Past and Present Economical Situation of South Africa - Research Paper Example

? Past and Present Economical Situation (Macroeconomics) of South Africa Overview The history of South Africa began with the development of Hominidae, a human race, about five million years ago with the progress of the species known as Homo. Archaeologists have found evidence that both Homo habilis and Homo erectus settled in southern part of Africa. Moreover, according to the archeological indications it can be affirmed that the modern creatures or rather individuals are living in South Africa for over 100,000 years now. According to most scientists, it can be stated that in this context that Khoisan was possibly the offspring of the people belonging to the Late Stone Age. In the similar context, it has been stated by the scientists that the Late Stone Age people are living in southern part of Africa for a very long period before the blacks or the whites came into being to stay there. Furthermore, it can be stated that according to the evidences provided it can be observed that a sculpture of a rock is created by the Khoisan around 26000 years ago. The introduction of iron changed the African continent completely and it therefore provided a boost in the development of mankind. Agriculture has altered the lifestyle of the African people completely as South Africa largely is an agricultural country. The farming of agricultural lands provided an important aspect in the overall development of African population. Agriculture is a key contributing factor towards the overall economic growth in South Africa (The Early History of South Africa, n.d.). Short History about the Economic Background of South Africa South African economy has been a generally fluctuating economy. In the past few decades, it has witnessed a sustained growth in terms of real per capita income. However, in recent decades noticeable fall in real per capita income was observed primarily due to political instability as well as change in the country. According to the observation of World Bank, it can be idealized that in the middle income nations such as South Africa economic regress can occur as rapidly as economic progress. The global economic environment has been a major influence on the pattern of economic development in South Africa over its historical progression (Fedderke & Simkins, 2006). Figure: Real Per Capita GDP as well as Associated Growth Rate, A Historical Trend in South Africa Source: (Fedderke & Simkins, 2006) In the current context, the economy of South Africa is recovering from the earlier setbacks, but it has been weakened due to certain economic slumps. Moreover, with reference to the current trend of advanced economies, it can be recognized that due to economic setbacks growth has become too low largely due to considerable depression in unemployment. In the related context, it can also be said that according to World Economic Outlook, it can be predicted that there was slump in the economic aspects from the initial part of 2012. Economy in the global context will remain at around 3.3 percent and 3.6 percent in 2012 and 2013 respectively. Productivity is expected to remain sluggish in advanced economies, providing no effect on the emerging markets and developing economies. Moreover, unemployment is likely to stay high in most of the parts in the world, with the financial conditions remaining delicate according to the reports presented by Global Financial Stability Report (GFSR) in October 2012. These factors have an impact on the overall economic scenario in South Africa in the coming years (International Monetary Fund, 2012). Demographics of South Africa Demography is the numerical study of prevailing human populations. It includes the study of the structure, size as well as distribution of varied dimensions of a country’s population which also relates to birth, age and death. The analysis can be incorporated in the context of certain societal or group aspects such as education, nationality and ethnicity among others. The demography of South Africa is estimated on the basis of the statistical information gathered according to the reports of 2011 which states that as of the year 2011, the population of South Africa was projected to be around 50, 59 million. Out of which around 52% of human population is female. Among the town and cities in South Africa, Gauteng encompasses the biggest share of the South African population. The population in the province is around 11, 3 million. KwaZulu- Natal is the second biggest province in the country with a population of 10.8 million. Northern Cape is the smallest province in the country. It has been observed that almost one third of the population is within the age limit of less than 15 years and around 7.7% of the population is in the age limit of 60 years or more. Migration is considered as one of the important elements for determining the structure of age and distribution in the population of the