These 5 bullet points below make up the barriers to economic developmet/growth in an country’s economy.
- Poverty cycle
- Institutional and political factors
- International trade barriers
- International financial barriers – indebtedness
- Social and cultural factors
1. Poverty Cycle:
An economy that has a poverty cycle has some characteristics such as a big population, low income levels thus which leads to low savings and investment . Low investment leads to low levels of productivity. With low productivity incomes cannot increase and thus stay low. A poverty cycle is difficult to deal and get out of.
2. Institutional & Political Factors:
Ineffective Taxation System: Developing nations often have issues in the collection of taxes because of problems such as access, information, and bad records especially in rural areas of the country. Without tax revenue how will the government go about government spending? So, that is why a strong taxation system is necessary for development.
The ‘Lack of property rights’ is an issue because there is a lack of ownership of the factors of production which can heavily stimulate the economy.
Political instability/corruption: There needs to be order and stability in order to develop. A present political structure that is able to maintain order and stability will therefore help achieve economic development and growth.
The unequal distribution of income is if growth only goes in one direction and only to the heavily rich consumers. Without an equal distribution of the income a country will often find it difficult to develop because the poor do not have money to spend.
Lack of infrastructure: Economic development is often hindered today because of the lack of good infrastructure.
3. International Trade Barriers: This can be caused by a number of reasons such as a deteriorated terms of trade, swinging change in prices of primary goods, complete dependence on primary goods to lead economic development and also low income elasticities of demand. These are all factors that may affect development.
4. International Financial Barriers:
Many developing nations borrow money in order to help stimulate their economies. However they fall into large amounts of debt followed by interest. The changes in the values of currencies and the state of the global economy may also have hindering affects on the economies.
5 Social & Cultural Factors:
These are factors such as religion, culture, tradition, as well as gender issues. These all may be a form of barriers to growth and development.
1. POVERTY CYCLE
Rwanda’s per capital income is so low that it falls below the top 10 poverty-struck nations in the world. Income being an integral part of alleviating poverty is low and therefore Rwanda is unable to break out of the trap so easily. The 1994 war obliterated the country’s economy, social fabric, human resource base, and institutions. Almost 90 percent of the population lives on less than US$2 per day and half of its population lives on less than US$1 per day. Education and Health care are the important aspects and in a poverty struck country many of those receive none of these. Often, people receive little education and access to any of the normal features of life. Rwanda receives aid in a wide variety of forms such as grants to “soft loans” with low interest rates to private inflows (donations). As of 2004 the National Poverty Rate has been 60.3%.
2. INSTITUTIONAL AND POLITICAL FACTORS
There is some political instability in Rwanda. The country has experienced a mass genocide in 1994 which was exorcised by a Hutu controlled government against a Tutsi minority. However in 2003, the new Kagame government instituted a new constitution helping to reunite and reconciliate Rwandans. The Kagame government has provided security and economic development of the country. In terms of corruption Rwanda performs relatively well compared to most African countries. Significant progress has been made over the last few years in terms of government effectiveness and transparency. Corruption remains prevalent nonetheless, for example: tax collection, public funds and judicial corruption. Sectors most affected by corruption include the judiciary, finance management, and public administration.
3.INTERNATIONAL TRADE BARRIERS
Following the Rwanda Genocide, which mainly resulted as a result of economic instability, the government focused on developing the economy and move away from subsistence farming to the manufacturing and services industry. It has focused on lowering international trade barriers allowing goods to flow in as well as goods to flow out easily. Rwanda’s main trading partners are USA, Belgium, Germany and Kenya.
4. INTERNATIONAL FINANCIAL REFORM – INDEBTEDNESS
Thanks to further improvements to bring stability to the country by the authorities, the financial sector of the government has been able to properly function. The IMF has commended the Rwandan authorities for maintaining macroeconomic stability, improving fiscal management and transparency, and making progress with structural reforms. The inflation rate as of 2008 was 14.2%. 1,000,000 Rwandan Francs is 1,738.9 U.S Dollars as of Feb 10th 2010.
5. SOCIAL AND CULTURAL FACTORS
The two main ethnicities are the Tutsis and the Hutus. In the Rwanda, the genocide was exorcised by the Hutu dominated government under the Hutu Power ideology. Some sources say that up to 20% of the countries population was killed in the 1oo day period of the genocide. A big barrier for economic development is keeping the peace between the two ethnic tribes. The government also has the job of reintegrating ex-soldiers, militia fighters and soldiers of the Rwandan Patriotic Army. Therefore Rwanda is finding it difficult to make the transition from a nation in crisis development to long-term planning. Trust amongst Hutus and Tutsis is very weak and remains the issue in allowing Rwanda to economic development.
For Rwanda, the biggest factors holding it’s economy back are the poverty cycle, the lack of infrastructure and social/cultural factors. Due to low incomes and a large portion of the population being poverty-struck, the economy is difficult to achieve development/growth because domestic consumers cannot invest in their own economy if there is no high level of income. Therefore there can be no savings nor any consumption which will in fact keep the economy stuck in it’s poverty struck position. Without high incomes, there can be no investments which will thereby lead to low productivity. This is a major cause of Rwanda’s inability to develop well. The lack of infrastructure is always important in the development of an economy because without there is no organization of the economy. Transportation is important for trade and so a better transport infrastructure is needed. Also institutions need to built in designated areas. So infrastructure is really important and Rwanda will need it to expand economically. One of Rwanda’s biggest issues is with the social/cultural factors. The Hutus and Tutsis have a issue of trust following the genocide and keeping the peace between the two ethnic groups will be integral to getting the country united and the economy focused and growing. Thereby, Rwanda still has issues to developing and will need to fix these issues in order to progress.