Economic Development in SENEGAL Grade 12 Economics Study Course

Overview

Politically, Senegal is one of the most stable and has a quite strong democratic institution. It gained independence from France in 1960. Geographically, Senegal is located in Western Africa and 23% of the population lives in the Dakar region, which makes up 0.3% of the country's territory. The other 40% of the population lives in other urban zones

GDP and GNI per capita of Senegal vs. Switzerland

2014-Senegal-GDP should be higher in Senegal (LDC)

  • GDP per capita: $2330
  • GNI per capita: $1040

2014-Switzerland-GNI should be higher in developed country

  • GDP per capita: $59'500
  • GNI per capita : $61'880

Economic growth

-constant economic growth rate of 6.5% in 2016. GDP per capita growth also increasing as can be seen below

This makes Senegal the second fastest growing economy in West Africa.Its primary sector is the fastest growing sector (agriculture, fishing, etc....) due to good rainfall. The service sector is also improving due to advances in transport and communications.

Main Exports and Imports:

Exports at $2.91 Billion USD
Imports at $7.53 Billion USD

Trade Balance:

Red line-imports, blue line-exports

Development

Life expectancy in 2014: 66.373

Comparing this to developed country; Switzerland

Infant mortality Rate per 1000

Comparing Levels of Development

Senegal and Cote D'Ivoire

TOTAL LITERACY RATE % of people ages 15+

Literacy compared to Cote D'Ivoire, the fastest developing economy in West Africa. Senegal is at a 50%, whereas Cote D'Ivoire has reached 68%

Health care-Comparing % Malnutrition

Malnutrition for children under 5 for Senegal is at 11%, whereas for Cote d'Ivoire, that number is at 5.8%

Health and Education indicators: Health indicators such as the number of medical doctors per 1000 (which in this case is 0.04) gives an indication of the availability of medical help and general health of the populace. A low number demonstrates the rarity and difficulty with which the population can get medical treatment. Another Education indicator such as the mean number of years in school (for men this is 3.2 and for women it is 1.4) illustrates how long on average the population spend in school, demonstrating the lack of education and training that is available to the population. Otherwise, government expenditure on Health/Education (% of GDP): 5.7%/ % GDP per student-16%)

Human Development Indicator (HDI)

What is the Human development index? And what does it measure? The HDI is a summary measure of human development. It measures health through life expectancy at birth, education through mean years of schooling and expected years of schooling and the standard of living through GNI per capita. Each section is expressed as a value between 0 and 1 and the average of all 3 dimensions is the HDI value. Senegal has a HDI of 0.466. The most significant areas of weakness are mean years of schooling and GNI per capita. The use of HDI is more useful as it takes into account several indicators rather than just one and gives a summary of development within the country that cannot be glimpsed through only 1 indicator.

Domestic factors and Economic Development

How have Education, Property Rights, technology, access to credit and Women's empowerment contributed to Development? Women's empowerment is very low in Senegal and widespread poverty , high iliteracy (at more than 40%) can be found in the country. The country's economic crisis in 1970 stimulated immigration and therefore more than 60% of population is under the age of 25. In terms of technology, 21.7% of the population has internet, leaving it in 84th place in the word. For telephones, it ranks 67th; therefore technology is still an area that needs development. Furthermore, it ranks 124th in terms of roadways, with 15000km of roads (64% remain unpaved), which could further hinder economic growth and development due to lack of accessibility as geographically most of the population are in two main cities. Property rights index is at 40, which measures the degree to which country's laws protect private property rights and how much the government enforces those laws. As Senegal aims to increase income levels, and minerals exploitation is prioritised to ensure this, there must be further attention to individual's property rights to enable agricultural production and increased productivity to allow workers on farms earn adequate income to escape poverty.

Property Rights Index - Senegal Compared to Continent

How have institutional and political factors affected economic growth and development (political stability and degree of corruption)? For corruption, Senegal has a score of 45/100 in terms of the perceived level level of public sector corruption (0 being highly corrupt) and is 64th in the rank of least to most corrupt country. In 2012, there was a peaceful handover of power and political stability seems to be on the rise, resulting in business opimism for improvements in education, employment and energy. Furthermore, terms for presidents have decreased to 5 years with maximum two consecutive years, which may further improve political stability. It is one of the most stable democracies in Africa and has a long history of participating in international peacekeeping and regional mediation. Unfortunately, this cannot be said of the degree of corruption, whereby 88% of Senegalese said corruption has worsened. Yet, this issue is at the forefront of political leaders. Therefore, hopefully this can result in better living conditions and economic growth if it improves

