The profit levels on investments.

The level of technology.

Level of entrepreneurship skills.
Marginal efficiency of capital.
105. (i) What is meant by inflationary gap?
(ii) State three effects of inflationary gap in an economy.
A. (i) Inflationary gap is the amount by which aggregate demand exceed aggregate supply at
full employment level of the economy.
(ii) Effects of inflationary gap.
Persistent increase in prices.
Low output.
High aggregate demand.
Low investment.
Reduction in real income.
Causes BOP problems due to increased imports and re

STRUCTURE OF THE ECONOMY OF UGANDA

Question 31. (a) Describe the structure of the economy of Uganda.
(b) What are the implications of such a structure?
Uganda is a developing country and structure of her economy is similar to those of other developing
countries. Uganda‟s economy is characterized by the following:
 Dominance of agriculture. Agriculture is the back borne of Uganda‟s economy, and it is still a
significant contributor to GDP. In terms of employment it is still the leading employer. Much of
the activities in the sector are still at subsistence level.
 Existence of dualism. Uganda like the majority of LDCs is a dual economy. There is co-
existence of several types of contradicting conditions leading to various forms of dualism. Such
as economic dualism including co-existence of modern sector and traditional sector, trade dualism
involving monetary exchange co-existing with barter exchange, technology dualism involving use
of modern capital intensive technology co-existing with labour intensive method etc.
 Existence of small but growing industrial sector. Compared to agriculture, industry is still a
small contributor to GNP. At present industry contributors about 15% of GNP. This contribution
however, is rising every year.

ONO Econ 96
 Wide spread unemployment. Due to dominance of agriculture which is carried out seasonally
there is high rate of seasonal unemployment. In addition, the emerging informal sector has
encouraged under employment and disguised unemployment.
 Existence of excess capacity. Due to shortage of capital, skilled manpower, technology and
market there is under utilization of resources i.e. most sectors produce below their optimum.
 Mixed economy. Uganda‟s economy is characterized by mixed economic systems, both
government and private enterprises take part in resource allocation.
 High population growth rate. Uganda has one of the highest population growth rates in the
world in excess of 3% per annum. This has tended to outstrip the GNP growth rate leading to
falling per capita income and standard of living.
 Poor infrastructure. Uganda‟s infrastructure is poorly developed and not well maintained, the
roads are in bad state and much of railway network is not in use, Busoga line is almost completed
by thieves while the Pakwach and Kasese lines have not been in use for nearly a quarter of a
century.
 Open economy. Uganda like other economies of the world is open. She interacts with other
countries through international trade; she exports mainly agricultural products and imports
manufactured consumer and capital goods.
 High level of dependence. Uganda is highly dependent. It relies on other countries for decision
and finance. In field of trade it relies on a few countries for her exports and just few
commodities. It is also technologically dependent. It relies on technology from advanced
countries.
 High level of illiteracy. Uganda‟s labour force is largely semi-skilled and unskilled and bulk of
the population is illiterate.
Implications of the structure on the economy.

 Income inequality. Due to wide spread unemployment, majority of people have low income. In
addition, the existence of subsistence sector worsens inequality because those in modern sector
have higher income than those in the traditional sector.
 Price instability. Due to dominance of agriculture which is dependent on weather, there are wide
fluctuations of price and incomes of people employed in it.
 Shortage of skilled labour. Due to high level of illiteracy there is low supply of skilled labour
force.
 Scarcity of foreign exchange. Due to dependence on agricultural exports which face unfavorable
terms of trade, there is low foreign exchange earned from exports.
 Under utilization of resources. Due to dominance of agriculture there is low income leading to
low taxable capacity. This leads to low tax revenue.
 Profit repatriation. Uganda depends on foreign multinational corporations for investment. These

