A-level ECONOMICS Paper 2 National and International Economy

A-level ECONOMICS Paper 2 National and International Economy 7136/2 Time allowed: 2 hours [Turn over] INSTRUCTIONS • Use black ink or black ball-point pen. Pencil should only be used for drawing. • Write the information required on the front cover of your answer book. The PAPER REFERENCE is 7136/2. • In SECTION A, answer EITHER Context 1 OR Context 2. • In SECTION B, answer ONE essay. INFORMATION • The marks for questions are shown in brackets. • The maximum mark for this paper is 80. • There are 40 marks for SECTION A and 40 marks for SECTION B. ADVICE • You are advised to spend 1 hour on SECTION A and 1 hour on SECTION B. DO NOT TURN OVER UNTIL TOLD TO DO SO BLANK PAGE SECTION A Answer EITHER Context 1 OR Context 2. EITHER CONTEXT 1 Total for this context: 40 marks INVESTMENT IN AFRICA Study EXTRACTS A, B AND C and then answer ALL parts of Context 1 which follow. [Turn over] EXTRACT A FIGURE 1: Real GDP (US$ bn), selected African nations, 2015–2018 Country 2015 2016 2017 2018 Egypt 250.0 260.9 271.8 286.3 Kenya 52.3 55.4 58.1 61.7 Liberia 2.6 2.6 2.5 2.6 Morocco 113.4 114.6 119.5 123.2 Nigeria 461.8 454.4 458.0 466.9 Source: World Bank, 2020 FIGURE 2: Foreign direct investment (FDI) net inflows (US$ bn), selected African nations, 2015–2018 Country 2015 2016 2017 2018 Egypt 6.9 8.1 7.4 8.1 Kenya 0.6 0.7 1.3 1.6 Liberia 0.2 0.3 0.2 0.1 Morocco 3.3 2.2 2.7 3.5 Nigeria 3.0 4.5 3.5 2.0 Source: World Bank, 2020 [Turn over] EXTRACT B: Foreign direct investment in Africa In 2018, foreign direct investment (FDI) in Africa rose to $46 billion, an 11% increase on the previous year. Morocco and Kenya saw some of the biggest rises in FDI, although many nations in Sub-Saharan and Central Africa experienced falls. Nations with high and stable growth seem better able to attract FDI inflows. It was expected that increased rates of economic growth in Africa, along with progress towards the African Continental Free Trade Area (AfCFTA) agreement and key improvements in infrastructure, would boost FDI. Multinational corporations (MNCs) from developing countries have been expanding their activities in Africa but investors from developed countries remain key. French companies are 5 10 15 20 currently the largest investors in Africa, followed by the Netherlands, the United States and the UK. Africa is a key producer of commodities and with higher demand and rising 25 commodity prices, FDI inflows are expected to increase even further. The growing number of special economic zones (SEZs) are also likely to help Africa attract more FDI. SEZs 30 are areas with relaxed trade rules, little regulation and little or no tax on firms that invest in the zone. This makes locating in a SEZ very appealing to foreign firms. The 35 creation of these zones has helped to promote development in several Asian economies and many African nations hope to make their economies more business-friendly. 40 [Turn over] There are an estimated 237 SEZs in the African continent already. FDI can have many benefits. It should create employment, boost long-run economic growth and increase exports. SEZs and improving competitiveness should contribute to the achievement of key macroeconomic objectives and the development of a country’s economy. 45 50 Source: News reports, 2020 EXTRACT C: Problems for Africa It has been said that ‘investing in Africa is only for the brave’. Some of the issues faced by firms include lack of infrastructure such as poor electricity and transport networks, bureaucracy, political instability and corruption. African nations’ current share of global trade is only around 3%. Since African governments began to use SEZs in the early 1970s, they have failed to attract significant investment, to promote exports, or to create sustainable industrial development. SEZs create distortions in markets, with too much focus on short-term gains. Often, conflicts of interest occur between host governments and investors. Many MNCs, that have 5 10 15 [Turn over] been attracted to Africa by the SEZs, 20 have been accused of doing little to improve the living standards of the African people. It has been said that they do not create many jobs, they exploit workers and damage the 25 environment. Too often, profits are not reinvested in Africa but distributed to shareholders or invested elsewhere. Some argue that African governments 30 should be doing more to improve the living standards of their citizens, rather than relying on foreign firms. However, high debts, high unemployment rates and low tax 35 revenues often make it difficult for the governments of African nations to develop their economies without investment from abroad. Source: News reports, 2020 BLANK PAGE [Turn over] 0 1 Using the data in EXTRACT A (FIGURE 1), if 2015 is the base year, calculate the index of Egypt’s real GDP in 2018. Give your answer to ONE decimal place. [2 marks]