Senegal Corruption score improving year to year

FOR ECONOMIC FROWTH WE NEED INCREASE IN

  • Physical capital (electricity, machinery, etc...)
  • Human capital (labour, so more natural resource you can work on)--> may need to increase population of educated human capital
  • Appropriate new Tech. Development (benefit only from developing technology useful to the country's growth, e.g. increasing physical capital) not appropriate if, e.g. desert country develops new agricultural equipment
  • Institutional change (management of bureaucratic structures, government, etc...)-LDCs share characteristics such as corruption; central or otherwise, or unstable political situation so democracy unstable or in conflict within country or neighbouring countries

POVERTY CYCLE-unable to invest in economics growth and cannot get out of poverty cycle

How to get out of poverty cycle: GOVERNMENT TARGETS (could be in the form of aid)-insular/closed

  • Health
  • Education
  • Empowerment of women (can lead to decrease in population so decreased dependency/burden on the economy because of overpopulation. It also contributes to human capital as there is now a greater labour force as country increases skilled/educated labour) e.g. Bangladesh
  • Micro-finance and Credit -loans targeted (need to encourage spending-Micro-finance and credit provide people with finance/shelter/food so they can increase spending. It can encourage local people to start their own businesses (e.g. Kenya), and it can diversify industries
  • Appropriate technology (not industry) provision of technology to ensure e.g. wider access to technology for education/healthcare without having to increase human capital (e.g. laptop/ipad to see/hear a teacher/doctor). Relatively low cost for government spending.

Key challenges of international trade for LDCs (Barriers)-overspecialisation, price volatility of primary products, inability to access the market

  • Over-specialisation -dependency on one industry. If it runs out, economic growth will decrease to nothing. Can be made worse by:
  • Reliance of Primary industries-most common resources because do not require a lot of infrastructure/capital/skill. Price elasticity of supply-Inelastic (land is fixed, reliant on weather, etc...). If someone else enters market, significant impact on price as supply increases, price decreases (highly price volatile). Hard to compete, to differentiate. Do not have resources/equipment to refine products so cannot differentiate their products.
  • Trade Barriers-physical lack of access to trade-e.g steel in the saharan desert with neighbouring countries in conflict with you-physical lack of access to trade (cannot ship).
  • Free trade increasing -trade deals often not beneficial to LDCs. Often LDCs bullied into free trade, which is disadvantageous to sunrise industries

Possible Solutions:

  1. Import substitution: process of supporting industries that they are importing a lot-industries that would be cheaper to produce than to import them e.g. cambodia imports rice but actually has a lot of rice fields and 2.5 times rainwater to grow the rice, as well as the labour force. They do not because gov. does not put resources into putting them to use.
  2. Export promotion: e.g. subsidizing export industries that will export a lot, encouraging local consumption of goods (this can lead to expansion opportunities outside of the country),
  3. Trade liberalisation: gives access to wider range of resources/markets. Often problems of LDCs: lack of labour laws, their output can be cheap, and other countries don't like that so put up trade barrier against that, which disadvantages LDC. Where they can sell more cheaply, they will
  4. diversification: Helped by Import substitution programs. Willing to redistribute successful funds to create new industries. Does have cost. Hard if you have corrupt institution, as they are likely making money from those industries and do not diversify from that industry. It could temporarily slow growth/output. Need different skill sets
  5. bilateral and regional preferential trade agreements: establishing them. Not free trade but can help both countries. Useful for regional trade agreements, could start sharing resources. Creation allows them to start in the the market door with neighbouring countries

Describe FDI and MNC: foreign direct investment (foreign individual/organisation mobilises operation to a different country; not shares). Multinational corporations-any business that operates in more than 2 countries

Why might MNCs move to LDCs?

  • cost
  • locality-access to other markets, other resources, physical space, geographically better
  • independence/control-over its operations. Removed from government control (less regulations)

What characteristics of LDCs attract MNCs?

  • low cost of labour (supply large and skills low-will take any job and cannot negotiate. Lack of protection of labour. No minimum wage. No workplace entitlement, contractional obligations, etc...)
  • cheap resources (instability of gov. so no organised form of land regulations, so you can use any resources. Cost of setting up also cheaper. Lack of regulation, no health, safety obligations, no maintenance)
  • access to natural resources (large amounts and unprotected by gov.No regard for sustainability or environment)
  • little to no regulation (for labour, capital, land, environmental, safety, health...)
  • easy profit repatriation (easy for MNCs to come, take profit and leave, unlike in other countries where they have to keep money in country for a while or invest. Lax taxation as well. LDC GDP may increase but its GNI decreases)
  • favourable taxation (tax avoidance as well, or tax evasion where they earn in several countries but use offshore accounts so dont have to pay tax in that country)