provinces. It has been observed that from the period of 2006-2011, around 215,000 people migrated from the Eastern Cape (Statistics South Africa, 2011). Limpopo is projected to experience a migration of around 14000 people. During that period, Gauteng and Western Cape are assessed to experience an influx of migrants of 367,000 and 95,600 respectively. In the context of life expectancy according to the estimation in 2011, it was 54, 9 years for males and 59, 1 year for females. The rate of infant mortality as estimated in 2011 was 37, 9. The HIV pervasiveness rate estimated on the overall population is around 10.6%. The aggregate of people prevailing with HIV is estimated to be around 5, 38 million in 2011. In the similar context, it is estimated that adult population (HIV positive) aging 15-49 years is around 16.6%. Among children from 0-14 years, new HIV contaminations are estimated to around 63,600. The fecundity has fallen down from an average of 2, 92 children per women in 2001 to 2, 35 children in 2011 (Statistics South Africa, 2011). Gross Domestic Product (GDP) of South Africa The economy of South Africa is the largest in Africa. It accounts for 24% of its Gross domestic Product in terms of Purchasing Power Parity (PPP) and is ranked as an upper-middle income economy by the World Bank, which marks the country among one of the four nations in Africa embodying in the category. On the basis of market prices, the contributions provided by different economic sectors in relation to Gross Domestic Product (GDP) include the manufacturing industry which contributed around 1, 2 % based on the growth rate of 7, 7 percent in the initial stage of 2012. Finance, real estate and business services contributed 0, 9 % point based on the growth rate of 4, 1 %. In relation to government services, it accounted or contributed around 0, 3% point based on the growth rate of 2, 3%. The wholesale and retail industry provided or accounted 0, 4 % on a growth basis of 3,0 %. In case of resources such as transport, storage and communication, it contributed around 0, 2 % point on the basis of growth rate of 2, 5%. It has been observed that the overall GDP rate of the country estimated according to the reports of 2011 was around US$422 billion, on a nominal basis. On the basis of purchasing power parity, it was estimated to be around US$554.6 billion. The structure of the economy on the basis of nominal value includes finance, real estate and business services around 21, 6 %. In relation to general government services, it was estimated to be around 16, 3% in the initial stage of 2012. In relation to wholesale, retail, motor trade and accommodation industry it was estimated around 14, 6 % in the initial stage of 2012 (Statistics South Africa, 2012). Annual GDP growth rate of South Africa is 3.6 % as of the estimation made in 2012 (The International Bank for Reconstruction and Development, 2011). Total Output of South Africa Produces In a Given Year The retrieval in the real economy of South Africa has been wide ranging but even. During the period of 2008, industrial output in the secondary sector remained quite low before economic downturn circumstances occurred while both the primary and tertiary sectors were about 5% above the pre-crisis level. Of the key sectors, only manufacturing and agriculture are yet to improve from their pre-crisis levels. General government services and construction sectors had been performing strongly in terms of generating output in comparison to other sectors since 2008. These sectors have not provided any negative impact in any quarters of the year. Mining, one of the industrial sectors, has been benefited from upper metal prices and improved terms of trade. In this context, it can be stated that in the first quarter of 2011 it lost its growth pace due to wet weather and technical problems affecting production in gold. Different crop production was also unfavorably affected by severe rainfall and irregular flooding, leading to slight fall down in overall level of output after three quarters of double-digit growth (The International Bank for Reconstruction and Development, 2011). Total Output in the Industrial Sector in South Africa Source: (Statistics South Africa, 2012) Unemployment Rate of South Africa- and the Level of Employment South Africa’s difficulty related to ensuring youth unemployment cannot be substantiated without linking with the growth of the country as a whole. Different aspects related to certain changes in the structure had provided an impact on the extraordinary levels of poverty and also in the expansion of equality. Moreover, the trends in the socioeconomic aspects in the country had been influenced a lot due to recessionary downfall in global economy. The deficiency in entrance of lower wage income is the main reason for poverty and growing with different groups of people within the country has promulgated the matter of equality. The economy of the country has been affected on