1. Economy Part 3

2. Georgia Performance Standards
SS7E3-The student will describe factors that influence economic growth and examine their presence or absence in Nigeria and South Africa.
a. Explain the relationship between investment in human capital and GDP
b. Explain the relationship between investment in capital and GDP
c. Explain how the distribution of diamonds, gold, uranium, and oil affects the economic development of Africa
d. Describe the role of entrepreneurship.

3. Review-Economic Growth Factors
The 4 basic factors that influence economic growth are:
Human capital
Capital
Natural resources
Entrepreneurship
Gross Domestic Product-the total market value of the goods and services produced by a country’s economy during a specific period of time. (used to determine the health of a country’s economy and compare it other economies.

4. Human Capital
The good: South Africa is strongly committed to education (also has one of the highest literacy rates), so their GDP has been growing at an annual rate of 5%. Government offers programs to low-income areas to increase education and job growth, so the investment in human capital is high.
The bad: In Nigeria, not as much money is spent on education, so the investment in human capital is low.
Wealth from oil belongs to a small group of wealthy people. Average household income is only about US$300 and their GDP is one of the lowest in the world
What does this say about the relationship between investing in human capital and GDP?

5. Capital
The good: 50% of South Africa’s capital investment went to improving electrical output and transportation of goods (railroads and ports) which has increased GDP and benefited the whole population.
The bad: Most of Nigeria’s capital investment went to the oil industry which has only benefited a small part of the population. Other important investments have not been made (roads, hospitals, water treatment plants)

6. Natural Resources
There is an uneven distribution of natural resources in Africa, but even worse than that is the misuse of these resources.
In a country with an unstable government, resources like diamonds, gold, uranium, and especially oil, do not guarantee wealth and prosperity

7. Diamonds and Gold
About half of the world’s diamonds are found in Africa.
The good: Botswana’s stable government has reinvested diamond money inroads, schools, and clinics.
The bad: In Democratic Republic of Congo and Sierra Leone, armed rebels steal the diamonds to fund brutal wars (“Conflict/blood diamonds”)
South Africa benefits from having one half of the world’s gold reserve, but Senegal and Mali remain 2 of the poorest countries in the world, despite many gold mines. Governments must use the money from natural resources the right way!

8. Oil
Nigeria is the 6th largest oil-producer in the world. They take in US$2.2 million per day in oil revenue, but the average Nigerian lives on less than US$1 per day.
International assistance is offered, but does not always benefit Nigeria:
Example- China contributes aid money, so they expect something in return, like sending their people there to work and the freedom to import their goods (they sell their goods inexpensively, which removes competition from Nigerian companies).

9. Uranium
Radioactive element that occurs in small parts in rock, soil, and both surface and groundwater.
Used to produce fuel for nuclear power plants and make weapons
Africa produces 20% of world’s uranium
Mining is easy as it is found near surface, but can produce major environmental problems
It is more popular now as oil prices rise and nuclear power is a cleaner source of energy.
This gives many countries (such as Niger, Namibia, and Gabon) hope in a higher GDP.

10. Entrepreneurship Plays a vital role in any country’s economy
They use human capital, capital, and natural resources to bring their ideas to life
Must be willing to take risks
Many local banks are unwilling to fund their ideas because they think it is too risky (Less than 50% of new businesses are still operating after 3 years).
South Africa realizes their importance and is encouraging new business, but not all African countries do the same. That is where having natural resources is a benefit (it provides the $$ needed to fund these new ideas)

11. Conclusion
Natural resources alone cannot sustain an economy-it takes a balance of many different things:
Stable and non-corrupt government
Investments in education and training
Investments in capital resources
Freedom for entrepreneurship

12. Go to Natural Resources in Africa Assignment