UNIT 10:INDUSTRIAL DEVELOPMENT
Unit competency:
Analyze the contribution of development strategies on the economy.
Introductory activity
Using the photos, A,B,C and D below, discuss the following questions.
a) Identify the products that are produced by the industries identified
in the above photos.
b) Categorize the different activities named above in their respective
industries.
c) What general name would you give to the development of the
above activities all together?
d) Cite different other firms that do different activities in Rwanda that
do not fall under any category named in b above.
10.1: Meaning, advantages and limitations of industrial development.
Activity 10.1
Basing on the photos and the cited examples of different firms in Rwanda
that perform different activities in the introductory activity above,
i) Distinguish between industry and industrial development.
ii) Assess the impact of industrial development in Rwanda.
iii) Describe the limitations of industrial development in Rwanda
10.1.1: Meaning of industrial development
With the Sustainable Development Goals (SDGs), Rwandans have the
opportunity to act upon their vision for the future. The Goals address targets
for development that are relevant within Rwanda just like in every country in the
world that implements them. The Government of Rwanda, in line with global
ambitions, has set national targets to successfully achieve the SDGs by 2030.
One of the 17 SDGs implemented in Rwanda is number 9. Industry, Innovation
and Infrastructure aimed at Building resilient infrastructure, promoting inclusive
and sustainable industrialization and fostering innovation within the country.
Therefore, industrial development is an engine to Rwanda’s development goals
and should be given emphasis and effort. Industrial development is the
building and growing of industries within an economy. An industry is a group of
companies that are related based on their primary business activities (product
produced or sold). These industries include mass production, technological
advances and other services. It may involve putting in place and developing
the infant industries (industries which have just started operating and therefore
have a small market, low output and high average costs).
Industrial development generally begins in response to domestic demand
generated in the primary sector, which also provides investible funds for
manufacturing industries. Demand for industrial products and investible
saving represent possible uses of the surplus generated in agriculture (crops,
livestock), fisheries, forestry, mining etc. as primary output comes to exceed
subsistence needs. More often than not, the surplus generated in the primary
sector is associated with export expansion.
10.1.2: Advantages of industrial development:
- Industrial development provides well-sustained economic growth
that can transform an economy. Industrial growth and economic
growth go hand in hand. For example, economies thrive due to more
jobs, more money, and more opportunity. It is often linked with higher
wages, high production, more money and more services for the economy
leading to higher income per capita and more labor productivity thus
increasing the standard of living. These opportunities can transform the
economy inspiring endless amounts of growth.
- Industrial development leads to an increased demand for goods
and services, therefore promoting more innovation and more financial
opportunity which profits the entire community.
- Prices of industrial products tend to be stable for a long period.
This price stability is a sign of development.
- Industrial development provides forward and backward linkages
to agriculture, forward linkages are provided by providing market to
its produce by processing it, and backward linkages by providing it with
tools to use. These linkages bring about development.
- Industrial development requires relatively less land, so, it is the most
appropriate development strategy for developing countries whose land
is reducing due to persistent increases in the population size.
- Prices of industrial products are high, so the industrial sector fetches
more money for the economy both locally and internationally.
- Industrial development is necessary for modernisation of agriculture.
To increase agriculture productivity, there is need of chemical fertilizers,
pesticides and weedicides, tractors, threshers, pump sets harvesters
etc.to modernize agriculture, of which are all industrial products. Without
industrial development, these goods cannot be produced. Agricultural
products like cotton, sugarcane etc. are raw materials to industrial
production in preparation of finished products like textiles and sugar etc.So industrial development is necessary for modernisation of agriculture.
- Industry raises government tax revenue. The industrial firms, labour,and output are all taxed to increase tax revenue.
- Industrial development encourages the development of science
and technology. The industrial enterprises conduct research and
develop new products. Industry conducts research on its wastes and
develops byproducts; this makes an economy to thrive in technology inall corners of the economy.
- Industrial development facilitates infrastructural growth; industry
requires hydroelectric power to run its machines and roads to transport
its output and input to and from the industry. Consequently, intending
industrialists induce government to set such infrastructure up or they setthem up themselves. This develops the economy.
- Industrial development provides more employment opportunities
to all nationals; the different linkages created by the industrial sector
employ the almost all nationals i.e. educated, semi-skilled, and theunskilled.
- Industrial development increases the availability of foreign
exchange and improves upon the balance of payment position
of the country. Foreign industrialists come with foreign currency; in
addition, the excess of the industrial sector is exported to fetch more
foreign exchange. This increases the foreign exchange reserves of thenation so development.
