Trade, Debt and Aid

Global Capital transfers 

How can they occur? 

• Trade, FDI & aid 

Trade (balance & payments)

What does trade result from? The uneven distribution of resources and raw materials across the earth's surface 

How does it balance production & consumption? 

• moving raw materials/goods/services from regions of supply to demand 

The impact of Globalisation 

• comparative advantage & specialisation of countries in one particular area of manufacturing 

Trade is responsbile for widening the development Gap 

• rich & poor, China, even though large manufacturing in past 30 years, still largest gap 

Where does most of the world's international trade occur?

• one or more neighbouring countries (e.g. Japan exports heavily to Asia & Oceania) 
• little trade between HIC and LIC - have - blamed for widening development gap by exporting high value goods & importing low value goods in return 

Who are the dominant players?

• Global Triad: EU, NAFTA & Japan 
• advanced market economies 

Why does Japan have a trade surplus?

• exports greater than imports
• earning more from ecorts than paying to import materials 
• total merchandise is smaller: selective in trade, smaller network ($500 billion)

Why does Western Europe have a higher total merchandise?

• less selective, trades with LICs as well
• $3200 billion 

The rise of NICs/RICs

• They are now greater players on global market 
• able to meet demand of HICs as more capital 
• greater % of imports now manufacturing based, raw materials into more requiste goods/fuels/minerals 
• less agriculture 

Able to meet market for fuels of OPEC countires e.g. Russia (price is beyond LICs) 

Why are LICs less dominant?

• cannot develop their economy as quickly due to basis of primary goods 
• smaller demand than for oil & gas on world market 
• trade deficit 

Why does little trade occur between LICs and RICs or LIC-LIC?

• Latin America and Africa - exports are similar 
• agricultural products over half of ecports, less beneficial, due to corresponding level of economic growth 

The role of FDI

Influence of foreign companies, by purchasing land, equipment or buildings or construction 

Purchase of a controlling interest in an exisitng operation/buisness 

Case Study

Guinea & China (oil agreement) 

Many African countires now have a growing deficit with China, despite favourable tax-free trading agreements, e.g. Ethiopia exports to China reached £63m, whereas Chinese imports £206m in 2006 

Remittance: A transfer of money by a foreign worker to his or her home country 

Money sent back home far exceeds international aid given to developing countires 

E.g. 2006: $300bn was sent home by more than 150 million migrants (IFAD, International Fund for Agricultural Development), compared to $104billion from aid (donor countires) & FDI of $167billion 

Asia recevied most remittances, 114bn, followed by Latin America and Caribbean 

Benefits: stable, can help to improve soverign credit rating for African countries 

• FDI & private capital, help African countires to wean themselves off donor aid 
• personal & targeted 
• compared to "traditional aid", only small amounts end up with those who need it 
• e.g. Uganda, attacting FDI - cut share of poor people by 11% & 5% in Ghana 

Disadvantages: can encourage dependency (supplments income as wages are inadequate), promote inequality in LICs, long term e.g. Phillipines - sends more than 3,000 workers abroad a day, largest proportion of income, disposable (less willing to work)

Development Aid 

• Aid given by government & other agenices 
• support economic, environmental, political & social development
• of developing countries 

NB: problems due to recession, aid is cut back 

How does it distinguish from humanitarian aid?: It focuses on alleviating poverty in the long-term, rather than a short-term response 

2008

• US was the largest donor, giving $26 billion, and the UK (third) with $11.8 billion
• What are the problems?

• Even though US and UK were largest donors, did not meet the UN target of 0.7% gross national income
• DAC (Development Assistance Comittee): US (0.16% of GNI) and Japan 0.17% of GNI), giving least 
• Only Norway (0.96% of GNI) and Sweden (0.93% of GNI) close to meeting target 

Loans

• Money borrowed from the IMF, World Bank or private companies
• to aid development 
• loaned money needs to be invested wisely to get a return to service the debt 

NB: problems are due to the fluctuating interest repayment rates on the global economic market 

Ghana 2008

• held the 26th African Cup of Nations, led to encouraging economic effects due to the tournamnet 
• Ghana to receive a $600 million three year loan from the IMF due to results
• help to reduce budget deficit, support currency
• due to high food & fuel prices 

Iraq 

• IMF gave go-ahead for $741m loan to help rebuild infrastructure after years of conflict & US-led invasion in 2003 

SAPs (IMF) 

