Investment can be used in 2 ways in poorer countries in order to try and improve quality of life and reduce gaps in development. Internal investment can come from large companies or the government, who might develop their own companies and projects. Many LICs are not capable of doing this, so turn instead to Foreign Direct Investment (FDI).
FDI is were foreign companies (such as BMW) locate their factories or research and development facilities in another country. This has good features such as improving the expertise and skills of local people who work in the factories, increasing trade for the country, offering new job opportunities to people, transferring technology and ideas from rich to poorer nations and increasing taxes to the host country. However, there are some negatives such as the misuse of the environment, local workers in poorer countries getting poor wages or working in poor conditions, profits leaving the poor country and going back to the host country of the company, and also large foreign firms squashing the development of local companies.
Aid is basically a form of help given from one country to another; or one person to another, or from a charity (often called Non-Government Organisations or NGOs) to a country or region. It is most likely that you will have given aid at some point in your life! Aid can be given in the short term for emergencies, like during the 2004 Boxing Day Tsunami, when money poured into South East Asia to help the victims and the sick. Development aid is longer term, and seeks to help people in poorer countries raise their standard of living. Below is a table summarising the different types of aid;
Aid can also be tied or untied. Tied aid is when the country giving the aid expects something in return for the aid - the host country may have to trade more with the donor country for example. Untied aid is where the receiving country does not have to give anything in return.
|Type of Aid||What it is||Image|
|During emergencies rich nations and charities like the Red Cross or Medecin sans frontiers can provide medical assistance to the affected country. This could take the form of qualified staff or medicines.||
Emergency aid in Haiti and Kenya
|People||Richer nations or charities might choose to send qualified people top help in poorer nations. In the short term during emergencies qualified medical staff and trained pilots and the army can be of great assistance. In the longer term teachers, engineers, consultants can all play a role in advising and train in people within a poorer nation, to help its long term development.|
|Money||Money is often sent to LICs, for investment in projects and the local people. The UK sent £45million in aid to Tanzania to be spent on education.|
|Large Scale||HICs can invest in large scale development projects, such as building roads, dams and factories. The idea behind these projects is that they act as a growth point for development, allowing industry and farming to develop and raise massive profits.|
|Equipment||Large scale equipment can also be provided in aid to LICs. Equipment such as tractors, irrigation equipment and earth movers have all been provided in the past.|
Intermediate or appropriate technology is a way of transferring technology from rich countries to poorer nations.
Its goal is to improve the quality of life in a country through mid-level technology that is small-scale, labour-intensive, energy-efficient, environmentally sound, and locally controlled
This type of technology is designed to improve on current technology within LICs and to be manageable for local people to use. There is no point in sending machinery and technology into an area if the people can get no use of it because it is too complicated.
Intermediate or appropriate technology is a move away from big aid projects. It aims to use simpler technologies that are right for the people, right for the environment and right for the donor. In most poor countries, high tech industries are too expensive to develop and inappropriate to the needs of local people. Appropriate/intermediate technology is usually;
A) Labour intensive - utilising and creating employment for local labour.
B) Using sustainable technology and tools/knowledge of local people
C) Uses newly developed technology that are low cost and local which local people can manage and control rather than IMPORTED techniques and technologies
D) In harmony with the local environment.
Practical Action is a charity that has over 100 projects worldwide helping over 900,000 people. One type of project is using micro hydro-electric power stations to generate electricity so people can work their way out of poverty. Micro-hydro power is the small-scale gathering of energy from falling water, such as steep mountain rivers. Using this renewable, indigenous, non-polluting resource, micro-hydro plants can generate power for homes, hospitals, schools and workshops.
Practical Action promotes small-scale hydro schemes that generate up to 500 kilowatts of power. This provides poor communities in rural areas with an affordable, easy to maintain and long-term solution to their energy needs. This means that this is a great example of Appropriate Technology. They have developed micro-hydro systems with communities in Peru, Zimbabwe, Sri Lanka, and Kenya.
Trade is the exchange of goods, money and services between countries and regions. The goods made in a region and sold to other places and known as Exports (they Exit the country or region). The goods bought into a place from other regions are known as Imports (they come Into the country or region). Trade can be used to help even out the gaps in development.
If value of exports for a country or region is greater than its Imports it will have a trade surplus and will make money. If a region imports more than it sells then it will have a trade deficit.
Most HICs import primary products which have low value and export high value manufactured goods an even higher value services.
Most LICs export lower value primary products (such as cocoa, cotton etc.), this means that they struggle to raise standards of living in their countries because they do not have much foreign money coming in from trade. The price of primary goods also varies widely and producers can lose out massively, so the trade in a sense is unfair.
This is a scheme designed to get a better deal for the producers of the primary products that HIC countries need. The producers get access to the market for their goods, a contract (for extra financial security), better prices for their products and access to the Fair Trade Premium, which is a sum of money available from the Fair Trade foundation to be spent upon improving yields, farming practices, health care or education. Fair Trade is an international movement and its influence is growing, more than 4,500 products now bear the fair trade mark, and 72% of the UK population recognise the Fair Trade logo. In addition, more than 7 million people in Africa, Asia and Latin America benefit from Fair Trade - farmers, farm workers, and their families.
Many LICs took out huge loans (for millions of pounds) during the 1970s, offered to them by banks and governments in rich HICs.
The LICs wanted to use the money for various development projects such as building dams, roads, schools etc. The idea was to help countries to develop by improving their industries and infrastructure. The loans had to be paid back, and the longer the loan went unpaid the larger it got, because the HICs added a sum of money called interest every month.
Over time these loans got so large because of interest that some LICs would never be able to pay them off. It also meant that some HICs spent more on loan payments than on health care and education for the people living in their countries. This has had a really damaging effect on the quality of life of people who live in these areas.
If a project succeeds debts are easily repaid and there is no issue. However, if a project fails debts can build up because of the interest and countries can get into huge financial trouble. This issue can massively affect the development of a country, which directly affects the standard of living of the people who live there.
In the run up the new millennium a campaign was started to drop the debt, which has had some success in cancelling some debt, freezing the interest on some debt and in some cases giving the poorer LICs more time to pay back their debts. This campaign was called Jubilee 2000. As a result of this campaign the UK government cancelled much but not all of the debts owed to it by poorer nations. Banks have not cancelled debts however, and many countries the world over suffer the effects of debt.
Microfinance loans are Very small loans which are given to people in the LICs to help them start a small business. They are typically given to people with very low incomes who would not have access to normal bank loans Banks consider them too much of a risk. The idea is that low-income individuals are capable of lifting themselves out of poverty if given access to money to start their own businesses. The interest rates are either very low, or in the case of charitable donations non-existent, only the loan sum needs repaying.