How Structural Reforms Can Save The Developing World

January 27, 2015 Editor Advisor Network, Economic Development & Policies, Investing

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VENTURES AFRICA – The term “Structural Reforms” is more or less a buzz word in today’s economic environment as it is habitually used by global experts and leading authorities to describe the sort of changes that many economies need to make in order to maintain a steady upward trajectory to sustainable development. When, like a big conglomerate, an economy is expected to turn around its performance, structural reforms are usually suggested as the way to go.
Structural reforms represent a set of broad actions recommended by institutions like the International Monetary Fund (IMF) and the World Bank in order for economies to qualify for loans from these global powerhouses. These modifications fall under five categories including trade liberalization, balancing budgets, removing price controls and subsidies, encouraging more
investments like foreign direct investment (FDI) and improving governance and fighting corruption.
Seeing as even advanced economies struggle with these policies, one can only imagine how far behind most developing regions are in terms of implementing them. Trade liberalization, a regional-integration-like process of collapsing trade barriers and tariffs is a sure way of boosting sustainable economic development by unlocking more trade opportunities and economic synergies. In the East African Community (EAC), enhanced trading between Kenya, Uganda and Rwanda has transformed the fortunes of the entire community. Rwanda, alone, has seen investment inflows of at least $100 million since it joined the EAC eight years ago.
Balancing budgets has become a real sport especially for oil dependent economies in the wake of the current oil crisis. Countries like Nigeria have found creative ways to mobilize domestic resources after the price of oil fell below the benchmark price, but Venezuela still remains in some shock while it figures out the way forward. Again, even advanced economies suffer from this so much so that Governor Mitt Romney, during his 2012 United States presidential campaign promised to always balance the budget if elected. However, while balancing budgets may be tough, it may be easier to remove oil-related subsidies and price controls since there’s really nothing to subsidize anymore.