Neo-liberalism 

Case Study: "The Luckiest Nut in the World" 1980s 

Senegal 

• groundnuts 
• 1960s, independencm main export crop -> specialisation 
• loan from World Bank, to focus on exports 
• price fell on the market (law of supply & demand ), when supply goes up without a corresponding increase in demand, the price went down 
• bankrupty, IMF & SAPs, trade liberalisation, taxes on imports of foreign duties removed
• privitisation (decline in govt involvement)
• cuts in public spending e.g. healthcare & education
• 10 years

Comparison: US govt, peanuts heavily subsidies, financial bonus by state fro every ton of nuts they produce, able to sell nuts at a lower price 

The global patterns of FDI 

• overseas investments in physical capital 
• actions of TNCs 
• brings private (non-governmental) investments into country
• primary, secondary, teritary sectors of the economy 

Four many ways:

• Equity investment (investment in capital)
• intra-company loans 
• reinvested earnings 
• greenfield investment (new project) 

Why is FDI increasing?

New International Division of Labour (relocation of TNCs)

Highest FDI: USA - 16.75% of world total (2007-11) 

Lowest: Kenya (0.01%) and Sri Lanka (0.02%) 

Inflows & outflows (2006) 

Inflows: HICs (65.7%), NICs (5.8%) and Africa (2.7%) - net value of inward investment 

Outflows: HICs (84.1%), NICs (1.5%) - exporting countires 

Uses of FDI: LICs, only use $15,000,00 for services 

EU was the largest host union with 41% of total FDI inflows in 2006 

SInce the 1980s, a shift towards services, away from the primary sector, therefore service sector 2.3rd of global FDI in 2006 

SAPs during 1980-98 e.g. Senegal 

Since 1989, a shift towards focus on Millenium Development Goals, lending primarily to LICs to promote economic growth through investment 

Dependency: LICs on money & services from abroad to modernise 

e.g. Motorloa in China, 1993, 700 units today, 

Nike in Indonesia (oustouriig in Taiwan where it is cheaper, workers paid less thatn $2 a day, cheap laours & exploitation) 

Reasons (CATISE) 

• Colonialism - donor countries's domain, conditions favourable for colonialist power 
• Attraction of a particular country - stable govt, unlikely to be affected by war, financial and general security offers to potenital investors (e.g. USA), Zimbabwe: oppressive political regime, unstable economic climate 
• HIC incentives - tax havens , subsidies, e.g.Britain £300moneconomic zones to attract Samsung to locate in peripheral areas 
• Trade blocs - e.g. EU, with favourable grounds to invest (NB: 41% of total inflows in 2006) 
• 'Scramble for Africa' - relatively untapped abundence of resources, e.g. oil (Angola, Sudan), e.g. currently 40% of Sudan's exports are oil alone, India into Ethiopia & agricultural ventres, over $500m 
• Economic potential - China's reasoning, neo-colonialism, or mutualistic relationship?               

Unlimited debt-relief programme: (U, T, T, I, S) 

e.g. clean slate in Mozambique, debt relief, able to establish pre-conditions for take-off 

Establish new trading links 

• Shire-Zambezi Canal Project - between Malawi & Mozambique, access to Indian Ocean ports, prev. landlocked 

Transfer of skills

• US $250m in agriculture in Limpopo Valley (Mozambique), skills of Chinese agronomist 

Infrastructure loans 

• Angola, to rebuilt after civil war, e.g. schools & hydropower in Congo, to be repaid by oil - chances of long-term development 

Setting up special trade and economic zones 

• development of export-oreintated industries, 7 zones to date e.g. 2 in Nigeria, brings employement, new $1 billion fund, help African entrepeneurs set up small entreprises in zones 

Merowe Dam (2003-2009) 

• Northen Sudan, labelled 'world's most destructive hydropower project', $1.8billion, financed by China Export-Import Bank, built on Nile's fourth catact 
• displaced 50,000 from fertile Nile Valley to arid conditions 
• Sinohydro - plans for further 3 dams
• Darfur conflict, social impacts 

Role in the scale of genocideal civil war in Darfur 

• embago cannot be enforced until China agrees to stop buying oil
• undermining UN Secuity Council's attempts to stabilise Sudanese govt 
• catalyst 

Human rights 

• Chambishi Copper Mine in Zambia, explosion in 2005, killing 51 people, poor safety record, reduction in worker's benefits, paid £53 a month despite rising copper prices 

Undercutting local economies e.g. Lesotho, competition, failure, more didifuclt to export products on global market 

Guinea & China 

• More than $7 billion in infrastructure 
• "strategic partner" in return for mining projects 
• danger of slipping into another dictatorship
• legitemacy of China? building of ports etc, worth the investment? 

Environemtal issues 

e.g. Gabon, Sinopec, prospecting for oil in national park, causing pollution, damaging ecosystems, dynamiting areas of park & carving roads through forests