Question 20N.2.HL.TZ0.c
| Date | November 2020 | Marks available | [Maximum mark: 4] | Reference code | 20N.2.HL.TZ0.c |
| Level | HL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | c | Adapted from | N/A |
São Tomé and Príncipe Economic Development Challenges
- São Tomé and Príncipe (STP) is an island nation and is one of the smallest economies in Africa. STP faces many economic development challenges including: a limited range of export products (mostly commodities) and markets, limited human capital, insufficient infrastructure, vulnerability to supply-side shocks due to climate change, limited access to credit, political instability and poor governance. All these challenges have led to a high dependence on foreign aid.
- International organizations estimate that approximately 50 % of STP’s population is living in relative poverty. Its economic growth rate has been consistent at 4–5 % between 2013 and 2018, but the International Monetary Fund (IMF) suggests that STP will need an economic growth rate of 6 % to have an impact on the poverty rate.
- To increase economic growth and reduce its dependence on foreign aid and cocoa exports (80 % of its total exports), STP is planning to extract offshore oil and develop the comparative advantage it has in tourism. Over 50 % of its exports go to the European Union. It is hoped that diversifying STP’s exports will increase the number of its potential trading partners. To achieve this aim, STP is seeking membership with the World Trade Organization (WTO) and the Central African Economic and Monetary Community. Developing export markets could help STP benefit from economies of scale and overcome the restrictions of its geographical remoteness and high transport costs. However, STP will need help from multinational oil companies to exploit its oil reserves, and the government needs to improve transparency to ensure that oil revenues are used to support economic development.
- In STP, foreign aid accounts for 57 % of gross domestic product (GDP) and 93 % of public investments, including a significant portion of health and education spending. In addition, concessional loans have been provided by the IMF. However, STP had to agree to decrease the budget deficit as a condition of the loan from the IMF.
- There are some government officials who believe that aid will not solve the economic development challenges in STP. It did not meet the nutrition targets set by the Millennium Development Goals and continues to struggle with providing adequate clean water and nutritional intake for its population. Clean water is becoming scarce in STP due to business pollution and poor household sanitation, which is also spreading diseases. Other environmental concerns are climate change, deforestation and erosion of coastal areas due to the sand extracted for the construction of roads and buildings.
[Source: Adapted from Jennings, R., 2018. Taiwan cannot compete with China on Aid to keep foreign allies. VOA News.
Available at: https://www.voanews.com/east-asia-pacific/taiwan-cannot-compete-china-aid-keep-foreign-allies.]
Using an externalities diagram, explain why “business pollution” is leading to market failure in STP (paragraph [5]).
[4]
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
The y axis may be labelled price but could be costs or benefits and the x axis labelled quantity.
Again, well answered overall. Diagrams were generally accurate and well explained. In some responses the diagram confused negative externalities of consumption and production, and on occasion there was inaccurate labelling that spoiled an otherwise good answer. It was pleasing to see that more candidates, than in the past, indicated welfare loss on their diagram. Some students lost marks by not mentioning the type of pollution mentioned in the text and the effect on third parties/society.
