Introduction The South African government aspires to increase the rate of economic growth within the country. There are various policies which can be implemented over a medium to long-run period to contribute to the growth of the economy in South Africa. The main fields of focus regarding this growth is agriculture, mining and manufacturing.The issues faced within the economyThe South Africa economy faces numerous economic issues. These issues hinder the growth and development of the economy. Effective policies must be developed, however these policies can only be developed after sufficient analysis of the problems faced within the borders of the country.
Economic growth is measured by the Gross Domestic Product, which is an index of a country’s income and expenditure. An ineffective GDP reflects a poor economic system and economic growth. The three primary issues are: Slower growth, rising unemployment and extreme inequality.Slower growth is the prioritized issue as after in-depth analysis reflects this has the most room for improvement within the economy in sectors of mining, agriculture and manufacturing. South Africa’s GDP has declined exponentially since 1965. Due to an increasing population of 2.6% per year, the GDP per capita has experienced a negative correlation to the increase in population.
The lack of growth has been influenced by the political uncertainty and continuous social unrest in the country. More South Africans have invested and saved income, however this has not resulted in the satisfactory and matching economic growth.The policy frameworkThe policies that need to be implemented should meet a set criteria in order to prevent failure and unnecessary expenditure by participants in the economy. The policy should incorporate medium to long term programs and initiatives. The development of a practical framework which can be incorporated by various business enterprises and households together is essential for its success. Careful consideration of which factors play a vital role in economic growth and how to utilize these factors in the most beneficial manner must occur.The policy framework needs to include: The encouragement of rapid growth regarding skilled labour.
Ensuring that semi-skilled and unskilled workers are trained in order to maximize the economic benefits of their skills.Promoting the re-orientation of manufactured products and directing them towards exportation to other countries and further increasing the GDP of the economy in South Africa.The importance of job creation in the fields of small businesses and agriculture. This promotes self-sufficiency and employment in smaller segments, which contribute to the economic growth.
Restructuring plays a vital role with respect to government expenditure. The investment in infrastructure, housing and public services is addressed by targeting the poor and restricting the spending that only occurs in order to meet budgetary targets.Implementing programs which develop rural areas to a degree that is able to experience growth at the same pace as cities and urban districts. This ensures a form of equity and helps to bridge the gap between rich and poor over a long-term within the country. Economic growth policiesThere are five growth policies that the South African economy can implement over a medium term in order to achieve sufficient and improved economic growth. These policies are listed and thereafter discussed further: Improved manufacturing processes, advanced infrastructure and productivity, natural gas implementation, increased exportation and agricultural diversity and transformationsThe improved manufacturing processes comprise of growing the skilled labour force within South Africa. An economy with a skilled labour force has the potential of becoming a competitive manufacturing core which focuses on the fields regarding automotive, machinery and equipment.
South Africa’s manufacturers need to be open to new markets and allocate sufficient resources in place for innovation and productivity.Focus on the advancement in infrastructure and productivity is an effective policy to increase economic growth. There are large sustainability gaps in the provision of consumable water, electricity and basic sanitation in the South African economy. A partnership between public and private sectors is necessary, in order to support the three strategies. The infrastructure expenditure can be improved by 40% in the form of maximizing the usage of existing assets and improving the maintenance of such assets for longer term usage. The development projects with the most effective impact and sufficiently strong management practices, which can act as a catalyst for delivery must be prioritized.
Natural gas implementation comes into play due to the electricity shortages experienced in South Africa. This shortage has hindered the growth due to the lack of greater capacity and supply. Natural gas plants are the more practical route in terms of growth due to the rapid building and implementation of such, the lower capital costs and relatively low carbon footprint, resulting in its environmentally friendly impact.South Africa has highly developed service industries, these industries need to appear appealing to the Sub-Saharan African region as South Africa currently only exports to 2% of this region. There is substantial room for growth with the right investments. The right investments can be regarded as servicing businesses towards the Sub-Saharan region in order to increase the amount of exports provided to these regions.
The government is able to play a role by arranging and promoting regional trade deals to increase the income within the borders of the country.In the construction environment of service exportation there is vast opportunities ranging from design, implementation, construction management and maintenance services. With regard to the exporting of financial services, this can occur by investment in regions which display promising growth rates, these promising attributes can be in the form of wholesalers, retailers, banking industries and insurance companies.
Agricultural diversity and transformations is regarded as one of the most important aspects to consider when improving and increasing economic growth. Due to an increasing population, the average consumption by consumers is rapidly increasing in markets throughout Asia and Sub-Saharan Africa. South Africa displays a promising agricultural growth which is able to triple the country’s agricultural exports by 2030.
Agricultural transformation is a crucial driver of rural growth and development. By implementing this policy 1 in 10 South Africans who are dependent of subsistence farming will reap benefits. However, ensuring this potential is captured, national agriculture will need to reevaluate its agricultural plan regarding improvement in production, productivity and agro-processing (Fin24, 2018).Conclusion The South African economy has great potential to increase the rate of economic growth. However, ensuring all parties who play a vital role, in achieving the increased economic growth, need to work together in a cohesive manner to reap the best results. Government sectors and private sectors should be able to work together rather than compete selfishly in the economy. The policies are realistic and can be achieved over a sufficient 5-10 year period if implemented effectively.
Question 2Introduction The international trade environment is essential for the growth and development of economies in all countries. Without international trade there would be a lack of diversity and skills within the regions of a country. Trade war is a disadvantageous result that occurs when countries become too competitive and protective over their domestic growth. Trade war impacts and precautions are analyzed to provide a deeper understanding of how these situations arise and affect economies due to ineffective government reign.Trade war analysisTrade wars is a term utilized when a country makes the decision to implement tariffs or quotas on the imported goods from another country.
