Factors that Inhibit Rapid Economic Development in Developing Countries

Rapid economic development in developing countries is faced with a number of obstacles. These include the following:

 Inadequacy of Infrastructural Facilities

In order to attain a rapid development, a developing country needs a stock of public capital goods
usually called the infrastructure of an economy. Inadequacy of infrastructure facilities reduces the pace of development and since this is the case of developing countries, the rate of development is usually slow.

 Low Accumulation of Capital

One problem that all under-developed countries have in common is relatively low stock of capital. The inadequacy of capital within the country or from outside makes acceleration in the tempo of develop- ment very difficult.

Political Instability

Political instability is another important factor inhibiting rapid economic development in many develop- ing countries, especially in West Africa. Some countries of West Africa changes government as people change dresses. This does not only prevent foreign investors from investing in such countries but also upsets the fulfillment of development programme.

Persistent Deficit in the Balance of Payment

The continuous deficit in the balance of payment for most developing countries makes it difficult for them to achieve economic development. The money which could have been used in acquiring materials to promote rapid economic development is used to offset the balance of payment deficit.

 Population Problems

Public health revolution in many developing countries has made possible a fall in death rate and conse- quently rapid population growth as the birth rate is still high. As a result of high population, more of the available resources which could be used for capital formation necessary for development are used for the production of consumer goods for the growing population.

 Unfavorable Cultural and Social Attitudes

Cultural and social attitudes play an important role in motivating people to do certain kinds of work and accept certain working condition. It also affects attitudes to work and land tenure system in many West African countries. An example of this can be found in most countries where women are not allowed to work outside their homes and this will definitely reduce total production and consequently national income.

 Lack of Entrepreneurs with Innovative Ideas

There are not sufficient entrepreneurs with innovative ideas in most developing countries. For rapid
economic development to take place, there should be enough entrepreneurs with innovative ideas as
well as high level man-power or skilled personnel.

Economic Growth and Development 147(8) Dependence on One or Few Export Crops Some countries depend on one or few export crops. This makes it difficult for such countries to earn
foreign exchange which is needed to buy equipment required in the development project. Again, if there is a decline in demand for such product, the country concerned will suffer. This happened to Nigeria with the oil glut of late 70s and early 80s.

Students Assessment Exercise

1. What are some of the common characteristics of less developed countries? Can you think of others not mentioned in this units 
2. Briefly describe the definition of the meaning of Economic Development not mentioned in this unit
3.  Why is a strictly economic definition of development inadequate? 

Privatisation of Public Enterprises

Privatisation of the public enterprises is one of the features of Nigerian economy in the 1980’s and 1990’s. One feature of public enterprises in the world over, but more particularly in developing countries is ineffi- ciency leading to waste, slow growth and unnecessary dependence on government support, even when the business is a profitable one.

As a way of improving performance of public enterprise, countries the world over have embarked on commercialisation of public enterprises and they have profit orientation as the main motive of these enter- prises, As one of the features under commercialisation, government retains ownership and control but sub- ventions do not continue and the institution is allowed to pursue their objectives in their own style, having profit as their main target.

Privatisation which many people advocate for is a little different from commercialisation. Privatisation is a complete take over of public enterprises by individuals or private sector by buying them and having the ownership and control power in such companies. Privatisation, however, can imply commercialisation be- cause once an industry or enterprise is sold to the members of the public i.e. private individuals, the social objectives will have to give way to profit motive.

The Merits or Advantages of Privatisation

Privatisation has numerous advantage over government ownership, and management of such enterprises. The advantages include:

 Efficiency

Experience has shown that improved efficiency and effectiveness of enterprises emerge as a result of
privatisation. It has been mentioned earlier that profit is the main motive of the private sector and in
order to achieve this profit objective, the management of these enterprises must ensure efficiency.

Management Capability 

There is improved management capabilities as the private sector is believed to have better management capability that the public sector. Again, board of director membership will be appointed on the basis of competence and not on political patronage.

 Reduction on Subvention

Reduced dependence on the government and therefore, reduction in public expenditure is one of the
outcome of good management resulting from privatisation.

 Reduction in Waste

The private sector is noted for employing resources only whey they are needed. This will, therefore,
prevent waste from occurring. Also over staffing will be avoided.

Quick and Efficient Decision

Bureaucracy is one of the characteristic of civil service and public enterprise. This is not so in the private sector where decision making is quick and efficient.

Profit Retention

It is clear that profits generated by public enterprises are usually transferred to the government. But
with privatisation, most of these profits are retained in the organisation for development.

 Management Stability / Continuity

The board of public corporation usually changes any time. There is change of government and this leads to management instability and absence of long-term corporate planning. This situation, will change immediately the enterprise is privatised and board stability will prevail.

 Attention of Government to its Real Objective
Privatisation will no doubt enable government focus more on its role as sustainer of peace and orderli- ness and its supervisory roles in the economy.

Cash Flow Effect

It is believed that the sale of such enterprises to the private sector will have positive cash flow effect for the government since the money so realised could be reinvested on other socially desirable ventures like road maintenance, electricity and water.

 Flexibility

While the public sector is guided by rigidity, bureaucracy and general order which hinders flexibility, the private sector is always flexible and makes changes as the condition requires.