EVALUATION of Benefits and Costs of FDI in LDC

  1. lower quality control,
  2. exploitation of workers,
  3. over-dependence,
  4. breaking down small firms,
  5. loss of sovereignty (gov. losing power of economy)

AID

  • Official Development Assistance vs. NGO: NGO-charities, international bodies that provide aid through fundraising, central micro-financing systems, no affiliation with government body. Can be small scale to specific region or community or target or much larger scale. Most aid comes from government though, international countries (OFA). Amount of money decided in international relation negotiations. Billions of dollars from taxpayers sent overseas are unfortunately not often well distributed or used. Often NGO funds have direct target, more carefully managed, whereas the OFA often just hands over with little care
  • Humanitarian Aid-one type of aid: designed to deal with emergency or critical situations. In the form of food relief, emergency shelter housing creation health aid, medication. Aid provided for the purpose of emergency relief. This is more short term, and cannot solve economic development problem.
  • Development Aid e.g. Grants, Concessional Loans, Project Aid-Assist with development, help economically in the long term. Less likely to take form of direct provision of food and medicine. More likely in form of financial support. Grant-money given without expectation of return Concessional Loan-long term with minimal interest. Acceptance that economy in development state so degree of interest will be dependent on success of economy, flexible loan system. Project Aid-money given with specific focus in a particular goal or area. E.g. making a school or reducing malaria deaths by 20%. In the form of purchasing and provision of things that will achieve goals e.g. vaccinations
  • NGOs Prioritise small Scale-whether smaller regional focus or target. Even like world health organisation
  • Tied Aid-dependency, often distributed according to popular issue (resources not used efficiently), corruption/embezzlement (funding increased corruption, there is a lot of opportunity to take from the aid), lack of infrastructure/skilled labour to make aid useful (e.g. spend on schools but no teachers), lack of knowledge about country (local problems with agriculture where this is not sustainable), who gets aid? how much aid? tedious, time-consuming, very political decision. Tied aid helps with this-force it where it needs to go, they send people and want to oversee how aid is being used. Downside-external party deciding what country needs, when they may not actually know what the country needs, could force direction for aid that is not relevant or suited to country. Could also be directly related to political motives/agenda e.g. access to resources, setting up political presence in country, etc...
  • Why would economically developed countries provide aid?-political-access to natural resources, makes one look better in front of other country. Hope that it will improve future international trade, as country could be a valuable market. Also cultural influence in country. Increasing economic ability/development and increase political stability of country can improve global output and improve global trade routes. Improve geo-politics, less conflicts in region. Element of ethical obligation (especially in humanitarian aid). In this case also prevents refugees and relocation can be avoided if aid is provided

DEBT

  1. Outline the concept of foreign debt: Money owed to a source foreign (government, international gov. e.g. IMF)
  2. Explain why countries borrow from foreign sources: Don’t have access to domestic resources. Trying to balance out the fact that they end up with constant trade deficit-primarily exporting primary goods which are low value but have to import processed products which have higher value, trying to increase foreign reserves to increase those exports (have to be able to buy exports in foreign currency. problem: they have no internal growth so don’t have funds to do minimal repayment/any repayment and they enter a cycle of asking for debt (e.g. US doesn't have issue because they have so much debt but they can repay at least a bit at a time)
  3. Explain that sometimes significant debt leads to: 1. Rescheduling debt payment, 2. Conditional Assistance: 1. Party that is owed (foreign gov, international bank/organisation) will extend debt repayment period. Least invasive, most minimal impact for anyone. However, this may not be done. 2. Can be provided by anyone, most cases it is provided by IMF or world bank. Takes few forms: involve taking on the loan. Because it is conditional, there are rules, e.g. putting procedures in place so that managing money becomes easier in the future/implementing procedures/systems that enable country to repay easier in future. Or conditions about what money can be used on. Problem: sense of imperialism, or the organisation doesn't necessarily know what country needs
  4. Explain why servicing debt creates BoP problems: Balance of payments: measure of all transactions in and out of country. Problem: international loans coming in country as an inflow, however, it comes in as one amount and goes out as bigger amount (due to interest) so BoP is always negative. So enter cycle as the more you borrow, the greater the negative BoP. Developed countries do not have this issue as they spend money on capital and infrastructure that growth that compensates for that increased amount leaving, because inside grows. LDCs spend it on food, etc… that does not lead to growth, this is an issue. They have immediate issues+corruption that stops them from being able to spend on infrastructure/etc…
  5. Explain that debt is sometimes cancelled: Debt can be cancelled. Does not happen frequently. Usually because org/gov. owed is being significantly pressured by other gov. to cancel debt as a ways to gain something (e.g. Greece-a lot of foreign debt, EU is suffering from this, so they cancelled some of the debt on the condition that Greece implements implements strict economic regulations to keep spending in check).
  6. MARKET vs INTERVENTIONIST APPROACH
  7. Dual approach
International Trade and Economic Development

OVERSPECIALISATION-By far the most exported are gold, but other than that it is mostly natural resources:

Senegal has a negative (-0.33) economics complexity, meaning that it has a highly specialised, meaning they do not trade a large variety of products, and as these are often un-processed, raw materials, they are likely to be highly supply elastic and unstable in terms of price volatility

PRICE VOLATILITY OF PRIMARY PRODUCTS?