ONO Econ 97
 foreign investors prefer investing the profits in their home countries. This limits capital
accumulation in the country.
 Low level of investment. Due to poor infrastructure, investment is discouraged leading to low
level of economic activities, low employment and low incomes.
 Unfavourable terms of trade. Due to dependence on agricultural products whose prices are on
downward trend in the world market, and importation of expensive manufactured goods, the
country faces B.O.P. problem.
 Population explosion. Due to high population growth rate the country faces population explosion
leading to high dependence burden and budget deficit as the government struggles to meet the
needs of the rising population.
 Low incomes. Due to dominance of agricultural activities, incomes of the people are low.
 Strong foreign influence. Due to dependence on developed countries for resources, technology
and decision making; there is neo-colonialism and foreign interference in internal affairs of the
country. For instance some of the IMF conditionality is not favourable for the country.
 Existence of social tension. Due to income inequalities and existence of dualism there is social
tension leading to high crime rate.
 Out competing of local firms. Since the economy is open, there is free flow of foreign goods into
the local market. This leads to out competing of domestic firms.
32. (a) Explain the features of the informal sector
(b) Assess the contribution of the informal sector to the economy of your
country.
Informal sector in the intermediate sector that exists between the traditional sector and the modern
sector. In Uganda, this sector has become dominant and rapidly growing. It has the following
features:-
 Urban and sub-urban based. The activities of this sector are usually concentrated in urban and
semi-urban areas. For example the “boda boda” riders, special hire car drivers, tailors, hawkers,
furniture makers, metal fabricators etc.
 Mainly sole proprietorship or family business. It is mainly dominated by individuals who are
self employed.
 Uses mainly local resources. The raw materials used in this sector are got from the country. For
example the furniture makers get timber from local forests, the metal fabricator get scraps from
within. There is limited imported component of their product.
 Produce mainly for local market. The product of the informal sector is meant to satisfy local
demand. They are hardly exported to other countries. In many cases they are aimed at import
substitutions. For example fabrication of exhaust pipes for vehicles in Kisenyi is an evidence of
this.

ONO Econ 98
 Poor or no records are kept. The people engaged in this sector are mainly illiterates and semi-
illiterates. They rarely maintain records of their activities.
 Poor or simple technology is used. The sector mainly employs labour intensive technique of
production using very crude methods. This explains why the quality of the product is low.
 Production is on small scale. Due to poor technology and limited capital, production is usually
on small scale.
 Limited capital input. Because the business is usually sole proprietorship, it depends on limited
family resources to start; it equally lacks collateral security to present to banks for loan. The
capital output ratio is low.
 Employ mainly unskilled and semi-skilled labour force. This sector is mainly a sanctuary of
illiterates, and school drop outs who find themselves in urban areas.
Positive Contributions
 Provision of employment opportunities. The sector absorbs unskilled and semi skilled workers
whose education cannot secure them employment in the formal sector, In Uganda today, the
people engaged in metal fabrications, furniture making, hawking, taxi operation, „boda-boda‟
riding etc, out number those in formal sector and offices. This has led to increased incomes in the
country.
 Promote commercialization of the economy. The product of the informal sector is meant for sell
as opposed to those from the traditional sector. The sector thus helps in transformation of the
economy from subsistence to market.
 Widens consumer choice. Informal sector provide variety of commodities to the local consumers
which increases the range of choices available to them. This improves people‟s welfare.
 Promote fairer distribution of income. By creating many job opportunities, the majority of
people are able to engage in income generating activities. Thus increased incomes for the
majority in the country.
 Saves scarce foreign exchange. The foreign exchange which would have been spent on
importation of certain commodities such as industrial spare parts, furniture etc is saved because
commodities are produced locally in the informal sector.
 Facilitates industrial growth. Numerous small scale industries are started in the informal sector
such as grinding mills, saw mills, etc. These set foundation for industrial growth.
 To some extent contribute revenue to the government. Business in the informal sector pay
taxes to local authorities such as retail trade licenses, parking fee for taxi‟s and „boda boda‟
cycles. These generate government revenue that helps finance public expenditure.
 Promote acquisition of skills. The activities in the informal sector provide practical skills to
school drop outs. Through learning by doing, many Ugandans have acquired practical skills in
welding, carpentry, driving etc.
 Facilitates acquisition of Entrepreneurial Skills. People engaged in the informal sector through