mainly two grounds. Firstly, the truncated participation rates largely influenced the level of poverty on one aspect and on the other hand it hindered in search of jobs for the people of the country. Secondly, high unemployment rates have influenced the economy of the country drastically. Moreover, it has been observed that the unemployment rate of 25% of the country in the fourth quarter of 2010 is stated to be among the biggest in the world. Considerably, unemployment is concentrated in the age limit of 14-35 years. As a matter of fact, the crisis factor in the nation due to unemployment has been observed to be prevalent mostly among the youth of the country (Mayer, 2011). According to the reports presented in 2010, it is observed the people who are working in the country had increased from 1995 to 2010 from 24.2 million to 31.8 million, i.e. an increase of 7.6 million. The statistics depict the employed, the unemployed and who are able and keen to work, the age limit of the people is from 15-64 years. The number of labor force had augmented to 17.2 million in 2010 from a figure of 5.8 million in 1995. Out of which, employed individuals were 12.9 million and 4.3 million remained unemployed. The remaining population comprising 14.5 million were non-economically active, demonstrating lower participation rates. The unemployment rates had risen to 24.9% in 2010 due to additional enhancement of people (Mayer, 2011). It was estimated that the unemployment rate would remain the same in 2011 (Mayer, 2011). In the table below, the aforementioned statements are elaborated. Figure: Labor Market Indicator Source: (Mayer, 2011) The Exchange Rate of South Africa - The Power of Currency The exchange rate of South Africa is inflected by the role of fiscal, monetary and trade policies providing enormous effect on commercial activities as well as shifts in the flow of capital. The exchange rate has a negative impact on the exports facilitating losses to the Reserve Bank which provides a challenge to the policy makers of South Africa for managing flow of capital in the standardized economy. The real exchange rate is regarded as a prime variable in the open economy of South Africa. The level of real exchange rate as well as its stability has significantly affected private investment and exports in South Africa. In the year 1979, it was determined by the Reserve Bank to focus on ‘market-determined exchange rates’. South Africa’s power of currency has certain potential to facilitate the entire African continent in managing the fight for obtaining pertinent resources among the BRICS nations (Aron, Elbadawi & Kahn, 1997). The Business Cycle- The Level of Economic Growth Business cycles are a type of variation that exists in the activities present in the economical context for a country to frame its work process primarily in business organizations. In the similar context, it can be depicted that business cycles comprise growth, slump, retrenchment and restoration that are provided in the cycle of commercial activities in particular (Venter, n.d). In the context of market scenario, due to emergence of markets in response to exports and imports, there were susceptible alterations in the economy of South Africa. It can be supported by citing examples of Russian crisis in 1998 and effect of September 11 in the United States on the economy of South Africa that made drastic effects on the overall economy to a large extent. Moreover, there has been increasing transformation in the business as the years have gone by, providing less volatility and more synchronization in the economy (Botha, 2010). In the context of business cycles of South Africa, different turning points have been observed from the period 1910 to 1949. In the related context, Reserve Bank circulated reference turning points in relation to the business cycle in the year 1970. It has been operated according to the approaches taken by National Bureau of Economic Research (NBER) in the USA. The reference turning points in the business cycle of South Africa are initiated on the basis of certain methods such as ‘composite coincident business cycle indicator’, ‘comprehensive historical diffusion index’, ‘current diffusion index’ and ‘final turning point date’. The composite coincident business cycle indicator is used for evaluating the cycles of business in South Africa. The instrument replicates the activities performed in the economic aspects in relation to production, sales, income and employment (Venter, n.d.). In the present context scenario of business cycle in South Africa, it can be identified that there was rise in the commercial activities in 2007, transcending into a record rise in the business cycle for around 99 months. The composite business cycle indicator reached its lowest point of analysis in 2009 before indicating an upward swing. Decrease in the rate of interests, increase in the consumer prices and wages led to the salvage in the demands of the consumers