Economics

Key unit competence: Learners will be able to analyse the contribution of development strategies on the economy.

⦿ Examine the role played by education to the development of the Rwandan economy.

⦿ Suggest the measures for promoting agriculture.

⦿ Explain the types and forms of foreign aid.

⦿ Examine why developing countries need foreign aid.

⦿ Assess the influence of foreign aid to the development of Rwandan economy.

⦿ Explain the problems of relying on foreign aid.

⦿ Describe the different forms of social economic infrastructure.

⦿ Assess the contribution of infrastructure to development of the economy.

Basing on the photos A, B, C and D in figure 1 below, answer the following questions:

1. Describe the activities taking place in the photos below

2. The activity of acquiring knowledge is known as

(a) Demand

(b) Education

(c) Requisition

(d) None of the above.

3. Analyse the similarities between your expenditure when acquiring knowledge and using the money to build a house.

Education refers to the process of acquiring worthwhile knowledge, skills and values that aid an individual to engage in development activities of his/ her country. The knowledge may be technical know how of something, facts of an event, etc. while the skills may be reading, drawing, speaking among
others. Values may be love for the environment, socialisation among others. In Rwanda, the education attained caters for both the able children and those with disabilities and it does not discriminate from any sexes.

Education is both formal and informal

Formal education; is a set of worthwhile knowledge, skills and values obtained from organised institutions, monitored by qualified personnel and following a well-made curriculum. These institutions from which it is
acquired may be schools, universities and other training institutions.

Informal education is a set of worthwhile knowledge, skills and values obtained from outside the formal set up, that is it can be got from anywhere, anyone especially an adult can be an instructor and there is no organised curriculum, anything can be taught anytime.

Education is an investment because:

• It is an accumulation of skills just like investments accumulate capital needed to carry out business.

• Education is expensive and costs money just like any other investment asset. This is usually to help in the running of the business.

• Education takes time to yield returns just like any other investment. This is normally after graduation as regards education and setting structure for investments.

• It has an opportunity cost. It involves current sacrifice to come up with results. To achieve education something has to be foregone.

Education is referred to as consumption because:

• It enables people to enjoy direct utility, elites acquire such titles as professor, doctor, engineer among others which they enjoy when addressed.

• Education enables people to enjoy a wide range of commodities like news papers, magazines which uneducated people cannot consume.

• With education, people share cultures and enjoy experiencing them. Expenditure on education and health can be regarded as an investment because of the following reasons:

• There are returns in future after studying and also the health improves.

• It involves opportunity cost i.e. foregoing something to attain education and treatment.

• It involves risks i.e. you may not gain from it when you fail to get employment.

• It is costly to acquire because it involves expenditures on fees, scholastic materials and treatment.

• It is scarce i.e. not everyone has access to it like all investments are.

• It provides satisfaction to an individual through utility maximisation.

Referring to the photos in figure 1 of this unit, discuss the following questions:

(i) How important is acquiring knowledge to you and how problematic is it to the people around you?

(ii) What problems do you think face the institutions that enable knowledge acquisition?

(iii) Advise the government of Rwanda on how to solve the above problems.

Facts

Education is important towards the development of an economy as discussed in the reasons below:

• It increases technological knowledge of labour and this can help in skill development necessary for economic development.

• Education encourages innovation and invention which may lead to development of technology in the country.

• It encourages people to acquire good standards of living. This is because the people get exposed to different ways of life.

• Education breaks cultural rigidities since people have knowledge about the outside world hence they can implement what they study about the outside world.

• It saves foreign exchange spent on expatriates since the country is able to produce its own citizens that can do the work of the expatriates.

• It reduces the subsistence sector since the educated will be in search for money therefore they will engage in commercialised agriculture.

• Education widens the tax base since it provides employment to the people after studying and still in the education sector employment opportunities are created.

• It may lead to reduction in the population growth rate since the educated are knowledgeable about the control measures and the dangers of population explosion.
Negative roles of education Despite the importance, education also has some disadvantages as shown below:

• Education may cause balance of payment problem because the educated tend to copy and buy expensive things from abroad (high rates of demonstration).