ONO Econ 99
 practice acquire managerial skills as workshop owners, garage owners, retail traders etc. This
helps in identification of opportunities and management of risks. These are essential for increased
investment in the country.
 Production of locally affordable goods. Most of the activities in the informal sector are import
substitution. For example tailors, sofa set makers, welders etc make products which are far
cheaper than imported products. This enables low income earners to acquire basic consumer
goods.
 Facilitates utilization of idle resources. The sector makes use of resources such as metal scraps,
timber etc, thus putting into use what would have been wasted materials.
 Contributes to the country‟s GDP. The output from the informal sector is meant for market.
Many Ugandans get income from metal fabrications, furniture making tailoring etc. These
promote economic growth of the country.
 Promotes technological development. Wide range of grinding mills and spare parts are now
made in Katwe. This has led to development of industrial sector. In turn the sector also provides
markets for agricultural products especially food stuffs.
 Promote inter- sectoral linkages. It produces inputs such as hoes, spades wheelbarrows etc
which are used in the agricultural sector. In turn the sector also provides markets for agricultural
products especially food stuffs.
Negative Contributions
 Encourages under employment and disguised unemployment. The sector is mainly dominated
by labour intensive techniques of production. People are seen to be fully engaged but with very
low output. For example a tailor can spend the whole day on one trouser.
 Low quality output. Due to use of poor technology, the quality of output is very low. For
instance the sofa sets made in this sector appear beautiful but can hardly last for reasonable time.
 Causes public revenue instabilities in the country. The activities in the informal sector cannot
be easily monitored by government due to the fact that they do not maintain records of their
activities. This leads to low revenue to the government.
 Creates high administrative costs. Monitoring the activities in the informal sector is often costly
and difficult due to the fact that some are mobile and change location frequently as in the case of
“boda boda” riders, hawkers etc.
 Encourages duplication of activities. Majority of them are engaged in similar activities which
lead to wasteful competition and low profitability.
 Promote environmental degradation. The activities in the informal sector lead to pollution
especially noise. Environment in Katwe and other suburbs in Kampala are characterized by a lot
of noise from banging metals. There is also poor disposal of wastes that promote environmental
degradation.
 Encourages rural-urban migration. The sector attracts youths from rural areas to move to urban

ONO Econ 100

 areas. This deprives the agricultural sector of energetic labour force hence declining agricultural
productivity.
 Leads to congestion in urban and sub-urban areas. This leads to high crime rate in urban areas.
 Hampers development of the formal sector. They produce cheaper substitutes to the products of
the formal sector thus may stagnate the formal sector.

Question 33. (a) Explain the roles of the private sector in the development of your country.
(b) What are the problems faced by the private sector in your country.
The private sector is that part of the economy where economic activities are undertaken by private
individuals mainly with the objective of maximizing profits. It is mainly composed of the informal
sector, agricultural producers, and civic organizations like NGOs. The private sector performs the
following roles in Uganda:-

 Provision of employment opportunities. A considerable portion of Uganda‟s labour force is engaged in

the private sector. There are many people engaged in the informal sector where they are self employed.
In addition there are private small scale and large scale industries which have created job opportunities.
 Generation of government revenue. The income generated from the private activities is taxed. This
helps raise revenue necessary to finance public expenditure.
 Encourages competition. Since there are many private firms engaged in similar activities, there is
improvement in the quality of outputs. This improves the welfare of the consumers.
 Promotes equitable distribution of income. Since the private sector is mainly labour intensive as
evidenced in the informal sector and private farming activities, equitable distribution of income is
achieved through employment creation.
 Promotes industrialization. The private sector encourages setting up of private industries both small
scale and large scale under the umbrella of Uganda Manufacturer‟s Association (UMA) and Uganda
small scale industries Association (USSIA).
 Improved standard of living. Through increased output, employment and income of the population, the
standard of living of the population is improved.
 Provision of skills. People self employed in the informal sector acquire skills through apprenticeship.
They learn by doing which lead to acquisition of practical skills.
 Promotes economic development. The competition in the private sector encourages innovations and
inventions in the various sectors of the economy. This leads to increased output of goods and services,
thus economic growth. A big portion of Uganda‟s GDP is from the private sector.
 Leads to acquisition of Entrepreneurship skills. The private sector acts as training ground to local
entrepreneurs in the art of business management. For example prosperous indigenous entrepreneurs
such as Wavamuno have gained experience from the private sector.

