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Unit 10: Industrial Development
Unit 10: Industrial Development
Key unit competence: Learners will be able to analyze the contribution of development strategies on the economy.
My goals
By the end of this unit, I will be able to:
⦿ Explain the meaning, advantages, disadvantages and limitations of industrial development.
⦿ Compare and contrast the meaning, merits, illustrations and limitations of labor and capital intensive techniques of production.
⦿ Examine the meaning, advantages, disadvantages and limitations of intermediate and appropriate technology.
⦿ Differentiate between technology transfer and technology development.
⦿ Assess the role of technology transfer to the development of Rwanda.
⦿ Compare the features, advantages, disadvantages and limitations of small scale and large scale industries.
⦿ Analyze the advantages, disadvantages and limitations of import substitution and export promotion industrial strategy.
Activity 1
Using the photos, A, B, C and D in figure 1 below, discuss the following questions:
(i) Describe the activities that are taking place in the different photos below.
(ii) How would you define an industry?
(iii) Describe the forms of industries basing on the photos below.
(iv) Analyze the advantages and disadvantages of industrial development.
Facts
10.1 Meaning of Industrial Development
Industrial development involves putting up manufacturing, processing, mining and construction plants among others with an aim of improving the output produced together with better standards. It may involve putting in place and developing the infant industries. Infant industries are industries which have just started operating and therefore have a small market, low output and high average costs.
10.1.1 Classification of industries in Rwanda according to activities, ownership and location
Table 1: Industry classification in Rwanda
Table 1 above shows examples of industries under different classifications.
The government of the republic of Rwanda has embarked on massive infrastructure development, in particular, roads and industry as seen by the allocation of gazetted lands to industrial development in Masoro. This increased industrial development in Rwanda is the major engine to economic growth and development as well as improving the standards of living of people through job creation and good quality output.
10.1.2 Advantages of industrial development
Development of industry is important in the following ways:
• Industry enhances faster rates of economic growth; this is because industrial output is produced all year round since industry is not affected by vagaries of nature. So it can be relied upon for development.
• Prices of industrial products tend to be stable for a long period. This price stability is a sign of development.
• Industry 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.
• Industry 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, the industrial sector fetches therefore, more money for the economy both locally and internationally.
• Industry raises government tax revenue. The industrial firms, labor, and output are all taxed to increase tax revenue.
• Industry facilitates infrastructural growth; it 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 set them up themselves. This develops the economy.
• Industry provides more employment opportunities to all nationals; the different linkages created by the industrial sector employ almost all nationals i.e. educated, semi skilled, and the unskilled.
• Industry 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 the nation so development.
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 but also to the economy at large.
• Industry 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, thus worsening their welfare and delaying development.
• Industry 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 up in urban centers.
• Industry 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 negatively affects the country’s development.
• Industry 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 of industrialization and high rates of unemployment.
• Industry strains the government budget: Expensive infrastructure must be set up for industry to develop, this sometimes necessitates borrowing which increases the indebtedness of the country.
• Industry leads to environmental degradation: Sometimes swamps are reclaimed, forests cut down to give room to industrial growth. This affects the economy negatively.
10.1.4 Problems faced by the industrial sector in developing nations
The industrial sector faces many challenges as discussed below:
• Difficulty in disposing off industrial waste: The environment laws normally prohibit industrialists from polluting the environment; they find a challenge of where to divert the fumes or pour solid waste.
• A narrow supply of quality raw materials: Most industries in developing countries are agro-based, underdeveloped, and produce poor quality output. This gives rise to poor quality industrial output whose marketability is hard. It sometimes necessitates importing raw materials that makes output too expensive failing 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 the price 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 to industrialists 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 even purchase more efficient and advanced machines.
• Heavy taxes levied by government: Governments of developing countries tend to tax industries heavily, this increases their costs of production 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 economies of 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. Developing countries are politically insecure.
• A small size of the market: People in developing countries are poor, they can not afford the prices of quality industrial output. This forces industrialists 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 if not exported.
10.2 Industrial Development Approaches
10.2.1 Capital intensive technology
Activity 2
Using the photos, A and B below, discuss the following questions:
(i) Describe the ratio of people to machines in the photos below.
(ii) Using the knowledge attained from question (i) above, explain the meaning of capital intensive technique of production.
(iii) Examine the advantages and disadvantages of using the technique below during production process.
Facts
Meaning A technique is any alternative method of production available to produce goods and services. The choice of the technique depends 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.
Capital intensive technique is technique that uses more proportion of machines than other factors of production like labor. It can also be called labor saving technique. Capital-intensive production represents the proportion of capital (machinery, equipment, inventories) relative to labor, measured by the capital–labor ratio. Under this technique of production, there are many machines compared to the number of people, i.e. the capital- labor ratio is very high.
Figure 3 above shows that there is an increase in use of capital from C to C1, and this led to an increase in output from Q to Q1, while the labor units remain few and constant at L.
Advantages of capital intensive technique
Capital intensive technique is important towards the development of the nation because of the following reasons:
• Production of better quality commodities: This is because there are more machines used that can produce better goods.
• Reduces the cost of supervision: This is because machines are more than the people thus no need for a lot of supervision.
