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.

 

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~ by scioneconblog on January 25, 2010.

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