ONO Econ 101

 Promotes efficient use of a country‟s resources. The private sector relies mainly on market mechanism
where forces of demand and supply determine resource allocation. This minimizes resource wastage
because only commodities which are demanded will be produced.
Problems faced by the private sector in Uganda.
 High taxation. Due to limited taxes bases, few existing enterprises are highly taxed to raise the badly
needed revenue. This constrains the expansion of the private sector.
 Profit repatriation. Most large scale enterprises in the private sector are owned by foreign multinational
corporations. These prefer to send the profit back to their home countries rather than re-investment in
Uganda. This further stagnates the private sector.
 Limited domestic market. The domestic market is too small due to low incomes. In addition foreign
markets are limited due to poor quality of locally made products and protectionist policies of the MDCs
against the products of LDCs like Uganda. This limits expansion of private sector activities.
 Shortage of capital. Majority of local entrepreneurs lack capital to undertake investment in the private
sector. In addition, they lack assets which they can present to banks as security to obtain loans. This
explains why much of the private sector in Uganda is dominated by the informal sector where people are
under employed and disguisedly unemployment.
 Political instability. The insecurity that goes with long period of civil war has negative effect on the
private sector. For instance the civil war in the North has discouraged private investments in that region.
 High production costs. The cost of production in Uganda is very high because most of the machinery,
spare parts, some raw materials and skilled labour are imported. This reduces the profitability of the
private enterprises.
 Poor infrastructure. The infrastructure in Uganda is not well developed. The existing road network are
in poor state and the railway system is almost non functional. This affects the movement of raw
materials and finished products to market.
 External competition. Due to liberalization policy, the government no longer protects the private sector.
This exposes the private domestic firms to external competition of established low cost firms of the
MDCs.
 Limited supply of entrepreneurs. People with skills to undertake and efficiently manage private
investments are few in Uganda. This results in poor performance and collapse of most enterprises in the
private sector.
 Limited access to research information. Due to shortage of capital the private sector enterprises cannot
afford cost of research. In addition they lack access to vital business information which is desirable for
viability of private enterprises.
 Limited access to credit facilities. Due to informal nature of most of the activities in the private sector,
lending institutions are less willing to lend to them. In addition these private sector enterprises lack
collateral securities that they can present to the banks against the loans.
 Low level of technology. The technology used in the private sector especially in the informal sector is

ONO Econ 102

 poor. This leads to low productivity and low quality output thereby reducing the competitiveness of the
products in the market.
 Low profitability. Uganda‟s economy is still heavily dependent on agriculture. This sector is
characterized by traditional low productivity leading to low output and low profit. This reduces private
incentives to invest in agriculture.
 Poor land tenure system. The system of landownership and use in Uganda does not promote large scale
investments in the agricultural sector. Much of the land is fragmented into small holdings and in most
cases communally owned.
 Conservative colonial mentality. Many people in Uganda still believe in being employed by the
government. This reduces their involvement in the private sector activities.

Question 34. (a) Describe the structure of manufacturing industries in Uganda.

(b) What the implications of such a structure?
o Composition. Majority of these industries are processing industries. They process primary
products for exports. Example includes the cotton ginneries, coffee huller etc. There are a
few manufacturing industries producing mainly consumer goods e.g. textile mills.
o Location. Majority of these industries are urban based in the few large towns of Kampala
and Jinja. In terms of distribution, they are concentrated in Southern part of the country as
opposed to the North, East and West.
o Size. Majority of these industries are small scale industries such as cereal grinding mill, saw
mills, bakeries etc. There are a few medium scale and large scale industries such as sugar
mills, textile mills, breweries etc.
o Nature of technology used. Majority of small scale industries use labour intensive
technology while large scale industries tend to use capital intensive technology.
o Contribution to GDP. The industries still contribute a small percentage of the total GDP.
At present Uganda‟s industries contribute about 15% of GDP and the percentage is
increasing.
o Contribution to employment. The industries have very small capacity to employ. The
large scale industries use majorly capital intensive technology. Small scale industries
mainly use semi skilled and unskilled labour.
o Ownership. Most of the small scale industries such as grinding mills are owned by
indigenous people. Medium and large scale industries are owned by foreigners though the
government has shares in some of them.
o Capacity utilization. Majority of these industries operate at excess capacity due to
structural rigidities in the economy. Those that process agricultural products have periods
of idleness due to seasonal nature of agriculture. Others have interruptions caused by power
shortages and delayed delivery of imported raw materials.
o Nature of output. The outputs of these industries are of low quality, this causes problem of
marketability.

