Economy Part 3

Georgia Performance Standards

SS7E3-The student will describe factors that influence economic growth and examine their presence or absence in Nigeria and South Africa.a. Explain the relationship between investment in human capital and GDPb. Explain the relationship between investment in capital and GDPc. Explain how the distribution of diamonds, gold, uranium, and oil affects the economic development of Africad. Describe the role of entrepreneurship.

Review-Economic Growth Factors

• The 4 basic factors that influence economic growth are:1. Human capital 2. Capital 3. Natural resources4. EntrepreneurshipGross Domestic Product-the total market value of the goods

and services produced by a country’s economy during a specific period of time. (used to determine the health of a country’s economy and compare it other economies.

Human Capital• The good: South Africa is strongly committed to education (also

has one of the highest literacy rates), so their GDP has been growing at an annual rate of 5%. Government offers programs to low-income areas to increase education and job growth, so the investment in human capital is high.

• The bad: In Nigeria, not as much money is spent on education, so the investment in human capital is low.

• Wealth from oil belongs to a small group of wealthy people. Average household income is only about US$300 and their GDP is one of the lowest in the world

• What does this say about the relationship between investing in human capital and GDP?

Capital

• The good: 50% of South Africa’s capital investment went to improving electrical output and transportation of goods (railroads and ports) which has increased GDP and benefited the whole population.

• The bad: Most of Nigeria’s capital investment went to the oil industry which has only benefited a small part of the population. Other important investments have not been made (roads, hospitals, water treatment plants)

Natural Resources

• There is an uneven distribution of natural resources in Africa, but even worse than that is the misuse of these resources.

• In a country with an unstable government, resources like diamonds, gold, uranium, and especially oil, do not guarantee wealth and prosperity

Diamonds and Gold

• About half of the world’s diamonds are found in Africa. • The good: Botswana’s stable government has reinvested

diamond money inroads, schools, and clinics.• The bad: In Democratic Republic of Congo and Sierra Leone,

armed rebels steal the diamonds to fund brutal wars (“Conflict/blood diamonds”)

• South Africa benefits from having one half of the world’s gold reserve, but Senegal and Mali remain 2 of the poorest countries in the world, despite many gold mines. Governments must use the money from natural resources the right way!

Oil

• Nigeria is the 6th largest oil-producer in the world. They take in US$2.2 million per day in oil revenue, but the average Nigerian lives on less than US$1 per day.

• International assistance is offered, but does not always benefit Nigeria:

Example- China contributes aid money, so they expect something in return, like sending their people there to work and the freedom to import their goods (they sell their goods inexpensively, which removes competition from Nigerian companies).

Uranium

• Radioactive element that occurs in small parts in rock, soil, and both surface and groundwater.

• Used to produce fuel for nuclear power plants and make weapons

• Africa produces 20% of world’s uranium• Mining is easy as it is found near surface, but can produce

major environmental problems• It is more popular now as oil prices rise and nuclear power

is a cleaner source of energy.• This gives many countries (such as Niger, Namibia, and

Gabon) hope in a higher GDP.

Entrepreneurship• Plays a vital role in any country’s economy• They use human capital, capital, and natural resources to bring

their ideas to life• Must be willing to take risks• Many local banks are unwilling to fund their ideas because they

think it is too risky (Less than 50% of new businesses are still operating after 3 years).

• South Africa realizes their importance and is encouraging new business, but not all African countries do the same. That is where having natural resources is a benefit (it provides the $$ needed to fund these new ideas)

Conclusion

Natural resources alone cannot sustain an economy-it takes a balance of many different things:

1. Stable and non-corrupt government2. Investments in education and training3. Investments in capital resources4. Freedom for entrepreneurship

Go to Natural Resources in Africa Assignment