- Industrial development helps in capital formation because in large
scale industries, the surplus is very high. By using external and internal
economies, industry can get higher profit which can be reinvested forexpansion and development.
- Industrial development promotes Urbanization. This is because
industrialisation in a particular region brings growth of transport and
communication, schools, colleges, technical institutions, banking and
health facilities are established near industrial base. Many ancillary
units can be established after setting up of big industry. This promotesurbanization as one of the indicators of economic development.
- Industrial development promotes self-reliance in different ways.
For example, during war and emergency or any other form of catastrophe
and in case of any economic hardships, dependence on foreign countries
for war weapons, food and medical relief may prove fatal. Self-reliance
in capital and consumer goods and industrial infrastructure is alsonecessary thus the need for industrial development.
- Industrial development plays an important role in the promotion of
international trade. Industrial products command higher values &
their demand is inelastic, thus making a country to gain from trade. To
meet the deficit in balance of payments, a country needs to produce
import substitute products or go for export promotion through industrialdevelopment.
- Industrial development plays important role in proper utilisation of
resources by a country. It makes a country to properly utilize herresources to transform them into finished industrial products.
- Rapid industrial development helps a country in quick alleviation of
Poverty and Unemployment. Since the slow growth of industrial
sector is responsible for widespread poverty and mass unemployment
in most developing countries, fast growth of industrial sector, may be
helpful in eradicating poverty and unemployment more especially in ruralareas.
- Industrial development helps in the rapid growth of national and
per capita income. The history of economic development of advanced
countries shows that there is a close relation between the level ofindustrial development and the level of national and per capita income.
- Industrial development is a sign of higher standard of living and
social change: This is because it helps a country to produce goodsand services of high quality in order to attain decent living standard.
10.1.3: Disadvantages of industrial development
Despite the numerous advantages brought by industrial development, the
industries also have problems that they bring not only to the environment butalso to the economy at large.
- Industrial development pollutes the environment. The fumes from
machines spoil the atmosphere, industrial waste is poured in the waters,
and there is noise. All these endanger the lives of the people so worseningtheir welfare and delaying development.
- It worsens rural-urban migration and its side effects like slum
development in urban centers, congestion of traffic and under
development of rural areas. This is mainly because industries are set upin urban centers.
- It increases capital flight; the foreign industrialists who are the
majority in the sector take back all the benefits from the sector rather
than re investing it in developing countries. This further under developsthe country.
- It increases technological unemployment in LDCs. This is mainly
because of the high use of capital-intensive techniques of production
in the industrial sector. Therefore, there is co-existence of high levels ofindustrialization and high rates of unemployment.
- It strains the government budget. Expensive infrastructure must be
set up for industry to develop, this sometimes necessitates borrowingwhich increases the indebtedness of the country.
- It leads to environmental degradation; sometimes swamps are
reclaimed, forests cut down to give room to industrial growth, extinction
of species etc. This under develops the economy since they tend toimpose a major negative externality on human society.
- Financially, industrial development results in a wide gap between the
rich and poor due to a division of labor and capital. Those who own
capital tend to accumulate excessive profits derived from their economicactivities, resulting in a high disparity of income and wealth.
- Rapid urbanization brought on by industrial development typically
leads to the general deterioration of workers’ quality of life and many other
problems for society, such as crime, stress, and psychological disorders.
Long working hours usually lead to poor nutrition and consumption
of quick and low-quality foods, resulting in increased incidences ofdiseases, such as diabetes, heart attack, and strokes.
10.1.4: Problems faced by the industrial sector indeveloping nations
- Difficulty in disposing off industrial waste; the environment laws
normally prohibit industrialists from polluting the environment; they find achallenge in finding where to divert the fumes or pour solid waste.
- A narrow supply of quality raw materials; most industries in
developing countries are agro-based, the base on agriculture which
is under developed and produces poor quality output. This on several
occasions gives rise to poor quality industrial output whose marketability
is hard. It sometimes necessitates importing raw materials that makesoutput too expensive and fails to compete on the world market.
- A limited supply of skilled personnel. Developing countries have
a limited supply of qualified, skilled, and experienced personnel with
industrial skills. This necessitates importing expatriates that increase theprice of final goods and services since such people are expensive.
- Under developed infrastructure, industry requires well-developed
road and telecommunication network to develop and a persistent
supply of hydroelectric power. Their inadequacy is a great challenge toindustrialist as they are forced to produce in excess capacity.
- Limited capital funds; since most people in developing countries are
poor, they do not have adequate funds to expand their industries or evenpurchase more efficient and advanced machines.