• The technique encourages and promotes better and efficient methods and inputs that can lead to high output.
• It promotes proper utilization of resources. The machines tend to produce more hence reduce tendencies of excess capacity.
• It encourages technology transfer from developed nations to developing nations and this leads to technology development in the recipient countries.
• It is relatively cheap since it does not associate with capital outlay like housing, medical care etc.
• It reduces industrial strike cases because it uses more machines than labor.
• It increases labor mobility from one place to another to acquire job opportunities.
Disadvantages of capital intensive technique
Despite the advantages, the technique also has its own demerits as shown below:
• The technique leads to technological unemployment: This is because more proportions of machines are used in relation to the labor.
• It is expensive to install and maintain. The machines that are employed are expensive to install and maintain.
• The technique requires skilled manpower which is scarce in low developing countries. This calls for acquisition of imported labor which may lead to profit repatriation.
• There is promotion of capital outflow when buying the machines and repairs.The machines have their repairs bought from outside countries and thus continuous outflow.
• The balance of payment position is worsened when acquiring the machines since they are expensive.
• Income inequality is promoted because of technological unemployment when people are replaced with machines.
• The technique leads to high social costs like wastes/fumes from the machines which may be harmful to the environment and to the people.
• High rates of resource exhaustion: This is because the machines tend to produce a lot since there is no human judgment.
• Dependence on other countries for machines and expatriates may limit the country to be self-reliant.
Limitations of capital intensive technique
Activity 3
Referring to the diagram in figure 3 of this unit, discuss reasons the above technique is not common in your home areas.
Facts
The development and use of capital intensive technique of production faces a number of obstacles some of which are discussed below:
• Inadequate capital by the people limits them to acquire the machines hence they resort to labor intensive technique.
• High tax charged on the importation of the machines makes people to shun away from them and they retain labor.
• Inadequate market both internal and external discourages people to use the capital intensive technique since the excess supply will not have market.
• Inadequate raw materials lead to constant importation creating constant balance of payment problems.
• High operation costs due to large scale production affects the operations of the business and it may result into increase in prices.
• Underdeveloped infrastructure like roads limit the movement of the machines and it may affect the development of the technique of production.
• The system requires developed technology which is still lacking in developing countries. Technology is still intermediate low and cannot produce large quantities.
10.2.2 Labor intensive technique
Activity 4
Using the photos in figure 4 below, discuss the following questions:
(i) Explain the major difference between the photo A and B below.
(ii) Using the knowledge attained from question (i) above, explain the meaning of labor intensive technique of production.
(iii) What are the advantages and disadvantages of using the technique during production process?
Facts
Meaning of labor intensive technique
Labor intensive technique is that technique of production that uses more proportion of labor than other factors of production like machines. It is sometimes called capital saving or one-pound technique. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business. Labor costs are considered variable, while capital costs are considered fixed. This gives labor-intensive industries an advantage in controlling expenses during market downturns by controlling the size of the employee base.
Figure 5 above shows that there is an increase in use of labor units from L to L1, and this led to an increase in output from Q to Q1, while the capital units remain few and constant at c.
Advantages of labor intensive technique
Using a large proportion of labor compared to machines is important to the society and economy at large as discussed below:
• Labor intensive is cheap and easily afforded since it uses mostly labor which is cheaper compared to machines.
• It is a source of employment thus reduces the unemployment problem in the country.
• The technique helps in income distribution since the number of the unemployed is low. This technique employs more labor.
• It requires little/ limited skills. The technique may not need complicated skills compared to the capital intensive technique.
• Reduction in social costs such as pollution. The technique does not involve extrusion of fumes on land, water and atmosphere hence it does not degrade the environment.
• Increased employment increases aggregate demand and investment.
• The technique is needed most in agriculture where human judgment is paramount. Some decisions in agriculture cannot be done by machines hence labor is the best option.
• This technique helps to control over-exploitation of resources. Production can be controlled when using labor by not using the areas that have been used.
• No need to import expatriates since the technique can be operated by the available labor.
Disadvantages of labor intensive technique
Despite the benefits of using more workers than machines, the technique suffers a number of disadvantages.
• There is low productivity compared to capital intensive technique. This is because the labour cannot do the work as quick as the machines.
• The technique is costly in the long run in terms of feeding, med-care among others and this increases the cost of production compared to when machines are used
• There is production of low quality output because of the low skills possessed by the workers.
• Under utilization of resources is common since the labor cannot cover big areas during the production process.
• It does not encourage technology development because it uses more labor compared to machines. This further leads to under development.
• Labor unrest and strikes are common when using this method and this leads to production stopping for some time hence no output and earnings.
• It is hard to standardize output using the technique. Labor may not be able to produce good standard output because it may not have a standard measure.
Limitations of labor intensive technique
Activity 5
Referring to the diagram in figure 5 of this unit, discuss reasons why you do think the labor intensive technique is not commonly used in your home areas.
Facts
Despite it having to use more labor than machines, the labor intensive technique has faced numerous obstacles as seen below:
• Inadequate labor due to rural urban migration leaves the industries with no option but to use 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 in the market.