• It may cause unemployment especially theoretical education which produces job seekers than job creators.

• Education causes rural urban migration as the educated seek better opportunities in the urban centres. Excess migrations lead to open urban unemployment.

• There is social discrimination among the educated and the uneducated as the educated see themselves as superior.

• Education accelerates income inequality since the educated will acquire better paying jobs than the uneducated.

• It may lead to brain drain in search for employment opportunities abroad after failing to get employment home.

The education sector is one of the most important sectors because of the skills it impacts in the citizens. However its development is faced by many challenges as shown below:

• There is limited motivation of teachers: Teachers are under paid and this keeps their morale down hence bringing up half-baked products.

• There are limited skilled and specialised personnel at all levels. Most qualified instructors move to other sectors and even abroad where they can have better remuneration.

• There are limited teaching/learning materials, most of the subjects are theoretically taught, and this keeps the education sector backward.

• The education curriculum in developing countries is still colonial based. Most of the subjects taught and their content is no longer relevant, they train learners for white collar jobs, they make more job
seekers than job creators. This accounts for the rampant unemployment in the country.

• There is high school drop-outs especially among the females because of different reasons leads to lack of clients in the institutions.

• Poverty among the people makes them not able to send their children to school or even buy for them scholastic materials.

• There is lack of enough funds for the education sector. This leaves some areas and schools in the rural areas lack equipment to use hence hindering the development.

• Desire for quick money makes children abandon school and this hinders the countries’ major objective of education for all.

• Some parents prefer to educate boys compared to girls and this has accelerated gender inequality and income inequality among the males and females.

The need for development of the education sector necessitates the following
measures:

• Changing the curriculum from knowledge based to competence based so as to develop a child with all other values other than knowledge only.

• Promoting vocational education so as to produce students that have practical skills and can start their own businesses instead of waiting for employment, i.e. job creators rather than seekers.

• Increasing the motivation of the teachers so that they can carry out their activities genuinely and professionally.

• Cost sharing should be encouraged so as to avoid school drop-outs. Here the governments can undertake paying part of the students’ tuition and the students pay a smaller part.

• Policies for girl child have been embarked on through reducing their entry points at the higher institutions of learning and also when recruiting for secondary schools. Organisations such as Imbuto
Foundation in Rwanda has had a major impact in girl child education.

• Active participation of the private sector in the education system through taking up government educational programmes as well as setting up new schools at affordable fees structures.

• Universal primary education and secondary education has been actively emphasised and this has helped to educate the low income earners and the poor.

• Educational loans to help the students at higher levels. This is common in Rwanda under the government fees/ tuition structure where the students in the higher institutions are given educational loans and they pay back in instalments upon completion of the studies when they get jobs.

Basing on the photos A, B, C, D and E in figure 2 below, answer the
following questions:

(i) The transfer of assistance from one country to another is known as ………...

(ii) Using each photo below, explain the different forms of assistance given to developing countries.

(iii) Why do you think Rwanda needs foreign assistance?

Foreign aid is the international transfer of resources either on loan or grant
from one country to another. It can also be defined as any form of assistance
given by one country to another so as to achieve its intended objective.
Normally this assistance comes from developed countries which have
many resources and flows to developing countries. This aid can either be
economic, technical, military among others.

Features of foreign aid

• It is often tied meaning that it is given for a specific activity.

• It is associated with high interest rates.

• It is politically influenced i.e. most aid is normally got from former colonial masters.

• It is normally given in small quantities.

• It tends to be irregular etc.

• Capital which may include money and machines.

• Consumer goods like clothes, food among others that are needed in times of disaster.

• Military aid i.e. military hardware.

• Education facilities like text books.

• Grants; these are resource transfers that do not require any repayment.

• Loans; these are resource transfers which must be paid back with or without interest. There are two types of loans.

• Soft loans; these are given with a long grace period, long repayment period and a very low or no interest at all.

• Hard loan; this type of a loan attracts a high interest rate, a very short or no grace period and a very short repayment period.