- Heavy taxes levied by government. Governments of developing
countries tend to tax industries heavily; this increases their costs ofproduction and sometimes totally fail and close up the industrial plant.
- Competition from abroad; industrial products from LDCs are normally
out competed by those from developed nations which are of good quality
and low priced because such firms are already enjoying the economiesof large scale.
- Political instabilities and unrests from developing countries.
Industrialists in developing countries live in fear of having their entire plant
destroyed by an insurgency that can erupt anytime in LDCS. Developingcountries are politically insecure.
- A small size of the market; people in developing countries are poor,
they cannot afford the prices of quality industrial output. This forcesindustrialists to produce in excess capacity.
- Conservatism of the people in developing countries. People in
developing countries are rigid; they are not yet free with manufactured
industrial goods. Consequently, several of industrial output is wasted ifnot exported.
Application activity 10.1.
Identify any practical solutions your government can put in place to fosterindustrial development.
10.2. Industrial development approaches.
Activity 10.2
Carry out a documentary research on industrial development, from any
economics source within your reach, and identify different approaches
that an economy of a country can undertake to develop her industrial
sector in order to spearhead development in general. Discuss and shareyour views amongst yourselves in class.
Industrial development is one of the development goals in Rwanda. However,
it is a complex and dynamic process. In Rwanda and developing countries in
general, industrial development is even more complicated because it involves
the interactions of domestic firms and multinational corporations (MNCs), the
role of the government, and the development of technology. Therefore, let us
tackle production techniques as one of the approaches any economy can
undertake for their industrial development process so as to achieve her goals
of economic development. Such approaches may include among others the
following; export promotion industrial strategy, import substitution industrial
strategy, technology, small scale and largescale industrial strategy. However,
in regard to this unit, we are going to dwell much on technology because it
drives all other approaches in the long run. For example, if technology is well
developed, it promotes large scale production, promotes production and export
level and encourages a country to set up industries that produce commoditiesdomestically thus reducing on their importation.
10.2.1. Technology
Activity 10.3
Use the photos below to answer the questions that follow:
iv) Identify the activities taking place in photos 1,2, 3 and 4 above.
v) Describe the technique of production used by each activity in theportrayed in the photos above.
vi) What do you understand by the terms; technology and technique ofproduction?
vii)Which technique is most appropriate for Rwanda’s developmentstrategy?
viii) Justify your answer.
10.2.1.1: Meaning of Technology.
Technology is a body of knowledge devoted to creating tools, processing
actions and the extracting of materials. We apply technology in almost everything
we do in our daily lives; e.g. at work, for communication, transportation,
learning, manufacturing, securing data, scaling businesses and so much more.
Technology is human knowledge which involves tools, materials, and systems.
We can therefore, describe technology as products and processes used to
simplify our daily lives. We use technology to extend our abilities, making people
the most crucial part of any technological system. The application of technology
typically results in products. If technology is well applied, it benefits humans;
but the opposite is true, if used for malicious reasons. Therefore, for industrial
development to mushroom, a proper technique must be chosen to foster rapidindustrial growth and its comprehensive benefits to the entire economy.
A technique is any alternative method of production available to producegoods and services.
There is a great controversy on the question of choosing the technique of
production i.e. between labour intensive and capital-intensive technique in less
developed countries. All concerns differ to each other. Some are in favour of
labor-intensive technique, others advocate for the capital-intensive technique.However, the choice of the technique may depend on the following:
- Benefit of the technique to the user.
- Efficiency of the technique.
- Prevailing economic conditions in the area or country.
- The cost of the technique.
- The advantages and disadvantages of the technique compared to others.
Thus, before formulating any decisive opinion on the question of which technique
to choose for industrial development, let us study the arguments for and againsteach of these techniques
10.2.1.2: Capital intensive technology:
Activity 10.4
Analyse the photos below and answer the questions that follow.
a) Which technique of production is being applied in the industries
mentioned in the photos above? Support your answer.
b) Identify different other activities that use such a technique in Rwanda.
c) How does the above mentioned technique of production contribute tothe development process of Rwanda’s economy?
d) Examine the hindrances to the use of the technique cited above inRwanda.
a) Meaning of capital-intensive technology:
Capital intensive technique is technique that uses more proportion of
machines than other factors of production like labour. It can also be called labour
saving technique. Capital-intensive production represents the proportion of
capital (machinery, equipment, inventories) relative to labour, measured by the
capital–labour ratio. Normally under this technique of production, there are many
machines compared to the number of people meaning that the capital- labourratio is very high. It is sometimes called Labour saving technique.