• Increase in demand calls for increased supply which can only be done by capital intensive techniques.
• Specialization requires more use of machines since it requires use of expansive land or covers wide industrial areas.
• Production where human judgment is not needed can be easily done by machines compared to labor when the major aim is to maximize output.
• In the long run, it may be costly with the expenditures on medication, housing allowances among others.
• Government policy of standardization may not be put into consideration by labor intensive techniques but rather capital intensive techniques.
Measures taken by the government to achieve industrial development
Industrial development is essential for economic growth since it plays a big role in the growth of the agriculture sector. These act as sister sectors where one provides equipment while the other raw materials. Below are some measures that can be undertaken to achieve industrial development:
• Liberalization: This involves removing barriers to participating in trade encouraging investors from within and outside the country.
• Reducing procedures that a person follows to open up businesses. This has made the country one of the easiest to invest south of the Sahara and its attracting many investors.
• Investments have been taken by the government itself by the investment authority hence industrializing the country.
• Re-organization of medium and local small industries into small associations that can act as linkages and expand output.
• Participation fully in regional organizations like EAC has helped the country acquire market and this has increased production and investment.
• Land allocation for industrial estates has enabled the investors to have access for construction.
• Man power training programmers have started in different institutions to train technicians, engineers among others all aimed at providing the skilled personnel needed.
• Credit institutions have been put in place to avail credit to people willing to put up small and medium industries.
• Rehabilitation and construction of major infrastructure in conjunction with communication lines has been done aiming at improving movement and communication.
• Political stability has been undertaken and this has created confidence in the minds of the investors hence increased investments in the different parts of the country.
10.2.3 Intermediate technology
Activity 6
Using the photos in figure 6 of this unit, discuss the following questions:
1. Describe the activities taking place in the photos A and B.
2. The type of technology used by the women is
(a) Modern
(b) Traditional
(c) Between modern and traditional
(d) none of the above.
3. Using the knowledge attained from question (2) above, explain the meaning of intermediate technology.
4. What are the advantages and disadvantages of using intermediate technology?
5. Explain the limitations of using the technology.
Facts
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 locally available 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 to development and requires four conditions for its success.
1. Workplaces should be created in areas where the majority of the people live.
2. Workplaces should be cheap so that they can be created in large numbers with little capital.
3. Methods of production should be fairly simple, requiring low skills and suitable for maintenance and repair at the workplace.
4. Production should depend basically on local materials for local use.
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.
Advantages of intermediate technology
Technology that is neither too developed nor too backward has the following advantages:
• The technology used is better than the rudimentary tools. This leads to increased output and hence economic growth.
• It promotes development of skills of the people since it is mid way the developed and primitive methods.
• There is efficient utilization of resources in an economy since it may not under utilize or over utilize the resources.
• There is increased labor productivity because it uses tools advanced than the traditional ones. In this case, labor is able to exercise it’s skills
• It widens the tax base due to increased output which is produced and increases the revenue of the producers.
• More employment opportunities are provided since the technology used is not so advanced and it calls for more use of the idle labor.
• The method saves foreign exchange which would have been used to acquire the modern technology. This also reduces capital outflow.
• The technology encourages rural development. This is because it can be applicable everywhere either urban or rural. Disadvantages of intermediate technology Despite being advantageous, it also has disadvantages as seen below:
• Under-utilization of resources: This is because the technology used may not fully exploit the available resources.
• The system slows down economic growth since the output is low, it may not enable growth to move together with development.
• Starvation may arise when the output produced is not able to satisfy the desires of the society.
• Low quality output is produced and this may not fetch enough foreign exchange for the country.
• It may stagnate the country from acquiring the modern technology by concentrating on the intermediate technology that may be inefficient.
• Development of large scale industries may be at a slow rate because of the intermediate technology which is suitable for small scale industries.
• The technology may create uncertainty in the production process because of the constant break down due to obsoleteness. Limitations of intermediate technology The development of intermediate technology is hindered by the following reasons:
• The need to improve output by producers has enabled them to go for the modern technology instead of developing the intermediate one.
• The issue of standardization calls for technology that can produce good quality output that is able to compete at the world market.
• External foreign influence which brings in the developed technology hinders the development of the intermediate technology in our society.
• Government influence:The government is not doing enough to develop intermediate technology instead its interested in modern technology that quickens development.
• Low Level of funds: The low level of funds has hindered research into techniques that are developed from primitive to semi-modern in the economy.
• Low Level of skills and education: Low education levels and skills have hindered innovation and invention of methods into medium term technology.
• Low Level of innovation and inventions: The low level of innovation has retarded the growth of the technology from the primitive one to the one that is semi developed.
10.2.4 Appropriate technology
Activity 7
Use the library or internet to research on the following:
(i) What is appropriate technology?
(ii) Describe the characteristics of appropriate technology.
(iii) Explain the advantages and limitations of using appropriate technology.
Facts
Meaning of appropriate technology
Appropriate technology is the type of technology which is socially and economically suitable for a given society or country. Appropriate Technology is technology tailored to fit the psychosocial and biophysical context prevailing in a particular location and period.
