GLOBAL ISSUES

Globalisation: refers to making worldwide or extending to all parts of the world.

 It also refers to the worldwide integration, interdependence and interrelationships between firms,
individuals and countries in terms of trade.
 Globalisation results in the creation of the Global Village, Global Economy and Global Issues.
 Global Village: refers to interaction and interdependence between nations for progress and
survival in terms of technology, economic developments, and mass communication and transport
systems.
 All nations and peoples freely interact and depend on each other for survival and progress.
 Global Economy: refers to the integration, interdependence and interrelationships in trade
between different nations.
 Global issues: refers to all those developments and problems which affect the welfare of people
in all nations.

Examples of Global Issues

Human Rights and Good Governance, War and Peace, the World Refugee Crisis, the World Debt
Crisis, the World Energy Crisis, International Trade, Global Warming, HIV/AIDS, the Bird Flu
outbreak, and Terrorism.

Global Interdependence
 We live in an increasingly interdependent world and no nation or region is able to survive in
complete isolation from others.
 This development in international relations is referred to as Global Interdependence. 
Interdependence: means that each nation‟s welfare may depend on the decisions and policies of
another nation and vice-versa.
 For instance, the decision by the members of the Organisation of Petroleum Exporting Countries
(OPEC) to increase oil prices by 400 percent after the Israeli-Arab War of 1973 sparked off a
world-wide energy crisis that in turn created inflation which pushed the world economy to the
brink of chaos.
 Interdependence also means that each nation‟s welfare depends on goods and services offered by
other countries.
 For instance, the developed countries of North America and Western Europe depend on some of
the industrial raw materials from the Third World Countries.
 On the other hand, Third World Countries depend on some of the developed countries for
marketing their raw materials and for products such as industrial machinery, motor vehicles,
computers, and electrical appliances.

FOREIGN AID
Foreign Aid: refers to the international transfer of funds, goods and services in the form of loans and
grants from one country to another.
Types of Foreign Aid
1. Bilateral Aid: is assistance from one country to another.
For instance, Zambia receives aid from Swedish International Development Agency (SIDA),
Japan International Co-operation Agency (JICA), Finnish International Development Agency
(FINNIDA), United States Agency for International Development (USAID) and from Irish Aid.
2. Multilateral Aid: refers to assistance from international agencies formed by several countries.
 These lending agencies do not belong to one country.
 For instance, the African Development Bank (ADB), the Arab Bank for Economic
Development (ABEDA), the International Monetary Fund (IMF) and the World Bank.
 Bilateral and Multilateral aid usually comes in form of grants and loans.
 The grants and loans may come in form of financial assistance, capital goods (like
machinery,) relief food, or technical expertise (skilled labour).
 Grants: are gifts from International Agencies to a government or from one government to
another; they are not to be paid back.
 Loans: refer to transfers of funds, goods and services from one financial entity to another
which must be repaid, usually with interest.

Types of Loans
i. A hard loan refers to a loan given at a high rate of interest.
ii. A soft loan is a loan given at a low rate of interest or is repaid without any interest at all.
• Tied Aid: refers to loans and grants which have “strings” or stipulated conditions of use.
• For instance, the recipient country may be required to spend the loan on a specified project or
to allow the donor country to build military bases in the recipient country.

THE WORLD BANK

The Role of the World Bank and the IMF
 The World Bank is also known as the International Bank for Reconstruction and Development
(IBRD).
 It is a Multilateral financial institution with its Headquarters in Washington DC (United States).
 The World Bank consists of four affiliate institutions. These are the:
i. International Development Association (IDA), ii. International Finance Corporation (IFC),
iii. Multilateral Investment Guarantee Agency (MIGA), and iv. International Centre for Settlement of
Investment Disputes (ICSID).
 The World Bank operates mainly with funds from Member States.
 The World Bank is one of the World‟s largest sources of development aid, and it offers two types
of loans:
i. Loans for developing countries with higher income:
• The IBRD gives loans to these countries and allows them more time to repay.
• For instance, 15 to 20 years with a three to five year grace period before the repayment of
principle begins.
ii. Loans for poor countries:
• These countries are usually not credit worthy in the international financial markets and
they cannot afford to pay market interests rates on loans.
• These loans are provided with a 10 year grace period and they are repayable in 35 to 40
years.

THE INTERNATIONAL MONETARY FUND (IMF)

 The International Monetary Fund is a specialised agency of the UN.
 Its main purpose is to regulate the international monetary system.
 The IMF controls fluctuations in the exchange rates of world currencies and it lends money to
countries facing balance-of-payments deficits.
 The IMF also offers advice and policy recommendations to overcome these problems, and often
offers financial assistance in support of economic reform programmes.