Examples of capital-intensive industries include automobile manufacturing,
oil production and refining, steel production, telecommunications, and
transportation sectors (e.g., railways and airlines). All these industries requiremassive amounts of capital expenditures.
Although there is no mathematical threshold that definitively determines whether
an industry is capital intensive, most analysts look to a company’s capital expenses
in relation to its labor expense. The higher the ratio between capital and labor
expenses, the more capital intensive a business is. For example, if Company
A spent Frw10,000,000 on equipment in one year but only Frw3,000,000 onlabor, Company A is probably in a capital-intensive industry.
In the diagram above, isoquant Q represents the initial level of output, using
OL amount of labour and OC amount of capital. With the introduction of new
technique, a higher level of output is shown by labour (OL) but with greater
dose of capital (OC1). Therefore, capital intensive technique is using morecapital with the same amount of labour.
b) Advantages of capital-intensive technique
- Production of better-quality commodities. This is because there aremore machines used that can produce better goods.
- Reduces the cost of supervision. This is because machines are morethan the people thus no need for a lot of supervision.
- Encourages and promotes better and efficient methods and inputsthat can lead to high output
- Promotes proper utilization of resources. The machines tend toproduce more hence reduce tendencies of excess capacity
- Encourages technology transfer from developed nations to developingnations and this leads to technology development in the recipient countries
- Relatively cheap since it does not associate with capital outlay like housing,medical care etc
- Reduces industrial strike cases because it uses more machines thanlabour
- Increase labour mobility from one place to another to acquire jobopportunities
c) Disadvantages of capital-intensive technique
- Leads to technological unemployment. This is because more
proportions of machines are used in relation to the labour
- Expensive to install and maintain. The machines that are employedare expensive to install and still maintenance is recurring in terms of costs
- Requires skilled man power which is scarce in low developing
countries. This calls for acquisition of imported labour which may lead toprofit repatriation.
- Promotes capital outflow when buying the machines and repairs.
The machines have their repairs bought from outside countries and thuscontinuous outflow
- Worsens the balance of payment position when acquiring themachines since they are expensive
- Promotes income inequality because it creates technologicalunemployment when people are replaced with machines
- High social costs like pollution from the machines and this leads toenvironmental degradation that may be harmful to the people
- High rates of resource exhaustion. This is because the machinestend to produce a lot since there is no human judgment.
- Promotes dependence on other countries for machines andexpatriates and this may limit the country to be self-reliant.
d) Limitations of capital-intensive technique
- Inadequate capital by the people limits them to acquire the machineshence they resort to labour intensive technique.
- High tax charged on the importation of the machines makespeople to shun away from them and they retain the labour
- Inadequate market both internal and external discourages people to
use the capital-intensive technique since the excess supply will not havethe market to use it.
- Inadequate raw materials leading to constant importation creatingconstant balance of payment problems
- High operation costs due to large scale production. This affects theoperations of the business and it may result into increase in prices
- Under developed infrastructure like roads limit the movement
of the machines and it may affect the development of the technique ofproduction
- Requires developed technology which still lacks. In developing
countries, technology is still intermediate which is still low and cannotproduce the large quantities
10.2.2. Labour intensive technology.
Activity 10.5
Using the photos above, discuss the following questions.
a) Identify the form of activities in the photos above and the techniqueused in their production processes. Justify your answer.
b) Identify different other activities that use such a technique in Rwanda.
c) Examine the contribution of such a technique to the developmentprocess of Rwanda.
d) What hinders its effective use in Rwanda?
10.2.2.1: Meaning of labour intensive technique
Labour intensive technique is that technique which uses comparatively larger
amount of labour and small doses of capital. It is that technique by which more
of labour and less of capital is required for the process of production. With this
method of production, it is possible to raise output by using the same amount
of capital but greater amount of labour. It is sometimes called capital saving
or one-pound technique. The degree of labor intensity is typically measured
in proportion to the amount of labour required to produce the goods/services;
the higher the proportion of labor costs required, the more labor intensive the
business.
Labour-intensive industries include restaurants, hotels, agriculture, and mining.
Even with the use of certain tools under this technique, a person must be
involved with the vast majority of the work. Many positions that are part of the
service industry are also labor-intensive those within the hospitality industry andthe personal care industry.
Figure: Labour intensive technique illustration.
10.2.2.2 Advantages of labour intensive technique.
- Cheap and easily afforded since it uses mostly labour as comparedto the machines and labour is cheap.