ONO Econ 103

o Markets. Majority of these industries produce for local market. There are few such as fish
packers that produce for export.
o Raw materials used. Most of these industries depend on agricultural raw materials which
are got locally. However, others use imported raw materials.
Positive implications
 Promote self reliance. Since the majority of these industries more especially small scale industries use
local raw materials from the agricultural sector they promote development of agricultural industries.
This makes an economy self-reliant.
 Provision of employment industries. Since the majority of these industries especially the small scale
use labour intensive techniques, they promote generation of employment opportunities.
 Save scarce foreign exchange. Most of these industries are import substitution industries. They produce
locally what used to be imported. This saves the country scarce foreign exchange that would have been
spent on importation of the same commodities.
 Small scale industries require limited skilled labour. Majority of small scale industries in the formal
sector do not need highly skilled manpower. This saves the country the need for expatriates because
they make use of locally available semi-skilled and unskilled labour.
 Small scale industries are easy to start. Small scale industries such as bakeries, grinding mills etc
require less capital. This promotes domestic investment.
 Promote inter – sectoral linkages. Since the majority of the industries both small scale and large scale
use agricultural raw materials they facilitate the development of agriculture.
 Small scale industries are suitable due to small market. Uganda like most LDCs is characterized by
low income leading to low aggregate demand. This small market is only suitable for small scale
industries.
Negative implications
 Encourage rural –urban migration. The concentration of these industries in few urban areas, lead to
rural –urban migration and its associated problems.
 Profit repatriation. Since majority of large scale industries are foreign owned, these foreigners prefer to
take the profits back to their home countries rather than invest in the host country. This limits capital
accumulation.
 Lead to environmental degradations. Due to concentrations of these industries in major urban areas of
Kampala and Jinja they pollute the atmosphere and water. The small scale industries in the informal
sector cause noise pollution.
 Promote regional inequalities. Since in terms of location these industries prefer to locate in urban areas,
they promote unbalanced regional development of the economy. Hence, income inequality.
 Inefficiency. Since majority of industries are small scale they cannot enjoy economies of scale. They
operate at high average cost thus low profits.
 Promote capital outflow. Since some industries especially the medium and large scale industries use

ONO Econ 104

 imported raw materials, they encourages foreign exchange outflow which in turn worsens B.O.P. deficit.
 Low output. Since small scale industries mainly use labour intensive technique and using semi skilled
and unskilled labour force, there is low output and high labour costs.
 Vulnerability to natural hazards. Since majority of those industries use agricultural raw materials, they
are affected by natural factors that interrupt their operations.
Qn. 35 (a) Account for increased privatization of public enterprises in your country.
(b) What are the likely effects of this policy to your country?
(a) Examine the problems encountered in the privatization of public enterprises in Uganda
Privatization refers to the selling of government owned corporations to the private sector owners. It is
done for the following reasons:
 To enable firms operate efficiently. Increased competition arising from emergence of several firms will
result into efficiency hence provision of quality goods and services to the public.
 To reduce corruption tendencies which are rampant with the public sector enterprises.
 To reduce unnecessary bureaucracy. State owned enterprises are characterized by bureaucracy in
decision making. This causes delays and inefficiency in business management. Such delays are
eliminated when the enterprises are placed under private management.
 To expand tax base. Since these corporations will operate efficiently under private ownership, the
government will realize more revenue by taxing them.
 To allow government to concentrate on provision of essential services. The burden on the
government to subsidize these corporations will be eliminated and the resources will be diverted to
provision of essential services that promote the welfare of the citizens.
 To attract foreign investors in the country. Since it is foreign multi-national corporations with
resources to buy and efficiently manage there enterprises, more will be attracted into the country. This
leads to increased capital inflow.
 To encourage private initiatives and innovations. Diversity of talents will be attracted into economic
activities leading to creativity.
 To increase resource utilization. Due to increased efficiency, more of the country‟s resources will be
put to effective use.
 To create more job opportunities. As many private firms enter production, in the long run more
employment opportunities will be created.
 To increase domestic output. As many private firms enter production, more output of goods and
services will be produced. This helps reduce domestic inflation and improve BOP position by increasing
exports.
 To meet conditionally of IMF. This international financial institution puts conditions the countries that
benefit from its development fund must meet. Privatization is among the top most conditions in its drive
for private sector led economy.