Price of gold within 2 years

As gold makes up 12% of the country's economy, this price volatility, as can be seen in the graph below suggests that Senegal is highly unstable in its industries. Furthermore, its other main export is fish, which, as can be seen in the 2008 food crisis, means that they could once again suffer from volatile prices-"The West African nation was hit hard by the food crisis, which ignited local tensions and led to rioting on the streets of the capital, Dakar, in April 2008"

INABILITY TO ACCESS INTERNATIONAL MARKETS?

Senegal has non-reciprocal preferential access to the EU market under the "Everything But Arms" initiative and is continuing negotiations on EPAs. Senegal is eligible for the United States African Growth and Opportunity Act (AGOA) and has concluded an agreement with China in 2008. An MFN tariff is the lowest possible tariff a country can assess on another country, and Senegal's is at 11.9%, which is relatively high

http://www.intracen.org/country/senegal/Income/

Growth and Development Strategies aimed at Increasing Trade

Bilateral and regional preferential trade agreements/Trade liberalisation: Senegal, as was seen above, has quite high tariffs. Although steps have already been undertaken to make trade agreements with other countries, such as China, the United States and the EU, liberalising trade within the region may also be beneficial for more economic growth. As was seen in the graph above, Senegal scored a low score of 2.6 out of 7 for foreign market access, meaning that trade liberalisation and trade agreements are important to increase trade within the country. The WTO could mediate such agreements and this would allow Senegal to open its market more.

Diversification: Senegal specialises in raw materials and many of their materials, such as gold, are subject to price volatility. Furthermore, unprocessed goods in the market are often uncompetitive and therefore it is important diversify resources and create more opportunities for growth to occur. Furthermore, given that one of its main exports and imports is refined petroleum, it seems that a certain import substitution could be useful, in order to encourage consumers to use local products instead of foreign ones. This could then in turn positively impact the trade deficit that Senegal is experiencing, whilst also increasing growth within the country.

Aid, Trade & FDI

WHICH HAS THE MOST IMPACT?

TRADE: Foreign trade accounts for about 70% of Senegal's GDP. Goods and services exports account for 25% of the GDP. Senegal's main clients are Mali, India, France, Gambia and Guinea. For several years now, China has become an increasingly important partner of Senegal as it has been witnessed in the China-Africa summits. The country's trade balance improved in 2010 and this improvement should continue in 2011. Perhaps because of how much trade makes up the economy's GDP, trade seems to be very important

FDI

The Senegalese government has put into place various incentive measures for investments. However, whilst the government does want to encourage FDI, investment hasn't been as big as in other developing countries and the jobs created still remains quite low.

AID BY THE US

Whilst the US has offered a lot of aid, unfortunately due to the corruption of the government, one cannot tell how much of this aid has truly gone to helping and aiding the people. Furthermore 37.4% (the largest proportion of the aid) has gone into monitoring and evaluation, which would not have helped the economy in general
Impact of Debt on Economic Development

International debt

It's public debt as a percentage of GDP isn't that bad compared to some other countries, as for example, Switzerland's percentage is at 37.2%. However, it's overall debt is still 5 billion dollars, which is still very high

Depending on the interest on this debt, this can cause a lot of problems as they can then, as a result not spend on other projects. For example, 3% of 5billion dollars is a lot. Opportunity cost of debt: when debt servicing as a percentage of GDP increases, poverty reducing expenditure (health care, social spending, education, sanitation) often reduces. Cancelling Debt to qualify for debt relief, countries that have income per capita below $380 and outstanding debt, and were required to demonstrate satisfactory performance in macroeconomic policies, implementation of a poverty reduction strategy and public expenditure management. Senegal was eligible for this and their debt was reduced considerably, meaning it is much more sustainable for the country. Debt servicing cost (cost of interest on debt) was decreased as well.

Credits:

Created with images by Jeff Attaway - "My Two Girls" • Jeff Attaway - "art" • jayhem - "DSCN1803" • unaidotme - "mosque senegal architecture" • christian.costeaux - "Sénégal 2014" • MariamS - "monument renaissance dakar" • Jeff Attaway - "Beach @ Hotel Diarama" • Jeff Attaway - "squares"

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