Foreign Aid and the Development Debate

 There is an international debate on whether foreign aid hinders or promotes economic
development in Third World recipient countries.
 Following are some of the arguments for and against bilateral and multilateral foreign aid:

Arguments for
i. It provides foreign capital needed by the recipient country to supplement its locally available
investment resources. ii. It provides more foreign exchange if the loan or the grant is invested in a
project which produces export products.
iii. It provides new technology and skills which the local people can later acquire by means of
training. Such skills and technology are assumed to be both desirable and productive to the
recipient nation.
iv. The recipient government earns more revenue by taxing enterprises established with the help of
foreign aid and by participating financially in the operations of these enterprises.
v. Food aid alleviates famine in case of natural disasters such as floods, droughts and earthquakes.
Food aid also provides free or cheaper food to countries facing chronic food supply problems, and
hence it alleviates famine and death from malnutrition.
vi. Foreign aid promotes international co-operation between the donor and the recipient countries.

Arguments against
i. Loans and Grants “Tied to the Donor” have to be spent on buying goods and services from the
donor country.
Very often, these goods and services are more expensive and of lower quality than those from
other sources, otherwise there would be no need to “tie” the aid.
ii. Loans and Grants “Tied to Projects” can only be spent by the recipient country on projects
agreed upon with the donor country.
Therefore, tied aid undermines the economic and political independence of the recipient nation.
iii. Profits from foreign investments are usually externalised, and rarely re-invested in the recipient
nation.
iv. Loans must be repaid with interest, and the larger the loan, the larger the debt service burden.
• This has led to the worsening of the debt burden in the Third World Countries.
• On the other hand, the repayment of high interest on loans enriches the donors.  Foreign
aid tends to make the rich countries richer, and the poor ones poorer.

v. Food-aid may worsen food shortages as it tends to reduce food prices, hence killing the food
market for farmers in the recipient country, which may in turn cause a reduction in domestic food
production.
Food aid (Relief Food) may also kill the local agriculture sector by encouraging laziness and
creating a dependency syndrome, hence undermining self-reliance initiatives.
vi. Food-aid is also often given as tied-aid and the food aid contracts may require the receiving
country to purchase certain goods from the donor country, or to support the donor country in
foreign policy.
vii. Technical assistance given by donors is not always appropriate or beneficial to the needs of the
recipient country, and it may require the importation of expensive machinery and spare parts
from the donor nation.
It is argued that “technical assistance” actually benefits the donor more than the recipient nation.

Impact of Foreign Aid on the Donor Country

• Earns more money in form of interest on loan repayments.
• Creates a market for its machinery and spare parts in the recipient country.
• Creates overseas employment opportunities in form of “technical expertise” for its citizens in the
recipient country.
• Gains a sphere of political and economic influence in the recipient country.

INTERNATIONAL TRADE
• International Trade: refers to buying and selling of goods and services between nations.
• Trade is the selling and buying of goods and services.

Types of trade include; i.

Internal Trade
• Internal Trade is also known as Home or Domestic Trade.
• It refers to the buying and selling of goods and services within the country.

ii. External Trade

• External trade is also known as Foreign Trade or International Trade.
• This refers to the buying and selling of goods and services between two or more countries.

Importance of International Trade

• Nations, like individuals, engage in trade for various reasons.  The following are some of
the reasons:

i. Uneven Distribution of Resources:

• No nation is endowed with all-natural resources essential for the functioning of a modern
industrial economy.
• For instance, countries like Iraq and Kuwait have plenty of oil, while others have none.

ii. Climatic Differences:

• Climatic conditions in temperate countries like Canada and Russia are not favourable to
the production of bananas, cane sugar and other topical crops.
• Such countries have to import tropical products from other nations.

iii. Specialisation:
• No country can produce all the goods and services it requires.
• Each country specialises in a given line of industries where it is most efficient.
• Surplus products must then be sold to other countries to pay for other goods and services.
 • It may also be worthwhile for two countries to specialise and trade with each other if each
has a definite and clear-cut advantage in production of a particular commodity.
• In economics, this is known as having a comparative cost advantage.
• Comparative Advantage: refers to a situation whereby the average costs of producing a
particular commodity in one country are comparatively lower than in another.
• For instance, it may be cheaper for Zambia to import coal from Zimbabwe than to extract
coal from Maamba mine.

iv. Technological Differences:

• Some countries do not possess the technological capacity to produce certain products
such as aircraft, motor vehicles, mining and agricultural machinery and computers.
• This makes it necessary for them to buy such products from other nations.

v. Supplement Domestic Production:

• A nation with vast demands or inadequate local supplies of certain products may import
certain goods to supplement its own domestic production.
• For instance, China is one of the world‟s major producers of oil, but she still imports vast
quantities of oil from the Middle East to add on to her domestic production.

vi. Earn foreign exchange:

• Trade is one way of increasing one‟s own wealth through profit making.
• Very often, a nation may still sell some of its products like grain, even when it does not
have a domestic surplus in order to earn foreign exchange which is required to pay for
other essential imports.

vii. Promote International Co-operation:

• Trade promotes international peace, co-operation and political friendship.
• For this reason, countries may continue trading together even if such trade ties were not
economically beneficial to all parties.

