The Real Reason Why Latin America And Africa Have Failed To Develop Adequately

David McDonald

David McDonald

David is a 19-year-old Canadian student currently attending the University of Guelph. He currently studies Public Management and economics with hopes of one day becoming an accomplished journalist. David enjoys reporting on global events and actively try to make a difference in the world.
David McDonald

Latin and Africa as an entirety aren’t necessarily struggling to develop, but there are definitely countries within these regions that aren’t developing at all for a number of reasons.

Latin America

To start with Latin America, the region seems to be entering a period of growth again after six years of slowdown, including two years of recession. Unfortunately, these years of economic stagnation have hindered social progress as well as heightened social animosity towards certain governments.

Latin America is expected to expand by 1.2% in 2017, followed by 2.1% in 2018. Argentina and Brazil are climbing out of a recession, while Mexico will keep growing, and Central America and the Caribbean will grow faster. But the six years of slowdown had adverse effects on jobs and household incomes: inequality is no longer dropping, the growth of the middle class has slowed, and nearly 39% of Latin Americans remain vulnerable to falling back into poverty.

The region is focusing on boosting investment, savings and exports and fostering private sector development. Countries in Latin America need to address external and fiscal imbalances, strengthen regional economic integration to become more competitive globally, and avoid unduly sacrificing investment in the adjustment process. Current gaps in logistics and infrastructure are important obstacles for intra-regional trade; the average logistics costs are 3 to 4 times higher than OECD countries.

Latin America and the Caribbean are poised to see a new wave of economic expansion as the region focuses on social stability.

Crime and violence plague Latin America, this is not surprising news. A large reason for the lack of economic and social development is the lack of law enforcement authority across the entire continent. Why is this? Officers continue to be paid off by cartels because the simply barely make enough money to live off of to begin with.

Economic growth alone won’t be enough to continue recent social gains and the reduction of Latin America’s persistent inequality. To do so, the region needs to invest in people, particularly the poor. South America as a region, continues to underperform in education: around one out of every three youth doesn’t finish high school. Investment in education quality will play an important role in allowing the poor to contribute to and benefit from future economic growth.

Africa

When you think poverty, you likely think of Africa. Faulty government policy, corruption, crime, lack of industrialization and inadequate social systems have all played a role in Africa’s lack of economic and social development through history.

It’s quite interesting to think about Africa’s failure to properly industrialize when you consider our roots as a species date back to ancient Africa. In hindsight, Africa as a continent, was once the richest areas on Earth during the rule of Mansa Musa in the 14th century.

Aside from social instability, why has Africa failed to industrialize?

One of the main reasons for Africa’s slow industrialization is that its leaders have failed to pursue bold economic policies out of fear of antagonizing donors. As it were, the strongest criticism of this policy vacuum came not from the debate in Addis Ababa, but from the op-ed pages of The Financial Times, a British daily.

“Africa stands on the cusp of a lost opportunity because its leaders—and those who assess its progress in London, Paris and Washington—are wrongly fixated on the rise and fall of GDP and foreign investment flows, mostly into resource extraction industries and modern shopping malls,” said Kingsley Moghalu, a former deputy governor of the Central Bank of Nigeria. In a forcefully argued op-ed, he implored African countries to “reject the misleading notion that they can join the West by becoming post-industrial societies without having first been industrial ones.”

While many countries may deindustrialize as they grow richer, many African countries are deindustrializing while they are still poor…partly because technology is reducing the demand for low-skilled workers.

Despite the negatives, Africa is poised to grow in the next decades, they just need to focus on industrializing as well as implementing new-technology sectors that can compete globally. Although some areas are growing, Africa cannot sustain any level of growth if they don’t consistently develop.

Another reason for Africa’s lack of development is due to the continent’s weak infrastructure. Lack of electricity, poor roads and congested ports all make transporting goods across the land much more difficult, and drive up the cost of moving raw materials.

African governments face the problem of having to invest in infrastructure while maintaining some form of social institutions – the issue is that these governments simply aren’t collecting enough money through tax revenue to be able to fund such projects.

Almost half of the 10 million graduates churned out of the over 668 universities in Africa yearly do not get job, Kelvin Balogun – President of Coca-Cola, Central, East and West Africa – has said. Unemployment in Africa: no jobs for 50% of graduates

African industries are not expanding at the rate they should be, which is creating a sinkhole of money invested in university educations across the continent.

African countries are doing a great job of shifting resources to where they need to go. And African agriculture, which still employs the bulk of the population, has been getting more productive. So African workers have been leaving the land as farming techniques improve, and moving to the city where they can do other stuff.

