October 29, 2020

7 Reasons for the Shortage of Capital in West Africa

Reading Time: 3 minutes

This Senior High School Economics lesson is to assist you to identify the reasons why there is shortage of capital in West Africa and other developing countries.

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WASSCE  Economics Questions and Answers (2020)

This Post is Part of a mega WASSCE Economics Questions and Answers Series

Let’s have the points you need to answer WASSCE Economics questions.

This set of tutorials has just one focus. It’s all about WASSCE Economics questions based on causes, reasons or factors accounting for one economic condition or the other in West Africa.

When you get to the end of this one, you must click on the link which will take you to the next or previous related lesson in the series.

Now you can have your answer points to write a good WASSCE Economics essay on as many WASSCE Economics questions as possible.

In the previous WASSCE Economics tutorial, we took an in depth look at the below question.

Summary of previous lesson

7 Reasons Why Natural Resources in West Africa are Under-Utilized.

I have decided to give you a summary of the points under the above topic. Following is a quick look at the points.

  1. Scarcity of capital
  2. Poor or inappropriate technology
  3. Scarcity of skilled and entrepreneurial ability
  4. Inadequate quality and quantity of infrastructural facilities
  5. Political instability
  6. Economic instability
  7. Unfavourable terms of trade on the world market

Now, here comes the main reason why you’re here. You want to know why there is shortage of capital in West Africa.

I’m about to give you the  factors accounting for the shortage of capital in West Africa.

To properly answer WASSCE Economics questions on the reasons for the shortage of capital in developing countries, I urge you to use  the below points.

Note that there are both internal and external factors responsible for the acute shortage of investment capital in places like West Africa.

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Internal Causes or Reasons

Low productivity: This affects export revenue adversely. Also, import revenue is forced to increase. This comes about due to the need to use the limited foreign exchange earnings to purchase the more expensive import commodities to supplement the little produced locally. It is therefore difficult to conserve enough foreign exchange for capital formation.

Low income levels: West African workers generally are unable to save as a result. The low savings make it difficult for the banks to have enough funds to lend as investment capital.


Low tax revenue: There is shortage of capital in West Africa because annual tax revenues are very low. Low productivity and high unemployment rates are two factors responsible for this. Governments cannot save part of the tax revenue which is already inadequate to meet even recurrent expenditure.

Lack of credit facilities: Unlike what happens in developed economies, it is difficult for West African entrepreneurs to access loans from the banks and other designated state institutions.

Corruption: Embezzlement of public funds by corrupt state officials contributes to the shortage of capital in West Africa.

External Causes or Reasons

Unfavourable commodity terms of trade: As a result, export revenue lags behind import expenditure in most West African economies. The perennial balance of payments deficit is largely to blame for shortage of capital in Africa.

Unreliable foreign grants and aids: A large chunk of grants and other inflows promised West African governments by the rich donor countries arrive late or never materialize at all. As budgetary projections are thrown out of gear, conservation of capital for investment is made to take the back seat.

Unfavourable investment climate: The social, political and economic conditions in West Africa tend to scare away foreign investors in particular.

Widespread disease, conflicts and general economic mismanagement in the subregion do not make West Africa an attractive investment destination. The resulting capital flight is largely to blame for the shortage of capital in West Africa.


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Photo by Andrik Langfield on Unsplash

Ralph Nyadzi

Ralph has a passion for the teaching and learning of Language and Literature mainly because these two help him to understand and appreciate why people act the way they do. Over the past two decades, he has coached over 5000 students and adult learners to achieve their educational goals. Ralph is the founder and CEO of Cegast Academy.

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