The appropriate technology for an area depends on its resources and markets. It is an amalgamation of skills, methods of techniques, appliances and equipment that can contribute towards solving the basic socio-economic problems of a particular society. Appropriate technology should not be static but dynamic, changing with the time.
Appropriate technology is the technology that fits the conditions of the society.
Characteristics of appropriate technology
• It should be simple and comparatively cheap.
• It should be manageable by the majority of the people.
• It should make use of local resources.
• It should meet the local needs.
• It should solve the local problems of the country. For instance, it must create employment opportunities; it must solve the problem of income inequality; and it must generate economic growth.
• It should encourage capital formation and stimulate growth.
• It should be ecologically sound and in complete harmony and conformity with local environment.
• It should improve efficiency and productivity.
Advantages of appropriate technology
• It’s simple and comparatively cheap compared to intermediate and modern technology and this makes it affordable.
• This technology is manageable by the majority of the people and therefore the people have access to it during the production process.
• It makes use of local resources and therefore reduces importation of raw materials that may lead to foreign exchange outflow.
• It meets the local needs of the people and therefore it is sufficient for them
• It solves the local problems of the country. For instance, it creates employment opportunities; it solves the problem of income inequality; and it must generate economic growth.
• The technology encourages capital formation and stimulates growth through increased production and output.
• It is ecologically sound and in complete harmony and conformity with local environment and this enables it not to over exploit the resources.
Disadvantages of appropriate technology
• If the technology suitable is expensive, it may require large sums of capital which is not readily available in developing countries.
• Low Level of skills and education may not be able to use the modern suitable technology.
• Modern technology requires high levels of innovation and inventions which is lacking in low developing countries.
• It is sometimes difficult to get due to inadequate technology.
• Sometimes the suitable technology may be outdated and thus may produce little output for the economy. Limitations of appropriate technology The limitations of appropriate technology development are:
• Low Level of funds: The low level of funds has hindered research into techniques that suit the economy.
• Low Level of skills and education: Low education levels and skills have hindered innovation and invention of methods that suit the economy.
• Low Level of innovation and inventions: The low level of innovation has retarded the growth of the technology from the primitive one to the one appropriate.
• External foreign influence brings in the complicated technology that hinders the development of the one appropriate to our society.
• Government influence: The government is not doing enough to develop appropriate technology instead its interested in modern technology that quickens development.
• Natural factors: These include relief, soils among others and they hinder the movement of the machines to respective areas of production.
• Low Level of entrepreneurship: This is low and hence it has not helped in taking up the risks in technological development.
10.2.5 Technological transfer
Activity 8
“Technology transfer has done more harm than good towards development of low developing countries slow growth’’. Analyze this statement and share your views.
Facts
Meaning of technology transfer
Technological transfer is the movement/ shifting of new efficient production techniques from one economy to another mainly from developed economies to developing economies/countries. It can also be defined as the process of transferring skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities from one place or country to another mainly from developed country to developing countries.
Advantages of technology transfer
Technology transfer like industrial growth, is so important to the economy. When the country acquires modern technology it is able to develop faster through increase in quality and quantity. Alongside this, there are many advantages of technology transfer as seen below:
• Technology transfer helps in overcoming backwardness. The transfer of technology from MDCs to LDCs introduces advanced techniques of production, better machines, better products, better organizational and managerial skills as well as skilled personnel.
• It accelerates the rate of economic growth in LDCs. This will consequently reduce poverty, income inequalities and unemployment. Generally, the standard of living will improve. A number of socioeconomic problems are solved through technology transfer.
• It increases productivity. The transfer of technology is required for increasing labor and capital productivity.
• It reduces the technology gap. This gap can be reduced through technology transfer from MDCs to LDCs. Technology from MDCs supplements the available traditional technology and helps to modify the existing technologies.
• Technology transfer develops key industries and basic infrastructure. LDCs lack basic industries and infrastructure (e.g. transport, communications, and power). The natural resources of LDCs have either remained unutilized, underutilised or miss-utilized due to lack of technology.
• Exploitation of resources involves high risks. Large capital, long gestation period and modern technology and hence a need for technology transfers.
• It makes products from LDCs more competitive. LDCs mostly export unprocessed products, raw materials and poor quality finished products. These products fetch low prices in the international market.
• It saves time and financial resources. This is because there is no need to undertake research for technology since it is already available in MDCs
Demerits of technology transfer
Despite the importance of technology transfer, it has had disadvantages it brings to the environment and economy:
• Technological dependence: Since LDCs lack skilled personnel and financial resources to undertake research for new technologies, there is technological dependence.
• High costs: MDCs prefer to sell their technologies as a package to projects. The technologies are tied to specific projects. LDCs are forced to buy such technologies along with raw materials, machines, spare parts and foreign personnel at high costs compared to those prevailing in the competitive world market.
• Retardation of the development of local entrepreneurship: Firms from MDCs often transfer new technologies to their own subsidiaries within LDCs. These subsidiaries hardly share new technologies with local firms and as a consequence, these new technologies do not enter other activities of national economies.
• Tax evasion: More than often, foreign firms request for large tax concessions from host countries in the form of tax holiday and repatriation of a large percentage of profits.
