What Market Imperfections Exist in the Allocation of Resources in African Countries

Document Type:Research Paper

Subject Area:Microeconomics

Document 1

The countries of focus are Tanzania and Somalia. It is a practical based study whereby, the actualities of the state in world economy regarding these developing countries, is reflected as well. The reason for the country specification of this study is due to the fact that it considers the mechanism in market as well as the government that varies from one country to another in relation to their level of economy and development. The reason for this dynamic approach is due to the fact that these mechanisms are subject to change as the countries’ developments also change economically. Introduction Various schools of thought are of the opinion that in relation to the economic theory, there is not particular role of least importance that the government performs (Burgis, 2015). It is commonly known that the reason for various market failures is as a result of the government and it failure in intervening especially in the developing countries. There is a controversy regarding the effectiveness in the government in controlling the economy of developing countries as most critics are of the opinion that there is no intervention of the government whatsoever in trade or industrialization as well. Most of these beliefs as are mostly on the basis of assumptions that markets are forever competitive and do not forgive mistakes especially where the allocation of various natural resources is concerned (Burgis, 2015). Other critics do not concur with the interventions of the government regarding trade but however they attempt to justify the various types of interventions made (Burgis, 2015).

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In most cases, the main issues that developing countries face especially in matters concerning industrialization and trade policy in developing countries in relation to the manufacture of goods are: To be able to increase the pace in supply and capacity in manufacture, to make various industries have a competitive edge in markets that are both national and international and lastly to maintain the competitive nature in manufacturing through the upgrade in technology. Focusing on Tanzania as a case study, most of the country’s natural resources come from the mining sector where gold and tanzanite stones are available in abundance. Due to this wealth of minerals, many international companies from developed countries have come in and created an alliance with the government in providing the various technologies in mining for a percentage of the vast natural resources (Bond, 2006).

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As a result of this, the government finds itself in a position whereby there are no concrete stipulated regulations in the mining sector for these companies and thus the market is then determined by them through the vast distribution of tanzanite and gold throughout the world. It is the tendency for African countries to allocate various controls of foreign companies to their natural resources in return for their expertise but in the case of Tanzania, these companies benefit immensely leaving the country to benefit little in the marketing sector (Bond, 2006). Most of these minerals mined from developing countries are usual brought overseas for processing, cutting and polishing, as well as the moulding of jewellery that are later sold back to the African countries in a more pure state and more expensive.

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This is how piracy occurs as is evident in the case of Somalia where supremacy of the state does not exist. This then causes a group of people to establish pirate activities on land that is not controlled by the government. Due to these events, it is difficult for the country to progress in both the international market as well as the national market. In essence the fear of investing of foreign countries into developing countries remains high (Institute for Security Studies, 2013). It is evident to see from these contexts that there is a concern in the regulation and allocation of resources in African countries. Some Acts also do not indicate obligations to report concerning the conditions or requirements in extraction authorisation or its regulations in general (Bond, 2006). Certain imposed prohibitions are usually put in place to prevent specific international vessels of importance to access the country’s jurisdiction in the high seas area.

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This causes companies with money to bribe their way through so as to gain access and in the process benefit in enhancing their competitiveness in the international market. Despite this, most critics are however of the opinion that the market failure cannot be based on the government failure in terms of the government’s intervention in trade due to the lack of sufficient proof, regarding the efficiency of the market (Burgis, 2015). It is still possible for the mechanisms surrounding the economic market to fail especially in the production of various goods and services over a period of time. This is the case with many African countries. African countries are usually categorised in the imperfect and incomplete market. This is as a result of the insignificance of the international prices. Most critics argue that for the structure in pricing in a developing country would be right when it is elevated to the same level or close to the international prices especially through trade and the devaluation in the exchange rate (Chayes, 2015).

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This would be considered to be the right pricing which would pave way for African countries into the international market, due to the consideration of the competitive pricing and assumption of no barriers in entry to the opportunities offered in the market. worldbank. org/content/dam/Worldbank/document/Africa/Report/Africas- Bond, Patrick. Looting Africa: The Economics of Exploitation. ISBN: 978-1842778111. Burgis, Tom.

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