After the recent visit of british investors to somaliland and the mention of raw minerals and other natural resources of somaliland, I became a bit uneasy about the whole issue.
I have read a lot of books on economics and although I'm not an expert, I would emphatically disagree with the exploitaion of natural resources to develop a nation. I have seen and read about so many countries (especially african) who don't prosper due to corruption, western/european exploitation and mismanagement of said resources and funds. Also, if you know what the "Dutch disease" is you'll know what I'm talking about. I would much rather Somaliland took the alternative and harder option of the successful east asian tigers. A labour-intensive provides a lot of jobs (vastly more than capital-intensive sectors like oil), raise the population out of poverty because of said jobs and incomewhich is easy because Somaliland is not India or China), doesn't need huge amounts of capital or money to kick start. Think about how much money needed to set up a cheap clothing manufacture company compared to a billion-dollar oil refinery or mineral mine.
Labour-intensive or Capital-intensive production?
It is important to distinguish between capital-intensive and labour-intensive methods of production.
Capital-intensive
* ‘Capital’ refers to the equipment, machinery, vehicles and so on that a business uses to make its product or service.
* Capital-intensive processes are those that require a relatively high level of capital investment compared to the labour cost.
* These processes are more likely to be highly automated and to be used to produce on a large scale.
* Capital-intensive production is more likely to be associated with flow production (see below) but any kind of production might require expensive equipment.
* Capital is a long-term investment for most businesses, and the costs of financing, maintaining and depreciating this equipment represents a substantial overhead.
* In order to maximise efficiency, firms want their capital investment to be fully utilised (see notes on capacity utilisation).
* In a capital-intensive process, it can be costly and time-consuming to increase or decrease the scale of production.
Labour-intensive
* ‘Labour’ refers to the people required to carry out a process in a business.
* Labour-intensive processes are those that require a relatively high level of labour compared to capital investment.
* These processes are more likely to be used to produce individual or personalised products, or to produce on a small scale
* The costs of labour are: wages and other benefits, recruitment, training and so on.
* Some flexibility in capacity may be available by use of overtime and temporary staff, or by laying-off workers.
* Long-term growth depends on being able to recruit sufficient suitable staff.
* Labour intensive processes are more likely to be seen in Job production and in smaller-scale enterprises.
Labour intensive - this is where the proportion of labour used in producing the product is relatively high. Labour will usually be used instead of capital.
Capital intensive - this is where techniques are used to produce that use relatively more capital than labour. Many industries are now like this including the car and steel industries.
The technique that a company uses depends on several things:
* the size of the company - small companies are often not in a position to afford expensive capital equipment. Even if they could they are often not able to use it enough to justify the cost.
* the cost of the factors of production - even though a machine may be available to do the job, it may not be worthwhile if the amount of labour required costs less. Firms therefore look carefully at the cost of labour and capital before deciding how much to use.
* the product - some products lend themselves better to being produced by capital than others. Mass-produced everyday items are far more likely to be produced in a capital-intensive way, whereas services and products with a more individual slant are more likely to be produced using a large proportion of labour.
Source;
http://tutor2u.net/business/production/ ... ensive.htm
http://www.bized.co.uk/virtual/cb/facto ... ories3.htm