• Social tensions: There are large wage differentials between workers in the firms which have transfer technologies and workers engaged in local firms in the LDCs. These wage differentials increase income inequalities thereby causing social tensions.
• Unemployment problem is not solved: MDCs normally transfer capital-intensive technologies which have limited labor absorption capacity. Such technologies have failed to overcome the problem of unemployment in LDCs. At times, such technologies have accelerated the rate of rural-urban migration with all its consequences.
• Out-dated technology: More often than not, MDCs transfer discarded technology to LDCs. This technology though it appears cheap at the time it is being purchased; it may entail high costs in terms of frequent breakdowns and constant repairs. Consequently, LDCs are faced with heavy losses.
Limitations of technology transfer
Activity 9
Use the library or internet and research on factors that make it difficult for technology transfer.
Facts
Technology transfer is important to economies since it makes growth easier. Because of this, countries tend to demand more of it though this has faced a number of obstacles as seen below:
• Small size of domestic market: The market can hardly support the output that will be produced by the advanced technology.
• Lack of basic infrastructure i.e. transport, energy and a well developed banking system.
• Lack of skilled labor to operate the machines and technology and this will lead to use of foreign expatriates who are expensive.
• Strict foreign exchange controls.
• Political and economic instability: The economic instability affects the use of machines since the output may not have market. Political instability may on the other hand distort the installations of the technology.
• Heavy taxes like the heavy custom duties limit the importers of the technology.
• Some of the technology may not be appropriate and could not use the available resources hence may not be of importance.
• Opposition by the government sometimes may affect the process. This is because the government may desire to develop the local technology.
• Conservatism of the people who may not be in position to absorb and take on the new technology.
10.2.6 Technology development
Activity 10
Using the library or internet, research on the following:
(i) What is the meaning of technology development?
(ii) Explain the advantages and disadvantages of technology development.
(iii) What problems have hindered the development of technology in Rwanda?
Facts
Meaning of technology development
Technology development refers to the process of introducing and initiating new technology through improving the local/indigenous production techniques. The purpose is for high output and good standards. Developing countries have had their own technology that has been used in the previous decades. With the economies developing through different stages and the increased competition and need for prosperity, countries have had to change their way of life through making an improvement on the techniques of production. With economic integration and international trade, there is need to increase output so as to serve the ever growing market. Countries have had to shift from local to modern technology.
Advantages of technology development
When a country wants to develop, it has to develop its technology so as to quicken work. This is very important because of the following reasons:
• The capital stock in LDCs is very small and their rate of capital formation is very low. The savings are so low that they cannot generate any noticeable capital accumulation. Thus the development of technology helps to reduce capital deficiency.
• Development of infrastructure: LDCs have low developed infrastructures, yet they are necessary for economic development. Since infrastructural development requires large capital investment, such countries are unable to undertake them without technology.
• Technology development helps LDCs in the development of basic and key industries by themselves. It is through foreign capital that LDCs can establish steel, heavy electrical and chemical plants. Thus, technology helps in industrializing the economy.
• Initiation of risky ventures: Private entrepreneurs in LDCs are reluctant to undertake risky ventures, like the exploitation of untapped natural resources. Thus, technology development opens up inaccessible areas, taps new resources, and helps remove regional imbalance.
• Technology development tends to increase employment opportunities. This is generally true in the urban areas. On the other hand, it leads to rural-urban migration.
• Technology development tends to raise the levels of national productivity, income and employment which, in turn, leads to higher real wages for labor; lower prices for consumers and a rise in their standard of living.
• Technology development helps to overcome the balance of payment problem experienced in LDCs. This is true in the long-run when the productivity increases.
Disadvantages of technology development
Though important, its development has had a negative effect to both society and economy as given below:
• High social costs like pollution from the machines and this leads to environmental degradation that may be harmful to the people.
• High rates of resource exhaustion: This is because the machines tend to produce a lot since there is no human judgment.
• Promotes dependence on other countries for machines and expatriates and this may limit the country from being self-reliant.
• Promotes capital outflow when buying the machines and repairs. The machines have their repairs bought from outside countries and thus continuous outflow.
• Worsens the balance of payment position when acquiring the machines since they are expensive.
• Promotes income inequality because it creates technological unemployment when people are replaced with machines.
• Leads to technological unemployment: This is because more proportions of machines are used in relation to the labor.
• Expensive to install and maintain: The machines that are employed are 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 labor which may lead to profit repatriation.
Limitations of technology development
The development of technology in developing countries Rwanda inclusive has faced many challenge as shown below:
• Inadequate entrepreneurship skills to develop and maintain the technology is still a major obstacle.
• Inadequate capital by the people limits them from acquiring machines hence they resort to labor intensive technique.
• High tax charged on the importation of the machines makes people shun away from them and they retain the labor.
• Inadequate market both internal and external discourages people from embracing technology development since the excess supply will not have the market to use it.
• Inadequate raw materials leads to constant importation creating constant balance of payment problems.
• High operation costs due to large scale production. This affects the operations of the business and it may result into increase in prices.
• Underdeveloped infrastructure like roads limit the movement of the machines which may affect development of technology.