The country which the tariffs are implemented on retaliates with similar forms of tariffs, in order to ensure a form of trade protectionism. As the series of these quotas and tariffs escalate, a trade war occurs and results in the reduction of international trading.A trade war is the result of a country attempting to protect their domestic industry and promote employment creation. It is only a short-term fix as in the long-run the trade war results in greater unemployment and causes a decline in the economic growth for all countries involved. Trade wars promote inflation, this occurs as the price of imported goods increase.
Inflation negatively impacts consumers and hence less consumer income is spent in the economy.The difference between trade wars and trade spatThere are two forms of trade tariff implementation which has an impact on the global and local markets. These two trade tariffs are trade spats and trade wars (UMB Blog | Insights on personal and commercial banking, asset serving and UMB’s culture, 2018).
A trade spat is regarded as a temporary tariff that has minor economic and financial repercussions on the domestic and international market.Trade wars are more dangerous with regard to their impact on the economy and financial markets, they can result in an unfavorable effect on the stock market.The impacts and effects of trade warThe effects of a trade war has an impact on both consumers and business enterprises. When the price of imported goods are increased it causes a ripple effect in the financial markets (The Balance, 2018).
The following results from a trade war:The rise in the prices for imported products have a negative impact as it influences the costs consumers would pay, the price of the good would increase by the same amount as the tariff imposed.For domestic producers, in the short run, there is a beneficial and competitive advantage. Due to the increased tariff of imported goods, the price of domestic goods would be cheaper in comparison.
More locals would find the prices appealing and hence businesses would attract more customers, as the business grows the business would provide more employment.A negative impact of increased import tariffs is experienced by domestic manufacturers who rely solely on imported raw materials. The cost of these materials will increase the expenditure of the business and decrease the profitability of the enterprise. The consequences of the increased tariffs for the industries are raised prices and unemployment. Unemployment may occur if firms want to maintain competitive prices they may need to lay off employees in order to save money in the long run. When excessive cost cutting is no longer sufficient, the business may have to resort to a permanent shut down.
The long-term impacts of a trade war is the hindering of economic growth by promoting greater dismissals. In the current global economy, a trade war has the potential of causing a trade loss of $800 billion (R11 587 040 000 000). Trade wars eventually weaken the domestic industry that was initially aimed to be protected.
Without foreign competition to promote innovation amongst producers, the local quality of goods decline and consumers desire imported goods of better quality. This desire cannot be satisfied due to the high tariffs imposed on foreign trade.The possibility of recession due to trade warsTrade wars have a correlation with recessions which tend go hand in hand. This is due to a trade war having an impact on a global level. An appropriate example is the impact the new American presidency has had on trade policies. Currently the United States of America (USA) has imposed tariffs on eight countries, these countries are Canada, India, European Union, Mexico, Norway, Switzerland, China and Russia.
The countries have retaliated by filing formal complaints with the World Trade Organization. If these trade spats continue to build up and they will contribute to the likeliness of a trade war and ultimately recession in the USA. Any global trade confrontation would push the economies of the world to the brink of a recession.
A recession can occur if a cycle of the following occurs:Businesses start to account for higher costs due to the increased tariffs imposed external parties.Due to increased costs, business enterprises may no longer be able to afford to import materials required for the production of their goods.Confidence between executives, households and businesses will experience a decrease as businesses will no longer be able to effectively meet the needs of consumers.Businesses will in turn respond by scaling back on spending.
The uncertainty over trade policies could arise and result in frozen investment decisions by major companies. This could impact enterprises drastically as they may not be able to meet the profit margins in order to remain in the market.Businesses will either close down or move out of the country, this contributes to the unemployment rates increasing.A recession will occur due to the decrease in economic growth rates and confidence as other countries may no longer be willing to investment and hence job opportunities will be scarce. The supply chain disruptions could amplify the trade shock and contribute the result of a recession (Egan, 2018).
Trade wars and the countries affectedThe most iconic trade war to date was the great depression which involved the United States of America, Germany and Canada. In 2018, the USA has been identified as a country that has fueled the fire towards a trade war. The implementation of tariffs and quotas against Mexico, Switzerland and most recently China has resulted in drastic levels of inflation.
America is the largest importer of steel, President Trump implemented a 25% tariff on steel imports and 10% tariff on aluminum on Canada. A trade war can be initiated when the cost of steel imports increase, companies which rely on the steel industry experience profitability declines. Profitability decreases result in unemployment as mentioned above.
USA stands to lose 2.6 million jobs if a trade war were to occur.From a business perspective, the appropriate actions to ensure shareholders remain happy is to ensure the costs are passed onto consumers. Ultimately the costs and repercussions of a trade wars outweigh the benefits.
China has been on the receiving end of the most recent imposed tariffs by the USA. As a retaliation plan of action, China has implemented an economic reform plan to become less reliant on exports.A trade war is a result of countries implementing tariffs on the most demanded imported goods from another country. This has a negative impact of causing more losses for the country imposing the tariffs.ConclusionTrade wars are detrimental to more than the parties involved. There is never a winner in cases of trade wars but there are always casualties. Effective and unselfish political reign can avoid trade wars.
Each country aims to maximize economic growth and development however this can only be achieved by maintaining a balance between domestic and international trading policies. Countries need to be open to the idea of compromise in order to reach the maximum potential of growth within the borders of their own country.