Reducing+disparities

Disparities in wealth and development can be reduced through // Trade and market access, aid and debt relief //


 * __TRADE AND MARKET ACCESS__**

Trade results from uneven distribution of resources over the earth’s surface. The early form of trade started as a barter system. Since the 1960s, countries started specializing in a particular aspect of goods they produced. This brought about the //Law of comparative advantage.// The balance of trade (BOD) for a country is the difference between the income received from visible exports and the cost incurred in the payment of visible imports. The BOP includes invisible earnings or costs e.g. insurance, banking, tourism etc. Countries that earn more from exports than they pay for their imports are said to have //trade surplus//. Countries that spend more on their imports than they earn from their exports are said to have //trade deficit.// Trade surpluses provide the needed resources for a country to develop. Deficit leads a country into indebtedness in the long run, which does not auger well for national development. Unfair trade patterns between rich and poor countries will result in //a development gap.// Therefore, for countries to develop or reduce disparities in development there is the need to increase their exports and reduce imports to as to maximize their domestic savings for development.
 * International Trade**

Newly Industrialized Countries (NICs) in Asia have about 10% growth rate. Figures show that LEDCs are making gains in the international trade with MEDCs, leading to improved standard of living in many parts of the world. Developing countries, on the other hand, have increased their share of world trade from 23% to 27%. This however, still leaves them behind the industrialized nations.
 * Recent Trends in world trade**

Free trade allows a country to trade competitively with another country whilst protectionism creates restrictions to trade and creates barriers to imports and exports
 * Free trade and Protectionism**


 * Advantages of free trade**
 * It allows countries to obtain goods much more cheaply than if they were to produce themselves
 * It allows for specialization by countries leading to large scale production
 * It encourages economic, political and cultural links between countries
 * It allows countries to obtain goods year-round

EPZ are defined as labor intensive manufacturing centres that involve the import of raw materials and the export of factory products. Free trade zones can be classified as zones in which manufacturing does not have to take place in order for trading privileges to be gained. NB: Read on the advantage and disadvantages of EPZ.
 * Alternative policies to trade restrictions**


 * Benefits trade to a country**
 * Increased employment
 * Increased incomes
 * Increased foreign income
 * Increased economic growth


 * 2.** **__AID__**

AID - Definition: Overseas aid is the transfer of resources at non-commercial rates by one country (donor) or organization, to another country (recipient). The aid may be in the form of:Technical know-how, Goods, food, machinery and technology, Money, as grants or loans – to be repaid at low interest rate Two main types – official and voluntary
 * //Official// – paid for by tax payers and administered by the government of donor country. It is given directly to the recipient country in the form of bilateral aid or given indirectly as multilateral aid.
 * //Voluntary// aid – Money raised by independent organizations and private donors
 * There are three main forms of aid:
 * //Bilateral// aid: usually from one country to another – usually a developed country giving to a poor country. They have political ties and they often decided how the money should be used
 * //Multilateral// aid: more than one country gives the aid.

The ‘__foreign aid gap’__ whereby many developing countries lack the hard currency to pay for imports which is vital to dev’t The ‘__savings gap’__ where population pressures and other drains on expenditure prevents accumulation of sufficient capital for investment The ‘__technical gap’__ caused by shortage of skilled labor
 * Why developing countries need aid**


 * Aid as key to development**
 * It can support better economic and social policies
 * Projects that are financed by aid helps to expand the needed infrastructure
 * It also contributes to personnel training and builds technical expertise
 * It provides resources for capital investment
 * It provides humanitarian relief during times of disaster


 * Aid as an obstacle to development**
 * it may increase the dependency of a country on the donor country as a result of bilateral agreement
 * It may delay the introduction of reforms eg. Substitution of food aid for land reform
 * tied aid benefits the donor country more than the recipient in economic terms
 * The frequently inappropriate use of aid on large capital intensive projects may worsen the condition of the poorest people.
 * A lot of aid does not reach those who need it – the poor people in the poorest countries
 * Very often, aid is spent on projects that benefit the political leaders at the expense of the citizens.
 * Almost always, the money crowds out investment by the private sector and – because most governments are not good at making investment decisions
 * It undermines economic development.
 * Often it has bolstered corrupt regimes that would otherwise have been thrown out.