- Source of employment to the people and hence reduces theunemployment problem in the country.
- Helps in income distribution since the number of the unemployed islow since the technique employs more labour.
- Requires little/ limited skills. The techniques may not needcomplicated skills compared to the capital-intensive technique
- Reduces social costs such as pollution. The technique does not
involve extrusion of fumes on land, water and atmosphere hence it doesnot degrade the atmosphere.
- Increased employment increases aggregate demand andinvestment
- Needed in agriculture where human judgment is paramount.
Some decisions in agriculture cannot be done by machines hence labouris the best option.
- Helps control over exploitation of resources. Production can be
controlled when using labour through reducing on the areas that arebeing used. This helps o reduce exploitation.
- No need to import expatriates since the technique can be operatedby the labour which is available
10.2.2.3. Disadvantages of labour intensive technique
- Low productivity compared to capital intensive technique. This isbecause the labour cannot do the work as quick as the machines
- Costly in the long run in terms of feeding, med-care among others
and this increases the cost of production compared to when machinesare used.
- Produces low quality output because of the low skills possessed bythe workers
- Underutilization of resources is common since the labour cannotcover wide areas during the production process
- It does not encourage technology development because it
uses more labour compared to machines. This further leads to underdevelopment.
- Labour unrests and strikes are common when using this method and
this leads to production stopping for some time hence no output andearnings.
- It is hard to standardize output using the technique. Labour may
not be able to produce good standard output because it may not have astandard measure.
10.2.2.4. Limitations of labour intensive technique
- Inadequate labour due to rural urban migration and younger andelder leaving industries with no option but capital-intensive techniques
- Need to produce good quality output calls for capital intensive
technique so as to get output that can compete at the bigger stage inthe market.
- Increase in demand calls for increased supply which can only bedone by capital intensive techniques
- Specialization requires more use of machines since it requiresuse of expansive land or covers wide industrial areas.
- Production where human judgment is not needed can be easily
done by machines compared to labour when the major aim is to maximizeoutput
- In the long run it may be costly when the expenditures on medication,housing allowance among others set in.
- Government policy of standardization may not be put into
consideration by labour intensive techniques but rather capital-intensivetechniques.
Application activity 10.2
Study the graph below and answer the question that follow.
a) What is an isoquant curve?
b) What technique of production is portrayed at points A, B & C respectively?
Give supporting reasons for your answers.
c) Which production technique would you recommend for your economy toapply and why?
10.2.3: Intermediate technology
Activity 10.6
Analyse the Photos below and answer the questions that follow.
a) Which technique of production is cited in photos A and B above?
Give a clear justification.
b) Comparing the images in activity 10.4, 10.5 and these in 10.6, what
marks the difference among the techniques used in production?
c) What are the major distinguishing features of the technique
mentioned in a) above?
a) Meaning of intermediate technology
Intermediate technology is the type of technology which is midway between
the modern technology and the traditional- primitive technology. Intermediate
technology involves, simple and practical tools, basic machines and engineering
systems that economically disadvantaged farmers and other rural people can
purchase or construct from resources that are available locally to improve their
well-being. Designed to focus on people rather than machines, intermediate
technology is considered to be more harmonious with the environment and with
traditional ways of life. Intermediate technology requires a regional approach todevelopment and requires four conditions for its success.
i. Workplaces should be created in areas where the majority of the peoplelive.
ii. Workplaces should be cheap so that they can be created in largenumbers with little capital.
iii. Methods of production should be fairly simple, requiring low skills andsuitable for maintenance and repair at the workplace.
iv. Production should depend basically on local materials for local use.
b) Features of intermediate technology
- The technology is fairly simple to use.
- The technology uses the local materials.
- It is cheap and affordable.
- It should be manageable by the majority of the people.
- It is user friendly meaning it may not affect the environment.
- It contains elements of both the traditional and modern technology
Application activity 10.3
a) Analyse the arguments for and against the use of intermediate technology
in Rwanda.
b) What do you think hinders its applicability in Rwanda?
c) Describe how a country can attain intermediate technology.
End unit assesment
1. The development of Masoro area in Gasabo district has got many
benefits to the people and economy at large. Examine the benefitstalked about above.
2. Using more machines is more advantageous than using moreworkers. Discuss.
3. a) What is meant by appropriate technique of production?
b) Identify the features of appropriate technology.
c) Describe the advantages and limitations of the use of appropriatetechnology.
4. Rwanda, just like any other country, has always transferred
technology from other countries to improve her productive capacity
in the country. Analyse the impact of technological transfer inRwanda