in the second half of 2009. In context to the reference of lower turning point, which was identified in 2009 for business cycle of South Africa, it persisted for 21 months (Venter, 2011). The economic growth of South Africa was steady without any drastic fluctuations from the year 2001 when the growth was around 2.7%. There was considerable increase in the growth rate in the next 6 years comprising of 3.7, 3.1, 4.9, 5.0, 5.4, and 5.1% respectively. Eventually, there was a significant fall in market growth owing to recession that occurred in the third and fourth quarters in the year 2008 (South Africa: Economy Overview, 2012). Figure: Growth Rate of Real GDP Source: (South Africa: Economy Overview, 2012) Figure: Macroeconomic Indicators Source: (South Africa: Economy Overview, 2012) In the current context, the economy of South Africa was observed to have risen up significantly to 3.1% in 2011, as compared to 2.9% in 2010. However, the growth was anticipated to decrease marginally to 2.8% in 2012 because of ongoing constraints in the structure of global and domestic economy. Moreover, an expansion in GDP to 3.6% in 2013 was projected due to recovery identified in the global context, providing resolution to fiscal crisis which occurred in Eurozone in 2012 (African Economic Outlook, 2012). Consumer Spending Patterns of South Africa Consumer confidence provides an important aspect for the marketers in the economy and is an increasing concern for them. There was an upliftment in the consumer confidence index to around 88 points in the second quarter of 2010 due to the occurrence of World Cup in South Africa which resulted in raised consumer confidence. However, it had dropped by around 3 points in the fourth quarter of 2010. The figures below consumer confidence index for South Africa and worldwide (The Nielsen Company, 2011). Figure: South Africa’s Consumer Confidence Index Source: (The Nielsen Company, 2011) Figure: Consumer Confidence Index Source: (The Nielsen Company, 2011) In recent times, alike global economy in the South African economy as well, due to volatile economic scenario, consumer confidence in the global context remained unstable and consumers remained hesitant to purchase materials from different international markets to make a fashion statement (The Nielsen Company, 2011). Consumers of South Africa aimed extensively on optional strategies for reducing costs for calling purposes and for incurring less expense on food items away from home. They also focused on certain strategies that could enhance their economic conditions by saving gas and other necessary materials and lessening expenses on grocery, clothing and entertainment. Moreover, consumers’ forfeited spending habits to save the expenses in the household activities, gas, electricity and by lessening expenses on clothes and moving to inexpensive brands (The Nielsen Company, 2011). Investment Pattern of South Africa The investment pattern in a country such as South Africa is low. It is due to economic crisis and unemployment that are confronted by the nation, the policy makers are in search of extensive growth in the economic aspects for development. The policy makers are concentrating on aspects that would uplift savings and investments, facilitate use of labor expansively and ensure enhancement of productivity. It has been observed that the country is facing low level of investments and savings are less, employment opportunities to people as well as production are low. The growth in the sector of employment can be enhanced through intensive growth. However, undertaking problems of youth employment would increase productivity, which would eventually raise expansion in the GDP and reduce the burden on investment providing increment in growth. Fixed investments by general government have dropped consequently in randomly nine quarters, 17 % below the pre-crisis level. Despite improvements shown, there has been delay for the investments to get its actual form. Fixed investments had dipped to 19.0% in 2011 from 23.6% in 2008 (The International Bank for Reconstruction and Development, 2011). Government Expenditures of South Africa The government expenditure for the country in 2009-10 and 2010-11 had observed a growth that reinforced payments in the current situations with transfers and subsides. The government revenue is anticipated to be around 27.4% of GDP and the expenditure of government is projected to be nearly 32% of GDP for 2012-13 (African Economic Outlook, 2012). Figure: Public Finances in South Africa Source: (African Economic Outlook, 2012) Net Export of South Africa The net exports of South Africa in the context of economy provide an explanation of different items that entail foods like meats. The country’s net exports were nearly US$39 million in 2011 in comparison to US$72 million in 2010. Export of fishes and seafood products were nearly US$460million in 2011as compared to US$413million in 2010, whereas breakfast cereals