IB Economics HL 4.9.4 Significance of barriers

[Maximum number: 15]

Read the extracts and answer the questions that follow.
Text A - Overview of Tanzania

(1) Tanzania is one of Africa's fastest growing economies with an average of 7 % annual economic growth since 2000. It is a politically stable country, rich in wildlife and natural resources. However, the growth has been concentrated in urban manufacturing, using capital intensive production. The benefits from this growth have not reached all people and significant inequalities exist between urban and rural areas. Although the relative poverty rate has fallen over the last 15 years, the number of people living in absolute poverty has increased.

(2) Most people are employed in the slow-growing agricultural sector that relies on unskilled labour. Although incomes increased from 2008 to 2018, the demand for agricultural goods only increased by 21 % during this time period. Over 70 % of Tanzania's population lives in rural areas, relying on subsistence farming with limited tradable crops. Only 30 % of land is being used for agricultural production. With investment, the remaining unused land could be developed and generate income for farmers.

(3) The rural sector struggles to meet Tanzania's food requirements due to low levels of skilled labour and productivity. Additionally, high youth unemployment leads to large numbers of unskilled rural youth migrating to the cities, often finding employment in the informal sector where wages and working conditions are poor. Insufficient investment and lack of government support for diversifying the agriculture sector have been blamed for the persistent inequalities and poverty.

(4) Tanzania's cities have experienced a growing middle class with strong purchasing power and political influence who have placed demands on the government for cheaper electricity, better infrastructure, and more imported goods. In response, the government provided subsidies for electricity in city centres and tax benefits to foreign companies operating in Tanzania. There is concern that these measures may worsen inequality and lead to social unrest.

(5) The growth of Tanzania's manufacturing and service sector was funded through aid and large government borrowing, resulting in high national debt. Most of the government borrowing was from foreign sources and in US dollars (US$), which is a concern due to a recent depreciation of the Tanzanian shilling (Tanzania's currency) against the US$. Some of the debt was borrowed domestically and placed upward pressure on interest rates. Higher interest rates have resulted in crowding out but helped keep inflation under control.
Text B - Strategies and opportunities for Tanzania

(1) Previous governments have used interventionist supply-side policies to improve access to water, education, and health services. However, the health service improvements are not keeping up with population growth and many young people are still not completing secondary school. Infrastructure has improved, but it is still insufficient as producers in the rural sector find it difficult to reach markets and access supplies.

(2) Aid organizations are currently supporting new sustainable businesses in rural areas through training programmes, especially for women and young people, who make up most of the unemployed in rural areas. Economists have advised the government to improve access to credit through microfinance organizations and to simplify regulations to make it easier to start new businesses.

(3) The government is establishing property rights in rural areas to provide security for farmers. Historically, farmers could easily lose their land, which reduced their incentive to invest in productive farming methods. The government wants to develop Tanzania's land resources and lower its reliance on imported food. To reduce food imports, a subsidy will be granted to dairy farmers to allow them to compete against imported dairy products.

(4) Tanzania is a member of the East African Community (EAC) customs union and common market. However, Tanzania needs to improve human capital and encourage diversification so that the benefits of regional integration can reach the poor. These policies can also help attract foreign direct investment (FDI). Opportunities for growth through trade will expand as the EAC works towards becoming a monetary union in 2024.
Text C - Oil pipeline to be constructed
Tanzania and Uganda plan to construct a major oil pipeline from Uganda through Tanzania, ending at a port in Tanzania. This will attract FDI which could help fund infrastructure and generate jobs. However, environmentalists are concerned about potential ecological damage due to the waste created during the construction of the pipeline. Economists have suggested the waste could be avoided through a circular economy approach in the planning and construction stage.

Table 1: Economic data for Tanzania

Table 2: Development data for Tanzania

* Estimate

Using information from the text/data and your knowledge of economics, discuss the different barriers to economic growth and to economic development faced by Tanzania.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Marks

Level descriptor

0

- The work does not reach a standard described by the descriptors below.

1-3

- The response indicates little understanding of the specific demands of the question.

- Economic theory is stated but it is not relevant.

- Economic terms are stated but they are not relevant.

- The response contains no evidence of synthesis or evaluation.

- The response contains no use of text/data.

4-6

- The response indicates some understanding of the specific demands of the question.

- Relevant economic theory is described.

- Some relevant economic terms are included.

- The response contains evidence of superficial synthesis or evaluation.

- The response contains limited use of text/data.

7-9

- The response indicates understanding of the specific demands of the question, but these demands are only partially addressed.

- Relevant economic theory is partly explained.

- Some relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included.

- The response contains evidence of appropriate synthesis or evaluation but lacks balance.

- The response includes some relevant information from the text/data.

10-12

- The specific demands of the question are understood and addressed.

- Relevant economic theory is explained.

- Relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included and explained.

- The response contains evidence of appropriate synthesis or evaluation that is mostly balanced.

- The use of information from the text/data is generally appropriate, relevant, and applied correctly.

13-15

- The specific demands of the question are understood and addressed.

- Relevant economic theory is fully explained.

- Relevant economic terms are used appropriately throughout the response.