10.2.7 Small scale industries (SSI)
Activity 11
Basing on the photos below, discuss the following questions:
(i) On what scale are the activities showed below done?
(ii) ………………. scale industries are shown below.
(iii) Explain the characteristics of such industries.
Facts
Meaning of small scale industries There is no universal definition of a small-scale industry and thus the term varies from country to country. The size of an industrial unit may be defined in terms of one of a combination of variables — number of employees; capital used (installed capital); level of output (value added); and energy used.
These industries normally operate on a small scale and have small operating areas though standard is their main objective. They normally operate with little start-up capital and basically are owned by single personnel. Typical examples of these industries include; maize milling industries, bakeries, coffee processing plants among others. They have the following characteristics:
Characteristics of small scale industries
• Employ few workers since they are labor intensive.
• Normally produce low quantity output.
• Technology used is not so much developed.
• Low quality is produced due to low technology used.
• Startup capital is always low.
• Occupy small working areas.
• They are run by their owners.
Advantages of small scale industries
Activity 12
“Small scale industries are the way forward for Rwanda’s development.” Analyze the above statement.
Facts Small scale industries are a basis to growth in developing countries since they act as stepping stones to the development of the larger ones. They need small capital to start and technology not so sophisticated like that of large scale industries. Related to the above, they play more roles some of which are listed below:• Small scale industries can easily tap local skills and savings especially in rural areas. These savings can be used to finance further development.
• Small scale industries are easy and cheap to develop and finance as opposed to the large scale industries. Small scale industries require less capital, energy and skilled labor. Their import requirements are usually small thus serving to minimize on foreign exchange outflow.
• They facilitate decentralization and diversification of economic activities and stimulate integration of different sectors of the economy. They have both forward and backward linkages.
• Small scale industries can be widely spread throughout the country thus taking jobs to the people and halt rural-urban migration. They provide an alternative employment to people who may not be gainfully employed in agriculture.
• Small scale industries usually offer means of livelihood to weaker sections of the community like women and the handicapped. They produce relatively cheap products within the means of the people.
• The size of the market is small since the majority of the people are poor. The small market can only support small scale industries.
• Small-scale industries provide employment opportunities and so they are likely to solve the problem of unemployment that LDCs are experiencing.
• Small scale industries are more likely to promote a more equal distribution of income than large scale industries. This is mainly because they can be set up in large numbers and many people will be employed.
Disadvantages of small scale industries
Despite the advantages given above, small scale industries too have demerits which have hindered their faster development. These are given below:
• Low output is produced since the industries are working on a small scale compared to the large scale industries.
• Wasteful competition leads to duplication of goods and services and wastage of resources.
• They lead to public revenue instabilities since production cannot be relied upon and also high rate of tax avoidance and evasion.
• They operate at excess capacity due to the small units of capital they possess and this may create shortage at the market.
• They don’t enjoy economies of scale thus continue operating at high costs hence increasing the prices so as to cover the costs of production.
• They produce low quality output since most of the times the technology used is low.
• They create disguised unemployment since most of the times the industries are small and may under utilize the services of labor by offering work that may not suit their capacities
• Small-scale industries lead to slow development since they lead use poor or low skills of labor and also technology transfer is low.
Limitations of small scale industries
Small-scale industries with their important role in development are not free of handicaps. They face a number of limitations as discussed below:
• There is lack of entrepreneurial ability: Entrepreneurship is a critical factor in any industrial development. In Rwanda, like in many LDCs, there is lack of entrepreneurship. This is partly due to the education system which is basically theoretical.
• Lack of infrastructure: Inadequate transport and energy facilities. This has led to lack of proper industrial premises.
• Inadequate or lack of foreign exchange to import equipment, spares and raw materials.
• Lack of effective demand: Locally produced products have limited demand because they are generally of poor quality.
• Lack of credit facilities due to collateral required by banks to enable them secure loans.
• They don’t enjoy economies of scale due to the little capital they start with.
• Unstable supply of raw materials since they mostly use agricultural products which fluctuate constantly.
• Inadequate spare parts to repair the machines and this make them to operate at excess capacity.
• Lack of serious positive attitude towards local industries. Investments in houses, trade, shops, farms etc. are preferred to real industrial investments. There is need for politicization of investors about the need to develop the industrial sector as a matter of economic strategy.
10.2.8 Large scale industries
Activity 13
Basing on the photos A and B in figure 8 below, answer the following questions:
(i) On what scale are the activities of industries showed below done?
(ii) ……… scale industries are shown below.
(iii) Discuss the characteristics of such industries.
Facts
Meaning of large scale industries Large scale industries are industries that operate on large scale and have large capital.They can also be defined as those factories that combine at least three characteristics i.e. use of machinery, employment of wage labor and application of regulatory measures like “factory act or disputes act”. Normally these industries occupy a large area and employ a large number of people. Examples in Rwanda include; Inyange industries, Sulfo industries, Nyirangalama industries, Utexrwa, Cimerwa among others. They have the following characteristics:
Characteristics of large scale industries
• They have large capital equipment in form of machinery.
• They operate on large areas.
• Output produced is high.
• Good quality is produced.