Terms of Trade
• Terms of trade: refers to the rate at which a nation‟s exports are exchanged for imports
from another nation.
• For instance, the rate at which British tractors are exchanged for Zambian Copper, that is
how many tonnes of copper are required to pay for one tractor.
• The terms of trade dependon the prices of commodities on the International Market.

i. Favourable Terms of Trade:

 Means that the prices for your country‟s exports are relatively higher than the prices for its
imports.

ii. Unfavourable Terms of Trade

• Means the prices for your country‟s exports are relatively lower than the prices for prices
of imports.
 • Zambia has had unfavourable terms of trade since the late 1970‟s as a result of falling
copper prices and rising prices of imports such as oil and machinery.

Balance of Trade
• Balance of Trade: is the difference between the value of visible imports and exports over
a particular period.
• For example, if the value of Zambia‟s visible imports is equal to her visible exports we
say that Trade Is Balanced.
• However, this rarely happens in a real-life situation.

(i) Favourable Balance of Trade is when the value of your country‟s visible exports exceeds the
value of its visible imports.
• This is also known as a Trade Surplus.
(ii) Unfavourable Balance of Trade occurs when the value of goods imported exceeds the value of
goods exported.
• This is referred to as a Trade deficit.
• It is important to note that Balance of Trade only records the value of visible goods such as
raw materials, capital goods like factory machinery, and consumer goods like food stuffs.
Balance of payments
 International trade is conducted in foreign currency.
 For example, when Zambia buys goods and services from abroad, she pays for them in foreign
currency.
 When Zambia exports, she earns foreign currency.  Balance of payments: means the difference
in a country‟s spending (payments) and earnings from imports and exports respectively.
 It includes payments and earnings from both visible and invisible imports and exports. Invisible
imports and exports are services such as insurance, transport, tourism and expatriate labour.
 For instance, tourists who visit Zambia and stay in hotels pay for these services in foreign
currency.
 On the other hand, Zambia pays in foreign currency to run her embassies abroad or to pay
education fees for Zambian students studying abroad.

i. Unfavourable Balance of payments occurs when a country receives less foreign currency from
its exports, but pays more foreign currency on its imports.
 We call this a balance of payments deficit.
ii. Favourable balance of payments takes place when a country receives more foreign currency
from exports, but spends less foreign currency on imports.
 This is called a balance of payments surplus.
 The main foreign currencies used in International trade are the US dollar, the Sterling Pound,
the Euro and the Japanese Yen.

THE WORLD TRADE ORGANISATION (WTO)

 Trade between countries is regulated by the World Trade Organisation (WTO).
 This is an international body dealing with the global rules of trade between nations.

Origins of the WTO

  The WTO was established in 1995 to replace the General Agreement on Tariffs and Trade
(GATT) of 1947.
 The WTO is not a specialised agency of the United Nations, but it has cooperation
arrangements and works closely with the UN.

Functions of the WTO

 To help trade flow as freely as possible by reducing and eventually eliminating tariffs (trade
taxes) and other barriers imposed by various nations.
 To set out rules for regulating international trade.
 To interpret trade agreements and impartially settle trade disputes between nations. The WTO
serves as a neutral international forum for debating and settling trade disputes.
 To organise trade negotiations among its members.

Principles of the WTO

The following are the Principles of the WTO:
(i) Non – discrimination:
 A country should not discriminate between its trading partners.
 Trading partners are all granted the most favoured nation (MFN) status.
 A country should also not discriminate between its own and foreign products, services or
nationals.
 They are all given “national treatment”.

(ii) Free trade: there should be free trade and all trade barriers should be reduced through
negotiations.

(iii) Predictability: foreign companies, investors and governments should be confident that tariffs and
other trade barriers will not be raised arbitrarily.
Tariffs and other market-opening commitments are bound in the WTO member states.

(iv) Competition: There should be more free competition in international trade.

Unfair practices such as export subsidies and dumping products at below cost to gain markets
share are discouraged.

(v) Special privileges for the less developed countries: The trading system should be more
beneficial for less developed countries (LDCs).
This is done by giving them more time to adjust to international rules of trade.

Structure of the WTO

 The WTO has 146-member countries and its Headquarters are in Geneva, Switzerland.
 The WTO organs include the Council of Ministers (of Commerce) which meets every two years;
the General Council, which meets six times a year; Sector Councils and several Committees.

Weaknesses of the WTO

The WTO is often referred to as “a club for the rich” by its critics.
 Decisions made by the WTO are still strongly influenced and guided by the interests of the
developed countries such as the United States and the European Union countries.
 The WTO believes that decisions should be made democratically and by consensus, but in
practice less developed countries are often not given an equal platform to negotiate and defend
their trade interests.