• Direct foreign investment: These are resource transfers by foreign business people in form of business companies or investments.

• Man power aid: These are resource transfers to developing countries in form of high level qualified personnel like teachers, economists, technicians, doctors, researchers etc.

• Medical aid: This is extended to developing countries in form of drugs, medical research, and construction of health centres to improve upon the health of people.

• Tied aid: This is extended to the recipient country with strings attached. It is sent to serve a specified purpose and sometimes in a specified place.

• Multilateral aid: This is aid from multilateral companies and international agencies. Major multilateral donors are; USAID, UN, I.M.F, World Bank among others.

• Bilateral aid: This is a government to government aid. One country giving aid to the other, major bilateral donors are; Great Britain, U.S.A, China.

Developing countries need foreign aid because of many reasons as explained
below:

• Foreign aid increases a country’s resources and this helps it to meet its deficits especially in the national budget.

• Foreign aid helps a nation to alleviate the effects of catastrophes. Calamities like famine, landslides earth quakes and floods normally render nations helpless, foreign aid helps them regain their stand.

• Foreign aid closes the manpower gap which is prevalent in developing countries. The skilled manpower that is inadequate in LDCs alongside its need is covered by the manpower aid from developed nations.

• Foreign aid improves technology in developing countries; aid in form of machines and other equipment improves quality of output and production methods thus developing LDCs.

• Foreign aid provides employment opportunities to people in LDCS. Directly investment aid employs people of developing countries and indirectly to people who construct the investment.

• Foreign aid closes the foreign exchange gap in developing countries. Financial aid extended to LDCs is in form of foreign currencies, this increases the foreign exchange reserves in developing countries hence
developing them.

• Foreign aid strengthens international relations. Developing countries tend to keep good political ties with others to as so easily help them in times of need.

Referring to photos in figure 2 of this unit, answer the following questions:
(i) Why do you think developed countries give foreign aid?

(ii) What problems is Rwanda likely to face if it continues to rely on foreign aid?

There are many motives that encourage developed countries to give aid to
developing nations. Some of these are explained as follows:

• To get more commercial gains: Aid in form of multinational companies is profit motivated. It is sent to developing nations to earn them more profits.

• To alleviate the effects of catastrophes: Aid is sent to nations to help them out of the effects of such unprepared natural occurrences like el-ninoes, earth quakes and floods.

• To control valuable natural resources in the recipients: Donors give aid to gain full control of the valuable resources in recipient nations like gold, diamond, oil.

• To have military superiority: Military aid is given to control the military set up of all nations. Normally the knowledge to make ammunitions is not sent and recipients are given weaker ammunitions as the donor
retains the strong ones. This helps them to be military super powers.

• To dispose-off their outdated machines and obsolete technology and fashions that was not bought in time.

• To create a dumping ground for their poorly manufactured commodities and other surpluses.

• To extend political influence to the recipients. It’s a form of neo colonialism.

• In the early days it was to extend ideology to other nations, ideologies like capitalism and socialism were extended to other nations through giving them aid.

Despite the importance of foreign aid, overdependence on aid comes with
a number of repercussions as shown below:

• It worsens the debt servicing problem. Loans contracted must be paid back and on several occasions with interest, this drains the national resources thus denying nationals essentials.

• There is high balance of payment deficit. The high out flow of resources to pay back loans and service them worsens the balance of payment position of the country.

• Sometimes the technological aid given is inappropriate. It may be too underdeveloped or beyond the standards of developing countries, so it may just be wasted.

• Sometimes the pre-conditions set for foreign aid are disastrous for a country. Countries may be forced to devalue their currency, retrench workers or even accept behaviour that is considered anti social some
times e.g accepting gay practices in order to receive their aid.

• Tied foreign aid is sometimes tied to unproductive projects like digging boreholes in rural areas, financing wars. This brings difficulty in paying back since such projects do not bring monetary returns.

• The political strings tied to the aid send ruins to the country’s independence. Sometimes nations are forced to vote democratically for what they are not ready for or even change leaders.