ONO Econ 105

 Likely positive effects.
 Likely to lead to increased efficiency. The competition arising from entry of many firms will force each
of the firms to operate efficiently, thus improved quality of output.
 Likely to increase employment opportunities. Since the firms will operate at full capacity and new
ones will enter the industry, more jobs are created.
 Likely to increase output. This arises from the fact that many firms will be engaged in economic
activities.
 Likely to reduce burden on government. The government will no longer be required to finance the
operation of these firms. The resources will therefore be concentrated on provision of essential services
for the citizens.
 May reduce corruption and mismanagement of the enterprises. The private owner who has invested
capital in these enterprises will institute strict control measures on the finances of the business.
 Likely to increase government tax revenue. Since the enterprises will be operating efficiently, their
profit level will be high. Thus they will raise more revenue to government through taxation.
 Likely to reduce government budgetary deficit. The government will no longer budget for the running
of these enterprises, thus reducing government expenditure.
 May increase availability of goods and services. Many firms will enter production with variety of
goods and services. This improves the standard of living of the citizens.
 May attract foreign investors into the country. It is the foreign multinational corporations with the
required capital to but these enterprises. Privatization will attract many to come and invest in the
country.
 Likely to increase private sector confidence in the economy. They will no longer fear the risk of
nationalization of their property.
 Likely to reduce government patronage. The political interference in the running of these corporations
will be minimized.
Likely negative effects.
 May promote foreign domination of the economy. The private corporations with capacity to buy and
efficiently run these businesses are foreign owned. This promotes foreign domination of the economy.
 Likely to increase resource outflow. The foreign owners may prefer to repatriate their profits back to
their home countries rather than plough back in the host country. This retard economic growth in the
country.
 May promote income inequality. People with resources to purchase and own these corporations will
continue to amass wealth thereby widening income gap,
 May bring in dubious/scrupulous buyers. Some of these buys are only interested in the assets and may
cause the government losses.
 Likely to increase foreign indebtedness. The process is expensive and the government may be forced

ONO Econ 106

 to borrow in order to finance it, yet little may be realized from selling the enterprises. This will cause
debt burden.
 Likely to promote corruption. People entrusted with selling off the corporations end up selling to
themselves or their relatives and friends
 May lead to death/closure of the enterprises. The private owners are only interested in making profits.
If this objective is not achieved, they may decide to close down.
Problems of privatization process in Uganda.
 Corruption within the privatization unit:
Some of the officials of the privatization unit are not transparent and collude with the
prospective buyers. They end up selling the enterprises to themselves and their relatives.
 Opposition from the public.
The general public has often objected the sale of the assets which has sometimes resulted in
delays in the process as their representatives in parliament sometimes block the transactions.
 Poor Valuation of enterprises:-
The valuation of enterprises as going concerns always results into the assets
being sold cheaply at give away prices leading to losses.
 Poor state of enterprises:-
Due to poor maintenance, the enterprises are dilapidated making it very hard to sell them.
The government incurs heavy expenses to rehabilitate them before they are sold.
 Under developed capital markets:-
Purchasing these enterprises require large capital investment. However, in Uganda the
capital market is not well developed and in most cases non functional. This makes it hard to
sell the enterprises to the general public.
 Political sabotage:-
Opposition politicians sometimes unfairly criticize and block the sale of enterprises just to
frustrate the government and advance their causes.
 Poverty among the nationals:-
Most Ugandans are poor and cannot afford to purchase the enterprises. This forces the
government to sell the enterprises to foreigners thereby increasing the domination of the
economy by foreigners.
 High Cost of the process:-
Privatization is a very costly exercise. The government spends a lot of money to renovate
the enterprises before selling them and to advertise in foreign countries. The returns from
the sales are often much less than the cost of the exercise making the process unjustified.
 Unscrupulous buyers:-

ONO Econ 107

 Some buyers who win the bids to buy the enterprises are not genuine and only interested
in the assets. They end up not paying after taking over the enterprises. This leads to the
death of the enterprises.
 Small domestic markets:-
This discourages potential buyers due to limited potential for expansion.
 Political instability:-
Instability in some parts of the country also discourages potential investors from buying
the enterprises.
 Poor infrastructure:-
Some of these enterprises especially those up country are located in remote areas. This
makes them inaccessible and less attractive to foreign investors.

SECTION A
106. Mention any four structural features of your country‟s economy.
Dominance of subsistence agriculture.
Existence of dualism.
Existence of unemployment and under employed.
Existence of excess capacity.
Mixed economic system.
High population growth rate.
Poor infrastructure.
Open economy.
High level of dependence.
High level of illiteracy.
Poor infrastructure.
Labour force is dominated by unskilled workers.
107. (i) Distinguish between mixed economy and dual economy.
(ii) Mention any two features of economic dualism in your country.
A. (i) Mixed economy is an economy where both the government and private organizations
take part in allocation of resources.
While
Dual economy is an economy with two contradicting sectors where one is superior and
desirable and another is inferior/traditional and undesirable.