- Where appropriate, relevant diagram(s) are included and fully explained.

- The response contains evidence of effective and balanced synthesis or evaluation.

- The use of information from the text/data is appropriate, relevant, and is used to formulate a reasoned argument supported by analysis/evaluation.

Command term
"Discuss" requires candidates to offer a considered and balanced review that includes a range of arguments, factors or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

Definitions may include:
Economic growth
Economic development
Interventionist supply-side policies
Economic models to support analysis may include:
- Lorenz diagram
- ADAS diagram
- Poverty cycle
- PPC

Possible barriers to economic growth and/or economic development in Tanzania may include a discussion on some of the following:

Increasing absolute poverty
- Absolute poverty means that people do not have access to basic needs, trapping them in the poverty cycle and limited possibilities for economic growth and development. (Text A, paragraph 1, table 2)
- But relative poverty has fallen possibly explained by the divide between urban and rural areas (Text A, paragraph 1, Table 2)
- Although HDI has improved, the HDI country ranking is lower, meaning that Tanzania's economic development has not improved as much compared to other countries (Table 2).

Rising inequality:
- Gini coefficient has increased from 2000-2018 (table 2), may lead to problems with social unrest (Text A, paragraph 4).
- Persistent inequality has not allowed for all people to benefit from the economic growth (Text A, paragraph 1)
- Rural - urban inequalities (Text A, paragraph 1, Table 2 data)
- growth has not reached rural areas due to the focus on manufacturing and service industries (Text A, paragraph 1)
- Most of the population is employed in agriculture (Text A, paragraph 2), limited opportunity for higher skilled jobs, which leads to higher incomes, better human capital, supporting further economic growth and development.
- Rural areas have less access to electricity (Table 2), less economic development, also may inhibit new businesses and investment needed in rural areas (Text A, paragraph 3 ).
- Urban middle class accessing more resources (Text A, paragraph 4), resources may not be used in areas of need hindering economic development and economic growth.
- Higher youth unemployment (Table 1), youth may be less skilled/experienced and therefore may find it more difficult to find jobs leading to lower growth and development.

Limited infrastructure:
- Insufficient infrastructure is significant as it supports the functioning of an economy and the ability for the population to conduct economic activity hindering economic growth. (Text B, paragraph 1).
- Inappropriate provision of infrastructure - urban rather than rural (Text A, paragraph 4), leading to less opportunities for economic growth and development.
- Farmers complaining that they cannot reach markets or suppliers due to lack of infrastructure (Text B, paragraph 1)
- Insufficient infrastructure may slow down potential land development, which is currently only using 30 % (Text A, paragraph 2) limiting economic growth and access to increased income opportunities in the rural areas.

Low levels of human capital:
- Rural sector only involved in unskilled work, so population not developing human capital (text A, paragraph 2), limiting opportunities for economic development.
- Economic growth focussed on capital intensive manufacturing/services (text A, paragraph 1), limiting opportunities for developing human capital and economic development.
- Education spending has decreased (Table 2).
- Numbers of students completing secondary school has fallen (Table 2).
- Currently not exploiting opportunities EAC may offer the low-income earners as human capital needs improving (text B, paragraph 4)
- Less significant over time if aid programmes are successful (Text B, paragraph 2).

Access to healthcare
- Improvements in healthcare struggle to keep up with population growth (Text B, paragraph 1).
- Government spending on healthcare has decreased (Table 2).
- Leads to poor human capital - traps people in the poverty cycle.

Rural sector barriers/Reliance on primary sector:
- Poor productivity in the rural sector (Text A, paragraph 3).
- Lack of investment (Text A, paragraph 3).
- Low YED (Text A, paragraph 2) leads to limited growth - economic growth needed for economic development.
- However, a new oil pipeline might bring in FDI, fund infrastructure and create new jobs. (Text C, paragraph 1)
- Aid and government programmes could encourage new business development (Text B, paragraph 2)
- Lack of tradable crops and land resources not fully utilised to fully capacity (Text A, paragraph 2).

Level of external and government (national) debt:
- Financing repayments could take funds away from development initiatives (Table 1, Text 1 paragraph 5)
- Significant at the moment with the depreciating currency (Text A, paragraph 5 ), but may be less of an issue if there is increased FDI (ECA and oil pipeline) inflows which may increase the demand of the currency and therefore the value. (Text B, paragraph 4, Text C, paragraph 1).

Informal Sector:
- Number of migrating youths are employed in the urban informal sectorl where working conditions are poor and unlikely to develop human capital (Text A paragraph 3).

Access to credit:
- Economists advised government to improve access to credit. If farmers cannot access credit, it is difficult for them to access capital needed to diversify. (Text B, paragraph 2).

Property rights:
- Lack of property rights has historically disincentivized farmers to invest in production, leading to low skills/productivity. Less significant now as the government has begun to introduce clear property rights. (Text B, paragraph 3).

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

A maximum of [9] should be awarded if only economic growth or economic development is discussed.

IB Economics HL 4.9.4 Significance of barriers Question Bank

Exam points

4.9.4—Significance of barriers question 1