The problem for Africa is that the other components of their economy haven’t been getting more productive. African manufacturing and services industries are still extremely bad at what they do. This means as workers move from the countryside to the cities, they push productivity and wages down. In order for Africans to get richer, they’re going to have to figure out how to get better at things other than farming, which means implementing production methods popularized by the West and in Asia.

Why Haven’t These Regions Developed As Fast As Asia?

Asia as a region has experienced rapid economic growth due to a number of reasons, but most notably, most Asian countries battle against poverty, corruption, and slow economic growth, all while trying to maintain a sturdy method of self-governance.

So why has Asia expanded so rapidly, while regions like Latin America and Africa fail to do so?

Asian countries have low corruption, good government regulation, low crime, and most of all, have collectively focused on prioritizing the expansion of export-based manufacturing industries.

Asia is home to almost 60% of the world population, with a huge proportion in the “employable” phase, which is an enormous advantage for growing GDP.

The newly formed governments in Asia were successful in framing policies and proper procedures to facilitate development of business and trade, as well as simultaneously grabbing the right opportunities to ensure that their huge populations become a stimulant for further growth rather than a hindrance. For example, China became the manufacturer for the world while India became the service provider to the West. This commendable progress did not happen all at once.

Judging by the diagram above, Newly industrialized Asia has grown more rapidly than almost anywhere else on the planet. Africa and Latin America seem to be on decline.

In just a span of mere 50-60 years, Asia has emerged as a global economic and political power, and the region, boasts the highest Gross Domestic Product in the World in terms of Purchasing Power Parity. How did Asia, that once was a struggling region, achieve this phenomenal progress in a few years time?

Historically, most Asian countries have had an abundance of natural resources,which was the main reason why most Asian countries were attacked and ruled by other more formidable countries in the past. However, having natural resources does not in any way translate into economic growth and stability. Just take Africa for example, Africa dominates the global diamond market, but has some of the highest political instability and crime rates on the globe. In 2008, the continent produced 55 percent of the world’s diamonds. Botswana, Angola, South Africa, the Democratic Republic of the Congo, and Namibia are Africa’s largest producers of diamonds, but all have greater levels of crime than are experienced in China.

In terms of Asia, most of these governments have still not been able to fully utilize these natural resources to its hilt, due to lack of funds to sustain research and innovation to preserve and exploitation taking place to these natural resources.

Asia Has Capitalized On Opportunities To Grow

China began unprecedented economic and social expansion under the Peoples Republic of China regime which was implemented in the 1980;s. During this time, China started opening its doors to foreign companies. Over time, due to their cost advantage, they became the factory of the world. They also focused a lot on ameliorating farm productivity, which was imperative to their then primarily agrarian economy.

India on the other hand, capitalized on the birth of the Information Technology revolution. The availability of English-speaking skilled workers resulted India to be the outsourcing hub of the world. Similarly, economies of Indonesia and Malaysia have also advanced. Of the 48 Asian nations, few others including mineral rich countries in the Central Asia such as Kazakhstan are making good progress in today’s age.

Asia’s investments in exporting industries helped alleviate poverty, which raised millions of people up to the middle class, and created massive amounts of tax revenue for their governments. Asian governments spent years rebuilding infrastructure as well as social institutions such as schools and hospitals. Their investments in education have created a good quality, capable workforce.

But most importantly, Asia’s students had a place to work when they came out of school, unlike those living in Africa.

Because Asia focused on their strengths (population, natural resources, technology) they were able to lay an economic framework that has rewarded them for decades, and has granted them the ability to work on every level of their social and economic frameworks.

Africa and Latin America on the other hand, have yet to capitalize on any major industries. They have little to offer the global market other than natural resources. In fact, over-reliance on such a thing will inevitably cause economic collapse, as experienced in Venezuela.

To briefly explain the situation, the Socialist government led by Hugo Chavez relied too much on oil exports to fund government expenditures. Venezuela has the largest oil reserves on the planet, but once oil prices rose, they could no longer export as much as they used to. Because Venezuela’s economy was built around oil exports, the government had to begin printing and importing money in order to pay for social institutions. This inevitably led to immense immense hyperinflation. The country is now on the brink of utter economic and social collapse.

What lesson can Latin American and African nations take from this? Diversify your economy and offer something to the global market that no other country can do as good as you, in other words, capitalize on your comparative advantage.

Many African and Latin American nations have had some difficulty in making the transition from low-end manufacturing toward more sophisticated and technology-intensive goods—relative to the rest of the continent they are the “leopards” of industry. Perhaps it is time to think again about investment climate reform.

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