African Economics

1
African Economics
2
Review of types of Economies

• Traditional Economy
• Decisions are made based on custom and on the
  habit of how such decisions were made in the
  past.
• People produce mainly for their own families and
  neighborhoods. This is sometimes referred to as
  subsistence economy.
• Bartering is often used in this type of economy.
  This is the trade of goods for other goods with
  no money involved.
• Command Economy
• Government planning groups make most of the basic
  economic decisions.
• They decide what to produce, where to produce it
  and who will produce it.

3

• Market Economy
• The societys economic decisions are made by
  individuals who decide what to produce and what
  to buy.
• Mixed Economy
• Nearly all economies has characteristics of all
  three types of systems
• Located on a continuum between a pure market and
  a pure command.
• Nearly all countries in Africa today would be
  best described as mixed economies.

4

• Voluntary Trade
• Occurs in a transaction when both parties are
  able to gain something from the exchange.
• Ideally this trade would occur without government
  restriction or regulation
• Encourages people and industrial planners to
  specialize in making those things the market
  demands.
• Many countries try to protect their own
  industries by putting taxes on imported goods,
  while others have worked to end trade barriers.
• In Africa, programs such as the regional trade
  associations have developed in recent years to
  make trade among the nations in their region more
  open and mutually supportive.

5

• Specialization
• Not every country can produce all the goods and
  services it need.
• This leads to countries to specialize in
  producing goods and services they can provide
  most efficiently and than look for other who may
  need those goods or services.
• In Africa today countries are trying to find the
  products they can produce and others are working
  to develop markets for products they are suited
  to produce.
• South Africa
• They have specialized in the development of their
  mineral wealth and precious metal industry. They
  are rich in deposits of gold, diamonds and
  platinum.
• These goods are needed by other countries.

6

• Nigeria
• Has rich oil deposits
• The U.S. gets 15 percent of its imported oil from
  Nigeria.
• However, the emphasis on oil production has left
  other parts of the economy disorganized.
• In order to feed its large and growing population
  it has to import food.
• Other African Countries
• There are many possibilities for profitable
  specialization in the African countries.
• Uganda has an excellent history of producing high
  quality cotton.
• Kenya is working on a good system of textile
  manufacturing plants.
• If these two countries can do more planning than
  Uganda could produce the cotton to supply Kenyas
  manufacture of cotton cloth.

7

• Trade Barriers
• Anything that slows down or prevents one country
  from exchanging goods with another.
• These barriers can be put into place to protect
  local industries from lower priced goods or to
  settle political issues.
• Quota
• Sets a specific amount or number of a particular
  product that can be imported or acquired in a
  given period.
• Nigeria is a major producer of oil and is a
  member of the Organization of Petroleum Exporting
  Countries.
• They place quotas on how much each member nation
  can produce for the world market in order to keep
  prices at levels they want.
• The goal for OPEC is to make as much profit as
  possible.

8

• Tariff
• Tax placed on goods that are imported
• The purpose of this tax is to make the imported
  item more expensive than a similar item made
  locally
• Embargo
• Is one country announces that it will no longer
  trade with another country.
• The goal is to isolate the country and cause
  problems with that countrys economy.
• Occurs when two countries are having political
  problems
• An example of this was when countries decided to
  quit doing business with South Africa to get them
  to end apartheid.
• This lasted for many years and finally in the
  1990s they officially dropped its apartheid
  system and the nations of the world began trading
  with them again.

9
Exchanging currencies in International trade

• In order for countries to trade with one another
  they have to have a system of exchanging
  currencies.
• Most countries have their own individual type of
  money and currency from countries with stronger
  economies is usually easier to exchange because
  it has more dependable value.
• Due to the political unrest in Africa and
  economic problems the currencies of these nations
  are harder to exchange.
• Parts of Africa have begun to use CFA franc that
  can be exchanged between nations. This currency
  was created after WWII when economies around the
  world were unstable. This currency was tied to
  the French franc, because they had been in power
  in parts of Africa.
• Two versions of the CFA franc today are the West
  African CFA franc and the Central African CFA
  franc. Their value is linked to the Euro, which
  is used in the European Union.

10

• Human Capital
• The knowledge and skills that make it possible
  for workers to earn a living producing goods or
  services.
• If companies invest in better education and
  training for workers they generally make more
  profit and have more satisfied workers than
  companies that do not.
• South Africa
• Heavily invested in human capital
• This country has a diversified economy and one of
  the highest Gross Domestic Products on the
  continent.
• They require workers with skills and training for
  their electronics and mining industries.
• However, they still have one of the highest
  unemployment rates in Africa.
• Most are black people who are still suffering the
  effects of the apartheid system.

11
Resources

• These are necessary to produce Goods and Services
• There are three types
• Natural Resources
• Human Capital (Resources)
• Capital Goods (Resources)

12
Natural Resources

• These are Items found in Nature.
• These are the raw materials used to make products
• Africa is rich in Natural Resources such as
• Petroleum
• Coal
• Diamonds

13

• Nigeria
• They should have a strong economy due to their
  rich deposits of oil and an educated population.
• This is not occurring due the government
  corruption, civil war and military rule.
• Nigeria has been left a poor country due to this
  and nearly 70 percent of the people live on less
  than a dollar a day.
• It has to import food to keeps its population
  from starving even though it has good farmland.

14

• Capital Goods
• This is the factory, machines and technology that
  people use to make products to sell.
• Producing more goods for sale in a quicker and
  more efficient way leads to economic growth and
  greater profit.
• South Africa
• Is an example of a country that is invested in
  capital goods
• They have invested in the equipment and workers
  training for their mining industry and other
  industries.
• Nigeria
• They are invested heavily in new technology to
  compete in the global oil market. Many Nigerians
  are without proper food and housing due to
  concentration on capital goods for the oil
  industry.