Bottom Billion. Currently, most of the bottom billion people live in African countries. The major problem with these countries is not that they are poor, but that they are not developing.

Miguel Mantica Technology and Culture

October 28, 2011 Professor Griffith

The Bottom Billion

The development of the poor countries has been a challenge during the past decades. The world consists of one billion rich people and five billion poor people. Most of five billion live in countries that are developing. However, there are one billion people that live in countries that are falling behind and even apart. These countries are facing a bigger problem that one can imagine. The world is becoming globalized. Countries are reducing import quotas and export fees facilitating trade with each other. Also, countries are starting to provide resources, materials and technology to each other allowing them to develop at amazing speed. On the other hand, the bottom billion countries are diverging from this economy, since they are stuck in one of the four traps. The four traps are the conflict trap, the natural resource trap, the trap of being landlocked and the trap of bad governance in a small country. These traps will not allow billion bottom countries to become globalized; however, it can be argued that some of these traps can facilitate the incorporation of a country to world’s economy.

Currently, most of the bottom billion people live in African countries. The major problem with these countries is not that they are poor, but that they are not developing. In fact, most of the bottom billion countries are experiencing negative growth and the living standards are lowering each year. These countries are declining on average 0.5 percent per year. Furthermore, the living conditions are horrible and people are dying at a very early age. The life expectancy in these countries is fifty years while in a developing country is sixty-seven years. These lowering standard of living and negative growth are mainly because the country is in one of the four traps.

The first trap which is civil war will definitely not allow a bottom billion country to become globalized. Advanced countries such as Britain, Russian and USA have experienced civil war in the past, but they were over very quickly and were not continuously repeated. On the other hand, bottom billion countries tend to get stuck in civil wars for many years. Statistics have shown that countries with low growth are prone to civil wars. Each percentage point added to the growth rate will knock off a percentage point of risk for war. If a country is declining at 3% per year, the risk to engage into a civil war will increase by 3%. Furthermore, bottom billion countries tend to have low income people making it even more vulnerable to civil war. A rebel leader Laurent Kabila said that he only needed $10,000 to hire a small army to start a civil war. These people are hopeless in poverty and with small chance to get rich; they will join a rebel movement. Therefore, the negative growth and low income people will cause civil wars constantly in bottom billion countries. These civil wars cause many negative effects. It reduces growth by 2.3% per year. If country has a civil war for 10 year, it will be 23% poorer. Also, it causes many diseases, terrorism, and migration. All these problems will not allow the country to trade with nearby countries and become economically stabled.

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The natural resource trap tends to have overall negative effects on an economy. In fact, 29% percent of the people in the bottom billion live in countries with many resources. Most people believe that the discovery of a natural resource will lead to prosperity; however, it does not result this way according to Paul Collier. The excess of natural resource exports cause country’s currency to rise, making it less valuable to sell outside the country. The export of other goods will become unworthy. Companies will have to produce less and will stop making technological advances. Therefore, in the long-run the excess of a natural export will lead to negative growth. For example, as Nigeria started to export oil, other resources exports such as peanuts and cocoa became unprofitable and the production collapse. This collapse hurt the farmers; however, in this case it did not have a high impact in the economy, since the agricultural sector was not very dynamic and had low potential for technological advancement. Furthermore, a crash in the price of the natural resource could also devastate a country’s wellbeing. The economy can go into a recession at any moment and the price of the resource could fall significantly, making it hard for the government or the companies to repay its investment debt. This happened to Nigeria in the 1980’s and the living standards of the people reduced by half. This point of view that a natural resource leads to lower standard of living can be argued. Likewise, an economy could continue to operate properly with stable prices and a country would gain enormous revenues. Furthermore, there are many countries such as Venezuela and Saudi Arabia that its complete economy depends on a natural resource and are doing really prosperous. In fact, if a country has enough natural resources, it can afford to forget about its normal economic activity. The country could fully invest in a resource and export it to many countries. This will make the other export invaluable; however, the revenue from the export of the natural resource can make the tradeoff worthy. Even if the country loses revenue from other exports, it can gain much profit from just one good. For example, countries can get oil at really low prices and sell it over $100 per barrel, since the demand tends to be really high. Therefore, it might be worthy just to export oil and consume all other goods internally.

The third trap which is being landlocked can intervene with a country’s development. The transportation costs for landlocked countries can significantly increase making it difficult for them to export and import goods. This transportation costs not only dependent on the distance, but mainly depends on transportation infrastructure of the coastal neighbors. Countries such Uganda tends to have really high transportation costs. This country is surrounded by Kenya, Sudan, Rwanda, Somalia and the Democratic republic of Congo. All these countries are either economically unhealthy with bad transportation infrastructure or in a civil war. Therefore, it is hard for Uganda to export and import goods, and incorporate with the world’s economy. However, it can be argued that the being landlocked can have positive effects. A country landlocked by advanced countries can allow it to grow at a faster rate. For example, Switzerland is surrounded by Germany, Italy, Austria and France. All this countries have good infrastructure which facilitate the exports and imports to Switzerland. Also, Switzerland can exchange resources with nearby country. Switzerland could provide their famous cheese or chocolate in exchange of any resource. Furthermore, studies have shown that countries benefit from the growth of their neighbors. If country’s neighbors grow by an additional 1%, the country grows an additional 0.4%. Therefore, good neighborhoods like the one for Switzerland will make countries advance significantly faster. This growth spills can also be beneficial to poor landlocked countries. If one country starts to grow at really fast rate by the encounter of a natural resource or good governance, all the countries around will benefit and might lead to an economic boom in the area.

Excellent governance and good economic policies will definitely help the growth process; however, there is ceiling that a country can grow a maximum 10% per year by just changes in policies. The economy cannot grow much faster no matter what the government does, since the government can only help the country realize its opportunities, but it cannot create opportunities were none exist. On the other hand, bad governance which is known as the fourth trap can devastate a country’s economy. In Zimbabwe, President Robert Mugabe bad economic policies lead to 1,000% inflation per year. This completely devastated the economy making it hard to export goods and even to sell goods internally. Therefore, the government must try to avoid doing harm rather than doing much good. People just need moderate economic stability, moderate taxation and a good transportation infrastructure to create successful companies. The government should intervene with economic activity as little as possible, since a bad economic policy could lead to low or even negative growth.

In conclusion, bottom billion countries have been in one of the four traps. The two worst traps are definitely being in a civil war or having bad governance. These two traps will lead to negative growth and high inflation rates. However, there are solutions to these traps. “It is not like black hole; it is not impossible escape from the traps, just difficult.” Countries can come up with peace holds just like it currently happened in Angola or reforms that can transform the government and its policies. The other two traps which are having natural resources and being landlocked can have many negative effects; however, under the right circumstances it might lead a country to a high growth state. The excess exportation of one natural resource will cause the country’s currency to rise making the exportation of other resources to become invaluable. However, if you have enough of a natural resource it might be worthy to sacrifice normal economic activity and just gain enormous profit from that resource. Landlocked effects completely depend on the neighbors. A good neighborhood can lead the country to high growth, since your country will trade goods with them. A bad neighborhood will not let you export your resources and will lead the country to negative growth. Overall, bottom billion countries need escape from the traps quickly, since later it will be almost impossible to integrate in the globalized world. Advance countries will have huge economies of scale through the usage of modern technology and produce goods at really low costs. Not even with cheap labor, bottom billion countries will be able provide lower prices than the advance countries. Therefore, bottom billion countries need escape the traps and incorporating with world’s economy in the next 10 years.