export was US$26 million, and exports of processed fruits and vegetables were US$135 million in 2011 (Ntloedibe, 2011). Recommendations to Improve South Africa's Economy The economy of South Africa can be improved through development of infrastructure, industries, telecommunications and circulation of routes for accessing the resources of the country. Enticing Foreign Development Investment (FDI) into the country would help in the growth of economy of the country. If foreign companies are present in the country, it would assist native workers by getting proper training and apprentices. It would result in forming employment and enhancing the productivity of the economy of the country by a large extent (Erepublik, 2012). Policy That May Help To Reduce the Unemployment Rate Different macroeconomists have emphasized that rate of unemployment can be reduced by enhancing the growth rate of aggregate demand. In the similar context, it can be suggested that relationship in between growth rate related to Gross Domestic Product (GDP) and unemployment rate can be identified by the business cycle of the country. Moreover, utmost sustainable employment can provide better efficiency in the economy and can reduce the unemployment rate to a considerable extent. A country should be developed enough to provide all the necessary attributes to its population for maintaining its position in the world economy. Unemployment is the necessary strata which is needed to be restricted and is a worrying factor in the context of development. To restrict worrisome high rate of unemployment, it is necessary to enhance productivity along with creating more jobs especially in developing countries such as South Africa by encouraging entrepreneurship actions and augmenting the level of education among others (OECD Economic Outlook, 2011). References African Economic Outlook. (2012). South Africa. Retrieved from http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/PDF/South%20Africa%20Full%20PDF%20Country%20Note.pdf Aron, J., Elbadawi, I., & Kahn, B. (1997). Determinants of the real exchange rate in South Africa. Retrieved from http://www.csae.ox.ac.uk/resprogs/smmsae/pdfs/smmsae-2002-13.pdf Botha, I. (2010). Modelling the business cycle of South Africa: linear vs. non-linear methods. Retrieved from https://ujdigispace.uj.ac.za/handle/10210/605 Erepublik. (2012). How to improve the economy of developing country? Retrieved from http://www.erepublik.com/en/article/how-to-improve-the-economy-for-developing-country--1739829/1/20 Fedderke, J. & Simkins, C. (2006). Economic growth in South Africa since the late nineteenth century. Retrieved from http://www.commerce.uct.ac.za/economics/staff/jfedderke/documents/2006/ross30.pdf International Monetary Fund. (2012). Coping with high debt and sluggish growth. Retrieved from http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf Mayer, M.J. (2011). Towards a youth employment strategy for South Africa. Retrieved from http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/PDF/DPD%20No28.pdf Ntloedibe, M. (2011). South Africa - republic of food processing ingredients. Retrieved from http://static.globaltrade.net/files/pdf/20120123003839246.pdf OECD Economic Outlook. (2011). Persistence of high unemployment: what risks? What policies? (2011). Retrieved from http://www.oecd.org/eco/economicoutlookanalysisandforecasts/47656668.pdf Statistics South Africa. (2011). Mid-year population estimates 2011. Retrieved from http://www.statssa.gov.za/publications/P0302/P03022011.pdf Statistics South Africa. (2012). Gross domestic product. Retrieved from http://www.statssa.gov.za/publications/P0441/P04411stQuarter2012.pdf South Africa: Economy Overview. (2012). Economic growth. Retrieved from http://www.southafrica.info/business/economy/econoverview.htm#.UNGEY6yPXce The Early History of South Africa. (n.d.). South Africa: the early inhabitants. Retrieved from http://www.inabustours.com/History1.pdf The International Bank for Reconstruction and Development. (2011). Economic update. Retrieved from http://siteresources.worldbank.org/INTSOUTHAFRICA/Resources/SAEU-July_2011_Full_Report.pdf The Nielsen Company. (2011). Nielsen – consumer confidence in South Africa dipped 3 points in fourth quarter of 2010 compared to q3’2010. Retrieved from http://blog.nielsen.com/nielsenwire/wp-content/uploads/2011/02/Nielsen-Q4-2010-CCI-SA.pdf Venter, J.C. (2011). Business cycles in South Africa during the period 2007 to 2009. Retrieved from http://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/4678/Article%20-%20Business%20cycles%20in%20South%20Africa%20during%20the%20period%202007%20to%202009.pdf Venter, J.C. (n.d.). A brief history of business cycle analysis in South Africa. Retrieved from http://www.oecd.org/std/leadingindicatorsandtendencysurveys/34898202.pdf Venter, I. (n.d.). Business cycle analysis in South Africa. Retrieved from http://www.oecd.org/std/leadingindicatorsandtendencysurveys/34905409.pdf Read More