There has been general decline in official aid to poor countries since the 1990s. In 1992 aid to developing countries fell by 16%. The United Nations suggests that most countries donate up to 1% of the GNP as aid to poor countries. Only Norway, Sweden reached this target. The UK provided 2billion in aid b/n 1995 and 96, which was just 0.27% of GNP.
 * Recent trends in aid to developing countries**

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 * __3. DEBT RELIEF__**

One of the major drawbacks of growth and dev’t for developing countries is the level of debt repayments on money borrowed. Before 1970s, developing countries’ borrowing was very low. SSA for instance owed $3billion in 1962. By mid 70s and 80s most developing countries starting borrowing heavily. E.g SSA by the 1980s owed $142billion- Nigeria was the heaviest 35billion. In 1970, the world’s 60 poorest countries owed 65billion. By 2002 this had risen to 523billion. Africa’s debt alone rose from 11billion to 295billion. 42 countries in SSA are classified as Heavily Indebted Poor Countries and 32 countries are rated as severely indebted. The most heavily indebted country is Nigeria (35b), Cote` de Ivoire (19b) and Sudan (18b). Latin America’s debt was even bigger: abt $650b.

a) Africa owes more than 2/3s of its debt to foreign governments, International Monetary Fund (IMF), World Bank (WB), and African Development Bank (ADB). IMF, WB, and ADB accounts for about 32% of the debt, government owes 32% and private lenders eg. Commercial banks account for 26%.
 * Who are the creditors of LEDCs?**

Paris Club of government creditors has approved debt relief for the poorest countries. The measures includeWorld bank lending at concessionary interest rates, Interest free loans by Int. Dev’t Agency up to 50yrs, Soft loan facility introduced by the World Bank, Increase in lending to poor from abt $424million in 1980 to 2.9b + 928million through ADB
 * Causes of debt crises in LEDCs**
 * High crude oil prices in 1979 leading a worldwide recession
 * Sharp fall in demand for commodities as a result of the recession
 * High interest rates on loan repayment from western donor countries.
 * Excessive gov’t spending on recurrent expenditure
 * Low growth in industrialized countries
 * Attempts at solving debt crises in LEDCs**
 * Attempts at solving debt crises in LEDCs**

In spite of the reschedule, the debt continues to exceed the ability of African Economies to service their debts.Debt owed to multilateral lenders continues to grow. E.g debt owed to IDA has risen form 2.58b in 1980 to 25.16b in 1994
 * Did this solve the problem**?

SAPs were designed to enable developing countries to control their spending and increase government revenue as a measure to cut down on international borrowing. SAPs aim at:
 * Structural Adjustment Programme**
 * Cutting gov’t expenditure
 * Reducing state intervention in the economy
 * Promote trade liberalization and International trade


 * Elements of SAPs**
 * Generating foreign income through diversification of the economy
 * Policy reforms
 * Market-driven exchange rates
 * Trade liberalization
 * Reducing exchange controls
 * Greater use of the country’ natural resource
 * Reducing active role of the state in the public through job cuts, privatization of state-owned-enterprises

It was launched in 1996 by IMF and WB with the aim of Debt relief occurs in 2 ways: At decision point – when the country gets Debt service relief and Demonstrates adherence to IMF policies Develops a national poverty reduction agenda The Completion Stage – The country gets debt stock relief on the approval by WB and IMF Out of 42 countries participating in the initiative, 34 are in SSA. None had a ppp above $1500 in 200
 * The Heavily indebted poor countries (HIPC) initiative**
 * Relieving low-income countries of their debt to donor countries
 * Promoting reform and sound policies for growth, human dev’t and poverty reduction.


 * __REMITTANCES __**

A report by the UN’s rural dev’t agency (IFAD), African workers send home more than US$40 billion to the region each year. However, restrictive laws and costly fees hamper the power of remittances to lift people out of poverty. Globally remittances top $300 billion per year, outstripping foreign direct investment and development assistance combined. But while transfer costs have declined significantly in Latin America and in Asia, sending money home to Africa is still expensive (about 25% of the sum). At the G8 summit in L’Aquila in 2009, world leaders recognized the dev’t impact of remittance flows and set a goal of reducing the cost of remittances by 50 % over the next 5years, by promoting a competitive environment and removing barriers. Between 30 and 40 per cent of all remittances to Africa are destined to rural areas. Most money sent home by migrants is spent on daily consumption. But research shows linking remittances to financial services for the unbanked – savings accounts, loans and insurance – allows even the very poor to save and potentially invest in the development of their community.

//Source:// //__[|Global Forum on Remittances 2009]__ []// //Bar graphs showing Remittances received by country// //[]//