Consider a small, developing nation which has an abundance of oil reserves but o
ID: 1140476 • Letter: C
Question
Consider a small, developing nation which has an abundance of oil reserves but oil revenues have been squandered. The population’s health is in decline and so is the economy. A dictator controls nearly every aspect of the economy. There is some arable land for farming but not enough to supply food for the nation. Trade agreements exist only with a handful of nations and none are with developed nations.
Imagine you are advising the dictator on economic policy. Outline an economic growth plan for this nation which will give it a healthy, stable economy within 5 years. Do this by choosing from the factors which drive economic growth and discussing those which you believe are going to be the most helpful.
Explanation / Answer
The following recommendations would be provided for the given economy -
1. The most important revenue driver for the given nation is oil reserves production and sales. With oil above $70 per barrel, my first recommendation would be to focus on oil resources and deliver strong production growth in the coming years to boost revenue.
2. The opening up of the economy is critical. Trade relations need to be built with developed countries. These countries have the big corporate that can support building and exploiting of oil resources.
3. For investment in the oil & gas sector, the small economy might not have ample funding and infrastructure. My second recommendation would be to create conducive policies to encourage private sector participation. In particular, participation of the private sector from other countries. Big companies in the oil & gas sector would be able to accelerate exploiting of resources.
4. Within the country, pro-active steps need to be taken to build necessary oil infrastructure. International companies find lack of infrastructure as a key bottle-neck and that might limit international investments in the oil & gas sector.
5. The next most important policy change relates to the healthcare sector. With the population's health on a decline, it would be important to recommend significant investment in healthcare. This can be done from funds coming from the oil & gas sector.
6. The country does not have enough food to supply for the people. The key policy here would be to import food. One way of maintaining robust trade balance is to import food from a oil deficit nation and export oil. Trade imbalances can potentially be avoided.
7. Besides food, trade relations with developed countries will also help improve the healthcare sector through import of key drugs. It is important to note that as health conditions improve, labor productivity is also likely to improve and contribute to incremental GDP growth.