• Foreign aid slows down initiative and hard work. Citizens of developing countries become lazy expecting to live on aid.

• Foreign aid erodes the social and cultural values of the nationals. They tend to adopt the cultures of the donor whom they normally take as their role model.

• Foreign aid distorts planning of developing countries. This is because it normally comes in bits and normally it’s not completed or even sent as promised.

• Foreign aid reduces local production as people expect to live on foreign sent goods. This retards economic growth of nations.

• Import substitution. Countries should utilise foreign aid to develop import substitution strategies rather than targeting only export oriented industries. Sectors like education, agriculture should have more
injections in form of foreign aid so as to improve their efficiency.

• Foreign aid should be used to develop skills, technology and enterprises that can help create employment and this will increase productivity and national income in the economy.

• Foreign aid should build the internal capacity and lead to self-reliance and economic development of the country so as to reduce the issues of dependency.

• Foreign aid should be used in projects that pay back such that during the times of paying back, the returns can be used. This will help to reduce the burden of paying back passed to the people through taxation.

• LDCs should always seek for aid that they can use at their will. The aid should be used to carry out projects that the countries think can be of help to them and not what the donors think would be the ideal projects.

• Part of the aid should be used to pay back the already mature debts that may have been got in the previous regimes. This will help reduce the debt burden in the long run.

• The aid should as well be used to help the people who may be languishing in poor standards of living as well as in poverty stricken areas so that the country can have wholesome development and not
partial development.

Through a whole class discussion, explain why you think donor countries are sometimes unwilling to give aid.

• The failure of some recipients to effectively use the aid extended to them. This is because some countries misuse the aid. Note: Absorptive capacity refers to the ability of the recipient country to use the aid extended to them effectively and efficiently.

• The non-democratic and inhuman records of some governments in developing countries prevent donors from financing them.

• Failure of some developing countries to honour the debt obligations contracted also scare other donors/ lenders from lending them more.

• Threats of nationalising assets owned by foreigners. Some leaders threaten to confiscate and others continue and confiscate assets built by foreigners. These scare other foreigners from investing in developing countries as an investment aid.

• Failure of developing countries to fulfil the IMF conditionalities like demobilisation of the army, currency reforms, privatisation among others. These are ignored by developing countries making donors
reluctant to give aid.

• The political climate in developing countries has not been favourable. Donors fear that the politics of developing countries can worsen anytime and they are not certain of the mode of repayment during
that state.

Basing on the photos A, B, C and D in figure 3 below, answer the following questions:

(i) ………...is the name given to physical assets that aid in the development of the country.

(ii) What examples of such physical assets seen below can be found in your home areas?

(iii) How are the assets given above in (ii) important to your area?

Infrastructure can broadly be defined as long-term physical assets that operate in economies and enable the provision of goods and services that are geared towards development of the country.

Social Infrastructure is a subset of the infrastructure sector and typically includes assets that accommodate social services. It can also be defined as a combination of basic facilities which are necessary for human development. Examples of social infrastructure assets include schools, universities,
hospitals, prisons and community housing.

Economic infrastructure on the other hand refer to internal facilities of a country that make business activity possible, such as communication,

transportation, and distribution networks, financial institutions and markets, and energy supply. It can also be defined as a combination of basic facilities which is helpful in economic development of an economy and businesses.

It can be seen that social infrastructure is very important because they lay ground for the economic infrastructure. Both of these infrastructures are complementary to each other and are necessary for the overall development of an economy.

The examples of social infrastructure in different sectors can be seen in the table following.

Economic infrastructure has played a significant role in the growth performance of countries in recent times. Where development of economic infrastructures has followed a rational, well - coordinated and harmonised path, growth and development has received a big boost.

• It provides services that are part of the consumption bundle of residents.

• Large - scale expenditures for public works increase aggregate demand and provide short- run stimulus to the economy.

• It serves as an input into private sector production, thus augmenting output and productivity.

• Education is a very important source of economic growth as the Denison study shows. Even though education may be a social investment, it is also an economic investment since it enhances the
stock of human capital.