• They employ large number of workers i.e. both skilled and unskilled.
• They have large turn over at the end of the year.
• They produce both for local and foreign market.
Advantages of large scale industries
Activity 14
“Large scale industries have only played a positive part towards Rwanda’s development” analyse this statement.
Facts
These large scale industries contribute more to the economy through high revenues, employment and infrastructure development. Their importance can not be ignored as given below:
• Infrastructure development: Infrastructure like buildings and roads among others develop where these industries operate and this leads to the development of the area.
• Creates employment opportunities: This is because the industries are large and require large number of workers to operate the machines as well as doing the casual work.
• Revenue to the government: The industries plus the people working in them are taxed by the government. This increases government revenue needed for development.
• Earning foreign exchange to the country: Some of them produce goods for export hence they are able to earn foreign exchange to the country.
• Technology development: Due to the size and the need to produce large output, the industries tend to develop technology to use. In so doing, it reduces technology dependence.
• They produce a variety for the local people. The industries produce a variety of consumer goods that people need.
• They produce goods that were formerly imported thus save the scarce foreign exchange form the country.
• They produce good quality that helps in uplifting the standard of living of the people and still good quality goods are able to fetch high profits when exported to other countries
• They provide market for the local resources as raw materials. Most of the industries are agro-based hence provide market for agriculture commodities.
• Their existence lead to development of other industries through linkages like the sugar industry may lead to development of the sweet industry.
Disadvantages of large scale industries
Despite their numerous advantages, large scale industries have had different disadvantages that have affected the economy. These are given below.
• They are mostly owned by foreign companies hence profit repatriation and this leaves the country with little earnings.
• There is technological unemployment since they tend to become capital intensive as opposed to labor intensive technology.
• Pollution and environmental degradation occurs since they operate large machines which pollute the environment.
• They require lots of capital to start which may result into constant borrowing and debts that may affect the country during times of development..
• Dis-economies of scale due to over expansion creates increase in the costs of production which in turn may raise the prices.
• Over exploitation of resources may come up leading to resource exhaustion and need to import raw materials.
• Concentration in urban centers leading to rural urban migration with its associated problems like prostitution, slum development among others.
• There is wastage of resources especially when the large output fail to find market.
• They tend to out compete small scale industries leading to their closure and hence they tend to become monopolies which in turn exploits the people through charging high prices.
Limitations of large scale industries
Activity 15
Use the library or internet to research about the factors that limit development of large scale industries in LDCs.
Facts
Large scale industries are important as discussed above and their development is essential to the economy. Despite their importance and the government’s quest to develop them, there has been a variety of obstacles as highlighted below:
• Heavy taxes levied by government: Governments of developing countries tend to tax industries heavily, this increases their costs of production which may lead to failure and closure of the industrial plant.
• Competition from abroad: Industrial products from LDCs are normally outcompeted by those from developed nations which are of good quality and low priced because such firms are already enjoying the economies of 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. Developing countries are politically insecure.
• A small size of the market: People in developing countries are poor, they can not afford the prices of quality industrial output. This forces industrialists to produce in excess capacity.
• 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 the price 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 to industrialists 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 even purchase more efficient and advanced machines.
• Difficulty in disposing off industrial waste: The environment laws normally prohibit industrialists from polluting the environment; they find a challenge 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, they 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 makes output too expensive and fails to compete on the world market.
10.2.9 Import substitution industrial strategy
Activity 16
Basing on the photos A and B in figure 9 of this unit, discuss the following questions:
(i) Mention the activities done in the photos A and B.
(ii) Why do you think that the products showed in the photos are now made in Rwanda?
(iii) Basing on the knowledge acquired, explain the meaning of import substitution industries and give other examples of industries related to the activity below.
Facts
Meaning of import substitution industries
Import substitution strategy is a strategy undertaken by countries to produce goods that were formerly imported so as to reduce the outflow of forex. It can also be called inward looking industrial strategy because it discourages imports and enables the country become self-reliant. This calls for high standard goods to be produced. It is an inward looking strategy that aims at producing what the nation does not have but has a high demand.
Arguments in favor of the strategy
Activity 17
“The government of Rwanda should embark on import substitution strategy for further development” analyze the above statement.
Facts
Import substitution is important to the economy because of the following reasons:
• Infant industries are encouraged to grow since there will no importation from outside and this leads to industrialization of the nation.
• Employment is created especially when the industries use labor intensive technique of production.
• Economic dependence is reduced because industries produce commodities which were once imported.
• Imported inflation is checked because the country is now able to produce its own goods and no need to import from other countries.
• Tax base of the country is widened since the industries can be taxed and the people also contribute to the revenue of the country.
• Resource utilization is improved since the industries will need the resources like land, raw materials among others.
• Facilitates industrial development in the country since many industries will be set up.
• Infrastructure like roads and communication lines will be set up to aid communication and movement of goods and services.
• Economic growth comes up because of the persistent increase in the volume of goods and services.
Arguments against import substitution strategy
Despite its importance, the strategy has its weaknesses as shown below:
• Profit repatriation because most of the industries are owned by foreigners so they take back the profits to their mother countries.
