dollars it is clear some type of stimulus must be injected in the economy.  A solution that can possibly help the economy are different type of protectionism, such as tariffs and quotas. Tariffs can benefit as it reduces supply and raise the price of imports (China) by puting tax on foreign imports. In addition, Quotas can increase aggregate demand for the domestic economy as restricts the maximum amount of imports allowed into an economy. With these two types of protectionism, the US should show a recover gradually.

End of Quarter Reflection

Although I had doubts about the 1 on1 online learning, as time passed I felt much more comfortable learning from power points, using triple A text books, taking quiz’s, and updating assignments on to my personal econ blog. This has allowed me to have easy access to look up key terms I wasn’t very familiar with and look at other peoples blog’s to learn from them and discover what I need to focus more.

I have learned that I am a huge procrastinator and checking the website to see my due dates has become a vital aspect in keeping myself on track. My goal for this year is to read as much economic news and become familiar with key terms and be able to use them in my evaluation. This will not only help me write better commentaries but as an overall economist. 🙂

Iceland leads on gender equality

Recent statistics has shown that Iceland has become the top country to be able to achieve gender equality in the world. It has just beaten Norway the previous top contender out of 134 countries. The biggest progress can be seen in closing the health and schooling divide in the past year.

This graphs states the rapid growth in their economy and signals that if other countries put in as much effort into this project, it will lead to a drastic recovery in the international economy. As the top 5 countries who were able to incease gender equality are Iceland, Finland, Norway, Sweden, and New Zealand other first world countries such as the US and Japan should contribute more in closing the gender gap.

Furthermore, since women make up one half of the world’s population and without their engagement, empowerment and contribution it is impossible to achieve a rapid economic growth. Moreover, it is vital to achieve equality to be able to encounter bigger problems such as climate change and food security.

Comparative advantage

Econ HL
Mr. Sasaki
10/6/09
Past Paper Question: Using the principle of comparative advantage, explain why economic theory suggests that countries should specialize and trade with each other.

First I will like to define what comparative advantage is. Comparative advantage is a principle of economics which states that trade between two countries will be mutually beneficial as long as their domestic opportunity costs of production differ. Countries should specialize and trade with each other because it allows each country to allocate their resources more efficiently saves time. Thus, if one country is able to a produce a good more cheaply because they have better natural resources and are specialized to it, which is juxtaposed to an other good produced domestically, then another country, trade become essential. The only time a country shouldn’t trade is when the country has established absolute advantage, which means they are able to produce goods more cheaply than absolute terms and another country. Moreover, this means the country has already maximized their resources efficiently and received no benefit in trade.
Furthermore, there are limitations in the comparative advantage theory, which should be taken in account for. First of all there are transport cost and tariffs, the government can levied tax on import goods on either Valorem tax or a specific tax based on quantity which protects countries revenue against foreign countries.

Example.

Hardware  (units)    Software (units)
Japan    100    500
China    50    750
Total consumption    150    1250

Hardware (units) Japan
1 units of hardware = 5 software      ← lower opportunity cost
(100/100 = 500/100)
Hardware (units) China
1 units of hardware = 15 software
(50/50 = 750/50)

Software (units) Japan
1 units of software = 0.2 hardware
(500/500 = 100/500)
Software (units) China
1 units of software = 0.06    ← lower opportunity cost

Since trade benefits both countries, Japan should specialize in hardware since for them the opportunity cost is much lower then China. Conversely, China should specialize in software since for them the opportunity cost is much then Japan.

Dont lose hopes for TOYOTA!

Lexus and Toyota advised drivers of 3.8 million of its cars to remove floor mats or risk a forced-down accelerator pedal that could lead to a fatal crash. It has become a problem due to 100 incidents, involving 17 crashes and five deaths. This affected seven models including their latest Camry sedan model which was just released in the market. Although Toyota is applying a safety campaign specifically on their seven models this could have an affect on their reputation  as the world’s largest and efficient automakers. This can lead to consumer expectation to decrease and show a drastic drop in AD for the Toyota market. Furthermore, since Japan is a country who heavily relies on its exports it can make trade harder for them and affect the Japanese economy as well.    I wish the best for TOYOTA! 🙂

Benefits of trade

The biggest benefit in trade is that it allows the country to allocate their resources efficiently. Moreover, it increases competition in market for that good since there is an increase in suppliers for the that good. Trading benefits both countries as one countries abundant factors of endowment with other countries that lacks in the same good creates not only a healthy relationship between the two country but allows each country to save time. Thus this puts pressure on each countries production to be innovative and forces them to continually improve their product, hence they much perform a high level to continue trade globally.

Furthermore, since countries trade goods they are specialized in with rich in natural resources,they will continue in producing quality goods. Thus, it becomes an incentive for the workers to continue to work hard since the wages are stable.