• Health, like education, is a very important argument in the socioeconomic production function. A popular saying is that a healthy mind usually resides in a healthy body. Health is one of the major
determinants of labour productivity and efficiency.

• Investment in infrastructure is often considered as one of the most effective tools for fighting poverty.

• Access to infrastructure is essential for improving economic opportunities and decreasing inequality. For example, adequate transportation networks in developing countries could give the poor better access to schools, hospitals, and centres of commerce, which in turn would improve the education, health, and entrepreneurial opportunities that strengthen a country’s economic potential.

• Housing enables people to have peace of mind and thus also improves their standards of living and livelihoods.

• Sport facilities are used for co-curricular activities that enable one to have a disease free body. A healthy mind lives in health body, as the saying goes. These facilities improve on the life expectancy of the people.

• Prisons as part of correction centres and the justice help to educate and bring right the people who may have created offences. They also educate the prisoners and they come out changed.

• Bus stations, car parks, rides and communication centres help to connect people through transit. They aid in communication and linking of the people to other areas.

1. Acquiring knowledge and skills is fundamental in development of any human mind. How is it important to the development of the economy in Rwanda? Are there problems that have affected the
above process in Rwanda?

2. “Acquiring foreign aid in Rwanda has been more of a curse than a blessing” discuss the above assertion.

3. Explain why countries find it beneficial to give assistance to other countries than receive from them.

4. “Without infrastructure in a country like Rwanda, there is no development” support this statement.

ཀྵཀྵ Bilateral aid: A government to government aid. A country giving aid to the other. Major bilateral donors are; Great Britain, U.S.A, China.

ཀྵཀྵ Direct foreign investment: These are resource transfers by foreign business people in form of business companies or investments.

ཀྵཀྵ Education: The process of acquiring worthwhile knowledge, skills and values that aid an individual to engage in development activities of his/her country.

ཀྵཀྵ Economic infrastructure: Internal facilities of a country that make business activity possible, such as communication, transportation, and distribution networks, financial institutions and markets, and energy supply.

ཀྵཀྵ Formal education: A set of worthwhile knowledge, skills and values obtained from organised institutions, monitored by qualified personnel and following a well-made curriculum.

ཀྵཀྵ Foreign aid: An international transfer of resources either on loan or grant from one country to another.

ཀྵཀྵ Grants: Resource transfers that do not require any repayment.

ཀྵཀྵ Hard loan: A loan that attracts a high interest rate, a very short or no grace period and a very short repayment period.

ཀྵཀྵ Informal education: A set of worthwhile knowledge, skills and values obtained from outside the formal set up. Knowledge, skills and values can be got from anywhere, anyone especially an adult can be an instructor and there is no organised curriculum. Anything can be studied anytime.

ཀྵཀྵ Infrastructure: This can be broadly defined as long-term physical assets that operate in economics and enable the provision of goods and services that are geared towards development of the country.

ཀྵཀྵ Loans: These are resource transfers which must be paid back with or without interest.

ཀྵཀྵ Manpower aid: These are resource transfers to developing countries in form of high level qualified personnel like teachers, economists, technicians, doctors, researchers etc.

ཀྵཀྵ Medical aid: This is extended to developing countries in form of drugs, medical research, and construction of health centres to improve upon the health of people.

ཀྵཀྵ Multilateral aid: This is aid from multilateral companies and international agencies. Major multilateral donors are; USAID, UN, I.M.F, world bank among others.

ཀྵཀྵ Soft loans: These are given with a long grace period, long
repayment period and a very low or no interest at all.

ཀྵཀྵ Social Infrastructure: A combination of basic facilities which are necessary for human development.

ཀྵཀྵ Tied aid: Aid extended to the recipient country with strings attached. It is sent to serve a specified purse and sometimes in a specified place.

• Education and development

• Education as an investment and consumer good

• Need for education

• Role, challenges and measures of promoting education in Rwanda

• Foreign aid and development

• Meaning and types

• Role and problems of foreign aid

• Infrastructure and foreign aid

• Meaning and types

• Role of infrastructure to development