• Most industries set up use capital intensive techniques and this leads to technological unemployment.
• The strategy encourages protectionism of the small industries but this leads to inefficiency and poor quality goods.
• Most industries set up produce at very high cost because of shortage of man power, importation of raw materials and this leads to increase in the prices.
• The domestic market may not be enough because the industries produce high rates of output and this leads to price fluctuation.
• The strategy worsens the BOP position of the country because it requires importation of equipment and skilled man power.
• Because of protectionism, the foreign countries may also retaliate by imposing similar tariffs and this will lead to lack of market.
• Over exploitation of resources occurs because of the increased number of industries and this may lead to resource exhaustion.
• The strategy promotes borrowing and dependence because developing countries lack the capital required and this will lead to increased debt burden.
Limitations of import substitution strategy
Since the strategy requires massive investment in infrastructure, it faces the following challenges:
• LDCs have inadequate raw materials to sustain the industries hence they depend on imported raw materials which are expensive.
• Shortage of skilled manpower to work in the industries which leads to using of expensive foreign labor.
• Limited domestic market because of poverty among the people and the high rates of protectionism by the developed countries limits the foreign market.
• Underdeveloped infrastructure like roads limit the transportation of goods to the markets.
• Most LDCs depended on imported capital which results into high maintenance costs because the manpower to carry out the repair is got from outside.
• There is shortage of credit facilities in LDCs from financial institutions to purchase capital equipment.
• Inadequate entrepreneur skills forces LDCs to use foreign labor which is expensive.
• Unfavourable government policies especially over taxing the investors discourage them.
• Political instabilities bring about uncertainties and destruction of the industries already in place.
• High cost unreliable power in LDCs increases the cost of production leading to high prices for the goods and low markets.
10.2.10: Export promotion industrial strategy
Activity 18
Basing on the photos below, discuss the following questions:
(i) What types of commodities are dealt in the photos A and B below and what is the major purpose?
(ii) Basing on the knowledge acquired, explain the meaning of export promotion industries and give other examples of industries related to the activities below.
Facts
Meaning of export promotion strategy Export promotion strategy is a strategy undertaken by the government to set up industries that produce standard goods and services for export so as to increase foreign exchange. It is an outward looking strategy that aims at meeting the international standard of output and aims at producing output that is internationally demanded.
The strategy is credited for having led to the development of the four Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) and so can ably help developing countries to prosper.
Argument in favor of export promotion strategy
Activity 19
“The government of Rwanda should embark on export promotion strategy for further development.” Analyze this statement.
Facts
Export promotion is important to the economy because of the reasons given below:
• The strategy increases supply of foreign exchange from exports and improves upon the country’s balance of payment position.
• It generates more employment opportunities especially when the industries set up use labor intensive techniques of production.
• It encourages resource exploitation and utilization, such as land and raw materials which are put to full use when industries are set up.
• It widens the tax base of the country since the industries are taxed.
• The strategy creates markets for other sectors because of the many industries creating linkages among themselves e.g. agriculture and industry for raw materials.
• Economic growth will be achieved because of the increased volume of out put.
• There is promotion of the manufacturing sector of the country. The establishment of such industries improves upon the manufacturing sector that is vital for a country’s development.
• The strategy encourages production of quality output. The output to be exported must meet international standards, this leads to development.
• It encourages diversification of exports, mainly because the international market is wide and needs different varieties to satisfy it.
• The strategy strengthens international relations; nations improve upon political ties with neighbors and other nations to expand their external market.
Arguments against export promotion strategy
Despite its importance, the strategy has its own weakness as discussed below:
• The strategy encourages dependency on other countries market rather than self-reliance as a target of development.
• The strategy advocates for production for the external market, it abides by the principles and rules of other nations rather than those at home. The country loses its independence to other nations.
• Shortages may arise locally since all produce is exported for trade. This delays development of the nation.
• The nation is subjected to the stiff international competition; failure to meet the international standard output fails the entire strategy and so losses to the country.
• The commodities from least developed countries are highly priced since their industries are still young and have not started enjoying economies of large scale. They may be out-competed on the international market. This causes total losses to the nation.
• The commercial policies imposed by most developed nations may prefer raw materials from developing nations rather than the manufactured commodities. This causes failure of the strategy.
• Since advertising is expensive, developing countries may fail to advertise their output on the international market; and so fail to get market.
Limitations of export promotion strategy
The strategy is very costly to implement as shown by the limitations below.
• LDCs lack enough raw materials and capital to put up the strategy.
• LDCs produce similar goods therefore the market may be difficult to get among themselves.
• The strategy promotes production for export but this may create shortage at home leading to inflation.
• Protectionism of the developed nations on goods coming from developing nations may further lead to lack of market and low earnings.
• Most of the products for export are of low quality and cannot compete at the world market thus leading to low prices and earnings.
• Political instabilities and insecurity limit the establishment of such industries in the countries.
• LDCs have underdeveloped infrastructure like roads and the banking system among others and this has hindered the development of the strategy.
• MDCs discovered synthetic fibers like nylon, silk among others. They no longer demand for a lot of natural fibers like cotton and this has reduced the arket for the local products.
Glossary
