Question

South Africa is a country with high unemployment rate. Some researchers have suggested that the South African government should adopt expert-led growth policies to address this problem given that increasing exports has the potential to increase productivity. Should the South African government increase its economic openness without government regulation of any kind?

Please help me there. There is an answer to this question in this app. But I cant view it

Answer 1

South Africa is a developing nation that is rich in mineral resources. The country is one of the fastest growing nations in the continent of Africa and is reckoned as one of the favourite destinations for foreign investors.

The macroeconomic variables like poverty and unemployment are higher and are hindering factors that are affecting the growth of South Africa’s GDP. The nation has sought to actively globalise and improve the prospects through inviting foreign trade, investment and technology. The results have been good enough yet need to be channelised for fuller utilisation of resources and reduction in levels of unemployment which will lead to improvement in the per capita income and eventually a rise in the standard of living .

Structurally , South Africa has been a country that has been oscillating between higher levels of open economy and essentially government dominated economic system-however, the burden on the government exchequer has been rising with increasing levels of governmental control over resources and managing a coordinated working between an emerging private sector and essentially government dominated public sector.

The government has been actively seeking to integrate the economy of South Africa with the other countries of the world through removing various barriers –adopting a policy of less regulations thereby striving to make South Africa a favoured destination for FDI or foreign direct investment. This has attracted many international companies ( especially large MNCs or multinational corporations) to invest in South Africa. However, lack of proper and adequate facilities like good banking structure, infrastructure like an efficient network of transport and communication and so on are visible road blocks that are blocking more and more firms from entering the nation for economic purposes.

An open economic policy , especially of higher exports, will lead to a constant flow of foreign income and a surplus balance of payments especially a surplus of trade balance will improve the economic resources of the nations. Higher exports will also have a favourable effect on the country’s exchange rate policy since a surplus balance of trade will mean higher demand for South African domestic currency in the international market. Currently , South Africa exports natural resources like diamonds, metals and machines. The country imports, machines and technology.

A policy of export-led growth with no governmental regulation will lead to expansion of world trade since the demand and supply for South Africa’s goods and services will be determined by their respective elasticities of demand and supply to cater to world needs, and the price mechanism will determine the prices of the nations’ goods and services in the international market.

There will be increased trade relations between countries and a greater coordination between the countries which will result in free transfer of technology especially from the technologically advanced developed nations to , a developing economy – South Africa. This is mutually gainful as advanced economies will benefit from the comparative advantage of importing goods at lower rates from South Africa, while transferring their technology and capital to the technically deficient nation , this will lead to higher growth of income and employment opportunities, eventually leading to economic prosperity particularly for South Africa.

South Africa will attract higher FDI, this will be an accelerator of economic growth , foreign investment whether direct or portfolio means that there will higher levels of investments, productivity and rising efficiency through competition. This will lead to higher levels of employment , rise in income levels, per capita spending and an increase in the aggregate demand on an aggregate level that will lead to rise in the national income as a consequence of this there will be a reduction in poverty and an improvement in human development index indicators like better sanitation, housing facilities, higher literacy levels and so on.

Foreign technology especially for higher priority will fasten the growth of such enterprises which are the basis for the overall growth of the country.

However, a policy of non-regulations by government is detrimental to the economy

A rise in the foreign investment will lead to greater demand for foreign goods which will prove to be an a major hurdle for the development of the domestic industrial sector in South Africa. The domestic companies will not be in a position to efficiently compete with the resource-rich foreign firms, this will lead to lop sided growth and a weaker industrial base for South Africa. The domestic firms will not be able to with stand the foreign competitors, this will lead to higher prices of domestic goods and services and lower profits for domestic companies, including the priority sectors like infrastructure, agriculture and so on.

No Governmental control will lead to high levels of unemployment as the skilled labour will find work while the unskilled labour force will lose jobs aggravating the already existing problem of high levels of unemployment and poverty. This will eventually lead to a situation of deficient demand and low rate of domestic income levels , low levels of capital formation and investment.

Increased dependence on foreign firms and rest of the world sector will through open the South African economy to the volatility of the international market and in the absence of active government intervention , it will lead to severe fluctuations in the domestic prices and output. This will be a highly disastrous consequence for the economy of the country. The situation will lead to higher inequalities of income and wealth thereby slowing down the process of economic growth.

The domestic industries will be faced with takeovers by foreign firms who will utilise the country’s resources in an capitalistic exploitative manner to develop and improve the economic prospects of their own home countries. This will have a catastrophic effect on the foreign exchange rate , with a fall in the demand for South Africa’s goods and services in the international market and a rapid free fall in the country’s exchange rate.

Hence , a policy of a balanced governmental intervention which would enhance the growth of South African economy has to followed. The export led policy should essentially feature governmental protection of priority industries, protection of infant industries, import taxes on essential goods and service.