ONO Econ 108

(ii) Features of economic dualism.
Subsistence versus commercial sector.
Modern technology versus rudimentary technology/capital intensive and labour intensive.
Barter exchange versus monetary economy.
Formal sector and informal sector.
Rural and urban areas.
The rich and poor.
MDCs versus LDCs.
Small scale and large scale industries.
108. (i) What is meant by the term “economic dependence”.
(ii) Suggest any three measures to reduce economic dependence.
A. (i) Economic dependence refers to the reliance of a country on others for certain
economic decisions and resources for development.
(ii) Measures to reduce dependence.
Increase taxes on imports.
Import substitution industries to reduce reliance on imported inputs.
Agricultural diversification to widen agricultural export base.
Widen market for country‟s export.
Promotion of regional integration.
Educational reforms to emphasis technical education/skills.
Economic reforms through structural adjustment.
Promotion of self reliance.
109. What is the role of informal sector in your country?
Creation of employment opportunities.
Facilities production of locally affordable goods.
Helps conserve foreign exchange which would have been spent on imports.
Provision of cheap training ground for local labour.
Facilitates development of entrepreneurial skills..
Facilitates utilization of idle resources.
Contributes to increase in GNP/economic growth.
To some extent it contributes to government revenue through taxes.
Promotes development of technology in the economy.

ONO Econ 109

 Promotes industrial development though on small scale basis.
Promotes fairer distribution of income by providing employment opportunities.
Promotes commercialization of the economy.
Widens consumer‟s choice by providing variety of goods.
110. Mention any four ways in which your country‟s economy is dependent.
Reliance on imported skilled manpower/expatriates in many sectors of the economy.
Heavy reliance on foreign assistance ie receives aids from donor institution and countries.
Reliance on few countries for export market ie USA and Western Europe.
Dependence on few cash crops for export earnings mainly cotton and coffee.
Dependence on IMF and World Bank for technical advice.
Reliance on foreign investment mainly by multinational corporations.
Reliance on foreign technology/technology transfer.
Financial sector is dominated by foreign owned financial institutions.
Dependence on imported capital goods.

111. (i) what is meant by “economic dualism”.

(ii) State any three examples of economic dualism.
A. (i) Economic dualism refers to the co-existence of two contradicting economic conditions
in an economy one being modern and desirable while the other is traditional and
undesirable.
(ii) Examples of dualism.
Co-existence of modern and traditional sectors.
The poor co-existing with the rich.
Technology dualism ie modern technology and traditional technology/labour intensive and
capital incentive technology.
Subsistence versus commercial sectors.
Exchange dualism ie barter exchange versus money exchange.
International dualism ie LDCs versus MDCs.
112. (i) What is meant by informal sector.
(ii) Give any three features of informal sector.
A. (i) Informal sector is that sector which lies between the traditional pre industrial sector
and the modern industrial sector.

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(ii) Features of informal sector.
Located in urban and semi urban areas.
Produce mainly for local markets.
Use mainly local resources/raw materials.
Mainly organized on sole proprietor basis.
Produce poor quality products.
Poor or no record keeping.
Employ poor technology/labour intensive techniques.
Limited capital is invested.
POPULATION AND LABOUR
Qn. 36 (a) Define the term optimum population.
(b) Examine the implications of increasing populations in an economy.
Optimum population is the population size and structure which is the most suitable and
conducive for the exploitation of the available resources of an economy.
Or
The population size which if labour force is combined with other factors of production,
yields the maximum output per head, i.e. average output per head is maximum.
Positive implications of increasing population.
o Creation of wider market. Increasing population creates demand for goods and services. A
big population size provides big market, provided they are employed and have effective
demand.
o Increased labour force. Labour is derived from population. Increasing population therefore
means increasing labour supply.
o Increased urge of development. The pressure on government to provide basic social and
economic infrastructure will increase leading to provision of more roads, schools, hospitals
etc.
o Increased output. If the increasing population is engaged in economic activities, more
output of goods and services will be realized.
o Increased labour mobility. The population pressure arising from increasing population
accelerates mobility of labour from areas of high population to areas of low population
densities and between jobs, which increases the efficiency and productivity of labour.
o Stimulates investments. The increased consumer demand arising from increasing
population stimulates investment in the economy leading to increased employment
opportunities.
o Increased tax revenue to government. The increasing population means increasing tax
base. As people who can be taxed increase in the country, the government realizes more

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